APPLIED ECONOMICS
What is ECONOMICS?
- is the study of human efforts to satisfy what
appears to be unlimited and completing wants
through the careful use of relatively scarce
resources
ECONOMICS AS A SOCIAL SCIENCE
- it deals with the behavior of people as they cope
with the fundamental problem of scarcity
- no scientific experiments (using real-life scenarios
to build models that are used to make assumptions)
NORMATIVE AND POSITIVE ECONOMICS
 Positive Economic Statement
- realities that can be proved or disproved,
supported, or rejected by reference to facts
- must be subject to verification or
reputation by reference to the facts
- concerned with WHAT IS
Ex. The country’s unemployment rate is 5.1%.
 Normative Economic Statement
- represents an opinion
- cannot be proved or disproved nor shown
to be true or false by reference to facts
- concerned with WHAT, IN SOMEONE’S
OPINION, SHOULD BE
Ex. The present unemployment rate should be
lower.
MAJOR DIVISIONS OF ECONOMICS
 Microeconomics
- Greek prefix “mikro” which means small
- studies the economic behavior of
individuals and firms in making decisions
regarding the allocation of scarce resources
and the interactions among these
individuals and firms
Ex. Individual market & individual consumer
behavior
 Macroeconomics
- Greek prefix “makro” which means large
- studies the performance of the economy
as a whole
- deals with economy-wide sum such as
total production
- puts all the pieces together to focus on the
bigger picture
Ex. Monetary policy, economic growth, inflation,
unemployment, and government borrowing
NEEDS AND WANTS
 Needs
- are basic requirements for survival
-these are physiological needs, safety
needs, love and belonging, esteem needs,
and self-actualization needs
 Wants
- something that is desired
- a means of expressing a need
GOODS AND SERVICES
 Good
- tangible commodity
1. Consumer good
- intended for final use by individuals
(appliances,
food,
clothing,
and
automobiles)
2. Capital Good
- a manufactured good used to produce
other goods and services
3. Durable Good
- any good that lasts for 3 years or more
when it is used on a regular basis ( furniture,
cars, consumer electronics)
4. Public Good
- provided for public use (public museums
and libraries)
 Service
- a work that is performed for someone
- intangible
- include haircuts, home repairs, and forms
of entertainments
FACTORS OF PRODUCTION
 Land
- “gift of nature”
- natural resources not created by human
effort
 Capital
- include the tools, equipment, and factories
used in the production of goods and
services
- it is the result of production
 Labor
- refers to all people with all their efforts,
abilities, and skills except for a unique group
of individuals, called entrepreneurs
 Entrepreneurs
- refers to innovators responsible for much
of the change in the economy
- risk-taker in search of profit
- the driving force in the economy
NOTE: The 4 factors of production are
interconnected in many ways. Remember, goods
and services are scarce because the factors of
production used to produce them are scarce.
THREE BASIC ECONOMIC QUESTIONS
1. What to produce?
- Is the 1st question. Should a society devote
most of its resources to producing military
equipment or the other items such as food,
clothing, or housing
2. How to produce?
- is the 2nd question. Should a factory owner
use assembly line methods that require
little labor or should they use less
equipment and more workers?
3. For whom to produce?
- is the 3rd question. After a society decides
what to produce and how to produce them,
the items produced must be allocated to
someone