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Lesson Outline

Introduction: Explain how economics is part of our lives(10

Motivation: Explain how a knowledge of economics and the
different economic problems can be important to an
entrepreneur (15 minutes)
Instruction Delivery: Discuss the definition of economics and
applied economics, define the basic ideas of economics and the
nature and uses of business economics (50 min)
Practice: Discuss the present economic problems facing the
country(20 min)
Enrichment: Research on the current economic situation and
Philippine economic history(Optional)
Evaluation: Accomplish different evaluative tasks (teachers
discretion) (25 min)
Applied Economics


Grade: 12 2nd Semester
Subject Title: Applied Economics
No. of Hours/ Semester: 80 hours/ semester
Objectives/Learning Competencies

At the end of the lesson you should be able

1. Define basic terms in applied economics

2. Identify the basic economic problems of

the country

3. explain how applied economics can be

used to solve economic problems
I. True or False: Carefully read each
sentence and determine if the sentence is
true or if the sentence is false.
1. Economics comes from the Greek word oikonomia
which means household chores.
2. Economics is considered a field of social science.
3. Economics is relevant because it is part of
everybodys life.
4. There are three (3) divisions of Economics,
microeconomics, macroeconomics and home
5. As a science, Economics is related to other
II. Essay. Answer the following using five (5)
sentences and above.

a. As an individual, what do you think is the

essence of studying economics?
b. How do you apply economics in your
In front of you are candies that
you could get and eat. Come on,
everybody is invited to get
candies. Do not be shy
Analyses of the activity

What happened when you were invited to

get candies? State your observation.
Definition of Economics

Using the words I have written on the

board, how would you define Economics?

Economics as defined

From the Greek words Oikos meaning household

and nomos meaning management
= household management


The wise production and use of wealth to

meet the demands or needs of the people
Economics as defined by authors of
Economics books
Paul Samuelson (Economics)
the study of how people and society end up choosing, with or
without use of money, to employ scarce resources that could have
alternative uses to produce various commodities among various
persons and groups in society.
Roger Le Roy Miller (Economics, Today and Tomorrow)
Economics concerns situations in which choices must be made
about how to use limited resources, when to use them and for what
purposes. Resources can be defined as the things people use to
make the commodities they want.
Hall and Loeberman (Macroeconomics: Principles and Applications)
The study of choice under the condition of scarcity
Bernardo Villegas (Guide to Economics for Filipinos)
A social science that studies and seeks to allocate scarce
human and non-human resources among alternatives in
order to satisfy unlimited human wants and desires.

Gerardo Sicat (Economics)

a scientific study which deals with how individuals and society
make choices,
Common words among
Scarcity- a situation wherein the amount of something
available is insufficient to satisfy the desire for it.
Resources-The labor, capital, land and natural resources
and entrepreneurship that are used to produce goods
and services. The 4 factors of production
Unlimited without limits, infinite
Wants desires
ECONOMICS is a social science that
deals with how people organize
themselves in order to allocate scarce
resources in order to produce goods and
services that will satisfy the unlimited and
multiplying wants and needs of man.
Concerns of Economics

Economics is concerned with PRODUCTION

Production is the use of inputs to produce outputs.
Inputs are commodities or services that are used to produce goods and services.
Outputs are the different goods and services which come out of production process.
Society has to decide what outputs will be produced and in what quantity
Basic Economic Questions Society must answer
WHAT to produce? (make)
HOW MUCH to produce? (quantity)
HOW to Produce it? (manufacture)
FOR WHOM to Produce? (who gets what)
WHO gets to make these? decisions?
Economics is concerned with DISTRIBUTION
Distribution is the allocation of the total product among
members of society. It is related to the problem of for
whom goods and services are to be produced.
Economics is concerned with CONSUMPTION
Consumption is the use of a good or service.
Consumption is the ultimate end of economic activity.
Economics deals with PUBLIC FINANCE
Public Finance is concerned with government
expenditures and revenues. Economics studies how the
government raises money through taxation and


General, economy as a whole
Deals with the economic behavior of
Deals with the economic the whole economy or its aggregate
behavior of the individual such as government, business,
units such as consumers, unemployment, inflation and the like.
firms, the owners of factors
Refers to management of income,
of productions
expenditures, wealth or resources of a
Types of Economics
1. Household Economics most common use of economics is
for the family. At this level, anyone who knows the economic
principles will be able to improve the running of the
2. Business Economics when a person or group of persons
begins to work, they come under the system of business
economics in their workplace. In this type, you deal with the
rent, salary, profits and others.
3. National Economics Economic factors of problems
affecting the whole nation. Deals with the management of
income, expenditures, wealth or resources of a nation.
4. International Economics The highest stage of economic
activities involving the business of one country with other
countries like trade, tourism, exchange rates.
Is Economics a science?
Explain why if yes or why not if no

Economics as a Science
Is a science because it is an organized body
of truth, coordinated, arranged and
systematized with reference to certain
general laws and principles.(Observation, Formulation
of theories, Gathering of data, Experimentation, Conclusion,
Economic analysis seeks to explain
economic events using some kind of logic
based on a set of systematic relations.
It is a social science because the subject
matter of economics is people or societies
and their behavior, unpredictable in nature.
Essence/Relevance of Studying
To understand the world better
Applying the tools of economics can help you understand global
and cataclysmic events such as wars, famines, epidemics, and
depressions. Economics has the power to help us understand these
phenomena because they result from the choices we make under
the condition of scarcity.

To gain self-confidence and become wise

decisions makers
Mastery of economics will help you to understand how things work in
your society thereby feeling equipped
To achieve social change and contribute to
National Development
Economics can help us understand the origins of serious social
problems such as: unemployment, hunger, poverty, disease, child
abuse, drug addiction, violent crime. It will also explain why previous
efforts to solve these problems have failed, and help us to design
new, more effective solutions.

To help prepare for other careers

Economics has long been a popular college major for individuals
who are intending to work in business. But it has also been popular
among those planning careers in politics, international relations, law,
medicines, engineering, etc. This is for good reason because
practitioners in each of these fields often find themselves confronting
economic issues.
1. Wealth Definition. Adam Smith
2. Welfare Definition. Alfred Marshall
3. Scarcity Definition. Lionel Robbins
4. Growth Definition. Paul Samuelson
Father of Economics Adam Smith in his book
Wealth of Nations 1776 defined economics is
the study of wealth.
J.B Say, J.S Mill, Walker, B.Price all agreed that
Economics is concerned with wealth.
In this definition wealth is given first place, man
has given second place
Walras in his book Elements of pure economics
wealth definition is unscientific one.
Carlyle. Ruskin, Dickens criticized it as dismal
Carlyle It was a Gospel of gammon and pig
Economics criticized as bread and butter
Economics is science of ills and not wealth.
Alfred Marshall in his book Principles of
Economic Science-1890 defined Economics
is the study of man kind in the ordinary business
of life.
Economics is one side a study of wealth; and
on the other side more important side a part of
study of man
He made economics as a science of human
1. Mainly concerned with the study of man
in relation to wealth.
2. First place to man, second place to
3. It studies man not in isolation but as a
member of a social group.
4. Definition considered only material
welfare, ignored immaterial welfare.
1. Restricted scope of economics considered only
material goods.
2. Robbins objected to the word material and the idea
welfare. There are some goods which do not
promote human welfare. Ex. Liquors, cigarettes.
3. Welfare is subjective, it cannot be measured.
4. Economics is neutral between ends. Not concerned
about what is good and what is bad.
Lionel Robbins in his book Nature and
Significance of Economic Science-1932
given scarcity definition.

Economic is the science which studies

human behavior as a relationship
between ends and scarce means which
have alternative uses.
1. Unlimited wants.
2. Scarce means.
3. Means have alternative uses.
1. Robbins included material and non
material goods ,widens the scope of
2. He made economics a positive science.
3. His definition is universal.
Economics Noble prize winner (1970) Paul Samuelson
proposes a dynamic definition in his book
Economics is the study of how people and society end
up choosing with or without money to employ scarce
productive resources that could have alternative uses to
produce various commodities and distribute them for
consumption, now or in the future, among various
persons and groups in society. Economic analysis of the
cost and benefits of improving patterns of resources use.
1. Scarcity : Unlimited wants ,scarcity of resources and
alternative uses.
2. Dynamism: The importance of time is brought in the
3. Economic growth: His definition gave importance to
economic growth
4. Wide scope: Economic choice exists not only in a
monetary economy but also in a barter economy.
5. Problem of choice: Definition explains problems of
choice in the present and the future in dynamic
The French sociology philosopher
Augustine Compte used the terms static
and dynamic for the first time in social
J.S Mill was the first to use these terms in
Clear and scientific distinction between the
two terms made by Ragner Frisch in 1928.
The word static is derived from the Greek
statike. which means bringing to a stand still. It
means a state of rest or no movement.
According to Clark, where five kinds of changes are
conspicuous by their absence. The size of population,
the supply of capital, methods of production, forms of
business organization and wants of people.
Static economy is thus a time less economy where no
changes occur.
Static is like a snapshot or a still life' painting.
Dynamic is the study of change .

Economic dynamics is concerned with time lags,

rates of change,

Economic dynamics is the running picture of the

working of the economy.
To study economics, two methods are used:
Deductive method
Inductive method

Deduction proceeds from general to particular

while induction proceeds from particular to
1. This method deduces conclusions from the truths
established by other methods.
2. It involves the process of reasoning from certain laws
or principles which are assumed to be true, to analysis
of facts.
3. Deduction as a descending process in which we
proceed from a general to principle to particular.
4. It as a priori method and also called an abstract
and analytical method
5. Ricardo is regarded as the first economist who applied
this method.
6. Ex; the law of diminishing returns.
1. It is intellectual method, near to reality.
2. This method is simple.
3. The use of mathematics brings exactness.
4. Universal validity.
1. This method is based on assumptions.
2. Inadequate data.
3. Criticized as simply an armchair analysis.
This method involves the process of reasoning from particular
to general.
It as an ascending process.
This method involves four stages:
2. formation of hypothesis
4. verification.
1. This method proceeds from particular to
general, it is thus realistic.
2. Helps in future inquiries.
3. Statistical method.
1. Statistical numbers can be misused and
2. Probable.
3. Time consuming and costly method.
4. Differ from investigator to investigator for
the same problem.

Applied Economics - involves economists

taking generally accepted theory and
applying those theories to something that
is happening in the real world, with an eye
toward determining what can reasonably
be expected to happen next.
3 Reasons why applying economic
theories to current economic
conditions can be useful
Applied Economics gives us:
True Pictures
Sound Ideas
Valuable Lessons
True Picture
Applying economics to the status of the economy
of a company, a household or a country helps to
avoid attempts to dress up the situation so that it
will appear to be worse or better than it actually
Applied economics is a powerful tool that enables
the true and complete picture to emerge, so that
it becomes possible to decide what to do and
where to go from the current position.
Sound Ideas
Applied economics acts as a mechanism to determine what
steps can reasonably be taken to improve the current
economic situation. Each element that is relevant to the
contemporary mode of operation of the entity
including the purchase and sale of goods and services,
the usage of raw materials and the division of labor
within the entity come into play.
Examining each aspect of the current economic condition
will often yield sound ideas on ways to maintain aspects
that are working at a reasonable rate of efficiency and
strengthen areas where the performance is weak.
Valuable Lessons

Applied economics can teach valuable lessons on

how to avoid the recurrence of a negative
situation, or at least minimize the impact.
Applied economics is all about the application of
theory to real-life situations, so the process can
help develop an understanding of why a
condition took place. This includes reviewing
what steps were taken to improve or correct
similar situations and how those strategies can
be employed to keep the economy flowing in a
direction that will preclude a repeat of the
undesired situation.
Business economics (also called managerial economics),
is a field of applied economics that applies
microeconomics analysis to specific business decisions.
As such, it bridges economic theory and economics in
practice. It draws heavily from quantitative techniques
such as regression analysis and correlation, Lagrangian
calculus (linear), If there is a unifying theme that runs
through most of business economics it is the attempt to
optimize business decisions given the firm's objectives
and given constraints imposed by scarcity, for example
through the use of operations research and
Common features of Business Economics

It is concerned with economic decision

making- this implies that it deals with
identification of economic choices and
allocation of scarce resources.
It is goal oriented and prescriptive it
deals with how decisions should be made
by business economists to achieve
organizational goals.
Common features of Business Economics

It is pragmatic it deals with those analytic tools

which help in improving decisions.
It provides a link between microeconomics and
decision making using economic theory, in
many ways, analogous to using a road map.
a road map abstracts away from non-essential
characteristics and concentrates on what is
relevant for the task at hand.
Nature of business economics

It is micro-economics in nature where the

unit of study is a firm.
It is concerned with normative micro-
economics and not with positive micro
It utilizes an understanding of macro-
economics to analyze the external
conditions which are relevant to the
Nature of business economics

It concentrates on making economic theory more

application oriented. While economic theory tries to solve
the complicated theoretical issues, business economics
tries to introduce complications which the economists
ignore by assuming them to be constant.
It is both conceptual and metrical. An intelligent
application of quantitative techniques to business
presupposes careful judgment and thinking about the
nature of the particular problem to be solves. Business
economics provides the necessary conceptual tools to
achieve this.
Nature of business economics

It helps in making rational choices.

Business economics continues to face the
problem of scarcities and, consequently,
must continue to make choices. Business
economics is goal-oriented and aims at
achieving maximum objectives.
Application of business economics
Opportunity cost
Opportunity cost is the cost of alternative
opportunity given.
When a choice is made in favor of a particular
alternative that appears to be most desirable of
all the given alternatives, then the next best
alternative has been given up. The benefit of the
next best alternative which has been sacrificed
due to choice of the best alternative is known as
the opportunity cost of the best alternative.
Opportunity cost

For example "Kobe Bryant"

Time value of money

The basic valuation of investment models

are based on the concept that money
has a time value i.e., P100 received
today has higher value than P100
received after 5 years.
The following are reasons behind it
1. Compensation for uncertainty.
2. Preference for present consumption.
3. The re-investment opportunity.
The Development of Philippine

Fill in the economic development of the Philippines and the

significant policies in each stage.
Manquee book managerial economics.
Gans, King, Stonecash, Mankiw (2009) Principles of
Economics 4th ed. Cengage Learning Australia Pty
Pagoso, Dinio, Villasis (2000) Introductory
Microeconomics rev ed. Rex Bookstore Inc. (RBSI)
Pindyck, Rubinfield (2009) Microeconomics 7th ed.
Pearson Prentice Hall