Applied Economics | closely connected to the

attainment and use of materials

INTRODUCTION TO ECONOMICS
requisites of the well-being.
Why do we need to study economics?
Two branches of Economics
- It affects our everyday lives
Macroeconomics – Affects whole - It is a
through important areas such as
division of economics that deals with the
tax, interest rates, wealth, and
overall performance of national and
inflation. Economists provide the
international economies.
tools by which analysts can study
the costs, benefits and effects of - It studies the economic system as
government policies in a range of a whole rather than the individual
areas that affect society. economic units that make up the
whole economy.

What is Economics? Microeconomics – Affects one - It is

concerned with behavior of individual
- Economics is the study of scarcity entities in the economy such as the
and its implications for the use of consumer, producer, and resource owner.
resources, production of goods and
services, growth of production and - It studies the decisions and choices
welfare over time, and a great of the individual units and how
variety of other complex issues of these decisions affect the prices of
vital concern to society. goods in the market.
- Economics is the study of how
people allocate scarce resources
Scarcity
for production, distribution, and
consumption, both individually and - It is the insufficiency of resources
collectively. to meet the needs and wants of
consumers and the insufficiency of
resources for producers that
Economics as a Social Science
hamper the production of enough
- Social science is the study of goods and services.
society and how people collectively -
behave and influence the world
Shortage
around us.
- Shortage exists when the available
supply of a good is not enough to
Economics
meet its demand.
- It is a social science that deals with SHORTAGE is not scarcity, but it can lead
how to allocate the scarce to one.
resources to satisfy man’s
unlimited needs and wants.
- ALFRED MARSHALL – he described
Opportunity Cost
economics as a study of mankind in
ordinary business of life. It - It refers to the value of the best
examines part of the individual and foregone alternatives.
social action, which are most
 - It refers to the value of what is the answers to the basic economic
given up to acquire another goods. problems.
- The concept of opportunity cost
1. Traditional Economy
holds true for individuals,
businessmen, and even society. - decisions are based on traditions
and practices upheld over the years and
passed on from generation to generation.
Economic Sources
- methods are stagnant and are,
- Also known as factors of therefore, not progressive.
production, are basic inputs - traditional societies exist in
(foundation) used in the production primitive and backward civilizations.
of goods and services.
2. Command Economy
- this is the authoritative system
Factors of Production wherein decision-making is centralized in
the government or planning committee.
Land - It refers to natural resources that
are found in nature. - decisions are imposed on the
people who have no say in what goods
Labor - It refers to the human effort
are to be produced.
exerted in production which includes
manual workers such as construction - this economy holds true in
workers and machine operators and dictatorship and socialist states.
professionals like nurses, lawyers, and
doctors. 3. Market Economy

Capital - It refers to a man-made goods - this is the most democratic

used to produce other goods and economic system.
services which include machines, - producers and consumers decide
equipment, buildings, and construction. what, how, and for whom to produce
Entrepreneurship - It is the factor of collectively guided by the price system
production involved in combining the determined by supply and demand.
different resources/inputs used to 4. Mixed Economy
produce goods and services.
- it is a combination of the three
basic types of the economic systems.
Basic Economic Problem

1. What to produce? Why do we need to study Economics?

2. How to produce?
3. For whom to produce? - it affects our everyday lives
through important areas such as
tax, interest rates, wealth, and
inflation. Economists provide the
Economic System
tools by which analysts can study
- The economic system is the means the costs, benefits and effects of
through which society determines government policies in a range of
areas that affect society.
 - The study of economics helps Normative Economics – Opinion and
people understand the world Subjective
around them. It enables people to
understand people, businesses,
markets and governments, and Measuring the Economics (Main Metrics)
therefore better respond to the
threats and opportunities that  Gross Domestic Product (GDP)
emerge when things change. Formula: GDP = GNP – NFIA
GDP per Capita =
Positive Economics GDP/Population

- This is a study of what is actually

happening in the economy like  Gross National Product (GNP)
current inflation rates, national
income, and employment. Formula: GNP = GDP + NFIA
- It is objective because it is - Net factor income from Abroad
supposed to be devoid of bias for (NFIA) can be calculated by
what is not real. subtracting the payments made to
Example: "An increase in the foreign factors of production within
minimum wage will lead to a decrease a country from the payments made
in the employment rate" is a positive to domestic factors of production
economic statement as it can be by the rest of the world. Net factor
tested using data and observations. income is a component of the
broader measure of the balance of
payments, and it helps determine a
nation's gross national income
Normative Economics
(GNI).
- This is a study of what should be, Formula:NFI=(Incomeearnedbydomesticf
like dispersing business investment actorsfromabroad)−
toward countryside to reduce rural (Incomeearnedbyforeignfactorswithinthec
poverty incidences to a tolerate ountry)
level by international standard.
- It is subjective judgments and
values. It deals with how the
Gross Domestic Product (GDP)
economy should be, based on
ethical considerations and societal - represents the total monetary
preferences. value of all goods and services
- Example: "The government should produced within a country's
increase spending on education to borders over a specific period
improve overall societal welfare" is (usually quarterly or annually).
a normative economic statement
because it involves a value
judgment about what the Gross National Product (GNP)
government ought to do.
- Similar to GDP, but it measures the
Positive Economics – Factual and
value of all final goods and services
Objective
 produced by a country's citizens
and businesses, regardless of
location.

Applied Economics

- It is the application of economic

theory and quantitative tools to
analyze specific economic
problems and other inquiries with
the end of providing solutions and
new directions.
- John Neville Keynes is attributed to
be the first to use the phrase
“Applied Economics”.