Applied Economics –Alternative

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Quarter 1 – Module 1: Introduction to Applied Economics First
Edition, 2020

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Published by the Department of Education

Secretary: Leonor M. Briones
Undersecretary:
Assistant Secretary:
Development Team of the Module:
Development Team of the Module
Authors: Rhona Mae P. Labadan
Author: RHONA MAE P. LABADAN
Evaluator: Zalvy Jean P. Galindo
Evaluator: ZALVY JEAN P. GALINDO,
GwendylouGWENDYLOU
E. Dableo E. DABLEO
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Dr. Victor G. De B. Bayocot,
Gracia CESOVIII
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Regional Director
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Co-Chairpersons: Dr. Victor G. De Gracia Jr., CESO V
Mala Epra
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Designate-
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i
 12

Applied Economics
Quarter 1 – Module 1:
Introduction to Applied Economics

This instructional material was collaboratively developed and

reviewed by educators from public and private schools, colleges and
or/universities. We encourage teachers and other education stakeholders
to email their feedback, comments, and recommendations to the Department
of Education at [email protected].

We value your feedback and recommendations.

Department of Education • Republic of the Philippines

ii
 Table of Contents

Copyright Page i
Module Title ii
Table of Contents iii

CONTENTS

Lesson 1: Basic Terms in Applied Economics

What’s In 4
What’s New 4
What Is It 5
What’s More 8
What I Have Learned 9
Additional Activities 10

Lesson 2: Basic Economic Problems of the Country

What’s In 11
What’s New 11
What Is It 12
What’s More 14
What I Have Learned 14
Additional Activities 15

Lesson 3: Applied Economics in Relation to the Philippine Economic

Problems
What’s In 17
What’s New 17
What Is It 18
What’s More 19
What I Have Learned 19
Additional Activities 20

Assessment 21
Answer Key 23
Reference 25

iii
 WHAT I NEED TO KNOW

Welcome to Module 1, your entry point to understanding Applied Economics!

This module will help you know more about our economy. It has three lessons:
● LESSON 1- Basic terms in Applied Economics

● LESSON 2- Basic Economic Problems of the Country

● LESSON 3- Applied Economics in Relation to the Philippine Economic

Problems

The first lesson will introduce you to the basic terms used in applied
economics and the second and last part would inform you about the economic
problems present in our economy and how applied economics will help you solve
these.

I hope that this module will help you become an informed citizen by being able
to make better judgements on the resources you currently have. If you areinterested
to learn more about how decisions should be made when you have abundant or
limited resources, this module will answer your queries.

Think of this first module as your starting point as you trace the way to
the full understanding of economics. Enjoy and let’s get your journey started!

After going through this module, you are expected to;

1. define basic terms in applied economics ABM_AE12-Ia-d-1;

2. identify the basic economic problems of the country ABM_AE12-Ia-d-2;
3. explain how applied economics can be used to solve economic problems
ABM_AE12-Ia-d-3;

To achieve the objectives of this module, do the following:

1. Read the texts slowly and carefully so that you can catch the main ideas.
2. To complete your learnings, do not proceed to the next page until youare
done reading the previous one.
3. Answer the pre and post-tests diligently.
4. Work on the exercises and enrichment activities.
5. Relate well and have fun!

1
 WHAT I KNOW

Before proceeding to the other parts of the module, test your knowledge by
trying to answer the questions that follow. Encircle the letter of your answer.
1. What do you call the condition in which our wants are greater than our
limited resources?
A. Economics C. Scarcity
A. Opportunity Cost D. Trade-off

2. What do you call things that you gave up when you make a choice?
A. Choice C. problem
B. opportunity cost D. Trade-off

3. What do you call the application of economic principles and theories to real-world
situations?
A. Applied Economics C. Macroeconomics
B. Economics D. Microeconomics

4. Which of the following is not a factor of production?

A. Capital C. Labor
B. Tax D. Land

5. What is supply?
A. It is a choice that you gave up C. It is the totality of our needs
B. It is the amount of goods for sale D. It refers to the economy

6. Which of the following classifications does not fall under underemployment?

A. Highly skilled but working in low paying jobs
B. Part-time workers who would prefer to be full time.
C. Without work and currently available for work
D. Workers who are highly skilled but working in low skill jobs

7. When does underemployment occur?

A. It is when a person does have work
B. It is when a person does not have work
C. It when a person does not work for a job that fits his/her skills.
D. It is when a person works for a job that fits his/her skills.

8. Which of the following works best for our country?

A. Decrease in the employment rate
B. Decrease in the underemployment rate
C. Increase in the underemployment rate
D. Increase in the unemployment rate

2
9. What is most likely to happen when the population continues to rise?
A. Employment rate will go up
B. Poverty rate will decrease
C. Resources will become scarce
D. Unemployment rate will go down

10. According to Philippine Statistics Authority (PSA) what is the minimum agethat a
Filipino must have in order to be classified as an unemployed person?
A. 13 years old
B. 14 years old
C. 15 years old
D. 18 years old

11. What kind of approach is used by economists to explain how the economy
works?
A. Collaborative C. positive
B. experimental D. scientific

12. What are you experiencing when your wants are greater than yourresources?
A. Poverty C. trade-off
B. Scarcity D. unemployment

13. What is the reason why we are studying economics?

A. Poverty C. trade-off
B. Scarcity D. unemployment

14. What type of analysis are economists concerned with in order to become
objective?
A. careful C. normative
B. negative D. positive

15. Which major characteristic of economists enable them to make sound

decisions in solving economic problems?
A. objective C. subjective
B. prompt D. trustworthy

3
 LESSON 1: Basic Terms in Applied Economics
Learning Competency: Define basic terms in applied economics. ABM_AE12-Ia-d-
1

WHAT’S IN

Have you tried to budget your money in order to buy what you want to eat or
consume in your daily living? Have you tried to run out of water while you were taking
a bath? Have you tried to limit the number of kilos of rice that you will buy for your
daily consumption? If you have answered yes to at least one of these questions,
then you must be facing the trauma of not being able to have enough of what you
wanted.
In this lesson, you will be introduced to the most basic terms used in Applied
Economics and their corresponding definitions. These words will surely guide you in
understanding the real meaning of Applied Economics.

WHAT’S NEW

Directions: Below is a list of the basic terms used in Applied Economics.

Encircle the words as soon as you found them inside the puzzle.
Scarcity Economics Trade-offs Opportunity Cost
Microeconomics Macroeconomics Supply Demand
Land Labor Capital Aggregate
Needs Wants

I H A V E A D R E T S O C Y T I N U T R O P P O A D
S M A S O N G T O S I N G T O H E L P M E C A L L N
C R E Y A L I T Y I F Y O U S E E T H E W O W N D A
A E R L O F A S C I M O N O C E O R C I M F A A I L
R R Y P T A I L Y O S U C A N E T A K E T H N E F U
C T U P D R E E V F E N I S F Y T O U C A N T T C I
I B E U L E E I F V E I N D A N G A E L S O S M A E
T T H S R I M O N G G O O E D I N E G V E R Y T P H
Y I N O G I E A S E E I B E E L I E V E E I N A I N
G E B L W D H E N N I K N N O W T H E T R I M E T F
O A R M A E H A S D C H A N G E D A C R O G S S A T
G T H R E S M A C R O E C O N O M I C S T E G E L T
I H T A V E A E C O N O M I C S D R E A M W I A S H

4
 WHAT IS IT

What is Scarcity?

Life would be easier if we could have whatever we wanted, whenever we

wanted it. Unfortunately, life doesn’t work that way. There are times when we feel
like buying all the things we want while window shopping but we just don’t have
enough money. At times, when we are craving for some food, the store just runs out
of stock. There are times when we really wanted to take a bath but there is no single
drop of water coming out of the faucet, or we wanted to light up a candle but we ran
out of matchsticks. You see, this is scarcity, and it is everywhere. Scarcity is the
condition in which our needs and wants are greater than our limited resources.

Needs and wants differ from person to person. The easiest way to describe
needs is that these are the things that we can’t live without. Examples of needs are
air, water, food and shelter. On the other hand, wants are those that we can live
without. Examples of wants are jewelries and luxuries.

Why is scarcity linked to Economics?

Scarcity is the reason why people have to study and practice economics.
Economics studies how people distribute or divide their limited resources in order
to satisfy their unlimited wants. Or simply, it is the study of how individuals and
societies deal with scarcity.

5
 For instance, if after your examination you plan to eat a heavy lunch with your
limited allowance which is 100 pesos, you will have to budget it and decide about
which food you will buy to satisfy your hunger. Since we are unable to have
everything we desire, we must make choices on how we will use our limited
resources.

What are Trade-offs?

When making choices, there are things that we need to give up. Trade- offs
consist of all the options that we give up when we make a choice.
Following the previous example, you planned to spend your limited
allowance to buy 2 pieces of siopao and softdrinks to satisfy your hunger. Yourother
option is to pay for a heavy value meal at 120 pesos or buy your favorite meal
combo at 115 pesos. You gave these options up since you can only afford to pay for
the siopao and drinks. The choices that you’ve given up are your trade-offs.

What is an Opportunity Cost?

Among all your trade-offs, the most desirable alternative that you gave up is
called the opportunity cost. In the previous example, the most desirable option is to
buy your favorite meal combo at 115 pesos. You cannot afford it since you only
have 100 pesos so you gave it up.

No matter what choice you make, there is an opportunity cost, or next- best
alternative, that must be sacrificed. Opportunity cost is the highest- valued
alternative that must be sacrificed in order to get something else. The key to making
the best possible decision is to minimize your opportunity cost by selecting the
option that gives you the largest benefit.

What are the Branches of Economics?

Microeconomics is a branch of economics that is concerned with the

decision-making done by smaller economic units such as individuals or consumers,
firms and industries. Macroeconomics on the other hand is the study of the large
economy as a whole or the aggregate economy.

What is Supply and Demand?

To better understand Economics, we also need to know about supply and

demand. Supply refers to the total number of goods or services available for sale.
These goods or services are produced by making use of the factors of production
consisting of land, labor and capital. Land refers to all natural resources or any raw
materials coming from the ground that is used to produce supply. Labor on the other
hand is the work done by people or human resources. Capital does not only mean
money as this can be in the form of

6
 man-made tools or objects that may be used to produce supplies. Demand on the
other hand refers to the aggregate or the totality of the needs and wants of the
customers. Balancing these two is one of the goal of Economics so that scarcity is
eliminated.
What is Applied Economics?
Applied Economics is the application of the principles of supply, demand,
trade-offs, opportunity-costs, and other economic theories to solve real-world
problems. It may be practiced in the microeconomic or macroeconomic level.
Applying economic theories in our lives means trying to address actual economic
issues and be able to do something about it.

WHAT’’S MORE

Directions: Define the basic terms in Economics as indicated below by

completing the concept map. Widen your imagination and think of words or phrases
which may define these terms:

Supply Demand Needs Wants

Trade-offs Applied Economics

Opportunity Costs Economics

7
 WHAT I HAVE LEARNED

Directions: On Column A are the basic terms used in Economics. Define

each term based on how you understand it from the previous texts. Place your
definitions under Column B.

Column A Column B
1. Aggregate
2. Capital
3. Demand
4. Economics
5. Labor
6. Land
7. Macroeconomics
8. Microeconomics
9. Needs
10. Opportunity Costs
11. Scarcity
12. Supply
13. Trade-offs
14. Wants

WHAT I CAN DO

Directions: Internalize the basic terms in Applied Economics introduced to you a

while ago. Grab a newspaper. Turn to the business section or page. List down at least
5 terms that you think would relate to Applied Economics and then briefly define
these terms that you have listed.
1. - _
2. _ - _
3. - _
4. - _
5. - _

9
 ADDITIONAL ACTIVITIES

Situation: Imagine that you were on a class field trip for three days. Your mom sent
you a pocket money of Php 1,500.00. You have already planned to use this to buy
an acoustic guitar so you could practice playing it when you got home. While
strolling around the mall, you found a beautiful necklace which would certainly look
good on your mom and it costs Php 500. You know that if you bought the necklace,
your mom would be glad, however, buying it would make you unable to buy your
beloved guitar. Which one would you buy? Why?
Answer:
_

What basic economic term(s) can we extract from the situation above? Listthem
down here:

Congratulations for completing Lesson 1!

10
 Welcome to Lesson 2!

LESSON 2: Basic Economic Problems of the Country

Learning Competency: Identify the basic economic problems of the country.

ABM_AE12-Ia-d-2

WHAT’’S IN

In the previous lesson, you were introduced to the basic terms used in
Applied Economics. These terms will help you to better understand applied
economics and the current situations faced by our country.
In this lesson you will be identifying the basic economic problems of the
country which are all linked to scarcity. Take time to read and feel the different types
of situations you will be immersed in.

WHAT’’S NEW

Directions: Concentrate on reading the following situation. Immerse yourselfinto it.

Try to feel it and answer the questions that follow.
At the age of 14, you were forced to leave school as you can no longer pay
for the school fees or afford to buy food whenever you’re in school. Supposedly, you
will be entering senior high school. You are the eldest son and you have 5 other
siblings. As a product of a broken family, with your father marrying into another
woman, and your mother marrying into another man, you were left with the
responsibility of taking care of your younger siblings and your family as a whole. In
order to survive, you did many part-time jobs. One day, you felt that the money
you’re earning is no longer enough to support your siblings and so, you decided to
find a regular job. While looking for a job, you got frustrated because nobody would
want to hire you as you are still very young and lack qualifications. Identify the
problems that you experienced in this situation. List these below.
Answer:
__

__
__

11
 WHAT IS IT

All societies are faced with questions about what goods and services should
be produced, how these should be produced and who consumes these. Knowing the
answers to these questions would lead us to identify possible problems and
solutions to existing economic problems.

What are the Basic Economic Problems in the country?

Philippines as a growing country is not exempted from experiencing

economic problems. Under the Duterte administration, the country has significantly
improved its economic marks, however, problems still exist. Take a look at the
following scenario and examine or identify the economic problem present in it.
Situation #1: You are a fresh graduate at a prestigious university. You graduated
as summa cum laude and received numerous recognition awards. You took up an
education course in order to become a teacher, however, after graduating, you could
not find available jobs within the province. What economic problem is present and is
affecting you here?
1. In this situation, you are affected by the so-called unemployment problem, which
is still among the basic problems of the country. According to PSA (Philippine
Statistics Authority, the unemployed include all persons who are 15 years and
over as of their last birthday and are reported as: (1) without work and currently
available for work and seeking work; or (2) without work and currently available
for work but not seeking work for the following reasons: Tired/believed no work is
available; awaiting results of previous job application; temporary illness/disability;
bad weather and; waiting for rehire/job recall.
According to the records of PSA (Philippine Statistics Authority), the
unemployment rate in the year 2018 is at 5.3% and this went down a little bit in the
year 2019 becoming 5.2%. These figures show that there is still a huge number of
Filipinos who are not working. Not having a job means not having a source of
income to provide for our personal needs and wants, not being able to being prone
to scarcity issues. Unemployment has been an issue in the country for many years
which is why the government is seeking ways to address the problem.
Aside from unemployment, another basic economic problem is faced by
Filipinos. Discover it by reading and immersing yourself in the situation below.
Situation #2: You are a newly-registered nurse. You wanted to immediately find a
job to save enough money for your sick father’s hospitalization. There is no other
available job opportunity in the area except for an immediate hiring for customer
service representatives. You got the job and you’re now a contact center agent.
What economic problem is present and is affecting you here?

12
2. In this situation, you are affected by the so-called underemployment problem,
which is also among the basic problems of the country. Accordingly, labor that
falls under the underemployment classification includes those workers who are
highly skilled but working in low paying jobs, workers who are highly skilled but
working in low skill jobs and part-time workers who would prefer to be full time.
According to the records of PSA (Philippine Statistics Authority), the
underemployment rate in the year 2018 is at 18.0% and this went down a little bit in
the year 2019 becoming 15.6%. There is a decrease in the percentage rate which
means the Philippines is getting better, however it remains to be an economic
problem. Having a job that doesn’t match your skills still boils down to being prone
to scarcity issues.
Situation #3: Suppose that you, being the eldest of ten siblings were not able to
finish your studies. You were forced to stop going to school at the age of 13 and find
a job at an early age in order to support your siblings. What economic problem can
be seen here?
3. In this situation, you are affected by the number one problem of the
country which is poverty.
The booming population growth in the Philippines is another basic economic
problem that can be connected to the issue of scarcity. When population becomes
too big, economic resources may no longer be enough to support the increasing
number of people. Food, water, shelter, medicine and other resources wouldn’t be
enough to satisfy every people’s needs and wants.
On a 2015 report by the Philippine Statistics Authority (PSA), five (5) out of
nine (9) basic sectors of the economy are considered very poor. The farmers came
first, followed by fishermen, children, self-employed and unpaid family workers, and
women. You see, those who do hands-on jobs usually get lower incomes. This is
even the reason why Filipinos tend to go abroad as they get better pays outside the
country.
All of the country’s basic economic problems vary with times and
circumstances. Unemployment, underemployment, poverty and population increase
are just few of the basic economic problems faced by our country. These problems
are linked to scarcity. These problems would not have occurred if the resources or
supplies are equally distributed to suit to the needs and wants of people. It is now a
challenge for you to observe and identify other economic problems so you may be
able to think about it and reflect on how youcould help in solving it.

13
 WHAT’’S MORE

Situation 1: Imagine that you were born and raised in a wealthy family. You can
buy what you want, go to places you love and enjoy the things that money can buy.
You wanted to become a doctor so you pursued your education and graduated with
honors. The only problem is that, since you are the heir of the CEO of a large
business company, you cannot practice your profession as a doctor. Instead, you
are forced to succeed the business of your family. Thus, you are now working as a
businessman. Identify the economic problem that can be seen from this scenario.
Briefly explain your answer.
Answer:
__
__
_
__

WHAT I HAVE LEARNED

Directions: Try to summarize what you have learned by completing the followingstatements:
1. All societies are faced with questions about _ goods and services
should be produced, _ these should be produced and
consumes these.

2. According to PSA (Philippine Statistics Authority, the unemployed include all

persons who are _ years and over as of their last birthday and are reported as:
(1) without work and currently available for work and seeking work; or (2) without
work and currently available for work but not seeking work for the following
reason.

3. classification includes those workers who are highly

skilled but working in low paying jobs, workers who are highly skilled but working
in low skill jobs and part-time workers who would prefer to be full time.

4. On a 2015 report by the Philippine Statistics Authority (PSA), five (5) out of nine
(9) basic sectors of the economy are considered very poor. The
came first, followed by , children, self-
employed and unpaid family workers, and women.
5. Unemployment, underemployment, poverty and population increase are justfew of
the basic economic problems faced by our country. These problems are linked to
. 14
 ADDITIONAL ACTIVITIES

Directions: Cut out at least 3 pictures from newspapers or any unused

catalogues which for you represents a particular economic problem. Paste it
inside the boxes below and write a short caption identifying the economic
problem present in it.

15

Congratulations for completing Lesson 2!

 Welcome to Lesson 3!

LESSON 3: Applied Economics in Relation to the Philippine Economic

Problems
Learning Competency: Explain how applied economics can be used to solveeconomic
problems, ABM_AE12-Ia-d-3

WHAT’’S IN

You have learned from the first lesson of this module that applied economics
is the application of economic principles and theories to real-world situations in
order to predict future outcomes. Therefore, it makes sense that if you will apply the
economic theories that you will learn in your personal life and the society you’re at,
you may actually be able to address actual economic issues and do something
about it.

WHAT’S NEW

Let’s go back to one of the situations in lesson 2. You are a fresh graduate at
a prestigious university. You graduated as summa cum laude and received
numerous recognition awards. You took up an education course in order to become
a teacher, however, after graduating, you could not find available jobs within the
province. You have known that you were affected by the unemployment problem
here. What do you think should be done to address this problem which is just one of
the many cases in the country? Briefly explainyour answer.
Answer:

__
_
__

__

WHAT IS IT

How economists face economic problems

Just like a scientist who needs a science laboratory, as an economist, your

laboratory is the world around you, from the economy as a whole to the decisions
made by firms and individuals. In order to explain why the economy works in a
certain way you need to gather historical data or even wait for events to take place to
better understand the economy.
The scientific approach is necessary in solving economic problems. It
consists of steps such as observing the economic problem that interests you;
proposing an explanation about why the problem occurred; gathering data to prove
the truthfulness of the causes of the problem and then recommending the best
 possible solution based on the verified causes.
One major characteristic of economists that enable them to make sound
decisions in solving economic problems is by being objective. This means that they
try to avoid letting personal beliefs and values influence the outcome of their
analysis
To be as objective as possible, economists make use of positive analysis. A
positive statement can be tested and validated. For instance, the statement “the
joblessness rate is 5.0%” is an affirmative statement because it can be tested by
collecting data.
In contrast, a normative statement cannot be corroborated. For instance,
the statement “an unemployed worker should receive financial assistance in order
to survive” is a matter of opinion. Financial assistance may be beneficial to the
unemployed but it might turn out as a way of pampering them which would make
them want to stay lazy and unemployed. Neither opinion is correct or not because of
opposing standpoints based on values, traditions and beliefs.
Economists are concerned with positive analysis. In contrast, normative
statements are applied by policymakers, voters, and philosophers. There is no exact
way to solve economic problems, if there was, they could not have existed.However,
Applied Economics employs positive analysis and the scientific method which is the
best way to solve economic problems.
For instance, if the joblessness rate rises, economists try to apprehend the
circumstances that produced the situation. Economics, if done properly, is confined
to positive analysis.

Going back to the previous activity that you’ve answered where you have been
affected by unemployment since you cannot find available jobs, the most
appropriate thing an economist must do is to apply positive analysis.
Unemployment happens due to scarcity of jobs which means the number of
prospect workers or job applicants do not match the number of jobs available.
Thus, these numbers must be looked into. Data should be gathered and
validated before economists could suggest or recommend something that will
equalize the numbers. This would need government intervention at the end since
they have control over the economy. This is how applied economics works.

WHAT’S MORE

Let’s go back to another situation in Lesson 2 where you have experienced

underemployment. We assumed that you were a nurse by profession but you were
working as a contact center agent. Try to explain how applied economics can be
used to solve this problem.

_
__

WHAT I HAVE LEARNED

 Applied Economics makes use of the scientific approach to explain how the
economy and the world works.

 Economists try to avoid letting personal beliefs and values influence the
 outcome of their analysis by being objective.

 To be as objective as possible, economists make use of positive analysis

which can be believed of as a depiction of “what is and can betested.

ASSESSMENT

Before proceeding to the next module, test your knowledge by answering the
questions that follow. Encircle the letter of your answer.

1. What do you call the condition in which our wants are greater than our
limited resources?
A. Economics C. Scarcity
B. Opportunity Cost D. Trade-off
2. What do you call things that you gave up when you make a choice?
A. Choice C. problem
B. opportunity cost D. Trade-off
3. What do you call the application of economic principles and theories to real-world
situations?
A. Applied Economics C. Macroeconomics
B. Economics D. Microeconomics
4. Which of the following is not a factor of production?
A. Capital C. Labor
B. Tax D. Land
5. What is supply?
A. It is a choice that you gave up C. It is the totality of our needs
B. It is the amount of goods for sale D. It refers to the economy

6. Which of the following classifications does not fall under underemployment?

A. Highly skilled but working in low paying jobs
B. Part-time workers who would prefer to be full time.
C. Without work and currently available for work
D. Workers who are highly skilled but working in low skill jobs

7. When does underemployment occur?

A. It is when a person does have work
B. It is when a person does not have work
C. It when a person does not work for a job that fits his/her skills.
D. It is when a person works for a job that fits his/her skills.
8. Which of the following works best for our country?
A. Decrease in the employment rate
B. Decrease in the underemployment rate
C. Increase in the underemployment rate
D. Increase in the unemployment rate
9. What is most likely to happen when the population continues to rise?
A. Employment rate will go up
B. Poverty rate will decrease
C. Resources will become scarce
D. Unemployment rate will go down
10. According to Philippine Statistics Authority (PSA) what is the minimum agethat a
Filipino must have in order to be classified as an unemployed person?
A. 13 years old
B. 14 years old
C. 15 years old
 D. 18 years old
11. What kind of approach is used by economists to explain how the economy
works?
A. Collaborative C. positive
B. experimental D. scientific
12. What are you experiencing when your wants are greater than yourresources?
A. Poverty C. trade-off
B. Scarcity D. unemployment
13. What is the reason why we are studying economics?
A. Poverty C. trade-off
B. Scarcity D. unemployment
14. What type of analysis are economists concerned with in order to become
objective?
A. careful C. normative
B. negative D. positive
15. Which major characteristic of economists enable them to make sound
decisions in solving economic problems?
A. objective C. subjective
B. prompt D. trustworthy