week-1-applied-econ.pptx

APPLIED
ECONOMICS
(GENERAL ACADEMIC STRAND)

LEARNING OBJECTIVES
At the end of the lesson, the learners will be able
to:
• Differentiate economics as social science and
applied science in terms of nature and scope
2

INTRODUCTION
WHAT IS APPLIED ECONOMICS
3
1

WHAT IS ECONOMICS?
Economics is the scientific study of the ownership,
use, and exchange of scarce resources – often shortened to
the science of scarcity. Economics is regarded as a social
science because it uses scientific methods to build theories
that can help explain the behavior of individuals, groups, and
organizations. Economics attempts to explain economic
behavior, which arises when scarce resources are exchanged.
4

KEY TAKEAWAYS
Economics is the study of how people allocate scarce
resources for production, distribution, and consumption, both
individually and collectively.
5

KEY TAKEAWAYS
Two major types of
economics
are microeconomics,
which focuses on the
behavior of individual
consumers and producers,
and
macroeconomics, which
examine overall
economies on a regional,
national, or international
scale.
6

KEY TAKEAWAYS
Economics is
especially concerned
with efficiency in
production and
exchange and uses
models and
assumptions to
understand how to
create incentives and
policies that will
maximize efficiency.
Economists
formulate and publish
numerous economic
indicators, such as
gross domestic
product (GDP) and
the Consumer Price
Index (CPI).
Capitalism, socialism,
and communism are
types of economic
systems.
7

WHAT IS A SOCIAL SCIENCE?
Social sciences are a group of academic disciplines dedicated
to examining society. This branch of science studies how
people interact with each other, behave, develop as a culture,
and influence the world.
8

ECONOMICS AS A SOCIAL SCIENCE
Economics is a social science concerned with the production,
distribution, and consumption of goods and services. It
studies how individuals, businesses, governments, and
nations make choices about how to allocate resources.
9

ECONOMICS AS A SOCIAL SCIENCE
The building blocks of economics are the studies of labor
and trade. Since there are many possible applications of
human labor and many ways to acquire resources, it is the
task of economics to determine which methods yield the best
results.
10

WHAT IS AN APPLIED SCIENCE?
Applied science is a discipline that is used to apply existing
scientific knowledge to develop more practical applications,
for example: technology or inventions.
11

ECONOMICS AS AN APPLIED SCIENCE
Applied economics applies the conclusions drawn from
economic theories and empirical studies to real-world
situations with the desired aim of informing economic
decisions and predicting possible outcomes.
12

The purpose of applied economics is to improve the quality of
practice in business, public policy, and daily life by thinking
rigorously about costs and benefits, incentives, and human
behavior.
13

Applied economics can involve the use of case studies
and ECONOMETRICS, which is the application of real-world
data to statistical models and comparing the results against
the theories being tested.
14

BASIC ECONOMIC PROBLEMS
These are the main problems that hinders economic growth
and are observable in a global setting.
15

SCARCITY
Scarcity refers to the basic economic problem, the gap
between limited – that is, scarce – resources and
theoretically limitless wants.
16

SCARCITY
▰ Scarcity is when the
means to fulfill ends
are limited and costly.
▰ Scarcity is the
foundation of the
essential problem of
economics: the
allocation of limited
means to fulfill
unlimited wants and
needs.
17

SCARCITY
▰ Even free natural resources
can become scarce if costs
arise in obtaining or
consuming them, or if
consumer demand for
previously unwanted
resources increases due to
changing preferences or
newly discovered uses.
▰ Scarcity means there is
a finite supply of goods and
raw materials.
18

UNLIMITED WANTS
▰ Unlimited wants mean
that there is no end to
the quantity of goods
and services people
would like to consume.
▰ Because of unlimited
wants – People would
like to consume more
than it is possible to
produce
19

FUNDAMENTAL ECONOMIC QUESTIONS
What to
produce?
This problem involves selection of
goods and services to be produced and
the quantity to be produced of each
selected commodity. Every economy
has limited resources and thus, cannot
produce all the goods. More of one
good or service usually means less of
others.
20
A commodity is a basic good used
in commerce that is
interchangeable with other goods
of the same type. Commodities
are most often used as inputs in
the production of other goods or
services.

What to
produce?
For example, production of more sugar
is possible only by reducing the
production of other goods. Production
of more war goods is possible only by
reducing the production of civil goods.
21
So, based on the importance of various goods, an economy
must decide which goods should be produced and in what
quantities.

The problem of
“what to produce”
has two aspects:
1. What possible commodities to produce:
22
▰ An economy must decide, which consumer
goods (rice, wheat, clothes, etc.) and which of
the capital goods (machinery, equipment’s, etc.)
are to be produced. In the same way, economy
must make a choice between civil goods
(bread, butter, etc.) and war goods (guns, tanks,
etc.).

The problem of
“what to produce”
has two aspects:
2. How much to produce:
23
▰ After deciding the goods to be produced,
economy must decide the quantity of each
commodity that is selected. It means, if
involves a decision regarding the quantity to be
produced, of consumer and capital goods, civil
and war goods and so on.

How to
produce?
This problem refers to selection of
technique to be used for production of
goods and services. A good can be
produced using different techniques of
production.
24
By ‘technique’, we mean which combination of inputs to be used.

Generally,
techniques are
classified as:
Labor intensive techniques (LIT) and
Capital-intensive techniques (CIT).
25

Generally,
techniques are
classified as:
▰ In Labor intensive technique, more
labor, and less capital (in the form of
machines, etc.) is used.
26
▰ In Capital intensive technique, there
is more capital and less labor
utilization.

The Guiding Principle of “How to Produce” is to Combine
factors of production in such a manner so that maximum
output is produced at minimum cost, using least possible
scarce resources.
27

For whom to
produce?
This problem refers to selection of the
category of people who will ultimately
consume the goods, i.e., whether to
produce goods for more poor and less
rich or more rich and less poor.
28
Since resources are scarce in every economy, no society can satisfy all the
wants of its people. Thus, a problem of choice arises.

For whom to
produce?
Goods are produced for those people
who have the paying capacity. The
capacity of people to pay for goods
depends upon their level of income.
29
It means, this problem is concerned with distribution of income
among the factors of production (land, labor, capital, and
enterprise), who contribute to the production process.

The problem can be
categorized into two:
1. Personal Distribution:
▰ It means how national income of an
economy is distributed among
different groups of people.
30
2. Functional Distribution:
▰ It involves deciding the share of different
factors of production in the total national
product of the country.

The Guiding Principle of “For whom to Produce” is to ensure
that urgent wants of each productive factor are fulfilled to the
maximum possible extent.
31

It must be noted that
in addition to
‘Allocation of
Resources’, there are
two more Central
Problems:
▰ Problem of fuller and efficient
utilization of resources.
32
▰ Problem of Growth of resources.

FREE GOODS
A free good is one that is so abundant that its consumption
does not deny anyone else the benefit of consuming the
good. In this case, there is no opportunity cost associated
with consumption or production, and the good does not
command a price. Air is often cited as a free good, as
breathing it does not reduce the amount available to
someone else.
33

ECONOMIC PROBLEMS IN THE PHILIPPINES
1. Unemployment Unemployment occurs when a person
who is actively searching for
employment is unable to find work.
Unemployment is often used as a
measure of the health of the economy.
34
The most frequent measure of unemployment is the unemployment rate,
which is the number of unemployed people divided by the number of people
in the labor force.

1. Unemployment ▰ Unemployment occurs when workers
who want to work are unable to find
jobs, which lowers economic output.
35
▰ High rates of unemployment are a signal
of economic distress, but extremely low
rates of unemployment may signal an
overheated economy.
▰ Unemployment can be
classified as frictional,
cyclical, structural, or
institutional.

Frictional unemployment is
the result of voluntary
employment transitions
within an economy. Workers
choosing to leave their jobs in
search of new ones and
workers entering the
workforce for the first time
constitute frictional
unemployment.
Cyclical unemployment is the
component of overall
unemployment that results
directly from cycles of
economic upturn and
downturn. Unemployment
typically rises during
recessions and declines
during economic expansions.
36

Structural unemployment is a
longer-lasting form
of unemployment caused by
fundamental shifts in
an economy and exacerbated
by extraneous factors such as
technology, competition, and
government policy.
Structural unemployment
occurs because workers lack
the requisite job skills or live
too far from regions where
jobs are available and cannot
move closer.
37

Institutional unemployment is
unemployment that results
from long-term or permanent
institutional factors and
incentives in the economy.
Government policies, such as
high minimum wage floors,
generous social benefits
programs, and restrictive
occupational licensing laws;
labor market phenomena, such
as efficiency wages and
discriminatory hiring; and labor
market institutions, such as
high rates of unionization, can
all contribute to institutional
unemployment.
38

39

2. Poverty Poverty is a state or condition in which
a person or community lacks the
financial resources and essentials for a
minimum standard of living. Poverty
means that the income level from
employment is so low that basic human
needs cannot be met.
40
Poverty-stricken people and families might go without proper
housing, clean water, healthy food, and medical attention.

2. Poverty The full year 2018 poverty incidence among
population, or the proportion of poor Filipinos
whose per capita income is not sufficient to
meet their basic food and non-food needs, was
estimated at 16.6 percent.
41
This translates to 17.6 million Filipinos who
lived below the poverty threshold estimated at
PhP 10,727, on average, for a family of five per
month in 2018.

2. Poverty On the other hand, subsistence incidence
among Filipinos, or the proportion of Filipinos
whose income is not enough to meet even the
basic food needs, was registered at 5.2 percent
in 2018.
42
The monthly food threshold for a family of five
was estimated, on average, at PhP 7,528.

43

3. Quality of
Infrastructure
Infrastructure is crucially important to
foster countries’ economic development
and prosperity. Investments in
infrastructure contributes to higher
productivity and growth, facilitates trade
and connectivity, and promotes economic
inclusion.
44
Quality Infrastructure is at the heart of the Sustainable Development
Goals as it supports inclusive growth and enhances access to all.

4. Income Inequality Income inequality is how unevenly
income is distributed throughout a
population. The less equal the
distribution, the higher income
inequality is
45
The Gini Index is a popular way to compare income inequalities
universally across the globe.

4. Income Inequality The Gini index, or Gini coefficient, is
a measure of the distribution of income
across a population developed by the
Italian statistician Corrado Gini in 1912.
46
It is often used as a gauge
of economic inequality, measuring income
distribution or, less commonly, wealth
distribution among a population.

4. Income Inequality The coefficient ranges from 0 (or 0%) to 1
(or 100%), with 0 representing perfect
equality and 1 representing perfect
inequality.
47
Values over 1 are theoretically possible due
to negative income or wealth.
The World Bank
Estimate for the GINI
Index of the Philippines
in 2018 is at 42.3

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