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Applied Economics

Intro to Applied Economics




Lesson Outline • Introduction: Explain how economics is part of our lives(10 minutes) • Motivation: Explain how a knowledge of economics and the differen differentt economic economic problems problems can be important important to an entrepreneur (15 minutes) • Instruction Delivery: Discuss the definition of economics and and applied economics, define the basic ideas of economics and the nature nature and and uses uses of busin business ess econ economi omics cs (50 min) min) • Practice: Discuss the present economic economic problems facing the country(20 min) • Enrichment: Research on the current economic situation situation and Philippine economic history(Optional) • Evaluation: Accomplish different different evaluative evaluative tasks (teachers discretion) (25 min)  Applied Economics K to 12 BASIC EDUCATION EDUCATION CURRICULUM SENIOR HIGH SCHOOL – SCHOOL – ACCOUNT  ACCOUNTANCY ANCY,, BUSINESS AND MANAGEMENT (ABM) SPECIALIZED SUBJECT Grade: 12 2nd Semester  Subject Title: Applied Economics No. of Hours/ Semester: 80 hours/ semester   Applied Economics K to 12 BASIC EDUCATION EDUCATION CURRICULUM SENIOR HIGH SCHOOL – SCHOOL – ACCOUNT  ACCOUNTANCY ANCY,, BUSINESS AND MANAGEMENT (ABM) SPECIALIZED SUBJECT Grade: 12 2nd Semester  Subject Title: Applied Economics No. of Hours/ Semester: 80 hours/ semester  Objectives/Learning Competencies  At the end of the lesson lesson you should be able to: 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 Pre-test 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 everybody’s life. 4. There are three (3) divisions of Economics, microeconomics, macroeconomics and home economics. 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 household? 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 ECONOMICS 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 definitions… • 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 • Needs? • 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. WHEN THERE IS NO CONSUMPTION, THERE WILL BE NO NEED FOR PRODUCTION AND DISTRIBUTION. • Economics deals with PUBLIC FINANCE Public Finance is concerned with government expenditures and revenues. Economics studies how the government raises money through taxation and borrowing. DIVISIONS OF ECONOMICS ECONOMICS MICROECONOMICS Specific Deals with the economic behavior of the individual units such as consumers, firms, the owners of factors of productions MACROECONOMICS General, economy as a whole Deals with the economic behavior of the whole economy or its aggregate such as government, business, unemployment, inflation and the like. Refers to management of income, expenditures, wealth or resources of a nation. Types of Economics 1. House ouseh hold old Econo conomi mic cs – most common use of economics is for the family. family. At this level, anyone who knows the economic principles will be able to improve the running of the household. 2. Business Eco 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 Eco Economics – Economic factors of problems affecting the whole nation. Deals with the management of income, expenditures, expenditures, wealth or resources of a nation. 4. Inte Intern rnat atio iona nall Econ Econom omic ics s – 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. principles.(Observation, Formulation of theories, Gathering of data, Experimentation, Conclusion, Generalization) • 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 Economics • 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 science. • Carlyle It was a Gospel of gammon and pig science. • Economics criticized as bread and butter science. • 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 welfare. 1. Mainly concerned with the study of man in relation to wealth. 2. First place to man, second place to wealth. 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. 2. Restricted scope of economics –considered only material goods. Robbins objected to the word material and the idea welfare . There are some goods which do not promote human welfare. Ex. Liquors, cigarettes. Welfare is subjective, it cannot be measured. Economics is neutral between ends. Not concerned about what is good and what is bad. ‘ 3. 4. ’ • 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 economics. 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(1948) • 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. 2. 3. 4. 5. Scarcity : Unlimited wants ,scarcity of resources and alternative uses. Dynamism: The importance of time is brought in the definition. Economic growth: His definition gave importance to economic growth Wide scope: Economic choice exists not only in a monetary economy but also in a barter economy. Problem of choice: Definition explains problems of choice in the present and the future in dynamic conditions. • The French sociology philosopher  Augustine Compte used the terms static and dynamic for the first time in social science. • J.S Mill was the first to use these terms in economics. • 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 general. 1. 2. 3. 4. 5. 6. This method deduces conclusions from the truths established by other methods. It involves the process of reasoning from certain laws or principles which are assumed to be true, to analysis of facts. Deduction as a descending process in which we proceed from a general to principle to particular. It as a priori method and also called an abstract and analytical method Ricardo is regarded as the first economist who applied this method. 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: 1.observation 2. formation of hypothesis 3.generalization 4. verification. 1. This method proceeds from particular to general, it is thus realistic. 2. Helps in future inquiries. 3. Statistical method. Dynamic. 1. Statistical numbers can be misused and misinterpreted. 2. Probable. 3. Time consuming and costly method. 4. Differ from investigator to investigator for the same problem.  APPLIED ECONOMICS •  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 is.  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. ECONOMICS/MANAGERIAL ECONOMICS 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 programming 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 microeconomics and not with positive micro economics. • It utilizes an understanding of macroeconomics to analyze the external conditions which are relevant to the business. 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 Economics PreHispanic PNOY Gov’t Fill in the economic development of the Philippines and the significant policies in each stage.