Applied Economics
LESSON 1- INTRODUCTION TO ECONOMICS
Everybody goes through a day faced with constraints or limitations: motorists complain of
high gasoline prices, times when people suffer due to shortage of chicken in the market, or
insufficient allowance for a student who needs to buy books and school supplies. People always
complain about not having enough-not enough food on the table, not enough money to pay one's
debts, or not enough income to meet all the family's needs. This, in effect, is the existence of
what we call scarcity, that is, insufficiency of resources to meet the wants of consumers and
insufficiency of resources for producers that hamper enough production of goods and services.
WHY ECONOMICS IS IMPORTANT
As a student you may ask, "Why do you need to study economics? To know how important the
subject is, all you need to do is read the front page of the newspapers to see that the most important
news are economic in nature. Watch the news on TV and for sure, economic news always presents
important issues.
Economics will help you to 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.
On the 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.
“FIXED ME I AM CRUMBLED”
Instruction: Fixed the following rumbled letters:
SEIPRENRTE
Correct Answer:
ENTERPRISE
“FIXED ME I AM CRUMBLED”
ANDL
Correct Answer:
LAND
“FIXED ME I AM CRUMBLED”
RBOLA
Correct Answer:
LABOR
“FIXED ME I AM CRUMBLED”
APITLCA
Correct Answer:
CAPITAL
Economics
- as a study, is the social science that involves the use of scarce
resources to satisfy unlimited wants.
Well known economist Alfred Marshall 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 connected with the
attainment and use of material requisites of well-being.
Scarcity
- Is a condition where there are insufficient resources to satisfy all the needs and wants of a population.
Scarcity is the reason why people have to practice economics.
Two kinds of Scarcity
• Relative Scarcity- is when a good is scarce compared to its demand.
Ex. Bananas are abundant in the Philippines and are being grown in a lot of regions around the
country. But when a typhoon destroys banana plants and the farmer has no bananas to harvest, then
bananas become relatively scarce.
• Absolute Scarcity- is when supply is limited.
Ex. Oil
Cherries
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
Opportunity cost refers to the value of the best foregone alternative. The concept of opportunity
cost holds true for individuals, businesses, and even a society. In making a choice, trade-offs are
involved.
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.
1. Land - soil and natural resources that are found in nature and are not manmade. Owners
of lands receive payment known for rent.
2. 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 labors is referred to as wage.
3. Capital- man-made resources used in the production of goods and services which include
machineries and equipment. The owner of capital earns an income called interest.
Economic As A Social Science
Economics is a social science because it studies human behavior just like psychology and
sociology. As a social science, economics studies how individuals make choices in allocating
scarce resources to satisfy their unlimited wants
2 BRANCHES OF ECONOMICS
1. Macroeconomics- is a division of economics that is concerned with the overall performance
of the entire economy. It focuses on the overall flow of 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.
2. Microeconomics- is concerned with the behavior of individual entities such as the
consumer, the producer, and the resource owner. Microeconomics studies the decision and
choices of the individual units and how these decisions affect the prices of goods in the
market.
Activity:
Determine if the following topics will fall under microeconomics or macroeconomics. Write MIC if it
is microeconomics or MAC if macroeconomics in each blank.
_____ 1. The inflation rate in the Philippines in the last quarter of 2013 was 4.8%.
_____ 2. A ₱340B deficit in the Philippine budget is expected in the year 2018.
_____ 3. Prices of Toyota vehicles are predicted to go up in December 2017.
_____ 4. Garlic prices in the past months have risen because producers hoarded their supplies from
their warehouse.
_____5. Unemployment rate has dropped because of the increase in the number of OFWs.
_____6. Coca Cola is a fast-selling product in the local market.
_____7. Rental on land could not be increased by landowners because of the Rent Control Act of 2009.
_____8. Prices of apples and grapes tend to increase during the Christmas season.
_____9. The Philippine economy grew at the rate of 5.8% in 2013.
_____10. The Philippine Congress passed the Value-Added Tax Law to strengthen the Philippine tax
system.
BASIC ECONOMIC PROBLEMS OF SOCIETY
1. What to produce and how much- Society must have to 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 decided on.
2. How to produce- is a question on the production method that will be used to produced the goods
and services. This refers to the resource mix and technology that will be applied in production.
3. For whom to produce- is about the market for goods. For whom will the goods and services be
produced? The young or old, the male or female market, the low-income or the high income
groups?
ECONOMIC SYSTEMS
1. 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.
2. Command economy - this is the authoritative system wherein decision-making is
centralized in the government or a planning committee. Decision 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.
3. 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 preferences are reflected in the prices they are willing to pay in
the market and therefore the basis of the producers decisions on what goods to
produce.
