LESSON 1:

Economics as Social
Science
and Applied Science in
Terms of Nature and
Scope
APPLIED ECONOMICS
 WA
NEEDS NT
S
 A. List four examples of NEEDS and WANTS below

NEEDS WANTS
1. 1.
2. 2.
3. 3.
4. 4.

B. List four examples of GOODS and SERVICES below

NEEDS WANTS
1. 1.
2. 2.
3. 3.
4. 4.
ECONOMICS AS A SOCIAL SCIENCE
Social science is defined as the study or discipline that aims to explain human
behavior and society. It is a study of society or parts of it that utilizes the
scientific method of observation, hypothesis formulation, testing and
experimentation.

Economics is a social science because it tries to understand how members of a

society behave and organize themselves to meet their individual and
communal material needs and desires. It explains how the unlimited demands
and desire of man or consumer is given satisfaction by the goods and services
produced using the limited economics resources available in the country.
ECONOMICS AS AN APPLIED
SCIENCE
Applied science is the discipline that utilizes scientific knowledge to develop practical
solutions to society’s problems.

Economics uses theories to help come up with answers when analyzing a certain
situation. When you put these theories into action by trying things out, you are actually
applying these ideas and bringing them into practice. Simply put, when economic
principles and theories are applied to real-life situations, and outcomes are predicted
because of this, then economics has been applied.
Applied economics is thus the study or economics relative to real-life situations. This is
done by observing how theories work in practice. Applied economics usually deals with
numbers on which possible outcomes being reviewed are based and supported.
COMMON TERMS IN THE DEFINITION OF
ECONOMICS
Scarcity: is a situation wherein the amount of something available is
insufficient to satisfy the desire for it.
Resources: labor, capital, land, and entrepreneurship that are used to produce
goods and services also known as factors of production.
Production: the process of combining inputs to make something for
consumption. It is the act of creating output.
Output: a good or services which has value and contributes to the utility of
individuals.
Distribution: the allocation of the total product among members of society.
Consumption: the use of a good or service
WHY STUDY ECONOMICS?
I. To learn a way of thinking: It helps you understand how
people make decisions.
− Economics has three fundamental concepts:
Opportunity cost: the best alternative that people forego, or
give up, when making a choice or decision
Marginalism: the process of analyzing the additional costs or
benefit arising from a choice or decision
Efficient Markets: a market in which profit opportunities are
eliminated almost instantaneously
WHY STUDY ECONOMICS?
II. To understand society: It helps you
understand how people interact with each other.
• Trade can make everyone better off.
• Markets are usually a good way to organize
economic activity.
• Governments can sometimes improve economic
outcomes.
WHY STUDY ECONOMICS?
III. To understand global affairs and be an informed
citizen: It helps you understand the forces and trends
that affect how the economy as a whole.
− The standard of living depends on a country’s
production.
− Prices rise when the government prints too much
money.
− Society faces a short-run tradeoff between inflation
and unemployment
SCOPE OF ECONOMICS
There are two scope of economics
1. Macroeconomics
− It looks at the economy as a whole and
examines the factors that determine national
output or product.
− It looks at the big picture such as growth,
employment, etc., and choices are made by large
groups (like countries)
SCOPE OF ECONOMICS
2. Microeconomics
− It deals with the functioning of individual
industries and the behavior of individual
economic decision-making units such as
firms and household.
− It looks on how do individuals make
economic decisions and unemployment
METHODS OF
ECONOMICS
There are two methods of economics
1. Positive Economics: focuses on causes and effects, behavior
relationships, and facts involved in the evolution and development of
economic theories. Often called “what is” economics.
• Descriptive economics: the compilation of data that describe
phenomena and facts
• Economic theory: set of related statements about cause and effect.
2. Normative Economics: expresses value or judgements about economic
fairness or what the outcome of the economy ought to be. Often called
“what should be” economics.
WHY ECONOMISTS DISAGREE?
In some cases, the disagreement may be positive
in nature because our knowledge of the economy
is imperfect, and certain facts are in dispute.
In most cases, the disagreement is normative in
nature because while the facts may not be in
dispute, differing values of economists lead them
to dissimilar conclusions about what should be
done.