applied eco

1. Lesson 1
Basic Concepts of Economics

2. Learning Outcomes
In this lesson, the students are able to:
1. Define economics
2. Explain the concepts of economics
3. Explain how applied economics can be used
to solve economic problems

3. Pre-test
I. True or False: Carefully read each sentence and determine if
the sentence is true or if the sentence is false.
• 1. Economics comes from the Greek word oikonomia
• which means household chores.
• 2. Economics is considered a field of social science.
• 3. Economics is relevant because it is part of
• everybody’s life.
• 4. There are three (3) divisions of Economics, the
• microeconomics, the macroeconomics and the home
• economics.
• 5. As a science, Economics is related to other sciences.

4. II. Essay.
Answer the following using five (5) sentences and
above.
a. As an individual, what do you think is the
essence of studying economics?
b. How do you apply economics in your
household?

5. What is Economics?
Economics is formally defined as follows:
 “The science which studies human behavior as
relationship between ends and scare means
which have alternative uses” (Stiegler, 1985)
“Study of how societies use scare resources to
produce valuable commodities and distribute
them among different people” (Samuelson and
Nordhuas, 1995)
“Economics is the study of given ends and scarce
means (Lionel Rob-bins).

6. Economics is….
• The word “economics” comes the Greek word
“oikonomia”, which literally translate to household
management. It is also a derivative of oikonoméō, “a
steward, managing a household”)- properly, a
stewardship, management (administration).
• Economics is a discipline and can actually be defined as
the study of scarcity, the study of how people use
resources, the study of the proper allocation and
efficient use of scarce resources to produce
commodities for the satisfaction of unlimited needs
and wants of man.

7. • Economics involves wealth, finance,
recessions, and banking, leading to the
misconception that economics is all about
money and the stock market.
• Economics seeks to understand how
individuals interact within social structures to
address key questions about the production
and exchange of goods and services.
• Economics is regarded as a social because it
uses scientific methods to build theories that
can help explain the behavior of individuals,
groups and organizations.

8. • Hence, economist have to employ different
methods, based primarily on observation and
deduction and the construction of abstract
models. Production is about conversion of scarce
resources into desired goods and services. These
resources are often to as the factors of
production.
Land (acreage, and raw materials)
Labor (unskilled, semiskilled, professional)
Capital (machines, factories, transportation
equipment, and infrastructure) and
Entrepreneurship (organizing the other factors of
production and risk-taking)
Scarcity refers to a physical condition where the
quantity desired of a particular resources exceeds the
quantity available in the absence of a rationing system.

9. Potential candidates for rationing systems include:
• Traditional and Culture, addressed
• Planning and Central Government Command
• Voting and Political Procedures
• Markets – using a system of prices to act as
means of communication about the
availability of resources and the desire for
those resources.

10. Goods and services refer to:
• Final Goods and services --- those products that
are directly consumed by individuals to satisfy
their needs and wants
• Intermediate or Capital Goods --- are those goods
used to produce other goods.
Needs represent those goods and services required
for human survival. Needs are determined by
nature, climate and region, and are often finite.
Wants or Desires refer to everything else. Human
wants are determined by society and culture in
which individual lives.

11. • Equally important is developing an
understanding about how wants and needs
are communicated to the economic system,
how to involve individuals in the production
process and provide incentives for these
individuals to specialize in areas of production
where their talents are best used and them
exchange goods with others.

12. Main Branches of Economics
1. Microeconomics
deals with the behavior of individual
components as an economic agent such as
household, consumer, worker, firm and
individual owner of production (producer).
refers to the study of choices by
individuals, like how someone decides on the
budget.

13. Main Branches of Economics
2. Macroeconomics
deals with behavior of economy as a whole
with the view to understand the interaction
between economic aggregates such as
employment, and national income/country’s
gross national product (GNP)
the study of government, industries,
central banking, and the boom and bust of the
business cycle.

14. Milton Friedman, a well know statistician and
economist differentiate the two.
• Normative Economics – has something to do
with “what ought to be.” It involves ethics and
value of judgment.
• Positive Economics, on the other hand has
something to do with “what is”. It describe
facts and data in the economy. It gives policy
recommendation to positive economics.

15. Group Activity
Give examples of how economics affects your
life as a student and as a member of the house
hold. Explain to class your answer and
realization.

16. Assignment
• Clip an economic news article from the
newspaper or magazine. Explain why and how
the issue being discussed is economics in
nature.
• Write an essay on the relevance of economics
in one’s daily life.