Applied Economics

The Nature and Scope of Economics Micro VS Macro Economics

Economics is a Social Science concerned with the This Economic Agents/Stakeholders interact in a specific
explanation and prediction of observed phenomena in the society. territorial, social, natural and/or cultural frame works
Economics study how the society solves the fundamental problems
The Market:
of reconciling the unlimited desires of individuals with scarcity of
resources who are susceptible to numerous alternative uses. 1. Consumers
Economics is also an Applied Science because it uses the scientific  Consume goods and services /offer production factors
method in its explanations, which consists of observing reality and  Maximize utility
presenting questions and problems to arrive at the formulation of 2. Producers
theories and models. As an applied science, it follows a systematic  Produce goods / demand productive factors
procedure to solve issues and problems of society.  Maximize profit
3. The Public Sectors
Economics is Classified into 2 Main Branches
 Attempt to maximize the well-being of society
 Microeconomics – focuses on the behavior of individual
GOODS – which yields to your satisfaction. It is anything used to
economic units and the functioning of markets. Its
satisfy your wants and needs.
perspective focuses on parts of the economy: individuals,
firms, and industries.  Tangible Goods – material goods or commodities.
 Macroeconomics – studies the functioning of economics as  Intangible Goods – when they are in the form of services.
an aggregate (production, employment). Its perspective looks
at the economy as a whole, focusing on goals like Goods Classified According to Use:
production, the standard of living, unemployment and
 Consumers Goods – goods for the ultimate consumption of
inflation.
the consumers
 Capital Goods or Industrial Goods – used in the
Macroeconomics has two types of policies for pursuing
production of other goods and services.
these goals
 Essential Goods – used to satisfy the basic needs of man
 Monetary policy
 Fiscal policy  Luxury Goods – goods man may do without but may give
comfort and satisfaction.
 Economic Goods –goods which are useful and scarce; with
value attached to them and a price has to be paid for their
use. If a good is so abundant and it can satisfy everyone’s
 needs without anybody paying for it, then, that good is free. Money that companies used to buy resources; manmade objects
The air is free, but the air from an aircon is an economic like machinery, equipment, and chemicals that are used in
good. production. Examples of capital goods are assets, company owns like
cash, furniture and fixtures, transportation, commercial and industrial
Kinds of Goods
business, and the like.
Economic Resources or Factors of Production
 Entrepreneurship
Economic resources as the factors of or inputs in the
Develops an idea and combines the other three factors of
production of goods and services to make an economic profit for
production to earn profit. The most successful entrepreneurs are
the firms. These factors of production are land, labor, capital,
innovative and risk-takers.
and entrepreneurship. Resources are limited in nature, but human
wants and needs are unlimited, thus, an efficient allocation of Characteristics of Resources
these resources is a big challenge for every economy. Economics
also helps the entrepreneurs and the economy to allocate  Scarcity
resources in the production of supplies to meet the demands of Refers to the insufficient resources to supply all the desires and
the consumers. needs of individuals. In the production of goods and services; there
 Land are issues that economics may encounter: these include: for Land –
inadequate land and natural resources; polluted areas; overcrowded
Natural resources available to create supply such as raw spaces; for Labor – unskilled workforce; mismatch of jobs; for
materials that comes from the ground. It can be a nonrenewable capital - low quality of equipment/machines; insufficient
resource; commodities such as oil and gold; and renewable resource, fund/capital; and for entrepreneurship – Inadequate training of
such as timber. Oil is a natural resource, but petroleum gas is a entrepreneurs; limited opportunity; scarcity of great ideas but many
capital good. Farmland is a natural resource, but a shopping center is competitors in the market
a capital good.
 Multiple use
 Labor
Refers to resources with more than one possible use. For
The work done by people such as education, skills, and example, a plot of land can be used to plant coffee or to build a
motivation and productivity. Productivity measures how much each factory.
hour of worker time produces as output. Workforce receives wage
for his labor.  Partially Replaceable

 Capital or Capital Goods Refers to resources that can replace another in the production of
goods or services
The 4 Basic Economics Problem
 There are basic problems common to all economies. In terms of In the division of labor, it allows workers and firms to produce
production, common to all countries is the problem on scarcity. more. This is because:
This arises because the resources are limited and have alternative
 Agents focus on areas of advantage due to natural factors
uses. This problem gives rise to four basic problems of an economy
and skill levels;
they produce. They will use that income to purchase the products  The agents learn and invent;
they need or want every day  The agents take advantage of economies of scale.
Division and specialization of labor only work when
individuals can purchase what they do not produce in markets.
Applied economics then helps you understand the basic problems
facing the world today. It helps you become a well-rounded thinker.
And most importantly, it prepares you to be a good citizen.
The American Marketing Association define Marketing as
the “activity set of institutions and process for creating,
communicating, delivering and exchanging offerings that have vale
for customers, clients, partners and society at large”. The Philippine
Marketing Association (PMA) define it as a “science and a
profession guided by universal principles of ethics, corporate
citizenship and corporate social responsibility”. This adheres to the
ethical principle and social responsibility wherein marketers must
avoid offering products and services which are harmful to health
standards and well-being and promote violence and immorality.
In economic growth and development, market structures lie
Applied Economics on Basic Issues and Problem in between two extremes, oligopoly and monopolistic competition.
The pricing and production decision of business enterprise are
Applied Economics seeks to solve the problems on scarcity. This shaped by the market structure in which the firm operates.
happens when human wants for goods and services exceed the
available supply. In a modern economy, it is evident that a division  Perfect Competition – Describes a market where no single
of labor happens when people earn income by specializing in what firm can distort the market price.
they produce. They will use that income to purchase the products  Imperfect Competition
they need or want every day
 Monopoly – is a market structure where a single firm
has the power to change the market price.
  Oligopoly – where there are only a few sellers and the
actions of any one seller can influence the market price
and will affect the profits of all other sellers.
 Monopolistic Competition – there are many sellers and
there is free entry of new entrant firms
Monopoly and Big Corporations
The pricing strategy above is called monopolistic or imperfect
Large scale production is often considered identical with competition which exist when each seller exerts a certain degree of
monopoly because they are at big advantage because they can buy control over the price and supply of the product he sells.
raw materials in greater bulk and therefore could secure an increase
Abuses of Monopolies
in price. However, they can also afford to reduce the price in order to
attract buyers with the result that small producers may eventually be  Price Cutting – big business concerns cut prices in certain
forced out of business or sell out to the big producer. Big regions where there is competition, while they charge higher
corporations however, also, are not necessary monopolistic. A small in other regions where there is very little or no competition
producer may also be called a monopolist if he can fix or dictates the at all.
price of the goods he sells like a sari-sari store in the remote barrio.  Political Corruption – these monopolies do not serve the
general welfare but the welfare of private individuals for an
Monopoly in the Philippines
influence and financial power often exert pressure upon
Most of the industries in the Philippines are still largely conducted public officials to gain more political power.
on a small scale, but many foreign goods are sold in a monopolistic  Monopoly Price as High price – the great mass of
conditions like petroleum, gasoline and other imported goods. consumers are at a disadvantage because many of the goods
Trademarks and franchises also confer monopoly rights on producers produced by monopolies are necessities.
Meralco holds a franchise which gives the company the Limitations of Monopoly
exclusive privilege to supply greater Manila with electricity. Public
utilities are called legal monopolies.  Potential Competition – if monopolist derives large profits,
other producers who were driven out of business might come
A corporation sometimes has a monopoly over a certain back or new firms may enter the business. Large profits
product because it has control over the sources of the raw materials always attract competition which serves as a reduction in
needed in the manufacture of goods, example of which is the mining income for the monopolist.
industry in some part of the regions like Benguet in limited  Use of Substitutes – consumers may refuse to buy their
quantities. products and resort to substitute products at a lower price.
How Monopoly Price is Determined  Limitation of Managerial Capacity – the point of
maximum efficiency will be reached sooner or later, and
 beyond that point the business will be less managed as an improved citizen of our country. Our crab mentality
competently if further expansion is to be done in the near will pull down others who are trying to get out of the misery
future and limits of efficiency will have been reached. of unemployment and poverty. Hard work and dedication is
 Government Intervention – if monopolist abuse their an attitude and making of a Filipino entrepreneur and
power, the government step in to protect the public like in “manana habit” hinders us to be one. As a Filipino
the case of public utilities where in prices are regulated or entrepreneur, we lost the opportunity of a golden time to
deregulated by Public Service Commission and the improve because we don’t value time.
Department of Trade and Industry.  Job Opportunities and employment – most Filipinos
 Monopoly and Agriculture – Agriculture is one of the receive minimum wages that barely can support the needs of
industry that has not been invaded by monopolist. Farm our families. Employment is one great opportunity to
products cannot be differentiated unlike the manufactured alleviate poverty and uplift the life of every Filipinos.
products. The products of one farm freely compete with the Income opportunities in the rural and remote areas along
similar products of other farms. countryside still depends on what nature could offer.
 Availability of Needed Capital – people below poverty line
Philippine Economic Landscape in the Present Time. Important
do not know the opportunity of availing the sources of short-
factors hinder our economic growth as a nation. Our country is still
and-long term funds and the legality of it in the banking
dominated by unjust distribution of health, poverty and
industry.
unemployment. The wealth of the nation is in the hands of the few
opportunist through graft and corruption. Entrepreneur and Socio– Economic Development – Economic
growth and development is the making of small and medium
 Poverty is still the spring board of concern and the kind of enterprise who contributed to the economy of big corporations for
leaders that the nation holds to play the wheels of fortune. being consumers of their production.
Poverty is the name of the game for the less fortunate.
 Population explosion is another factors that contributes  The entrepreneur provides employment and generate income
poverty to the less fortunate living a condition of which in turn pay taxes for the benefits of educational and
malnutrition of the young and adolescents. The ability of the social needs of the greater population.
society to manage population growth is an indication of its  The entrepreneur pay taxes in the form of real state tax,
readiness to address hindrances to economic growth and value added tax, expanded value added tax, capital gain tax,
development. sales tax and taxes and licenses from the local and national
government.
Factors in Determining Economic Growth  The entrepreneur provides new lifestyle and pleasures
 The Filipino values and culture – the love for imported through product innovation. Entrepreneurs do not stop
products develops foreign economy but drains the Philippine searching for better products and services.
economy. Our “bahala na” values will not guide our destiny  The entrepreneur improves the capital base of the economy
through capital investments which in turn generates profit
 and maximize shareholder’s wealth and will propel more  Improved social services.
business activities.  Ability to finance the internal peace and order.
 The entrepreneur creates people empowerment and social  Provision of improved infrastructure.
mobility through new lifestyle of travel and pleasure.  Adequacy of educational and training services.
 The entrepreneur promotes healthy competition which  Preservation of the environment and natural resources.
provides better choices of product and services. Competition  Reduction of internal and external public debt.
promotes satisfaction for target consumers best choice of  Increased material consumption by the people.
goods and services ensuring innovation and better  Attainment of favorable balance of trade and balance of
production of goods and services payment.
 Reduction of malnutrition and increase family income.
The Nature of Economic Growth and Development
 Self-sufficiency in food production.
Economic Growth is the expansion of the economy in  Promotion of entrepreneurship, small and medium enterprise
volume of production, trade, investment, income, infrastructure. It is as contributor of economic development.
viewed as a process of development of the economic sectors. It is the  Strengthening and stabilizing currency through production
widening of the areas of activities with effect on a higher level of and trade.
employment.  Financial adequacy of public sector

Economic Development is the growth of the Gross National

product (GNP), accompanied by a redistribution of wealth among the
people. It is the rise of investment, production and income that brings
about a better quality of life for the population.
The Gross National Product – it is the sum of the value of
goods and services created in the economy in a given year. It is the
measure of economic performance and vitality.
Goals of Economic Development
 A better quality of life through adequacy of food, clothing
and shelter and health services
 Increased in GNP that can provide better economic savings
and investments.
 Higher level of employment and wages for the labor sector.
 Poverty and underemployment reduction.
 Higher productivity rate in production.
 The Marketing Price System
Last module, we talked about the market demand, market
supply and market equilibrium. In our new topic, we will link more
of these variables to the market price system. For example, in the
article above, the causes and effects of the water shortage around the
Philippines could be best explained if we could understand the
concepts of demand and supply elasticity of the clean water.

Price System in a Market Economy

Let us find out more about the price system. We have
learned that demand is the willingness of the consumers to buy goods
and services. In economics, the willingness to buy goods and
services should be accompanied by the ability to buy, also called the
“purchasing power”. This is referred to as an effective demand.