HERCOR COLLEGE

Km. 1 Lawaan, Roxas City, Capiz 5800

ACADEMIC YEAR 2020-2021

MELCS BASED MODULE FOR

APPLIED ECONOMICS
CONTENT
STANDARDS
Economics as an applied science and its utility in addressing the
economic problems of the country.

PERFORMANCE
STANDARDS
Analyze and propose solutions to the economic problems using
the principles of applied economics

MOST ESSENTIAL LEARNING

COMPETENCIES

Define economics
Determine the importance of economics
Describe the nature of economics
Differentiate economics as social science
and applied science in terms of nature
M
ODULE 2
and scope
CONTENT
ANNIE D. ALBA, MBA
APPLIED ECONOMICS – ABM 12
HERCOR COLLEGE - HIGH SCHOOL DEPARTMENT
CHAPTER 1 [THE WORLD OF ECONOMICS AND ITS SIGNIFICANCE]

DISCUSSIONS
MICROECONOMICS AND MACROECONOMICS

We have talking about individuals, firms, or businesses, households, and society. But how do they differ? In order to distinguish
each one, we will look into the two major branches of economics: one is concerned with individual decision-making
(microeconomics) and the other involves understanding the behavior of society as a whole (macroeconomics).

Microeconomics

Microeconomics is the branch of economics that deals with the individual decision of the units of the economy (e.g., firms and
households) and how their choices determine relative prices of goods and factors of production. In a capitalist economy, the
market is the central concept of macroeconomics. It focuses on its two main players – the buyer and the seller – and their
interaction with one another.

Microeconomics operates on the level of the individual business firm, as well as that of the individual consumer. It is concerned
with how a firm maximizes it profits and how a consumer maximizes his or her satisfaction.

Among the topics discussed in microeconomics are the principles of demand and supply, individual decision-making, theories of
production, output and cost of firms, a firm’s profit maximization objective, different types of business organizations, and kinds of
market structure.

Macroeconomics

Macroeconomics is the branch of economics that studies the relationship among broad economic aggregates like national
income, national output, money supply, bank deposits, total volume of savings, investments, consumption expenditures, and
general price level of commodities, government spending, inflation, recession, employment, and more supply. The term macro, in
contrast to micro, implies that it seeks to understand the behavior of the economy as a whole.

Moreover, macroeconomics discusses the measurement if the gross national product (GNP) and gross domestic product (GDP),
the business cycle, the five macroeconomic goals, general price level, employment, money and the financial markets, and fiscal
policies, and economic growth and development.

BASIC ECONOMIC QUESTIONS

As mentioned, the central problem is scarcity, as resources are limited to satisfy unlimited human wants and needs. Scarcity
naturally leaves society with the problem of resource allocation. In order to address the problem of scarcity and to serve as a
guide in decision-making, society must answer the following basic economic questions:

1. What to produce
The question of what to produce tells us that an economy must identify which goods and services should be produced
for the utilization of society. A society must also take into account the resources that it possesses before deciding what
goods or services to produce.

For example, an island nation blessed with agricultural resources but has no advanced technology should not opt to
produce space shuttles or satellites because its resources cannot create these outputs. Instead, it can take advantage
of its natural resources and produce agricultural goods and provide tourism services.
In a market economy, what gets produced in society is driven by prices. Resources are allocated to the production of
goods and services that command high prices and relatively low input costs.
 2. How to produce
This question tells us that there is a need to identify different methods and techniques needed to produce goods and
services. In other words, society must determine whether to employ labor-intensive production or capital-intensive
production.
Labor intensive production uses more human resources or manual labor than capital resources in producing goods and
services. Generally, this kind of production is ideal for a society with a large population. In countries where labor
resources are abundant –such as the Philippines, Vietnam, and China – the cost of labor is usually cheap.
On the other hand, capital-intensive production employs more technological and capital goods like machineries and
equipment in producing goods and services rather than using labor resources. This type of production is generally
utilized by countries with a high level of capital stock and technology and scarce labor resources, like Japan, Germany,
and the U.S.
The decision of what form of technology to employ usually depends on the availability of cheaper resources. Thus, if
there is an abundant supply of labor (capital), then this resource will be cheaper and will cost less, so production will be
labor (capital)-intensive.

3. How much to produce

The question of how much to produce identifies the volume of goods and services needed for production to meet the
demand of individuals and society. The optimum amount of production must be approximated by producers.
Underproduction (shortage) results in a failure to meet the needs and wants of the society. On the other hand,
overproduction results in excess (surplus) goods and services going to waste.

4. For whom to produce

This question identifies the people or sectors that demand the commodities produced in a society. Economists must
determine the target market of the goods and services to understand their consumption behaviors and patterns. An
understanding of the market results in higher sales and, ultimately, to increase profits. We can therefore say that goods
and services are produced for those who can pay the highest price.

FACTORS OF PRODCUTION

Four economic resources serve as input in the production process. We refer to these resources as the factors of production –
land, labor, capital, and entrepreneurship – which firms utilize to produce goods and services. Below is a discussion of each
factor of production.

Land

This broadly refers to all resources found in nature and are, therefore, not man-made. Land, however, does not solely mean the
soil or ground surface. It also refers to everything that nature give freely. In this sense, land comprises all the materials that are
available beneath the soil or above it. These include the forests, mountains, rivers, oceans, minerals, air, and sunlight.

Land is sometimes classified as a fixed resource because it is finite. In other words, it is depletable or exhaustible. Once it has
been exploited, it cannot be restored to its original state, at least not for millions of years before nature can replace it. However,
land is still the main source of raw materials like timber, mineral ores, and crude oil, which are utilized in the production of goods
and services. The compensation for the use of land is called rent.

Labor

Labor refers to any form of human effort exerted in the production of goods and services. Labor covers a wide range of skills,
abilities and characteristics. It includes factory or construction workers who are engaged in manual or physical work. It can also
refer to an economist, nurse, doctor, lawyer, professor, financial analyst, engineer, and other workers and professionals who are
mainly involved in mental work.

The supply of labor in a country is dependent on the growth of its population and on the percentage of the population that is
willing to join the labor force. The compensation for labor rendered is called salary or wage.

Capital

Capital refers to man-made goods used in the production of other goods and services. It includes the building, factories,
machinery, and other physical facilities used in the production process.

Accordingly, a nation’s capital stock is dependent on its level of savings. Savings refers to that part of a person or economy’s
income which is not spent on consumption. The reduction of productive capacity of capital is called depreciation. The reward for
the use of capital is called interest.

At this point, we have to emphasize that money is not considered capital in economics as it does not produce a good or service.
Rather it is a form of asset that is used mainly as a medium of exchange. In other words, if we want to build a factory, we need to
have money to buy the machinery and equipment to construct the building.

Entrepreneurship

An entrepreneurship is a person who organizes, manages, and assumes the risks of a firm, and develops a new idea or product
and turns it into a successful business. Often, the entrepreneur is not presented as a separate factor of production but falls under
the factor of labor. However, since entrepreneurs perform a special type of work-the creation of goods and services-they should
be considered as separate factor and not just a part of labor.

Entrepreneurs also possess managerial skills needed in building, operating, and expanding a business. Specifically, they decide
what combinations of land, labor, and capital are to be used in the production process. Entrepreneurship is an economic activity
that commands a price, referred to as profit or loss. If entrepreneurs are successful in their business, they will earn a profit.
Otherwise, they will incur losses.

TEST AND EVALUATION OF KNOWLEDGE

TEST AND EVALUATION OF KNOWLEDGE

Direction: In a sheet of yellow paper, answer the following essay questions.

1. Differentiate microeconomics from macroeconomics.

2. Explain the role of the factors of production on the economy of our country.

REFERENCES
APPLIED ECONOMICS: EDILBERTO B. VIRAY JR. AND JESUSA AVILA-BATO

Fundamentals of Economics with Agrarian Reform, Taxation and Cooperatives (Roman D. Leano, Jr., Ronald M. Corpuz)

Rubric for Essay

Excellent (10 pts.) Good (7 pts.) Fair (5 pts.) Not Mastered (2 pts.)

Students’ responses are Student’s responses are Students’ responses are Students’ responses are
correct and offer extra correct, complete with somewhat correct but lack largely incorrect. The
supporting facts. Responses relevant detail and example. relevant detail and answers lacks a clear sense
include some interpretation Ideas and sentences show supporting examples. Ideas, of direction. Responses were
that indicates mastery of the clear understanding of the information and quotes are copied from an article,
topic. topic. explained and properly cited. books, and other online
references.

END of Learning Module