Department of Education

REGION IX
Western Mindanao
A urora P ioneers M emorial C ollege
(FORMERLY: Cebuano Barracks Institute)
Bonifacio St. Pob. Aurora Zamboanga Del Sur
Tel. No. : (062) 331-2332

OFFLINE LEARNING MODULE

Subject Title: APPLIED ECONOMICS

STUDENT NAME: ___________________________________

ADDRESS: ___________________________________
CONTACT NUMBER: ___________________________________
EMAIL: ___________________________________
COURSE/ YEAR: ___________________________________
INSTRUCTOR: JOAN MAE A. VILLEGAS____________
SCHOOL YEAR: 2020-2021__________________________

Module Guide:
1. Study topic content presented below.
2. Answer the exercises presented after the topic content.
3. Do not write anything on this module.
4. Write your answer anything on a separate sheets.
5. For online activities, send it to me through my gmail account: joanmaeangotvillegas@gmail.com
6. For questions or clarifications you can contact me through my:
A.) Messenger account: Joan Mae Angot-Villegas
B.) Contact #: 09106959298

UNIT 1 –ECONOMICS AND REAL-WORLD CHALLENGES

MODULE 1
OVERVIEW OF APPLIED ECONOMICS
Economics

- Came from the greek words, oikos which means household and nomus which means management or
oikonomus/oikonomia which means household management.
- It is the study of how we make decisions in a world where resources are limited
- It is the social science that studies the human behaviour of people in the society on how they make their
choices
Basic terms in economics:

Needs - the things that we need for survival

Wants - the things that we would like to have
Scarcity – it is a commodity or service being in short supply
Goods – anything that yields satisfaction to someone
Economic Resources- inputs used in the production of goods and services
Importance of studying economics:
1. Economics analysis provides us with guidelines to wise action and behaviour
2. To prudently evaluate our choices before making a decision
3. To understand why there is a need to save and invest
4. To understand why government work hand-in-hand with the private sector

Applied Economics/Economics as an applied science

- It is the application of economics theories and models in real life. It consist of learning how choices effect individual
decision-making and how the availability of factors aid decision workers craft sound judgment.

Concepts of studying economics:

A. Problems of scarcity

Limited Resources Unlimited wants and needs

Scarcity
 B. Economics
Limited Resources Unlimited wants and needs

Allocation

Important Economic Terms:

Wealth – refers to anything that has a functional value which can be traded for goods and
services

Economic goods – cover goods, services, products and the like that have price and are
sold in a market

Exchange – this is the process of trading goods and/or services for money and/or its
equivalent.

Branches of Economics:

Microeconomics
- It deals with the individual decision of units of the economy which is the firms and household, and how their choices
determine relative prices of goods and factors of production

Firm – maximize its profit

Consumer – Maximize its satisfaction

Macroeconomics
- It deals with the study of the relationship among broad economic aggregates like rational income, national output,
money, supply, general price level of commodities and government spending to understand behavior of the economy
as a whole.

Factors of Production:
Land – natural resources
Labor – human effort exerted in the production of goods and services
Capital – man-made used in the production of other goods and services
Entrepreneurship/Entrepreneur – it is also known as the brain behind business wherein it helps the business to use its
resources efficiently and effectively.
Basic economic Problems
- A nation is faced with three economic problems that deal with the production, distribution and consumption of goods and
services.

There are three economic questions:

1. WHAT goods to produced services to provide?

2. HOW to produce and how much to produce of these goods and services?
3. FOR WHOM to produce the goods and services?

WHAT?
An economy must identify what are the commodities needed to be produced for the utilization of the society in
everyday life. Availability of resources influences the decision of what to produce.

HOW MUCH?
This question focuses on the actual production of goods and services and the allocation of resources. This question
pertains to the impacts of production.

FOR WHOM?
The final question identifies the people or sectors who demand the commodities produced in a society.

Choices we make:
 Self -interest – choices that you think are best for you
Social-interest – choices that are best for society

Type of Economic Systems: (to address economic problems)

1. Free Market Economy

A free market economy is a system characterized by competition and a high level of private ownership. Prices are set
by market mechanism or by the interaction of buyers and sellers in the market. Resources are allocated freely based on the
interaction of market forces (i.e., buyer and seller). Individuals and entities have the economic freedom to exchange goods and
make decisions, which means that consumers determine what to produce based on their preference, while the producers have the
liberty to decide on how the products will be produced.
Additionally, the government maintains a hands-off role and has minimal involvement in achieving economic goals.
Nations with a free market economy include New Zealand, Singapore, and Australia.

2. Centralize Economy
Another extreme economic system is a centralized economy. It is also sometimes referred to as command economy.
This system is characterized by the heavy involvement of the government in managing the economy. The method of central
planning is employed where the government plans, directs, and decides on how resources will be allocated. Individuals have no
or limited economic freedom and private ownership is very limited. An examples of a centralize economy is that of North Korea.

3. Mixed Economy
An economic system that combines the features of free market and centralized systems is referred to as a mixed
economy. Free market forces and central planning together determine what to produce, how to produce, and for how to produce.
There is a balance between private and government accountability in achieving economic goals. Most industrialized countries
have this type of economic system. Examples include the United States France and Other European countries.
In a mixed economy, government intervention includes the power to impose taxes, set trade limits and restriction, and
implement legislations. In addition to oversight functions, the government can implement policies to promote business and at the
same time can impose sanctions to penalize industries. In return, the government provides services to the public.

4. Traditional Economy
A traditional economic system is characterized by customs and habits. Barter is a mechanism where goods are
exchanged for another good. Although not always recognized as a form of economic system in the 21 st century, it is still
worthwhile to know that most economies have evolved from this type of economic system. Currently, the traditional system is
limited to some nations in Africa. In the Philippines, the barter system may still be in a use in some rural areas.

Philippines Basic Economic problems:

1. Non – inclusive growth despite of Economic Growth

2. Unemployed despite of Improvements
3. Poverty
4. Population growth

PHILIPPINE SOCIOECONOMIC DEVELOPMENT PROGRAM IN THE 21ST CENTURY

Agenda 21
It is an action of the United Nation related to sustainable development. It is a comprehensive blue print of action to be
taken globally, rationally and locally by organization of the United Nation, government and major groups in every area in which
humans directly affect the environment.

Objectives of Agenda 21
It recognizes that sustainable development is primarily the responsibility of government, and this will require national
strategies, plans and policies.

Philippine Agenda 21
Established as a national agenda by the Philippines.
It provides for the creation of an enabling environment which would assist various stake to integrate sustainable
development in their decision-making-process.

Philippine Agenda 21 promotes harmony and achieves sustainability by emphasizing:

 1. A scale of intervention that is primarily area-based.
2. Integrated island development approaches where applicable.
3. People and integrity of nature at the center of development initiatives.

Activity: Contribute an action plan that will contribute towards the achievement of the objective of Philippines Agenda 21 for
sustainable development.

Category What is your plan in that category? How are you going to achieve the
plan?

National Development

Meaning of Sustainable Development

Sustainable development is derived from “an image of society and a shared vision of the development path of that
society.” It takes off from an understanding of the “state” of Philippine society and proceeds toward an agreed upon
development objective. Three key players define the goal of development, namely, government, business and civil society.
Thus, to promote sustainable development, “there must be an interplay of market forces, state intervention, and civil society
participation.”

Sustainable development is development that meets the needs of the present without compromising the ability of future
generations to meet their own needs. It is the harmonious integration of a sound and viable economy; responsible
governance; social cohesion; and ecological integrity to ensure that development is a life-sustaining process.

Seven Dimension of Development

1. Spiritual development
- Unless the people see and explicitly acknowledge the spiritual in nature, human beings and society in the
framework of development, the Filipinos can never do justice to the strong sense of Philippine spirituality
that permeates Philippine Agenda 21.
2. Human Development
- Existing measures of human development, such as the Human Development Index (HDI), which are limited
to health, education and income, indicate some improvement overtime. This improvement of the populace.
3. Social and Cultural Development
a. Promoting resources access upholding property rights
b. Promoting environmental awareness, inculcating environment ethics and supporting environment
management action
4. Political Development
a. Empowering the people
b. Maintaining peace and order

5. Economic Development
a. Maintaining a sustainable population
b. Maintaining productivity and profitability of environment and natural resources
6. Ecological Development
a. Adopting environmental management weapons in policy and decision making
b. Protecting the environment and conserving natural resources
7. Principles of Sustainable Development

Question: What is Philippine Agenda 21? List down the accomplishments of the Philippine
Principles of sustainable development under Philippine Agenda 21:

a. Primacy of developing Full Human Potential. This puts man at the center of all development efforts.
b. Holistic Science and Appropriate Technology. Implies development of appropriate technology to solve development
problems with due consideration to its impact to society and ecology
c. Cultural, Moral, and Spiritual Sensitivity. Considers the inherent strengths of local and indigenous knowledge,
practises and beliefs, while respecting cultural diversity, moral standards and the spiritual nature of the Filipino society.
d. National Sovereignty. Self-determination at the national level to pursue social and ecological concerns in its
governance to achieve human, environmental and food security
e. Gender Sensitivity. Recognize the importance of complementary roles and empowerment of both women and men in
development.
f. Peace, Order, and National Unity. Makes sure that the right of everyone to a peaceful and secure existence is
respected.
g. Social Justice, Inter-and Intra-generational Equity and Spatial Equity. Equal distribution of resources to everyone
(including future generations0 and the provision of equal access to development opportunity and benefits to all.
h. Participatory Democracy. Puts value and support to the participation of all in the decision-making process.
i. Institutional viability. Since SD is everyone’s concern, institutional structures should promote joint responsibility, unity
and partnership among all.
j. Viable, Sound and Broad-based Economic Development. Requires working for development that is based on stable
economy, where everyone equally shares the benefits of progress.
k. Sustainable Population. Needs to maintain a number of people that can be supported by the limited capacity of our
nature resources.
l. Ecological soundness. Requires that we recognize the earth as a common heritage that belongs to all of us, and
everyone should care for its capacity to support us and the future generations
m. Bio-geographical Equity and Community-based Resource Management. Means entrusting to the people residing near or
within an ecosystem the primary right to manage its resources.
n. Global Cooperation. Requires international solidarity of every nation’s effort to build a better life and safer
environment.

The Philippine Agenda 21 Visions

1. Poverty Reduction
- Poverty is a central concern of sustainable development. Consistent with this, the various consultation for the
updating of Philippine Agenda 21 have yielded poverty reduction agenda that includes measure to create an
enabling economic environment for sustained and broad-based growth; improve employment, productivity
and income; and attain food security.

2. Social Equity
- Social equity should mean allocation of resources on the bases of efficiency and equity to achieve balanced
development. Efficiency and equity mean the channeling of resources to developing areas where greater
economic benefits accumulate and where there is greater need, distribution being dependent on the practically
and urgency of needs.
3. Empowerment and good governace
- Empowerment is a precondition of informal choices. Good governance is a necessary precondition to
empowerment, as empowerment is to good governance. These two are a defining element of each other.
4. Peace and Solidarity
- The cycle of poverty and conflict goes on as the costs of war escalate in terms of various kind of destruction
while with holding funds for basic services, resulting in more poverty and underdevelopment.
5. Ecological integrity
- In general, the path towards enhancing the integrity of the country’s ecological domain will have to involve
heightened and sustained implementation of environmental laws, as well as the continued pursuit of resources
conservation/enhancement program.

SUPPLY AND DEMAND

Demand
- It signifies the ability or the willingness or buy a particular commodity at a given point of time.
Supply
- Is the quantity of a commodity that is in the market and available for purchase at particular price.
 Demand and Supply Schedule

Market
- Is a place where buyers and sellers intact with each other and that exchange takes place among them

Demand Schedule
- Reflects the quantities of goods and services demand by a consumer or an aggregate of consumers at any given
price.

Supply schedule
- Show the different quantities that are offered for sale at various prices

Examples:

Table 1 – hypothetical Demand of beef in the market

Price of beef (per kilo) Quantity of Demand in

Kilos
P 300 20
P250 40
P200 60
P150 80
P100 100
P50 120

Questions:
1. What does it shows? How do the price affects the demand of consumers?
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Table 2 – hypothetical Supply of rice in the market.

Price of rice (per kilo) Quantity of Supply in

Kilos
P 600 300
P5000 250
P400 200
P300 150
P200 100
P100 50

Questions:
1. What is the implication of the table?-
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The Law of Demand and Supply:

Law of Demand
- The quantity of a commodity which buyers will buy at a given time and place will vary inversely with the price
 Income Effect
 Substitution effect

Law of Supply
- States that the quantity offered for sale will vary directly with price.
Determinants of Demand (non-price factor)
1. Income
2. Population
3. Tastes and preferences
4. Price expectations
5. Prices of related goods

Question: How do these determinants affect the willingness and ability to buy of the consumers?
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Determinants of supply
1. Technology
2. Cost of production
3. Number of sellers
4. Taxes and subsides
5. Weather
Question: How do these determinants affect the ability of sellers to produce goods for consumers?
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Changes in Demand and Supply

Changes in Demand
- Refers to the shift of demand curve which is brought about by the changes in the determinants of demand like
income, population, price expectation and the like.
Changes in Supply
- Pertains to shift of supply curve brought by changes in the determinants of supply.
Equilibrium of Demand and Supply
Alfred Marshall, a British economist, introduced a king of pricing scheme by combining the law of demand and the law
of supply. With this combination, an equilibrium price and equilibrium quantity is formulated. This is known as the market
equilibrium.
In the market, supply and demand interact freely. Supply is represented by producers or sellers while demand is
represented by the buyers. In the process of interaction between buyers and sellers, an equilibrium price and equilibrium quantity
or market equilibrium is established. The market equilibrium comes at
Table 3
Supply and Demand Schedules Indicating the Equilibrium Price and Equilibrium Quantity

Quantity Supplied Price Quantity Demanded

3 P 3.00 24

6 6.00 Shortage 20

9 9.00 16

12 12.00 12

15 15.00 8
18 18.00 Surplus 4

That price and quantity where the supply and demand forces are in balance. This is the situation where quantity
supplied and quantity demanded are equal. This means that the amount that buyers want to pay Is just equal to the amount that
sellers want to sell. In table 3, the equilibrium price is P 8.00; the market price in which both sellers and buyers decisions are
mutually consistent.
Let us work through the supply and demand schedules in table 3 to see how supply and demand determine market
equilibrium. To find the market price and quantity, we find a price at which the amount desired to be bought and sold just match.
If we try a price of P9.00, a producer would like to sell 9 units while consumers want to buy 16 units. Here, we see a shortage of
7 units of supply. The quantity demanded exceeds quantity supplied. At price P15.00, a quick look shows that quantity supplied
which is 15 units exceed the quantity demanded which is 8 units. Accordingly, there is a surplus of 7 items of supply.
We could try to other process, but we can easily see that the equilibrium prices is P12.oo. at P12.00, consumers’
desired demand of 12 units is equal with the desired supply which is also 12 units. This denotes that supply and demand orders
are filled, and consumers and suppliers are satisfied. Whenever there is a balance of demand and supply irrespective of price, we
can positively state that there is an equilibrium.

Illustration through graph of demand and supply can be seen.

Price

18 s

15 surplus

12 Pe

9 shortage

6
 3 D

0 Q
4 8 12 16 20 24 28
Qe

Above the equilibrium price is a SURPLUS and below the equilibrium price is a SHORTAGE. In the process of
interaction between buyers and sellers, prices and to move towards the equilibrium price.
Note: the equilibrium price (Pe) and equilibrium Quality (Qe) is determined by the meeting point between demand and
supply curves.
Effect of Equilibrium of a shift in Supply and Demand
The point of equilibrium is subject to change. This due to a shift of either the supply curve, or the demand curve alone,
or both. Shifting or of either the demand or supply curves are caused by changes of their respective determinants. Let us assume
that the demand curve is constant and the supply curve shifted to the right, which was brought about the producer’s use of
modern technology.

Price

10 -

9-

8- S1

7- S2

6-

5-

4-

3-

2-

1- D
2 4 6 8 10 12 14 16 18
Qe1 Qe2
Fig. 8

Shift in supply curve changes equilibrium price and equilibrium quantity.

The supply curve shifts to the right to indicate increase in supply brought about by the adoption of modern technology. Note that
the market price has been reduced from P5.00 to P4.00 with demand being constant. However, the quantity of demand increase
from 8-10.

In like manner, a shift of the demand curve with the supply curve as constant will cause a change in equilibrium point as shown
below

10 –
9–
8–
7– D1 D2 S
6–
5–
4–
3–
2–
1–
 0–
2 4 6 8 10 12 14 16 18
Fig. 9 Qe1 Qe2
Price and Equilibrium Quantity

Increase in income, one of the determinants of demand, increases demand for goods and services. Demand curve shifts to the
right to show an increase in demand. With a constant supply, an increase in demand also increases market equilibrium price.
However, with the increase in price for a commodity, supply increased from 10 to 12

Assuming there is an equal increase in the demand for cooking oil and the supply of cooking oil as shown in figure 10, what will
be the equilibrium price and equilibrium quantity?

Price

10 –
9–
8–
7– D1 D2 S
6–
5–
4–
3–
2–
1–

2 4 6 8 10 12 14 16 18 20
Qe1 Qe2

Fig. 10 Hypothetical shift in market demand and market supply curves of cooking oil

In above graph, both the demand and supply curves show a rightward shift. Since the increase in demand is proportional to the
increase in supply, the equilibrium price is maintained. However, the quantity has increased from Qe1 to Qe2.

Questions:
1. Differentiate the Law of Demand, Law of Supply and Market Equilibrium by citing examples.
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2. How does supply and demand result to shortage and surplus in the market?
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MARKET STRUCTURE

Monopoly
A monopoly is a market structure in which there is only one producer / seller for a product. In other words, the single
business is the industry. Entry into such a market is restricted due to high costs or other impediments, which may be economic,
social or political. For instance, a government can create a reason for the barriers against entry into a monopolistic industry is that
often times, one entity has the exclusive rights to a natural resource. For example, in Saudi Arabia the government has sole
controls over the oil industry. A monopoly may also form when a company has a copyright or patent that prevents others from
entering the market. Pfizer, for instance, had a patent on Viagra. In the Philippines, we have MERALCO monopolizing the
distribution of electricity in Metro Manila.

Oligopoly
In an oligopoly, there are only few firms that make up an industry. This select group of firms has control over the price
and, like a monopoly, an oligopoly has high barriers to entry. The products that the oligopoly, an firms produce are often nearly
identical and, therefore, the companies, which are competing for market share, are interdependent as a result of market forces.
Assume, for example, that an economy needs only 100 components. Company X produces 50 components and its competitor,
company Y produces the other 50. The prices of the two brands will be interdependent and, therefore, similar. So if company X
starts selling the components at a lower price, it will get a greater market share, thereby forcing Company Y to lower its prices as
well.

Perfect Competition
Perfect competition is characterized by many buyers and sellers, many products that are similar in nature and, as a
result, many substitutes. Perfect competition means there are few, if any, barriers to entry for new companies, and prices are
determined by supply and demand. Thus, producers in a perfectly competitive market are subject to the prices determined by the
market and do not have any leverage. For example, in a perfectly competitive market, should a single firm decide to increase its
selling price of a good, the consumers can just turn to the nearest competitor for a better price, causing and firm that increases its
prices to lose market share and profits.

Monopolistic Competition
Monopolistic competition is a type of imperfect competition such that one or two producers sell products that are
differentiated from one another as goods but not perfect substitutes (such as from branding, quality, or location). In monopolistic
competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other
firms. Textbook examples of industries with market structures similar to monopolistic competition include restaurants, cereal,
clothing, shoes, and service industries in large cities.

Activity 1

Based on your understanding regarding market structure, identify the advantages and disadvantages of Monopoly, Oligopoly,
Monopolistic Competition, and Perfect Competition. Write down your answers on the Column on each heading:

Structure Advantage Disadvantage

Monopoly

Oligopoly

Monopolistic Competition
 Perfect
Competition

Activity 2

Identify some problem the Filipino entrepreneurs is facing and recommend some solutions to the identified
problems. Write it down below the headings of each column your answers.

Problems of Filipino Entrepreneur Suggested Solutions