ECONOMICS AS AN

APPLIED SCIENCE
 Economics

- is a study of economic activities of a man.

- . It is only concerned with the
wealth-getting and wealth-using activities
of man”.
 Applied economics
is believed to have started being used
nearly 200 years ago, in the writings of
French economist and businessman Jean-
Baptiste Say (1767-1832) and British political
economist, philosopher and civil servant
John Stuart Mill (1806-1873).
Applied economics

1848
- , Mill used the term in his work
Principles of Political with Some of
their Applications to Social Philosophy
 Need to know about Applied
Economics:
✓ It is the study of economics in relation
to real world situation.
✓ It is the application of economic
principles and theories to real situations.
✓ Predictions of the possible economic
outcomes.
Need to know about Applied Economics:

✓ The study of observing how theories work in

practice.
✓ Deals on the application of economic theories and
principles to real world situations with the desired
aim of predicting potential outcomes.
✓ It is the application of basic assumptions of
economics to real-world situations, both isolated or
interrelated with sets of currents circumstances.
 Importance of applying economic theories:

1. Applying economics to the status of the

economy of a company, a household, or a
country helps to sweep aside all attempts to
dress up the situation so that it will appear
negative or positive effect.
 Importance of applying economic theories:

2. Applied economics acts as a mechanism to

determine what steps can reasonably be taken
to improve the current economic situation.
 Importance of applying economic theories:

3. Applied economics can teach valuable lessons

on hoe to avoid the recurrence of a negative
situation or least minimize the impact.
 What is Econometrics?

It is the application of statistical

and mathematical theories to
economics for the purpose of
testing hypotheses and
forecasting future trends.
Example:

A real-life application such as to

study the hypothesis that as a
person’s income increases,
spending increases.
 Basic Economic Problems:
1. What to Produce? - Goods and services
to be produced are based on the needs of
the consumers. Factors to be considered:
1.1 Availability of resources;
1.2 Physical environment; and
1.3 Customs and traditions.
 Basic Economic Problems:
2. How to Produce? - Equally important is
the system’s task of selecting the proper
combination of economic resources
 Basic Economic Problems:
3. For whom shall goods and services be
produced? - How are the existing pattern
of income distribution can be changed
through government policies.
 Basic Economic Problems:
4. Are the country’s resources being
utilized? - When resources are scarce, it is
not in the rightness of things to keep some
of the available resources idle.
Resources must be properly utilized.
 Basic Economic Problems:
5. Is the economy’s capacity to produce
goods - This is essentially a dynamic
Growing or remaining the same
overtime? problem, the problem of
growth with cycles.