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Applied Economics

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Grade 12

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Applied Economics

  1. 1. APPLIED ECONOMICS A B M S P E C I A L I Z E D S U B J E C T This course deals with the basic principles of applied economics, and its application to contemporary economic issues facing the Filipino entrepreneur such as prices of commodities, minimum wage, rent, and taxes. It covers an analysis of industries for identification of potential business opportunities. The main output of the course is the preparation of a socioeconomic impact study of a business venture. esentation made by: GIAN PAULO M. RABANAL, LPT, MBA©
  2. 2. Chapter 1 Introduction to AppliedEconomics Lesson 1.1 Introduction to Economics Lesson 1.2 Economics as an Applied Science At the end of the session the learners will be able to: a. Differentiate Economics as a Social Science and as an Applied Science b. Give real-life situation in which the Principles of Applied Economics are used. c. Cite current economic issues that needs to be addressed. d. Relate the Principles of Applied Economics to current issues using critical thinking.
  3. 3. Scarcity Insufficiency of resources to meet the wants of consumers and insufficiency of resources for producers that hamper enough production of goods and services. LIMITE D RESOURC ES UNLIMITED HUMAN WANTS Choices & Decision-making Because of scarcity, there is a need for a ma to make decisions in choosing how to maximize the use of the scarce resources to satisfy as many wants as possible. Lan d Labor Capita l Entrepreneurshi p Food Clothing Shelter Security, etc. Relative Scarcity Absolute Scarcity Opportunity Cost
  4. 4. ECONOMICS Economics is the social science that involves the use of scarce resources to satisfy unlimited wants. Economics is a social science because it studies human behavior just like Psychology and Sociology. Social Science The study of society and how people behave and influence the world around them. Economics as a Social Science As a Social Science, Economics studies how individuals make choices in allocating scarce resources to satisfy their unlimited wants. Scarcity LIMITE D RESOURC ES UNLIMITED HUMAN WANTS Choices & Decision-making
  5. 5. BRANCHES OF ECONOMICS Macroeconomics A division of Economics that is concerned with the overall performance of the entire company. It studies economic system as a whole rather than the individual economic units that make up the economy. MACROECONOMICS is about the nature of economic growth, the expansion of productive capacity and the growth of national income. Microeconomics Is concerned with the behavior of individual entities such as the consumer, the producer, and the resource owner. It is more concerned on how foods flow from the business firm to the consumer and how resources move from the resource owner to the business firm. It is also concerned with the process of setting prices of goods that is also known as PRICE THEORY. MICROECONOMICS studies the decision and choices of the individual units and how these decisions affects the prices of goods in the market.
  6. 6. SCARCITY Is a condition where there are insufficient resources to satisfy all the need and wants of a population. Relative Scarcity Is when a goods is scarce compared to its demand. RELATIVE SCARCITY occurs not because the good is scarce per se and is difficult to obtain but because of the circumstances that surround the availability of the good. Absolute Scarcity Is when supply is limited. ABSOLUTE SCARCITY explains why there are some products that are very expensive in the Philippines.
  7. 7. CHOICE AND DECISION MAKING With the presence of scarcity, there is a need to make decisions in choosing how to maximize the use of the scarce resources to satisfy as many wants as possible. the bes t forgon e Opportunity Cost Refers to the value of alternative. The concept of OPPORTUNITY COST holds true for individuals, businesses, and even a society. In making a choice, trade-offs are involved. What will happen if there is no SCARCITY? Without scarcity, a person does not need to make choices since he/she can have everything he/she wants.
  8. 8. CHOICE AND DECISION MAKING With the presence of scarcity, there is a need to make decisions in choosing how to maximize the use of the scarce resources to satisfy as many wants as possible. the bes t forgon e Opportunity Cost Refers to the value of alternative. The concept of OPPORTUNITY COST holds true for individuals, businesses, and even a society. In making a choice, trade-offs are involved. What will happen if there is no SCARCITY? Without scarcity, a person does not need to make choices since he/she can have everything he/she wants.
  9. 9. BASIC ECONOMIC PROBLEMS OFTHE SOCIETY All societies are faced with basic questions in the economy that have to be answered in orderto cope with constraints and limitations. What to produce? How much? society must decide what goods and services should be produced in the economy. Having decided on the nature of goods that will be produced, the quantity to these foods should also be decided on. How to produce? is a question on the production method that will be used to produce the goods and services. This refers to the resource mix and technology that will be applied in production. SCARCIT Y LIMITE D RESOURC ES UNLIMITED HUMAN WANTS CHOICES AND DECISION MAKING What to produce? And How much? How to produce? For whom to produce? For whom to produce? is about the market for the goods. For whom will the goods and services be produced? The young or old, the male or female market, the low- income or the incomegroups?
  10. 10. ECONOMICS SYSTEMS The economic system is the means through which society determines the answers to the basic economic problemsmentioned. Traditional Economy Decisions are based on traditions years and passed on and practices upheld over the from generation to generation. Methods are stagnant and therefore notprogressive. Traditional societies exist in primitive and backward civilizations. Command Economy This is the authoritative system wherein decision-making iscentralized in the government or a planning committee, Decisions are imposed on the people who do not have a say in what goods are to beproduced. The economy holds true in dictatorial, socialist, and communist nations. Command 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’s preference are reflected in the prices they are willing to pay in the market and are therefore the basis of the producer’s decisions on what goods to produce.
  11. 11. WHY ECONOMICS IS IMPORTANT? Read the front page of the newspapers or watch the news on TV. WHYDOWE NEED TOSTUDY ECONOMICS? ECONOMICS will help the students 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.
  12. 12. MEASURING THE ECONOMY The heart of economy is production whose value measures both resource input and output of people. The interplay of resources and outputs tells how well the economy has performed. Economic Resources also known as factors of production, are the resources used to produce goods and services. Land Soil and natural resources that are found in nature and are not man-made. Owners of lands receive a payment known as RENT. 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 fisherman The income received by labors is referred to as WAGE. Capital Man-made resources used in production of goods and services, which include machineries and equipment. The owner of capital earns an income called INTEREST.
  13. 13. GNP vs. GDP Gross National Product Market value of final products, both sold and unsold, produced by the resources of the economy in a given period. MARKET VALUE is determined by supply and demand ECONOMY’S RESOURCES are those belonging to Filipino citizens and corporations. NOTALL RESOURCES BELONGING TOTHE ECONOMYARE IN THE ECONOMY. CONVERSELY, NOT ALL RESOURCES IN THE ECONOMY BELONG TOTHEECONOMY. GNP = C+ I + G+ (X – M) Imports Exports Government Expenditures on Goods and Services Investments (stocks of values for future use) Consumption (household and individual)
  14. 14. GNP vs. GDP Gross Domestic Product Better indicator of domestic employment opportunities. Defined as the market value of final products produced within the country. GDP is net of GNP after deducting NET FACTOR INCOME from abroad or by deducting factor income from abroad and adding back FACTOR PAYMENTS to other countries. NET FACOR INCOME from abroad is net export of factor service equal to Factor income from abroad less the factor payments of other countries. Net Inflow = Inflow - Outflow - Net Inflow = - Inflow + Outflow
  15. 15. APPLIED ECONOMICS Application of economic theory and econometrics in specific settings with the goal of analyzing potential outcomes. John Neville Keynes First to use the phrase “APPLIED ECONOMICS” to designate the application of economic theory to the interpretation and explanation of particular economic phenomena. Applied Economics in Relation to Philippine Economic Problems Understanding the existence of scarcity can help Economics students analyze how to maximize the use of available resources in order to overcome scarcity. Knowledge of economic theories such as the Law of Supply and Demand can help in analyzing why prices are high and what the government can do to help bring down prices.
  16. 16. The Philippines Basic Economic Problems Non-inclusive Growth despite of Economic Growth Millions of Filipinos are claiming they are experiencing hunger or they still live below the poverty level. Unemployment despite of Improvements Main problem of the Philippine Economy. Unemployment Ratein the Philippines: 2nd Quarter of 2015 = Decreased to 6.4 % from 7.0% in the previous year Philippines Unemployment Rate average = 8.85% from 1994 – 2015 Highest = 13.90% 1st quarter of2000 Lowest = 6.0% 4th quarter of2014
  17. 17. The Philippines Basic Economic Problems cont. Poverty Socio-economic problem. Poverty incidence of the population registered at 26.4 %, 26.5%in 2009 25.2% in 2012 28.8 in 1st quarter of2014 Population Growth Basic economic problem that can be connected to the issue of scarcity. When population becomes too big, economic resources may no longer be enough to support the growing population. 2010 = 92.3 M 2014 = 100 M – growing by 2% Philippines – one of the highest population in Asia. Represents 1.37% of the worlds population.
  18. 18. Class Activity: Debate Download a copy and read the article “What’s in the proposed 2018 national budget?” using the link provided below. Based on the budget, determine what expenditures are the government’s top priorities, and then expenditures which are the least priorities. The debate topic would be “Isit right to prioritize EDUCATION in preparing the National Budget?” 30 minutes preparation per team 15 minutes debateproper. LINK: https://www.rappler.com/move-ph/issues/budget-watch/145988-proposed-2017-national- budget
  19. 19. Thank You! Reference(s): Dinio and Villasis 2017. Applied Economics. Rex Bookstore First Edition. Pages 2 -14 Rappler https://www.rappler.com/move-ph/issues/budget-watch/145988-proposed-2017-national- budget

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