APPLIED ECONOMICS – Comprehensive Lecture Notes (ABM 11)

Economic Resources (Factors of Production)
- Inputs used to create goods/services.
- Major categories:
- Land – all natural resources (soil, minerals, water, forests, fishing grounds, climatic advantages, etc.).
- Labor – human effort (physical & mental) applied in production.
- Capital – man-made aids to production (tools, machinery, buildings, vehicles, technology, financial assets).
- Example list: farmland, factory buildings, delivery trucks, store inventories, skilled workers, heavy equipment.
Commodities
- Economic goods often serving as inputs for other goods/services.
- Characteristics: standardized, widely traded, relatively undifferentiated (e.g., rice, crude oil, wheat, copper).

Needs
- Essentials required “in order to live.”
- Typically: food, water, shelter, basic clothing, healthcare.
Wants
- Non-essential items that “add comfort in life.”
- Example used: owning an iPhone for convenience & prestige.
Key distinction: needs are survival-based; wants are rooted in comfort, luxury, or status.

Course: Applied Economics (ABM specialized subject, Grade 11).
Session objectives
- Understand basic economic concepts.
- Differentiate Macroeconomics and Microeconomics.
- Appreciate the importance of studying Economics.

PhilStar headline: “Rice crisis could be worse in 2024 – farmers’ group.”
Quote (Montemayor): “At least, we were able to import a lot in the first half of 2023 before the international prices spiked and imports declined.”
Critical thinking prompts used in class:
- Identify possible reasons behind declining imports & rising prices:
- Global supply disruptions, climate effects, geopolitical tensions.
- Exchange-rate movements or higher freight costs.
- Domestic production shortfalls.
- Suggested government responses (implicit):
- Strategic buffer stocks, tariff adjustments, support to local farmers, diversified sourcing.

Scarcity
- Universal condition of limited resources vs unlimited human wants.
- Conceptual & perpetual.
Shortage
- Market condition where a product/service is “not available in the required quantity.”
- Temporary; solvable via price adjustment or increased production/imports.
Government policy questions raised: How to deal with scarcity & shortage in rice?

“Effective management of scarce resources to satisfy unlimited human wants and needs.”
Re-emphasizes the role of Land, Labor, Capital as economic resources.

Quote (Jim Stanford): “Economics is a social science, not a physical science.”
Comparison with other disciplines:
- Unlike Biology/Chemistry (natural sciences), Economics studies human behaviour & societal interactions (akin to Psychology & Sociology).
Leads to Applied Economics: using theories to understand real decisions by individuals, firms, governments, nations.

Macroeconomics
- Looks at the overall performance of the entire economy.
- Focus areas:
- Aggregate flow of goods/resources.
- Expansion of productive capacity.
- Growth of national income ( $GDP,\,GNP$ ).
Microeconomics
- Analyses behaviour of individual entities: consumers, producers, resource owners.
- Focus areas:
- Choice & decision-making at the unit level.
- Production/output of a single firm.
- Employment & income of specific labour markets.
Visual framework in lecture:
- Micro level: Individual → Household → Firm (Income/Expenditure cycle).
- Macro level: aggregates those flows to Government/Nation.
Assessment prompt: Which branch studies the flow of goods from firm to consumer and resource movement from owner to firm? → Answer: Microeconomics (because flow analysis is at the individual market level).

Arising from scarcity; every society must answer:
1. What to produce and how much?
2. How to produce (choice of technique, resource mix)?
3. For whom to produce (distribution, accessibility)?
Solutions depend on Economic System adopted.

Traditional Economy
- Decisions rooted in customs, rituals, long-standing practices.
- Common in tribes/primitive societies.
- Barter predominant.
Command Economy
- Centralized decision-making by government/planning committee.
- Associated with dictatorial, socialist, or communist states.
Market Economy
- Most democratic; decisions guided by demand & supply signals.
- Prices emerge from what people are willing to pay.
Classroom image tags: “Demand/Supply vs Government” to contrast market vs command influence.

Enables understanding of budgeting & allocation of scarce resources.
Cultivates ability to make rational decisions: spending, saving, investing.
Poll question: Why study economics? → Correct response: Both (budgeting and rational decision-making).
Reflective prompt: “As an ABM student, why do you think you need to study economics?”

Term for effective management of scarce resources to satisfy unlimited wants: Economics.
Term for limitation of resources: Scarcity (vs Shortage & Surplus).
Branch of Economics concerned with entire economy: Macroeconomics (vs Microeconomics).

Picture identification games (resources vs commodities, wants vs needs).
Multiple-choice checks after each concept set.
Final group task: Present a recent news article on an economic issue and decide if it relates to scarcity – explain why/how.

Ethical: Equitable distribution “for whom to produce” raises justice questions.
Philosophical: Scarcity forces prioritization; reflection on societal values (needs vs wants).
Practical: Real-world policy (rice crisis) shows macro–micro interplay; budgeting at personal level reflects microeconomic reasoning.

National income measures used in macro analysis: $GDP$ and $GNP$ .
Implicit quantity relationship in shortages: \text{Demand} > \text{Supply} \Rightarrow \text{Shortage}.

Builds on foundational concept of opportunity cost (implied whenever discussing scarcity).
Prelude to quantitative topics (e.g., supply-demand curves, elasticity, national income accounting).
Will feed into Business Finance & Accounting modules where resource allocation & investment decisions are quantified.