St. Augustine’s Academy of Patnongon, Inc.

Real St.,Poblacion, Patnongon, 5702 Antique, Philippines

APPLIED Grade 12
ECONOMICS
Quarter 1
MODULE 1
Week 2

OVERVIEW OF APPLIED
ECONOMICS
Norielle S. Oberio
norzoveru@gmail.com
Subject Teacher

NOTE: PLEASE USE PAD PAPERS WHEN ANSWERING THE ACTIVITIES.DO NOT WRITE ANYTHING ON THIS MODULE
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Lesson 1: Branches of Economics

No of weeks/days: Week 2

Objectives (of the lesson)

1. Identify the tools and methods in economics

2. Differentiate the main branches of economics

Discussion of the topic what is it

Factors of Production

There are four main factors of production used to create an output in the
economy. They pertain to the term resources and are occasionally referred to as
inputs of production. The return on the use of these inputs of production is called
factor income.
1. Land – this represents land and similar natural resources available such as
farms and agricultural land. Land is typically cultivated or improved for use in
production. Use of land is paid in the form of rent payment. The factor income
on the use of land is rent.
2. Labor – Labor represents human capital such as workers and employees that
transform raw materials and regulate equipment to produce goods and
services. The return on labor is wage.
3. Capital – Capital represents physical assets such as production facilities,
warehouses, equipment, and technology used in the production of goods and
services. The term may also refer to investment capital used in production.
The factor income for capital is interest.
4. Entrepreneurship – this is sometimes referred to as enterprise. It represents
the factor that decides how much of and in what way the other factors are to
be used in production. The return on entrepreneurship is profit.

Methods Used in Economic Analysis.

Qualitative approach to economic data analysis focuses on directional

relationship of different economic variable. It also describes how one variable affects
the other.
Quantitative approach, on the other hand, involves mathematical and
statistical analysis of economic data. It is used in different disciplines such as
physics and finance.
Other quantitative and qualitative tools used extensively in the study of
economics are variables, equations and functions, and graphs. These tools are
used to illustrate economic theories and support economic models.

Economic variable are important in explaining and understanding economic

theories or models. Generally, a variable in an element that can change in contrast
to fixed one. Functions ( f ) explain the relationship between two or more economic
variables. An economic equations is a mathematical expression of an economic
thought or concept. A graph provides a visual presentation of the relationship
between two or more economic variables.

In terms of judgment, economics can be categorized into either normative or

positive.
Normative economics evaluates economics decision, policies, or outcomes
as good or bad. It is based on opinions and is subjective. For instance, asking you to
provide your opinion on whether the Philippines economy is doing good or not is
normative economics.
Positive economics, on the other hand, evaluates economic scenarios and
policies based on qualitative and quantitative analysis. This makes positive
economics factual and objectives. An example is observing Philippine economic
growth based on data for the past three quarter.

Activities/ Tasks

What I have learned

Analyze and evaluate the statements below. Identify if it is normative or positive

economics.
_____________ 1. Women should be provided higher school loans than men.
_____________ 2. Unemployment is caused by the COVID-19 pandemic.
_____________ 3. Microsoft is the largest producer of computer operating systems
in the world.
_____________ 4. We ought to do more to help the poor.
_____________ 5. Working citizens should not pay for hospital care.
_____________ 6. In the Philippines the rate of unemployment has increased by
50% in the past three years.
_____________ 7. The government should try to reduce inequality.
_____________ 8. Lowering the cost of borrowing will encourage people to borrow.
_____________ 9. There is an inverse relationship between wealth and demand for
inferior goods.
_____________ 10. Developing countries should adopt democracy as a system only
when they population is educated and emancipated.

Discussion of the topic what is it

There are two main branches of economics in terms of scope.

1. Microeconomics is a branch of economics that examines the individual or
company level. It deals with house hold and firms, such as buying behavior of
consumers and profit-maximizing behavior of sellers. Microeconomic topics
 largely focus on the concept of law of demand and supply which deals with
consumer and producer decisions.
The concept of utility is foundation of consumer buying behavior and demand
for goods. Utility refers to the value or satisfaction derived from the
consumption of goods. Marginal utility, therefore, is the additional utility or
satisfaction from the consumption of an additional unit of good, keeping other
things constant.
In real life, allocating a budget would require consideration of more than two
goods. This includes rent food, transportation, and entertainment, among
other. Budget is a broad term used to illustrate income constraints. In
economics, more specific terms in the discussion of income include
disposable income and discretionary income. Disposable income is the
income after taxes while discretionary income is the income left from
disposable income after all other necessary expenses have been deducted.
The amount that is either spent or saved corresponds to discretionary income.

Equation on disposable and discretionary income

Disposable income = Gross Income - Income taxes

Discretionary income = Disposable income - Nontax expenses

Consider you have a monthly income of ₱ 100, 000.00 with tax liability of
32%. Additionally, you pay rent of ₱ 10, 000.00 and spends ₱ 15, 000.00 on
food, transportation, gas and utilities. Given these expenses, your monthly
disposable income is ₱ 68, 000.00 (₱ 100, 000.00 x 0.32 = ₱ 32, 000.00, then
₱ 100, 000.00 - ₱ 32, 000.00 = ₱ 68, 000.00) and your discretionary income is
₱ 43, 000.00 (₱ 68, 000.00 - ₱ 10, 000.00 - 15, 000.00 = ₱ 43, 000.00). If you
decide to save ₱ 20, 000.00, then, you have ₱ 23, 000.00 left of your
discretionary income.

2. Macroeconomics studies the aggregate or country level. The framework

focus on the effect on a larger scale, such as the national economy. Major
macroeconomics indicators include national income account, GDP, inflation,
and interest rate. Typical national income indicators include GDP, Gross
National Product (GNP), and Gross National Income (GNI)
Gross Domestic Product (GDP) is define as the total value of final goods
and services consumed during given period. This is typically expressed in
Philippine peso (₱ or Php) in contrast to GDP growth or the rate of increase in
GDP value from one period to another, which is express as a percentage. The
growth rate is what more popularly cited in articles and on the news as it
provides an insight on how the economy performed relative to the previous
period. However, GDP is more popular measure of the overall health of the
economy.
In contrast to the GDP, GNP factors in output or products by Filipino
companies abroad. The income equivalent to GNP is the GNI.
 Nominal GDP is derived when the value of goods is expressed in current
prices while real GDP is adjusted for inflation and is expressed at constant or
base year prices.
Inflation refers to the persistent rise in price level of goods and services. It is
measured through rise and fall of the purchasing power of the domestic
currency. The increase in prices of goods and services means a fall in value
of money or conversely, a fall in the purchasing power.
The Consumer price index (CPI) measures the purchasing power of the
peso through regular survey of the price level of consumer goods and
services that are included in a virtual “basket of goods.” The virtual basket
contains a fixed sample of goods that best represents the general price level
in the economy. Changes in the price are used as inputs in the computation of
CPI and changes in CPI measure inflation rate.
Interest rate is defined as the factor income for capital. Specifically, interest
rate is the cost of borrowing or the return on investment. There two common
types of interest rate. Nominal interest rate is the rate stated in bonds or the
rate typically quoted by banks and lending institution. Real interest rate is the
rate adjusted for inflation. Real interest rate takes into consideration the
increase in prices.
Several factors that influence interest rate on loan and investments.
a. Type of financial institution
b. Purpose of loan
c. Borrower’s credit standing
d. Term of the loan
e. Flexibility
f. Collateral and guarantee

Activities/ Tasks

What’s more

Analyze and calculate your average monthly disposable income and discretionary
incomes. Suppose your salary is your only source of income. Your received ₱ 20,
000.00 gross monthly income. You pay personal income tax of 30%. You are living
near your workplace so you do not pay your rent. However, your utilities such as
monthly electric bills of ₱ 1, 200.00, water bill of ₱ 250.00, and cable internet of ₱ 1,
550. 00. You spend additional ₱ 2, 000.00 for transportation expenses and allot ₱ 5,
000.00 per month in your savings.
What’s can I do

Read the article below and do what is asked by the following statements below.

Venezuela: the Land of 500% Inflation

by Patrick Gillespie
(https://money.cnn.com/2016/04/12/news/economy/venezuela-imf-economy/)

Venezuela is spiraling down fast while its biggest problems are skyrocketing
up.

Inflation in Venezuela is projected to increase 481% this year and by a staggering

1,642% next year, according to new estimates released Tuesday by the International
Monetary Fund.
"Venezuela is on the precipice of hyperinflation," says Kathryn Rooney Vera,
research director at BullTick Capital Markets in Miami.
The IMF also forecasts that Venezuela -- which rarely publishes its own economic
data -- will have an unemployment rate of 17% this year and nearly 21% next year.
For some context, the last time the unemployment rate hit that high in the United
States was during the Great Depression in the 1930s, when it spiked to as much as
25%.
"Venezuela is experiencing a very severe economic crisis," says Francisco
Rodriguez, chief Andean economist at Bank of America Merrill Lynch. "This is not a
recession, this is a depression."
Inflation has already been a huge problem in Venezuela. In January, the Venezuelan
government said inflation rose 141% in the year ending in September. That means
prices for all types of goods, such as milk, sugar and flour, are soaring. Basic goods
such as toilet paper and soap are in such short supply some hotels are asking
guests to bring their own.
The value of Venezuela's currency is crashing rapidly. On the black market
exchange, where most Venezuelans exchange U.S. dollars for the home currency,
bolivars, one dollar equals 1,125 bolivars. A year ago, one dollar equaled 258
bolivars.
Venezuela's official exchange rate system is complicated and has multiple tiers. One
exchange rate allows ordinary folks to exchange one dollar for 306 bolivars, well
behind the black market rate.
Socialist President Nicolas Maduro has continued the massive public spending and
welfare programs that his predecessor, the late Hugo Chavez, instituted over a
decade ago.
However, the country can ill afford them. Its economy is in trouble and plummeting
oil prices has only made it worse. Venezuela has the world's largest oil reserves and
about 95% of its exports are oil. The country is overwhelmingly dependent on oil to
power its economy.
With oil prices still low, Venezuela's problems continue to mount. The country can't
pay for basic food or medical imports, leaving many people without basic food items
and medicines.
In a sign of growing anger among the people, Venezuelans elected a new,
opposition-led Congress in December. A major bloc in Congress wants to impeach
Maduro but that could prove difficult because the country's Supreme Court is packed
with judges who were appointed by Maduro.
A change in president or policy doesn't appear imminent, experts say.
"We have this institutional paralysis, it contributes to the economic deterioration,"
says Mauro Roca, an economist at Goldman Sachs. "As a result of this paralysis, it's
going to be difficult to implement any economic reforms."
Venezuela problems could worsen significantly later this year. The government must
pay about $5 billion in a series of debt payments in October and November. The
country's foreign reserves are already withering at 12-year lows.

CNNMoney (New York) First published April 12, 2016: 12:17 PM ET

1. Explain how Venezuela got into a state of hyperinflation.

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________

2. Based on the article, give your insight on the impact of politics to economic
stability in a country.

______________________________________________________________

______________________________________________________________

______________________________________________________________

______________________________________________________________
 Evaluation Activities

Identify what is asked by the following statement. You can select your answer
on the box below.

Land Labor Capital Entrepreneurship

GDP Inflation Utilities Interest rate
CPI GNP GNP Variables
Disposable income Discretional Income Economic Equation

1. ______________ are often used to further explain economic theories and

models.
2. ______________ is the cost of borrowing or the return on investment.
3. It is measured through rise and fall of the purchasing power of the
domestic currency. _________________
4. The factor income for _____________ is interest.
5. Changes in the price are used as inputs in the computation of
________________.
6. ________________ refers to the value or satisfaction derived from the
consumption of goods.
7. _____________ is more popular measure of the overall health of the
economy.
8. ________________ represents the factor that decides how much of and in
what way the other factors are to be used in production.
9. _______________ factors in output or products by Filipino companies
abroad.
10. ______________ is the income left from taxed and nontaxed expenses.

References

Boado, Applied Economics, DIWA Senior High School Series, copyright 2017, ppg
10 – 31

https://money.cnn.com/2016/04/12/news/economy/venezuela-imf-economy/