1. APPLIED ECONOMICS
A B M S P E C I A L I Z E D S U B J E C T
This course deals with the basic principles of applied economics, and its
application to contemporary economic issues facing the Filipino
entrepreneur such as prices of commodities, minimum wage, rent, and
taxes.
It covers an analysis of industries for identification of potential business
opportunities. The main output of the course is the preparation of a
socioeconomic impact study of a business venture.
Presentation made by:
GIAN PAULO M. RABANAL, LPT, MBA©

2. Chapter 1
Introduction to Applied Economics
Lesson 1.1 Introduction to Economics
Lesson 1.2 Economics as an Applied Science
At the end of the session the learners will be able to:
a. Differentiate Economics as a Social Science and as an Applied Science
b. Give real-life situation in which the Principles of Applied Economics are used.
c. Cite current economic issues that needs to be addressed.
d. Relate the Principles of Applied Economics to current issues using critical thinking.

3. Scarcity
Insufficiency of resources to meet the
wants of consumers and insufficiency
of resources for producers that hamper
enough production of goods and
services.
LIMITED
RESOURCES
UNLIMITED
HUMAN WANTS
Choices & Decision-making
Because of scarcity, there is a need for
a ma to make decisions in choosing
how to maximize the use of the scarce
resources to satisfy as many wants as
possible.
Land
Labor
Capital
Entrepreneurship
Food
Clothing
Shelter
Security, etc.
Relative Scarcity
Absolute Scarcity
Opportunity Cost

4. ECONOMICS
Economics is the social science that involves the
use of scarce resources to satisfy unlimited
wants.
Economics is a social science because it studies
human behavior just like Psychology and
Sociology.
Social Science
The study of society and how people behave and
influence the world around them.
Economics as a Social Science
As a Social Science, Economics studies how
individuals make choices in allocating scarce
resources to satisfy their unlimited wants.
Scarcity
LIMITED
RESOURCES
UNLIMITED
HUMAN WANTS
Choices & Decision-making

5. BRANCHES OF ECONOMICS
Macroeconomics
A division of Economics that is concerned with
the overall performance of the entire company.
It studies economic system as a whole rather
than the individual economic units that make up
the economy.
MACROECONOMICS is about the nature of
economic growth, the expansion of productive
capacity and the growth of national income.
Microeconomics
Is concerned with the behavior of individual
entities such as the consumer, the producer, and
the resource owner.
It is more concerned on how foods flow from the
business firm to the consumer and how
resources move from the resource owner to the
business firm.
It is also concerned with the process of setting
prices of goods that is also known as PRICE
THEORY.
MICROECONOMICS studies the decision and
choices of the individual units and how these
decisions affects the prices of goods in the
market.

6. SCARCITY
Is a condition where there are insufficient
resources to satisfy all the need and wants of a
population.
Relative Scarcity
Is when a goods is scarce compared to its
demand.
RELATIVE SCARCITY occurs not because the
good is scarce per se and is difficult to obtain
but because of the circumstances that surround
the availability of the good.
Absolute Scarcity
Is when supply is limited.
ABSOLUTE SCARCITY explains why there are
some products that are very expensive in the
Philippines.

7. CHOICE AND DECISION MAKING
With the presence of scarcity, there is a need to
make decisions in choosing how to maximize the
use of the scarce resources to satisfy as many
wants as possible.
Opportunity Cost
Refers to the value of the best forgone
alternative.
The concept of OPPORTUNITY COST holds true
for individuals, businesses, and even a society. In
making a choice, trade-offs are involved.
What will happen if there is no SCARCITY?
Without scarcity, a person does not need to
make choices since he/she can have everything
he/she wants.

8. CHOICE AND DECISION MAKING
With the presence of scarcity, there is a need to
make decisions in choosing how to maximize the
use of the scarce resources to satisfy as many
wants as possible.
Opportunity Cost
Refers to the value of the best forgone
alternative.
The concept of OPPORTUNITY COST holds true
for individuals, businesses, and even a society. In
making a choice, trade-offs are involved.
What will happen if there is no SCARCITY?
Without scarcity, a person does not need to
make choices since he/she can have everything
he/she wants.

9. BASIC ECONOMIC PROBLEMS OF THE SOCIETY
All societies are faced with basic questions in
the economy that have to be answered in order
to cope with constraints and limitations.
What to produce? How much?
society must decide what goods and services
should be produced in the economy. Having
decided on the nature of goods that will be
produced, the quantity to these foods should
also be decided on.
How to produce?
is a question on the production method that will
be used to produce the goods and services. This
refers to the resource mix and technology that
will be applied in production.
SCARCITY
LIMITED
RESOURCES
UNLIMITED
HUMAN WANTS
CHOICES AND DECISION MAKING
What
to produce? And
How much?
How
to produce?
For whom
to produce?
For whom to produce?
is about the market for the goods. For whom will
the goods and services be produced? The young
or old, the male or female market, the low-
income or the income groups?

10. ECONOMICS SYSTEMS
The economic system is the means through
which society determines the answers to the
basic economic problems mentioned.
Traditional Economy
Decisions are based on traditions
and practices upheld over the
years and passed on from
generation to generation. Methods
are stagnant and therefore not
progressive. Traditional societies
exist in primitive and backward
civilizations.
Command Economy
This is the authoritative system
wherein decision-making is
centralized in the government or a
planning committee, Decisions are
imposed on the people who do not
have a say in what goods are to be
produced. The economy holds true
in dictatorial, socialist, and
communist nations.
Command Economy
This is the most democratic form
of economic system. Based on the
workings of demand and supply,
decisions are made on what goods
and services to produce. People’s
preference are reflected in the
prices they are willing to pay in the
market and are therefore the basis
of the producer’s decisions on
what goods to produce.

11. WHY ECONOMICS IS IMPORTANT?
WHY DO WE NEED TO STUDY ECONOMICS?
ECONOMICS will help the students understand why there is a need for everybody, including the
government, to budget and properly allocate the use of whatever resources are available.
It will help one understand how to make more rational decisions in spending money, saving part of
it, and even investing some of it.
Read the front page of the newspapers
or watch the news on TV.
On the national level, economics will enable the students to take a look on how the economy
operates and to decide for themselves if the government officials and leaders are effective in trying
to shape up the economy and formulate policies for the good of the nation.

12. MEASURING THE ECONOMY
The heart of economy is production whose value measures both resource input and output of
people. The interplay of resources and outputs tells how well the economy has performed.
Economic Resources
also known as factors of production, are the resources used to produce goods and services.
Land
Soil and natural resources that are found in nature and are not man-made.
Owners of lands receive a payment known as RENT.
Labor
Physical and human effort exerted in production. It covers manual workers like construction
workers, machine operators, and production workers, as well as professionals like nurses, lawyers
and doctors. The term also includes jeepney drivers, farmers and fisherman The income received by
labors is referred to as WAGE.
Capital
Man-made resources used in production of goods and services, which include machineries and
equipment. The owner of capital earns an income called INTEREST.

13. GNP vs. GDP
Gross National Product
Market value of final products, both sold and unsold, produced by the resources of the economy in a
given period.
MARKET VALUE is determined by supply and demand
ECONOMY’S RESOURCES are those belonging to Filipino citizens and corporations.
NOT ALL RESOURCES BELONGING TO THE ECONOMY ARE IN THE ECONOMY. CONVERSELY, NOT
ALL RESOURCES IN THE ECONOMY BELONG TO THE ECONOMY.
GNP = C + I + G + (X – M)
Consumption (household and individual)
Investments (stocks of values for future use)
Government Expenditures on Goods and Services
Exports
Imports

14. GNP vs. GDP
Gross Domestic Product
Better indicator of domestic employment opportunities.
Defined as the market value of final products produced within the country.
GDP is net of GNP after deducting NET FACTOR INCOME from abroad
or
by deducting factor income from abroad and adding back FACTOR PAYMENTS to other countries.
NET FACOR INCOME from abroad is net export of factor service equal to Factor income from
abroad less the factor payments of other countries.
Net Inflow = Inflow - Outflow
- Net Inflow = - Inflow + Outflow

15. APPLIED ECONOMICS
Application of economic theory and
econometrics in specific settings with the goal of
analyzing potential outcomes.
John Neville Keynes
First to use the phrase “APPLIED ECONOMICS”
to designate the application of economic theory
to the interpretation and explanation of particular
economic phenomena.
Applied Economics in Relation to Philippine Economic Problems
Understanding the existence of scarcity can help Economics students analyze how to maximize the use of
available resources in order to overcome scarcity.
Knowledge of economic theories such as the Law of Supply and Demand can help in analyzing why prices
are high and what the government can do to help bring down prices.

16. The Philippines Basic Economic Problems
Non-inclusive Growth despite of Economic Growth
Millions of Filipinos are claiming they are
experiencing hunger or they still live below the
poverty level.
Unemployment despite of Improvements
Main problem of the Philippine Economy.
Unemployment Rate in the Philippines:
2nd Quarter of 2015 = Decreased to 6.4 % from 7.0% in the previous year
Philippines Unemployment Rate average = 8.85% from 1994 – 2015
Highest = 13.90% 1st quarter of 2000
Lowest = 6.0% 4th quarter of 2014

17. The Philippines Basic Economic Problems cont.
Poverty
Socio-economic problem.
Poverty incidence of the population registered at
26.4 %, 26.5% in 2009
25.2% in 2012
28.8 in 1st quarter of 2014
Population Growth
Basic economic problem that can be connected to the issue of scarcity.
When population becomes too big, economic resources may no longer be
enough to support the growing population.
2010 = 92.3 M
2014 = 100 M – growing by 2%
Philippines – one of the highest population in Asia.
Represents 1.37% of the worlds population.

18. Class Activity:
Debate
Download a copy and read the article “What’s in the proposed
2017 national budget?” using the link provided below.
Based on the budget, determine what expenditures are the government’s top priorities, and
then expenditures which are the least priorities.
The debate topic would be “Is it right to prioritize EDUCATION in preparing the National Budget?”
30 minutes preparation per team
15 minutes debate proper.
LINK:
https://www.rappler.com/move-ph/issues/budget-watch/145988-proposed-2017-national-budget

19. Thank You!
Reference(s):
Dinio and Villasis 2017. Applied Economics. Rex Bookstore First Edition. Pages 2 -14
Rappler
https://www.rappler.com/move-ph/issues/budget-watch/145988-proposed-2017-national-budget
Presentation made by:
GIAN PAULO M. RABANAL, LPT, MBA©