Applied Economics

Governor Pack Road, Baguio City, Philippines 2600

Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade ___ - ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 1 – Econ Subject Teacher:

ECONOMICS: HISTORY, IMPORTANCE AND BRANCHES

Learning Objectives:
At the end of the module, the students must be able to:
a. explain the definition, history and origin of economics.
b. discuss the importance of studying economics.
c. explain the different branches and approaches to economics

History
Approximate Period Significance of the Period Household Managing Activities
11, 000 B.C. and (Ice Age) polar ice caps started to Identification of the most
beyond melt; earliest known start of the important resources to survive;
creation of bodies of water in the water guaranteed survival of
world species
9, 000 B.C. Earliest traces of nomadic activity Men made weapons; hunted for
food and looked for viable
shelters; women took care of
children, prepared food, made
clothing and maintained shelter;
nomadic activities were
minimized and tribal leaders
were elected to manage
household needs; self- sufficiency
was the main objective of tribes
6, 000 B.C. Earliest known civilization (China, Nomads settled near fresh water,
Yang Tze River) built more permanent shelters,
had livestock activities; early
traces of agricultural technology
– cultivation and irrigation: signs
of early government and
civilization
3, 000 B.C. Next known civilization ( India, Civilizations flourish with the
Indus River) settlement of people in the
communities; sustainability was
the main objective
2, 800 B.C. Middle East civilizations (Tigris and Significance of rivers for
Euphrates) economic activities like trading
and agriculture

Some major characteristics of civilization are the following:

a.) A more or less permanent territory;
b.) Food production through field cultivation (ager cultura) or agricutura;
c.) Early practices of specialization ( food producers, hunters, fishing, soldiers, warehouse and
granary keepers, blacksmith, pottery, etc.); and
d.) An early system of government

 Why Study Economics?

1. Helps understand marketplace and the economic system.
2. To understand the signals from the marketplace, the nature of the cost of the products, and
the process of making decisions –especially those with quantified values.
3. To better understand how the world and its people function and behave.
4. Allows full participation in the policies of running the economy (e.g. election and legislative
processes)
5. Learning economics can be fun, once appreciated and understood.
 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade ___ - ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 1 – Econ Subject Teacher:

 Why major in Economics?

1. Get better preparation for vocations in which knowledge in economics is vital (e.g. law,
politics, social sciences, business, government, etc.)
2. Have the option to be in academic, business, government and non-government institutions
– a flexibility many other major do not have
3. Get better and better pay than most graduates due to the technical competencies they
develop (i.e. calculations, analysis, interpretation, and abstract and critical thinking,
establishing relationships, among events, research, project proposals and feasibility studies,
etc.), many of which are either lacking or not really developed in other courses

 Career Opportunities for Economists

A. Academe – academicians (teachers), professional researchers, project coordinators,
extension service providers, university planners, administrators
B. Business – those involved in marketing, management, finance, financial management,
research and development, analysts, statisticians, entrepreneurs, advisers, planners, public
relations officers, corporate ‘think tanks’
C. Social Science Fields – liberal arts people, historians, political scientists, social scientists,
lobbyists, journalists, policy makers, lawyers
D. Gov ernment- statisticians, researchers, city and economic planners, policy makers, political
and government advisers, budget and management assistants and officers, Congress and
Economics defined …
American Heritage Gk word ‘oikonomia’ or ‘oikonomos’ which means management of a
dictionary household: Oikos (house) + nomos (managing)
A social science that deals with the efficient allocation of scarce
resources to satisfy man’s unlimited wants and needs
senate staff, economic advisers, interpreters, political analysts, industrial analysts
E. Non-government organizations – micro- financers, project proponents, feasibility study
consultants,
ADAM SMITH, the first ECONOMIST
researchers,
project – Father of Economics, an English professor who served as the chief of
administrators, Bureau of Customs, England
project - Conceived a lot of rules, using the French phrase laissez-faire, for free
evaluators, enterprise and the word entrepreneur for the skill necessary to bring the
labor and factors of production in coherent whole
political group - Put forth the idea of the invisible hand in which individual, in the pursuit
advisers of his/her commercial activity for his own personal use, contributes in
F. Freelance – some way to the common good, and the well- being of the society
independent
researchers, professional consultants, freelance writers, campaign managers, ghostwriters,
independent businessmen

How then is economics studied?

 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade ___ - ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 1 – Econ Subject Teacher:

Economics uses a STANDARD METHOD ANALYSIS that is based on the blend of scientific method and
policy analysis.

SCIENTIFIC METHOD
- The process by which scientists, collectively and over time, to construct an accurate
representation of the world
- Attempts to influence the prejudice or bias in the experiment when testing a hypothesis or
theory

Observation and Formulation of a Use of the hyphothesis to predict Performance of experimental tests of the
the existence of other prediction by several independent
descriptionof a hypothesis to
phenomena,or to predict experimenters and properly performed
phenomenon/group explain the quanitatively the results of new experiments. If it may be supported, it can
of phenomenon phenomena observations be regarded as a theory or law of nature.

Common Mistakes in applying the Scientific Method

1. Mistaking the hypothesis for an explanation, followed by the explanation and retaining the explanation
2. Ignoring or ruling out data which do not support the hypothesis and
3. Failure to estimate quantitative errors

POLICY ANALYSIS
- An approach to evaluate policies in the public sector
Define
Define the Identifiy all Choose the
evaluation
problem alternatives best policy
criteria

How then is the ECONOMIC METHOD?

2. Apply the relevant

4. Evaluate solutions 5. Select and implement
1. State economic model
3. Identify - considers cost versus benefits, solution
the - generally consists of solutions possible side effects and spillover - be done by the policy
problem graphs, charts, tables and
solutions
figures maker

Common Pitfalls in Using the Economic Method:

1. Biases and Preconceptions – the use of personal judgments in the analysis of the facts
2. Loaded Terminologies- employing long definitions for some concepts and emotionally loaded
terminologies
3. Fallacy of composition – assuming that what is true to the parties is also true for the whole
4. Post hoc, ergo propter hoc fallacy- presuming that if one event precedes another, it
necessarily is the cause of the latter.
5. “What is true for depression is true for prosperity fallacy” – in using similar theories and policies
in dealing with varying economic situations
Economics is a) to analyze, as objectively as possible, and b) to plan, taking into account that
its purpose is simply to recommend to decision makers.

LIMITATIONS TO ECONOMIC MODELS:

1. The liberal use of assumptions
2. Ceteris Paribus from the Latin word which means, everything stands still or everything is held
constant
- “For models and laws to hold true, it should be influenced from the influence of other factors.
However, in reality , it is very difficult to isolate an event from another event and try to establish
relationship between them”
3. Short run and long run effects
 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade ___ - ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 1 – Econ Subject Teacher:

- Short run means the effect in the immediate future while in the long run, the continuing effect
in the future
4. The use of graphs
- Most often to simplify analyses of the behavior of individuals consumers, firms, industries and
economies but usually limited to the variables incorporated into the graphs

“Given these limitations of the economic models, it is important to remember that economics
is an attempt to put broad concepts into capsule and simplify reality into abstract models.
These models have guided many policy makers for several centuries, and although economics
is the oldest known social science today, we cannot discount that it is still an evolving
science.”

APPROACHES TO ECONOMICS
1. POSITIVE ECONOMICS
- Answers “ what is”
- It is factual, objective and used to describe the occurrence of a phenomenon
Example:
a. “ An increase in the price of petroleum leads to reduction in sales”

2. NORMATIVE ECONOMICS
- “What should be or what ought to be
- It is more subjective and more judgmental than positive economics
Example:
a. “The government should subsidize the price of petroleum to help low- income people as
their safety net provision.”

MAIN BRANCHES OF ECONOMICS

 Macroeconomics
-the study of the relationship of the broad economic sectors making up the entire national or
global economy
-studies aggregate supply and aggregate demand and uses average, general absolute price
levels
 Microeconomics
-studies decision making of individual economic units such as producer or one household
-studies individual supply and individual demand and uses relative prices

Aspect of Microeconomics Macroeconomics

Study
Units of the Individual consumers, producer Aggregate units such as state National
Study workers, traders etc. or International economy
Activities Optimization and maximization of Long term growth, maintenance of high
personal gains and profits levels of production and employment
Origin Micro activities emerge on the Problems of long- term growth depend
demand side of the consumer’s upon the supply of productive resources
choices
Conditions This approach is functional under This approach is functional under
static conditions and small time dynamic conditions and complex long-
intervals run changes
Methods It is concerned with small It deals with complex, dynamic changes
adjustments, for which the inviting the use of mathematical
application of a marginal method is techniques
suitable
Levels Micro adjustments in resource Macro approach attempts to find the
allocation are made in response to conditions of long- term expansions in
changes in relative prices of goods output as a whole, assuming relative
and services. The aggregate level of prices as constant ( or significant)
 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade ___ - ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 1 – Econ Subject Teacher:

income or total economic activities is

considered to be constant

The two approaches are complementary and not competitive

Activity 1:
Multiple Choice. Read and analyze each statement carefully choose the correct answer for each
item. Write the letter of your answer and the complete word/s in ½ crosswise of yellow paper or ½
crosswise of lone bond paper. Should answers be not found from the given choices, write “answer
not found”. (1 point each).

1. What is the Latin term for economics?

a. Oikonomos c. economia
b. Oeconomia d. economics

2. The term oikos + nomos were known to mean

a. Resource management c. income management
b. Household management d. material management

3. The term autarky characterizing the nomads of early times would most closely refer to the
concept of
a. Self- sufficiency c. Scarcity
b. Independence d. Abundance

4. Economics is known to be a field that mainly includes the following, except

a. Algebra c. Calculus
b. Geometry d. Trigonometry

5. The following are considered an integral part of learning economics, except

a. Abstract thinking c. Equations and graphs
b. Scientific method d. Social Implications

6. In the modern world, economics means the ______________________ use of resources.

a. Careful or thrift c. thrifty and wasteful
b. Careful and wasteful d. frugal and extravagant

7. The statement that best describes economics is;

a. It is a social science that studies the proper allocation of unlimited wealth to meet man’s
constrained demands and request
b. It is a social science dealing with the proper distribution of limited wealth to satisfy man’s
unrestricted wants and needs
c. It is a biological science that studies man’s behavior in fulfilling his limitless needs and
wants with meager resources
d. It is a biological science that deals in distributing insufficient wealth to fulfil man’s limited
needs and wants

8. Economics is science because

a. It studies man and his behavior
b. It is to improve the quality of man’s life
c. It is based on facts and uses of scientific method
d. It is full of fallacies and ideas
 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade ___ - ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 1 – Econ Subject Teacher:

9. Needs are known to be man’s

a. Wishes
b. Requirements to live
c. Preferences
d. All of the above

10. The heart of the study of economics is

a. To reconcile something which is limited against something unlimited
b. To reconcile something which is finite against something scarce
c. To reconcile something that is unlimited to something which is infinite
d. All of the above

11. Characteristics of civilizations include the following, except

a. A more or less permanent territory
b. Food production
c. Early practices of specialization
d. An early system of government

12. All of the following rivers gave life to civilizations, except the
a. Yang Tze River c. Indus river
b. Tigris river d. Euphrates river

13. Also known as the trade off or privilege foregone in exchange of something
a. Opportunity cost c. Substitute
b. Alternative cost d. Sunk Cost

14. Referred as the collective exercise of social cooperation that allows people to pursue their
“sometimes” narrow and individual interests, nonetheless, with social cooperation redowns to
the benefit of mankind
a. Visible hand c. invisible hand
b. Iron hand d. Social Welfare

15. Referred as the ultimate source of production

a. Human capital c. Land
b. Physical capital d. Entrepreneur

References:
1. Azarcon, et al. (2008). Principles of Economics. Baguio City: Valencia Book team.
2. Caoile, P. V. (2017). Applied Economics. Quezon City: Phoenix Publishing House, Inc.