Applied Economics - Basic Concerns PDF

UTILITY AND APPLICATION OF APPLIED ECONOMICS - **BASIC CONCERNS** 1\. WHAT TO PRODUCE AND HOW MUCH? 2\. HOW TO PRODUCE? 3\. FOR WHOM TO PRODUCE? - ECONOMIC SYSTEMS - These are the means or process system through which society determines the solutions to the basic economic concerns me...

UTILITY AND APPLICATION OF APPLIED ECONOMICS - **BASIC CONCERNS** 1\. WHAT TO PRODUCE AND HOW MUCH? 2\. HOW TO PRODUCE? 3\. FOR WHOM TO PRODUCE? - ECONOMIC SYSTEMS - These are the means or process system through which society determines the solutions to the basic economic concerns mentioned previously in short, it is how a society decides what to produce, how to produce it, and for whom. ***Types of Economic Systems:*** **1. TRADITIONAL** \- Decisions are based on long-standing customs and traditions. These economies are often found in small, undeveloped societies and rarely change over time. **2. COMMAND** \- The government makes all economic decisions, controlling what goods and services are produced. \- This system is common in communist and socialist countries. **3. MARKET** \- Businesses and individuals decide what to produce based on supply and demand. \- Prices reflect what people are willing to pay, making this system more flexible and consumer-driven. **IMPORTANCE OF ECONOMICS** - Resource - Management - Teaches Budgeting - Smart Spending - Saving - Investing ***SCIENTIFIC APPROACH IN ECONOMICS*** 1\. State 2\. Observe 3\. Apply 4\. Establish 5\. Test the Hypothesis **POSITIVE ECONOMICS VS. NORMATIVE ECONOMICS** - **POSITIVE ECONOMICS** - Focuses on facts and what is happening in the economy. It looks at things like inflation, employment rates, or GDP. It describes the current situation, even if it\'s far from ideal. - **Example:** The inflation rate is currently 5%. - **NORMATIVE ECONOMICS** - Focuses on what should be or what is ideal. It suggests how things could be improved through policies. - **Example:** The government should aim for a 2%inflation rate to ensure stability. **MEASURING THE ECONOMY** Shaping an economy's future lies upon changing past and present perspectives to the future. As anticipating future events are based on past and present performances as well as the health of the economy. - ***GROSS DOMESTIC PRODUCT (GDP) & GROSS NATIONALPRODUCT (GNP)*** - **GROSS DOMESTIC PRODUCT (GDP)** - This is the total money or market value of all of the finished products produced inside a country within a certain period of time. - **GROSS NATIONALPRODUCT (GNP)** - This is an estimated total value of all of the products and services in a period of time by means that are owned by a country's own residents. **TWO APPROACHES IN ORDER TO CALCULATE GNP AND CLASSIFY THEIR RESOURCES ARE:** 1\. Expenditure Approach 2\. Income Approach - **GNP/GDP: EXPENDITURE APPROACH** - Using the end-use expenditure means that products stated in the GNP equation are final when they have reached the highest level of processing in the economy for multiple uses in a given time period. The GNP equation states that GNP=C+I+G+(X-M). C stands for household and individual consumption. I stand for investments. G stands for government expenditure on goods and services including labor. X stands for exports. M stands for import components. - **GNP/GDP: INCOME APPROACH** - Another approach is by resource uses and contributions that make up the production stage. As basic factors or materials get processed into higher forms. **APPLICATION OFAPPLIED ECONOMICS TO SOLVE ECONOMIC ISSUES** ***Economic Issues*** 1\. Poverty 2\. Unemployment 3\. Inflation 4\. Income Inequality **[DEFINITIONS:]** 1. **Poverty** - refers to the state or condition in which people or communities lack the financial resources and other essentials for a minimum standard of living. ***Common Causes of Poverty*** - Increase in Population - Increase in Cost of Living - Unemployment - Income Inequality **WHAT CAN BEDONE TO SOLVETHE PROBLEM OF POVERTY?** ***Solutions for Poverty*** - Reduce Unemployment - Appropriate Policy on labor income - Increase social services like education, health care and food subsidies for sustainable poverty reduction 2. **Unemployment** - is the proportion of people above a specified age not being in paid employment or self-employment but currently available for work during the reference period. ***Common Causes of Unemployment*** - The number of people entering the job market has been greater than the number of jobs being created. - The rural-urban migration increases due to employment opportunities - Many of the unemployed individuals are college graduates. **WHAT CAN BE DONE TO SOLVETHE PROBLEM OF UNEMPLOYMENT?** ***Solutions for Unemployment*** - Appropriate economic policies for labor-intensive industries - Improve the educational system of the country especially in rural areas - Minimize rural-urban migration by improving the economic environment in rural areas - Proper coordination between government and the private sector to solve the problem of job mismatch - Provision of more investment opportunities to encourage local and international investment 3. **Inflation** - is a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy. ***Effects of Inflation*** - Cost of borrowines by businesses and individuals will increase as lenders tend to raise interest to increased prices - Lowers value of currency - Consumers income will not be sufficient to meet their needs - Rapidly increasing prices of commodities will affect the purchasing power of consumers **WHAT CAN BE DONE TO SOLVE THE PROBLEM OF INFLATION?** ***Solutions for Inflation*** - Governments cut spending to reduce demand in the economy - Companies can optimize production costs, reduce waste, and improve efficiency to avoid passing high costs to consumers. - Central banks (e.g., Bangko Sentral ng Pilipinas) can raise interest rates to slow down borrowing and spending, reducing inflation. 4. **Income inequality** - is the uneven distribution of income among people in a society. It can also be referred to as the gap between the rich and poor ***Common Causes of Income Inequality*** - Political Culture - Indirect taxes - poor people shoulder this tax like the 12% value added tax - Income Taxes **WHAT CAN BE DONE TO SOLVE THE PROBLEM OF INCOME INEQUALITY?** ***Solutions for Income Inequality*** - Policies to enforce progressive rates of direct taxation on high wage earners and the wealthy individuals - Direct money transfers and subsidize food program for the urban and rural poor. - Direct policies to keep the low prices of basic commodities - Raise minimum wage - Encourage profit sharing **HINDSIGHTS** Economics is crucial for making smart financial decisions and shaping government policies. It helps solve real-world problems by understanding how economies work, guiding both individual choices and national strategies for growth and stability.