1. ECONOMICS AS AN
APPLIED SCIENCE
LESSON 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. SPECIFIC OBJECTIVES
• Discuss why economics is an applied science
• Explain the basic economic problems
• Understand how applied economics work

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. 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. 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. 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. 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. EXAMPLE
• Purchase of goods and services
• Usage of raw materials
• Division of labor within entity (e.g. firm, company, agency)

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. ECONOMETRICS

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. Theoretical
Applied
Econometrics

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. 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. Scarcity
Povert
y
Unemploy
ment
Slow
Growth
Inflation

17. SCARCITY
• Scarcity- refers to the tension between our limited
resources and our unlimited wants and needs
Video

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. 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. 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. 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. 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. 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