Applied

Economics
ECONOMICS
• Oikos- household
• Nomos- Management
• HOUSEHOLD MANAGEMENT
• Understanding how household or society
manage/allocates its resources (scarce)
• SCARCITY- the state of being scarce or in short
supply; shortage.
WHY IS THERE A SCARCITY
• According to Thomas Malthus it is because of
POPULATION
• But according to John Stuart Mill, population is
not the reason behind scarcity rather it helps to
sustain/preserve the limited resources.
• BUT HOW?
WHY IS THERE A SCARCITY
• For J.S.Mill, population tends to rise so therefore
scarcity is “natural”.
• He believes that in order to alleviate scarcity, WE
HAVE TO BALANCE AND RIGHTLY
ALLOCATE OUR RESOURCES
• There should be a proper distribution,
production and consumption
ECONOMICS
SO IN SHORT
• Study of what constitutes rational human
behavior to fulfill needs and wants but
considering and understanding how society
should allocates its scarce resources.
HOW DO WE RIGHTLY
ALLOCATE OUR
RESOURCES?
It is by making right decisions
ECONOMICS

Unlimited Make
needs/wants Scarcity
Decision
DO YOU BELIEVE?
• Almost always, human activities involve
economics
• Economics is about making choices
ECONOMICS
There are two branches of ECONOMICS:
• Microeconomics
• Macroeconomics
MICROECONOMICS
• Microeconomics- it deals with the economic
behavior of individuals such as consumers and
producers
• How do they decide what to buy, what to sell, what
to produce etc.
MICROECONOMICS
• It also deals with Price Theory
• A theory that states that the price for a specific
good or service is determined by the
relationship between its supply and demand at
any given point.
MACROECONOMICS
• Macroeconomics- it deals with economic
behavior of the whole economy such as
unemployment, inflation, economic growth etc.
• It is the study of an entire economy.
ECONOMICS
• There are five economic resources:
• Land- Gift of nature
• Labor- Human resources/ man power
• Capital- This includes money
• Entrepreneurship- People who run the business
 End of
Discussion
 Applied
1. What is Economics? Economics
2. What is the
difference between
needs and wants? Recap of
3. What is the Previous Lesson
difference between
scarcity and
shortage?
Economics as Social
Science and Applied
Science
Economics as Social
Science
ECONOMICS as SOCIAL SCIENCE
• Economics is regarded as a social science because it
uses scientific methods to build theories.
• What is a theory?

Often means an untested hunch, or a guess without

supporting evidence.
• BUT… (next page)
ECONOMICS as SOCIAL SCIENCE
• BUT it is a well-explained of an aspect of the
natural world that can incorporate laws,
hypotheses and facts.
ECONOMICS as SOCIAL SCIENCE
• Economics is regarded as a social
science because it uses scientific methods to
build theories that can help explain the behavior
of individuals, groups and organizations.
• Example:
The Law of Diminishing Marginal Utility/ Marginal Theory-
examines the increase in satisfaction consumers gain from
consuming an extra unit of a good
ECONOMICS as SOCIAL SCIENCE
• Do you agree that as you consume a lot of
something you would be less satisfied?
Economics as Applied
Science
ECONOMICS as APPLIED SCIENCE
• Economics is regarded as an applied science, as
opposed to social science, because it is a study of
economics in relation to real world situation.
• Meaning…

It is the application of economic principles and

theories.
ECONOMICS as APPLIED SCIENCE
• In short….

Applied economics is the study of how theories

work in the real world.
• For example: (next page)
ECONOMICS as APPLIED SCIENCE
• Example:
• Econometrics which is the application of statistical and
mathematical theories for the purpose of:
1. testing hypothesis/theories
Example: The Law of Diminishing Marginal Utility
2. predicting future outcome
Example: The pizza parlor will innovate their pizza
TO SUMMARIZE…
• Economic Theory is all about thinking things
up, while Applied Economics is about trying
things out
• Example… (next page)
ECONOMICS
Importance of both:
• It helps assess the economy of the country
• Economic as Social Science helps us understand the
theories
• Economics as Applied Science help us apply the theories
• BOTH help the country maximize its limited resources to
satisfy all the needs and wants of the population to avoid
ECONOMIC PROBLEMS.
 End of
Discussion