Lesson 2

• Applied Economics


  • The application of economic theory and econometrics in real-world situations
  • Using economic theories, models, and related principles to understand contemporary socioeconomic issues
  • The primary concern is to address problems and bring about economic development
• National Economic Development Authority (NEDA) defines economic development based on a framework of inclusive growth, generation of employment, and reduction of poverty
• Aspects of Economic Study and Analysis

  Economic study and analysis require the application of certain economic concepts and tools to understand various economic issues and problems
• Normative Economics


  Evaluates and makes judgments on economic behavior outcomes and proposes courses of action
• Economic Development


  The sustained elevation of an entire society and social system toward a better and more humane life
• Core Values of Development

  • Sustenance
  • Self-Esteem
  • Freedom
• Positive Economics


  Describes what exists and how things work objectively
• Understanding both positive and normative economics is crucial for informed decision-making and policy discussions
• Model


  A framework or representation of significant principles describing how variables are related
• Theory


  • Population Theory by Thomas Malthus
  • Supply and Demand Model
• Theory


  A proposition about related variables explaining a phenomenon
• Assumptions aid in better understanding economic issues and make sense of the behavior of individuals, groups, and institutions in an economy
• Major assumptions used when analyzing economic phenomena

  • Rationality
  • Profit maximization
  • Perfect information
• Firms


  • Intend to maximize their profit
• Law of Supply


  • If the price of gasoline increases, the quantity of gasoline supplied will increase
• Law of Demand


  • If the price of coffee increases, the quantity of coffee demanded will decrease
• Ceteris paribus (all things being equal)


  • Refers to the assumption that controls the effects of other variables apart from those being analyzed in the study
• Perfect information


  • Consumers and producers have complete and accurate information about products, services, prices, utility, quality, and production methods
• Individuals


  • Aim to maximize utility
• Failure to hold things constant under ceteris paribus is an error in analysis
• Post hoc fallacy is assuming that because one thing occurred after another, it must have occurred as a result of it
• Fallacy of composition is considering a trait of one part or aspect of something as true or applicable for the whole
• Sweeping/Hasty generalization oversimplifies a specific scenario presenting it as a general rule
• Production Possibilities Frontier (PPF) is a graph that shows the greatest sum of outputs given accessible inputs or resources in an economy
• Comparative Advantage considers it most advantageous for economies to specialize in industries where they enjoy an advantage in resources and production process
• International Trade is a significant aspect of economic development that has to be considered in an interconnected global economy