APPLIED ECONOMICS

ECONOMICS is the social science that involves the use of scarce resources to
satisfy unlimited wants.

 Part of human behavior is he tendency of man to want to have as many goods

and services however his ability to buy goods and services is limited by his
income and purchasing power. With this context a man has to practice
economics

ALFRED MARSHAL – described economics as a study of mankind in the ordinary business of life
- It examines part of the individual and social action that is most closely
connected with the attainment and use of material requisites of wel
being
SCARCITY- a condition where there are insufficient resources to satisfy all the needs and wants
of a population
Relative scarcity- when good is scarce compared to its demand
Ex. 1. Coconuts are abundant in Phils., however it became scarce when
the supply is not sufficient to meet the needs of the people.
 Relative scarcity occurs not because the good is scarce and is difficult to obtain
but because of the circumstances that surround the availability of the good.
Ex. 2. Bananas are abundant in the Phils. But when typhoon destroys
banana plants and the farmer has no bananas to harvest, then bananas
became relatively scarce

Absolute scarcity- when supply is limited

Ex.1 Scarcity of oil ( we rely on imports from oil-producing country like
Iran and other Middle East country.
Ex. 2. Cherries are absolutely scarce in our country since we do not have
the right climate to grow them.
 “ Because of scarcity , a man should choose how to maximize the use of scarce
resources”
Opportunity Cost- the value of the best foregone alternative
Ex.1. A farmer gives up an output of bananas or mangoes because he cultivated it for
rice
Ex. 2. A producer who decides to transforms all his leather into shoes, gives up the
chance to produce bags with that leather
Opportunity cost concept involves trading-off
ECONOMIC RESOURCES= known as factors of production
= resources used to produce goods and services
= by nature, limited and therefore , command a payment that becomes
the income of the resource owner

1. Land- soil and natural resources that are found in nature and are not man-made
- Owners of land receive payment known as rent
2. Labor – physical and human effort exerted in production.
- Covers manual workers like construction worker, machine operators,
and production workers, as well as professionals like nurses, lawyers,
and doctors.
ECONOMIC AS A SOCIAL SCIENCE
Social science- the study of society and how people behave and influence the world
around them
 As social science, economics studies how individuals make choices in allocating scarce
resources to satisfy their unlimited wants

2 branches of Economics
1. MACROECONOMICS
 concerned with the overall performance of the entire economy
 studies economic system as a whole
 focuses on the overall flow of goods and resources and studies the causes of
change in the aggregate flow of money
 is about the nature of economic growth, the expansion of productive capacity,
and the growth of national income
 2. MICROECONOMICS
 Concerned with the behavior of individual entities such as the consumer, the
producer and the resources owner
 Concerned on how goods flow from the business firm to the consumer and how
resources move from the resource owner to the business firm
 Concerned with the process of setting prices of goods known as Price Theory
Studies the decisions and choices of the individual units
 Examines alternative methods of using resources in order to alleviate scarcity

BASIC ECONOMIC PROBLEMS OF SOCIETY

1. What to produce and how much- what goods and services should be produce and
the quantity of goods should also be decided
2. How to produce- production method that will be used to produce the goods and
services
- Resource mix and technology that will be applied
3. For whom to produce- the market for the goods
- The young or old, the male or female market, the low-income or the
high-income groups
ECONOMIC SYSTEMS
1. Traditional Economy
o Decisions are based on traditions and practices upheld over the years and passed
from generation to generation
o Methods are stagnant and not progressive
2. Command Economy
 Authoritative system where in 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
 Holds true in dictatorial, socialist and communist nations
3. Market Economy
 Most democratic form of economic system
 Based on the workings of demand and supply, decisions are made on
what goods & services to produce
 People’s preferences are reflected in the price they are willing to pay in
the market and are therefore the basis of the producer’s decisions on
what goods to produce
 ECONOMICS AS AN APPLIED SCIENCE

Applied Economics---- is the application of economic theory and econometrics in

specific settings with the goal of analyzing potential outcomes
------typically characterized by the application of the core, as a means of
dealing with practical issues in the fields that include demographic economics, labor
economics, business economics, agricultural economics, development economics,
education economics, health economics, monetary economics economic history & many
others.
--- according to John Neville Keynes “ Applied Economics is the
designation & application of economic theory to the interpretation and explanation of
particular economic phenomena

PHILIPPINE’S BASIC ECONOMIC PROBLEMS

1. UNEMPLOYMENT
2. POVERTY
3. BOOMING POPULATION GROWTH