BASIC TERMS
IN
APPLIED
ECONOMICS
DEFINITION OF TERMS
SCARCITY – insufficiency of resources to meet the
wants of consumers and insufficiency of resources
for producers that hamper enough production of
goods and services.
ECONOMICS
– as a study, is the social science that involves
the use of scarce resources to satisfy unlimited
wants.
- is a different science from biology
and chemistry as these are physical sciences.
- is a social science because it studies human
behavior just like psychology and sociology.
2
DEFINITION OF TERMS
SOCIAL SCIENCE – is broadly speaking, the
study of society and how people behave and
influence the world around them.
2 TYPES OF SCARCITY
a. Relative Scarcity – is when a good is scarce
compared to its demand.
Ex. a. Coconuts are abundant in the
Philippines since the plant easily
grows in our soil and climate.
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TYPES OF SCARCITY
• However, coconuts become scarce when the
supply is not sufficient to meet the needs of the
people
• b. Bananas are abundant in the Philippines and
are being grown in a lot of regions around the
country. But when a typhoon destroys banana
plants and the farmer has no bananas to
harvest, then bananas become relatively scarce.
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TYPES OF SCARCITY
ABSOLUTE SCARCITY – is when supply is
limited.
Ex. a. Oil is absolutely scarce in the country
since we have no oil wells from which we can
source our petrolum needs, so we rely heavily on
imports from oil-producing countries like Iran
and other Middle Eastern countries.
b. Cherries are absolutely scarce in our
country since we do not have the right climate
to grow them and we have to rely on imports for
our supply of cherries. This explains why
cherries are very expensive in the Philippines. 5
DEFINITION OF TERMS
Opportunity Cost – refers to the value of the best
foregone alternative.
Ex. a. When land is devoted exclusively to the
cultivation of rice, we give up an output of bananas
or mangoes that we could have planted on that
land area.
b. A producer who decides to transform all his
leather into shoes, gives up the chance to produce
bags with that leather.
c. A school teacher who could have worked in
a bank, gives up the salary that she would have
earned as a bank employee. 6
DEFINITION OF TERMS
• d. A manager who quits his job in order to take up
a master’s degree, gives up his salary as a
manager. That salary is his opportunity cost.
Two branches of Economics
1. Macroeconomics
- is a division of economics that is concerned
with the overall performance of the entire economy.
- it studies the economic system as a whole
rather than individual economic units that make up
the economy. It focuses on the overall flow of goods
and resources and studies the causes of change in the
aggregate flow of money , the aggregate
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TWO BRANCHES OF ECONOMICS
movement of goods and services, and the general
employment of resources.
- is about the nature of economic growth, the
expansion of productive capacity, and the growth of
national income.
2. Microeconomics
- is a division of economics that is concerned
with the behavior of individual entities such as the
consumer , the producer, and the resource owner.
- it is more concerned on how goods flow
from the business firm to the consumer and how
resources move from the resource owner to the
business firm.
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TWO BRANCHES OF ECONOMICS
- it is also concerned with the process of setting
prices of goods that is also known as Price Theory.
- it studies the decisions and choices of the
individual units and how these decisions affect the
prices of goods in the market. Likewise, it examines
the alternative methods of using resources inorder to
alleviate scarcity. It does not focus on aggregate
levels of production, employment, and income.
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ECONOMIC RESOURCES
Economic Resources – also known as factors of
production, are the resources used to produce
goods and services. These resources are, by
nature, limited and therefore, command a
payment that becomes the income of the resource
owner.
1. Land – soil and natural resources that are
found in nature and are not man made.
Owners of lands receive a payment known as
rent.
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ECONOMIC RESOURCES
LABOR – physical and human effort exerted in
production. It covers manual workers like
construction workers, machine operators, and
production worker, as well as professionals like
nurses, lawyers, and doctors. The term also
includes jeepney drivers, farmers, and
fishermen. The income received by labors is
referred to as wage.
CAPITAL – man-made resources used in the
production of goods and services , which include
machineries and equipment. The owner of
capital earns an income called interest.
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Identify which resource is referred to
by the following words.
_______ 1. Entertainers
_______ 2. Minerals
_______ 3. Forests
_______ 4. Marine resources
_______ 5. Teachers
_______ 6. Technology
_______ 7. Production Equipment
_______ 8. Engineers
12
Identify which resource is referred
to by the following words.
_______ 9. Call center agents
_______10. Business proprietor
13
Classify the following topics. Write MIC if it
falls under Microeconomics; MAC, if it falls
under Macroeconomics
_______ 1. The inflation rate in the Philippines in the
last quarter of 2013 was 4.8%.
_______ 2. A ₱340-billion deficit in the Philippines
budget is expected in the year 2015.
_________3. Prices of Toyota vehicles are predicted to go
up in December.
_________4. Garlic prices in the past months have risen
because producers hoarded their suppliers in their
bodegas.
_________5. Unemployment rate has dropped because of
the increase in the number of OFW’s.
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Classify the following topics. Write MIC
if it falls under Microeconomics; MAC, if
it falls under Macroeconomics
_______ 6. In the past year, Coca Cola was named
the fastest selling product in the market.
_______ 7. Rental on land could not be increased
by landowners because of the Rent Control Law.
_______ 8. Prices of apples and grapes tend to
increase during Christmas season.
_______9. The Philippine economy grew at the rate
of 5.8% in 2013.
_______10. Philippine congress passed the Value
Added Tax Law to strengthen the Philippine tax
system.
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