INTRODUCTION

TO APPLIED
ECONOMICS
Specialized Subject
(Accountancy, Business and Management Strand)
(General Academic Strand)
 SUBJECT DESCRIPTION

This course deals with the basic principles of applied

economics, and its application to contemporary economic
issues facing the Filipino entrepreneur such as prices of
commodities, minimum wage, rent, and taxes. It covers an
analysis of industries for identification of potential business
opportunities. The main output of the course is the preparation
of a socioeconomic impact study of a business venture.
 TOPICS

1 Introduction to Applied Economics

4 Industry and Environmental Analysis:
Business Opportunities Identification

03
2 Applied Economics Part 1
5 Socioeconomic Impact Study

3 02Applied Economics Part 2 046 Subject Wrap-Up

 MOST ESSENTIAL LEARNING
COMPETENCIES
The learners…
Woman taking notes about cyber monday purchases
● define basic terms in applied economics
● identify the basic economic problems of the country
● explain how applied economics can be used to solve economic problems
● explain the law of supply and demand, and how equilibrium price and quantity are determined
● discuss and explain factors affecting demand and supply
● compare the prices of commodities and analyze the impact on consumers
● explain market structures (perfect competition, monopoly, oligopoly, and monopolistic competition)
● analyze the effects of contemporary issues such as migration, fluctuations in the exchange rate, oil price
increases, unemployment, peace and order, etc. on the purchasing power of the people
● identify and explain different principles, tools, and techniques in creating a business
● distinguish the different services/products of business and industry in the locality
● Identify and explain the various socioeconomic factors affecting business and industry
● analyze and evaluate the viability of a business and its impact on the community
● formulate recommendations and strategies on how to minimize and maximize a business’s negative impact
and positive impact, respectively
 ECONOMICS AS
SCIENCE
SCIENCE
is the pursuit and application of knowledge and
understanding of the natural and social world
following a systematic methodology based on
evidence. Sciences are either classified under
NATURAL SCIENCE or SOCIAL SCIENCE.

NATURAL SCIENCE SOCIAL SCIENCE

focuses on the study of natural world, natural field of study that relates to human behavior
phenomena, or the occurrence of observable and society. It includes PSYCHOLOGY,
events in the environment. This includes HISTORY, ANTHROPOLOGY and ECONOMICS.
PHYSICS, CHEMISTRY and BIOLOGY.
 ECONOMICS

● Greek word “oekonomia” or “oeconomicus”

interpreted as the “management of household
affairs”

● A social science that explains how the unlimited

demands and desires (wants and needs) of a
man is given satisfaction by the goods and
services produced using the limited economic
resources available.
 MICRO-ECONOMICS
ECONOMICS

● the study of individuals, households and firms'

behavior in decision making and allocation of
resources. It generally applies to markets of
goods and services and deals with individual and
economic issues.
● “ang pag-aaral ng pag-uugali sa paggawa ng
desisyon at paggamit ng mga kayamanan ng
mga indibidwal, sambahayan at mga negosyo.
Ito ay tumutukoy sa merkado ng mga kalakal,
serbisyo, indibidwal na mga isyu at ekonomik na
isyu.”
 MACRO- ECONOMICS
ECONOMICS

● is the branch of economics that studies the

behavior and performance of an economy as a
whole. It focuses on the aggregate changes in
the economy such as unemployment, growth
rate, gross domestic product and inflation.

● “Ito ay isang mahalagang sangay ng ekonomiya

na humaharap sa pagsasakatuparan, istruktura
at pag-uugali ng isang natatanging bansa. Ito ay
isang pag-aaral upang makabuo ng isang
epektibong pagpapasya ng kabuuan ng
ekonomiya. “
ADAM SMITH

- a Scottish economist, philosopher
as well as a moral philosopher, a
pioneer of political economy
-  also known as ''The Father of
Economics'' or ''The Father of
Capitalism''.
- Smith wrote two classic works, 
The Theory of Moral Sentiments
 (1759) and 
An Inquiry into the Nature and Ca
uses of the Wealth of Nations
 (1776).
 LAND

FACTORS
LABOR
OF
PRODUCTION

CAPITAL

ENTREPRENEUR
 LAND
FACTORS OF PRODUCTIONS

- it is defined as everything found

above and underneath the Earth
that is used to produce other
goods.
- These things found above and
underneath the Earth may include
MAN, ANIMALS, MARINE LIFE,
FOREST, MINERAL RESOURCES
etc. It encompasses all NON-
HUMAN gifts of nature.
 LAND
FACTORS OF PRODUCTIONS

- The Republic of the Philippines is a

sovereign state in archipelagic
Southeast Asia, with 7,641 islands
(formerly 7,107) spanning more
than 300,000 square kilometers of
territory.
- It is divided into three island
groups: Luzon, Visayas, and
Mindanao.
 LABOR
FACTORS OF PRODUCTIONS

- refers to the physical and

mental components of
human resources that
contribute to the conversion
of all raw materials into
finished and consumable
goods.
- Labor depends on how skilled
people are. Human skill is
also called HUMAN CAPITAL
in economics.
 LABOR
FACTORS OF PRODUCTIONS

● Employed – employed people are components of

labor force, whose age level is from 15 years old and
above, who are physically and mentally qualified and
are willing to work and contribute to the economy’s
production.
● Unemployed – considered unemployed are
members of the labor force who are qualified to be
employed but there are no demands for their
services, or they themselves are not willing to work.
● Underemployed – people who are qualified for a
higher employment position but over qualified for
their current employment, thus, are receiving lower
salary than what they should be compensated.
Likewise, underemployed are working less number
of hours that resulted also to lower take home pay.
 CAPITAL
FACTORS OF PRODUCTIONS

- as a factor of production, it is
referred to in economics as
finished goods used to
produce other goods.
- Example of this are
MACHINES and EQUIPMENTS
and TOOLS used in industrial
firms to process goods and
commodities.
 CAPITAL
FACTORS OF PRODUCTIONS

● Financial Capital – may also

pertain to cash or money which
investors or businessmen use to
buy assets.
● Physical Capital – These kind of
capital in the form of machines,
equipment and tools are used to
convert raw materials to finished
goods or consumable goods.
ENTREPRENEUR
FACTORS OF PRODUCTIONS

- are part of the human

resource who are experts in
the management of the
production resources or the
factors of production.

- They are the ones responsible

in the proper allocation of the
limited production resources
in order to maximize the
production output.
Basic Types of
Economic Systems
 CAPITALISM
ECONOMIC SYSTEM

● this system is characterized by private

ownership and control of most
resources in order to maximize its
utilization.
● It relies on the decisions made in the
market between the buyer and the seller
with very little or sometimes with no
government intervention. This decision
is also called “laissez faire”, a French
phrase meaning “leave alone” policy.
 CAPITALISM
ECONOMIC SYSTEM

● Under the laissez faire, the buyer and the

seller is not dictated nor controlled by
the government. The price of the goods
or services depends on how much the
seller is willing to sell and how much the
buyer is willing to pay for it.
● Price is determined by quantity of supply
available in the market and demand of
buyers.
 SOCIALISM
ECONOMIC SYSTEM

● an economic system which allows the

government to manage and control the
major and key industries, while the rest
are left for the private to manage or
acquire.
● Nation classified as socialist are
generally democratic with multi-party
political system.
 SOCIALISM
ECONOMIC SYSTEM

● The administration of resources and

decision-making are highly centralized,
meaning, no movement in the economy
can be expected unless there are
directives or policies coming from the
economic authorities, or from the
government.
● Government planners decide what
goods will be produced and also set the
prices at which they are to be sold.
 COMMUNISM
ECONOMIC SYSTEM

● Derived from the French term

“communism”, which means common.
● An economic system in which the
government owns and control the
factors of productions.
● Since it is centrally planned economy,
THERE IS NO PRIVATELY OWNED
COMPANY.
 COMMUNISM
ECONOMIC SYSTEM

● Communism disregards social classes,

thus, communism is referred to as a
“classless society”. It means that people
are neither classified as rich nor poor,
instead they are EQUAL in all aspects.
● Basic principles of communism were
inspired by Karl Marx and Friedrich
Engels in the mid-1800s
 MIXED ECONOMY
ECONOMIC SYSTEM

● characterized by the presence of private

ownership of the different means of
production and the presence of a
government which is in control of the
implementation of the fiscal and
monetary policies.
● The government also intervenes in other
areas of the economy, such as providing
public services such as health,
education, waste management and the
regulation of private business.
 TRADITIONAL
ECONOMY
ECONOMIC SYSTEM

● this system is very common in developing

economies, where decisions are based on
customs, beliefs, and practices handed down
from one generation to another.
● People in developing countries are exposed
and reared to backward culture due to
poverty.
● They are also referred as traditional because
they follow the old ways of producing their
food and other means of their livelihood.
Basic Economic
Problems
and the Socioeconomic
Development
 ECONOMIC
PROBLEMS

- are issues and

concerns in the
economy that needs
to be resolved.
 Scarcity
Economic Problems

● a condition when unlimited demands of

a man exceed the available supply of
production resources needed in
producing goods.
● It exists because human wants and
needs always exceed what can be
produced with the limited resources and
time that nature makes available.
● Scarcity and shortage is not the same.
Scarcity is a fact of life. Shortage is just
temporary.
 INTERNATIONAL MONETARY FUND

- an organization of 190 countries,

working to foster global monetary
cooperation, secure financial 10.9 %
stability, facilitate international
28.9 %
trade, promote high employment
and sustainable economic growth,
and reduce poverty around the
world.
- the IMF classifies the countries in
the world into three broad groups 60.2 %
of economies, The ADVANCED
ECONOMIES, EMERGING MARKET
and DEVELOPING COUNTRIES.
 INTERNATIONAL MONETARY FUND

- The following ECONOMIC

PROBLEMS are considered here
as basic economic problems, and 10.9 %
common in developing countries,
28.9 %
like the Philippines and other
South East Asian Countries:
1. Poverty
2. Unemployment
3. High Population Growth Rate
4. High Cost of Education 60.2 %
5. High Cost of Health Care Services
6. Graft and Corruption
 Poverty
Economic Problems

● a situation where people encounters

difficulty in satisfying their basic need
on a regular basis. Their poverty
category maybe determined by their
threshold income. Because of their
much lower average income, or
extremely low income, most people in
this state lacks money or other material
possessions basic to their survival as
human beings.
 Unemployment
Economic Problems

● a situation where people encounters

difficulty in satisfying their basic need
on a regular basis. Their poverty
category maybe determined by their
threshold income. Because of their
much lower average income, or
extremely low income, most people in
this state lacks money or other material
possessions basic to their survival as
human beings.
 Unemployment
Economic Problems

● Frictional Unemployment – happens when job seekers and employers need time to find each
other. Frictional unemployment also refers to as Turnover unemployment.
● Seasonal Unemployment – this is due to seasonal change in demands in the demand for certain
kinds of labor. Example of these jobs are those related to construction and agriculture.
● Structural Unemployment – the reason for this kind of unemployment attributed to changes in
taste, technology, government policies, and competition. This type of unemployment may also
occur when there is a mismatch between the skill or location requirements of job vacancies and
the present skills or location of members of the labor force. Mismatch Unemployment is another
name for Structural Unemployment.
● Cyclical Unemployment – this unemployment results from changes or fluctuation in economic
activity because of business cycle or different business conditions.
 High Population
Growth Rate
Economic Problems

● a situation where people encounters

difficulty in satisfying their basic need
on a regular basis. Their poverty
category maybe determined by their
threshold income. Because of their
much lower average income, or
extremely low income, most people in
this state lacks money or other material
possessions basic to their survival as
human beings.
 High Cost of
Education
Economic Problems

● a situation where people encounters

difficulty in satisfying their basic need
on a regular basis. Their poverty
category maybe determined by their
threshold income. Because of their
much lower average income, or
extremely low income, most people in
this state lacks money or other material
possessions basic to their survival as
human beings.
 High Cost of Health Care
Services
Economic Problems

● a situation where people encounters

difficulty in satisfying their basic need
on a regular basis. Their poverty
category maybe determined by their
threshold income. Because of their
much lower average income, or
extremely low income, most people in
this state lacks money or other material
possessions basic to their survival as
human beings.
 Graft and Corruption
Economic Problems

● a situation where people encounters

difficulty in satisfying their basic need
on a regular basis. Their poverty
category maybe determined by their
threshold income. Because of their
much lower average income, or
extremely low income, most people in
this state lacks money or other material
possessions basic to their survival as
human beings.