APPLIED

ECONOMICS

ECONOMICS AS SOCIAL SCIENCE AND

APPLIED SCIENCE
ETYMOLOGY

- Greek word “
OIKONOMIA”
- household management
 DEFINITION
FAJARDO
-proper allocation and efficient use of available
resources for the maximum satisfaction of human wants
SAMUELSON
- study how societies use scarce resources to produce
valuable commodities and distribute them among different
people
 DEFINITION
NORRHAUS
- Science of choice because it studies how people choose to
use the scarce resources or limited productive resources
( labor, equipment, technical, knowledge) to produce various
commodities and to distribute these commodities for
consumption.
SICAT
- A scientific study which deals with how
individuals and society in general make choices.
 DEFINITION
CASTILLO
- Study of how man could best allocate and utilize the
scarce resources of society to satisfy his unlimited wants
WEBSTER
- Branch of knowledge that deals with the
production, distribution and consumption of goods
and services.
TO SUMMARIZE THE
DIFFERENT DEFINITIONS….
ECONOMICS deals with how society
allocates and utilize its scarce
resources while choosing the best
alternatives to satisfy man’s unlimited
wants and needs
 IMPORTANCE OF ECONOMICS
TO THE SOCIETY
1. Provides a framework for understanding the
actions and decisions of individuals , businesses and
governments.
2. Provides a means to understand the interactions in
a market-driven society and for analyzing
government policies that affect the families, jobs and
lives of citizens.
https://www.researchgate.net
 THE NATURE OF ECONOMICS
- A science is a body of systematic knowledge
which explains observable phenomena.
- It is a science because it is a systematic body of
knowledge which utilizes the scientific approach in
explaining how society allocates scarce resources
among alternative wants that need to be satisfied.
- It is social because its central subject is man
and how he interacts with other elements of
society.
THE NATURE OF ECONOMICS
*** Considering the nature of economics, it is
not advisable to solve an economic problem
with economic solution alone. Our economic
problems are not purely economics in nature.
These are also created by non-economic
factors like culture, education, social and
political.
TOOLS OF ECONOMICS
Most economists are engaged in analyzing
the present economic situation of the
country. Most of these economists use
different scientific approaches and utilize
different tools to be able to formulate
theories and principles.
 TOOLS OF ECONOMICS
1.Logic - science that deals with sound thinking and
reasoning.
2.Mathematics - is a science that deals with numbers
and their operations. Mathematical equations are used
in economics in arriving at a conclusion.
3.Statistics - is a branch of mathematics that engages
with the analysis and interpretation of numerical data.
It deals with the process of collecting, tabulating and
analyzing data to test the validity of a certain
hypothesis.
 ECONOMIC RESOURCES
Our economic resources are also
known as factors of production or
inputs. These five major factors of
production are utilized in our
economy.
1. LAND
-These resources consist of free gifts of nature which
includes all natural resources above, on and below the
ground such as soil, rivers, lakes, oceans, forests,
mountains, mineral resources and climate.
-Land is considered economic resources because it has
a price attached to it. One cannot utilize this natural
resource without paying for it usually in the form of
rent or lease.
2. LABOR
-Also termed as human resources.
-Refers to all human efforts, be it mental or
physical that help to produce want satisfying
goods and services.
-An indispensable factor in the production of
goods and services which in return, man earns
an income in the form of wages and/or salaries.
3. CAPITAL
-Has two economic definitions as a factor of production.
-Can represent the monetary resources companies use to
purchase natural resources, land and other capital goods.
-Can also represents the major physical assets individuals and
companies use when producing goods or services. These assets
include buildings, production facilities, equipment, vehicles
and other similar items.
-Income derived from capital is called interest.
4. ENTREPRENEURS
-The organizer and coordinator of the other
factors of production: land, labor and
capital.
-One who is engaged in economic
undertakings and provides society with
goods and services it needs.
5. FOREIGN
EXCHANGE
-Refers to the dollar and dollar reserves that the
economy has.
-Part of economic resources because we need foreign
currency, particularly dollars for international trading
and buying of raw materials from other countries.
-Dollar is the international medium of currency used
in engaging business with foreign countries.
ECONOMICS AS AN APPLIED SCIENCE
 IMPORTANCE OF APPLIED
-
ECONOMICS
Applied economics helps us deal with real-world problems by
making the abstract tangible. Understanding abstract theory is
often not enough and it must be tested and put into practice in
order to effectively understand and critique economic concepts.
Consumers, economists and scholars alike can use applied
economic theories to test existing concepts or even come up with
new ones.
- Business leaders and managers can draw on the lessons in
applied economics in order to better avoid potential pitfalls and
make stronger decisions as managers.
- consumers can better understand the prices they are paying for
the products and services they buy . It can help explain why
certain prices rise and fall and why sales occur.
 ASSESSMENT
Directions: A. Write TRUE if the statement is correct and FALSE if the statement is incorrect. Write your answers
in a separate sheet of paper.

_____________1. Economics is social science because it deals with the study of man’s
life and how he interacts with other men.
______________2. Applied economics is an applied science because it deals on the
application of economic theories and principles.
_______________3. Economics, as a social science, is the study of the relations between
people during the production, distribution and consumption of wealth in human
society.
_______________4. Economics is a social science because it deals on the application of
basic assumptions of economics to real-world situations.
_______________5. As an applied science, applied economics deals with the study of
economic principles when they are applied to specific scenarios or situations.
B.
MODULE 2
Utility and
Application of
Applied Economics to
Solve Economic
Issues and Problems
LESSON OBJECTIVES
1. define scarcity;
2. discuss the three economic questions;
3. discuss the commonly used economic system and how it it
used in solving economic problems;
4. analyze the basic economic problems confronting Philippine
economy;
5. analyze basic economic problems and propose solutions to
the problems using the principles of applied economics; and
6. explain the importance of applied economics application in
solving economic issues and problems.
 SCARCITY AND TRADE-OFFS

-Scarcity means that there are not enough resources to

produce as much as goods and services that could
satisfy man’s unlimited wants.
- Scarcity is the fundamental economic problem of
having humans who have wants and needs in a world
of limited resources. It states that society has
insufficient productive resources to fulfill all human
wants and needs.
- Scarcity implies that not all of society’s goals can be
pursued at the same time; trade-offs are made of one
good against others.
 SCARCITY AND TRADE-OFFS

-Trade-offs involves accepting or choosing less

of one thing to get more of something else.
Individuals who choose one good or services
instead of another, or more of one thing and less
of another, are making a trade-off.
Society also makes-trade off e.g. between the
need for more energy and its desire to preserve
the environment. Evaluating trade-offs involves
comparing the costs and benefits of each of the
available alternatives.
EFFICIENCY, CHOICE AND OPPORTUNITY COST
3 concepts related to scarcity
1.Efficiency means that society’s resources are
used in the most effective manner.
2. Choice forces us to choose among available
alternatives
3. Opportunity cost of a good is what the value
of what you give up in order to have that good. It
is the forgone benefit of the next best alternative
when scarce resources are used for one purpose
rather than the other.
 SCARCITY

So because of scarcity, people and

economies must make decisions
over how to allocate their resources.
Economics, in turn, aims to study
why we make these decisions, how
we allocate our resources most
efficiently, making choices and
dealing with opportunity cost.
 1. WHAT TO PRODUCE ?
3 BASIC 2. HOW TO PRODUCE ?
ECONOMIC 3. FOR WHOM SHALL
QUESTIONS GOODS AND SERVICES
BE PRODUCED ?
 3 BASIC ECONOMIC QUESTIONS

1. WHAT TO PRODUCE ?
First main problem of the economy which is
to decide what products and services to
produce and in what quantity. Some factors
to consider are the availability of resources,
physical environment and customs and
traditions of the people.
 3 BASIC ECONOMIC QUESTIONS

2. HOW TO PRODUCE ?
Refers to the economy’s basic problem which
is to decide on how to produce the products.
This involves finding the efficient and
effective technique for the production. What
combinations of resources and technologies
will be used to produce goods and services at
low cost ?
 3 BASIC ECONOMIC QUESTIONS

3. FOR WHOM SHALL GOODS AND

SERVICES BE PRODUCED ?
Refers to the problem on who will receive
the products and services an economy
produces. This question determine the
distribution of goods and services
 ECONOMIC SYSTEM
- Allocation refers to the mechanism of distributing
economic resources in order to solve society’s
fundamental economic problems.
- An economic system refers to the mechanism that a
society can use to answer the questions of what, how
and for whom.
- This is the accepted way of organizing production,
distributing ownership of resources and dealing with
economic transactions in a society. Each economic
system has its own way of providing solutions to the
society’s basic economic problems.
ECONOMIC SYSTEM
- Economic systems differ from each other
in terms of ownership of factors of
production and in the way economic
activities are organized.
ECONOMIC SYSTEM
ECONOMIC Ways of Solving the Fundamental Status of Individual
Economic Problems
SYSTEM in society
Traditiona - Influenced by customs and - Needs of society relies on
traditions what nature could provide
l Economy - Oldest members usually
- Goods gathered by
members of society are
have a major say on what divided among them.
goods to produce & - No formal laws governing
distributed. the society
- Things are done as a
- Methods of production are response to biological and
inherited from the earlier societal needs
generation
ECONOMIC SYSTEM
ECONOMI Status of Individual
Ways of Solving the Fundamental
Economic Problems
C SYSTEM in society
Comman - Government has a centralized - People are free to
system of planning decide whether or
d - Identify the resources needed to not to buy a
Economy produce different goods and particular product
services ( demand is still
- Decides how much workers can based on the
receive in exchange for their
preferences of the
services
individuals )
 ALTERNATIVE ECONOMIC
SYSTEM
Socialist Economy - The government manages the
economic resources for the society. The government
authorities decide how to fully employ resources and
production is not for profit.
Communist Economy - Each person produces
according to his ability and receives according to his
needs. Because all economic resources are owned by
everyone, greed will be eliminated and a formal
government is no longer needed
ECONOMIC SYSTEM
ECONOMIC Ways of Solving the Fundamental
Economic Problems
SYSTEM
Market - Opposite of command
economy, since government
Economy does not interfere in the
workings of the economy.
- Every household and
business firm pursues its
interest freely but in
accordance with the LAW
Status of Individual
in society
- The decision of private
individuals and firms
direct what is to be
done, how to do it, and
for whom it should be
done.
- the 3 fundamental
problems areas solved
without direction from
the government.
ALTERNATIVE ECONOMIC
SYSTEM
Capitalist Economy - The
business firms decide how to
employ the factors of
production and produce goods
and services in a manner that
profit could be gained.
ECONOMIC SYSTEM

ECONOMIC Ways of Solving the Fundamental Economic Status of Individual in

SYSTEM Problems society
Mixed - There has never been a pure - People are
traditional, command or market allowed to own
Econom economy. All economies have private properties.
y different combinations of the
They are free to
characteristics of traditional, command
and market economic systems. Even in engage in lawful
economies where economic activities economic
are largely determined by the market, activities.
the government directs business
activities toward certain industries.
The government also has a role in
maintaining the stability of prices.
 BASIC ECONOMIC PROBLEMS CONFRONTING THE DEVELOPMENT
OF THE PHILIPPINES IN THE 21 ST CENTURY

Typical of a growing economy, in the

21 century, the Philippines is
st

confronted with several issues and

problems which prevent its citizens
from realizing a meaningful life, on
the one hand, and in pushing its
socioeconomic development, on the
other.
 BASIC ECONOMIC PROBLEMS CONFRONTING THE DEVELOPMENT OF
THE PHILIPPINES IN THE 21 S T CENTURY

A sizable proportion of its people have

insufficient resources to afford the basic
goods and services, limited freedom in
their choices of employment and
consumption and a low self-esteem that
weakens its people. Meanwhile, the
quality of human resources, as well as
its inadequate infrastructure are
constraining the economy to grow faster.
 BASIC ECONOMIC PROBLEMS CONFRONTING THE DEVELOPMENT OF THE
PHILIPPINES IN THE 21 ST CENTURY

1.Poverty and Unequal Distribution of Income

2.Increase in Population
3.Low Investment in Human Resource
Development
4.Weak Infrastructure
5.Food Security
6.Slow Adoption of Modern Technology
 1.POVERTY AND UNEQUAL DISTRIBUTION OF
INCOME
Poverty is a restricting condition
experienced by millions of families
that prevents them in attaining the
minimum level of consumption for
subsistence living. There are two
categories of poverty -- absolute
poverty and relative poverty.
There are two categories of poverty :
1.Absolute poverty is the lack of income to
buy the basic food and necessities for
subsistence living.
2.Relative poverty refers to the structure
on how the national income is being
distributed among households in an
economy. The poor households are poor
because their income and other resources
are lower than the income and resources
of other households.
 INTERVENTIONS BEING IMPLEMENTED BY VARIOUS
ECONOMIES INCLUDING THE PHILIPPINES IN ADDRESSING
THE PROBLEM OF POVERTY.
1.For absolute poverty
Immediate and temporary intervention is to
provide free meals, housing & adequate
clothing.
Some economists have suggested that there is a
need to provide resources including credit,
skills and entrepreneurial training and
cash transfers.
 INTERVENTIONS BEING IMPLEMENTED BY VARIOUS
ECONOMIES INCLUDING THE PHILIPPINES IN ADDRESSING
THE PROBLEM OF POVERTY.

2. For relative poverty

 Measures like progressive
taxation, income transfers and
other programs meant to improve
the income distribution can be
implemented.
 .

Unequal distribution of
income or income
inequality refers to the
gap in income that exists
between the rich and the
poor.
 .

Income is the money

that an individual
earned from work or
business received from
investments
 MAJOR CAUSES OF INCOME INEQUALITY IN OUR
COUNTRY

1. Political culture can be considered

as one of the major causes. The
“palakasan” and the “utang na loob” that
cannot be avoided especially after
election. Relatives or friends of someone
in power can have all the chances to get
the position even without or less
knowledge of the position given to them.
 MAJOR CAUSES OF INCOME INEQUALITY IN OUR
COUNTRY

“Utang na loob” is indetebness to

someone who has done someone a
favor. It is an obligation of a person to
repay whatever good things they have
done to you. It may be in the form of
voting for them in the election or do
something for them in return.
 MAJOR CAUSES OF INCOME
INEQUALITY IN OUR COUNTRY
2. Indirect taxes is also one
causes of income inequality.
Indirect tax is a regressive tax
that the poor people shoulder.
The burden of paying higher
taxes like the Value Added Tax.
 MAJOR CAUSES OF INCOME
INEQUALITY IN OUR COUNTRY
3. Income Taxes. A Filipino
worker receiving minimum wage
is exempted in the payment of
income tax, but for those Filipino
workers earning more than the
minimum wage is taxed 20% -
32%.
TAX TABLE
 SAMPLE TAX COMPUTATION
Monthly Salary P 30,000
Less: SSS, Philhealth, Pag-ibig (1,125+600+100) 1,825
Monthly taxable income 28,175
28,175 x 12 months = 338,100 – 250,000 = 88, 100
88,100 x 20 % = 17,620 annual income tax
17,620/ 12 months = 1,468.33 monthly income tax
Total deduction 1,125 + 600 +100+ 1,468.33 = 3,293.33
30,000 – 3,293.33 = P26,706.67 net pay
 FOR UNEQUAL DISTRIBUTION OF INCOME,
THE FOLLOWING ARE SOME SOLUTIONS :
1.Policies to enforce progressive rates of
direct taxation on income and wealth ,
especially at the highest levels.
2.Direct money transfers and subsidize food
programs for the urban and rural poor.
3.Direct government policies to keep the
price of essential products low.
 FOR UNEQUAL DISTRIBUTION OF INCOME,
THE FOLLOWING ARE SOME SOLUTIONS :

4. Reform people’s political culture

5. Raise the minimum wage.
6. Encourage and expand
collective bargaining.
7. Encourage profit sharing
 2. INCREASE IN POPULATION

The population of the Philippines has been

increasing over several decades. Measures in
managing the population growth has been
hotly debated in the recent years because it
has implications on the growth of the
economy, on the one hand, and can infringe
on the religious beliefs of many individuals
on the other hand.
 2. INCREASE IN POPULATION

There are several explanations on the growth

of the population but the economic perspective
uses the economics of childbirth as a basis
of analysis. This interpretation looks at the
benefits and costs of having a child. The
cost-benefit analysis can explain why fertility
rate among women in poor households is
higher compared with better-off households.
 The National Economic and
Development Authority said that the
government will carry out the full and
intensified implementation of the National
Program on Population and Family
Planning (NPPFP), which was approved
by President Rodrigo R. Duterte last
March 4, 2019, during the 35th cabinet
meeting.
 The NPPFP, a major component of the
Responsible Parenthood and
Reproductive Health (RPRH) Law, aims
to reduce unplanned and unwanted
pregnancies by enabling couples and
individuals to attain their desired number
of children within the context of
responsible parenthood.
Among the Plan’s key strategies are
1. strengthened coordination among
agencies;
2. budget increase for family planning
commodities and services;
3.demand-for-family planning
generation activities; financial support
for local government units to conduct
community-based campaigns;
Among the Plan’s key strategies are
4. the creation of a Reproductive
Health Bureau within the
Department of Health; and
5. capacity building activities for
family planning providers, especially
the Commission on Population and
development (CPD).
3. LOW INVESTMENT IN HUMAN RESOURCE DEVELOPMENT

The economic transformation of any

country can be traced to a certain extent
on its human resources. Although the
size of the labor force can have positive
contributions on economic growth, the
quality of human resources has greater
growth impact. A high trained
workforce is highly productive than a
pool of unskilled workers.
 3. LOW INVESTMENT IN HUMAN
RESOURCE DEVELOPMENT
Skills training and investment in
education can shape human capital of a
nation. But modern economies go beyond
formation of human capital and pursue
development of knowledge capital in pushing
their economies forward. Knowledge capital
is formed through heavy investments in
higher education, science and technology
and research and development.
 4. WEAK INFRASTRUCTURE
Many low income countries including
the Philippines have weak infrastructure.
The inadequate infrastructure of a
country has debilitating effects on the
individuals, households, business firms
and economy.
 4. WEAK INFRASTRUCTURE
The major reason for this inadequate
expansion of infrastructure is the insufficient
funds to finance the huge costs of constructing
these things. The government has limited funds
for capital expenditures including infrastructure
projects. The construction should be done by the
government because of their function to provide
public goods and their long gestation period.
 4. WEAK INFRASTRUCTURE
Possible solutions to this problem :
1. borrow from external donors like foreign
countries as well as the World Bank and
other international development agencies.
2. Allow the private sector to engage in the
construction and management of
infrastructure projects through a public-
private partnership
 5. FOOD SECURITY
With more than 100 million people to feed,
the concern of the government is to ensure
food security for all. Uplifting the
productivity of the sector and the income of
the farmers and fisher folk is an important
social objective. A vibrant agriculture has
implications on the poverty reduction and
the development of other economic sectors.
Enhancing the productivity of the agriculture
sector can contribute to the achievement of food
security.
1.by increasing the income of farmers through
various means and cultivating a variety of
agricultural crops
2. by increasing the income of workers in other
economic sectors that will provide sufficient
resources so they can purchase cheaper food
grains sourced anywhere in the region and the
world.
 6. SLOW ADOPTION OF MODERN TECHNOLOGY

The development of the industrial sector

particularly manufacturing and the service
sector should be also pursued to push the
rapid development of the Philippine
economy. One common feature that
prevents economic sectors in realizing
their growth potentials is the slow
adoption of modern technology in their
processes of production and distribution.
6. SLOW ADOPTION OF MODERN TECHNOLOGY

Possible Solution:
- investment in modern equipment
and technology. This can be done
through opening the economy to
foreign players as shown in the
success of the electronics and
automotive industry and the BPOs.
These are but some of the
basic economic issues and
problems confronting the
Philippines in the 21st
century and proposed
solutions using the principles
of applied economics.
IMPORTANCE OF
APPLIED ECONOMICS
EXAMPLE
IMPORTANCE OF
APPLIED ECONOMICS
IMPORTANCE OF
APPLIED ECONOMICS
IMPORTANCE OF APPLIED
ECONOMICS