Applied-econ.pptx

Lesson 1:
Overview of Applied
Economics
Objectives:
At the end of the lesson the students are
able to:
define applied economics and understand the
basic terms.
Identify the basic economic problems of
a country
Identify the tools and methods in
economics
Differentiate the main branches of
economics

Lesson 1: Introduction to Applied Economics
Applied Economics
As the name implies, is the
application of economic
theories and models in real life

Scarcity, Needs and Wants

Opportunity Cost , Absolute
Advantage and Comparative
Advantage
The benefit you give up
because you chose to
take action in favor of
another

Opportunity Cost , Absolute
Advantage and Comparative
Advantage
Having the ability to produce
more output compared to
another entity.

Opportunity Cost , Absolute Advantage and
Comparative Advantage
William Dave

William Dave
Pies
=
4
____
2
Pies=
6
____
4
2
____
1 =
3
____
2
= 0.5 = 0.67
=

William Dave
Cakes
=
2
____
4
Cakes=
4
____
6
1
____
2 =
2
____
3
= 2 = 1.5
=

Means having a lower
Opportunity Cost

Quiz
Country Dried Mango (kg) Chocolate (kg)
Philippines 200 150
Indonesia 120 130
A. Graphs
C. Opportunity Costs
D. Specialization
B. Absolute Advantage

Basic Economic Problems
WHAT to produce?
Resources determine Goods/Services to be produced

HOW MUCH to produce?
*Amount of Resources
*Number of Consumers

HOW to Produce it?
*Kind of Goods to be produced
*Factors of production available

FOR WHOM to Produce?
*Kind of Consumer

WHO gets to make these
decisions?
*Kind of
Economy/Government
Structure
5.

Traditional Economies
Def: Economic
Questions answered by
custom
Predominately
Agricultural
Developing or “3rd
World”
Trade and barter
oriented
Low GDP & PCI (per
capita income = avg.
inc.)

Command Economies
Def: Economic
questions answered by
the government
Very little economic
choice
No private ownership
Communism
Old Soviet Union, old
Communist China,
Cuba and North Korea

Free Market (Capitalist) Economies
Economic questions
answered by
producers and
consumers
Limited government
involvement
Private property rights
Wide variety of
choices and products
U.S., Japan

Mixed Economy/Socialism
Government involvement
and ownership and control
of property, of decision
making, and companies.
Government control of
business
Social “safety net” for
people
Socialism
Common in Europe, Latin
America, and Africa

Factors for Production
Land
Represents land and
similar natural resources.

Labor
Represents human capital
such as workers and
employees that transform
raw material and regulate
equipment to produce
goods and services.

Capital
Represents physical
assets such as
production facilities,
warehouses, equipment,
and technology used in
the production of goods
and services.

Entrepreneurship
Represents the factor
that decides how much
of and in what way the
other factors are to be
used in production.

Circular Flow of Economic Activities

Production Possibility Frontier
The PPF is an application
of the concept of
allocation of resources
and factors of
production

Methods Used in Economic Analyses
Qualitative
vs
Quantitative Approach
Focuses on directional
relationship of different
economic variables

Qualitative
vs

Qualitative
vs
Involves
mathematical and
statistical analysis of
economic data.

Economic
Variables
Generally, a variable is
an element that can
change, in contrast to
a fixed one.

Economic
Variables

Functions
And
Economic
Equations
Explain the
relationship between
two or more
economic variables

Functions
And
Economic
Equations

Functions
And
Economic
Equations
D = f (P)
“Demand is a function of Price.”
The price of a product
determines the demand for it.
P= Independent Variable
D= Dependent Variable

Functions
And
Economic
Equations
A mathematical expression of an
economic thought or concept

Functions
And
Economic
Equations
Y = C+I+G+Xn (1)
Y = C+I+G+(X-M) (2)
Y = f (C,I,G,X,M) (3)
Y = National Income
C = Consumption
I = Investments
G = Government Exp/.
X =
Exports
M= Imports
Xn = Net
Exports

Graphs
Provides visual
representation of the
relationship between two
or more economic variables

Graphs

Economic
Theories
And
Economic Models
These are statements or
observations on the relationship
of variables.

Economic
Theories
And
Economic Models
Example:
Marginal Utility Theory
It states that people buy
goods that give the
highest personal
satisfaction.

Economic
Theories
And
Economic Models
Models are generally
representations of reality.
Specifically, Economic Models
are the representations of
economic and social pehomena
analyzed using research,
observations and testing.

Economic
Theories
And
Economic Models

Time-Series
And
Cross-sectional
Data
Means that data are collected
for particular element(s) for
several time-periods.

Type of
Expenditure
2005 2006 2007 2008 2009 2010
1. Household
final
consumption
expenditure
P4,259,131 P4,667,986 P5,739,592 P5,739,592 P4,993,427 6,442,033
2. Government
Consumption
P3,526,729 P3,777,256 P4,989,237 P4,998,232 P5,003,123 P5,132,231
3. Capital
Formation
P1,233,232 P1,732,897 P1,525,980 P2,098,256 P2,153,153 P2,986,578
4. Exports P5,123,232 P5,564,765 P6,121,234 P6,564,335 P6,986,566 P7,121,232
5. Less:Imports P3,123,321 P3,457,864 P3,555,753 P4,012,216 P5,123,123 P5,708,763

Time-Series
And
Cross-sectional
Data
Include different variables for a
single time period.

Type of Expenditure 2005
1. Household final consumption
expenditure
P4,259,131
2. Government Consumption P3,526,729
3. Capital Formation P1,233,232
4. Exports P5,123,232
5. Less:Imports P3,123,321

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