Applied Economics - for tourism students

applied economics for college

1. THE ECONOMIC PROBLEM
AND THE BASIC
ECONOMIC QUESTIONS:
CHAPTER 1:

2. •An economic system is a means by which societies or
governments organize and distribute available
resources, services, and goods across a geographic
region or country.
•Economic systems regulate the factors of production,
including land, capital, labor, and physical resources.
•An economic system encompasses many institutions,
agencies, entities, decision-making processes, and
patterns of consumption that comprise the economic
structure of a given community.
WHAT IS AN ECONOMIC SYSTEM?

3. Every nation in the world experiences economic problems. Why?
Because of scarcity of resources. Scarcity is a condition when
unlimited demands of man exceeds the available supply of
production resources needed in producing goods.
He explained that scarcity is not a shortage, because scarcity is
general and all compassing, it is a fact of life. While shortage is
temporary.
Therefore, here are the following questions to determine the
decision on whether to produce or not produce goods, to avoid
wastage:
THE ECONOMIC PROBLEM AND THE
BASIC ECONOMIC QUESTIONS

4. 1. WHAT TO PRODUCE?
➢In order to avoid wastage from the producer’s side, the
consumer’s demand should be determined and monitored
first.
➢Consumption goods and services
➢Capital goods
➢Government goods and services
➢Export goods and services
THE ECONOMIC PROBLEM AND THE
BASIC ECONOMIC QUESTIONS

5. 2. HOW DO WE PRODUCE?
➢This question aims to find out the best and applicable
techniques or method to use in the manufacture of
products or commodity that is demand by the consumers.
➢Employing the most appropriate and correct procedure
and material will result to efficient production, as well as
profit maximization.
➢Land
➢Labor
➢Human Capital
➢Capital
➢Entrepreneurship
THE ECONOMIC PROBLEM AND THE
BASIC ECONOMIC QUESTIONS

6. 3. HOW MUCH TO PRODUCE?
➢How much to produce refers to the volume or quantity
that an entrepreneur or business enterprise needs to
produce that is sufficient for what the market demands.
THE ECONOMIC PROBLEM AND THE
BASIC ECONOMIC QUESTIONS
4.FOR WHOM TO PRODUCE?
➢Answer to this question is determined by the income level
of the prospect buyer or consumers, the price of the
commodity, the culture and their religious affiliations.

7. To understand better how the market economy operates
under different market conditions, there is a need to
study and learn the characteristics and features of the
different economic systems. The following discussion
focuses on what the basic economic systems are and how
they operate and differentiated from one another.
Generally, the economic system is categorized into five,
namely, Capitalism, Socialism, Communism, Mixed
Economy and Traditional Economy.
1.1 BASIC TYPES OF
ECONOMIC SYSTEMS

8. This system is characterized by private ownership and control of most
resources (i.e. land and capital) in order to maximize its utilization. It relies on
the decisions made in the market between the buyer and the seller with little or
sometimes no government intervention.
Economics as “laissez faire” a French word means “leave alone” policy.
The United States and Canada are typically example of capitalist countries.
The economic system in the Philippines is patterned also from these capitalist
countries.
CAPITALISM

9. An economic system which allows the government to manage and control the major and
key industries, while the rest are left for the private to manage or acquire is Socialism. Nations
classified as socialist are generally democratic with multi-party political system.
Government planners decide what goods will be produced and also set the prices at which
they are to be sold. Thus, the overall performance of the economy under socialist system
depends on how effective and efficient are the government officials or authorities.
“PRODUCTION FOR USE”
1.Denmark 1. Portugal
2.Finland 2. Sri Lanka
3.Netherlands 3. India
4.Norway 4. Guinea – Bissau
5.Belgium 5. Tanzania
SOCIALISM

10. Communism was derive from a French term, communisme, which means common.
Communism is an economic system in which the government owns and control the factors
of productions, including transport products.
Since it is centrally planned economy, there is no privately owned property.
Communism disregards social classes, meaning people are neither classified rich nor poor,
instead they are equal in all aspects.
Countries that remain as communist countries to date are as follows:
1.China (People’s Republic of China)
2.Cuba (Republic of Cuba)
3.Laos (Laos People’s Democratic Republic)
4.North Korea ( Democratic People’s Republic of Korea)
5.Vietnam (Socialist Republic of Vietnam)
COMMUNISM

11. This system is characterized by the presence of private ownership of different means of
production and the presence of a government which is in control of the implementation of the
fiscal and monetary policies.
The government also intervenes in other areas of the economy, such as providing public
services such as health, education, waste management and the regulation of private business.
Examples of mixed economies are:
1.Iceland
2.Sweden
3.France
4.United Kingdom
5.United States
6.Russia
7.India
8.Hongkong
Mixed ECONOMY

12. This system is very common in developing economies, where decisions are based on
customs, beliefs, and practices handed down from one generation to another.
Not that they are afraid to experiment or adapt new concepts or ideas, but the people in
developing countries are exposed and reared to backward culture due to poverty.
People under this economic system are referred to as traditional because they follow the
old ways of producing their food and other means of their production.
Despite the availability of modern machineries and equipment, farmers in developing
countries continue to adopt the age-old tradition not because they are not capable to learn the
modern technologies, but, financial resources are not readily available. Price or costs of modern
agricultural ecquipment and machineries are high or expensive.
TRADITIONAL ECONOMY

13. The Different Economic
Activities
Economic activities are specific work done to complete the cycle from the
creation or production of goods or services to utilization or consumption of
finished goods. This will also tackle how the government manages the
country’s financial, as well as natural economic resources.
•Production
•Distribution
•Exchange
•Consumption
•Public finance
The five economic
activities are presented in
the following discussion:

14. The Different Economic
Activities
Production is define as the process of creating goods and services, ant the
conversation of raw materials into finished or consumable goods. This economic
activity determines:
❑ What goods to produce?
❑How to produce?
❑For whom to produce
These are considered as basic questions that definitely avoid wastage of limited
resources.
Production

15. The Different Economic
Activities
This activity is referred to as the process to allocate or to apportion the different
fruits of production to the owners of the different factors of production, such as land,
labor, capital and entrepreneur.

This may simply refer to the manner the factor owner gets as his share from the
production income, whenever the factor of production, (land, labor, capital and
expertise or skill) are used in the production process.
The following are identified different factors of production and the expected
fruits of production, or the share of the factor owner.
→Land
→Labor
→Capital
→Entrepreneur
Distribution

16. The Different Economic
Activities
How the corresponding fruits of production are distributed among factor owners
when used in the creation of goods and services, or production process, is shown as:
Distribution
The factors of production
(Use in the creation of goods)
The fruits of production
(Income received)
Land Rent
Labor Wages
Capital Interest
Entrepreneur Profit

17. The Different Economic
Activities
This economic activity is also referred to as the delivery of
finished goods from the producer to the end-user. In this
activity money is used to facilitate delivery of goods to the
consumer, where money is considered as the medium of
exchange.
Exchanged

18. The Different Economic
Activities
This economic activity pertains to the utilization or consumption of
goods purchased or bought by the buyer to satisfy his demand. Once
a commodity is purchased or bought it is expected that the buyer will
be satisfied only once the commodity is consumed.
Consumption

19. The Different Economic
Activities
This economic activity has to do with the management of the nation’s monetary
or financial resources by the government. It refers to the income and cash outflow of
the government in the pursuit of national objectives, such as the delivery of public
service.
The Department of Finance performs its functions in coordination with other
government agencies like the Bangko Sentral ng Pilipinas, an agency in-charge of
monitoring the proper allocation of financial requirement of the different
government agencies.
Public Finance

20. ECONOMIC PRINCIPLES AND
THEORY
Theory is an idea or set of ideas that is suggested or presented as possibility
true but that is not known or proven to be true. (Webster’s Dictionary, 2001)
It is a statement or proposition used to explain and predict behavior in the
real world. (R. Sexton, 2012)
Several Economic theories and principle had been applied and tested to
resolve issues and concerns in the real economic situation.
These economic theories help us sort and understand the complexities of
economic behavior and guide our analysis. A good economic theory, then,
should help us better understand and, ideally, predict human economic
behavior. (Exploration of Macroeconomics by R. Sexton)

21. ECONOMIC PRINCIPLES AND
THEORY
One of these theories is the theory / principle of demand and supply, the most
commonly applied and easily understood theory. This theory explains how
consumer behaves as regards the quantity to be demanded, (i.e. when to buy more
and when to buy less goods).
The principle of demand and supply explains, likewise, how the seller or
producer behaves. The supply side describes how the producer or seller determines
when to sell more quantity of goods or sell less quantity.
It is related to the law of supply and demand, “When the demand is high, the
price increases, When the demand is low, the price decreases.”

22. ECONOMIC PRINCIPLES AND
THEORY
The theory of Thomas Malthus on population, shows the
relevance of population to economics. This theory discusses the
effects of population to the nation’s level of production. The term
population refers to the total number of people occupying a space
or a community.
In this theory, Malthus predicted that population growth or
increase in population would, eventually, increase faster than the
growth of food production, specifically agricultural. When this
happens, he said, it would result to food shortages. When we
experience food shortages, people’s demand for food cannot be
fully satisfied, because there would be more people in need of
food, than what is available.

23. ECONOMIC PRINCIPLES AND
THEORY
Think why prices of commodities in our present time continue
to raise or increase. Compare the population growth rate, and
growth rate of our agricultural crops or food production.
Research results indicated that population growth outgrow
that of agriculture or food production. The result of research
showed that the growth rate of food production is slower
compared to the growth rate of population.
There are more consumers than there are food available for
consumption.

24. 1.2 Economics as an
applied science
Applied Economics is the application of theories and principle to
real world situations with the desired aim of predicting potential
outcomes. The use of applied economics is designed to analytically
review potential outcomes with the “noise” associated with explanations
that are not backed by numbers. Applied economics can involved the use
of econometrics and case studies.

It is important to note though, that “although applied economics
uses theory and principles, it is itself not a field of economics.”

25. 1.2 Economics as an
applied science
From another source, theory, according to Sicat (Economics 1983) is
an attempt to explain how particular events or observations are related to
one another. He also said that theory and observations are linked
together. Thus, when a theory’s statement is sound but not in practice
then the theory is wrong. In this case, Sicat said, to look for an alternative
theory that explains the fact or practice.
Based on these definitions, the application of theory in practice or in
the real world, therefore, would enable the economist or economic
planning officer to determine a more applicable theory to provide the
best solution to an economic problem.

26. 1.2 Economics as an
applied science
Understanding economic theories and principles enables one policy
officer to draft an economic policy to resolve economic problem.
Economic policy provides a way of approaching problems not only in the
economy, but in all aspects of out lives, such as personal, business and
government. (Bade and Parkn, 2011)

27. Thank
You