ECONOMICS AS

APPLIED SCIENCE
AN
LESSON 2
ECONOMICS IS A STUDY OF ECONOMIC ACTIVITIES
OF A MAN. IT IS ONLY CONCERNED WITH THE
WEALTH-GETTING AND WEALTH-USING ACTIVITIES
OF A MAN.

- PROF. MARSHALL
SPECIFIC
OBJECTIVES
• Discuss why economics is an applied
science
• Explain the basic economic problems
• Understand how applied economics work
APPLIED
ECONOMICS
• The term “applied economics” is believed to have started 200 years
ago in the writings of two economists:
JEAN-BAPTISTE SAY JOHN STUART MILL
(1767-1832) (1806-1873)
APPLIED
ECONOMICS
• Applied economics - is the study of economics in relation to real
world situations. It is the application of economic principles and
theories to real situations, and trying to predict what the
outcomes might be.

SIMPLER DEFINITION
• Applied economics – is the study of observing how theories work in
practice.
 WHAT IS THE IMPORTANCE OF APPLIED
ECONOMIC APPLICATION?

1. Applying economics to a company, household or a country

helps sweep aside all attempts to dress up a situation so
that it will appear worse or better than it actually is.
*applied economics becomes a powerful tool to reveal
the true and complete situation in order to
come
up with things to do
 EXAMPL
E
Applied economics can assess the profits of a
certain company
The result can help the executives to do some
strategies in order to boost its sales
 WHAT IS THE IMPORTANCE OF APPLIED
ECONOMIC APPLICATION?

II. Applied economics acts as a mechanism to

determine what steps can reasonably be taken to
improve current economic situation
*to examine each aspect, one can strengthen
areas where performance is weak
EXAMPL
E
• Purchase of goods and services
• Usage of raw materials
• Division of labor within entity (e.g. firm, company,
agency)
 WHAT IS THE IMPORTANCE OF APPLIED
ECONOMIC APPLICATION?

III. Applied economics can teach valuable lessons on

how to avoid the recurrence of a negative situation, or
at least minimize the impact.
*to review what steps were taken to improve and
correct similar situations and continue good
strategies to keep the economy flowing in a
correct direction
ECONOMETRICS
WHAT IS
ECONOMETRICS?
• Econometrics – is the application of statistical and
mathematical theories to economics for the purpose
of:
• Testing hypotheses
• Forecasting future trends

The results of econometric are compared and

contrasted against real life examples.
Theoretical

Econometric
s

Applied
ECONOMETRICS
EXAMPLE Income Spendin
g

Real life application of econometrics would be to study

the hypothesis that as a person’s income increases,
spending increases
BASIC ECONOMIC
PROBLEMS
• Scarcity of means for satisfying various needs is the
central problem of our economic life and it is scarcity that
creates the need to make a choice

• Scarcity and choice go hand in hand

 Pover
t y

Unemploy
Inflation Scarcity ment

Slow
Growth
SCARCIT
Y
• Scarcity- refers to the tension between our
limited resources and our unlimited wants and
needs

Video
BASIC ECONOMIC
PROBLEMS
1. What to produce?
-The system must determine the desires of the people.
-Goods and services must be based on the needs of the
consumers

Factors to consider:
a. Availability of resources
b. Physical environment
c. Customs and traditions of people
BASIC ECONOMIC
PROBLEMS

II. How to produce?

-The system must select the proper combination of
economic resources in producing the right amount of
output

- The quality of output must comes first

before the quantity
BASIC ECONOMIC
PROBLEMS
III. For whom shall the goods and services be produced?
- This has something to do with distribution

- Once the goods are produced, how shall they

be distributed?
 BASIC ECONOMIC
PROBLEMS
IV. Are the country’s resources being utilized or some of
them are lying idle and unemployed?
-When resources are scarce, it is absolutely not right to
keep some of the available ones idle.
-If resources are not fully utilized, the production system is
said to be inefficient
 BASIC ECONOMIC
PROBLEMS
V. Is the economy’s capacity to produce goods growing
or remaining the same overtime?
- To achieve a growth is productive capacity is a universal
objective.
IF YOU ARE THE ECONOMIC PLANNER, HOW
YOU RESOLVE UNEMPLOYMENT?
CAN

• List down your option/s. Discuss.

• ½ crosswise. Due on Friday, July 7
2017