The Nature and Scope of Economics as Applied and Social Science

1. THE NATURE AND SCOPE OF
ECONOMICS AS AN APPLIED
SCIENCE AND SOCIAL SCIENCE
WEEK 1

2. YOU GO THROUGH A DAY FACED WITH LIMITATIONS
• Wait in line before riding a jeepney to school.
• You experienced insufficient allowance for snacks and school
materials.
• Your parents complain about high prices and lack of income.
• People always complain about not having enough food, money,
clothes, and so on.
• This situation is called:

3. SCARCITY
•When resources are not enough to satisfy the
unending wants of people.
•Scarcity is the reason why we need to
understand and use economics.

4. ECONOMICS
•Is the social science which studies how
society manages its scarce resources to
satisfy these unlimited wants.
•The study of how people make choices to
satisfy their needs and wants with limited
resources.

5. • Because of the presence of scarcity, it is important for people to make
decisions and choices on how to make the best use of scarce
resources to satisfy as many wants as possible.
• For example, a wife who has to decide on how to budget the monthly
allowance sent by her OFW husband. She has to make sure that the
allowance will cover the payments for rent, food, tuition fees, clothes,
and others. If the budget is not enough, she has to give up paying for
some of these things. She needs to make a choice. If she decides not
to buy new school bags for her children then this is the
choice she gave up.
• In economics, this is called _____________________________.

6. OPPORTUNITY COST
• refers to the value of the ‘what was given up or the best foregone alternative’.
• Example: when a farmer decides to use his land to grow bananas, he gives up the
chance to cultivate rice.
• When a bank employee decides to be a public school teacher, she gives up the
bigger salary she received as a bank employee.
• The cultivation of rice and the salary as a bank employee are opportunity costs.
Without scarcity, people don’t have to make choices since they can have everything
they want, which in reality, is not the case. This concept should help us make better
decisions for us to benefit from a choice.

7. ECONOMIC RESOURCES OR
FACTORS OF PRODUCTION
are the resources needed to make goods and
services to satisfy the unlimited needs and
wants of people. These resources are limited so
payment is given to resource owners for their
use.

8. THE ECONOMIC RESOURCES ARE:
• LAND refers to the soil and natural resources that are not man-made. Land
owners receive a payment called rent.
• LABOR is the physical and human effort in the production of goods and
services. The income received is referred to as wage.
• CAPITAL is 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.
• Economics study how society manages these resources— how to make
better decisions so the needs and wants of people are given. The
importance of economics is part of living and surviving, because you make
choices everyday.

9. ECONOMICS IS BOTH A SOCIAL SCIENCE AND AN
APPLIED SCIENCE
• SOCIAL SCIENCE - is the study of society and how
people behave and influence the world around them
• APPLIED SCIENCE - is the use of existing scientific
knowledge or theories to practical real-world situations.

10. • We can tell that economics is a SOCIAL SCIENCE
because it studies how people behave and make
choices because of the limited resource.
• Applying economic theories and econometrics will help
people understand how these behaviors and choices
affect the economy as a whole, determine what could be
done to solve existing economic problems and to know
what can happen in the future (APPLIED SCIENCE).

12. POVERTY THRESHOLD is the minimum income required for a family/individual to meet
the basic food and non-food requirements.
In Metro Manila, the self-rated poverty (SRP) threshold—the "minimum monthly
budget self-rated poor families say they need for home expenses in order not to
consider themselves poor"—rose to P20,000 in March 2023 from P15,000 in December
December 2022.
POVERTY INCIDENCE is the number of individuals/families with income below the per
capita poverty thresholds divided by the total number of individuals/families.
• Ex: According to the 2020 census, Tabuk City has a population of 121,033 people,
where 10% is living below the poverty line. What is the Poverty incidence of TC as of
December 2020?
• 12,103.3/121,033 = 10%

13. TWO BRANCHES OF ECONOMICS
• Macroeconomics is concerned with the overall performance of the entire
economy. It studies the 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 aggregate levels of production and employment, and
national income. Measuring the growth of the economy is an example of
macroeconomics.
• The growth of the economy can be measured through determining the Gross
Domestic Product or GDP, and the Gross National Product or the GNP. The
GDP measures the value of goods and services produced within a country by its
citizens and non-citizens, while the GNP measures the value of goods and
services produced by its citizen in the country and abroad.

14. • Microeconomics, on the other hand, is concerned with the
behavior of individual entities such as the consumer, the
producer, the resource owner, and business firms. It studies the
decisions and choices these entities make and how their
decisions affect prices of goods in the market.

15. In a country where the people and the businesses
have decided that they are in need of clothes,
food, cellphones, raw materials, and cars. But
because of the limited resources, the country has
to make decisions regarding the following
economic problems:

16. ECONOMIC PROBLEMS
1. What to produce or which products to produce, and
how much to produce or the volume of production?
2. How to produce these products?
3. For whom to produce or who’s going to get these
products?

17. A COUNTRY MAY BE UNDER ANY OF THE FOLLOWING TYPES OR
EVEN A COMBINATION OF THE THREE ECONOMIC SYSTEMS:
1. Traditional economy- Decisions are based on traditions and practices
upheld over the years and passed on from generation to generation.
2. Command economy- Decisions are imposed on the people by the
government or a planning committee. This economy holds true in
dictatorial, socialist, and communist nations.
3. Market economy- This is the most democratic form of economic
system. People’s preferences are reflected in the prices they are willing to
pay and therefore the basis of the producers’ decisions on what goods to
produce.

18. POSITIVE AND NORMATIVE ECONOMICS
• POSITIVE ECONOMICS - things that are actually happening
in the country.
• Positive economics is “WHAT IS”.
• For example, the current unemployment rate in the Philippines
rose to 17.7 percent accounting to 7.3 million unemployed
Filipinos in the labor force in April 2020. This falls under
positive economics because this is the real unemployment
situation in the Philippines.

19. • NORMATIVE ECONOMICS – focused on the creation of policies
that will attain the ideal situation.
• Normative economics refers to “what should be.”
• For example, there should be a decrease in the unemployment
rate if the government ensures and sustains quality
employment. There is a need to provide education and training
to improve labor productivity and capacities, and to promote
economic growth and employment in agriculture and industry
sectors. These ideal situations and solutions fall under
normative economics.

20. Economics will help you understand why there is a need for
everyone, including the government, to budget and properly use
of whatever limited resources are available. It will help you
understand how to make better decisions in spending money,
saving, and even investing some of it.
On the national level, economics will enable you to take a look
on how the economy works and to decide for yourself if the
government officials and leaders are doing the right things in
trying to achieve economic growth and make policies and
strategies for the good of the nation and its citizens.