APPLIED ECONOMICS A B M S P E C I A L I Z E D S U B J E C T This course deals with the basic principles of applied economics, and its application to contemporary economic issues facing the Filipino entrepreneur such as prices of commodities, minimum wage, rent, and taxes. It covers an analysis of industries for identification of potential business opportunities. The main output of the course is the preparation of a socioeconomic impact study of a business venture. Chapter 1 Introduction to AppliedEconomics Lesson 1.1 Introduction to Economics Lesson 1.2 Economics as an Applied Science At the end of the session the learners will be able to: a. Differentiate Economics as a Social Science and as an Applied Science b. Give real-life situation in which the Principles of Applied Economics are used. c. Cite current economic issues that needs to be addressed. d. Relate the Principles of Applied Economics to current issues using critical thinking. La n d Labor Ca pita l Entrepreneurshi p Scarcity LIMITE D RESOURC ES UNLIMITED HUMAN WANTS Food Clothing Shelter Security, etc. Relative Scarcity Absolute S c arc i ty Insufficiency o f re sources to meet the wants of consumers and insufficiency of resources for producers that hamper enough production of goods and services. Opportunity Cost Choices & Decision-making Because of scarcity, there is a need for a ma to make decisions in choosing how to maximize the use of the scarce resources to satisfy as many wants as possible. ECONOMICS Economics is the social science that involves the use of scarce resources to satisfy unlimited wants. Economics is a social science studies human behavior Psychology and Sociology. LIMITE D RESOURC ES UNLIMITED HUMAN WANTS because it just like Social Science The study of society and how people behave and influence the world around them. Scarcity Economics as a Social Science As a Social Science, Economics studies how individuals make choices in allocating scarce resources to satisfy their unlimited wants. Choices & Decision-making BRANCHES OF ECONOMICS Macroeconomics Microeconomics A division of Economics that is concerned with the overall performance of the entire company. Is concerned with the behavior of individual entities such as the consumer, the producer, and the resource owner. It studies economic system as a whole rather than the individual economic units that make up the economy. It is more concerned on how foods flow from the business firm to the consumer and how resources move from the resource owner to the business firm. MACROECONOMICS is about the nature of economic growth, the expansion of productive capacity and the growth of national income. It is also concerned with the process of setting prices of goods that is also known as PRICE THEORY. MICROECONOMICS studies the decision and choices of the individual units and how these decisions affects the prices of goods in the market. SCARCITY Is a condition where there are insufficient resources to satisfy all the need and wants of a population. Relative Scarcity Absolute Scarcity Is when a goods is scarce compared to its demand. Is when supply is limited. RELATIVE SCARCITY occurs not because the good is scarce per se and is difficult to obtain but because of the circumstances that surround the availability of the good. ABSOLUTE SCARCITY explains why there are some products that are very expensive in the Philippines. CHOICE AND DECISION MAKING With the presence of scarcity, there is a need to make decisions in choosing how to maximize the use of the scarce resources to satisfy as many wants as possible. Opportunity Cost Refers to the value of the forgon alternative. bes e t The concept of OPPORTUNITY COST holds true for individuals, businesses, and even a society. In making a choice, trade-offs are involved. What will happen if there is no SCARCITY? Without scarcity, a person does not need to make choices since he/she can have everything he/she wants. CHOICE AND DECISION MAKING With the presence of scarcity, there is a need to make decisions in choosing how to maximize the use of the scarce resources to satisfy as many wants as possible. Opportunity Cost Refers to the value of the best forgone alternative. The concept of OPPORTUNITY COST holds true for individuals, businesses, and even a society. In making a choice, trade-offs are involved. What will happen if there is no SCARCITY? Without scarcity, a person does not need to make choices since he/she can have everything he/she wants. BASIC ECONOMIC PROBLEMS OF THE SOCIETY All societies are faced with basic questions in the economy that have to be answered in tordceorpe with constraints and o limitations. What to produce? How much? LIMITED RESOURCES UNLIMITED HUMAN WANTS society must decide what goods and services should be produced in the economy. Having decided on the nature of goods that will be produced, the quantity to these foods should also be decided on. SCARCITY How to produce? is a question on the production method that will be used to produce the goods and services. This refers to the resource mix and technology that will be applied in production. For whom to produce? is about the market for the goods. For whom will the goods and services be produced? The young or old, the male or female market, the low- income or the income groups? CHOICES AND DECISION MAKING What How For whom to produce? And to produce? to produce? How much? ECONOMICS SYSTEMS The economic system is the means through which society determines the answers to the basic economic problemsmentioned. Traditional Economy Decisions are based on a trn aditipornasctices upheld over the years and pa s s ed on from generation to generation. Methods are stagnant prograensdsive. thereforeTraditiono atl societies exist in primitive and backward civilizations. Command Economy This is the authoritative system wherein decision-making centralized isn the government or a planning committee, Decisions are imposed on the people who do not have a say i nrowdhuactegdo.oT p dh searectonboemy holds true in dictatorial, socialist, and communist nations. Command Economy This is the most democratic form of economic system. Based on the workings of demand and supply, decisions are made on what goods and services to produce. People’s preference are reflected in the prices they are willing to pay in the market and are therefore the basis of the producer’s decisions on what goods to produce. WHY ECONOMICS IS IMPORTANT? Read the front page of the newspapers or watch the news on TV. WHY DOWE NEED TO STUDY ECONOMICS? ECONOMICS will help the students understand why there is a need for everybody, including the government, to budget and properly allocate the use of whatever resources are available. It will help one understand how to make more rational decisions in spending money, saving part of it, and even investing some of it. On the national level, economics will enable the students to take a look on how the economy operates and to decide for themselves if the government officials and leaders are effective in trying to shape up the economy and formulate policies for the good of the nation. MEASURING THE ECONOMY The heart of economy is production whose value measures both resource input and output of people. The interplay of resources and outputs tells how well the economy has performed. Economic Resources also known as factors of production, are the resources used to produce goods and services. Land Soil and natural resources that are found in nature and are not man-made. Owners of lands receive a payment known as RENT. Labor Physical and human effort exerted in production. It covers manual workers like construction workers, machine operators, and production workers, as well as professionals like nurses, lawyers and doctors. The term also includes jeepney drivers, farmers and fisherman The income received by labors is referred to as WAGE. Capital Man-made resources used in production of goods and services, which include machineries and equipment. The owner of capital earns an income called INTEREST. GNP vs. GDP Gross National Product Market value of final products, both sold and unsold, produced by the resources of the economy in a given period. MARKET VALUE is determined by supply and demand ECONOMY’S RESOURCES are those belonging to Filipino citizens and corporations. NOTALL RESOURCES BELONGING TOTHE ECONOMYARE IN THE ECONOMY. CONVERSELY, NOT ALL RESOURCES IN THE ECONOMY BELONG TOTHEECONOMY. GNP = C + I + G+ (X – M) Imports Exports Government Expenditures on Goods and Services Investments (stocks of values for future use) Consumption (household and individual) GNP vs. GDP Gross Domestic Product Better indicator of domestic employment opportunities. Defined as the market value of final products produced within the country. GDP is net of GNP after deducting NET FACTOR INCOME from abroad or by deducting factor income from abroad and adding back FACTOR PAYMENTS to other countries. NET FACOR INCOME from abroad is net export of factor service equal to Factor income from abroad less the factor payments of other countries. Net Inflow = Inflow - Outflow - Net Inflow = - Inflow + Outflow APPLIED ECONOMICS Application of economic theory and econometrics in specific settings with the goal of analyzing potential outcomes. John Neville Keynes First to use the phrase “APPLIED ECONOMICS” to designate the application of economic theory to the interpretation and explanation of particular economic phenomena. Applied Economics in Relation to Philippine Economic Problems Understanding the existence of scarcity can help Economics students analyze how to maximize the use of available resources in order to overcome scarcity. Knowledge of economic theories such as the Law of Supply and Demand can help in analyzing why prices are high and what the government can do to help bring down prices. The Philippines Basic Economic Problems Non-inclusive Growth despite of Economic Growth Millions of Filipinos are claiming they are experiencing hunger or they still live below the poverty level. Unemployment despite of Improvements Main problem of the Philippine Economy. Unemployment Ratein the Philippines: 2nd Quarter of 2015 = Decreased to 6.4 % from 7.0% in the previous year Philippines Unemployment Rate average = 8.85% from 1994 – 2015 Highest = 13.90% 1st quarter of 2000 Lowest = 6.0% 4th quarter of 2014 The Philippines Basic Economic Problems cont. Poverty Socio-economic problem. Poverty incidence of the population registered at 26.4 %, 26.5% in 2009 25.2% in 2012 28.8 in 1 st quarter of 2014 Population Growth Basic economic problem that can be connected to the issue of scarcity. When population becomes too big, economic resources may no longer be enough to support the growing population. 2010 = 92.3 M 2014 = 100 M – growing by 2% Philippines – one of the highest population in Asia. Represents 1.37% of the worlds population. Class Activity: Debate Download a copy and read the article “What’s in the proposed 2018 national budget?” using the link provided below. Based on the budget, determine what expenditures are the government’s top priorities, and then expenditures which are the least priorities. The debate topic would be “Isit right to prioritize EDUCATION in preparing the National Budget?” 30 minutes preparation per team 15 minutes debate proper. LINK: https://www.rappler.com/move-ph/issues/budget-watch/145988-proposed-2017-nationalbudget Thank You! Reference(s): Dinio and Villasis 2017. Applied Economics. Rex Bookstore First Edition. Pages 2 -14 Rappler https://www.rappler.com/move-ph/issues/budget-watch/145988-proposed-2017-nationalbudget • The Economic Agents/Stakeholders: 1. Consumers • Consume goods and services /offer production• Maximize utility 2. Producers • Produce goods / demand productive factors • Maximize profit 3. The public sectors • Attempt to maximize the well-being of society BASIC TERMS TO UNDERSTAND ECONOMICS GOODS Activity no. 1 Direction: Please perform independently. Pick all the goods and classify them accordingly. Your mother went to the market to shop goods for the family. She purchased the following goods. Canned goods; bread; sacks of rice; meat; vegetables; toothpaste; bath soaps; perfumes; wrist watch; aircon to ventilate her store and coffee maker for her store. ECONOMIC RESOURCES OR FACTORS In the article of Nowaczyk , J (2020) on Identifying the Factors of Production, he defined economic resources as the factors of production for goods and services. The factors of production are inputs combinations in the production of goods and services to make an economic profit for the firms. These factors of production are land, labor, capital, and entrepreneurship. Resources are limited in nature, but human wants and needs are unlimited, thus, an efficient allocation of these resources or factors of production is a big challenge for every economy. Economics also helps the entrepreneurs and the economy to allocate resources in the production of supplies to meet the demands of the consumers. ASSESSMENT (Picture Analysis) Direction: Still, please do this independently. The picture shows the different factors in the production of goods. This will help you become creative in your analysis on the application of resources you need in the production of goods that are most needed in the society. Please determine the resources. Characteristics of Resources: 1.Scarcity: insufficient resources to supply all the desires and needs of individuals. In the production of goods and services; there are issues that economics may encounter: these include: for Land – inadequate land and natural resources; polluted areas; overcrowded spaces; for Labor – unskilled workforce; mismatch of jobs; for capital – low quality of equipment/machines; insufficient fund/capital; and for entrepreneurship – Inadequate training of entrepreneurs; limited opportunity; scarcity of great ideas but many competitors in the market. 2.Multiple use: Resources can have more than one possible use. For example, a plot of land can be used to plant coffee or to build a factory. 3.Partially replaceable: one resource can replace another in the production of a good or service (e.g., replace manual labor with technology). 1. Which of the following is not an economic agent in your locality? a. Producer b. Consumer c. Public Sector d. None of ABC 2. Business ethics refers to any behavior by businesses that may a. be illegal. b. violate social or moral standards. c. result in the maximization of profits. d. All of the above. 3. Which is true about Economics as a social science? a) Scarce resources and limited needs drive choice b) Economics explains and predicts economic events c) The scientific method is based on the normative analysis d) Economic hypotheses lead directly to predictions 4. Which is true on the value of an economic theory in practice? It is determined by a. how accurate the assumptions are. b. how well the theory can be represented by a graph. c. how well the theory can predict or explain. d. how economical the model is. 5. Which of the following is the study of the aggregate economy studied as a whole? a. Mathematical economics b. Econometrics c. Macroeconomics d. Microeconomics 6. Which is not considered as tangible good? a. Cell phone b. Mask c. Sack of rice d. Training service 7. Mrs Nenita De Jesus purchased basic goods like vegetables and groceries for the consumption of her family. These goods are: a. Consumers goods c. Luxury Goods b. Capital Goods d. Economic Goods 8. Mr. Dennis Elecanal purchased new car as a gift for his father’s birthday. This good is a. Consumers Good c. Capital Good b. Luxury Good d. Economic Good 9. ABM Computer shop purchased additional 10 units of computer for the business. These goods are called: a. Consumers goods c. Capital Goods b. Luxury Goods d. Economic Goods 10. The physical effort of the manpower to produce the protective devices of the frontliners describes which factor of production? a) Land c) Labor b) Capital d) Entrepreneur 11. The great ideas, concepts and drive of the production managers to produce something new describe which factor of production? a) Land c) Labor b) Capital d) Entrepreneur 12. The computers of the production manager in an office are what kind of goods or products? a) Consumer goods c) Capital goods b) Either consumer goods or capital goods d) Economic goods 13. Which best describes economics as a social and an applied science? a) The study of things we need to survive b) The study of how people make choices when they are faced with an unlimited supply of resources c) The study of human behavior d) The study of how buyers make choices when there is limited supply of resources 14. Which of the following are examples of human needs? a) Water and a place to live like houses b) Iced caramel macchiato frappuccino c) Flat screen televisions d) Laptops and computers 15. Which of the following has NOT observed in the community during the ECQ in the same locality? a) Everyone enjoyed shopping in the market b) Unemployment in the community was sharply experienced c) Prices of commodities suddenly increased d) The people in Manila were reluctant of the pandemic protocols. 16. A science that applies economic theory and econometrics in specific setting with the goal of analyzing potential outcomes. 17. These are products of nature, qualities of individuals, and man made things which are used in producing goods or services. 18. It is a science of making choices. 19. It can be described as differentiated or expanded human needs. 20. A science that deals with the allocation of scarce resources to meet the unlimited human wants.
