ECONOMICS AS ANAPPLIED SCIENCE

LESSON 2

ECONOMICS IS A STUDY OF ECONOMIC ACTIVITIES OF A MAN. IT IS ONLY CONCERNED WITH THE

WEALTH-GETTING AND WEALTH-USING ACTIVITIES OF A MAN.

- PROF. MARSHALL

SPECIFIC OBJECTIVES

• Discuss why economics is an applied science

• Explain the basic economic problems

• Understand how applied economics work

APPLIED ECONOMICS

• The term “applied economics” is believed to have started 200 years

ago in the writings of two economists:

JEAN-BAPTISTE SAY JOHN STUART MILL

(1767-1832) (1806-1873)

APPLIED ECONOMICS

• Applied economics - is the study of economics in relation to real

world situations. It is the application of economic principles and

theories to real situations, and trying to predict what the outcomes

might be.

SIMPLER DEFINITION

• Applied economics – is the study of observing how theories work in

practice.

WHAT IS THE IMPORTANCE OF APPLIED ECONOMIC APPLICATION?

1. Applying economics to a company, household or a country

helps sweep aside all attempts to dress up a situation so that

it will appear worse or better than it actually is.

*applied economics becomes a powerful tool to reveal the

true and complete situation in order to come

up with things to do

EXAMPLE

Applied economics can assess the profits of a certain

company

The result can help the executives to do some strategies

in order to boost its sales

WHAT IS THE IMPORTANCE OF APPLIED ECONOMIC APPLICATION?

II. Applied economics acts as a mechanism to

determine what steps can reasonably be taken to

improve current economic situation

*to examine each aspect, one can strengthen areas

where performance is weak

EXAMPLE

• Purchase of goods and services

• Usage of raw materials

• Division of labor within entity (e.g. firm, company, agency)

WHAT IS THE IMPORTANCE OF APPLIED ECONOMIC APPLICATION?

III. Applied economics can teach valuable lessons on

how to avoid the recurrence of a negative situation, or at

least minimize the impact.

*to review what steps were taken to improve and

correct similar situations and continue good

strategies to keep the economy flowing

in a correct direction

ECONOMETRICS

WHAT IS ECONOMETRICS?

• Econometrics – is the application of statistical and

mathematical theories to economics for the purpose of:

• Testing hypotheses

• Forecasting future trends

The results of econometric are compared and contrasted

against real life examples.

Theoretical

Applied

Econometrics

ECONOMETRICS EXAMPLE

Real life application of econometrics would be to study the

hypothesis that as a person’s income increases, spending

increases

Income Spending

BASIC ECONOMIC PROBLEMS

• Scarcity of means for satisfying various needs is the central

problem of our economic life and it is scarcity that creates

the need to make a choice

• Scarcity and choice go hand in hand

Scarcity

Povert

y

Unemploy

ment

Slow

Growth

Inflation

SCARCITY

• Scarcity- refers to the tension between our limited

resources and our unlimited wants and needs

Video

BASIC ECONOMIC PROBLEMS

1. What to produce?

- The system must determine the desires of the people.

- Goods and services must be based on the needs of the

consumers

Factors to consider:

a. Availability of resources

b. Physical environment

c. Customs and traditions of people

BASIC ECONOMIC PROBLEMS

II. How to produce?

- The system must select the proper combination of

economic resources in producing the right amount of output

- The quality of output must comes first before

the quantity

BASIC ECONOMIC PROBLEMS

III. For whom shall the goods and services be produced?

- This has something to do with distribution

- Once the goods are produced, how shall they be

distributed?

BASIC ECONOMIC PROBLEMS

IV. Are the country’s resources being utilized or some of them

are lying idle and unemployed?

- When resources are scarce, it is absolutely not right to

keep some of the available ones idle.

- If resources are not fully utilized, the production system is

said to be inefficient

BASIC ECONOMIC PROBLEMS

V. Is the economy’s capacity to produce goods growing or

remaining the same overtime?

- To achieve a growth is productive capacity is a universal

objective.

IF YOU ARE THE ECONOMIC PLANNER, HOW CAN YOU RESOLVE UNEMPLOYMENT?

• List down your option/s. Discuss.

• ½ crosswise. Due on Friday, July 7 2017