Applied-Economics Week1-4
Applied-Economics Week1-4
Applied-Economics Week1-4
ECONOMICS
Learner’s Packet
APPLIED
ECONOMICS
Grade 12
Quarter 2
2
WEEKS
Economics as a Social Science and Applied Science in
Terms of Nature and Scope
1-2
I And The Basic Economic Problems of the country
After going through this lesson, the learners are expected to define basic
terms in applied economics, identify the basic economic problems of the country,
explain how applied economics can be used to solve economic problems.
D
THE NATURE AND SCOPE OF ECONOMICS
There are three strands in the development of the definition of economics.
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formulation of theories and models. As an applied science, it follows a systematic procedure to
solve issues and problems of the society.
Applied Economics is the application of the principles of supply, demand, trade-offs, opportunity-
costs, and other economic theories to solve real-world problems. It may be practiced in the microe-
conomic or macroeconomic level. Applying economic theories in our lives means trying to address
actual economic issues and be able to do something about it
Economics is the study of what constitutes rational human behavior in the endeavor to fulfill
needs and wants. It comes from the Greek word“oikanomia”meaning “household management”.
Economics is the study of social behavior guiding in the allocation of scarce resources to meet the
unlimited needs and desires of the individual members of a given society.
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Public Economics
The study of the role of government in the economy including how to evaluate government
programs, the design of tax systems, and how the political process makes decisions. Urban, rural,
and regional economics The study of the location decisions of households and firms with a special
focus on housing, transportation, and local government, and financial stability policy.
Factors of Production
are the resources people use to produce goods and services; they are the building blocks of
the economy. Economists divide the factors of production into four categories: land, labor, capital,
and entrepreneurship.
1. Land
this includes any natural resource used to produce goods and services. This includes not
just land, but anything that comes from the land. Some common land or natural resources are
water, oil, copper, natural gas, coal, and forests. Land resources are the raw materials in the pro-
duction process. These resources can be renewable, such as forests, or nonrenewable such as oil
or natural gas. The income that resource owners earn in return for land resources is called rent.
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2. Capital
Capital differs based on the worker and the type of work being done. For example, a doctor
may use a stethoscope and an examination room to provide medical services. Your teacher may
use textbooks, desks, and a whiteboard to produce education services. The income earned by
owners of capital resources is interest.
3. Labor
is the effort that people contribute to the production of goods and services. Labor resources
include the work done by the waiter who brings your food at a local restaurant as well as the en-
gineer who designed the bus that transports you to school. It includes an artist's creation of a
painting as well as the work of the pilot flying the airplane overhead. If you have ever been paid
for a job, you have contributed labor resources to the production of goods or services. The income
earned by labor resources is called wages and is the largest source of income for most people.
4. Entrepreneurs
is a person who combines the other factors of production - land, labor, and capital - to
earn a profit. The most successful entrepreneurs are innovators who find new ways produce
goods and services or who develop new goods and services to bring to market. Without the entre-
preneur combining land, labor, and capital in new ways, many of the innovations we see around
us would not exist. Think of the entrepreneurship of Henry Ford or Bill Gates. Entrepreneurs are
a vital engine of economic growth helping to build some of the largest firms in the world as well as
some of the small businesses in your neighborhood. Entrepreneurs thrive in economies where
they have the freedom to start businesses and buy resources freely. The payment to entrepre-
neurship is profit.
Terms to Remember!
Scarcity refers to the limited availability of a resource in comparison to the limitless wants
Production is a process of combining various material inputs and immaterial inputs (plans,
know-how) in order to make something for consumption (output).
Allocation the process by which economic resources get allotted (apportioned, assigned) to their
particular uses for directly or indirectly satisfying human wants.
Wants is something that is desired. It is said that every person has unlimited wants, but limited
resources (economics is based on the assumption that only limited resources are available to
us).
Needs is something needed to survive while a want is something that people desire to have, that
they may, or may not, be able to obtain.
Trade-offs When making choices, there are things that we need to give up. Tradeoffs consist of
all the options that we give up when we make a choice. Following the previous example, you
planned to spend your limited allowance to buy 2 pieces of siopao and soft drinks to satisfy your
hunger. Your other option is to pay for a heavy value meal at 120 pesos or buy your favorite
meal combo at 115 pesos. You gave these options up since you can only afford to pay for the sio-
pao and drinks. The choices that you’ve given up are your
trade-offs.
Opportunity Cost Among all your trade-offs, the most desirable alternative that you gave up is
called the opportunity cost. In the previous example, the most desirable option is to buy your fa-
vorite meal combo at 115 pesos. You cannot afford it since you only have 100 pesos so you gave
it up. No matter what choice you make, there is an opportunity cost, or next best alternative,
that must be sacrificed. Opportunity cost is the highest valued alternative that must be sacri-
ficed in order to get something else. The key to making the best possible decision is to minimize
your opportunity cost
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It is essential that you familiarize yourself with the study of economics. This will facilitate your un-
derstanding of economic analysis. Specifically you meet GOODS – which yields to your satisfac-
tion. It is anything used to satisfy your wants and needs.
Applying Economic theories to current economic conditions can be extremely helpful for three rea-
sons.
1. Applying economics to the status of the economy of a company, a household or a country helps
to seep aside all attempts to dress up the situation so that it will appears to be worse or better
that it actually is.
2. Applied economics acts as a mechanism of determined what is steps can reasonably be taken
to improve the current economic situation.
3. Applied economic can teach valuable lessons on how to avoid the recurrence of negative situa-
tion or at least minimize the impact.
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Econometrics can be subdivided into two major categories: Theoretical and Applied.
Economics uses tools such as frequency distributions, probability and probability distribution,
statically inference simple and multiple regression analysis, simultaneous equation models and
time series methods.
Why Study Economics?
A. Decision-Making Skills. An exposure to quantitative problem solving techniques is an im-
portant park of economics. The business sector typically rewards employees who have acquired
specific quantitative skills.
B. Problem Solving Abilities. People with education in economics develop an appreciation of the
social security. The issues are complex and the ability to deal with them suggest ways of im-
proving out standard of living in the broadest sense that required clear thinking.
C. Job Opportunities. Better job opportunities wait economics graduate. Business and govern-
ment are increasingly aware of the need for people who are trained in economics. They are em-
ployed in teaching government services, banks and business firms. Their duties may include re-
search, economics analyst, forecasting and consultant on capital investments.
Importance of Economics
1. A good knowledge of economics offers many favorable possibilities. It guides us how to make a
living, how to use our money wisely, how to run our business, how to distribute properly our
available scarce resources and how to maximize our profits and consumer’s satisfaction
2. . Economics is important in order to understand problems facing the citizen and the family; to
help the government promote growth and improve the quality of life avoiding depression and
inflation and to analyze fascinating patterns of social behavior.
3. . A basic understanding of economics is vital for sound decision making by individuals and na-
tion
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Economics Model:
1. The Circular Flow Diagram
a visual model of the economy that shows how dollars flow through markets among households and
firms.
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The Basic Economic Problems of the country
How to produce?
The company must decide on how to use the resources to produce goods and services.
What combination of resources and technologies will be used to produced goods and services at
lowest price? The manufacture may wish to maximize profits and minimize production costs. They
may be combine labor and capital given the prices of labor and capital and productivity of those
resources.
Through several combinations of resources, goods are produced. A clear knowledge of ma-
nipulating the different factors of production helps a lot in coming up with the desired output. The
quality of output must come first before quantity
For whom to produce?
This question determine the distribution of goods and services. Goods and services will be
distributed to buyers in the basis of their ability and willingness to pay its existing market price.
The ability to pay prices for goods and service depends on the amount income that buyers have,
along with the prices of , taste and preferences for various goods and services.
What provision/laws should be always made for economic growth?
A society uses all its resources for current consumption. If a society uses all its resources,
then its production capacity will not increase. The standard of living of the people and the income
of the workforce remain constant until the standard of living will decline in the future. The society
must decide also on the part of the resources to be saved for future progress
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The Basic Economic Problems
1, Unemployment It refers to the portion of the labor who are eillig to en-
gage in productive activities yet fails to do so. It can hinder economic devel-
opment since the human resources of a country are not sufficiency utilized.
2. Poverty It is a restricting condition experienced by millions of families
that prevents them in attaining the minimum nutritional requirements for
daily living.
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3. Weak infrastructure is refers to the basic
equipment and structure that are needed
for a country to function properly.
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E
Lesson 1.
Learning Task 1:
Cut out and paste news item that is related to any economic issue/situation. Read and an-
alyze the economics news. List down all the positive statements and normative statements.
In your own idea, were the normative statements correct or not? Explain your answer in
three five sentences.
Positive Economics___________________________________________
Normative Economics________________________________________
Analysis and suggestions based on your own ideas or belief________________________
__________________________________________________________________________________
Learning Task 2
1. Draw or make a concept map the functions of every factors of production in the processing of
every good and services
2. Categorize the characteristics of microeconomics and macroeconomics using the diagram below.
This will enhance your creativity to solve issues in the future
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A
Lesson 1: Assessment 1:
Multiple Choice. Choose the letter of the best answer. Write the chosen letter on a sepa-
rate sheet of paper.
1. It is a condition when the supply of good, service, or resource is not enough to meet the
demand.
A. shortage b. allocation c. surplus d. excess
2. It deals with the big picture with the allocation of resources on the aggregate of resources
level.
A. Economics b. Microeconomic c. Econometrics d. Macroeconomics
4. A field in economics that discuss and should rely more on mathematical equations, instead
graphs and logic, it uses statistics and calculus to explain economic phenomena.
a. Development Economics c. Financial economics
b. Econometrics d. Fundamental Mathematics in Economics
6. What are the resources called that are needed to produce a good and services?
A. Needs and wants B. Factors and productions
C. Goods and services D. All of the above
7. It is in which yield to your satisfaction and anything used to satisfy your wants and needs
A. Tangible goods b. goods c. intangible goods d. consumer goods
8. It is the process of combining inputs to make something for consumptions. It is the act of
creating output.
A. consumption b. scarcity c. production d. output
9. The word that comes from the Greek word for "one who manages a household" is
A. market b. consumer c. producer d. economy
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E
Lesson 2
Learning Task 1:
1. Explain how applied economics can be used to solve economic problem
_______________________________________________________________________
_______________________________________________________________________
2. What are the implication of slow adoption of modern technology on the national economy”
________________________________________________________________________
____________________________________________________________________________
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A
Lesson 2 Assessment 2:
Matching type:
A.
1. it is the proportion of household in the country with family
Income lower than the poverty threshold or poverty line
2. refers to the structure on how the national income
is being distributed among households in an economy
3. it refers to the gap in income that exist between the rich and the poor
4. it the study of population
5.. Very high inflation
B.
A. Hyperinflation
B. Demography
C. Income equality
D. Relative poverty
E. Poverty
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10. The word “economy” comes from the Greek word oikonomos, which means
A. “environment” c. “one who manages a household”
B. “production” d. “one who makes decisions”
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A
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Answers
Lesson 1: Lesson 2:
Answers… Answers..
Assessment: Assessment:
1. A 1. poverty
2. D 2. relative poverty
3. B 3. income equality
4. B 4. demography
5. A 5. hperinfaltion
6. B
7. B
8. C
9. D
10. D
11. D
12. A
13. B
14. C
15. B
References
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WEEKS
Market Demand, Market Supply 3-4
I and Market Equilibrium
These lesson focuses on the application of supply and demand. It also discusses the factors
affecting on the purchasing power of the people. Moreover, this module will provide you with infor-
mation on the present economic situations.
D
A market is any activity for business set-up. It is where consumer buys and the seller
sells. It is categorized as local, national and international markets. Some involves face-to-face con-
tact between demander and supplier, others are impersonal, with buyer and seller never seeing or
knowing each other. The concept of market is important because it is where a person who has ex-
cess goods can dispose them to those who need them. This collaboration should lead to an integral
agreement between buyers and sellers on volume and price. A purely competitive market is known
to be as unique way of competition in which there are many competing firms selling identical
products or services.
In economics, there are terms that you must learn to understand the better market situa-
tions. A demand or the amount of good or service consumers are willing to purchase at each price.
If customers cannot pay for it, there is no effective demand. Price is what a buyer pays for a unit
of the specific good or service. The total number of units purchased at that price is called the
quantity demanded
Analysis of Demand and Supply
The law of supply and demand explains the interaction between the sellers of a product and the
buyers. It shows the relationship between the availability of a particular product and the desire (or
demand) for that product has on its price.
The Law of Demand
If all other factors remain equal, the higher the price of a good,
the fewer people will demand that good “the higher the price, t
he lower the quantity demanded” and vice versa.
The amount of a good that buyers purchase at a higher price
is fewer because as the price of good goes up,
the opportunity cost of buying the good also is less.
Consumers will avoid buying a product
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For example, if the price of video game drops, the demand for games may increase as more people
want the games.
Factors Affecting Demand
a) income of buyers
b) number of potential buyers
c) preferences
d) complementary products
The demand curve is always downward sloping due to the demand curve is always downward slop-
ing due to the law of diminishing marginal utility.
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Word Bank:
Wage
is monetary compensation (or remuneration, personnel expenses, labor) paid by an employ-
er to an employee in exchange for work done
Consumers
a person who acquires goods and services for his or her own personal needs
Income effects refers to the modification of the consumption of a commodity due to the
change in the purchasing power of the consumer resulting from a price change.
Other things held constant or ceteris paribus means the other factors that may affect the de-
mand for the commodity are not changing. The only factor that influences the level of demand or
consumption is the price of the commodity itself.
Taxes
Business establishments are required to pay a number of taxes to various levels of govern-
ments. The payment of taxes can be considered as part of cost of production. An increase in sale
tax, real estate, and other business taxes can increase the costs of supplying a commodity.
Technology
The manner in which various factor input process the raw materials is done through the
use of technology. Some firms may use labor-intensive technology if the cost of labor is relatively
cheap. Firms may use capital-intensive technology if wages are very high.
Expectation
The expectation or anticipation on what is going to happen on the price of the commodity
can also influence the amount supplied in the market.
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Equilibrium Characteristic
Equilibrium is a point of balance or a point of The supply and demand are balanced in
rest. It is also called “market clearing price” equilibrium
Equilibrium price is the price at which the The economic forces are balanced and in the
producer can sell all the units he wants to absence or external influences, the
produce and the buer can all the units he (equilibrium) values of economic variables
wants. will not change
Quantity demanded and quantities supplied The amount of goods or services sought by
are equal buyers is equal to the amount of goods or
service produced by sellers
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Price Elasticity of Demand and Supply Elasticity
It measure the responsiveness of the quantity demanded or supplied of a good to a change in its
price. Elasticity can be described as
a. elastic or very responsive
b. unit elasticity, or inelastic or not very responsive
Elastic Demand (PED > 1) - the percentage change in price brings about a more than proportion-
ate change in quantity demanded.
When the percentage change in quantity demanded is greater than the percentage change in price,
and the coefficient of the elasticity is greater than
Example real estate- housing - There are many different housing choices. People may live in a
townhouse, condos, apartments, or resorts. The options make easy for people to not pay more
than they demand.
b) Inelastic Demand (coefficient of the elasticity is less than 1) – is when an increase in price
causes a smaller % fall in demand.
When the percentage change in quantity demanded is less than the percentage change in price,
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c). Unitary Elastic Demand - When the percentage change in demand is equal to the percentage
change in price, the product is said to have Unitary Elastic demand. Unitary elastic - PED or the
price elasticity of demand is 1
d) Perfectly Elastic - a small percentage change in price brings about a change in quantity de-
manded from zero to infinity. Perfectly elastic - the coefficient of elasticity is equal to infinity (∞)
e) Perfectly Inelastic - the PED is =0 any change in price will not have any effect on the demand
of the product. Perfectly inelastic - the percentage change in demand will be equal to zero (0)
POINT ELASTICITY
a) The midpoint elasticity is less than 1. (Ed < 1). Price reduction leads to reduction in the to-
tal revenue of the firm.
b) The demand curve is linear (straight line), it has a unitary elasticity at the midpoint. The to-
tal revenue is maximum at this point.
c) Any point above the midpoint has elasticity greater than 1, (Ed > 1).
II. The Income Elasticity of Demand (YED)
The income elasticity of demand is the relationship between changes in quantity demanded for a
good and a change in real income.
Normal Goods – are those goods for which the demand rises as consumer income rises; positive
income elasticity of demand so as consumers’ income rises more is demanded at each price. These
goods shift to the right as income rises.
YED is positive. As income rises, the proportion spent on cheap goods will reduce as now they
can afford to buy more expensive goods. Example (the demand for units of air-conditioning in-
creases as the income of the consumer increases and the demand for electric fan decreases)
Normal good: units of air-conditioning; Inferior good: electric fan
The Inferior Goods – the demand decreases when consumer income rises; demand increases
when consumer income decreases)
Shifts to the left as income rises. YED is negative. • As income rises, the proportion spent on
cheap goods will reduce as now they can afford to buy more expensive goods. Examples: the de-
mand for cheap/generic electronic goods (let say electric fans) will fall as people income rises and
they will switch to expensive branded electronic goods (unit of air-conditioning)
III. Cross Price Elasticity of Demand or (XED)
Cross price elasticity of demand is he effect on the change in demand of one
good as a result of a change in price of related to another product.
XED = % If the value of XED is positive - substitute goods
If the value of XED is negative – complements goods
If the value of XED is zero - two goods are unrelated
IV. Price Elasticity of Supply (PES)
• The measure of the responsiveness of quantity to a change in price. It is
the percentage change in supply as compared to the percentage change in price of a commodity.
PES = If supply is elastic, producers can increase output without a rise in cost or a time delay.
If supply is inelastic, firms find it hard to change production in a given time period.
https://www.intelligenteconomist.com/price-elasticityof-supply
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Determinants of Price Elasticity of Supply
Agarwal, P. (2020) said, price elasticity of supply can be influenced by the
following factors:
1. Marginal Cost- If the cost of producing one more unit keeps rising as output
rises or marginal cost rises rapidly with an increase in output, the rate of output
production will be limited. The Price Elasticity of Supply will be inelastic - the
percentage of quantity supplied changes less than the change in price. If Marginal
Cost rises slowly, supply will be elastic.
2. Time - Over time price elasticity of supply tends to become more elastic. The
producers would increase the quantity supplied by a larger percentage than an
increase in price.
3. Number of Firms - The larger the number of firms, the more likely the supply is
elastic. The firms can jump in to fill in the void in supply.
4. Mobility of Factors of Production- If factors of production are movable, the
price elasticity of supply tends to be more elastic. The labor and other inputs can
be brought in from other location to increase the capacity quickly.
5. Capacity - If firms have spare capacity, the price elasticity of supply is elastic.
The firm can increase output without experiencing an increase in costs, and
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E
2. If a 20% decrease in the price of international calls lead to a 35% increase in the quantity of
calls demanded, we can conclude that the demand for phone calls is:
A) Solution:
B) Analysis on price elasticity _________________________________
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A
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References
Websites
https://www.slideshare.net/kalaiyarasidanabalan/a-level-economics-chapter-2-core
https://www.investopedia.com/ask/answers/012915/what-difference-between-inelasticity-and-
elasticity demand.asp
https://www.sparknotes.com/economics/micro/elasticity/problems
https://www.investopedia.com/terms/l/law-of-supply-demand.asp
https://opentextbc.ca/principlesofeconomics/chapter/3-1-demand-supply-and-equilibrium-in-
marketsfor-goods-and-services/
https://global.oup.com/us/companion.websites/9780199811786/student/chapt2/multiplech
https://opentextbc.ca/principlesofeconomics/chapter/5 -1-price-elasticity-of-demand-and-
priceelasticity-of-supply
http://faculty.fortlewis.edu/walker_d/practice_problems_ -_elasticity.htm https://
www.economicsonline.co.uk/Competitive_markets/Price_elasticity_of_demand.html
https://redmontecon
https://global.oup.com/uk/orc/busecon/economics/gillespie_econ4e/student/mcqs/ch05/
https://study.com/academy/answer/if-a-20-decrease-in-the-price-of-long-distance-phone-calls-
leads; https://int.search.myway.com/search/AJimage.jhtml
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Lesson 2:
Answers...
Answers
Lesson 1:
Answers…
Problem solving
1. XED = If the value of XED is positive - substitute goods a) 20/10= 2 b) Positive c)
It’s a substitute good 2. First compute the price elasticity of demand, which is
the percentage change in quantity demanded divided by the percentage change
in price a) Solution: price elasticity = 35%/ (-20%) Again, drop the negative sign
b) Answer: price elasticity = -1.75 c) Interpretation: Since the price elasticity is
larger than one in absolute value, demand is elastic.
Part I.
TRUE OR FALSE
1. TRUE
2. TRUE
3. FALSE
4. TRUE
5. FALSE
6. TRUE
7. TRUE
8. TRUE
9. TRUE
10. FALSE
E
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