APPLIED ECONOMICS varies, the profit of the business is not

equivalent to the owner’s income.

CONTEMPORARY ECONOMIC
ISSUES FACING THE FILIPINO GOVERNANCE AND SUPPORT
(MODULE 5)  Department of Trade and Industry – The
agency that governs entrepreneurs and
What is Entrepreneurship? business in the Philippines. In charge of
 the art of observing correct practices in business registration and trade policies.
managing and operating a self-owned  RA 10679 or the Youth Entrepreneurship
wealth-creating business enterprise by Act of 2015, passed in July 2015, aims to
providing goods and services that are support the development of young
valuable to the customers. individuals in the field of finance and
 the activity of setting up a business or entrepreneurship by integrating financial
businesses, taking on financial risks in the literacy and entrepreneurship programs in
hope of profit. education curriculum implemented by an
 offers a way to support the society through Entrepreneurship Education Committee.
business  Philippine Center for Entrepreneurship –
Who Are Entrepreneurs? a non-profit organization that advocates
 someone who “creates a new business in the entrepreneurship in the country. Commonly
face of risk and uncertainty for the purpose known for its program “GoNegosyo”
of achieving profit and growth by identifying
significant opportunities and assembling the NEW BUSINESS REGISTRATION
necessary resources to capitalize on them
Steps In Business Registration
 DTI - Register Business Name
 Barangay - Secure Barangay Clearance
 City/Municipality - Get Business Permit
 BIR - Apply for Tax ID Number; secure
authority to print receipts; have ledgers
and invoices stamped
 SSS – Apply self employed owner

ISSUES AND CHALLENGES FACING

THE FILIPINO ENTREPRENEUR
Innovation Strategies Of Entrepreneurs Investments, Interest, and Financing

Disruptive Innovation  Interest

 A process that, “disrupts” or changes the Cost of Borrowing Money
structure of an existing market. It creates a  Consumers typically borrowed from banks
new industry rather than just compete with a to finance spending and investments.
new one. It challenges the status quo by  Businesses borrow money to finance
gradually gaining a substantial customer business expansion or capital expenditures.
base. An increase in interest rates discourages
borrowings, reduced spendings and postponement
THE FILIPINO ENTREPRENEUR of business expansion and capital expenditures
investments.
Types of Business Structure
 Sole Proprietorship – The owner and the  Financing
business are taken as the same entity, which  Grants and Loans maybe awarded to
means profit of business is also the income qualified individuals under RA 10679
of the owner.  For those who are ineligible, they may
 Partnership – The owners and the business choose from two options.
are considered as one entity, but profit for Use of own’s fund – Bankroll the idea using
business is divided among partners. personal savings, loans from family or personal
 Corporation – The owner and the business bank loans.
are separate entities. Because ownership External Financing - Crowdsourcing
 Rent  Capital Gains Tax – Imposed on the sale of
 For businesses that requires a physical store, capital assets such as real estates, and stocks.
rent is one of the highest cost that drives Real estate tax is at 6% while tax on gains
down operating income. Business rent are from sales of stocks ranges from 5% to 10%
driven by several factors such as increasing  Income Tax – The most common tax filed
real estate prices, location and foot traffic. by employed and self-employed individuals.
An entrepreneur must decide on the most Income Tax rates ranges from 20% to 35%
strategic location to put up his business to as of January 2018 as part of RA 10963 or
maximize potential returns. The Tax Reform for Acceleration and
 Foot Traffic refers to the number of people Inclusion Law (TRAIN)
passing by the business. The heavier foot
traffic means more people are made aware of
the business existence. The foot traffic MACROENVIRONMENT ANALYSIS
understandably fetch higher rents, than quiet (MODULE 6)
lonely corners.

 Minimum Wages
THE MACROENVIRONMENT
 All external forces that influence
 A higher wage rate translates to lower profit organizations are referred to as
because companies have to pay workers macroenvironment factors.
more.
 Conversely, lower wages rates potentially
results in higher income.
 Business owners needs to abide by the
country’s minimum wage laws, to avoid
being involved in a messy and expensive
lawsuits.

 National Wages and Productivity Board –

reviews minimum wage rates across sectors.
The NWPB is under the supervision of the
Department of Labor and Employment.
 As business expands and hires more
employees, the bigger the entrepreneur’s
financial and administrative responsibility in the company and all of the other actors
terms of wage and employee’s benefits
operate in a larger macro environment of
forces that shape opportunities and pose
 Taxes
 In the financing stage, a higher income tax
threats to the company
means less disposable income for the
business. Then once the business is in THE MACROENVIRONMENT
operation, there are local and national taxes ANALYSIS AND BUSINESS
to settle. OPPORTUNITY IDENTIFICATION
 Local taxes are paid at the city or
municipality of operations, while capital PEST Analysis
gains taxes is paid in the regional district  Helps a company identify opportunities
office of the Bureau of Internal Revenue – and threats in four major areas or reveal
which has a program to simplifies the the direction of change within the
process for business owner’s called RFP – business environment.
Register, File, and Pay. P.E.S.T/ S.T.E.P /P.E.S.T.L.E
Political, Economical, Social,
 Value Added Tax – A tax on sale, lease, Technological/Legal, Environmental
and importation of goods and services and
subject for additional guidelines. VAT is Major forces in the company’s Macro-
currently at 12% environment
 Percentage Tax – paid by entities that are  POLITICAL- Tax laws; Fiscal Policies;
exempt from VAT; Varies from 3% to 15% other government rules and regulations
depending on industries and businesses  ECONOMIC- GDP; Inflation and Prices;
Interest rate; FOREX; Other economic
indicators
 SOCIAL- Demography; Lifestyle change  INFLATION- Inflation is the loss in the
and other trends value of money. High inflation erodes the
 TECHNOLOGICAL- Technological purchasing power of consumers through the
advances; research and new development; constant rise in prices.
new processes  INTEREST RATE-
 LEGAL- New and updated business  Interest rates affect both consumers and
requirements producers. A higher interest rate means
 ENVIRONMENTAL- Environment higher cost of borrowing, which discourage
regulations; resource constraints; climate firms to take out loans to fund business
change. needs and new projects.
 High interest rates curb consumption and
POLITICAL FACTORS investments which cause aggregate demand
 Political factors pertains to government rules, to decline, which leads to slowdown in
laws, fiscal policy change that influence an economic growth
industry or organization
 FOREIGN EXCHANGE-
TAX REFORMS  The peso exchange rate is the value of Peso
 Tax Reforms – revisions on the in terms of another currency. Demand
implementation and collection of taxes. determines the value of the currency.
 RA 10351 or Sin Tax Law – tax imposed  Exchange rates affects businesses differently.
on goods considered as vices. Industries with heavy reliance on imports
 RA 10963 or TRAIN Law – TRAIN or Tax need to pay in foreign currency so they
Reform for Acceleration and Inclusion Law, would prefer a stronger Peso.
restructured the personal income tax table in
the country. Among the changes in the initial SOCIAL FACTORS
package was the higher minimum income  Social factors examines the importance of
exception, higher excise tax on petroleum culture, population, and other social
and automobiles and expansion of the VAT determinants to the business environment
base.
DEMOGRAPHICS
GOVERNMENT SPENDING  Demography is formally the study of the
 As part of fiscal policy, government population and its attributes
monitors its expenditures to ensure it  Demographic data includes, gender and age
remains within budget. composition of the population, growth and
 Budget Deficit - When government mortality rate, and income levels among
spending exceeds revenue others.
 Budget Surplus – When government tax  Keeping track of the changes in the
revenue is greater than spending different population attributes helps not
only businesses but also the government in
POLITICAL STABILITY making informed decisions.
 The strength and effectiveness of  Knowing the size of the different segments
government in upholding sovereignty and of the economy aids the government in
implementing the rule of law is another assessing the impact of government policies.
variable that affect business sector.  RA 9994 (Expanded Senior Citizens Act of
2010 outlines amendments to RA 7432
NEW GOVERNMENT REGULATIONS (Senior Citizens Act of 1992) and RA 9257
 Regulations that streamline procedures in all (Expanded Senior Citizen Act of 2003). RA
government agencies and improve ease of 10645 is a further amendment to RA 9257
doing business have a positive impact on which outlines additional benefits of
business government assistance and mandatory
PHILHEALTH coverage for Senior Citizens.
ECONOMIC FACTORS
 Gross Domestic Product- GDP is LIFESTYLE AND TRENDS
equivalent to total output is a measure of a  There is a growing trend for consumers to
country’s economic performance. A steady lead a fit and healthy lifestyle.
growth in GDP signifies a strong and stable  Some trends include:
economy, which drives investments and  Using organic ingredients for food and
businesses, which leads to higher skincare products
employment.
 Emergence of specialized dance and fitness LEGAL FACTORS
studios  This covers new regulations and government
 The rise of Social Media, a trend born of the mandates that influence the operations of
increased internet accessibility businesses.
 Online Shopping gaining popularity
NEW REGULATIONS
RELIGION  Labor is an important input of production.
 Beliefs, customs, and religion are other Regardless of the industry, the workforce
social factors that may affect the collectively influences the business
macroenvironment of industries.  While providing a safe working environment
 Religion, similar to other factors, drives is a minimum requirement for employers,
demands through consumer preference some businesses try to cut corners in an
effort to save cost.
TECHNOLOGICAL FACTORS  To protect employee’s welfare, government
comes up with new laws, while
 INNOVATIONS- Innovations are largely implementing existing ones.
driven by continuous technological  Constant review of existing employment
development and research. laws is essential to ensure that rules stay
Examples of Technological Innovations relevant.
 Internet – the advent of the internet give
way to industries and countless products and EMPLOYMENT TRENDS
services  Changing employment-related norms have
 Just-in-time – a kind of innovation that an impact on existing businesses and might
started as internal process, is an operational present opportunities to new ventures.
system in which a company does not Some trends include
maintain a large inventory of supply, which  Increased diversity
add to the overhead cost. Examples of  Promotion of gender equality.
which are Lean manufacturing and  New employment laws
Continuous Flow Manufacturing.  Employment Growth in specific sector.
RA 10911 or the Anti Age Discrimination Act
RESEARCH AND DEVELOPMENT of 2017 aims to:
 Research and Development is the backbone  Promote employment of individuals based
of innovation. Investment in technology on their abilities, knowledge, skills and
means investment in R&D. It is mostly qualifications rather than age
associated with science, particularly in the  Prohibit arbitrary age limitations in
field of medicine. employment
 Promote the rights of all employees and
TECHNOLOGY-RELATED workers regardless of age to be treated
LEGISLATIONS equally in terms of compensation, benefits,
 As discussed, the importance of technology promotion, training, and other employment
in staying competitive is acknowledge not opportunities
only in business , but also in government.
 Department of Information and ENVIRONMENTAL FACTORS
Communications Technology – Created by
RA 10844, is tasked to promote ICT-related Resource Constraints- Natural inputs of
development in the country, especially in production, unlike labor or capital, are generally
less accessible areas where private sector fixed. Think of the supply curve for land as a
presence is low. vertical line. The supply is fixed, which makes a
What’ s the implication of this new agency for the piece of it valuable to both households and firms.
business sector?
 To improve the ICT environment in the Environmental Regulations
country through Public-Private Partnership  To combat the effects of global warming and
 To transform the government to an “e- climate change, national and local
government” where public service are governments came up with programs that
efficient, effective, fast, and transparent. helps preserve the environment. One
 To improve ease of doing business, by example is the ban of single-use plastic
streamlining government processes. implemented by cities in Metro Manila.
Other environmental programs implemented by
the LGU’s include
 RA 8749 or the Clean Air Act of 1999 – INDUSTRY ANALYSIS AND
aims to minimize air pollution by monitoring COMPETITION (MODULE 7 )
smoke-belching vehicles, industrial plants,
and woods or coal burning SECTORS OF THE ECONOMY AND
 RA 9275 or the Clean Water Act of 2004 RELATED INDUSTRIES
– Monitors and regulates domestic and Economic sectors are commonly categorized
industrial wastewater discharge to bodies of based on the production process
water. This is a joint responsibility of
DPWH, DOH, DENR and LGU’s  PRIMARY SECTOR- Includes industries
 RA 9729 or the Climate Change Act of in the business of extracting raw materials
2009 – to evaluate government programs to from natural resources
ensure policies considers the effects of  SECONDARY SECTOR- This group
climate change and new developments are industries that process raw materials into
sustainable. goods through manufacturing and
 RA 9512 or the Environment Awareness construction
and Education Act of 2008 - to emphasize  TERTIARY SECTOR- Covers the
the importance of environmental education. marketing and selling of raw and
manufactured products.
Climate Change
 Climate change is one of the most pressing Sectoral GDP Contribution
environmental issues at this time, not only in
the Philippines but across the world.
 In response to climate change, businesses are
encouraged –and sometimes mandated – to
use products and processes that do not harm
the environment.

Greenhouse Effects
 Greenhouse gas emissions contributes to
global warming. Greenhouse gases traps heat
and radiation in the atmosphere instead of
releasing it back to space, causing an
increase in the atmosphere’s temperature. The illustration shows the average contributions
 The Greenhouse effect – The earths ability to GDP of the 3 main economic sectors in the
to absorb and bounce back heat back into Philippines based on the PSA national income
space date of 2018
The Greenhouse gases
H20 (Water Vapor) PRIMARY SECTOR
CO2 (Carbon Dioxide)  Agriculture, Hunting, Forestry and Fishing
CH4 (Methane)  Agriculture and Forestry
 Fishing
Renewable Energy SECONDARY SECTOR
 Renewable energy such as Solar (Sun),  Industry Sector
Wind, and Hydro (Flowing Water), comes  Mining and Quarrying
from nature. There are no greenhouse  Manufacturing
emissions or harmful waste to go back to the  Construction
environment, and generally easy to maintain  Electricity, Gas and Water Supply
Drawbacks of Sources of Renewable Energies TERTIARY SECTOR
 Installing lot of renewable energy structures  Service Sector
to support the considerable needs of the  Transport, Storage, and Communications
country.  Trade and Repair of Motor Vehicles,
 Quantities generated are substantially less. Motorcycles, Personal and Household Goods
 Required to satisfy the demand that may turn  Financial Intermediation
up to be more costly.  Real Estate, Renting and Business Activities
 Reliability on natural sources.  Public Administration and Defense;
Compulsory Social Security
 Other Industries (Hotels Restaurant,
Education, Recreational Facilities)
 contribution to GDP with 17% and 12% share
respectively

Employment Structure of the Economy

The employment structure of the economy refers
Agriculture and Fishing to the concentration of labor in the main sectors
of the economy. It requires comparison of the
number of workers employed in the major sectors

Public Sector versus Private Sector

Private vs Public
 Private Sector– Private sector is composed
of institutions that are privately owned
 Public Sector– Public sector is composed of
government-owned enterprise
Based on the data, the primary sector contributes
9% to the nation’s GDP. This contribution is Private Goods
largely driven by the agriculture and forestry  These are goods characterized by rivalry and
industry. excludability

Industry Sector  Rivalry- Means that a good consumed by an

individual cannot be consumed by another
individual or household
 Excludability or Exclusiveness- Means that
paying for a good or service prevents access
by others who have not paid for the good

Public Goods
 These are goods characterized by non-rivalry
and non-excludability

 Non-Rivalry- Means that consumption or

use does not reduce the quantity of the good
The industry sector accounts for roughly 34% of available for others
the Philippine economy. This contribution is  Non-Excludability- Means consumption or
driven by the strong performance of the use of public goods does not prevent other
manufacturing industry. individuals from consuming or using the
same goods regardless if they are paid or not
Manufacturing Industry
 Heavy Manufacturing – typically includes CLUB GOODS
textile and fabricated metal and steel  Public goods with restriction to access and
products are characterized by excludability and non-
 Light Manufacturing – composed of rivalry.
relatively easier-to-transport products such  This means that multiple individuals who
as household food products and plastic can pay for the use of a good but at the same
products time, limits the number of individuals who
can use the goods for a certain period. This
Service Sector creates an artificial scarcity of the good
 Example: Movie houses, parks, concerts

COMMON GOODS
 Characterized by rivalry and non-
excludability.
 This means that it is difficult to prevent
people from consuming the same good, but
the use or consumption somehow reduces
the quantity available for others.
Based on the 2018 PSA data, trade and real estate  Examples: coal, fish, clean air.
industries make up most of the service sector’s
 Common goods generally includes natural industry classifications based on business
resources and sometimes considered as free productions. Similar to international
goods standard systems, the PSIC was formulated
to serve a uniform framework in data
Free Rider Problem analysis.
 Public goods are sometimes referred to as
social or collective goods. Industry Principles, Tools and Techniques in
 The availability of public goods to everyone Identifying Business Opportunities
leads to a market failure called the free rider
system. Industry Analysis
 An industry is a group of companies
Externalities offering similar products or services. A
 Positive externalities – leads to benefits to manager must know the different people that
third parties. In a positive externalities, the constitute the industry where his/her
benefit to society is greater than personal company compete
benefit  Industry Analysis is useful in effectively
 Negative Externalities – leads to harmful evaluating the risk involved and probability
effects. In case of negative externalities, of success of a business. Conducting
social cost exceeds personal cost. industry analysis is considered invaluable in
business analysis.
MERIT GOODS
 Typically have positive externalities but the PORTERS 5 Force Analysis
benefit are often underestimated.  It focuses on the microenvironment factors,
Examples: education and health care. and measures how intense the competition
DEMERIT GOODS is and how attractive the industry is.
 Typically, have negative externalities and  It identifies the 5 forces or main groups of
consumption of which causes harm to people that shape competition within an
society. industry.
Example: smoking and illegal drugs
BARGAINING POWERS OF BUYERS
Industry Classifications The bargaining power of buyers impacts industry
structure. Buyers are end consumers, which
 Global Industry Classification Standards- means the bargaining power of buyers points to
A standard industry classification developed influence on product prices in the industry.
and primarily used in the financial market.  Buyer Concentration
GICS makes industries in different countries Refers to the number of buyers in the industry.
comparable , as industry performance is The higher the buyer concentration, the less the
essential to investors. buyers bargaining power and the greater is the
 International Standard Industrial competition.
Classification- The UN version of the GICS,  Availability of Substitute Products
primarily used to measure and compare Availability of product substitutes strengthens
economic activities across nations. buyer power because they can easily switch to an
Knowledge of industry-driven economic alternative product.
activities is essential in formulating  Buyer Product Differentiation
guidelines and analyzing national The more the specialized the product is, the less
development. likely that a buyer can influence the product
 Standard Industrial Classification and prices.
North American Industry Classification-  Buyers Switching cost to other inputs
 The SIC is a 4-digit code that started in the Low switching costs gives consumers greater
US but now used globally as a system of bargaining power enabling them to easily switch
classifying companies products.
 The NAIC is an industry classification  Process Integration
system that is primarily used in North Backward integration means that a consumers
America but is now recognized decides to create the product that reduces
internationally. potential profit.
 The SIC and NAIC systems were established  Buyers Volume
to fulfill the same objective of having a The higher the quantity demanded, the greater is
standard for industry comparisons. the bargaining power .
 Philippine Standard Industrial
Classification- The country’s guide to
BARGAINING POWERS OF SUPPLIERS higher the threat of substitutes, the greater is
Analysing the structure of the industry requires an the competition
analysis of the suppliers and how powerful they Main determinants include:
are in terms of influencing input and product Relative price of substitute products – presence
prices of cheaper alternatives increases the threat to
 Supplier Concentration industry players.
Refers to the number of suppliers in the industry. Relative quality of substitutes – Consumers who
The higher the supplier concentration, the weaker value quality are willing to pay extra for a product
the bargaining power of the supplier. of better quality
 Availability of Substitute inputs Switching cost to buyers – Industries that offers
Suppliers have a high bargaining power in generic products or products with low
situations in which there are no alternative inputs differentiation face low switching costs and high
available. threat of substitution
 Supplier Product Differentiation
Suppliers that are able to differentiate their Competitive Rivalry
products have higher bargaining power.  Competitive Rivalry determines the intensity
 Buyers Switching cost to other inputs of the competition among industry players.
Switching cost means ease of using an alternative
input. A low switching cost means to the SWOT Analysis
suppliers bargaining power is also low. Is used to identify a company’s strenghts,
 Process Integration weaknesses, opportunities, and threats
Forward integration means that a supplier takes
on the production process of the buyer it is
supplying to.
Backward integration means that a buyer takes SOCIOECONOMIC IMPACT STUDY
on the procurement process or input production to (MODULE 8)
displace the need for suppliers.
Sustainable Development and its link to
Threats of New Entrants Socioeconomic Impact Studies
 This factor evaluates how easy it is for firms  Sustainable development means meeting the
to enter the industry. More industry players needs of the present without compromising
means greater competition. the ability of future generations to meet their
Barriers to entry determinants include: own needs.
Economies of Scale – high volume of production
to achieve certain level of revenue Sustainable Development
Product Differentiation – the more unique a  Concept of needs, in particular the essential
product or service, the less is the threat of new needs of the world’s poor, to which
entrants as it is harder to take market share aware overriding priority should be given.
from established brands  Idea of Limitations, imposed by the state of
Capital Requirement – industries that are capital technology and social organization on the
intensive requires a large initial investment to environments ability to meet present and
deter new players future needs
Government Policies – may ease or restrict new
players from entering an industry. Pillars of Sustainable Development
Resource Exclusivity - Exclusive rights to  SOCIAL PILLAR- Referred to as people
resources or technologies pillar, refers to the community and everyone
Industry Growth Rate – firms are encouraged in it – households or parts of social groups.
by high profit potential. An industry that Business must earn support from all its
experience a steady and high growth attracts new stakeholders to be sustainable.
players.  ENVIRONMENTAL PILLAR- Referred
to as the planet pillar, refers to the
Threats of Substitutes environment and natural resources.
 This factor analyzes the effect of substitutes Following the concept of scarcity, natural
on the competitiveness of the industry resources have to be utilized efficiently to
players. Substitutes are goods or services satisfy the needs of the present and still have
that satisfy the same consumer needs as enough for the future.
another goods or service  ECONOMIC PILLAR- Refers to the
 Consumers shifting to the use of other goods effective management of organizations in
and services impacts sales thus affecting the order to continue operations. Sometimes
competitive structure of the industry. The referred to as the profit pillar, because
 business has to be profitable to be impacts of projects and developments, and
sustainable legislations on society is weighed and
measured
Economic Pillar The study aims to answer two primary concern:
 A development that takes consideration the  Does the plan of action benefit all segments
impact on the society and environment can of the community, and if not, which group
be described as livable. stands to benefit the most?
 A project that takes into account the effect  Is the benefit for long term?
on the environment alongside economic Steps in conducting an SEI Study
growth is said to be viable.  DFEINE THE SCOPE OF THE STUDY
 A development that primary considers the The size and scope of the study should first be
different segments of the society alongside defined. It is necessary to properly identify the
potential profits is considered equitable. social groups that are potentially impacted by a
Equity, in economics, rest on the idea of development or project because they will affect
fairness or just treatment of all individuals the components of the study.
and groups of society  IDENTIFY THE DATA COLLECTION
METHODOLOGY
2030 Agenda for Sustainable Development Surveys - Questionnaire (Pen and Paper), Poll
 The UN Division for Sustainable Questions (Single Question answerable by Yes or
Development under the Economic and Social No), Customer Satisfaction Survey (Customer
Affairs, oversees the implementation of the Feedback)
2030 UN Agenda for Sustainable Interviews – Face-to-Face, Phone
Development – a shared blueprint for peace Focus Group Discussions – 8-12 participants
and prosperity for people and planet, now ANALYZE THE DATA AND PRESENT THE
and in the future, and at its very core, 17 RESULTS
Sustainable Development Goals, which are  After identifying proper tools and preparing
urgent calls for all countries in a global relevant materials for the study, it is time to
partnership. conduct the actual data gathering.
Afterwards, feedback and reactions are
Welfare Economics analyzed and meaningful assessments are
 Branch of economics that deals with the concluded. This is when you formulate
policies centered on improving individual recommendations and strategies on how to
welfare and social well-being through drive planned developments.
judgement and ideals.
Defined as Social Utility
 Utility refers to an individual’s satisfaction
level based on personal judgement. Social -KimC
Utility is combined utility of all individuals
in the society.
Equity and Efficiency
 Welfare economics is at the core of
sustainable development objectives where
the social good is given much importance as
development and economic growth. It serves
as a guide in measuring the effectiveness of
government policies generally aimed at
improving social welfare.
 Equity and Efficiency are fundamental
concepts in the study of social welfare.
While equity is all about social fairness,
efficiency is the optimal use of resources.

Socio Economic Impact Study

 In line with the growing concern for
sustainability, businesses and institutions are
encourage to conduct a socioeconomic
impact (SEI) study of any venture or public
program.
 An SEI study is a type of cost-benefit
analysis in which the positive and negative