2. Learning Competencies
• The learners should be able to:
▫ define basic terms in applied economics
(ABM_AE12-Ia-d-1)
▫ identify the basic economic problems of the
country (ABM_AE12-Ia-d-2)
▫ explain how applied economics can be used to
solve economic problems (ABM_AE12-Ia-d-3)
3. Think about it…
• In a ¼ sheet of paper write down all the things
that you want to buy for yourself.
• Why haven’t you bought these things yet? What
hindered you to buy these?
4.
5. Scarcity
• It is the insufficiency of resources to meet the
want of consumers and insufficiency of
resources for producer that hamper enough
production of goods and services.
• It is the condition where there are insufficient
resources to satisfy all the needs and wants of a
population.
6. Two Types of Scarcity
• Relative Scarcity – when a good is scarce
compared to its demand.
7. Two Types of Scarcity
• Absolute Scarcity – when the supply of a
good is limited.
8. Scarcity is the reason why people
have to practice economics…
9. Economics
• It is the social science that involves the use of
scarce resources to satisfy unlimited wants.
10. Economics
• Well-known economist Alfred
Marshall described economics
as a study of mankind in the
ordinary business of life.
• It examines part if the individual
and social action that is most
closely connected with the
attainment and use of material
requisites of well-being.
11. Choice and Decision-making
• Because of the presence of scarcity, there is a
need for man to make decisions in choosing how
to maximize the use of the scarce resources to
satisfy as many wants as possible.
14. Opportunity Cost: An Example
• A business proprietor that
withdraws Php10,000 from his
savings account so he can buy
materials to be used in his
business. He gives up the
interest the savings would have
earned but his goal is to earn
more money that would be
generated by the business.
15. Economic Resources
• Economic resources, also known as factors
of production, are the resources used to
produce goods and services.
• These resources are, by nature, limited and
therefore, command a payment that becomes the
income of the resource owner.
16. Economic Resources
• Land – soil and natural resources that are
found in nature and are not man-made. Owners
of land receive a payment known as rent.
17. Economic Resources
• 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
fishermen. The income received by labor of
referred to as wage.
18. Economic Resources
• Capital – man-made resources used in the
production of goods and services, which include
machineries and equipment. The owner of
capital earned the income called interest.
20. Kasya? Cash-a!
• Using a pie chart, show your regular allowance
for the week and how you budget this for your
school and personal expenses.
21. Economics as Social Science
• Economics is a social science because it
studies human behavior just like psychology and
sociology.
▫ A social science is, broadly speaking, is the study
of society and how people behave and influence
the world around them.
▫ As a social science, economics studies how
individual makes choices in allocating scarce
resources to satisfy their unlimited wants.
22. Branches of Economics
• Macroeconomics – is a division of economics
that is concerned with the overall performance
of the entire economy.
▫ It focuses on the overall flow of the goods and
resources and studies the causes of change in the
aggregate flow of money, the aggregate movement
of goods and services, and the general
employment of resources.
23. Branches of Economics
• Microeconomics – is concerned with the
behavior of individual entities, such as the
consumer, the producer, and the resource
owner.
▫ It studies the decisions and choices of the
individual units and how these decisions affect the
prices of goods in the market.
▫ It examines the alternative methods of using
resources in order to alleviate scarcity.
24. Economic Problems of Society
• All societies are faced with basic questions in the
economy that have to be answered in order to
cope with constraints and limitations.
▫ What to produce and how much?
▫ How to produce?
▫ For whom to produce?
• How these question are answered depends on
the nature of economic system, or the society
which answers the basic economic problems, in
place.
25. Economic Problems of Society
• What to produce and how much?
▫ 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 of these goods should also
be decided on.
26. Economic Problems of Society
• How to produce?
▫ It 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.
27. Economic Problems of Society
• For whom to produce?
▫ It is about the market for goods. For whom will be
goods and services be produced? The young or
old, male or female market, the low-income or the
high-income groups?
28. Economic Systems
• The economic system is the means through
which society determines the answers to the
basic economic problems mentioned. A country
may be under any of the following types or even
a combination of the three economic of the three
economic systems:
▫ Traditional economy
▫ Command economy
▫ Market economy
29. Economic Systems
• Traditional Economy – decisions are based
on traditions and practices upheld over the years
and passed on from generation to generation.
▫ Methods are stagnant and therefore not
progressive and they exist in primitive and
backward civilizations.
30. Economic Systems
• Command economy – this is an authoritative
system wherein decision-making is centralized
in the government or a planning committee.
▫ Decisions are imposed on the people who do not
have a say in what goods are to be produced.
▫ This economy holds true in dictatorial, socialist,
and communist nations.
31. Economic Systems
• Market 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 the basis
of the producers’ decisions on what goods to
produce.
33. Why Economics is Important
• 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.
34. Why Economics is Important
• On 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.
35. Know your Worth…
• In your own opinion and based from what we
have discussed, why is economics important?
Write a 10-sentence paragraph to illustrate your
opinion and insights.
36. Scientific Approach in the Empirical
Testing of an Economic Theory
• Economics is a study that attempts to explain
how an economy operates and how the
consumer attempts to maximize his/her wants
within the limited means.
• Using tools such as logic, mathematics, and
statistics, students need to approach the
empirical testing of an economic theory in a
scientific manner.
37. Scientific Approach in the Empirical
Testing of an Economic Theory
• This scientific approach involves the following
steps:
1. State the propositions or conditions that are
taken as given and do not need further
investigation, as the basic starting point of
investigation. These propositions will serve as
the premises upon which the theory is
established.
38. Scientific Approach in the Empirical
Testing of an Economic Theory
2. Observe the facts in connection with activity that
we want to theorize.
3. Apply the rules of logic to the observed facts to
determine casual relationships between the
observed factors and to eliminate facts that are
unnecessary and irrelevant.
4. Establish the set of such that formulated by
hypotheses may be tested as to whether they are
valid or not.
5. Use statistics and econometrics as empirical proof
in testing the hypothesis.
39. Positive Economics vs. Normative
Economics
• Positive Economics – deals with what is –
things that are actually happening such as the
current inflation rate, the number of employed
labor, and the level of the Gross National
Product. (GNP).
• Normative Economics – refers to what
should be – that which embodies the ideal rate
of population growth or the most effective tax
system.
40. Positive Economics vs. Normative
Economics
• Positive economics is an overview of what is
happening in the economy that is possibly far
from what is ideal.
• Normative economics focuses on policy
formulation that will help to attain the ideal
situation.
42. Measuring the Economy
• The national government is always happy to
inform the people that the country’s Gross
Domestic Product (GDP) has grown in rates,
much higher than in the previous administration.
• The government plans for a better economy from
a perspective of what the economy has been.
• Shaping the economy’s future is changing the
past and present perspectives extended in the
future.
43. Measuring the Economy
• In particular, looking ahead is grounded on past
and present performance and health of the
economy.
• The heart of the economy is production whose
value measure both resource input and output
of people.
• The interplay of resources and outputs tells how
well the economy has performed.
44. Counting All through GNP
• As the mirror of all products, Gross National
Product (GNP) is the market value of final
products, both sold and unsold, produced by the
resources of the economy in a given period.
45. Counting All through GNP
• Market value is determined by supply and
demand while the economy’s resources are those
belonging to Filipino citizens and corporations.
• Not all resources belonging to the economy are
in the economy, like the capital and
entrepreneurship that brought the SM to China.
46. Counting All through GNP
• Conversely, not all resources in the economy
belong to the economy like the capital and
entrepreneurship brought to the country by
multinational companies like Procter & Gamble
(P&G).
47. Counting All through GNP
• The value of the final products already includes
the values of its components from the lower
production stages.
▫ For example, the price of your leather wallet
already includes the value of the leather that in
turn includes the value of animal hide.
48. Counting All through GNP
• Counting the values of products from the raw
material to the intermediate and on to the final
production stages, double counts and overstates
the value of the economy’s production.
• Likewise, the value of any product in a certain
period should no longer be counted in
succeeding periods to avoid double counting and
overstatement that can mislead decision-
making.
49. Economics as an Applied Science
• Applied Economics is the application of
economic theory and econometrics in specific
settings with the goals of analyzing potential
outcomes.
50. Economics as an Applied Science
• It is typically characterized by the application of
practical issues in fields that include
demographic economics, education economics,
business economics, agricultural economics,
development economics, labor economics, heath
economics, monetary economics, economic
history, and many others.
51. Economics as an Applied Science
• John Neville Keynes is
attributed to be the first to use
the phrase “applied
economics” to designate the
application of economic
theory to the interpretation
and explanation of particular
economic phenomena.
52. Economics as an Applied Science
• We should be able to improve human welfare
among Filipinos by the investigation and
analysis of economic problems in the real world.
• Applying economic theory in our live means
trying to address actual economic issues and be
able to do something about it.
• The concept of scarcity and choice should
encourage us as individuals to help in our own
way to provide solutions to the country’s
economic problems.
53. Applied Economics in Relation to
Philippine Economic Problems
• A solid understanding of economic principles
and how they are applied in real-life situations
can serve as significant tools to help address the
country’s economic problem.
▫ Scarcity 🡺 how to maximize available resources
▫ Law of Supply and Demand 🡺 analyzing prices
and how to bring them down
54. The Philippines’ Basic Economic
Problems
• The Philippine economy has grown significantly
during President Benigno Simeon Aquino’s
administration.
▫ With the growth rate of the country’s GDP of 6.8%
in 2012, improving to 7.2% in 2013, and slowing
down to 6.1% in 2014, these rates are an
improvement of past rates preceding President
Aquino’s term.
55. The Philippines’ Basic Economic
Problems
• Despite the admirable growth, people, especially
the poor, have been complaining of non-
inclusive growth.
• Millions of Filipinos are claiming they
experience hunger or they still live below the
poverty level.
56. The Philippines’ Basic Economic
Problems
• Unemployment is still the main problem of the
Philippine economy despite the improvements
reported by the National Statistics Office.
57. The Philippines’ Basic Economic
Problems
• As per the National Statistics Coordination
Board, poverty incidence of the population
registered at 26.4% in 2009, 25.2% in 2012, and
28.8% in the first semester of 2014.
58. The Philippines’ Basic Economic
Problems
• The booming population growth in the
Philippines is another basic economic problem
that can be connected to the issue of scarcity.
59. ASEAN Icon
• Lee Kuan Yew (1923 – 2015)
is an economic icon and an
example of how a leader of a
previously undeveloped
country can lead to overcome
its country’s basic economic
problems and move toward
economic growth.
60. ASEAN Icon
• Lee Kuan Yew was the prime minister of
Singapore from 1959 to 1990, making him the
longest-serving prime minister in history.
• During his long rule, Singapore became the most
prosperous nation in Southeast Asia.
• Lee has left a legacy of an efficiently run country
and as a leader who brought prosperity unheard
of before his tenure, at the cost of a mildly
authoritarian style of government and by
imposing discipline among his people.
