Name: __________________________________________ OPPORTUNITY COST =the Value of the Next Best Choice

Grade & Section: _____________________________ (Ex: Sleeping is the opportunity cost of studying for a test)
Applied Economics

Economics As Defined By Authors Of Economics Books

Paul Samuelson (Economics)

“the study of how people and society end up choosing, with or Opportunity Costs
without use of money, to employ scarce resources that could
have alternative uses to produce various commodities among This is really IMPORTANT – when you choose to do ONE thing,
various persons and groups in society.” its value (how much it is worth) is measured by the value of the
NEXT BEST CHOICE.
Roger Le Roy Miller (Economics, Today and Tomorrow)
–This can be in time, energy, or even MONEY
“Economics concerns situations in which choices must be
made about how to use limited resources, when to use them and Economics – the study of how individuals and societies make
for what purposes. Resources can be defined as the things decisions about ways to use scarce resources to fulfill wants and
people use to make the commodities they want.” needs.

Hall and Loeberman (Macroeconomics: Principles and
Applications)
“The study of choice under the condition of scarcity”
Bernardo Villegas (Guide to Economics for Filipinos)
“A social science that studies and seeks to allocate
scarce human and non-human resources among alternatives in Inputs are commodities or services that are used to produce
order to satisfy unlimited human wants and desires.”
Gerardo Sicat (Economics)
“a scientific study which deals with how individuals and quantity
society make choices,”
Common words among definitions…
Resources-The labor, capital, land and natural resources and
entrepreneurship that are used to produce goods and services.
The 4 factors of production.
ECONOMICS – is a social science that deals with how people
organize themselves in order to allocate scarce resources in
order to produce goods and services that will satisfy the
unlimited and multiplying wants and needs of man.
Concerns of Economics
Economics is concerned with PRODUCTION
Production is the use of inputs to produce outputs.
goods and services.
Outputs are the different goods and services which come out of
production process.
Society has to decide what outputs will be produced and in what
Basic Economic Questions Society must answer
WHAT to produce? (make)
HOW MUCH to produce? (quantity)
HOW to Produce it? (manufacture)
FOR WHOM to Produce? (who gets what)
WHO gets to make these? decisions?

BUT, there’s a Fundamental Problem: Economics is concerned with DISTRIBUTION

Scarcity: unlimited wants and needs but limited resources Distribution is the allocation of the total product among
Because ALL resources, goods, and services are limited – WE members of society. It is related to the problem of for whom
MUST MAKE CHOICES!!! goods and services are to be produced.

We make choices about how we spend our money, time, and
energy so we can fulfill our NEEDS and WANTS.
NEEDS – “stuff” we must have to survive, generally: food,
shelter, clothing
WANTS – “stuff” we would really like to have (Fancy food,
shelter, clothing, big screen TVs, jewelry, conveniences . Also
known as LUXURIES
You can’t have it all (SCARCITY, remember?) so you have to
choose how to spend your money, time, and energy. These
decisions involve picking one thing over all the other possibilities
– a TRADE-OFF!
Economics is concerned with CONSUMPTION
Consumption is the use of a good or service. Consumption is
the ultimate end of economic activity. WHEN THERE IS NO
CONSUMPTION, THERE WILL BE NO NEED FOR
PRODUCTION AND DISTRIBUTION.
Economics deals with PUBLIC FINANCE
Public Finance is concerned with government expenditures
and revenues. Economics studies how the government raises
money through taxation and borrowing.
MICROECONOMICS (Specific)
Deals with the economic behavior of the individual units such as
consumers, firms, the owners of factors of productions
– How do individuals make economic decisions
MACROECONOMICS (General, economy as a whole)
Deals with the economic behavior of the whole economy or its
aggregate such as government, business, unemployment,
inflation and the like.
Refers to management of income, expenditures, wealth or
resources of a nation.
- The big picture: growth, employment, etc.
– Choices made by large groups (like countries)
Types of Economics
Household Economics – most common use of economics is
for the family. At this level, anyone who knows the economic
principles will be able to improve the running of the household.
Business Economics – when a person or group of persons
begins to work, they come under the system of business
economics in their workplace. In this type, you deal with the rent,
salary, profits and others.
National Economics – Economic factors of problems affecting
the whole nation. Deals with the management of income,
expenditures, wealth or resources of a nation.
International Economics – The highest stage of economic
activities involving the business of one country with other
countries like trade, tourism, exchange rates
Economics as a Science
Is a science because it is an organized body of truth,
coordinated, arranged and systematized with reference to
certain general laws and principles.(Observation, Formulation of Sound Ideas
theories, Gathering of data, Experimentation, Conclusion,
Generalization)
Economic analysis seeks to explain economic events using
some kind of logic based on a set of systematic relations.
It is a social science because the subject matter of economics is
people or societies and their behavior, unpredictable in nature.
Essence/Relevance of Studying Economics
 To understand the world better
Applying the tools of economics can help you understand
global and cataclysmic events such as wars, famines,
epidemics, and depressions. Economics has the power to help
us understand these phenomena because they result from the
choices we make under the condition of scarcity.
 To gain self-confidence and become wise
decisions makers
Mastery of economics will help you to understand how things
work in your society thereby “feeling equipped”
 To achieve social change and contribute to
National Development
Economics can help us understand the origins of serious social
problems such as: unemployment, hunger, poverty, disease,
child abuse, drug addiction, violent crime. It will also explain why
previous efforts to solve these problems have failed, and help us
to design new, more effective solutions.
 To help prepare for other careers
Economics has long been a popular college major for
individuals who are intending to work in business. But it has also
been popular among those planning careers in politics,
international relations, law, medicines, engineering, etc. This is
for good reason because practitioners in each of these fields
often find themselves confronting economic issues.
Applied Economics - involves economists taking generally
accepted theory and applying those theories to something that is
happening in the real world, with an eye toward determining
what can reasonably be expected to happen next
3 Reasons why applying economic theories to current
economic conditions can be useful
Applied Economics gives us:
True Pictures
Applying economics to the status of the economy of a
company, a household or a country helps to avoid attempts to
dress up the situation so that it will appear to be worse or better
than it actually is.
Applied economics is a powerful tool that enables the
true and complete picture to emerge, so that it becomes possible
to decide what to do and where to go from the current position.
pplied economics acts as a mechanism to determine what steps
can reasonably be taken to improve the current economic
situation. Each element that is relevant to the contemporary
mode of operation of the entity — including the purchase and
sale of goods and services, the usage of raw materials and the
division of labor within the entity — come into play.
Examining each aspect of the current economic condition will
often yield sound ideas on ways to maintain aspects that are
working at a reasonable rate of efficiency and strengthen areas
where the performance is weak
Valuable Lessons
Applied economics can teach valuable lessons on how to avoid
the recurrence of a negative situation, or at least minimize the
impact.
Applied economics is all about the application of theory to real-
life situations, so the process can help develop an understanding
of why a condition took place. This includes reviewing what
steps were taken to improve or correct similar situations and how
those strategies can be employed to keep the economy flowing
in a direction that will preclude a repeat of the undesired
situation.