Applied Economics Module 1 Q1
Applied Economics Module 1 Q1
Applied Economics
Quarter 3
Module 1: Economics as an Applied
Science
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Applied Economics - Grade 12
Quarter 1 – Module 1: Economics as an Applied Science
I. Introduction:
Knowing and understanding the economic problem of the country, where everybody is
complaining of not having sufficient income to meet both ends of the family, thus family members is
suffering from scarcity. Apply and studying economics is needed nowadays. This is the reason why
people have to practice economics in daily lives, in this lesson, you are expected to understand to
make good decisions in choosing how to maximize the use of scarce resources to satisfy as many
wants as possible.
II. Objectives
At the end of the lesson you
are expected to:
ABM_AE12-Ia-d-1
Describe the basic term’s in applied economics.
Appreciate the importance of studying economics in one’s life.
Recognize different economics activities existing within their locality.
www.123F.com
Economics comes from two old Greek words - ‘oiko’, which means ‘home’
and ‘nomos’ which means ‘management’. (household management).
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What is Economics?
Economics -is the study of social behaviour guiding in the allocation of scarce resources to
meet the unlimited needs and desires of the individual members of a given society. Adam
Smith is the Father of Modern Economics.
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BASIC CONCEPT OF ECONOMICS
INTRODUCTION TO ECONOMICS
(Applied Economics by: Rosemary P. Dinio, PhD , Greorge A. Villasis)
Everybody goes through a day faced with constraints or limitation. People always complain
about not having enough to meet all the family’s needs. This, in effect, is the existence of what we
call scarcity. That is, insufficiency of resources to meet the wants of customers and insufficiency of
resources of producers that hamper enough production of goods and services.
Scarcity is the reason why people have to practice economics. Part of human behavior is the
tendency of man to want to have as many goods and services as he can. However, his ability to buy
goods and services is limited by his income and purchasing power. It is therefore in this context that
man has to practice economics.
Scarcity is a condition where there are insufficient
resources to satisfy all the needs and wants of a population.
Scarcity may be relative or absolute. Relative scarcity is
when a good is scarce compared to its demand. For example,
coconuts are abundant in the Philippines since the plant
easily to grow in our soil and climate. However, coconuts
became scarce when the supply is not sufficient to meet the
needs of the people. Relative scarcity occurs not because the
good is scarce per se and is difficult to obtain but because of circumstances that surround the
availability of the goods. Bananas are abundant in the Philippines and are being grown in a lot of
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regions around the country. But when a typhoon destroys banana plants and farmer has no bananas to
harvest, then bananas become relative scarce.
On the other hand, absolute scarcity is when supply is limited. Oil is absolutely scarce in the
country since we have no oil wells from which we can source our petroleum needs, so we rely
heavily on imports from oil-producing countries like Iran and other Middle Eastern countries.
Cherries are absolutely scarce in our country since we do not have the right climate to grow them and
we have to rely on imports for our supply of cherries. This explains why cherries are very expensive
in the Philippines.
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Applied Economics
Quarter 3
Module 2: Basic Economic Problems
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Applied Economics - Grade 12
Quarter 1 – Module 2: Basic Economic Problems
I. Introduction:
Knowing and understanding the economic problem of the country. The existence of scarcity
creates the basic economic problem faced by every society, rich or poor; how to make the best use of
limited productive resources to satisfy human needs and wants. In this lesson, you are expected to
understand this basic problem by answering the three basic questions (What, How and for whom to
produce?).
II. Objectives
At the end of the lesson you
are expected to:
ABM_AE12-Ia-d-2
Identify the basic economic problem of the country.
Develop a sense of awareness about the basic economic problem.
Complete the key concepts of basic economic problem table.
Production is originated from the word ‘produce’. In business studies, production means the
act of producing a product, an output or a service which has values to fulfill the consumers’
wants and needs. It is also meant by the process of manufacturing goods using labour,
machines, tools, chemical and biological processing, or formulation, by converting raw
materials or components. Later, firms will add value to the final product, and the value added
is the difference between the cost of inputs and the final selling price of the product or service.
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And this is how a business gets their profit from. https://production-and-consumption-
bs.weebly.com/production.html
Production is defined as the process of converting the input (raw material) into output.
Production may be an activity that generates income.
ECONOMIC RESOURCES
Economic resources, also known as factors of production, are the resources used to produce
goods and services. These resources are, limited by nature and therefore, command a payment
that becomes the income of the resources owner.
4 Factors of Production
(C.E.L.L)
C-apital- man-made resources used in the production of goods and services, which include
macheniries and equipment (the things we use to make another product).
The owner of capital earns an income called interest.
Human capital is brainpower, ideas, innovation.
E-ntrepreneur- (persons) who invest time, natural resources, labor and capital that are all
risks associated with production.
L-and- soil and natural resources that are found in nature and not man-made. Owners of land
receive a payment known as rent.
L-abor- Physical and human effort exerted in production. It covers manual workers like
construction workers, machine operators, and production workers, as well as proffessionals
like nurses, lawyers, and doctotrs etc. The term also includes jeepney drivers, farmers,
fisherman. The income received by labors is referred to as wage.
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The Basic Economic Problem
The existence of scarcity creates the basic economic problem faced by every society, rich or
poor, and how to make the best use of limited productive resources to satisfy human needs and
wants. To solve this basic problem, every society must answer these three basic questions:
1. What to produce?
(What goods and services will be produced?)
Factors to consider:
a.) Availability of resources b.) Physical environment c.) Customs and traditions of people
For example:
An economy must decide whether they should produce kitchen appliances or weapons, build
and fix roads or buy textbooks for schools.
2. How to produce?
(How will goods and services be produced?)
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.
For example
Should we use copper or plastic to make pipes? Should machines be used to make clothing
or should workers make it by hand? Should the power plant be built close to the ocean or inland?
Which fertilizer is best for growing strawberries? There are millions of decisions that need to be
made to figure out how to produce goods and services.
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Common causes:
increase in population
increase in the cost of living
unemployement
income inequality
5. Infrastructure- the basic facilities, services and installations needed for the operation of a
community or society (e.g. roads, transportation, communication, power)
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What can be done to improve the quality of infrastructure?
1. The government shall implement fiscal reform program.
2. Continue reform in key sectors- particularly power, roads and water- to improve cost
recovery, competition, and institutional credibility and sharply reduce corruption.
3. Improving central oversight of the planning and coordination of investments.
4. Focus on investments through public-private partnerships to achieve faster delivery of
services.
6. Income inequality- refers to the gap in income that exists between the rich and the poor.
Income- is the money that an individual earned from work or business received from
investments.
during election.
2. Indirect taxes- poor people shoulder this taxes like Value Added Tax – 12%.
3. Income Taxes
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Source: Buffalo State, The State University of New York. Applied Economics,
M.A. Retrieve from https://economics.buffalostate.edu/applied-economics-
ma
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Quarter 3 – Module 3:
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Applied Economics - Grade 12
Quarter 1 – Module 3: The Market: Demand, Supply and Equilibrium
I. INTRODUCTION
Demand identifies the needs and wants of the consumers while the supply determines the
good or service produces by the producers. The consumers and producers/sellers interact in
the market for the exchange of goods and services at a given price. When a consumer and
producer/seller do not agree with the quantity demanded and quantity supplied respectively
for the price of a product or service, how do the demand and supply determine the market
price?
II. OBJECTIVES
Please read the economics terminologies listed below before you proceed to the next pages to
align and guide you with the discussion of the lesson:
Complementary Goods – two goods for which an increase in the price of one leads
to a decrease in the demand for the other.
Demand – pertains to the quantity of a good or service that people are ready to buy
at a given price within a given period.
Demand Curve – a graph of the relationship between the price of a good and the
quantity demanded.
Demand Schedule – a table that shows the relationship between the price of a good
and the quantity demanded.
Equilibrium – a situation in which supply and demand have been brought into
balance.
Equilibrium Price – the price that balances supply and demand.
Equilibrium Quantity – the quantity supplied and the quantity demanded when the
price has adjusted to balance supply and demand.
Law of Supply and Demand – the claim that the price of any good adjusts to bring
the supply and demand for that goods into balance.
Market – refers to a place where a group of buyers and sellers of a particular good or
service interacts.
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Quantity Demanded – the amount of a good that buyers are willing and able to
purchase.
Quantity Supplied – the amount of a goods or services that sellers are willing and
able to sell.
MARKET DEMAND
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are goods which cannot exist without the other product. For instance, the jeep cannot
run without gasoline, and your cellphone cannot function if you do not have a sim card
or load.
4. Tastes and Preferences
Your buying decision-making affects your likes and dislikes about the product. Your
tastes and preferences as a consumer, frequently, decide whether you will buy or not,
or how many quantities you will buy for a product.
5. Expectation of Future Prices
Your forecast about the probability to happen in the future may affect your demand for
a product or service today. For example, you are planning to give your best friend a
perfume on his birthday next month. However, the SM Department Store announced a
50% markdown on the price of perfume next week. If you have enough money, you
may be more willing to buy the perfume next week rather than next month.
6. Occasional or Seasonal Products
There are products which sellable for a short time during the event only are called
occasional or seasonal products. For example, during Christmas season, demand
items are Christmas decors, hams, and quezo de bola, while on Valentine’s Day,
demand rises for red roses and chocolates. However, after such events, the demand
for these products go to its original level.
7. Population Change
Another way to determine for the quantity demanded on some type of goods and
services is through the size of a population in a certain area. This means that the
quantity demanded of a good and service is measure by the number of demands of
people residing in the area. When a population increases, the more goods and
services are demanded, because of the rising population. Inversely, a decrease in
population results to decline the demand. For example, if you have four (4) members in
your family, then one (1) sack of rice is enough as your consumption for a month.
However, if you have twelve (12) members in the family, one (1) sack of rice is not
enough to sustain your need. Your family demand for one-month consumption of rice is
at least three (3) sacks.
To analyze how market work, you need to determine the market demand which is the
sum of all the individual demands for a particular good or service.
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Source: Pearl Matthews. Essential Question: What factors affect demand? Retrieved from
https://slideplayer.com/slide/13766856/
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MARKET SUPPLY
What Determines the Quantity an Individual
Supplies?
What determines the quantity of a product the
sellers are willing to produce and offer for sale?
Here are some of your possible answers:
1. Price
The sellers sell more products at a higher price
than at a lower price. These are because higher
sales result in higher profits. If your family has
farmland and a mini-grocery store and you are selling rice, you are more willing to sell
rice at a high price because selling it is profitable. By contrast, when the price of rice is
low, you sell less rice because your family business is less profitable.
2. Input Prices
The cost of production of rice, like the cost of seeds, equipment, and fertilizer, affects
the price of rice. Hence, when the price of one or more of these inputs rises, your store
becomes less profitable; consequently, your store supplies less rice. If input prices rise
substantially, your family might stop or sell no rice at all. Hence, the quantity supplied
and the input prices of production have a negative relationship.
3. Technology
New technology makes increases the production of a product. Using harvest
automation and autonomous tractors technology makes farms more efficient and
productive. By reducing production costs, the advance in technology raised the supply
of rice in the market.
4. Future Expectation
This factor impacts sellers as much as buyers. If you foresee an increase in the price of
rice, you may decide to discontinue the current supply to take advantage of the future
rise in price, thus decreasing market supply. If you, however, expect a decline in the
rate of rice, you will increase the current quantity supplied of rice.
5. Number of Sellers
The number of sellers is another determinant to determine the quantity supplied in the
market. If you are more sellers there are in the market, the more the supply of goods
and services will be available. If more farmers plant rice instead of other crops, then the
quantity supplied of rice in the market will increase due to an increase in production,
assuming that no destructive calamities strike the country.
6. Weather Conditions
Natural disasters – typhoons, drought, and others – reduce the supply of agricultural
commodities while good weather has an opposite impact. If your farm or riceland
destroys by a calamity, the quantity supplied of rice in the market will decline.
7. Government Policy
The government also influences the market supply through policies like trade
agreements, farm subsidies, tariffs, property taxes, and conservation programs. For
instance, through government programs like the Conservation Reserve Program
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(CRP), your family can be paid not to plant crops for a certain number of years. The
more number of acres enrolled in CRP will reduce the supply of the commodities
commonly grown in your land.
To analyze how market work, you have to determine the market supply by the sum of
all of the supplies of the sellers.
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MARKET EQUILIBRIUM
At the equilibrium price, the quantity of the good that buyers are willing and able to buy is the
same as the quantity that sellers are willing and able to sell. The equilibrium price sometimes
called the market-clearing price because, at this price, everyone in the market has been
satisfied. Buyers have bought all they want to buy, and the sellers have sold all they want to
sell. (N. Gregory Mankiw)
The behavior of buyers and sellers naturally drives markets toward their equilibrium. When
the market price is above the equilibrium price, there is a surplus of the good, which causes
the market price to fall. When the market price is below the equilibrium price, there is a
shortage, which causes the market price to rise. (N. Gregory Mankiw)
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2. Because hot weather makes people want to eat more ice cream, the demand curve
shifts to the right. The increase in demand as the shift in the demand curve to the right
indicates that the quantity of ice cream demanded is higher at every price.
3. The increase in demand raises the equilibrium price and the equilibrium quantity. In
other words, the hot weather increases the price of ice cream and the quantity of ice
cream sold.
𝑷 − 𝒑𝒓𝒊𝒄𝒆 𝑸 − 𝒒𝒖𝒂𝒏𝒕𝒊𝒕𝒚
Source: N. Gregory Mankiw. Principle of Economics. Retrieved from
http://www.ccebook.cn
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𝒂 = intercept of the demand curve
𝒃 = slope of the demand curve
𝑷 = price of the good at a particular time period
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