INTRODUCTION TO APPLIED ECONOMICS Why we study Applied Economics?
- Society is based on interdependence
among people
ECONOMICS
- Interconnection is the movement of
- Refers to the effective management of goods and service in relation to the
scarce resources to satisfy unlimited needs and wants of people
human wants and needs
- It is a social science that studies the
BASIC ECONOMIC CONCEPTS
means by which individuals, groups, and
societies produce, distribute, and
consume products and services
A. SCARCITY
- A condition where there are insufficient
resources to satisfy all the needs and
Examples:
wants of a population.
o Management of scarce resources - The concept of scarcity is coupled with
• Water shortage in the Philippines the fact that human wants and needs are
• Philippines is building the Kaliwa Dam as unlimited.
part of its solution to preserve water a. Relative scarcity – a good is scarce
resource to Metro Manila compared to its demand
o Societies produce, distribute, and b. Absolute scarcity – supply is limited
consume products
• Produce: Farmers, Zalora B. NEEDS
• Distribute: Middleman, Shopee - Things that are desired which are
• Consumer: People essential for human survival.
REVISITING ECONOMICS AS SOCIAL C. WANTS
SCIENCE - Are those that are desired but are not
essential.
SOCIAL SCIENCE
- Study of human behavior and society
D. ECONOMIC RESOURCES AND
FACTORS OF PRODUCTION
BASIC ECONOMIC QUESTIONS
I. LAND
1. What to Produce?
- Refers to all natural resources that exist
without man’s intervention. - A society determines the kind and
quantity of products it will produce
- It encompasses all things derived from
depending on what the consumers want
the forces of nature such as air, water,
to buy or are willing to pay for
forests, vegetation, and minerals.
- Payment for land is called rent
2. How to Produce?
- A society decides who will produce
II. LABOR goods and what process of production
- Refers to human inputs such as will be used.
manpower, skills that are used in - Goods may be produced by
transforming resources into different corporations, small business-owners, or
products that meet our need. the government itself
- Payment for labor is called wages and
salaries. 3. For Whom to Produce?
- The question revolves around the issue
of who will benefit from the goods and
III. CAPITAL services produced.
- Is a man-made factor of production used - This depends on the distribution of
to create another product. wealth in a particular society.
- Examples are machinery and equipment
used in manufacturing companies.
- The payment for capital is interest. E. OPPORTUNITY COST
- The cost of giving up an alternative by
selecting the secondbest choice.
IV. ENTREPRENEURSHIP
- Is the factor of production that integrates
land, labor, and capital to create new F. TRADE- OFF
products. - Once the choice is made, you can no
- An individual who makes the decisions longer go back and undo such choice
with regard to production and utilizing - Could result in either the satisfaction of
the other factors of production needs or a failure to meet them
KEY POINTS: ECONOMICS THEORIES
- Economics is a social science which - Seek to explain economic phenomena
studies the production, distribution, and and processes, and often propose a
consumption of goods and services. model – a framework of representation of
- It is concerned with the effective significant principles and describes how
management of scarce resources to variables are related.
satisfy unlimited human wants and
THEORIES MODELS OF APPLIED
needs
ECONOMICS:
A. Population Theory by Thomas Malthus
ECONOMICS AS APPLIED SCIENCE - Malthus proposed a principle that
population growth proceeds at an
exponential or geometric rate while food
APPLIED ECONOMICS production increases at an arithmetical
- The application of economic theory in rate.
real-world. - This means that while food production
- Closely tied to public policy and merely adds to its stock, the population
governance, as decision-making often itself multiplies at a much larger rate.
utilizes economic tools and methods.
- The primary concern of applied
economics is to address problems and
bring about economic development.
- The study of economics in relation to real
life situations.
- Professionals who can analyze and
interpret sophisticated economic data
and intelligently apply economic theory - Based on his population model, Malthus
can better assess the economic impact predicted that unless checks to
of key public policy questions
population growth are implemented,
population will increase at a rate that will
exceed food supply.
- The results of unchecked population
growth will be catastrophic.
- Malthus proposed that to avoid possible - How does the Philippines solve the oil
catastrophe, society must introduce price hike?
preventive or positive checks on o Department of Budget and
population growth. Management approve the release
of P3 billion for the fuel subsidy
program
HOW APPLIED ECONOMICS HELP SOLVE o This targets 3 million
ECONOMIC PROBLEMS beneficiaries in the transport
sector
o Suggestions from other groups:
BASIC ECONOMIC PROBLEMS WORLDWIDE:
▪ Suspend the collection of
A. INCREASE IN THE PRICE OF FUEL excise tax on petroleum
- It increases the cost of transportation productS
thus impacts the consumers o Suggestion from Riza
- It impacts businesses that rely on Hontiveros:
logistics and transportation chains ▪ Revisit and review the oil
around the globe deregulation law
- Higher cost of logistics means higher ▪ RA 8479 Oil Deregulation Law “It
cost of products/services = inflation shall be the policy of the state to
- If transportation cost affects consumer liberalize and deregulate the
spending, it can have an effect downstream oil industry in order
throughout the economy which leads to to ensure a truly competitive
economic slow down market under a regime of fair
- If businesses especially small prices, adequate and continuous
businesses will not be able to afford the supply of environmentally-clean
higher cost of operation, this could lead and high-quality petroleum
to layoff and an increase in products
unemployment
B. GROSS DOMESTIC PRODUCT AND o During the Covid 19 pandemic
GROSS NATIONAL PRODUCT manufacturing companies are
- Total market value of all economic goods moving away from China
and services produced within a country ▪ Unpredictable and
in a specified time. unreliable government
a. Gross Domestic Product ▪ Rising Labor Cost
- Total market value of all ▪ Geopolitics
economic goods and services ▪ Copyright issue
produced within a country in a o Major Companies that are moving
specified time. away from China
b. Gross National Product ▪ Intel
- Total market value of all ▪ Microsoft
economic goods and services ▪ Nike
produced by the countries ▪ Dell
residents regardless of location o Countries that are next
in a given period. manufacturing hubs:
▪ Vietnam
- China’s GDP Problem: ▪ Mexico
o Manufacturers are moving out of ▪ India
China ▪ Malaysia
o China became a major ▪ Singapore
manufacturing hub because of - What does the Indian government do to
several factors: attract foreign manufacturing?
▪ Low Labor Cost: China’s o Reducing taxes and regulations
workforce are young and on businesses
its labor are cheap o Investing in infrastructure such as
▪ Government Support: roads, ports and airports
Chinese government o Makes it easier for foreign
provided tax breaks and companies to invest in India
subsidies. o As a result of these efforts, India’s
▪ China has a strong economy has grown at a rapid
technology sector pace. In 2022, India’s GDP grew
by 8.7%.
- Apple and India - Japanese government’s effort to solve
o The Indian government has the population crisis
offered Apple a number of o Double spending on childcare
incentives and subsidies to move over the next seven (7) years
its manufacturing to India o Raise cash payouts to families
o India has a large and skilled with children and provide homes
workforce at a competitive cost for eligible parents
o India is a growing market for o Incentivize a public that faces
Apple products economic hurdles to starting a
o Announced that it would be family
opening a new manufacturing
plant in India which is expected to
MARKET DEMAND, SUPPLY, AND
create 50,000 jobs
EQUILIBRIUM
- How does Applied Economics help
India?
DEMAND
C. POPULATION - Indicates how much of a product
- In countries like Japan and Europe, there consumers are both willing and able to
are more old people than young people. buy at each price during a given time
- Philippines needs to build more period.
classrooms, while schools in Japan are - Demand is the value of goods and
closing down services that buyers are willing to
- Japan’s Population Problem purchase in every price.
o Deaths have outplaced births in - It centers on unlimited wants.
Japan for more than a decade
o Japan has now a ballooning
elderly population and a shrinking
workforce
o Shrinking economic output
o Fiscal Problems
MARKET - Demand = willingness to buy a product
- Quantity Demanded = exact amount
- Is an activity for business set-up.
that someone is going to purchase
- It where a consumers buys, and the
- The higher the price, the smaller the
sellers sells.
quantity demanded. The lower the price,
- The concept of market is important
the greater the quantity demanded.
because it is where a person who has
excess goods can dispose them to those
who need them. MARKET DEMAND
- Describes the demand for a given
SCHEDULE DEPICTS product.
- Determined by how willing consumers
- A demand schedule depicts the different
are to spend a certain price on a
quantities the consumer is willing to buy
particular good or service.
at numerous prices.
FACTORS THAT AFFECT DEMAND
DEMAND FUNTION
a. Substitution Effect
- Shows how the quantity demanded of a
o The change in the relative price –
good
the price of one good relative to
- Depends on its determinants, the most
the prices of other goods – causes
important of which is the price of the
the substitution effect.
good itself, thus, the equation : Qd = f(p)
o If all prices changed by the same
- This denotes that the quantity
percent, there would be no
demanded for a good is reliant on the
change in relative prices and no
price of that good.
substitution effect
b. Income Effect
LAW OF DEMAND o Because of the income effect,
consumers increase their
- As market demand increases so does
quantity demanded after a price
price, when demand decreases, price
decrease.
will go down as well
o Meanwhile, consumers reduce
- When the price of a product goes down,
their quantity demanded after a
people are generally more willing to buy
price increase.
more of it, and when the price goes up,
people are inclined to buy less.
DEFINITIONS IN ANALYZING THE MARKET MARKET SUPPLY
DEMAND
- Refers to the total quantity of a good or
service that all producers are willing and
able to offer for sale in a specific market
A. DIMINISHING MARGINAL UTILITY
at a given price and time.
- As we consume more of an item, the
- It is influencced by:
amount of satisfaction produced by
o COST OF PRODUCTION
each additional unit of that good
▪ As the cost of producing a
declines.
good or service increases,
- The change in utility gained from utilizing
producers are less willing
an additional unit of a product is known
or able to supply that
as marginal utility.
product at a lower price.
o TECHNOLOGICAL
DEMAND SCHEDULE ADVANCEMENT
▪ Impacts the market supply
- A table that shows the relationship
in a variety of ways like:
between the price of a good and the
▪ Cost reduction
quantity demanded at different price
▪ Increased productivity
levels.
Innovation
▪ Supply Chain Efficiency
DEMAND CURVE o NUMBER OF PRODUCERS
▪ Increased competition
- Graphical representation of the same
▪ Diverse product offerings
information found in a demand
▪ Economies of scale –
schedule.
refer to the cost
advantages that a
business can achieve
WHAT DO A DEMAND SCHEDULE AND A
when it produces goods
DEMAND CURVE IMPLY?
on a larger scale
- The price of good or service decreases =
the quantity demanded for it increases
- The price of good increases = the
quantity demanded for it decreases
- Understanding Market Supply is IMPLICATIONS OF MARKET PRICING ON
significant because: ECONOMIC DECISION MAKING
o Business
DecisionMaking/Investment
Decision DEMAND MAKERS IN PRICE CHANGE
o Price Setting A. Consumer Decision Making
o Market Competition - Affordability
o Policy Formulation o Prices directly influence
consumers’ purchasing
decisions. Affordability plays a
MARKET EQUILIBRIUM
crucial role in determining
- Is a state in which the supply of a good or whether individuals can buy
service matches the demand for that certain goods or services.
good or service at a specific price. In this - Substitution Effect
state, the quantity supplied by producers o Consumers may switch to
equals the quantity demanded by alternative products or services if
consumers. prices change. The substitution
- It is important to note that market effect is a common response to
equilibrium can change if there are shifts changes in relative prices.
in demand or supply. For example,
changes in consumer preferences, B. PRODUCER-DECISION MAKING
income levels, production costs or - Profit Maximization
external factors. o Market pricing information guides
producers in setting competitive
prices while covering production
costs.
- Resource Allocation
o Producers allocate resources
based on market prices.
o High prices may incentivize
increase production, while low
prices may lead to resource
reallocation or reduced
production.
C. GOVERNMENT POLICY B. Heterogenous
- RA 7581: The Price Act - Products, on the other hand, are
o An providing protection to products that are differentiated or made
consumers by stabilizing the with a unique attribute which distinguish
prices of basic necessities and them from other competitors’ product.
prime commodities and by
prescribing measures against
PROFIT & UTILITY MAXIMIZATION
undue price increases during
emergency situations and like - Ultimate goal of producers
occasions.
o Flood: Possible products that
might increase in case of floods in FOUR CATEGORIES OF A MARKET
an area STRUCTURE:
▪ MedicinE
▪ Agricultural
A. PERFECT COMPETITION
▪ Insurance Premiums
- Large number of independent buyers
▪ Automobile
and sellers, whose products are
▪ Energy
homogenous, identical, and
nondifferentiated
MARKET STRUCTURES - Since all products are identical,
consumers base their purchasing
- Is the nature and degree of competition
decisions solely on price and
among firms operating in the same
convenience
industry
- Firms have little control over the price of
- Markets are classified according to
their products and must accept the
certain structural characteristics
prevailing market price
PRODUCTS IN THE MARKET
B. MONOPOLISTIC COMPETITION
A. Homogeneous - There are many sellers or firms in the
- Products are goods or services that are market but each produce a slightly
similar and have the same purposes differentiated product
which give the same satisfaction to - These products are similar but not
consumers. perfect substitutes, giving each firm
some degree of market power
C. OGLIOPOLY B. INVESTMENT AND INTEREST RATE
- Market structure characterized by a - Philippines is not a top destination for
small number of large firms dominating investment and interest rates are high
the industry
- There are typically only a few major
C. CHALLENGES TO INFRASTRUCTURE
players, and their decisions significantly
- There are infrastructure deficiencies in
impact the market
the Philippines such as inadequate
- The behavior of each firm is
transportation system which affects
interdependent, meaning that the
logistics, production costs, and
actions of one firm can have a
business operations.
substantial effect on the others
D. CLIMATE CHANGE AND
D. PURE MONOPOLY
ENVIRONMENTAL STABILITY
- A single company is the sole producer
- There are times wherein the climate does
and seller of a product with no close
not favor the businesses
substitutes
- Products are unique and cannot be
easily substituted by other products, and
E. GLOBAL ECONOMIC TREND
has no close competition
- Geopolitical events such as wars and
international economic trends affects
businesses in the Philippines
F. POLITICAL STABILITY
- Local and international trust to the
Philippine government is crucial for
Filipino entrepreneurs
CONTEMPORARY ECONOMIC ISSUES
AFFECTING THE FILIPINO ENTREPRENEUR
A. ACCESS TO FINANCING
- It is difficult for Entrepreneurs to access
credit and financial resources
