Introduction to Applied Economics

Origin of the Word

▹ Economics come from the greek word oikonomia, which means “household management”

Development of Definitions of Economics

1. a science of wealth getting and wealth using.

2. a science of making choices.

3. a social science that deals with the allocation of scarce resources to meet the unlimited human wants.

Economics as Study of Wealth

▹ Focuses on wealth

▹ Answers the two major economic problems in the society

- Production

-Consumption

▹ Wealth utilization by individuals and society

Economics as Study of Making Choices

▹We make choices among alternatives.

Opportunity Cost - the loss of potential gain from other alternatives when one alternative is chosen

. Example: Your mother asks you to help her during the Christmas Vacation and will pay you ₱5000 for
two weeks. But you decided to help your mother for 1 week then travel to Sarangani and enjoythe
beach with friends for one week. How much is the opportunity cost

Economics as Study of Allocation

▹ Allocation of scarce resources to answer the unlimited human wants

Scarce resources - a resource with an available quantity less than its desired use.

Five Dimensions of economics

1. Economics as a Social Science

2. Resources and the Study of Economics

3. Human Wants and Economic Analysis

5. Allocation and the Act of Economizing

Economics as a Social Science

It utilizes the scientific method of:

a) inquiry from identifying the problem.

b) proposing alternative tentative answers or hypothesis.

c) testing tentative answers to the questions or the problem at hand.

d) Gathering and treating the data

e) Answering the question through the conclusion.

Economics as a Social Science

▹ the study on how society creates its material wealth

▹ It is related to other social sciences that study other dimensions of a society

Resources and the Study of Economics

Natural Resources

▹ Fishes in our seas ▹ Timber from our forests ▹ Gold from mining sites

Human Resources

▹ Factory workers

▹ Nurses

▹ Accountants

▹ Scientists

▹ Domestic helpers

Physical Resources / Man -made Resources ▹

▹ Buildings

▹ Technologies

▹ Airports
▹ Housing facilities

▹ Buildings

▹ Technologies

▹ Airports

▹ Housing facilities

Resources and the Study of Economics

Resources are LIMITED

1. Length of time and difficulty to produce resources

2. Competing uses for these resources

Human Wants and Economic Analysis

Resources are used to answer the human needs and human want of a society.

▹ Human wants can be described as differentiated or expanded human needs.

Luxury Good - is a good for which demand increases more than proportionally as income rises, so that
expenditures on the good become a greater proportion of overall spending

Scarcity as a Source of Economic Problem

▹ Scarcity is the limitation of resources to answer the expanding human wants.

▹ Sometimes people equate scarcity as shortage.

▹ Scarcity still prevails because resources have competing uses.

▹ Scarcity is the problem that Economics answers.

Allocation and the Act of Economizing

Allocation can be defined as a social mechanism to respond to the economic problem of scarcity .

▹ Various ways of treating the problem of scarcity:

a) Slow down/tamper human wants.

b) Hasten the expansion of limited resources.

c) Combination of both
2. ECONOMICS AS AN APPLIED SCIENC2. ECONOMICS AS AN APPLIED
SCIENCE
Applied Economics is the application of economic theory and econometrics in specific settings

Economics can be applied in:

1. Marketing

2. Accountancy

3. Management

4. Finance

The field of economics is divided into two major fields

Microeconomics

-Studies the behavior of individual economic units, like the consumer and business firm.

Macroeconomics

-Looks at the behavior and decisions made by macroeconomic sectors:

￭ Household sector

￭ Business sector

￭ Government sector

￭ The rest of the world (ROW) sector

lesson 2- Introduction to Applied Economics (pt. 2)

Basic Economic Problems Confronting the Development of the Philippines in the 21st Century

1.Poverty and Unequal Distribution of Income

POVERTY restricting condition that prevents attaining the minimum level of consumption for
subsistence living

Limited Resources for: Food and Nutrition

Clothing , Shelter, Education, Employment

-the income needed to purchase minimum nutritional requirements and other basic necessities for
survival

Poverty Incidence

-is the proportion of households in the country with family income lower than the poverty threshold or
poverty line.

“wealth is not concentrated in the hands of the few”

-income is equally distributed

Economic Freedom- People have the right to choose their own occupations, to enter into contracts, and
to spend their income as they please

Two Categories of Poverty

Absolute Poverty

-The lack of income to buy the basic food and necessities for subsistence living

Relative Poverty

-Refers to the structure on how the national income being distributed among the households

Interventions Addressing the Issues in Absolute Poverty

- Free Meals, Housing, Cloth,Resource Enhancing Program

Interventions Addressing the Issues in Relative Poverty

-Progressive Taxation

-Income Transfers

-Other Program

2.Demographic Changes and Its Economic Implications

Economic Implications: Limited Land ,Provision for Social Services ,Enlargement of Labor Force

3.Low Investment in Human Resource Development

Economic Issues: Investments on Education, Research and Development

4.Weak Infrastructure

Examples: Transportation System in Manila, Energy Infrastructures, Telecommunication Facilities

Pursuing self - sufficiency by securing food grains domestically may result to high prices.

Initiatives to increase productivity: Invest in irrigation facilities, Cheap fertilizers and other inputs,
organize farmers

6.Slow Adoption of Modern Technology

Issues on Technology:

- Stagnation of our manufacturing sector

-Farmers still using traditional farming

- Transportation

7.Environmental Sustainability and the Country’s Development Thrust

Environmental Issues:

-Excessive use of natural resources

-Waste discharges

-Damages the environment

market DEMAND, MARKET SUPPLY AND MARKET EQUILIBRIUM

Demand Curve A
ND, MARKET DEMAND,
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MARKET SUPPLY MARKET
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Application of Supply and Demand Analysis (Part 1)
lesson 8
-effects of contemporary economic issues affecting the Filipino entrepreneur

❑ Review: If the demand increases and the supply remains constant, what will be the result with the price?

Answer: the price will increase.

What is the role of an entrepreneur in business?

The Role of an Entrepreneur

❑ Is the most important person in the business.

❑ Takes the key role in deciding what to produce, how much to produce, and for whom to produce.

❑ Allocates and manages the resources or factors of production including human resources and non-human
resources.

❑ Takes the risks of investing money, efforts and other resources into new undertaking whose result is uncertain.

❑ Constantly creates and develops new products and services.

❑ Is often called the “backbone of the economy” or the “engine of growth” because he/she brings employment.

Risks and Rewards of an Entrepreneur

❑ Rewards

 Establish a chance to make money and become rich.

 He/she is the boss of the business.

 Turns idea/creativity into projects that will produce goods and service and will earn income for himself/herself
and for his/her employees.

❑ Risks

 Any business is prone to risks and possibilities of failure.

 Works very hard every day, especially when the product/service is new in the market.

 Sometimes misses lunch, sleep, holidays, weekends and even sacrifices the time for family.

 Unwanted responsibility towards his/her employees, customers, and the community.

Implications for Entrepreneurs

❑ Investment and Interest Rate

❏ An entrepreneur will need funds to finance its initial operation as well as the acquisition of assets.
Internal resources from the entrepreneur and his/her partners may not be sufficient to finance the
investment needs.

❏ External funds can be sourced from the capital market or the market for funds.

❏ Supply of funds comes from the individuals, corporations and other institutions that have savings or
excess funds from their income.

❏ The price of capital is also influenced by the government. Through the Monetary Board of the BSP.

❑ Rentals and the Cost of Business Operations.

❏ Companies spent hundreds of millions of pesos to buy or lease real estates in Makati, Taguig, and
Ortigas in Metro Manila, and the expected favorable returns on their investments.

❏ It may not be wise for a small and beginning enterprise with limited resources to locate its office in
these high-end commercial districts

❏ Benefits of having an office in these commercial districts.

❑ Legitimacy and prestige to the business enterprise.

❑ There are economies or savings when business enterprises are located in one strategic
place.

❑ These commercial districts are designed for business with good infrastructure.

❏ A wage rate imposed by the government which is higher than the equilibrium wage rate.

❏ A minimum wage is an example of a floor price.

❏ https://youtu.be/QHKnDhS4vzs
Implications for Entrepreneurs

❑ Minimum Wage

❏ A wage rate imposed by the government which is higher than the equilibrium wage rate.

❏ A minimum wage is an example of a floor price.

❏ https://youtu.be/QHKnDhS4vzs

❑ Taxes

❏ Government units impose a number of taxes including business permits, real estate taxes, sales taxes, value
added taxes and taxes on traded goods and services.

❏ These taxes can increase the cost of business operations and can threaten the profitability of the business.
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❏ The government provides income tax holidays to firms.
❏ The government provides income tax holidays to firms.
❏ Allows the rapid depreciation of fixed assets of firms as tax shields.
❏ Allows the rapid depreciation of fixed assets of firms as tax shields.
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