APPLIED ECONOMICS 1-3

The Study of Economics

Definition of Economics:
- Economics is a science that analyzes how people use their limited resources to meet their never-ending needs and wants.
- Involves cost and benefit analysis when making decisions.

Application of Theories:
- Economic theories and models are applied to real-life situations to understand individual decision-making.
- Economists simplify complex social phenomena into frameworks and models.

Core Principles:
- Scarcity indicates that resources are limited while needs and wants are unlimited.

Opportunity Cost:
- The benefit foregone when choosing one action over another,
Comparative Advantage:
- Entails having lower opportunity costs when producing a specific good compared to others.
- Absolute Advantage: The ability to produce more than another entity.
- Example calculations:
  - Wine Opportunity Cost:
    - Country A: 0.333 bags of coffee per unit of wine.
    - Country B: 0.25 bags of coffee per unit of wine.
  - Coffee Opportunity Cost:
    - Country A: 3 barrels of wine per unit of coffee.
    - Country B: 4 barrels of wine per unit of coffee.
- Country B has a comparative advantage in wine, while Country A has it in coffee.

Three Economic Problems:
1. What to produce? (Resource allocation)
2. How much to produce? (Production allocation)
3. For whom to produce? (Distribution and consumption)
Considerations:
- Availability of labor influences the focus on labor-intensive products or services.
Factors of Production:
- Land: Natural resources, returns as rent.
- Labor: Human capital, returns as wages.
- Capital: Physical assets, returns as interest.
- Entrepreneurship: Decision-making in production, returns as profit.

Focuses on directional relationships between economic variables.
Used in descriptive analysis to show correlations (e.g., interest rate inversely related to price).

Uses mathematical and statistical analyses of economic data.
Employs variables, equations, functions, and graphs to support economic models and theories.

Models: Representations of economic and social phenomena.
Simplify concepts for clearer understanding.
Types of Data:
- Time-series: Collected over several time periods.
- Cross-sectional: Different variables for a single time period.

Normative Economics: Evaluates economic decisions based on opinions, subjective.
Positive Economics: Evaluates based on facts through qualitative and quantitative analysis.

Microeconomics: Examines individual or company level behaviors.
Macroeconomics: Focuses on aggregate economic relationships and national economy.

Utility: Satisfaction from consumption of goods.
Marginal Utility: Additional satisfaction from consuming one more unit.
Law of Diminishing Marginal Utility: More consumption leads to lower additional satisfaction.

Gross Domestic Product (GDP): Total value of final goods consumed in a time period.
- Emphasizes "final" to avoid double counting.
Nominal vs. Real GDP:
- Nominal GDP at current prices; Real GDP adjusted for inflation.
Consumer Price Index (CPI): Measures purchasing power through price surveys.

Various ways of managing resources to answer economic questions:
- Free Market Economy: Characterized by competition and private ownership.
- Centralized Economy: Government heavily involved in resource management.
- Mixed Economy: Combines features of both free market and centralized systems.
- Traditional Economy: Based on customs and barter systems.

Territorial Disputes: Tension with China over maritime territories.
Ongoing Conflicts: Long standing issues in Mindanao affecting national stability.