Applied SENIOR

HIGH
Economics SCHOOL

Self-Learning
Module
Economics as an Applied 2
Science Quarter 3
Applied Economics
Quarter 3 – Self-Learning Module 2: Economics as an Applied Science
First Edition, 2020

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Published by the Department of Education - Schools Division of Pasig City

Development Team of the Self-Learning Module

Writer: Emmanuel B. Penetrante
Editor: Hedelita B. Calonia
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Pasig City
Applied SENIOR
HIGH
SCHOOL
Economics
Self-Learning
Module

2
Quarter 3

Economics as an
Applied Science
Introductory Message

For the facilitator:

Welcome to the Senior High School – Applied Economics Self Learning

Module on Economics as an Applied Science!

This Self-Learning Module was collaboratively designed, developed and

reviewed by educators from the Schools Division Office of Pasig City headed by its
Officer-in-Charge Schools Division Superintendent, Ma. Evalou Concepcion A.
Agustin, in partnership with the City Government of Pasig through its mayor,
Honorable Victor Ma. Regis N. Sotto. The writers utilized the standards set by the K
to 12 Curriculum using the Most Essential Learning Competencies (MELC) in
developing this instructional resource.

This learning material hopes to engage the learners in guided and

independent learning activities at their own pace and time. Further, this also aims
to help learners acquire the needed 21st century skills especially the 5 Cs, namely:
Communication, Collaboration, Creativity, Critical Thinking, and Character while
taking into consideration their needs and circumstances.

In addition to the material in the main text, you will also see this box in the
body of the module:

Notes to the Teacher

This contains helpful tips or strategies
that will help you in guiding the learners.

As a facilitator you are expected to orient the learners on how to use this
module. You also need to keep track of the learners' progress while allowing them
to manage their own learning. Moreover, you are expected to encourage and assist
the learners as they do the tasks included in the module.
 For the learner:

Welcome to the Applied Economics Self Learning Module on Economics as

an Applied Science!

This module was designed to provide you with fun and meaningful
opportunities for guided and independent learning at your own pace and time. You
will be enabled to process the contents of the learning material while being an
active learner.

This module has the following parts and corresponding icons:

Expectations - This points to the set of knowledge and skills

that you will learn after completing the module.

Pretest - This measures your prior knowledge about the lesson

at hand.

Recap - This part of the module provides a review of concepts

and skills that you already know about a previous lesson.

Lesson - This section discusses the topic in the module.

Activities - This is a set of activities that you need to perform.

Wrap-Up - This section summarizes the concepts and

application of the lesson.

Valuing - This part integrates a desirable moral value in the

lesson.

Posttest - This measures how much you have learned from the
entire module.
 EXPECTATIONS

After going through this module, you are expected to:

1. define applied economics;
2. define basic terms in applied economics;
3. differentiate economics as a social science and applied science in terms of
nature and scope;
4. explain positive and normative economics; and
5. apply the economic theory in real world scenario.

PRETEST

Directions: Choose the letter of the best answer. Write the letter of your answer on
a separate sheet of paper.

1. Which of the following statements is TRUE?

a. Applied economics focuses on the application of economic theory.
b. Applied economics is a tool used only by the businesses.
c. Applied economics is a tool used only by the public policy makers.
d. The scope of applied economics is broader than economics.
2. Which of the statements is NOT TRUE about economic theory?
a. It is used to analyze a certain economic situation.
b. It can predict future economic phenomenon.
c. It provides reasons why things happen.
d. It is the only solution to the economic problem.
3. Which of the following statements does not describe an economic model?
a. It is an empirical representation of economic theory.
b. It describes the economic situation through equations, graphs, etc.
c. It can predict future phenomenon.
d. None of the above
 4. What is positive economics?
a. It is based on subjectivity.
b. It uses value judgement based on opinions.
c. It uses factual evidences.
d. None of the above
5. What is normative economics?
a. It is based on the subjectivity.
b. It refers to an objective statement.
c. It uses factual evidences.
d. None of the above

RECAP
We have discussed that economics is a science of human choice and welfare
in relation to resource management. Studying economics is a broad discipline.
There are many learning areas and field of sciences which are interconnected to the
subject. Most of these disciplines are under social sciences such as Psychology,
History, Anthropology, Political Science, and Public Management. This is the
reason why economics is tagged as a social science. The scope of the study of
economics is not only limited to these areas, it is also linked to natural sciences
such as environmental science, medical field, and among others. The management,
production, and distribution of natural resources to give enough supplies for the
society is also a concern of economics.

Studying economics is very important to businesses and public policy

makers. Without background in economics, it is difficult to come up with a good
decision for the organization. This is true also to public policy makers to decide if
the policy will benefit the society as a whole not only limited to a few. Economics
helps them to analyze the current situation and problem and provides value
judgement and decision.

This module gives you an understanding of the application of economics in

the real world. Likewise, the discussion enlightens you to know more about the
relationship of business concepts and economic theories which is vital to business
students.
 LESSON

Applied Economics

It is an application of economic theory to analyze and explain the economic

situations. The emphasis of this course is to seek answer and find best possible
solution on the circumstances or economic activity. With the understanding of
what is happening in the real world, people may come up with a better choice.
Studying applied economics, the courses of action of individuals, businesses, and
policy makers are not just simple decision-making activities but they can evaluate
the best alternatives.

Applied economics is the application of core theoretical economics and

econometrics to answer questions in a wide range of fields (Reynold, 2020).
Meaning to say, applied economics is a tool to help solve a certain real world
problem based on the economic theories. Applied economists can apply core
economic models to make predictions. For example, there will be a price drop in
petroleum products in the succeeding months, according to the law of demand—as
price decreases, quantity demanded increases, and people will tend to buy more
cars in the future. Policy makers must further analyze this situation because it
may worsen the traffic or additional transportation crime incident related will be
recorded.

Economic Theory
- It is composed of principles and concepts in economics to explain various
activities and situations.
- A statement that describes the economic phenomenon.
- It analyzes the circumstances for better understanding, and make possible
future decisions.

Here are some economic theories:

1. Law of Demand and Supply
2. Laissez Faire
3. Trilemma (exchange rates, capital flows, and monetary policy)
4. Fisher Theory of Interest Rates
5. Rational Choice Theory
Economic Model

- It represents the economic theories through tables, graphs, mathematical

equations, and diagrams to better understand the economic events.

Example of economic model:

Capital Asset Pricing Model (CAPM) is used to evaluate whether a stock is fairly
valued when its risk and the time value of money are compared to its expected
return.
ERi=Rf+βi(ERm−Rf)
where: ERi = expected return of investment
Rf = risk-free rate
βi = beta of the investment
(ERm−Rf) = market risk premium

Positive Economics
- It describes the economic phenomenon based on the factual information and
evidences. It answers the question, “what is” as an explanation to an event.
Examples:
1. Consumers will tend to buy more if the prices are low.
- This is the expected outcome based on the law of demand—price is
inversely proportional to the quantity demanded.
2. High interest rate will discourage the borrowers to owe money.
3. Improper use of resources will lead to scarcity.
4. Agricultural production has been decreased due to bad weather.
 5. The stoppage of economic activity will decline production.
Normative Economics
It describes the economic phenomenon based on the value judgement or
opinions. It answers the question, “what should be” as an explanation to an event.
Examples:
1. It is better to quarantine the entire country than selected areas.
2. The reduction of unemployment is important than inflation.
3. Building infrastructures in Metro Manila are highly prioritized than in the
provinces.
4. More imports are better than exports.
5. Increasing the budget of Defense Department will ensure the security of
the country.

ACTIVITIES

Activity 1: Economics and Applied Economics

Directions: Give at least 3 differences and similarities of economics and applied
economics. Write your answer using Venn diagram.

Economics Applied Economics

Activity 2: Positive vs Normative
Directions: Give examples of positive and normative economics. Write your answer
in the table.

Positive Normative

1. 1.

2. 2.

3. 3.

WRAP-UP

1. Applied economics can illustrate the potential outcomes of financial choices

made by individuals.

2. Applied economics can also help businesses make better decisions.

3. Applied economics is an invaluable tool for public policy makers.

4. The central focus of economics is choice and decision making while applied
economics uses the insights gained from economic theory and research to
make better decisions and solve real-world problems.

5. Economics is a science concerned with human behavior while in applied

economics, individuals can also benefit from applying economic thinking and
insights to personal and financial decisions.

6. Economics is concerned with man’s welfare while applied economics is a

popular tool in business planning and for public policy analysis and
evaluation.

7. Economic theory is a statement that describes the economic phenomenon.

8. Economic model represents the economic theories through tables, graphs,

mathematical equations, and diagrams to better understand the economic
events.

9. Positive Economics describes the economic phenomenon based on the

factual information and evidences.

10. Negative Economics describes the economic phenomenon based on the

value judgement or opinions.
 VALUING

I Know What is Happening!

Directions: Give one economic theory. Apply this theory to evaluate a certain
economic activity.

Example:

Economic Theory: Law of Demand

The law of demand states that as price increases, all other things are being
constant, the quantity demanded will decrease.

Real World Scenario:

Due to the price increase of pork, consumers hesitate to buy more.

According to them, they will go for chicken which is cheaper compared to pork.

Economic Theory Real World Scenario

 POSTTEST

Directions: Identify what is being described in each statement. Choose the letter of
your answer in the box.

A. Applied Economics
B. Economic Theory
C. Economic Model
D. Positive Economics
E. Normative Economics

1. It describes the economic theory using mathematical equation.

2. It refers to statement based on personal perspective.

3. It is a tool to analyze economic phenomenon.

4. It uses diagrams, tables, and charts to explain the situation.

5. It is composed of principles to explain the real world scenario.

6. It helps individual, business, and policy maker to make better decisions.

7. It explains and answers the question “what is”.

8. Learning using electronic devices is better than classroom experience.

9. Increasing budget in education will ensure the quality of education.

10. Cutting the price of alcoholic beverages will increase the demand among
teenagers.
 KEY TO CORRECTION

10. D
9. E
8. E
7. B
6. A
5. A 5. B
4. C 4. C
3. D 3. A
2. D 2. E
1. A 1. C
PRE-TEST POST-TEST

REFERENCES
Anonymous. “What Is Applied Economics?” American University Online, 11 Sept.
2019. Accessed June 5, 2020. programs.online.american.edu/econ/masters-
economics/resources/what-is-applied-economics.

Chappelow, Jim. “Applied Economics Definition.” Investopedia, Investopedia, 29

Jan. 2020. Accessed June 5, 2020. www.investopedia.com/terms/a/applied-
economics.asp#:~:text=Applied economics is the application,help them make
better choices.

Fontinelle, Amy. “Positive vs. Normative Economics: What's the Difference?”

Investopedia, Investopedia, 23 Mar. 2020. Accessed June 5, 2020.
www.investopedia.com/ask/answers/12/difference-between-positive-
normative-economics.asp.

Kenton, Will. “Capital Asset Pricing Model (CAPM).” Investopedia, Investopedia, 30

Apr. 2020. Accessed June 5, 2020.
www.investopedia.com/terms/c/capm.asp.

Kenton, Will. “Capital Asset Pricing Model (CAPM).” Investopedia, Investopedia, 30

Apr. 2020. Accessed June 5, 2020.
www.investopedia.com/terms/c/capm.asp.

Marron, Donald. “The 50 Most Important Economic Theories.” 5 July 2010.

Accessed June 5, 2020. dmarron.com/2009/08/17/the-50-most-important-
economic-theories/.

Tutor2u. “Positive and Normative Economic Statements: Economics.” 24 May

2020. Accessed June 5, 2020.
www.tutor2u.net/economics/reference/positive-and-normative-statements.