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HERCOR COLLEGE
Km. 1 Lawaan, Roxas City, Capiz 5800
ACADEMIC YEAR 2020-2021

MELCS BASED MODULE FOR

APPLIED ECONOMICS
CONTENT
STANDARDS
Economics as an applied science and its utility in addressing the economic
problems of the country.

PERFORMANCE
STANDARDS
Analyze and propose solutions to the economic problems using the principles of
applied economics

MOST ESSENTIAL LEARNING

COMPETENCIES
Define economics
Determine the importance of economics
Describe the nature of economics
Differentiate economics as social science and
applied science in terms of nature and scope

ANNIE D. ALBA, MBA

APPLIED ECONOMICS – ABM 12
HERCOR COLLEGE - HIGH SCHOOL DEPARTMENT
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M ODULE 1
CONTENT
CHAPTER 1 [THE WORLD OF ECONOMICS AND ITS SIGNIFICANCE]

DISCUSSIONS
What is Economics?

Economics may appear to be the study of complicated tables and charts, statistics and numbers, but, more specifically, it is the
study of what constitutes rational human behavior in the endeavor to fulfill needs and wants.

Economics has been defined in many ways. It comes from the Greek word “oikanomia” meaning “household management.”
Some of these definitions are as follows:

According to Fajardo, Economics is the proper allocation and efficient use of available resources for the maximum satisfaction of
human wants.

Samuelson states that economics is the study of how societies use scarce resources to produce valuable commodities and
distribute them among different people.

Economics, according to Nordhaus, is the science of choice. It studies how people choose to use scarce resources or limited
productive resources (labor, equipment, and technical, knowledge) to produce various commodities and to distribute these
commodities for consumption.

Sicat defined economics as a scientific study which deals with how individuals and society in general make choices.

Castillo viewed economics as the study of how man could best allocate and utilize the scarce resources of society to satisfy his
unlimited want.

Webster defined economics as a branch of knowledge that deals with the production, distribution and consumption of goods and
services.

To sum it all, economics covers all kinds of topics, but at the core, it is devoted to understanding how society allocates its scarce
resources. Any country has limited resources. Since resources are generally scarce and human wants tend to be unlimited,
economics encounters big problems. The biggest is that these resources are not freely available. At the very core if economic
lies the fact of scarcity. Goods are limited, while wants seem infinite. Because resources are scarce, we need to study how
society choose from the menu of possible goods and services, how different commodities are produced and priced and who gets
to consume the goods that society produce.

Importance of Economics

Many individuals have no clear understanding of what economics is. They don’t even know how it works and how it affects their
lives. People just don’t mind what economics can give to them.

Actually, every individual cannot isolate himself from economics. This is brought about by the mere fact that his physical
existence in this world depends upon economics. People cannot live without production and consumption. Almost always, human
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activities involve economics. For instance, earning money, buying goods and services, depositing and withdrawing money in the
bank, these are all economic activities.

Clearly, a good knowledge of economics offers many favorable possibilities. It guides us how to make a living, how to use wisely
our money, how to run our business, how to distribute properly our available scarce resources, and how to maximize our profits
and consumer’s satisfaction, among other things. With appropriate economic decision and implementation, life for everyone is
most likely better.

Furthermore, economics is important in order to understand problems facing the citizen and the family; to help government
promote growth and improve the quality of life while avoiding depression and inflation and to analyze fascinating patterns of
social behavior. Because economic questions enter into both daily life and national issues, a basic understanding of economics
is vital for sound decision-making by individuals and nation.

The Nature of Economics

Economics is a science. A science is a body of systematic knowledge built upon by conscious efforts. Like any other science, its
laws and principles are arrived at only after a long series of observations and experimentations. The body of knowledge is made
up of different explanations. An explanation of a certain event is called a theory. A theory may become a successful theory if its
predictions are confirmed by actual observations and must gain universal acceptance. Economics is, thus, concerned with
accurate appraisal of facts and events about our material life.

Economics is classified as a social science because it deals with the study of man’s life and how he lives with other men.
Economics is concerned with human beings and his behavior. Obviously, it is interdependent with other sciences like:
Psychology, the science of the mind; History, the science that records and explains past events; Sociology, the science that
deals with the development of society; Political Science, the science of the government; Geography, the science that determines
the main resources of a region. Likewise, Religion is related to Economics. Religious traditions and belief can discourage or
encourage economic development.

Among the social sciences, Economics has more advantages as a scientific discipline for two major reasons:

1. Economic motives of human beings may be more regular and therefore persistent. They can be more predictable.

2. There is more factual information in the form of statistics. This gives a substantial basis for the verification and formation of
alternative economic theories.

Considering the nature of economics, it is not advisable to solve an economic problem with economic solution alone. Our
economic problems are not purely economics in nature. These are also created by non-economic factors like culture, education,
social, political.

RELATIONSHIP OF ECONOMICS TO OTHER SCIENCES

Economics is considered the queen of all social sciences because it covers almost every activity of an individual in relation to
society. Because of its multifarious applications, various sciences are because it covers almost every activity sciences are
closely related to its study.

Business Management

Business basically provides employment opportunities to members of society, and it is important vehicle in the balance of
economic activity. Its relation to the study of economics is evident in the analysis of microeconomic and macroeconomic
behavior. Other contributions of business to the economy are income, output (goods and services), and all the taxes collected by
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the government. Business in relation to economics also deals with a lot of decision-making and choices terms of production,
marketing, and distribution.

Finance

Finance is defined as the management of money, credit, banking and investment. It is a system that includes the circulation of
money, credit and investment decisions, and provision of banking facilities. Money and finance are important because this fuel a
country’s economy.

Physics

Innovations and output brought about by physics greatly affect the study of economics. A country’s economic activity speeds up
through inventions and technological advancement in energy, transportation, and communication. These new creations and
discovers help society by increasing accessibility and making day-to-day activities easier.

Sociology

Sociology is the study of the behavior of societies. Economics, in relation to sociology, essentially deals with the behavior of
economic subjects. For instance, macroeconomics examines the behavior of the aggregates of the economy.

Psychology

Psychology is the study of human behavior. It is primarily useful in the study of microeconomics, which scrutinizes and focuses
on the smallest units of the economy. Microeconomics also seeks to understand the decision-making of individuals.

ECONOMICS AS AN APPLIED SCIENCE

Applied science is the discipline that utilizes scientific knowledge to develop practical solutions to society’s problems.

It is believed that the term “applied economics” has been used as early as 200 years ago, appearing in the writings of French
economist and businessman Jean-Baptiste Say (1767 – 1873).

Applied economics is thus the study of economics relative to real-life situations. This is done by observing how theories work in
practice. Applied economics usually deals with numbers on observing how theories work in practice. Applied economics usually
deals with numbers on which possible outcomes being reviewed are based and supported.

Economics can be seen and applied in our daily lives. For example, when we buy goods and services, we have the tendency to
choose what will give us the highest satisfaction (or utility, in economics) for the price we are willing to pay. In this instance we
experience economics in our regular routine.

The question now is this: how can we use economics as an applied science to address several issues or problems of a country?

There are multiple ways to answer this question, given the broad perspectives on the application of economic theories to the real
world. But we can add focus to our answer by picturing a particular situation. For instance, when it comes to the decision-making
process that will help policy-makers move in the right direction, there must first be sound data analysis and evaluation of the
economic problem.

When economists are able to interpret these data and apply economic theories, they are more confident in their assessments of
the economic impacts of policy decisions. These assessments become a form of applied action or response to a situation. These
will, in turn, generate solutions for the problems.

SCARCITY: THE CENTRAL PROBLEM OF ECONOMICS

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FIGURE 1.1: PROBLEM OF SCARCITY

Scarcity is the basic and central economic problem confronting every person and society. It is at the heart of the study of
economics and the reason why you are studying it now.

Since human needs and wants are unlimited and the available resources are finite, scarcity naturally takes place. It leaves
society with the problem of resource allocation (see figure 1.1)

Figure 1.1 illustrates the interaction of limited resources available and the unlimited wants of individuals and society.
If limited resources fail to meet the unlimited wants of society, this will eventually lead to a problem. The problem is
R EVIEW P AGE
called scarcity.

Limited resources Unlimited wants

CHAPTER REVIEW
This week you studied that economics covers all kinds of topics, but at the core, it is devoted to understanding how
society allocates its scarce resources. It guides us how to make a living, how to use wisely our money, how to run
our business, how to distribute properly our available scarce resources and how to maximize our profits and
customer’s satisfaction. Furthermore, basic understanding of economics is vital for sound decision-making by
individuals and nation.

Scarcity

If scarcity does not exist, there is no need for us to economize. But since we know that our resources are limited and we cannot
produce all goods and services we want to have, then there is a need for us to properly allocate our resources so that we can
produce the goods and services that will maximize our satisfaction. In fact, without scarcity, there is no need for you to study
economics and economists will need to find other work.
FIGURE 1.2: ECONOMICS
As mentioned, individuals and groups within a society have innumerable wants and they are resources which can be utilized to
satisfy these wants. However, since these resources are limited, they are not freely available. Economics steps on to assist
individuals and societies in making proper choices toward the allocation and utilization of economic resources, with the end goal
of satisfying human wants for goods and services. Figure 1.2 illustrates the relationship between available limited resources, the
unlimited wants of individuals and society, and the role of resource allocation.

Figure 1.2 illustrates the relationship between available limited resources and unlimited wants of individuals and
society. It shows that when limited resources fail to meet the unlimited wants society, economics is brought into play
to effectively and efficiently allocate resources.
Limited resources Unlimited wants

Allocation
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What is the relationship between Economics and Scarcity?

Going back to our earlier discussion, note that the problem of scarcity gave birth to the study of economics. The relationship
between the two is such that if there is no scarcity, then there is no need for economics. The study of economics is therefore
essential in addressing the issue of resource allocation and distribution in response to scarcity.

In the allocation of our limited resources, however, we have to give up something to get what we want. In other words, we cannot
have everything we want because of limited resources. Therefore, something must be given up or traded off. This brings us to
the concept of opportunity cost, one of the most important economic concepts you need to understand.

TEST AND EVALUATION OF KNOWLEDGE

TEST AND EVALUATION OF KNOWLEDGE

Direction: In a sheet of yellow paper, answer the following essay questions.

[Your answer must not be more than 200 words in each question]

1. Define economics with your own words.

2. Describe how scarcity affects the economic system of a country
3. How can you apply economics in your daily life?

REFERENCES
APPLIED ECONOMICS: EDILBERTO B. VIRAY JR. AND JESUSA AVILA-BATO

Fundamentals of Economics with Agrarian Reform, Taxation and Cooperatives (Roman D. Leano, Jr., Ronald M.
Corpuz)

Rubric for Essay

Excellent (10 pts.) Good (7 pts.) Fair (5 pts.) Not Mastered (2 pts.)

Students’ responses are Student’s responses are Students’ responses are Students’ responses are
correct and offer extra correct, complete with somewhat correct but lack largely incorrect. The
supporting facts. relevant detail and relevant detail and answers lacks a clear
Responses include some example. Ideas and supporting examples. sense of direction.
interpretation that sentences show clear Ideas, information and Responses were copied
indicates mastery of the understanding of the quotes are explained and from an article, books,
topic. topic. properly cited. and other online
references.
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END of Learning Module