TMBC 325
APPLIED
ECONOMICS
Prepared by: Iris G. Salmorin, MSc
1 . Identi fy at least three areas
that can be studi ed i n
Economi cs.
2 . Explai n why you beli eve
these three areas are
i mportant i n the fi eld of
Economi cs.
3 . Thi s acti vi ty i s worth a total
of 10 points . Please refer to
the evaluati on cri teri a
outli ned i n the rubri c below.
MODULE 1: INTRODUCTION TO APPLIED ECONOMICS
LEARNING OUTCOME
Lesson 1.1:
An Overview in Applied Analyze the basics of
Economics economics and its correlation
with today’s world realities.
Lesson 1.2: The Philippine
Economy Differentiate the three basic
categories of economics.
WHAT IS ECONOMICS?
The study of the proper allocation of scarce resources to
satisfy unlimited wants and needs.
1. Allocation – the division of things into portions; the act of sharing
2. Scarce (scarcity) – refers to a basic fact of life that there exists
only a limited amount of resources
3. Resources – refers to the goods and services that humans
consume
4. Unlimited wants and needs – a primary condition of humans that
says people will never get totally satisfied from the goods and
services they are consuming; always asking for more
WHAT IS ECONOMICS?
resources are scarce
knowing that we can study how to allocate the scarce
resources properly to satisfy human wants
WHAT IS APPLIED ECONOMICS?
The application of economic theory and assumptions of
economics to real-world situations , both isolated and
interrelated with sets of current circumstances.
ECONOMICS AS A SOCIAL SCIENCE
It deals with human behavior through i ts theory of how people
make choices . It seeks to explain the “why” of things in the
world of economic behavior – producti on, consumpti on, and
distribution.
ECONOMICS AS A SOCIAL SCIENCE
It deals with human behavior through i ts theory of how people
make choices . It seeks to explain the “why” of things in the
world of economic behavior – producti on, consumpti on, and
distribution.
WHY WE STUDY ECONOMICS?
[Link] learn way of thinking
[Link] understand society
[Link] understand global affairs
[Link] be an improved voter
WHY WE STUDY ECONOMICS?
[Link] learn way of thinking
Opportunity cost - The cost of the best foregone alternative
Example : Your mother gave you a 50 pesos. How will you
spend your money?
a. Buy a load for online surfing
b. Buy a snacks
WHY WE STUDY ECONOMICS?
2. To understand society
Efficient Market – No Free Lunch - A market in which
profit opportunities are eliminated almost instantaneously.
Example: You are about to pay for your water bill at the
payment center with three cashier counters. Three cashier
counters are straight ahead and have people in line to pay.
Which cashier should you choose?
WHY WE STUDY ECONOMICS?
3. To understand global affairs
All countries are part of the world economy, and
understanding of international relations begins with the
basic knowledge of economic links among countries.
WHY WE STUDY ECONOMICS?
4. To be an improved voter
When we participate in the political process, we are voting
on issues that require a basic understanding of economics.
WHAT ARE THE TWO (2) MAIN BRANCHES OF
ECONOMICS?
Macroeconomics
Microeconomics
WHAT ARE THE TWO (2) MAIN BRANCHES OF
ECONOMICS?
Macro - large” or “great
Micro - very small or small in size or scope
TWO (2) MAIN BRANCHES OF ECONOMICS
Microeconomics
The branch of economics that examines the functioning of individual
industries and the behavior of individual decision-making units that is
business firms and households.
Addressed the question, who gets the things that are produced, why
wealthy households get more than the poor households, and the forces
that determines this distribution of output
TWO (2) MAIN BRANCHES OF ECONOMICS
Microeconomics
The Basic
Economic Model
TWO (2) MAIN BRANCHES OF ECONOMICS
Macroeconomics
The branch of economics that examines the economic behavior of
aggregate – income, employment, output, and so on – on a national
scale.
Examines a wide variety of area such as what causes international
financial crises and why some nations grow rapidly while other stagnate
TWO (2) MAIN BRANCHES OF ECONOMICS
Macroeconomics
Household – bought goods and
servi ces to the Fi rm.
Firms – fi rms hi re labor from
Households and pay them through
wages, salari es, benefi ts, and other
forms of payment.
Government – i t also hi res labor from
Households and pays them their wages.
The Rest of the World – pays for the
goods and servi ces i t purchased from
the Fi rm.
Circular Flow of Payments, simplified
TWO (2) MAIN BRANCHES OF ECONOMICS
THREE BASIC CATEGORIES OF ECONOMICS
Economic theory
Economic Theory viewed in two (2) perspectives :
positive economics and normative economics
THREE BASIC CATEGORIES OF ECONOMICS
Economic theory
It is a statement or set of related statements about causes and
effect, causes and reaction. It attempts to generalize about the
data and interpret them.
Example: Law of Demand and Law of Supply
THREE BASIC CATEGORIES OF ECONOMICS
Positive Economics
Example:
1 . What determines the wage
An approach to economics that rate for unskilled workers?
2. The implementation of the
seeks to understand behavior and TRAIN Law will increase the
the operation of systems without government's collection of
taxes.
making judgements. It describes 3 . Imposing ECQ will lower the
what exist and how it works. It is a rate of COVID-19 incidents.
4. Standard Retail Price (SRP)
question of facts of an economy. It will protect consumers from
also answers the question: what is? overpricing.
THREE BASIC CATEGORIES OF ECONOMICS
Normative Economics Example:
1 . Should the government
subsidize or regulate the cost
An approach to economics that analyses of higher education?
2 . An increase in tax rate should
outcomes of economic behavior, not be a burden for taxpayers
evaluates then as good or bad, and may which will eventually
discourage investors.
prescribe courses of action. It is often 3 . What ought to be focused on is
called policy economics and involves the total elimination of Covid-19
and not just temporary
value judgement. It also answers the solutions.
question: What should be? 4. Lawmakers should make SRP in
accordance with the minimum
income of a consumer.
THE FOUR BASIC ECONOMIC QUESTIONS:
What to produce? or “What?”
How much to produce? or “How much?”
How to produce? or “How?”
For whom to produce? or “For Whom?”
THE FOUR BASIC ECONOMIC QUESTIONS:
What to produce? or “What?”
•what are the commodities to be produced?
Example:
Will the firm produce swimsuits or summer hats?
A few quality cellpgone or cheap ones?
Which will boost production and consumption
tomorrow?
THE FOUR BASIC ECONOMIC QUESTIONS:
How much to produce? or “How much?”
How many commodities to be produced?
Consider the most important or most valuable and is the
easiest and cheapest to produce given our resources.
Example:
How much will the company produce of summer wear and
winter clothes?
Should the company produce more summer wear than
winter clothes? Or should the ranking be reversed?
THE FOUR BASIC ECONOMIC QUESTIONS:
How to produced? or How?
How these goods are made?
Society must determine who will do the production, with what
resources, and what production technique they will use.
Example:
Who are the farms that have the capacity to produce 10 tons of
cavendish bananas?
Is electricity generated from oil, from coal or from the heat of
sun?
Will factories be run by people or robot?
THE FOUR BASIC ECONOMIC QUESTIONS:
Who will get that produced? or For whom?
For whom are the products produced?
Is the distribution and wealth fair and equitable?
How is the national product divided among different
households?
Example:
Are many people poor while only a few are rich?
Who will benefit from the goods and services produced?
ECONOMIC SYSTEM
1. Traditional Economy
The government's decisions are based on traditional practices
established over the years governed by past behavior patterns.
Since the methods are repeatedly used with little change in
techniques, it is stagnant thus not progressive.
In the Philippines, mostly in tribes far-reached by the government
and far-behind technological literacy uses this kind of economic
system.
ECONOMIC SYSTEM
2. Market Economy
It involves the trading of goods and services.
A consumer's preference is influenced by the prices of goods and
services they are willing to pay based on the seller's willingness
to produce. It is also known as a free-market economy,
introducing the thought of "invisible hand," representing the
concept of Demand and Supply.
Free market means that government intervention is minimal. And
so, only the market in the interaction of consumers and suppliers
dictates the price of goods and services.
ECONOMIC SYSTEM
3. Command Economy or Planned Economy
In this type of economy, all the decision-making of state-owned
and private enterprises is controlled by the government.
It is an authoritative system wherein what to produce, how much
to produce, and for whom to produce are strictly decided by the
government.
Primarily present in dictatorial, socialist, and communist nations.
China, North Korea, and Cuba are countries that strictly use this
type of economic system.
ECONOMIC SYSTEM
4. Mixed Economy.
It is a combination of market and command economy—a mix of
free-market and substantial government intervention.
Government interventions in the market focus mainly on price
discrimination, hoarding of goods, and intensive usage of
available resources, which negatively impact the current and
future generations.
The Philippines, for example, have a mixed economy.
ECONOMIC SYSTEM
4. Mixed Economy.
It is a combination of market and command economy—a mix of
free-market and substantial government intervention.
Government interventions in the market focus mainly on price
discrimination, hoarding of goods, and intensive usage of
available resources, which negatively impact the current and
future generations.
The Philippines, for example, have a mixed economy.
FIVE ECONOMIC FACTORS
Supply and Demand
Interest Rates
Inflation
Unemployment
Foreign Exchange Rate
FIVE ECONOMIC FACTORS
1. Supply and Demand
Supply and demand impacts a nation’s Gross Domestic Product
(GDP), which is the combined value of all goods and services
produced by a country in a given year.
2. Interest Rates
Interest rates affect the level of production of investment goods.
A change in interest rates results in a change in investment
demand.
FIVE ECONOMIC FACTORS
3. Inflation
Higher inflation is typically accompanied by higher prices, so
consumers may be less willing to buy non-essential or luxury
items.
4. Unemployment
The more people who are out of work, the less money that is
circulated into the economy through the purchases of goods and
services.
FIVE ECONOMIC FACTORS
5. Foreign Exchange Rate
A nation’s foreigh exchange rate is the value of its currency in the
international market.
THANK YOU
FOR
LISTENING.
TMBC 325
APPLIED
ECONOMICS
Prepared by: Iris G. Salmorin, MSc