ECONOMICS AS AN
APPLIED SCIENCE
LESSON 2
ECONOMICS IS A STUDY OF ECONOMIC
ACTIVITIES OF A MAN. IT IS ONLY
CONCERNED WITH THE WEALTH-GETTING
AND WEALTH-USING ACTIVITIES OF A MAN.
- PROF.
MARSHALL
SPECIFIC
OBJECTIVES
• Discuss why economics is an applied
science
• Explain the basic economic problems
• Understand how applied economics work
APPLIED
ECONOMICS
• The term “applied economics” is believed to have started 200
years ago in the writings of two economists:
JEAN-BAPTISTE JOHN STUART
SAY MILL
(1767-1832) (1806-1873)
APPLIED
ECONOMICS
• Applied economics - is the study of economics in relation to real
world situations. It is the application of economic principles and
theories to real situations, and trying to predict what the outcomes
might be.
SIMPLER DEFINITION
• Applied economics – is the study of observing how theories work in
practice.
WHAT IS THE IMPORTANCE OF APPLIED
ECONOMIC APPLICATION?
1. Applying economics to a company, household or a country
helps sweep aside all attempts to dress up a situation so
that it will appear worse or better than it actually is.
*applied economics becomes a powerful tool to reveal the
true and complete situation in order to come
up with things to do
EXAMPLE
Applied economics can assess the profits of a
certain company
The result can help the executives to do some
strategies in order to boost its sales
WHAT IS THE IMPORTANCE OF APPLIED
ECONOMIC APPLICATION?
II. Applied economics acts as a mechanism to
determinewhat steps can reasonably be taken to
improve current economic situation
*to examine each aspect, one can strengthen
areas where performance is weak
EXAMPLE
• Purchase of goods and services
• Usage of raw materials
• Division of labor within entity (e.g. firm, company, agency)
WHAT IS THE IMPORTANCE OF APPLIED
ECONOMIC APPLICATION?
III. Applied economics can teach valuable lessons on
how to avoid the recurrence of a negative situation, or at
least minimize the impact.
*to review what steps were taken to improve and
correct similar situations and continue good strategies
to keepthe economy flowing in a correct direction
ECONOMETRICS
WHAT IS
ECONOMETRICS?
• Econometrics – is the application of statistical and
mathematical theories to economics for the purpose of:
• Testing hypotheses
• Forecasting future trends
The results of econometric are compared and
contrasted against real life examples.
Theoretical
Econometrics
Applied
ECONOMETRICS
EXAMPLE
Income Spending
Real life application of econometrics would be to study the
hypothesis that as a person’s income increases, spending
increases
BASIC ECONOMIC
PROBLEMS
• Scarcity of means for satisfying various needs is the
central problem of our economic life and it is scarcity that
creates the need to make a choice
• Scarcity and choice go hand in hand
Poverty
Unemployment
Inflation Scarcity
Slow
Growth
SCARCITY
•Scarcity- refers to the tension between our limited
resources and our unlimited wants and needs
BASIC ECONOMIC
PROBLEMS
1. What to produce?
- The system must determine the desires of the people.
- Goods and services must be based on the needs of the
consumers
Factors to consider:
a. Availability of resources
b. Physical environment
c. Customs and traditions of people
BASIC ECONOMIC
PROBLEMS
II. How to produce?
- The system must select the proper combination of
economic resources in producing the right amount of
output
- The quality of output must comes first
before the quantity
BASIC ECONOMIC
PROBLEMS
III. For whom shall the goods and services be produced?
- This has something to do with distribution
- Once the goods are produced, how shall they
be distributed?
BASIC ECONOMIC
PROBLEMS
IV. Are the country’s resources being utilized or some of them
are lying idle and unemployed?
- When resources are scarce, it is absolutely not right to
keep some of the available ones idle.
- If resources are not fully utilized, the production system is
said to be inefficient
BASIC ECONOMIC
PROBLEMS
V. Is the economy’s capacity to produce goods growing or
remaining the same overtime?
- To achieve a growth is productive capacity is a
universal objective.
IF YOU ARE THE ECONOMIC PLANNER, HOW CAN
YOU RESOLVE UNEMPLOYMENT?
•Brainstorm as a group.
•List down your option/s. Discuss.
•Create a slide presenting 3 solutions you came up
after brainstorming.