Applied Economics

 the application of the principles of supply, demand, trade-offs, opportunity costs and other economic theories to solve real
world problem
 
 applying economic theories in our lives means trying to address actual economic issues and be able to do something about it

 Microeconomics
 Economics
 A social Science concerned with the  a branch of economics that is concerned
production, consumption of goods and services with the decision-making done by smaller
  economic units such as individuals or
 Studies how people distribute or divide their consumers, firms and industries
limited resources in order to satisfy their
unlimited wants
 
 Scarcity
 Dem  
and does not meet the supply
 short
 Macroeconomics
age
 our  The study of the large economy
needs and wants are greater than our resources as a whole or the aggregate economy
 
*NEEDS- THINGS WE CAN'T LIVE WITHOUT;
NECESSARY, REQUIRED  Trade offs
*WANTS- THINGS WE CAN LIVE WITHOUT;
UNNECESSARY, DESIRE  Consist of all options that we give up when
  we make a choice
 Social science
 the scientific study of human society and
social relationships
 Opportunity cost
 Land  The most desirable alternative that you gave
up
 refers to all natural resources or any raw
materials coming from the ground that is used to  The highest valued alternative that must be
produce supply sacrificed in order to get something else
   

 Labor  Supply

 the work done by people or  The total number of goods or services

human resources available for sale
  Economists make use of
 Demandpositive analysis- statement that
 Capital can be tested and validated:
facts.
 The totality/aggregate of the needs and wants of the
 does not only mean money as this can be in consumers/customers Economists avoid letting
the form of man-made tools or objects that may personal beliefs and values
be used to produce supplies  influence the outcome of their
o Temporary
analysis toillness/
be as objective as
 disabilitiespossible.
Economic Problems in our Country low-paying jobso Waiting for a call for what
  they applied for
 is the underuse of a worker because a job
does not use the worker's skills Major characteristic: being
  objective
 Unemployment  Poverty Affirmative statement- can be
tested by collecting data; factual
 a term referring to individuals who don't data
 a state or condition in which a person or
have a job

How economists face economic
Without work and currently
problems community lacks the financial resources and
essentials for a minimum standard Normative
of livingstatement- cannot be
available for work and seeking a job corroborated; no factual data;
 
 Without work and currently opinion (policy makers, voters
available for work but not seeking a job  it means that the income level from
and philosophers)
employment is so low that basic human needs
because of these reasons:  Economists
can't be met.
o Tired Applied Economics- implies
o Believing that no work is positive analysis and scientific
available method which is the best way to
solve economic problems
 Applied Economics
 an expert who studies the relationship
between a society's resources and its
production or output

 their laboratory is the world around us ,

from the economy as a whole to the
decisions made by firms and individuals

 study economic problems

Scientific Approach Steps

1. observing the economic problem that interests you

2. proposing an explanation about why the problem
occurred
3. gathering data to prove the truthfulness of the causes
of the problems
4. recommending the best possible solution based on the
verified causes
 Applied Economics
3. Corporations
BUSINESS FORM OF ORGANIZATION
1. Sole Proprietorship
 the simplest way to form a business
 is owned by a single individual who is responsible for
running the business and is accountable for all debts
and obligations related to business
Advantage:
 the owner makes all the decisions like the location of
the business, who to hire, what to sell and is not
bound to share the profits with anyone else
Disadvantage:
 the owner shoulders all the losses and has unlimited
liability which means payment of his loans will
extend to his personal assets
 when the owner dies, the business will terminate
2. Partnership
 is an agreement in which two or more person put
together their resources in a business for the purpose
of making profit
 the profits to be earned will be divided among the
partners according to the terms of agreement
Advantage:
 each owner can help with financing, start-up costs,
shared knowledge and experience
Disadvantage:
 the equal sharing of profits they put in to start the
business
Types of Partnership
 General Partnership
- a business arrangement by which two or more
individuals agree to share in all assets, profits and
financial and legal liabilities of the business
 Limited Partnership
– consisting of general partnership who manages the
business and has unlimited liability for the debts and
obligations of the business
 a legal entity that is separate from its owners, which
is called the shareholders
 no stockholder is personally liable for the obligations
and debts or acts of the corporation
 the legal entity of the corporation gives it and
individual identity of its own
 owners have limited liabilities
 corporations are burdened by heavy taxes
 normally exist for a life of 50 years, which is
renewable for another 50 years
4. Cooperative
 an entity organized by people with similar interests
and needs to provide themselves with services and
goods or to jointly use available resources to uplift
their financial status
 cooperative members have the same level of power
when it comes to the decision-making with one vote
per member regardless of number of share held, there
is voluntary and open membership and excess
earning is returned to the members
TOOLS IN EVALUATING A BUSINESS
 SWOT ANALYSIS
S- trengths
W-eaknesses
O-pportunities
T-hreats
 an analytical framework that can help a company
meets its challenges and identify new markets
 the framework can help identify the business’ risks
and rewards associates with the internal and external
forces that may affect the business
Internal factors:
 money and source of funds for investment
 physical resources such as facilities, location,
materials, machinery and equipment
 Applied Economics
 human resources consisting of employees
 access to natural resources
 trademarks, patents and copyrights
 current processes such as department hierarchies such
as employee programs and software
External factors:
 economic trends
 national and local laws
 demographic characteristics
TYPES OF INDUSTRY
1. Agribusiness/ Agricultural Business
 important component of the Philippine economy
 essential component of the economy in countries with
land that is suitable for growing crops and
agricultural products
 involves farming and farming related commercial
activities like ranching, piggery, poultry and fishery,
livestock
 includes all the steps required to dispatch an
agricultural products to market: production,
Price per bread Quantity Demanded
0 6
2 5
4 4
6 3
8 2
1o 1  Demand schedule
processing and distribution
 a major source of employment to millions of Filipino
workers and it contributed one third of the country
gross domestic product in 1970’s
2. Retail
 includes the sale of merchandise from a one point of
purchase directly to a consumer who tends to utilize
the budget
 manufacturers sell huge quantities of goods to
retailers and retailer tends to sell those same
quantities of goods to customers
 sari-sari store, mall, supermarket, mart, hardware
store
3. Service
 is any industry that produces value that is primarily
intangible such as advice, consultation, customer
service, knowledge, management, data and
experiences
 offers intangible products like financing services that
is being offer in the banks and other financing firms
 school, hotel, restaurant, salon, airlines
4. Manufacturing
 produces products from raw material by the use of
human labor or machinery and that is normally
carried out orderly with division of work
 bakeshops, Del Monte, Axelum, Coca-Cola, Nestle,
aircraft,
5. International Trade Goods
 exchange of service, goods or products from one
country to another (except North Korea)
 import; export
Import- goods or services from abroad/ other country
that is sold here
Export - sending goods or services to be sold abroad
LAW OF SUPPLY AND DEMAND
 Market
o any activity for business set-up
o is where consumers buys and the seller sells
o categorized as local, national and
international markets
is important because it is where a person
o
who has excess goods can dispose them to
those who need them
 Demand
o Is the value of good and services that buyers
are willing to purchase in every price
o depicts the different quantities the consumer
is willing to buy at numerous prices
 Demand function
o Shows how the quantity demanded of a
good depends on its determinants, the most
important of which is the price
Q d=f ( p)
 Applied Economics

 Demand and supply

 Law of Demand
o The higher the price, the lower the demand
o The basic principle of economics
 Ceteris paribus
o all other things being constant
o can identify how the buying decisions of
households and the selling decisions of
businesses interact in determining the price of a
product and the quantity actually purchased and
sold.

 Supply
o The total value of a good or services that is
available to customers

 Supply schedule
o Illustrated different quantities the seller is
keen to sell at various prices

Price of Rice in Supply (in kilos)

Php
20 200
40 300
60 400
 Supply function 80 500
o Shows the dependence of supply on various 100 600
determinants that affect it

Q s=f + p

 Law of Supply
o the higher the price the higher the quantity
supplied

 Price
o The value that consumers exchange to
obtain a desired product

 Market equilibrium
o a condition where demand is equal to supply

 Equality
o the quantity the sellers are willing to sell is
also the quantity the buyers are willing to
purchase for a price

 Equilibrium
o The stability of market demand, supply and
price
o An agreement between how much buyers
and seller are willing to transact
 Equilibrium price
o The price in the market at which demand
and supply are equal

 Shortage
o Occurs when the quantity demanded
surpasses the quantity supplied

 Surplus
o Occurs when quantity supplied exceeds
quantity demanded