ST. MARY’S COLLEGE OF MARINDUQUE Isok 1, Boac, Marinduque Integrated Basic Education Department SY 2020 – 2021 Subject Level Applied Economics 12 Quarter Duration Topic The Concept of Economics 3 2 weeks Module No. Days 1 8 I. OBJECTIVES 1. 2. 3. 4. Apply the meaning of economics in your everyday life. Discuss the three fundamental questions in economics. Differentiate microeconomics from macroeconomics. Examine the importance of economics in the lives of individuals. II. CONCEPT DEVELOPMENT Explore Economics is deeply embedded in every aspect of our lives. We use economics in deciding what we will eat, what to wear, where to attend schooling and other things that’s why good decision-making is very important in our lives. We will begin our journey into the world of economics by discussing what it means and what its scopes are. DEFINITION OF ECONOMICS Economics came from the two Greek word “oikos” which means household and “nomos” which means customs or laws, referring to the rules implemented in the household to ensure its efficient management. According to American economists Paul Samuelson and William Nordhaus, economics is the “study of how societies use scarce resources to produce valuable commodities and distribute them among the different people.” On the other hand, Filipino economist Gerardo Sicat defines economics as “the study of how individuals and society generally make choices that involve the use of scarce resources from among alternative wants that need to be satisfied.” Three important concepts can be can be gleaned from the given definitions of economics: the scarcity of resources, the non-satiation of wants, and the need to decide how scarce resources are to be used. Therefore, economics can be defined as the study on how to satisfy the unlimited wants and needs of the people using scarce and limited resources. There are two important concepts in the study of economics— unlimited wants and needs and limited and scarce resources. THE THREE FUNDAMENTAL QUESTIONS IN ECONOMICS Because of the economic problems, societies have to choose with regard to the production and allocation of goods and services. In line with these, the following are the three fundamental questions in economics that need to be addressed: What to produce? How to produce? For whom to produce? MR. CEDRIC M. JANDUSAY APPLIED ECONOMICS-Q3-M1 Page 1 of 4 What to produce? Society has to analyze and choose the combination of goods and services that will best respond to its wants. It is best to use the resources to plant rice, build roads, make toys or employ additional teachers. Through this analytical process, the question of the right quantity of each good and service that needs to be produced will also be addressed. How to produce? The amount of factors of production to be allocated for the production of different goods and services should be determined. How much of a particular factor should be allocated for planting rice, for building roads, for making toys, or for employing teachers? What is the most efficient combination of land, labor and capital? For whom to produce? Finally, the question of who will eventually receive the goods and services should be answered. Who will benefit from the rice and toys? What sector will benefit from roads as well as services from teachers? THE SCOPE OF ECONOMICS Economics is divided into two main branches—microeconomics and macroeconomics. Microeconomics deals with the behavior of individuals in the market. The decisions of individual households and firms are studied, as well as how such decisions affect the market. Its focus is only in the small area of economics. Macroeconomics on the other hand deals with the economy as a whole. It examines the overall prices, production and income. For example, the income and unemployment levels of a country as a whole are studied in macroeconomics. This also covers the effects of money supply and taxation on the overall employment and income of the economy. Economics as a Science Any systematic field of study that examines and explains observed phenomena is considered a science. The scientific method is used to observe events and to eventually make a conclusion based on available data. The different fields of science can be classified into one of two branches. Fields that are more inclined towards natural objects and phenomena are natural sciences. Meanwhile, those which are more inclined towards the study of individuals, groups and institutions that form a society are social sciences. Therefore, economics is a social science. It is a systematic field of study that focuses on the interaction of the different units of the society. Economics makes use of the scientific method and explain how society makes choices regarding the use of scarce resources in order to respond to human wants. Mentioned below are the steps on how scientific method is used in economics: 1. Identifying the problem or question- This involves determining the question, “What is the relationship between the degree of necessity of a product and the magnitude of the effect of a price increase on the quantity demanded of such product?” 2. Formulation of hypothesis- Hypothesizing that, “The greater the degree of necessity of a product, the less responsive quantity demanded is the price increase.” 3. Gathering and processing data- Interviewing customers and owners of grocery stores and the like, determining which goods and services have quantity demanded that are more responsive to price increases. 4. Strengthening hypothesis- Examining if the newly gathered data match the previously formulated hypothesis. 5. Making a conclusion- Stating that, “The greater the degree of necessity of a product, the lesser the effect of a price increase on the quantity demanded of such product.” Positive and Normative Economics There are two types of analysis that economists engage in: one involves a description of a situation while another gives a suggestion on what should be done in that particular situation. The first one is called the positive economics. It describes and explain different economic phenomena or behavior. However, it is limited to this goal, as it does not explore the possible action points that could be taken to address such phenomena. Example: The inflation rate in the Philippines increases year by year. On the other hand, normative economics is often associated with welfare economics, as it is focused on providing explanations and arguments on how economic policies should be. This field is well-known for MR. CEDRIC M. JANDUSAY APPLIED ECONOMICS-Q3-M1 Page 2 of 4 presenting value judgments. Using the above example of inflation in the Philippines, normative economics would state that, “A diversification of economic programs could help solve inflation in the Philippines.” THE IMPORTANCE OF STUDYING ECONOMICS Economics is important for the society and for individuals. Leaders of the country use economic data to formulate programs and laws that would help in improving the state of the economy. Reports coming from government agencies as well as opinions of experts in the field of economics regarding such reports help citizens better understand important economic issues. Personally, one can use economic knowledge in many ways. It can be used to understand events in the community and in the country, and use this understanding to come up with meaningful insights about such events. On the personal level, we can understand the decisions made by the members of our family related to selecting a job, spending their income, and satisfying needs. Economics also serves as a tool that one can use in deciding the amount of time to allocate for studying and for leisure. Studying economics will help us to become a good decision-maker. It allows to better understand that every decision that we make has a big effect in the economy. Guide Questions (to be answered during the synchronous online session) 1. 2. 3. 4. What is economics? Why is economics important in your daily life? Why is economics considered a science? What is the difference between macroeconomics and microeconomics? III. REFERENCES A. Books/Articles Balitao, Bernard et.al. 2015. Philippine Economy and Development. Quezon City: Vibal Group, Inc. Carnaje, Gideon P. 2016. Applied Economics. Quezon City: Vibal Group, Inc. --------------------------------------------------------------------------------------------------------------------------------------------------LEARNING ACTIVITY SHEETS Name: _______________________________ Grade & Section: _______________________ Subject: __________________ Name of Teacher: __________________ A. Directions: Why is economics important to you as an individual? Explain your answer below. MR. CEDRIC M. JANDUSAY APPLIED ECONOMICS-Q3-M1 Page 3 of 4 B. Directions: Using a Venn Diagram, differentiate microeconomics from macroeconomics. Microeconomics Macroeconomics s C. Directions: List down three examples each of a positive economics and normative economics. Write your answers in the space provided below. MR. CEDRIC M. JANDUSAY APPLIED ECONOMICS-Q3-M1 Page 4 of 4
