THE FIRST UNITING CHRISTIAN SCHOOL
SENIOR HIGHSCHOOL DEPARTMENT
APPLIED ECONOMICS
Topic: Basic Economic Problems and
How Applied Economics
Solves Economic Problems
Analyze Different Principles, Tools, and Techniques in Creating a Business
(QUARTER 1 - WEEK 3- 6)
TO THE LEARNERS
Here are some reminders as you use this module:
✓ Use the module with care especially in turning each page.
✓ Read and comprehend the directions in every exercises.
✓ Observe honesty in answering the tests and exercises.
✓ Do not put unnecessary mark/s on any part of this material.
✓ Try to finish a given activity before proceeding to the next.
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The Four Basic Economic Problems
In the article of Guru, S. (2020) Basic Central Problems Faced by an Economy, there are basic problems
common to all economies. In terms of production, common to all countries is the problem on scarcity. This arises
because the resources are limited and have alternative uses. This problem gives rise to four basic problems of an
economy.
In this topic, we will look into these basic problems of what to produce, whom to produce, how to produce
and what provisions on production for economic growth. As we said earlier, economics can be a tool to solve these
economic problems. Economists formulate strategic solutions to economize the problems such as economic growth
or the ability to produce goods and services, reduce expectation or the ability to reduce our wants such as lessening
consumption, and improve the use of resources or the capacity to use our existing resources wisely.
What to Produce?
What does a society do when the resources
are limited? It decides which goods/service it
wants to produce. Further, it also determines
the quantity required. For example, should
we produce more guns or more butter? Do
we opt for capital goods like machines,
equipment, etc. or consumer goods like cell
phones, etc.? While it sounds elementary,
society must decide the type and quantity of
every single good/service to be produced.
How to Produce?
The production of a good is possible by
various methods. For example, you can
produce cotton cloth using handlooms, power
looms or automatic looms. While handlooms
require more labour, automatic looms need
higher power and capital investment.
Hence, society must choose between the
techniques to produce the commodity.
Similarly, for all goods and/or services, similar
decisions are necessary. Further, the choice
depends on the availability of different factors
of production and their prices. Usually, a
society opts for a technique that optimally
utilizes its available resources.
BASIC ECONOMIC
PROBLEMS OF THE
COUNTRY
For whom to Produce?
What provision should be made for
economic growth?
Think about it – can a society satisfy each and
every human wants? Certainly not. Therefore,
it has to decide on who gets what share of the
total output of goods and services produced.
In other words, society decides on the
distribution of the goods and services among
the members of society.
Can a society use all its resources for current
consumption? Yes, it can. However, it is not
likely to do so. The reason is simple. If a
society uses all its resources for current
consumption, then its production capacity
would never increase.
Therefore, the standard of living and the
income of a member of the society will remain
constant. Subsequently, in the future, the
standard of living will decline. Hence, society
must decide on the part of the resources that it
wants to save for future progress.
APPLIED ECONOMICS ON BASIC ISSUES AND PROBLEMS
Applied Economics seeks to solve the problems on scarcity. This happens when human wants for goods
and services exceed the available supply. In a modern economy, it is evident that a division of labor happens when
people earn income by specializing in what they produce. They will use that income to purchase the products they
need or want every day (BC Campus 2020).
Also, in the division of labor, it allows workers
and firms to produce more. This is because: a) agents
focus on areas of advantage due to natural factors and
skill levels; b) the agents learn and invent; c) the
agents take advantage of economies of scale. Division
and specialization of labor only work when individuals
can purchase what they do not produce in markets.
Applied economics then helps you understand the
basic problems facing the world today. It helps you
become a well-rounded thinker. And most importantly,
it prepares you to be a good citizen.
Analyze Different Principles, Tools, and Techniques in Creating a Business
Business entities are important to country’s economic growth. It enables to create goods and services, provide jobs for
individuals to generate income and accumulate wealth and generate revenue for the government which enables to
provide basic social services. Moreover, it produces goods and services that individuals needs and wants.
Business to thrive and grow need to used tools and techniques to continuously exist thus best practices and techniques
need to be employed.
In the previous lesson, you have learned about the challenges and current problems of the Filipino entrepreneurs face
in the Philippines. Based on what you have learned, Choose among the images below two (2) current problems that
Filipino entrepreneurs faced and write down 5 best practices that can be used for the business to continuously operate
and grow.
Principles, Tools, and Techniques in Creating a Business
To start a new business, an entrepreneurs needs to have a plan to start a business, as one of the best practice
entrepreneurs to identify needs of the community to start a business. Based on your inquiry whether by interview or survey
through print or online, now, I would like you to identify 5 major needs of your community and rank them according to order
of priority from 1 being the highest and 5 lowest and describe business opportunities that can be created.
Principles, Tools, and Techniques in Creating a Business
In planning a business, a thorough study needs to be made from the creation of business. Understanding how the
business will operate and co-exists in the business world thus one needs to study principle, tools and techniques in
creating business
Principles in Creating a Business
The principles of a business are the driving forces that make it successful. Below
the ten key principles to make a business a success:
1. Scalability- A business must be scalable for it to be successful. Scalability is the
capability of a company to sustain or improve its performance in terms of
profitability or efficiency when its sales volume increases.
2. Big Ideas- A business is no more effective than the idea upon which it is built.
Business creates its own plan to expand its economic growth.
3. Systems- A business is a system in which all parts contribute to the success or
failure of the whole. In this system, everything must work together from employee
to president; from equipment to resources.
4. Sustainability- A business must be dynamic- able to thrive through all economic
conditions, in all markets, providing meaningful highly differentiated results to all
of its customers. Such differentiation is the key to survival.
5.GrowthGrowth is essential
in business.
Without continued growth,
operations will stagnate. This can result in lowered standards of quality for
products or services, decreased customer service, and poor employee morale.
6. Vision- A business must manifest the higher purpose upon which it was seeded,
the vision it was meant to exemplify, the mission it was intended to fulfil.
7. Purpose- A business is the fruit of a Higher Aim in the mind of the person who
conceived it.
8. Autonomy- A business is not part of the owner's life, but is, in fact, its own
entity.
9. Profitability- A business is an economic entity, driving an economic reality,
creating an economic certainty for the communities in which it thrives.
10. Standards- A business creates a standard against which all businesses are
measured as either successful, or not.
So, there you have it, the ten principles upon which to conceive, grow, and
expand your business
Tools in Evaluating a Business
It's the Holy Grail for small business owners – finding ways to make efficiency savings in all aspects of their
operations. The good news is there are plenty of tools, tips and techniques available to help them make cost
savings and boost productivity. Here are 10 of them.
1. Use technology to speed up workflow- Businesses should be looking to innovations in technology to solve
day-to-day inconveniences and to increasee efficiency.
2. Shorter meetings fuel efficiency- Hold a brief meeting standing up, every morning, where each person
explains what they are going to work on that day to ensure everyone is on the right track and not wasting time
on non-urgent tasks.
3. Smart office space pays- Office space can involve a big outlay for SMEs, but it is also an area where some
smarter thinking can make a real difference.
4. Advertisement- Advertising keeps your business top of mind so consumers think of it when they require or
need a service or product.
5. Small changes, big savings--One way of improving efficiency is for business owners to make small changes
to the way they handle their company's expenses.
6. Keep a firm grip on cash flow-"Cash is King not profit”. Ensure the right management of your inflow and
outflow of cash.
7. Stay connected on the move- The growing trend towards mobile and flexible working means that employees
are permanently connected and on the go.
8. Use time more efficiently-Being more efficient is more about being than doing. It's probably 90% mindset,
(Allan, 2013). In addition, “The shorter the amount of time you allow yourself, the more you will get done”.
9. Get the best deal on insurance- Businesses need insurance because it helps cover the costs associated
with property damage and liability claims.
10. Don't be lax with the legal
In the hectic process of starting up a business, the founders often put off sorting out the legal matters until later,
or not at all.
Since business is a commercial activity and its main purpose is profit, in the book published by the Development
Academy of the Philippines, how to prepare project feasibility studies, it includes an industry analysis of the
following important factors.
COMPETITION AND COMPETITORS
Industry rivalry among companies of the same or related industry is an inevitable part
of the business world of any business size.Intense competition leads to reduced profit
potential for companies in the same industry. Businesses seek constantly competitive
advantage
Competitive Advantage
 is what sets your business apart from your competition.
 highlights the benefits a customer receives when they do business with you.
 It could be your products, service, reputation, or even your location.
Different methods of competitive advantage which it can be done and are classified into four
categories:
1.Cost Leadership-an advantage occurs when business is able to offers same products at a lower
price.
2.Differentiation-Find attributes that is important and set them apart from their competitors.
3.Defensive Strategies-used a defensive strategy to distance themselves from competitors.
4.Alliances-advantage of seeking strategic alliance with other within related or within businesses.
CUSTOMERS
Individuals or companies who desires to possess or make use of products and
services. They play a huge role in the success of your business. Customers likewise
can force down prices, demand higher quality or more service, and play competitors
off against each other—all at the expense of industry profits.
SUPPLIERS
Provide inputs that the firms in an industry need to create the goods and services that they in turn
sell to their buyers.Suppliers can exert bargaining power on participants in an industry by raising
prices or reducing the quality of purchased goods and services.
A business may need one or more suppliers. It is important to develop suppliers who are reliable in
terms of quality of what they supply and their dependability in coming up with the things you order
from them. It is important to maintain good relationships with one’s suppliers; they are the key to
one’s continued access to goods and to raw materials that will be needed for the business.
SUBSTITUTES
 Goods/services that can be used in place for another. These goods may, even if partly, satisfy the same needs of
a consumer such that the consumer may use one for instead for another.
 substitute products or services limit the potential of an industry.
 margarine can be a substitute for butter. Likewise Coke for Pepsi
 But not everybody will be willing to switch brands because they have developed a taste for a particular cola. This is
why manufacturers try to differentiate their products from their competitors so that the customers will develop
product loyalty from their brand.
Applied Economics
Name__________________________________________Year/Section___________________Date______
Teacher___________________________
Activity 1: draw things or any products that our country needs the most.
Activity 2: slogan making : make a slogan on how can the country solve scarcity.
Assessment: Part I TRUE or FALSE
Directions: Please write TRUE if the statement is correct and FALSE if the statement is incorrect.
1.
_______________Scarcity in goods and services happens if the resources in the production are inadequate or
scarce.
2.
_______________Customers must choose among several alternatives if scarcity exists.
3.
________________ Income inequality is the gap in income that exists between the rich and the poor customers
willing to buy the same products.
4.
________________Shortage of goods and services is an economic problem; and shortages are always constant
5.
_________________The Build Build Build Program by the government aims to help improve the infrastructure
projects and other
programs of the country.
Part II Multiple Choice. Encircle the letter of the correct answer.
1.
a)
b)
c)
d)
The fundamental economic problem that must be solved efficiently
Scarcity of resources
Health system
Surplus of demands
Export policies
2.
a)
b)
c)
d)
Economists point out that scarcity must be addressed to protect the
The poor but not the rich
Both the poor and the rich
Neither the poor nor the rich
The poor but never the rich
3.
a)
b)
c)
d)
4.
a)
b)
c)
What two factors contribute to scarcity in the production of goods and services?
Unlimited resources and limited wants
Unlimited resources and wants
Unlimited wants and limited resources
Limited resources and wants
If there is scarcity in public transportation, what should the learners do?
Home based learning is an alternative choice for access to education
Stop learning while waiting for transportation shortage to be solved
The government must import units of car from neighbor countries
d)
All choices are applicable
5.
a)
b)
c)
d)
The economists describe the amount of resources in an economy as:
Always constant
Can never decrease or increase
Unlimited at any moment in time
Limited at any moment in time
Directions. Choose the letter of the best answer. Write your answer on a separate sheet of paper.
1. The process by which one or two or more persons engage in commercial activity for profit.
a. Business
c. Trade
b. Commerce
d. Partnership
2. Persons or company who supplies goods and services.
a. Consumer
c. Government
b. Creditors
d. Suppliers
3. The capability of a system to expand its total output under an increased volume of work when
resources are added.
a. Autonomy
c. Profitability
b. Big Ideaa
d. Scalability
4. A business which has its own identity and is distinct from the owners is called ____.
a. Autonomy
c. Profitability
b. Big Ideaa
d. Scalability
5. A business with the main purpose of gaining profit is called ___________.
a. Autonomy
c. Profitability
b. Big Ideaa
d. Scalability
6. A businessthat creates its own plan to expand its economic growth.
a. Autonomy
c. Profitability
b. Big Ideaa
d. Scalability
7. Which brand of drinks may be a very good substitute for Coca-Cola?
a. Mirinda
c.
Sarsi
b. Pepsi
d.
Seven-Up
8. Industry rivalry among companies of the same or related industry is called_______.
a. Competition
c.
Alliance
b. Distribution
d.
Threats
9. Competitive advantages that can also be gained by business that seek cooperation within or related
industries is termed as____.
a.
Alliance
c.
Defensive strategy
b.
Cost leadership
d.
Differentiation
10.
Individuals who will buy the products and services in the market.
a.
consumers
c.
government
b.
creditors
d.
supplier
11.
Margarine is a good substitute for ____________________.
a.
butter
c.
cheddar
b.
cream cheese
d.
Olive oil
12.
A strategy that businesses often use marketing and some ads are against the competitors.
a.
Advertising
c.
Alliance
b.
Cost Leadership
d.
Defensive Strategy
13.
An advantage that occurs when a business is able to offer the same quality product as its
competitors, but at a lower price.
a.
Differentiation
c.
Defensive Strategy
b.
Alliance
d.
Cost Leadership
14.
Gained by using defensive strategy the business to set them apart itself from its competitors.
a. Defensive Strategy
c. Differentiation
b. Alliance
d. Cost Leadership
15.
Products use as replacements to other products that gives the same purpose.
a. clone
c. original
b. substitutes
d. brand
Activity 1.Modified True or False. Write True if statement is correct, write False if statement is incorrect and
underline the incorrect word and write the correct answer.
___________1. One of the strategies of suppliers is to provide discounts to clients who buy small quantities of
a specific good or service.
___________2. In business, competitors are a must to ensure quality products and services.
___________3. Affordable price means lesser market share.
___________4. Soya milk is an example of substitute product for fresh milk.
___________5. Low quality means high satisfaction to customers.
Activity 2
Directions: Read the story carefully. Analyze the business. Then answer the questions at the end of the
story.
Anne and Cherry are friends since high school. Anne is good in baking and Cherry is good in selling. To increase
their income, they decided to put up an online business of bakery products. They contributed 10,000 each to start
the business and decided to split the profit equally as business partners. The friends agreed that Anne will be in
charge of the production while Cherry will be in charge of the online site for taking marketing and promotion. Cherry
started taking orders while Anne is busy on baking products. The business started to get big orders from their
regular clients and other who visited their online site. After one year of operation, while Cherry continue with her
regular work Anne as in-charge of the production, started getting sick and advised to rest. Now, Anne can no
longer continue baking for their business.
1. What went wrong with the business?
2. Do you think Anne and Cherry were right in how they manage their business?
3. Are they right in their decision of equal sharing of profit? Explain your answer.
Rubric:10 points- comprehensive and analytical 8-9 points- well written and some includes analysis; 5-7
points-well written but lacks analysis; 2-4 points- weak essay; 1 point Poorly written and lack strength
Activity 3. Now, I want you to