Applied Economics 1 PDF

Chapter 1 Introduction to Applied Economics Economics exists due to the scarcity of resources where problems around us arise. With this issue, we are all affected and should be ready with solutions. How can you help the government solve the problems and social issues around us? Economics-is a soc...

Chapter 1 Introduction to Applied Economics Economics exists due to the scarcity of resources where problems around us arise. With this issue, we are all affected and should be ready with solutions. How can you help the government solve the problems and social issues around us? Economics-is a social science that involves the use of scarce resources to satisfy unlimited wants. It is a study of mankind in the ordinary business of life. (Alfred Marshall) It studies how individuals make choices in allocating scarce resources to satisfy their unlimited wants. (as social science) Social science-is the study of society and how people behave and influence the world around them. Scarcity-is a condition where there are insufficient resources to satisfy all the needs and wants of a population. Relative scarcity Absolute scarcity Relative scarcity-is when a good is scarce compared to its demand. (due to fortuitous event like flood, typhoon, etc.) Widely produced in Davao, Northern Mindanao, & Socsargen But when the harvest of bananas will be affected by floods, typhoons and other calamities, the production will be affected, so scarcity will arise. Absolute scarcity-is when supply is limited. (like oil, electricity, agricultural soil, etc.) Philippines has some oil reserves (0.01 share of the world), and not enough for people’s consumption, and therefore resulting to oil imports. In this case, supply of oil is limited. Source: https://ww w.worldom eters.info/ oil/philippi nes-oil/ Wants are unlimited Famous economist Alfred Marshall has rightly said that human wants are countless in number and are varied in kind. As soon as one want is satisfied another want takes its place. This endless circle of wants continues through out life. Economics is a study of mankind in the ordinary business of life (Marshall). Just a thought: Is having all what we want in life make us happy? I believe that having some of these things are enough to live a happy life. Opportunity Cost-it refers Employed as accountant to the value of the best foregone alternative. OR Put up your own business I chose the popcorn, so I have to give up the pretzel. That is my opportunity cost. Economic Resources 1. Land-soil and natural resources that are found in nature and are not manmade. (rent, lease) 2. Labor-physical and human effort exerted in production. (income is called wage for labors) 3. Capital-man-made resources used in the production of goods and services, which includes machineries and equipment. 1. Land Some land is rich in coal, water, and petroleum, which are used for generating power. Land is required to construct factories and industries to carry out the production process. Land is of great importance to mankind. A nation's economic wealth is directly related to the richness of its natural resources. Lease-usually leasing contract is signed for long term (Lessor - lessee) Rent-rental agreement is signed for short term (landlord - tenant) 2. Labor Labor resources are resources of available manpower whether professionals or laborers, skilled or unskilled laborers.  Type of Income or Remuneration Salary-it is a type of remuneration calculated annually, divided by twelve and paid out each month. (for white collar jobs-professionals) Wage-it is a type of remuneration calculated on the number of hours worked that week, fortnight or month. (for blue collar jobs-laborers) 3. Capital -it refers to the assets (refers to what the company owns)– man-made resources like physical tools, buildings, and equipment–that allow for increased work productivity. Branches of Economics Macroeconomics-it is concerned with the overall performance of the entire economy. Microeconomics-it is concerned with the behavior of individual entities such as consumer, producer, and the resource owner.  Basic Economic Problems of Society 1. What to produce and how many? (what kind of goods and services, quantity) 2. How to produce? (resources and technology) 3. For whom to produce? (market)  1. In the province of Kawalan, where there are 1000 people residing of which 500 of them like to eat pandesal in the morning. People need to go to other provinces just to buy hot pandesal. 2. You decided to open a bakeshop and buy some oven and important equipments. 3. For low-income earner at the price of 2 pesos each.  Economic Systems 1. Traditional economy 2. Command economy 3. Market economy  Economic System Traditional economy-decisions are based on traditions and practices upheld over the years and passed on from generations. A traditional economy is one in which people do not use a standard form of currency, such as the dollar, but instead rely on bartering the goods that they produce. Traditional economies are primarily determined by family ties and forces of nature.  Yanomamo and Kayapo In Brazil, those who live in the Amazon rainforest, they have a traditional economy based on the goods that they produce, mostly by hand, and that they exchange with their neighbors. (hunting, agriculture) In Haiti, where nearly 70% of the population lives in rural areas and relies on subsistence farming. In Yemen, the poorest country in the Middle East, has many remote villages in mountainous regions that are more reliant on exchanging agricultural products than on cash.  Economic System Command economy-decisions are imposed on the people who do not have a say in what goods are to be produced.  This is the type of economy in a In a command economy, communist the government, rather society like: than the free market, North determines Korea, what goods should be produced, how many should be produced, and the price at which the Cuba, goods are offered for sale. It also determines investments and incomes. Soviet Union  Economic System Market economy-decisions are made on what goods to produce based on people’s preferences. In a market economy, the laws of supply and demand direct the production of goods and services. Supply includes natural resources, capital, and labor. Demand includes purchases by consumers, businesses, and the government. Businesses sell their goods at the highest price consumers will pay. At the same time, shoppers look for the lowest prices for the goods and services they want. Workers bid their services at the highest possible wages that their skills allow. Employers seek to get the best employees at the lowest possible price. Positive economics-refers to things that are actually happening such as the current inflation rate, the number of employed labor, and the Gross National Product. (deals with what is) overview of present economy Normative economics-it embodies the ideal such as the ideal rate of population growth or the most effective tax system. (deals with what should be) policy formulation Positive economics uses objective analysis in the study of economics. It deals with “what is” economics due its use of fact-based determination of thought to form a basis of predictions for the future. Ex. Predicting that more people will save, if interest rate rise according to data. Normative economics is heavily concerns itself with value judgments and statements of “what should be” rather than facts. It expresses ideological judgments about what may result in economic activity if public policy changes are made. Ex. We should cut taxes in half to increase disposable income levels. Working citizens should not pay for hospital care. Laborers should receive greater parts of capitalist profits.  Measures of Economic Output Gross National Product (GNP)-is the market value of all goods and services produced by the citizens of the country whether production was made inside or outside the country in a given period. (by ownership) It represents how its nationals are contributing to the country's economy. Gross Domestic Product (GDP)-is the market value of all goods and services produced within the country without distinction between foreign or domestic ownership made during specific period of time. (location measure) It is used to measure the overall health and size of a country's economy.  GNP/GDP: Expenditure Approach One way to account GNP and classify its components is by END-USE EXPENDITURE. Products are final when they have reached the highest levels of processing in the economy for different uses in the given period. It can best be exemplified by the GNP equation. C, household and individual consumption I, investment G, government expenditure X, export M, import GDP=C + I + G + (X – M)  GNP/GDP: Expenditure Approach GDP = C + I + G + (X – M) GNP = GDP + NFIA (Net factor income from the rest of the world) Net factor income from abroad is the difference between the factor income earned from abroad by normal residents of a country (say, Filipinos) and the factor income earned by non-residents (foreigners) in the domestic territory of that country (i.e., Philippines). NFIA = Factor income earned from abroad by residents – Factor income of non-residents in domestic territory.  GNP/GDP: Expenditure Approach As of 2012 (page 8) Consumptions 7,837,881 Government 1,112,586 Investments 1,950,524 Export s 3,254,460 Less: Imports 3,590,563 GDP 10,564,886 NFIA 2,043,843 GNP 12,608,730 Income Approach GNP = wage + rent + interest + profit GNP/GDP Income Approach  GNI/GDP: Income Approach GDP = income from different industry group (Agriculture + Industry + Services) GNI = GDP + NPIA (Net primary income from the rest of the world) NPIA is the net balance of interest, profits and dividends (IPD) coming into the nationals of the country all over the world matched against the income from foreign owned assets located within the country. NPIA = income earned by foreigners in the country – income earned by the nationals in the rest of the world The Philippines’ Basic Economic Problems 1. Unemployment (3.1% or 1.62 M as of June 2024) 2. Poverty (10.9 % or 2.99 M as of 2023) 3. Booming population (109 M as of 2020) Source: https://psa.gov.ph/  Employment Rate in June 2024 2021 2022 2023 June 2024 Labor Force 63.3% 64.7% 64.9% 64.4% Employment Rate 92.2% 94.6% 95.7% 96.1% Underemployment 15.9% 14.2% 12.3% 12.3% rate Unemplyment Rate 7.8% 5.4% 4.3% 3.9% Source: https://psa.gov.ph/. Poverty A family with five members needed at least PhP 13,873 per month to meet their minimum basic food and non-food needs in 2023. The national poverty incidence among families in 2023 was recorded at 10.9 percent. This is equivalent to 2.99 million Filipino families without enough income to meet their basic food and non-food needs. Source: https://psa.gov.ph/  Population of the Philippines Census Population Census Year Reference (in millions) Date 2000 May 1, 2000 76.51 2010 May 1, 2010 92.34 August 1, 2015 100.98 2015 2020 May 1, 2020 109,035,343 The current population of the Philippines is 116,010,975 as of September 2024. The Philippines ranks number 14 in the list of countries by population. https://www.worldometers.info/ Applied Economics-is the application of economic theory and econometrics in specific settings with the goal of analyzing potential outcomes. Econometrics is the branch of economics concerned with the use of mathematical methods (especially statistics) in describing economic systems.  Reference: Applied Economics (2017) by Rosemary P. Dinio and George A. Villasis