Economics is the study of social behavior guiding in the allocation of scarce

resources to meet the unlimited needs and desires of the individual members of a
given society.

Economics seeks to understand how those individuals interact within the social
structure to address key questions about the production and exchange of goods and
services. First, how are individual needs and desires communicated such that the
correct mix of goods and services become available? Second, how does a society
provide the incentives for these individuals to participate in the production these
goods? Third, how is production organized such that maximum-possible quantities are
made available given existing resources and production technology? Finally, given
that these individuals are at one time involved in the production process and at other
times seeking to acquire the goods that have been produced, how are trading rules and
exchange agreements established?

The above questions stress the importance of understanding the process of production.
The goal here is to understand the basic features of production without getting mired
in great technical detail. This is accomplished by developing a simple model that
maintains the important features of what are, otherwise complex, engineering
relationships. Production is about the conversion of scarce resources into desired
goods and services. These resources are often referred to as the factors of
production-- a short list that includes:

 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)

This list is brief and yet complete intended to provide sufficient detail to model the
input choices available to the producer. Accordingly, the combination of Land,
Labor, Capital, and Entrepreneurship will lead to the production of Apples,
Wheat, Automobiles, Houses, a Freight Train, Education, or any other good or
service.

However, we do live in a world of scarce resources. Scarcity refers to a physical

condition where the quantity desired of a particular resource exceeds the quantity
available in the absence of a rationing system. Potential candidates for rationing
systems include:

 Tradition and Culture, where the problem of allocation is addressed via social
norms, customs and past history.
  Planning and Central Government Command, making use of complex
mathematical tables to determine output goals and input requirements.
 Voting and Political Procedures, communication about resource allocation
among individuals thorough the development of a consensus or perhaps
majority rule.
 Markets -- using a system of prices to act as a means of communication about
the availability of resources and the desire for those resources.

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.

In the case of final goods, Needs represent those goods and services required for
human survival. Needs are determined by nature, climate and region, and are often
finite. Human Wants or Desires refer to everything else. Human wants are
determined by society and the culture in which an individual lives. These wants are
indeed unlimited and represent the source of the problem facing all economic systems.

We need to be careful in noting that Economics is not just about the production of
goods and services. 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 then exchange
goods with others.
1. 1. Revisiting Economics as a Social Science Lesson 1 Applied Economics
2. 2. Specific Objectives 1. Define economics 2. Determine the importance of economics 3.
Describe the nature of economics
3. 3. Economics Study of what constitutes rational human behavior in the endeavor to fulfill
needs and wants Understanding how society allocates its scarce resources Almost
always, human activities involve economics
4. 4. OF ECONOMICS FROM DIFFERENT PERSPECTIVES
5. 5. 1. Fajardo 2. Nordhaus Economics – is the proper allocation and efficient use of available
resources for the maximum satisfaction of human wants Economics – is the science of
choice. It studies how people choose to use scarce resources to produce various
commodities
6. 6. 3. Sicat 2. Webster Economics – is a scientific study which deals with how individuals and
society may general choices Economics – branch of knowledge that deals with production,
distribution and consumption of goods and services
7. 7. ECONOMICS IN A PROCESS Unlimited wants Scarcity Make Choices
8. 8. Economic activities Earning money Buying goods and services Depositing and
withdrawing money in bank
9. 9. Economics from “Oikanomia” Household Management
10. 10. Science Social Science Economics
11. 11. Economics is classified as a social science because it deals with the study of human’s
life and how he lives with other men.
12. 12. ECONOMICS Macroeconomics Microeconomics
13. 13. Macroeconomics  Deals with the economic behavior of the whole economy or its
aggregates (composed of individual units) AGGREGATES Business Government
Households
14. 14. Macroeconomics Discusses the following: - Gross national product - Level of
employment - National income - General level of prices “EMPLOYMENT AND INCOME
ANALYSIS”
15. 15. Microeconomics Deals with the economic behavior of individual units such as:
Consumers Firms Landowners
16. 16. Microeconomics  Discusses the following: - Price of rice - Number of workers in a
certain firm - Income of Mr. Fu - Expenditures of PLDT “PRICE THEORY”
17. 17. Divisions of Economics Production Distribution ExchangeConsumption Public Finance
18. 18. Divisions of Economics 1. Production – refers to the process of producing or creating
goods needed by the households to satisfy their needs Factors of production – inputs Goods
and services – outputs Factors of Production
19. 19. Goods
20. 20. Services
21. 21. Divisions of Economics 1. Production – refers to the process of producing or creating
goods needed by the households to satisfy their needs Factors of production – inputs Goods
and services – outputs 2. Distribution – refers to the marketing of goods and services to
different economic outlets 3. Exchange – refers to the process of transferring goods and
services to a person in return for something present medium of exchange - money
22. 22. Divisions of Economics 4. Consumption – refers to the proper utilization of economic
goods. However, goods and services could not be utilized unless you pay for it. Hence,
consumption could also be spending money for goods and services 5. Public Finance –
pertains to the activities of the government regarding taxation, borrowings and expenditures.
It deals with the efficient use and fair distribution of public resources.
23. 23. ECONOMIC RESOURCES Factors of production or inputs Land Entrepreneurs Labor
Capital Foreign exchange
24. 24. 1. Land These resources consist of free gifts of nature which includes: - soil - rivers -
lakes, oceans - forests - mountains - mineral resources
25. 25. 1. Land Land is considered an economic resource because it has a price attached to it. *
we usually pay for it through rent or lease Land is a limited resource. Physical land is a fixed
resource.
26. 26. 2. Labor Also called “human resources” Labor- refers to all human efforts, be it mental or
physical, that help to produce satisfying goods and services In return, he earns an income in
forms of wages and salaries
27. 27. 2. Labor Labor is a flexible factor of production - workers can be allocated to different
areas of the economy for producing goods and services
28. 28. 3. Capital Two economic definitions of capital: a. Capital – can represent the monetary
resources use to purchase natural resources Ex: Companies use capital to buy land and
other goods
29. 29. 3. Capital Two economic definitions of capital: b. Capital – represents the major physical
assets individuals and companies use when producing goods and services Ex: buildings,
vehicles, equipments Income derived from capital is interest
30. 30. 4. Entrepreneurs French word which means “enterpriser” Entrepreneur – organizer and
coordinator of other factors of production: land, labor and capital. He uses his initiative, talent
and resourcefulness to create economic goods.
31. 31. 5. Foreign Exchange Refers to the dollar and dollar reserves that the economy has.
Foreign exchange is part of economic resources because we need foreign currency for
international trading and buying materials from other countries International medium - dollar
32. 32. QUIZ
33. 33. LET’S TEST OURSELVES! 1. Economics is derived from the Greek word “oikanomia”
meaning: a. Economic management b. Household management c. Social management 1
point
34. 34. LET’S TEST OURSELVES! 2. Economics is a social science because it deals with: a.
Human nature b. Natural resources c. Experimentation 1 point
35. 35. LET’S TEST OURSELVES! 3. Scarcity of resources means: a. minimum resources b.
excess resources c. shortage of resources d. no resources 1 point
36. 36. LET’S TEST OURSELVES! 4. These are examples of human wants except: a.
smartphone b. perfume c. watch d. clothing 1 point
37. 37. LET’S TEST OURSELVES! 5. Give your definition of economics 2 points
38. 38. Identify what type of economics (Macro or Micro) discusses the ff: 1. Gross National
Product 2. Price of bananas 3. Profits of Bread and Butter 4. Employment 1 point per item
1. 1. ECONOMICS AS AN APPLIED SCIENCE LESSON 2
2. 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
3. 3. SPECIFIC OBJECTIVES • Discuss why economics is an applied science • Explain the
basic economic problems • Understand how applied economics work
4. 4. APPLIED ECONOMICS • The term “applied economics” is believed to have started 200
years ago in the writings of two economists: JEAN-BAPTISTE SAY JOHN STUART MILL
(1767-1832) (1806-1873)
5. 5. 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.
6. 6. 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
7. 7. 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
8. 8. WHAT IS THE IMPORTANCE OF APPLIED ECONOMIC APPLICATION? II. Applied
economics acts as a mechanism to determine what steps can reasonably be taken to
improve current economic situation *to examine each aspect, one can strengthen areas
where performance is weak
9. 9. EXAMPLE • Purchase of goods and services • Usage of raw materials • Division of labor
within entity (e.g. firm, company, agency)
10. 10. 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 keep the economy flowing in a
correct direction
11. 11. ECONOMETRICS
12. 12. 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.
13. 13. Theoretical Applied Econometrics
14. 14. ECONOMETRICS EXAMPLE Real life application of econometrics would be to study the
hypothesis that as a person’s income increases, spending increases Income Spending
15. 15. 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
16. 16. Scarcity Povert y Unemploy ment Slow Growth Inflation
17. 17. SCARCITY • Scarcity- refers to the tension between our limited resources and our
unlimited wants and needs Video
18. 18. 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
 19. 19. 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
20. 20. 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?
21. 21. 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
22. 22. 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.
23. 23. IF YOU ARE THE ECONOMIC PLANNER, HOW CAN YOU RESOLVE
UNEMPLOYMENT? • List down your option/s. Discuss. • ½ crosswise. Due on Friday, July 7
2017

Economics is Pure or Applied Science?A pure science furnishes tools and applied science works
with these tools.Similarly, Economics as pure science, formulates various laws and applied
economics applies them in practice in solving various problems. Robbins and all others before
him treated economics as a pure positive science. But recently,applied economics assumed
greater importance. As pure science and applied science go hand-in-hand, so Economics is also
pure as well as applied science.The scope of economics means the limits or boundaries of
Economics. According to Adam Smith and A.C. Pigou Economics studies the causes of material
wealth.They gave a very narrow scope to the study of economics by limiting it only to those
activities relating to wealth. According to Prof. Marshall, “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. A.C. Pigou also restricted the scope of economics to the study of economic welfare.
Robbins finds the welfare definition of economics rather restrictive as it excludes non-material
things from its scope. Services of doctors, teachers, lawyers, domestic servants etc. are scarce
and satisfy wants in our daily life but they are non material. Similarly, all economic activities are
not conductive to economic welfare.For example, the activities of manufactures of liquors and
opium are opposed to welfare. Economics studies how wealth is generated, exchanged,
distributed and consumed. Exchange includes determination of value of commodities,
money,banking, international trade, foreign exchange etc. In distribution we study the
determination of rent, wages, interest and profit. We study the factors that determine a
country’s national income, savings, investment, output and employment and these factors
promote economic growth. The growth with stability forms the subject matter of modern
economics.