Applied Economics 01B.pdf

THE NATURE AND SCOPE OF ECONOMICS ▪ According to Molina, J. A. & Nadal, G. J I (2020), economics is a SOCIAL SCIENCE concerned with the explanation and prediction of observed phenomena in the society. ▪ Economics studies the way in the societies solve the fundamental problems of reconcilin...

THE NATURE AND SCOPE OF ECONOMICS ▪ According to Molina, J. A. & Nadal, G. J I (2020), economics is a SOCIAL SCIENCE concerned with the explanation and prediction of observed phenomena in the society. ▪ Economics studies the way in the societies solve the fundamental problems of reconciling the unlimited desires of individuals with scarcity of resources, susceptible to numerous alternative uses. ▪ Economics is also an APPLIED SCIENCE because it uses the scientific method in its explanations, which consists of observing reality and presenting questions and problems to arrive at the formulation of theories and models. ▪ As an applied science, it follows a systematic procedure to solve issues and problems of the society. THE FIELDS OF ECONOMICS Microeconomics Macroeconomics ✓ Studies of markets of ✓ Studies the economy as a goods and services whole ✓ Focuses of the behaviour ✓ Focuses on aggregate of individual in the market indicators (such ✓ Explains how and why production, employment, these units make economic etc.)  The Economic Agents/Stakeholders: 1.Consumers Consume goods and services /offer production factors Maximize utility 2. Producers Produce goods / demand productive factors Maximize profit 3. The public sectors Attempt to maximize the well-being of society The agents interact among themselves in a specific territorial, social, natural and/or cultural framework that determines their relationships → MARKET  ✓Also known as the ECONOMIC factors of RESOURCES production. ✓Used to produce goods and services.  FOUR ✓Land FACTORS OF ✓Labor PRODUCTION ✓Capital ✓Entrepreneurship  LAND ❑Soil and natural resources found in the wild and not man-made. ❑Landowners get a lease known as rent.  LABOR ❑ Physical human involvement in production Example: works in building, machine operators, and works in manufacturing, nurses, lawyers, doctors etc. The income received by labor referred to as Wage.  CAPITAL ❑Man-made commodities that are used to manufacture products and services. The capital owner receives an income which is called Interest.  ENTREPRENEURSHIP ❑ Transforms an idea into a business. In order to add supply, an entrepreneur incorporates the other three (3) output factors. Innovation and risk-takers are the most successful entrepreneurs. Profits are the money entrepreneurs receive. CHARACTERISTICS OF RESOURCES SCARCITY It is a condition where there is an insufficient amount of what is accessible to fulfill the demand for it. MULTIPLE USAGE There can be more than one potential use of resources. A plot of land can be used, for example, to plant copy or to build a factory. PARTIALLY REPLACEABLE In the production of goods or service, one resource may replace another. Example: manual labor with technology. CHOICE AND DECISION-MAKING OPPORTUNITY COST The cost of the next best thing you might have done if you hadn’t made your first option. BASIC TERMS TO BETTER UNDERSTANDING GOODS The family is the most popular use of economics. At this stage. Someone who knows the economic principles would be able to improve functioning of the household. ❑ Consumer Goods Those that yield direct satisfaction to consumers. Example: Soda, Bread, Juices, water etc. BASIC TERMS TO BETTER UNDERSTANDING ❑Capital/Industrial Goods Are those goods that help to produce other goods that directly or indirectly meet consumers. Example: machinery, buildings, equipment ❑Essential Goods Goods that are consumed to satisfy the basic needs of man.  BASIC TERMS TO BETTER UNDERSTANDING ❑Economic Goods Goods that are useful and scarce; they need to be paid for their use; they need to be paid for their use with value attached to them and a price. If a good is so abundant, and it can meet the needs of all without anyone paying for it, then that good is free. The air if free, but the air-conditioned air is an economic good. BASIC TERMS TO BETTER UNDERSTANDING ❑ LUXURY GOODS Are goods that are not necessary, but are highly valued and linked to people who are affluent or rich. For several purposes, they are purchased: to encourage self-worth and status, or for the product’s quality and craftsmanship. Example: Luxury car  What do you think will happen if a company has ample capital but no skilled labor? REFLECT: For you, which among the four (4) factors of production are most interested and why? SEE YOU NEXT MEETING!