UNIT 1 – ECONOMICS & REAL-WORLD CHALLENGES

APPLIED
ECONOMICS
MODULE 1: Overview of Applied Economics
 Applied
Economics
The Application of Economic
theories and models in real
life.
 Scarcity, Needs,
and Wants
Economics means the efficient
allocation of available
resources.
 Opportunity
Cost
The benefit you give up
because you choose to
take one action in favor of
another.
 Comparative
Advantage
Defined as having the ability or
capacity to produce more
output compared another
entity.
Comparative
Advantage
It means having a lower
opportunity cost.
 What to produce?
This question relates to
resources.
How much to produce?
Such as how much to invest.
For whom to produce?
Distribution and consumption
of goods and services.
 There are four main
factors of production
used to create an
output in the economy,
namely: land, capital,
labor, and
entrepreneurship.
Land – This represents land and
similar natural resources
available such as farms and
agricultural land.
Labor – human capital such as
workers and employees.
Capital – Assets such as
production facilities.
Entrepreneurship – referred to
as enterprise.
Production Possibility
Frontier
The allocation of
resources and factors
of production.
Methods Used
in Economics
Qualitative
Analysis
vs.
Quantitative
Analysis
 Qualitative
Also known as Descriptive
Analysis.
It also describes how one
variable affects the other.
 Quantitative
It involves mathematical
and statistical analysis of
economic data.
 The following are
qualitative and
quantitative tools used
in the study of
economics:
Economic Variables
Important in explaining and
understanding economic
theories or models.
It can be change and not.
Economic Variables

Variable Cost
It changes depending on
the quantity or volume of
output.
Economic Variables
Fixed Cost
It is constant regardless
of the increase or
decrease in quantity.
 Functions
Explains the relationship between
two or more economic variable
D = f(P)
Demand is a function of price
“price of commodities determines
the quantity demanded”
Economic Equation
It is a mathematical expression of
an economic thought or concept.
It is often used to further explain
economic theories and models.
Economic Equation
Y = C + I G + Xn
Y = C + I G (X – M)
Y = f(C,I,G,X,M)
Y = national income
C = consumption
I = investment
G = government expenditure
X = efforts
M = import
Xn = net exports
 Graph
A visual representation of
the relationship between
two or more economic
variables.
Economic Theories
and
Models
Economic Theories
These are statement or observations on the
relationship of variables.
They provide a broader understanding of
economic concepts through behavioral
observations and research.
Economic Theories
Marginal Utility Theory
It is an example of an
economic theory.
It states that people buy goods
that give the highest personal
satisfaction.
Economic Models
The representations of
economic and social phenomena
analyzed using research,
observations, and testing.
The circular flow diagram is an
example of an economic model.
Time-series Data
vs.
Cross-sectional
Data
 Time-series Data
It means that data are collected
for particular element(s) for
several time periods.
Consensus is conducted every
five years to gather information
about the population.
Cross-sectional Data
Data include different variables for
a single-time period.
The demographic information of
the Philippines from the most
recent census.
It compares the age, gender,
income level, and etc.
 In judgment,
economics can be
categorized into either
normative or positive
economics
Normative Economics
Vs.
Positive Economics
Normative Economics
Evaluates economic
decisions, policies, or
outcomes as good or
bad.
It is based on opinion.
 Main
Branches of
Economics
Microeconomics
Branch of Economics that
examines the individual or
company level. It deals with
households and firm, such as
buying behavior of
consumers and profit-
maximizing behavior of
sellers.
Microeconomics
Microeconomic topics
largely focus on the concept
of law of supply and demand.
 Microeconomics
Utility refers to the value or
satisfaction derived from the
consumption of a good.
Microeconomics
Marginal Utility it is the
additional utility or satisfaction
from the consumption of an
additional unit of good,
keeping other things constant.
 Microeconomics
Quantity Marginal utility Total utility
1 Php220 220
2 Php200 420
3 Php160 580
4 Php100 680
5 0 680
 Microeconomics
Using the graph it will
illustrate the relationship of
quantity consumed and
marginal utility.
Microeconomics
Upward sloping utility
curve
Illustrate the positive
relationship between utility
and quantity.
Microeconomics
Indifference curve
The consumer behavior of not
being affected by the quantity
consumed of a good in favor
of another.
Microeconomics
Indifference map

Shows a group of
indifference curves.
Microeconomics
Budget line
Which represents the income
constraints of consumers.
“how much of each good will you
be able to buy given a budget of
Php300.
Microeconomics
Equilibrium position

Represented by the tangency point

of the budget line with the highest
indifference.
Tangent means touching rather than
passing through.
Microeconomics
Budget
Is a board term used to
illustrate income
constraints.
Microeconomics
Disposable income
Is the income after
taxes.
Discretionary income
Is the income left from
disposable income.
Microeconomics
Disposable income = gross
income – Income taxes

Discretionary income =
disposable income – nontax
expenses
Microeconomics
Studies the aggregate or
country level. The
frameworks focus on the
effect on a larger scale, such
as GDP, inflation, and
interest rate.
 GDP
GROSS DOMESTICS
PRODUCT
Is defined as the total value of
final goods and services
consumed during a given period.
 GDP
GDP growth or the rate of
increased in GDP value
from one period to
another, which is
expressed as a percentage.
 GDP
All final goods that are
produced within the country
are included in the GDP.
This means that output or
products by multinational
companies in the Philippines
are factored in.
 GDP
Nonproduction transactions
are excluded in the GDP.

SSS, stocks, etc.

 GDP
GROSS NATIONAL
PRODUCT
Products by Filipinos
abroad.

GDP = GNI
Y = C + I + G (X – M)
= GDP
Y = national income
C = consumption
I = investment
G = government expenditure
X = efforts
M = import
Xn = net exports
 Example
On page 16, find the GDP
given the following
constraints.
 Nominal GDP is derived
when the value of goods is
expressed in current prices
while real GDP is adjusted
for inflation
 Inflation
Refers to the persistent rise
in price levels of goods and
services. It is means through
the rise and fall of the
purchasing power of the
domestic currency.