MODULE 2:

BASIC
ECONOMIC
P ROBLE M S
“Economics is the science
which studies human
behaviour as a relationship
between ends and scarce
resources which have
alternative uses” Lionel
Charles Robbins (1935)-
was a British economist
and prominent member of
the economics department
at the London School of
Economics
 APPLIED ECONOMICS

Its application to contemporary economic issues facing the Filipino entrepreneurs such
as prices of commodities, minimum wage, rent and taxes.

Applied economics is the field of study that deals with applying economic theories
in real-world scenarios. In the applied version of economics, the conclusions
derived from the theoretical analysis are utilized to make complex economic terms
and situations easy to understand for the information seekers or recipients.

Example: When Corn crop production increases the farmers decrease the price of
the crop so that they can sell off their produce. If the supply is too high then the
demand i.e. the amount of corn needed to feed the people of the Country, the
produce had to be wasted and farmers lose their cost of production.
There are two branches of econometrics:
 theoretical econometrics
Theoretical econometricians investigate the
properties of existing statistical tests and procedures
for estimating unknowns in the model. They also
seek to develop new statistical procedures that are
valid (or robust) despite the peculiarities of
economic data—such as their tendency to change
simultaneously.
 Applied econometrics.

Applied econometrics analyzes these metric points and figures

out what they mean to governments, businesses, and
economic systems. They can then make policy or process
changes to effect a positive outcome or lessen the impact of a
foreseeable negative event or condition. For example, an
applied econometrist might compare a country's unemployment
rate and its average household income over the course of a
five-year period.
Three standard uses of econometrics are:
 to develop models of the economy,
 to test models' accuracy in predicting population
parameters
 to contribute to society through those models.

APPLIED SCIENCE
the discipline dealing with the art or science of
applying scientific knowledge to practical problems
The following are some of the reasons why applying economics
theories to current economics conditions can be helpful:
 It allows for the true of the situation to be revealed
 It assists in determining the measures that need to be taken to boost
the current economic situation
 It aids in preventing the occurrence of a negative circumstance, or at
the very least minimizing its effect

Scarcity is the root cause of all economic problems. Because of

this, individuals and nations should:
 Decide on how they use their available resources
 They should also produce goods and services based on their needs
 Make use of your resources to produce essential goods for
survival, particularly during this pandemic time
 Learn to appreciate your resources and use it to benefit
mankind

The following issues confronts every economic system are:

1. What to produce- What is the desire of the people? Goods and
services to be produced should be based on the needs of the
people.
EX. Production of Rice

2. How to produce?- What are the resources to be used? What is

the amount of labor required to produce the required quantity?
Quality should come first before quantity.
3. To whom are products and services to be produced for? What is the
method of distribution of goods among consumers? Goods are produced
to meet people’s immediate needs. How much is produced for our
essential needs and how much is produced for our wants.

There are two additional issues relating to resource distribution and

economic development.

4. Are the country’s resources being put to good use or are some of them
unused and unemployed?- It’s not good to see available is the large
number of people (labor) who are unemployed or have no jobs.
5. 5 is the economy’s ability to produce goods increasing or decreasing
over time?- The goal of increasing productive potential is a universal
one.
 Factors of Production:

•Capital
Inputs •Enterprise
•Land
•Labour
 Turning the inputs into
the provision of services
or manufacturing of
Process goods. Adding Value
 • Consumer Goods:
(tangible)
– Durable
– Non Durable
Outputs
• Capital Goods or
Producer Goods

• Services
(Intangible)
The basic economic problem

Human wants are unlimited but resources are scarce

Example:
Problem 1: Resources are Scarce
Resources (factors of production) are used
up in production of goods and services to
satisfy our wants.

Resources that are not scarce are called free

goods.
Discussion:
What do we all want?

List your top 5 wants

right now and then
we’ll discuss.
Problem 2: Human wants are unlimited

Our wants are without limit and many of them

cannot be satisfied.

This is because there are simply not enough

resources to make all the goods and
services we want and need.
Consumption

Using up goods and services (products) to satisfy

consumers’ needs and wants
 Problem 3: Scare resources
have alternative uses
There is a limited amount of resources such as raw materials,
machines, factories and skilled workers. But there are a number of
different ways in which they can be used.

CHOIC E
E CHOIC

Resource allocation therefore involves deciding how best to use

scarce resources to satisfy as many needs and wants as possible
Choice
Similarly, people and governments only have a limited amount of
money but have many needs and wants to satisfy

$100bn
$100

Food? Entertainment? Defence? Health care?

Roads?
Clothing?
Problem 4: We must
choose which wants to
satisfy
 Defined:
The opportunity cost of a choice is the
value of the best alternative forgone.

= The value of what you have given up.

“If you spent the money on an original iPod

in 2001 on Apple stock ($499), you would have
$14,513.78 today” (2010).
Have you made a choice that had
an alternative recently?
 Opportunity cost
Opportunity cost is the cost of choice

• What would you buy with US$10?

• How should the government spend US$250 million?
(Or, should the government cut taxes by US$250 million?) What
• occupation will you choose when you finish your studies? How
• should a new business invest US$20 million?
• Should we conserve more natural resources?

… and what are the next best alternatives foregone?

UNEMPLOYMENT

6% - October 6.6% -
2014 January 2015

LABOR FORCE SURVEY

•UNEMPLOYMENT
•POVERTY
•POOR QUALITY
OF
INFRASTUCTURE
•INCOME
UNEMPLOYMENT

COMMON CAUSES
• The number of people entering the job market has been
greater than the number of jobs created.
• The rural-urban migration increases due to
employment opportunities.
• May of the unemployed individuals are college
graduates.
RURAL TO URBAN MIGRATION
WHAT CAN BE DONE TO SOLVE
UNEMPLOYMENT PROBLEM?
1. Appropriate economic policies for labor-intensive
industries.
2. Improve the educational system of the country
especially in the rural areas
3. Minimize rural-urban migration by improving the
economic environment in rural areas.
WHAT CAN BE DONE TO SOLVE
UNEMPLOYMENT PROBLEM?
4.Proper coordination between government and the
private sector to solve the problem of job mismatch.
5. Slowing population growth. Philippine growth must
increase faster than the population. Limit the size of
families.
6. Provision of more investment opportunities to
encourage local and international investment.
POVERTY

COMMON CAUSES
• Increase in population
• Increase in the cost of living
• Unemployment
• Income inequality
WHAT CAN BE DONE TO SOLVE THE
POVERTY PROBLEM?
1. Reduce unemployment
2. Appropriate policy on labor income
3. Provision of unemployment benefits for those who
will be unemployed due to natural or man made
calamities.
Ex. Typhoon, Bombing of terrorists,
Earthquake
WHAT CAN BE DONE TO SOLVE THE
POVERTY PROBLEM?
4. Increase social services like education, health
care and food subsidies for sustainable poverty
reduction
Self-
Subsistence Sustainable
existing

5. Appropriate policy on labor income.

POOR QUALITY OF INFRASTRUCTURE

91ST OUT OF 144 COUNTRIES ON

POOR INFRASTRUCTURE
QUALITY

LOST ABOUT $250 BILLION

IN ECONOMIC
GROWTH
WHAT CAN BE DONE TO IMPROVE THE
QUALITY OF INFRASTRUCTURE?
1. The government shall implement fiscal reform
program
2. Continue reform in key sectors- particularly
power, roads and water – to improve cost
recovery, competition, and institutional
credibility and to sharply reduce corruption.
WHAT CAN BE DONE TO IMPROVE THE
QUALITY OF INFRASTRUCTURE?
3.Improving central oversight of the planning and
coordination of investments
4.Focus on investments through public-private
partnerships to achieve faster delivery of service
 INCOME INEQUALITY
• Income is the money that an
individual earned from
work or business received
from investments.
• Income inequality – refers
to the gap in income that
exists between the rich
and the poor
MAJOR CAUSES OF INCOME
INEQUALITY
1. Political culture
“ palakasan” “utang na loob”
Ex. Voting for the wrong person during
election

2. Indirect taxes – poor people shoulder this

taxes like the Value Added Tax – 12%
INCOME INEQUALITY
3. Income Taxes

A little more than minimum wage – 32%

Minimum Wage – No Tax
TA
X
WHAT CAN BE DONE TO SOLVE THE
PROBLEM OF INCOME INEQUALITY
1. Policies to enforce progressive rates of direct
taxation on high wage earners and wealthy
individuals.
2. Direct money transfers and subsidize food programs for
the urban and rural poor
 SOLUTIONS TO INCOME INEQUALITY
3.Direct government policies to
keep the price of basic
commodities low

4. Raise minimum wage

5. Encourage profit sharing

THE FOLLOWING ARE SOME OF THE REASONS WHY APPLYING
ECONOMIC THEORIES TO CURRENT ECONOMIC CONDITIONS
CAN BE HELPFUL
1. It allows for the true image of the situation to be revealed.
2. It assists in determining the measures that need to be taken to boost
the current economic situation.
3. It aids in preventing the occurrence of a negative circumstance or at
the very least minimizing its effect.

Scarci
QUIZ
DIRECTION: Choose the letter of the best answer. Write in a separation
sheet of paper.

Q3- MODULE 2\QUIZ-1.docx

ACTIVITY-ANALYSIS
Q3- MODULE 2\ACTIVITY-ANALYSIS.docx