Economics as an Applied Science – Quick Review Notes

Three Economic Questions

• What to produce? → Select goods/services that best satisfy society’s prioritized needs.
• How to produce? → Decide on production methods (manual labor, automation, or a mix) to use scarce resources efficiently.
• For whom to produce? → Determine the distribution of output (equally, to the most needy, or to those who can pay).
• All questions aim at optimal resource allocation under scarcity.

Factors of Production

1. Land – all natural resources (physical land, raw materials, energy sources).
2. Labor – physical & mental human effort in production.
3. Capital – man-made assets or investments that raise productivity.
   • Physical capital: tools, machinery, technology.
   • Human capital: education, health investments.
4. Entrepreneurship – ability to organize the other factors and bear risk to create goods/services.

Economic Growth vs. Economic Development

• Economic Growth: Expansion of output measured by rise in $GDP$.
  • Key goal but may mask welfare issues (e.g., unequal gains, military spending).
• Economic Development: Broader improvement in citizens’ welfare (education quality, poverty levels, environmental health, living standards).
  • Growth can aid development but is not strictly required for it.

Sustainable Development & Inclusive Growth

• Sustainable Development: Meeting present needs without harming future generations’ ability to meet theirs.
• Inclusive Growth: Expansion that lifts all societal groups, reduces poverty, and raises living standards (focus of AmBisyon 2040).

Why Study Economics as an Applied Science?

• Reveals both explicit and opportunity costs behind decisions.
• Equips individuals to form informed opinions and make better choices for themselves, society, and future generations.