Applied Economics Quarter 1 – Module 1 PDF

Applied Economics Quarter 1 – Module 1: Nature and Scope of Economics DO_Q1_AppliedEconomics_Module1 Applied Economics Alternative Delivery Mode Quarter 1 – Module 1: Nature and Scope of Economics First Edition, 2020 Republic Act 8293, section 176 states that No copyright shall subsist in any work of the Government of the Philippines. However, prior approval of the government agency or office wherein the work is created shall be necessary for exploitation of such work for profit. Such agency or office may, among other things, impose, as a condition, the payment of royalties. Borrowed materials (i.e., songs, stories, poems, pictures, photos, brand names, trademarks, etc.) included in this module are owned by their respective copyright holders. Every effort has been exerted to locate and seek permission to use these materials from their respective copyright owners. The publisher and authors do not represent nor claim ownership over them. Published by the Department of Education Secretary: Leonor Magtolis Briones Undersecretary: Diosdado M. San Antonio Development Team of the Module Writers: Gina R. Nipas and Flory Vic C. Taneo Editors: John Rainier G. Eusebio Language Editor: Lilia H. Jaime, Principal III, Maysan National High School Illustrator: Layout Artist: Mary Antoinette N. Bien, Aljhun L. Genova Management Team: Meliton P. Zurbano, OIC-SDS, ASDS Filmore R. Caballero, CID Chief Jean A. Tropel, EPS in Charge of LRMS Marilyn B Soriano, Division Mathematics Coordinator Printed in the Philippines by ________________________ Department of Education – NCR SDO Valenzuela Office Address: Pio Valenzuela St., Marulas, Valenzuela City Telefax: (02) 292-3247 E-mail Address: [email protected] ii Applied Economics Quarter 1 – Module 1: Nature and Scope of Economics TABLE OF CONTENTS Lesson 1..................................................... 1 Nature of Economics Lesson 2..................................................... 5 Utility and Application of Applied Economics to Solve Economic Issues and Problems Lesson 3..................................................... 11 Market Supply Lesson 4..................................................... 15 Market Demand Lesson 5..................................................... 19 Market Equilibrium Lesson 6..................................................... 22 Implications of Market Pricing on Economic Decision Lesson 7..................................................... 27 Market Structure Lesson 8..................................................... 33 Contemporary Economic Issues Affecting Filipino Entrepreneurs References................................................... 38 iv Lesson 1 Nature and Scope of Economics What I Need to Know In this lesson the students are expected to gain competence in differentiating Economics as Social Science and Applied Science in terms of nature and scope. Expected Learning Outcome/s: 1. Explain the meaning of Economics. 2. Recognize the difference of Economics as Social Science and as Applied Science in terms of nature and scope 3. Show appreciation on the importance of Economics in our daily life. What I Know Identify the following statements. Choose your answer from the table. Applied Economics Economics Scarcity Applied Science Limited resources Social Science Econometrics Oikonomia Theory Economics Natural Resources Unlimited wants needs ____________ 1. It is a branch of science that deals with the study of human societies and its relationship among individuals within those societies. ____________ 2. It is the application of statistical and mathematical theories to economics for the purpose of testing hypothesis and forecasting future trends. _____________3. This is done through the application of economic theories and econometrics in specific settings. _____________4. This is the proper allocation and efficient use of available resources for the maximum satisfaction of human wants. _____________5. This is a well substantiated explanation of some aspect of the natural world. _____________6. It means household management. _____________7. It is a discipline that is used to apply existing scientific knowledge to develop more practical applications. _____________8. It seeks to explain how society deals with the scarcity problem. 1 _____________9. 9 and 10 - These are the two underlying conditions that leads to household. What’s In The word Economics came from the Greek word Oikonomia meaning household management. The problem of managing the household arises from two basic conditions: First, resources are limited; second, wants and needs of members of the household are unlimited. Thus, the one who manages the household must allocate the resources efficiently so that the needs of the household will be met as desired. This lesson dwells on the definition of economics, and on the nature and scope of Economics as Social Science and as Applied Science. What’s New Economics is defined as a Social Science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations make choices on allocating resources to satisfy their wants and needs, trying to determine how these groups should organize and coordinate efforts to achieve maximum output. (Chappelow, 2019) Social Science is the scientific study of society--of human behavior and of social interactions. (Amos Web, 2020) Applied Science is a discipline that is used to apply existing scientific knowledge to develop more practical applications. (Aquino, 2017) Applied Economics is the study of observing how theories work in practice. This is done through the application of economic theories and econometrics in specific settings. (Cullen, 2017) Theory is a well substantiated explanation of some aspect of the natural world, an organized system of accepted knowledge that applies in a variety of circumstances to explain a specific set of phenomena. Some economic theories include Consumerism, Keynesianism, Liberalism, Malthusianism, Monetarism and others. (Mizpa, 2017) Econometrics is the application of statistical and mathematical theories to economics for the purpose of testing hypothesis and forecasting future trends. (Cullen, 2017) 2 What Is It Economics is considered a Social Science because it seeks to explain how society deals with the scarcity problem. It is one of several disciplines that apply the scientific method to the study of human behavior. The social part of this phrase means the study of society, human behavior, and social interactions; while the Science part means the use of the scientific method to describe and explain the world. (Amos Web, 2020). The term used to mean Economics as Applied Science is Applied Economics. Applied Economics applies the economic theories and principles to real world situations with the objective of predicting potential outcomes. Thus, it can lead to making a list of possible steps to be taken to ensure stability in real world events. The results of econometrics are compared and contrasted against real life examples. The real life application of econometrics would be to study the hypothesis, like “as the person’s income increases, spending increases.” (Cullen, H. 2017) On the other hand, Applied Economics is the study of observing how theories work in practice. This is done through the application of economic theories and econometrics in specific settings. Thus, it can lead to making a list of possible steps to be taken to ensure stability in real world events. What’s More Identify whether the following statements show the nature and scope of Economics as Social Science or as Applied Science. 1. As price of gasoline increases, consumers reduce their consumption of gasoline. 2. The government formed the AITF to formulate measures to combat the CoVID 19 Pandemic. 3. With the influence of Korean culture, sangyeupsal restaurants are growing in the market. 4. Price of alcohol, facemask and face shield increases due to increasing demand. 5. As the government announced the community quarantine due to CoVID 19 Pandemic, out of fear, a lot of buyers rushed to grocery stores to buy goods in bulk quantity. What I Have Learned 1. The word Economics came from the Greek word Oikonomia meaning household management. The problem of managing the household arises from two basic conditions: First, resources are limited, and second, wants and needs of members of the household are unlimited. 2. Economics is considered a Social Science because it seeks to explain how society deals with the scarcity problem. It is one of several disciplines that apply the scientific method to the study of human behavior. The social part of this phrase means the study of society, human behavior, and social interactions. The science part means the use of the scientific method to describe and explain the world. 3 3. Applied Economics applies the economic theories and principles to real world situations with the objective of predicting potential outcomes. Thus, it can lead to making a list of possible steps to be taken to ensure stability in real world events. What I Can Do Read and analyze the article below, then answer the given questions. Article 1: On the report posted by The Asian Team on April 1 2020, they reported that in La Trinidad, precautions against the spread of COVID-19 have made it tough for farmers to deliver vegetables as they have to stop at several checkpoints before queuing at two trading posts to wait for buyers. More time on the road leads to poor quality of leafy vegetables, thus reducing their value. Local rice farmers in the Philippines are encouraged to sell their harvest to village officials so rice distribution would remain unhampered in their respective communities. (Source: https:/ /theaseanpost.com/article/virus-sparks-food-shortage-philippines) Question: Explain the nature and scope of Economics as Social Science on the above article. Article 2: On the report written by Anna Malindog-Uy on The Asian entitled “Is the Philippines Winning Its COVID 19 Fight?” dated May 31. 2020, she reported that the government of the Philippine launched a multi-sectoral response to the COVID-19 pandemic through its Interagency Task Force (IATF) on Emerging Infectious Diseases chaired by the Department of Health (DOH). The Philippine government has adopted a suppression strategy through the use of non-pharmaceutical health (NPH) measures (i.e. social distancing, wearing of face masks, quarantines, etc.) to control the spread of the virus in the country. These measures are embodied in the Philippine government’s National Action Plan (NAP) Against COVID-19 strategic framework, which includes strategies such as TASK FORCE T3 (Test, Trace and Treat) and PDITRA or Prevention, Detection, Isolation, Reintegration, and Adopting the New Normal Program. (Source: https:// theaseanpost.com/ article/philippines- winning-its-covid-19-fight) Question: Explain the nature and scope of economics as Applied Science on the above article. Assessment Modified True or False: Instruction: Write the word TRUE if the statement is correct; otherwise, change the UNDERLINED word. Write your answer on the spaces provided. ____________ 1. The social part of Economics is that it uses scientific method to describe and explain the world. 4 _____________ 2. Determining the demand for a certain commodity at a given price level requires econometrics. _____________ 3. Using Applied Economics, possible outcomes may be predicted. _____________ 4. Economics is considered as Applied Science because if seeks to explain how society deals with the scarcity problem. _____________ 5. Scarcity took place because of human’s unlimited needs and wants while resources are limited. _____________ 6. Theory is a well substantiated explanation of some aspect of the natural world. _____________ 7. Using Applied Economics, household, business firms, organizations and government could be able to draw measures to be taken to ensure its stability. _____________ 8. Economics is considered a Social Science because it seeks to explain how society deals with the scarcity problem. _____________ 9. The household has limited wants and needs, the reason why there is a scarcity. ____________ 10. Being enrolled in an on-line class, acquiring a smartphone is considered a want. Additional Activity My Family’s Budget Draw a pie chart showing the distribution of your family’s income. Indicate the amount or percentage allotted for each expense. Answer the following: 1. In what expenditure do your family spend a) most and b) least? Why? 2. What problems did your family experience in allocating your budget? 3. How do your family settle your budgeting issues? 4. What factors do you consider in solving the problem? 5. Describe how the nature and scope of Economics as Social Science and as Applied Science works within your family’s utilization of resources. Lesson Utility and Application of Applied 2 Economics to Solve Economic Issues and Problems What I Need to Know At the end of this module, learners are expected to gain competence in examining the utility and application of Applied Economics in solving economic issues and problems. 5 Expected Learning Outcome/s: 1. Discuss the five basic economic problems. 2. Illustrate the scientific method of solving an economic problem. 3. Show appreciation on the importance of the application of applied economics to solve economic problems. What I Know AGREE OR DISAGREE: Write the word AGREE if the statement is true; otherwise, write the word DISAGREE. _________ 1. The method used in production affects production capacity. _________ 2. Economic advantage is the universal objective of every economy. _________ 3. One of the fundamental problems of economy is what to produce. _________ 4. Economic resources include capital, land, labor and entrepreneur. _________ 5.The use of Applied Economics in solving economic problem becomes a powerful tool to conceal the true and complete situation in order to come up with things to do. _________ 6. The central problem of economy is production. _________ 7. When resources are scars, it is alright to keep some idle. _________ 8. Scarcity and choice go hand in hand. _________ 9. In solving economic problem once the result is negative it simply means the solution will never work out therefore, the problem has no solution. ________ 10. Testing hypothesis is the most critical stage in scientific method of solving economic problem. What’s In Scarcity of means for satisfying various needs is the central problem of our economic life. It is scarcity that creates the need to make a choice. Thus, scarcity and choice go hand in hand. In making an economic decision, one should apply the concept of Applied Economics to ensure that resources are utilized effectively and efficiently to avoid or at least eliminate wastage in providing the needs and wants of every household. In this lesson, the students will learn how to utilize and apply the concept of Applied Economics in solving economic issues and problems. What’s New Scarcity is a tension between our limited resources and our unlimited wants and needs. (Cullen H., 2017) 6 What is It Five basic economic problems of the economy Source: https://www.economicsdiscussion.net/economic-problems/5-basic- problems-of-an-economy-with-diagram/18173 1. What to produce and in what quantities? - Goods and services must be based on the needs of the consumers. 2. How to produce these goods? - The system must select the proper combination of economic resources (land, entrepreneurs, labor, capital and foreign exchange) in producing the right amount of output. 3. For whom shall the goods and services be produced? - Once the goods are produced, how shall they be distributed and allocated among the members of the society? 4. How efficiently are the resources being utilized? - The society has to see whether the resources it owns are being utilized fully or not. It has to find out ways and means to utilize them fully. 5. Is the economy growing? - To achieve growth in productive capacity is a universal objective. Economic growth takes place through higher rate of capital formation which consists of replacing existing capital goods with new and more productive ones by adopting more efficient production techniques or through innovation. All these central problems of an economy are interrelated and interdependent. Economics, as a science, in order to study data, observe patterns, and predict results of stimuli. Economics follows these steps in order to study data and build principles. Lumen Learning on Boundless Economics cites specific steps that must be followed when using the scientific method Source: https://courses.lumenlearning.com/ boundless-economics/chapter/ economic-models/ 1. Identify the problem – it involves determining the focus or intent of the work. 2. Gather data – Economics involves extensive amounts of data. For this reason, it is important that economists break down and study complex information. The second step of the scientific method involves selecting the data that will be used in the study. 3. Hypothesis – this involves creating a model that will be used to make sense of all of the data. A hypothesis is simply a prediction. What does the economist think the overall outcome of the study will be? 4. Test hypothesis – this is a critical stage within the scientific method. The observations must be tested to make sure they are unbiased and reproducible. 7 5. Analyze the results – does the data agree with the hypothesis? If the answer is “yes,” then the hypothesis is accurate. If the answer is “no,” then adjust the study accordingly. A negative result does not mean that the study is over. It simply means that more work and analysis is required. In solving economic issues and problem, the application of Applied Economics is important to ensure the effectiveness and efficiency of the solution to be employed. Cullen. H (2017) shared the following importance of Applied Economics application: Source: https://www.slideshare.net/HannahCullen/lesson-2-economics-as-an- applied-science 1. Applied Economics becomes a powerful tool to reveal the true and complete situation in order to come up with things to do. 2. Applied Economics acts as a mechanism to determine what steps can reasonably be taken to improve the current economic situation. Examining each aspect of the current economic situation may help in identifying the areas that need to be strengthened where performance is weak. 3. Applied economics can teach valuable lessons on how to avoid the recurrence of negative impact. What’s More Identify the following statements. Choose your answer from the box. Analyze the result Is the economy growing? Economic growth Needs of the consumer For whom shall the goods and services Scarcity be produced? Simple consumer goods Gather data Test hypothesis How to produce these goods? Type and quality of goods Identify the problem _____ 1. In scientific way of problem solving, this stage requires observation. _____ 2. The universal objective of every economy. _____ 3. Small and less expensive machines and simple techniques is suited for ________ goods. _____ 4. This is the basis for deciding on what goods and services to produce. _____ 5. This is the root of all economic problems. _____ 6. An economic problem where proper combination of economic resources must be decided. _____ 7. In scientific method of problem solving, this involves determining the focus of the study. _____ 8. The economic problem that has something to do with distribution of goods and services. _____ 9. In scientific method of problem solving this is where the economist breaks down and study complex information. _____ 10 These serve as basis for deciding the right method and techniques to be. used in production. 8 What I Have Learned Scarcity of means for satisfying various needs is the central problem of our economic life. Because of scarcity, the economy is facing different problems such as: what to produce and in what quantities?; how to produce the goods?; for whom shall the goods and services be produced?; how efficiently are the resources being utilized?; and, is the economy growing? The use of applied economics is important to determine what steps can reasonably be taken to improve the current economic situation. Doing so, the scientific way of solving a problem and issue is applied. The steps are: identify the problem, gather data, present a hypothesis, test the hypothesis and analyze the result. What I Can Do My Business Opportunity Amidst Covid 19 Pandemic Assuming that you are an entrepreneur, what business opportunity would you find worth investing in during the COVID 19 pandemic? Identify your business opportunity by completing the diagram. What is the name of good/service good/service? description of the How will you use good/service the resources efficiently? strategy of using the How to produce resources efficienty resources needed the good/service? method and technique of How the product may contribute to 1. the economy? 2 For whom is the target customer good/service? how they will be distributed Question: How did you apply the concept of Applied Economics in identifying your business opportunity? Assessment Multiple Choices: Choose the letter of the correct answer and write it down on the space provided for in each item. _______ 1. This economic problem has something to do with the allocation of goods and services among the members of society. a. What to produce and in what quantity? b. How to produce the goods/services? c. For whom shall the goods and services be produced? d. How efficiently are the resources being utilized? _______ 2. This is the central problem of our economic life? a. Product/service b. Population c. Resources d. Scarcity 9 _______ 3. In solving economic problem, this involves thinking about the overall outcome of the study: a. Identifying the problem c. Hypothesis b. Gather Data d. Test hypothesis _______ 4. Scarcity and ______ go hand in hand. a. Choice b. Solution c. Problem d. Resources _______ 5. The following are economic resources, EXCEPT one. a. Land b. Capital c. Manpower d. Time _______ 6. Which one is the factor that must be considered in identifying the goods or services to produce? a. required quantity c. price b. product description d. availability of resources _______ 7. The following describe the importance of applying Applied Economics in solving an economic problem, EXCEPT one. a. It creates problem and solution to a given situation. b. It becomes a powerful tool to reveal the true and complete situation. c. It acts as mechanism to determine what steps can reasonably be taken. d. It can teach valuable lesson on how to avoid the recurrence of a negative situation. _______ 8. What is the universal objective of every economy? a. Increase the production c. Economic growth b Efficient use of resources d. Elimination of scarcity _______ 9. Clarisse conducted a research to determine the causes of the problem and its environmental conditions. Which step of solving a problem will Clarisse perform? a. Identifying the problem c. Gather data b. Analyzing data d. Test hypothesis ______ 10. If Zac is observing to find out the effectiveness of his economic model, which step of problem solving is Zac doing? a. Gather data c. Test hypothesis b. analyze the result d. identifying the problem Additional Activities Job for Filipino People! Unemployment is one of the economic problems of our county. Assuming that you are a leader of our country how will you solve this problem? Recommend a solution following the process of scientific method of solving economic problem. Reflection: Complete the statement: The application of Applied Economics is helpful in solving economic problem because …. As individual I can apply the concept of applied economics in my daily life by means of … 10 Lesson 3 Market Supply What I Need to Know In this lesson the learners will gain competency in analyzing the market supply. Expected Learning Outcome/s: 1. Define market supply. 2. Explain the law of supply. 3. Analyze the effect of factors that affect market supply. 4. Show appreciation on the importance of analyzing the market supply. What I Know Agree or Disagree: Write the word AGREE if the statement is correct and DISAGREE if it is not. 1. Sellers are encouraged to sell more if the price of goods in the market is high. 2. The cost of inputs has something to do with the willingness of sellers to supply. 3. Sellers believe that offering goods at a higher price brings them a greater profit. 4. Related goods are goods of the same kind. 5. Government policies may affect the supply for goods and services. What’s In The law of supply is a fundamental economic law and it is tied up into almost all the economic principles in some ways. Determining the factors that affect supply is vital in analyzing the economic situation. What’s New Market Supply is the total quantity of a good or service all producers are willing to provide at the prevailing set of relative prices during a defined period of time. Law of Supply represents the direct relationship between price and quantity supplied. It means that when the price of good or services rises, supply increases and if the price of good or services falls, supply goes down. 11 What Is It Market supply is the summation of the individual supply within a specific market where the market is characterized as being perfectly competitive. As stated on the law of supply, there is a direct relationship between price and quantity supplied meaning as price increases, quantity increases due to low barriers to entry, and as the price falls, quantity decreases. Some firms may even opt out of the market. Listed below are the factors that affect market supply according to Lumen Learning on Boundless Economics. Source: https://courses.lumenlearning.com/boundlesseconomics/chapter/supply/ Factors Affecting Market Supply 1. Good’s own price: An increase in price will induce an increase in the quantity supplied. 2. Prices of related goods: Related goods refer to goods from which inputs are derived to be used in the production of the primary good. 3. Conditions of production: The most significant factor here is the state of technology. If there is a technological advancement related to the production of the goods, the supply increases. 4. Seller’s expectations: Sellers’ expectations concerning future market conditions can directly affect supply. 5. Price of inputs: If the price of inputs increases the supply curve will shift left as sellers are less willing or able to sell goods at any given price. 6. Number of suppliers: As more firms enter the industry, the market supply curve will shift out, driving down prices. 7. Government policies and regulations: Government intervention can take many forms including environmental and health regulations, hour and wage laws, taxes, electrical and natural gas rates and zoning and land use regulations. These regulations can affect a goods’ supply. What’s More Fill in the blanks. 1. As price of goods and services rises, quantity supplied _______________________. 2. _________________________ is the total quantity of a good or service all producers are willing to provide at the prevailing set of relative prices during a defined period of time. 12 3. ________________________ represents the direct relationship between price and quantity supplied. 4. There is a ___________________ relationship between price and quantity supplied. 5. If there is a technological advancement related to the production of the good, the supply _____________________________ What I Have Learned Multiple factors can affect both supply causing them to increase or decrease in various ways. None-price determinants of supply includes prices of related goods, conditions of production, seller’s expectations, price of inputs, number of suppliers and government policies and regulations. What I Can Do Situation Analysis: Instruction: Identify the factor that may affect the supply for the underlined goods on the following situation. Then analyze how it may affect the supply and give your reason. Write your answer in the appropriate cell. Factor that Effect on Reason Situation affects supply supply (increase or decrease) 1. The government imposed excise tax on alcoholic beverages. 2. The price of wheat flour used as main ingredient for cakes and bread increases. 3. Pork supply in the market as African Swine Fever strikes hog farms. 4. Supply of liquor as demand for disinfectant increases. 5. Supply of notebook as the education system adapted the distance learning modality. 13 Assessment Multiple Choices: Write the letter of your choice on the spaces provided before the number of each item. _____1. Assuming that a typhoon devastated the rice farm in Central Luzon, what will happen to the price of rice after few days assuming other factors remain constant? A. Price will decrease B. Price will remain the same C. Price will increase D. No change in price _____2. Products which are consumed together with the other product are called _______ goods. A. Alternative goods B. Substitute good C. Combined goods D. Complementary goods _____3. Which of the following may affect market supply? A. Income B. Taste and preferences C. Technology D. Number of buyers _____4. What factor affecting supply made Marilou reduce her production quantity as the price of main ingredient of her product rose? A. Cost of production B. Number of suppliers C. Technology D.Seller’s expectation to future price _____5. As price of commodity increases, suppliers are attracted to sell more while buyers tend to ____________. A. Increase their consumption B. Maintain their consumption C. reduce their consumption D. Not to consume Additional Activity Instruction: 1. Cut out a news article related to supply of goods in the market at present and paste it on a bond paper. 2. Give your reaction towards the issue. 3. Explain how the law of supply applies on the issue. 14 Lesson Market Demand 4 What I Need to Know In this lesson the learners are expected to gain competence in analyzing the market demand. Expected Learning Outcome/s: 1. Define market demand, 2. Explain the law of demand. 3. Analyze the effect of factors that affect market demand. 4. Show appreciation on the importance of analyzing the market demand. What I Know Yes or No: Write the word Yes on the blank if the statement is correct and No if it is not. ______ 1. As price of good increases, buyers tend to buy more of it. 2. If the price of good is high, buyers may shift to its substitute. 3. The willingness of buyers to buy goods may change without changing its price. 4. If seller will give a discount in the future, the demand for good increases at present. 5. Demand for goods varies as population changes. What’s In Another fundamental economic law that is in some ways tied up into almost all the economic principle is the law of demand. Determining the factors that affect demand is vital in analyzing the economic situation. What’s New Market Demand is the sum of the demands of all consumers. Law of Demand represents the inverse relationship between price and quantity demanded. It means that when the price of good or services rises, demand decreases and if the price of a good or services falls, demand goes up. 15 What Is It Market demand is the number of good and services required by a group of people in a given market. Price and demand are closely related: applying the law of demand, the lower the price, the greater the demand and vice versa. However, multiple factors can affect market demand causing them to increase or decrease in various ways. Source: https://inflateyourmind.com/macroeconomics/unit-2/section-6-demand- determinants/ Determinants of Demand 1. A change in buyers’ real incomes or wealth: When buyers’ incomes change, we distinguish between two products: normal goods and inferior goods. The demand for normal goods increases if buyers experience an increase in real incomes or wealth. However, some products may experience a decrease in demand as buyers’ real incomes increase. These are inferior goods. 2. Buyers’ tastes and preferences: As a product becomes more fashionable or useful, its demand increases. As some products gain in popularity, others lose. Thus, the demand for the less popular products decreases. 3. The prices of related products or services: If the price of a substitute decreases, then the demand for the other product decreases (and vice versa). A related good can also be a complementary product. This is a product consumed along with another product. If the price of a complementary product decreases, the demand for the other product increases (and vice versa). 4. Buyers’ expectations of the product’s future price: This increases current demand. This will have the eventual effect of actually increasing the real price in the short run (an increase in demand increases the price). 5. Buyers’ expectations of their future income and wealth: When buyers expect their income or wealth to increase, they will increase their demand for normal products and decrease their demand for inferior products, and vice versa. Many people anticipate their future increased (or decreased) incomes by changing their consumption habits now. 6. The number of buyers (population) If the population of buyers of a certain product increases, we experience an increase in the demand for that product. With the aging of the Baby Boomers we can anticipate a rise in the demand for products that senior citizens typically purchase (insurance, health care, travel, nursing care). If we experience another baby boom in the future, the demand for baby products will increase again. What’s More Fill in the blanks. 1. When consumers think that product prices will increase in the future, the demand for product at this time will _____________. 2. Goods that have reduced demand in spite of increasing incomes are known as ________________ 16 3. ________________________ is the sum of demand for goods and services that consumers are willing to pay at each price point. 4. The demand for a ________________________ increases if buyers experience an increase in real income. 5. ___________________________ is a product consumed along with another product. What I Have Learned Multiple factors can affect market demand causing them to increase or decrease in various ways. Non-price determinants of demand includes: a change in buyers’ real incomes or wealth, buyers’ tastes and preferences, the prices of related products or services, buyers’ expectations of the product’s future price, and the number of buyers What I Can Do Situation Analysis: Instruction: Identify the factor that may affect the demand for the underlined goods on the following situation. Then analyze how it may affect the demand and give your reason. Write your answer in the appropriate cell. Factor that Effect on Reason Situation affects demand demand 1. TV set - Marilou got promoted in her job, as a result, her salary increased. 2. Shoe - There will be a mall wide sale next month. 3. Automatic washing machine is now available in the market. Mary, a busy working mom considers buying it. 4. Chicken - African Swine Flu strikes hog farms. 5. Plant pots - A lot of people stayed at home due to community quarantine. 17 Assessment Multiple Choices: Write the letter of your choice on the spaces provided before the number of each item. 1. 1. The law of demand refers to the: A. Positive relationship between price and quantity demanded. B. Positive relationship between quantity supplied and quantity demanded C. Inverse relationship between price and quantity demanded D. Inverse relationship between quantity supplied and quantity demanded 2. Which of the following is a factor that affects demand? A. Number of sellers B. Cost of production C. Taxes D. Income 3. There will be a Rainy Season Mall-Wide Sale at the end of this month. What is the factor considered by Jane in her plan of buying a bag during the sale period? A. Season B. Expectation to future price C. Quality of product D. Taste and Preferences 4. What may happen to the demand if buyers expect that their income will increase? A. the demand for normal good will increase B. the demand of inferior good will increase C. the demand for normal good will decrease D. demand for goods will remain the same 5. If the price of butter, a complementary product of loaf, increase, the demand for loaf may ______. A. increase B. decrease C. remain constant D. none of these Additional Activity Instruction: 1. Cut out a news article related to demand for goods in the market at present and paste it on a bond paper. 2. Give your reaction towards the issue. 3. Explain how the law of demand applies on the issue. 18 Lesson 5 Market Equilibrium What I Need to Know In This lesson the learners will gain competency in analyzing the equilibrium Expected Learning Outcome/s: 1. Define surplus and shortage 2. Explain market equilibrium 3. Show appreciation on the importance of analyzing the market equilibrium in making economic decision. What I Know True or False: Write the word TRUE if the statement is correct and FALSE if it is not. ________1. If the demand for goods is greater than its supply, there will be an excess supply. ________2. If the price of good is high, buyers may shift to other similar goods. ________3. The willingness of buyers to buy goods may change without changing its price. ________4. Price is the first determinant of demand and supply. ________5. If the supply of good is greater than its demand, price will decrease. What’s In When the price of good or services rises, supply increases; however, its demand goes down. Supply and demand pull against each other until the market finds an equilibrium price. In this lesson the learners will understand how the market can be at the state of equilibrium. What’s New Market Equilibrium is a market state where the supply in the market is equal to the demand in the market. Equilibrium Price is the price of a good or service when the supply of it is equal to the demand for it in the market 19 What Is It If the price of goods or service in the market is above the equilibrium, there will be more supply than demand resulting to an excess supply or surplus. In this situation, sellers will tend to lower their price, slow down or reduce their production or stop ordering from suppliers. The lower price attracts more consumers to buy, however discourage the sellers to supply. This process will result in increasing demand and decreasing supply until the market price equals the equilibrium price. If the market price is below the equilibrium value, current demand is greater than supply resulting to an excess demand or shortage. In this case, buyers will bid up the price of the good or service in short supply in order to obtain it. As the price goes up, enticed sellers will start to supply more of it. However, some buyers might quit because they don't want to, or cannot pay the higher price. Eventually, the upward pressure on price and supply will stabilize at market equilibrium. Equilibrium Price and Quantity Surplus = quantity supplied is greater than quantity demanded Equilibrium Quantity: 20 Equilibrium Price: P6 Shortage = quantity supplied is less than the quantity demanded Importance of Supply and Demand Analysis Woodruff (2018) expressed that all business managers and consumers use supply and demand analysis to make decisions. Business owners analyze the factors that affect supply and demand curves to determine what volume to produce and how to price their products. Consumers make buying decisions, either consciously or instinctively, based on their wants and needs and perceived value received at particular price points. What’s More Fill in the blanks. 1. ___________ is the price/quantity point where consumers and producers are satisfied with their decision, and the market is in balance. 2. Low supply and high demand ______________ price. 3. If quantity supplied is greater than the quantity demanded there will be ____________. 20 4. If quantity demanded is greater than its supply the result is _______________. 5. _________is the price of a good or service when the its supply is equal to the demand for it in the market. What I Have Learned The law of supply and demand is a theory that explains the interaction between the seller and buyer of goods and services. Generally, low supply and high demand increases price and vice versa. Supply and demand pull against each other until the market find an equilibrium price. What I Can Do Price Demand Supply 50 500 2000 45 750 1800 40 1000 1750 35 1200 1500 30 1350 1350 25 1550 1200 20 1700 1050 15 1850 850 10 2000 600 5 2100 400 Instruction: Draw a demand and supply curve for the market demand and supply schedule below. Then, answer the following questions 1. What is the equilibrium quantity? 2. What is the equilibrium price? 3. At what price does market start to have a surplus? 4. At what price does market start to have a shortage? Assessment Multiple Choices: Write the letter of your choice on the spaces provided before the number of each item. ________1. Market equilibrium exists when quantity supplied is _________ than/to the quantity demanded. A. Greater B. Equal C. Less D. Over ________2. What is the result if market demand is greater than market supply? A. Surplus B. Shortage C. Market Equilibrium D. Free Enterprise 21 ________3. As price of commodity increases, suppliers are attracted to sell more while buyers tend to ____________. A. Increase their consumption B. Maintain their consumption C. reduce their consumption D. Not to consume ________4. What is the result if market supply is greater than market demand? A. Surplus B. Shortage C. Market Equilibrium D. Free Enterprise ________5. Price of goods tends to ___________ if there is an excess supply. A. rise B. drop C. remain constant D. either A or B Additional Activity Disinfectant Alcohol’s Demand, Supply and Price During Pandemic Instructions: 1. Describe the interaction of demand, supply for disinfectant alcohol before and now that there is a pandemic. 2. Explain the relationship of demand and supply to the price of disinfectant alcohol before the pandemic, on the first month of lockdown, and as of this time. Lesson Implications of Market Pricing on 6 Economic Decision What I Need to Know Why is the study of market pricing important? Primarily, market pricing is one of the first considerations for many customers and it determines the profit margin on products. Secondly, pricing is an important decision-making aspect after the product is manufactured. Finally , through knowledge and understanding, the customer may base his final buying decision on the over all benefits offered by the product. As you read this learning pathways you will be equipped with informed concepts in market pricing and be able to demonstrate understanding on different conditions concerning the effects or possible results on market pricing on economic decision. Expected Learning Outcome/s: 1. Define market pricing 2. Explain the market pricing on economic decision 3. Demonstrate understanding of market pricing on economic decision 22 What I Know Multiple Choice Instruction: Encircle the letter of your best answer. 1. It is a way of finding a competitive price of a product or a service. A. Marketing Strategy C. Finding Competitive B. Pricing Strategy D. Market Demand 2. Choosing the right price of the product will allow you to ___ A. Maximize profit margins C. Decrease Profit Margin B. Crippling your company D. Exceed Cost 3. A kind of pricing strategy used to impose high rates during initial phase then lowers the price gradually as competitor goods appear in the market. A. Economy Pricing C. Price Skimming B. Geographical Pricing D. Premium Pricing 4. Mang Juan is taking advantage of selling leather jackets at a higher price during cold days. A. Economy Pricing C. Price Skimming B. Geographical Pricing D. Premium Pricing 5. A kind of strategic pricing used to expand business across international line. A. Value Pricing C. Captive Pricing B. Geographical Pricing D. Psychological Pricing What’s In Market price is the economic price for which a good or service is offered in the market place. It is of interest mainly in the study of microeconomics only under conditions of market efficiency, equilibrium and rational expectations. Market Efficiency measures information dispersion in a market. It does not tell the value of an asset its true price. It only says that it is impossible to consistently estimate whether the asset price will move up or down. Equilibrium is a situation in which economic forces such as supply and demand are balanced and in the absence of external influences the values of economic variables will not change. In this case, market equilibrium is a condition where a market price is established through competition such as the amount of goods. Rational Expectations - In Economics, rational expectations are models of consistent expectations as valid. To obtain consistency within a model, the predictions of future values of economically relevant variable from the model are assumed to be the same as that of the decision-makers in the model. The economic theory in the law of supply and demand states that the market price moves at a point where the forces of demands meet. Supply is defined as the numerical quantity of a tangible item that business, organizations and other institutions have for redistribution. Demand is the desire of the consumers for a specific product. 23 What’s New Importance of Pricing Strategies When it comes to business market, prices are everything. Prices are accountable for the decisions that producers and consumers make. Price is the value that is put to a product or service and is the result of a complex set of calculations, research and understanding and risk-taking ability. Pricing strategy takes into account segments, ability to pay, market conditions, competitor actions, trade margins and input costs. Different kinds of Pricing Strategies 1. Premium pricing: Price at the high rate set as defining criterion. Pricing strategies work in segments and industries where a strong competitive advantage exists for the company. 2. Penetration Pricing: Artificially low price to gain market share quickly. This is done when a new product is being launched. It is understood that prices will be raised once the promotion period is over and market share objectives are achieved. 3. Economy Pricing: no-frills price. It targets the mass market and high market share. 4. Price Skimming: high price is charged for a product till such time as competitors allow it, after which prices can be dropped. 5. Psychological Pricing- Refers to techniques that marketers use to encourage customers, to respond based on emotional impulses, rather than logical ones 6. Bundle Pricing: Sell multiple products for a lower rate than the consumers would face if they purchased each item individually. 7. Geographical Pricing: Involves setting a price point based on the location where its sold. 8. Promotional Pricing: Involves offering discounts on a particular product. 9. Value Pricing: Occurs when external factors, like a sharp increase in competition or a recession, force the small business to provide value to its customers to maintain sales. 10. Captive Pricing: Can increase prices so long as the cost of the secondary product does not exceed the cost that customers would pay to leave for its competitor. What Is It Let’s take a closer look at just how prices can affect the decision making for producers as well as consumers. Robert Dodge (1995) cited the following critical factors for making a decision 1. Setting a high price creates bigger margins which leads to increase profits. 2. With low prices the opposite happens: margins are reduced and there is less contribution from that particular product. 3. Premium prices may deflate demand resulting in less total profitability from sales of that particular product. 4. Too high a price can create an umbrella under which competitors can enter the market with lower prices and gain market share. 24 5. Too low a price compared with what the market is willing to pay can create what is called an opportunity cost, which may define as the difference between the higher price. ??? If you experience either of these scenarios, then you understand that prices have major effect on producers and consumers and the decisions that they make. What’s More How prices can affect the decision making for producers as well as consumers 1. Prices and Producers The law of supply states that the quantity of goods increases when the price decreases. The law of supply is a primary example of how pricing can affect decision making with producers. For example, Mang Jose works for a company that produces smartphones. The company he is working with has been made aware that a rival company will be introducing a newer smartphone in four months, which has the same features but at a lower cost. The company has chosen to lower the price of their current smartphone along with trying to sell it to other retail stores to try and get ahead of the competition. In anticipation of additional sales from the lowering prices, there must be additional supplies purchased. Price also affects producers because it relates to the cost of materials needed to produce a good. For example, you are the manufacturer of bags and the materials to create these bags are made from supplies such as cottons, yarns along with other fabrics. If the cost of supplies is high, then it affects your decision making because you must look on how many bags can be crafted. 2. Prices and Consumers Price has a direct effect on consumers. The law of demand states that when prices increase, the quantity of a good decreases. Prices affect consumer decisions by often providing low-cost generic alternatives to name brands. Sandeep Heda (2017) in his article entitled How Customers Perceive A Price Is an Important as the Price Itself shows how industries used price to position themselves against traditional competitors. According to him, what will boost their perceived value to consumers is to reduce prices either by cutting the listed price or offering a discount. A store with the same prices as a competitor would like to be seen as having lower prices, and a retailer with average prices that are 10% higher than a key competitor would love to be perceived as being only 5% higher. What I Have Learned Market pricing transactions in the market economy commonly functions based on the law of supply and demand. Best economic outcomes can be achieved through strategic market pricing. Pricing such as premium pricing, penetration pricing, economy pricing, price skimming, psychological pricing, bundle pricing, geographical pricing, promotional pricing, value pricing and captive pricing can be used in appropriate forms in different types of situations. 25 What I Can Do Vocabulary Enrichment Instruction: Define the following words and phrase 1. Market Price________________________________________________________________________ 2. Consumers_________________________________________________________________________ 3. Producers__________________________________________________________________________ 4. Law of supply ______________________________________________________________________ 5. Market Economy ___________________________________________________________________ 6. Supply ____________________________________________________________________________ 7. Demand ___________________________________________________________________________ 8.Market Efficiency___________________________________________________________________ 9. Equilibrium________________________________________________________________________ 10. Rational Expectations_____________________________________________________________ Assessment Matching Type: Match the items in Column A with the items in Column B. Column A Column B 1 States that the quantity of a good increases when the price Penetration decreases Pricing 2 When prices increase the quantity of a good decreases Skimming Strategy 3 Involves offering discounts on a particular product. Market Price 4 Pricing strategies work in segments and industries where a Law of supply strong competitive advantage exists for the company. 5 They control productive resources for profit Economy Pricing 6 Price is set artificially low to gain market share quickly Premium Pricing 7 Is the economic price for which a good or service is offered Market in the marketplace Efficiency 8 It only says that it is impossible to consistently estimate Entrepreneurs whether the asset price will move up or down. 9 High price is charged for a product till such time as Law of Demand competitors allow it, after which prices can be dropped. 10 Is the economic price for which a good or service is offered Promotion in the marketplace Pricing 26 Additional Activity Multiple Choices 1. If customers are price sensitive, the company should; a. Match the pricing of competitors b. Price above the competition c. Justify the pricing by explaining the benefits d. Do it in a haphazard way 2. If the product has an extra feature over the competitor’s product, the company could either; a. Price it to the highest amount b. Price it slightly for the additional feature c. Price a product base on a competition d. Price a product based on estimation 3.Aling Anita is a bag maker, her decision to produce was affected by the high-rate cost of the materials she used to craft bags, what decision making to belong as a duty??? a. Price and the Consumers b. Price and the Producers c. Pricing Competitors d. Buyers and sellers 4. It is a technique in setting price based on emotional impulses than logical ones. a. Psychological pricing b. Value pricing c. Product base d. Premium Pricing 5. Price affects producers because it relates to; a. Cost of materials needed to produce a good b. Income sharing of producers c. High demand of production d. Pursue profit Lesson 7 Market Structure What I Need to Know At the outset, students engage in a cognitive task upon which new understanding can be developed. This will help them achieve greater intellectual development in the form of deeper knowledge. It is also important that students understand the concepts and principle of market structure. Also enhanced personal efficacy occurs through action and reflection as students seek to achieve real objectives for deeper understanding. Expected Learning Outcome/s: 1. Define market structure. 2. Identify the different forms of market structure and its characteristics. 3. Understand the conditions for the existence of each market structure 27 What I Know Multiple Choice Instruction: Encircle the letter of your best answer. 1. This market structure means a single producer controls the whole supply of a single commodity. A. Monopolistic Competition B. Perfect Competition C. Oligopoly D. Monopoly 2. This market has 25-75 firms, selling slightly differentiated products and some prices are controlled. A. Monopolistic Competition B. Perfect Competition C. Oligopoly D. Monopoly 3. This market structure has 2-24 firms slightly differentiated products with high barriers to entry and high control over price. A. Monopolistic Competition B. Perfect Competition C. Oligopoly D. Monopoly 4. The following are the characteristics of Oligopoly except; A. Dominant B. Strict barriers C. High Concentration D. Differentiated in nature 5. Markets like automobiles, cellphones, cable TV, and internet providers are examples of which market structure? A. Monopolistic Competition B. Perfect Competition C. Oligopoly D. Monopoly 6. Which of the following is a source of Monopoly power? A. Smart Phones B. Lazada C. Maynilad D. National Steel Corporation 7. This market structure has easy entry and exit of products; A. Monopolistic Competition B. Perfect Competition C. Oligopoly D. Monopoly 8. These are labeled as public goods except; A. Social Security System B. Public Highways C. Education D. Restaurants 9. It has the same impact on the market as monopoly; A. Duopoly B. Duopsony C. Monopsony D. Oligopoly 10. Market failure happens when individuals create A. Irrational self- interest B. Profits C. Business D. Economically inefficient outcome What’s In What is market structure? Market structure commonly used in economics to describe the interconnectedness of an interaction between the buyers and sellers in a market. The term market structure according to Viray and Jesusa (2018) is a classification system for the key traits of a market, including the number of firms, the similarity of products they sell, and the ease of entry into and exit from the market structure. 28 The following are the different types of market structures: 1. Perfect Competition is a market structure in which buyers and sellers consist of great numbers of small firms. 2. Monopoly is a market structure which has a complete control of the entire supply of goods or of a service in a certain area or a market. 3. Monopolistic Competition is a market structure which combines elements of monopoly and competitive markets. 4. Oligopoly is a market structure with a small number of firms dominated by a small group of large sellers. What’s New (1) Perfect Competition is a market structure by a large number of small firms which offer a homogenous product. Prices are usually kept low by competitive pressures. The role of the firm in perfect competition is to regulate scarce resources to satisfy consumer demand in a profitable way. Agricultural markets often get close to perfect competition. In some cases, there are several farmers selling identical products to the market. Also through internet services like Lazada, e-bay and Shopee are close to this type of market structure where it is easy to compare the prices and buy the cheapest. There is no need to spend money on advertising in Perfect Competition. Information is shared evenly between all participants where the firm industries can sell all they can produce. There is easy entry and exit of products. (2) Monopoly market structure. The extreme opposite of perfect competition. It is defined by a single seller or producer. The occurrence of transaction in the system has only two choices either by the monopolist product or none at all. The product has no close substitutes. It is said that the elasticity of demand with every product is very low. This means a single producer controls the whole supply of a single commodity. Monopoly firm can change the price and quantity of the good or service. It maximizes profits due to the lack of competition. There is strict barriers to the entry of new firms either in the market or to do production. (3) Monopolistic competition occurs when an industry has many firms with differentiated products. It means they are price makers because the goods are highly differentiated. Examples of the monopolistic competitions are restaurants, hairdressers, clothing and TV programs. It has freedom of entry and exit in the market system. (4) Oligopoly is a market form wherein a market or industry is dominated by a small group of large sellers. Each oligopolist is likely to be aware of the others. Oligopolies like monopolies frequently maintain their position of dominance. There are two types of Oligopoly pure or perfect and differentiated or imperfect. Example of pure oligopoly is aluminum industry which product is homogenous in nature while Talcum powder industry is a product differentiated in nature. There are two major reasons Oligopoly industries determine on how it can maximize profits. Some oligopolies have high concentration ratio while other industries have much lower concentration making it more difficult to do the pricing strategy. It has an open and close entry to the market. 29 What Is It Special Types of Market Structure (1) Bilateral Monopoly happens when a market has only one producer (i.e., monopoly) and one buyer (i.e., monopsony). Examples of Bilateral Monopolies Coal Mining Monopsonist facing a Trade Union is the only employer of Labor. But there is only one supplier of labor from the trade Union members. A monopsony would pay a wage of W2 and employ Q2 workers where MRP=MC A trade Union could organize labor and bargain for higher wages of W3- without causing a fall in employment. (2) Strategically bilateral oligopoly market game with two commodities, it allows strategic behavior one on the other sides of the market. When the sum of purchasers is large, market condition with an effect degree of seller performed like Oligopoly and a significant degree of buyer combination like Oligopsony. (3) Duopsony is an economic state in which there are only two large buyers for a particular product or service. These two buyers influence market demand, giving them considerably strong bargaining power, assuming they are outnumbered by firms. (4) Duopoly is the simplest form of Oligopoly controlled by small companies. A duopoly can have the same impact on the market as a monopoly if the two players work on prices or output. (5) Monopsony exists in a specific area, wherein only one buyer usually works along with many sellers. Market Failures, Public Goods and Externalities According to Chappelow (2020) market failure is an economic situation defined by an inefficient distribution of goods and services in the free market. (1) Market failure happens when individuals playing in rational self-interest create a less than optimal or economically inefficient outcome. (2) Market failure can happen in a complete market where goods and services are bought and sold outright, which we think of as an average market. 30 (3) Market failure can also occur in implicit markets as approvals and special treatment are exchanged, such as elections or the legislative process. (4) Market Failures can be answered using private market solutions, government- imposed solutions, or voluntary collective actions. Externalities happen when one person’s behaviors affect another person’s well- being and the pertinent amount and profits are not reflected in market prices. Decrease the social benefits of individual selfishness. If selfishness consumers do not have to pay producers for benefits, they will not pay; and if selfish producers are not paid, they will not produce. A valuable product fails to appear. As David Friedman explains, “its not that one person pays for what someone else gets but that nobody pays and nobody gets, even though the goods is worth more than it would cost to produce.” (1) Positive externalities are benefits that are infeasible to charge to provide. For instance, if you walk to work, it will reduce congestion and pollution; this will benefit everyone else in the city or a farmer who grows apple trees provides a benefit to a beekeeper gets a good source of nectar to help make more honey. (2) Negative Externalities are cost that are infeasible to charge not to provide. For example, oceans are a public utility, and nobody holds private rights over them. This means that ships and boats can pollute the sea since there are no property rights in the deep seas. The pollution affects other ocean users, such as fishermen who depend on the ocean water for their livelihood. Cowen (2002) stated that most statements for government involvement supported the idea that the marketplace cannot provide public goods or handle externalities. Public health and welfare programs, education, roads, research and development, national and domestic security, and a clean environment all have been labeled public goods. What’s More TRUE OR FALSE. Write T if the statement is true. F the statement is false. _______1. The exact number of firms cannot be determined in Perfect Competition. _______2. Meralco is one example of a perfect competition. _______3. Oligopoly is a market structure characterized by few sellers. _______4. Monopolistic competitive market face high barriers of entry. _______5. Perfect competition is a single firm with differentiated products. What I Have Learned Market structure refers to the nature and degree of competition in the market for goods and services. On the basis of competition, a market can be classified in the following ways (1) Perfect Competition (2) Monopolistic (3) Monopoly and (4) Oligopoly 31 What I Can Do 1. Quick Write. Using the concept of supply and demand, how would consumers react to an economy based solely on a monopolistic market structure? __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ Assessment Market Structure Chart: Let’s summarize important distinctions among the four market structures. Market #of Control Kind of Type Of Barriers Structure firms Over Price Competitio Goods to Entry n Perfect Competition Monopolistic Competition Oligopoly Monopoly TRUE OR FALSE. Write T if the statement is true. F the statement is false. ______1. The exact number of firms cannot be determined in Perfect Competition. ______2. Meralco is one example of a perfect competition. ______3. Oligopoly is a market structure characterized by few sellers. ______4. Monopolistic competitive market face high barriers of entry. ______5. Perfect competition is a single firm with differentiated products. Additional Activity Arrange the letters to form the term being defined in each number: 1. PNCOOOMLSIIT MPTTIONCEIO-is a market structure which combines elements of monopoly and competitive markets. 2. LYOOPOIGL- is a market structure with a small number of firms dominated by a small group of large sellers. 3. ETKARM UCURETTSR- commonly used in economics to describe the interconnectedness of an interaction between the buyers and sellers in a market 4. RPEETCF NETTMCOOIIP- is a market structure in which buyers and sellers consist of great numbers of small firms. 5. NOOOMLPY- is a market structure which has a complete control of the entire supply of goods or of a service in a certain area or a market. 32 Lesson Contemporary Economic Issues 8 Affecting Filipino Entrepreneurs What I Need to Know In this lesson, learners are expected to gain competence and critically analyze how contemporary economic issues and problems affect Filipino entrepreneurs. Expected Learning Outcome/s: 1. Cite economic issues faced by entrepreneurs. 2. Explain how the economic issues affect Filipino entrepreneurs. What I Know TRUE OR FALSE: Write the word TRUE if the given statement is correct, otherwise write FALSE __________ 1. Investment is an amount of money derived merely from savings. __________ 2. Job and skill mismatch are one of the labor issues in the Philippines __________ 3. Minimum wage policy tends to reduce employment in small scale firms. __________ 4. Non-VAT business pays 3% tax based on sales. __________ 5. Alcohol, tobacco, petroleum products, automobiles, and mineral products are charged with excise tax. __________ 6. Rate of interest is the sole determinant of investment. __________ 7. One reason of educated unemployment is the graduate’s reservation on wages and that they can afford to wait for better opportunities. __________ 8. The tax liability for a corporation is determined by its residency status and is based on the net income it obtains while carrying out its business activity. __________ 9. Tax imposed to a non-VAT business is also called percentage tax. __________ 1 A 12% tax based on gross sales is imposed by government to a VAT 0. business. What’s In Entrepreneurship is vital in our economy as it creates wealth and so improves the standards of living not only for the entrepreneurs, but for other people as well. With entrepreneurs’ innovation, new and improved products enable new markets to develop. Higher earnings can help boost national income and tax revenue. However, like any endeavor, entrepreneurs are faced with challenges. There are some economic issues that affect their growth and development. 33 What’s New A contemporary issue refers to an issue that is currently affecting people and that is unresolved. The fundamental economic problem faced by society and business owners is how to allocate scarce resources to produce various goods and services within the economy. Filipino entrepreneurs are currently faced with different economic problems and issues that affect their business operations. What Is It Contemporary Economic Issues Affecting Filipino Entrepreneurs: 1. Capital/Investment and the Rate of Interest Chen, J. (2020) defined "investment" as any mechanism used for generating future income. She explained that investing is putting money to work to start or expand a project or to purchase an asset or interest where those funds are then put to work, the goal of which is to earn an income and increase its value over time. Abrugar, V. (2014) stated that for starting entrepreneurs who are not yet earning an operating income, getting financial aid from the government or obtaining a loan from banks seems to be difficult. Applying for a bank loan requires too much paperwork, while interest rates are also too high. To get a loan, an entrepreneur must have a collateral or show some years of operating income. Pettinger, T. (2019) added that with higher interest rates, it is more expensive to borrow money from a bank. Interest rate is the amount a lender charges for the use of assets expressed as a percentage of the principal. The interest rate is typically noted on an annual basis known as the annual percentage rate (APR). Higher rates increase the cost of borrowing and require investment to have a higher rate of return to be profitable. This tends to discourage investment because of higher opportunity cost. Interest rates are one important determinant of investment. However, it is not the only factor, other factors include investor confidence, economic growth, the willingness of banks to lend, and state of technology. 2. Labor Labor refers to an economic group comprising those who do manual labor or work for wages. Unemployment, job and skill mismatch and educated unemployed are one of the labor issues in the Philippines. Even with the high unemployment rate, there are actually jobs that are not filled because there are no applicants who have the right qualifications. From this job mismatch problem also arises for the educated unemployed. In 2010, the unemployment rate among the college educated is about 11%. Some have difficulty in finding an appropriate job for the degree they have. Others, have higher reservation wages and can afford to wait for better opportunities. With the declining earnings, people are looking for additional hours of work (underemployed), or going abroad (overseas employment) or choose to be self- employed. This also shows how they are not content with the quality of employment. In 2009, it was reported that 1.423 million Filipinos were deployed overseas. (Source: https://en.wikipedia.org/wiki/Labor_policy_in_the_Philippines) 34 3. Minimum Wage A wage is monetary compensation or remuneration paid by an employer to an employee in exchange for work done. Payment may be calculated as a fixed amount for each task completed (a task wage or piece rate), or at an hourly or daily rate, or based on an easily measured quantity of work done. Based on the findings of the study conducted by Lanzona, L.Jr. (2014) it is explained that, the minimum wage policy reduces employment in small-scale firms. Because of greater marginal cost it would be difficult for small-scale firm to grow and become a larger-scale firm. Thus, it causes them to reduce their production workers. 4. Taxes Taxes are imposed and collected pursuant to the National Internal Revenue Code, the Tariff and Customs Code, and several special laws. There are four main types of national internal revenue taxes: income, indirect (value-added and percentage taxes), excise and documentary stamp taxes, all of which are administered by the Bureau of Internal Revenue (BIR). At the local level, governments have some autonomy to impose taxes on business and ownership of real property. Corporate Income Tax - In the Philippines, all companies – domestic or foreign – are liable to pay corporate income tax (CIT). The tax liability for a corporation is determined by its residency status and is based on the net income it obtains while carrying out its business activity, normally during one business year. Sales Tax - Sales tax is a tax imposed on the gross sales or gross receipts of an entity. The tax rate ranges from 3% to 12% depending on the tax type, such as VAT or NON-VAT. When a business entity is VAT registered, it is subject to 12% sales tax on its gross sales or receipts. Such sales tax is referred to as VAT or Output Tax. On the other hand, if a business entity is NON-VAT, it is subject to 3% sales tax on its gross sales or receipts. Such sales tax is referred to as Percentage Tax. (Source: https://mpm.ph/vat-vs-non-vat/) Excise Taxes - Excise taxes are imposed on the following: alcohol, tobacco, petroleum products, automobiles, mineral products, and non-essential goods such as jewelry and precious stones, perfumes, yachts and other sport vessels. (Source: https://oxfordbusinessgroup.com/overview/key- points-detailed-look-tax-laws-businesses) Documentary Stamp Tax - A documentary stamp tax (DST) is required for certain documents, transactions or instruments specified in the tax code when the obligation or right arises from Philippine sources or when the property is situated in the Philippines.. (Source: https://oxfordbusinessgroup.com/overview/key-points-detailed-look-tax- laws-businesses) 5. Rental Every business requires space for its office, store, warehouse, shop or plant for production. However, not all entrepreneurs have their own real property to place the required facilities. Thus, most of businesses started with renting a space. Rent is the grant of possession and enjoyment of property or machinery and etc. in turn for the payment of rent from the tenant or lessee. This payment for rent is part of business operation’s expenses and must be covered through its sales. Moreover, if the rental terms and conditions that a business has to comply are unfavorable, that brings another challenge for entrepreneurs. 35 What’s More Identify the terms described below. Write your answers on the blank. _________________________ 1. A tax imposed on the gross sales or gross receipts of an entity. _________________________ 2. A tax that is required for certain documents, transactions or instruments specified in the tax code. _________________________ 3. It refers to any mechanism used for generating future income. __________________________ 4. It refers to an issue that is currently affecting people and that is unresolved. __________________________ 5. A tax paid by all companies – domestic or foreign. __________________________ 6. This is the amount a lender charges for the use of assets expressed as a percentage of the principal. __________________________ 7. This refers to an economic group comprising those who do manual labor or work for wages. __________________________ 8. This is imposed and collected pursuant to the National Internal Revenue Code, the Tariff and Customs Code, and several special laws. __________________________ 9. It refers to the grand of possession and enjoyment of property or machinery and etc. in turn for the payment of rent from the tenant or lessee. _________________________ 10. This is a monetary compensation or remuneration paid by an employer to an employee in exchange for work done. What I Have Learned 1. Filipino entrepreneurs are faced with different economic issues and problem that affect their operation. 2. investing is putting money to work to start or expand a project or to purchase an asset or interest where those funds are then put to work, the goal of which is to earn an income and increase its value over time. With higher interest rates, it is more expensive to borrow money from a bank. 3. Unemployment, job and skill mismatch and educated unemployed are one of the labor issues in the Philippines. 4. Because of greater marginal cost it would be difficult for small-scale firm to grow and become a larger-scale firm. Thus, it causes them to reduce their production workers. 36 5. Taxes are imposed and collected pursuant to the National Internal Revenue Code, the Tariff and Customs Code, and several special laws. 6. Many businesses around the world are currently struggling to cover their overheads, and most economic activity is being generated from people’s homes. What I Can Do News clip. Cut or print out a news article discussing economic issues affecting entrepreneurs nowadays. Place it in a bond paper. Answer the following questions: 1. What economic issue affects the Filipino entrepreneur on your selected news article? 2. How does this economic issue affect the Filipino entrepreneurs? 3. What are your reactions towards the issue? 4. If you are a political or economic leader, how will you resolve the issue? Assessment Multiple Choice. Choose the letter of the best answer. Write the chosen letter on a separate sheet of paper. _______ 1. Mary Ann is paying 3% tax based on her gross sales. What type of tax is she paying? A. Excise Tax B. Value Added Tax C. Percentage Tax _______ 2. The government grants additional cost of living allowance to workers. What possible economic issue affects the small-scale production business of Mang Jose? A. Labor B. Wage C. Investment ______ 3. Interest rate on borrowing is high. How may this situation affect the inclination of Mr. Martinez to borrow money for his micro business enterprise? A. Mr. Martinez might increase his borrowing to increase his fund. B. Mr. Martinez might have a second thought of borrowing due to its cost. C. Mr. Martinez might borrow however lower his price in order to boost greater sales. ________4. Which of the following taxes is being paid by all types of business? A. Corporate Income Tax B. Excise Tax C. Sales Tax ________5. Which of the following is charged with excise tax? A. Agriculture products C. Petroleum Products B. Livestock Products ________6. Which of the following is a labor issue? A. Underemployment B. Employment C. Labor Supply ________7. The following determines the tax liability of a corporation EXCEPT one. A. Residency status B. net income it obtains C. number of stockholders 37 ________8. What is the reason of educated unemployed? A. Difficulty in finding an appropriate job for the degree they have. B. They simply do not want to apply for a job. C. Have lower reservation wages ________9. What could be the result of sending our professionals and skilled workers abroad? A. Oversupply of professionals and skilled workers in local job market. B. Undersupply of professionals and skilled workers in local job market. C. No supply of professionals and skilled workers in local job market. ________10. If the cost of investment is high, what may entrepreneurs tend to do? A. Offer the product at lower price. B. Offer the product at higher price. C. Neither A nor B. Additional Activity Instruction: 1. Construct a “hugot line” showing how contemporary economic issue affects Filipino entrepreneurs during this Covid 19 Pandemic. 2. Identify the economic issue that you have cited. 3. Explain how the economic issue affects the Filipino Entrepreneurs. References Abrugar, V. (2014) 8 Things that Hinder the Success of Filipino Entrepreneurs Retrieved from https://businesstips.ph/8-things-that-hinder-the-success-of- filipino-entrepreneurs/ AnosWeb Encyclonomic Web.pedia. Economics Overview Types and Economics Indicator, Retrieved from https://www.amosweb.com/cgibin/awb_nav.pl?s=wpd&c=dsp&k =social%20science (Accessed June 8, 2020) Aquino, M. (2017) Why is economics an applied science. Retrieved from https://www.quora.com/Why-is-economics-an-applied- science Cayabyab, MJ (2020) Day2: More Buses Ease Transport Woes. Retrieved from: https://www.philstar.com/headlines/2020/06/03/2018385/day-2-more- buses-ease-transport-woes Chen, J. (2020) Understanding Investment Retrieved from: https://www.investopedia.com/terms/i/investment.asp Chapellow, J. (2019). Economics Overview: Types and Economic Indicators Retrieved from https://www.investopedia.com/terms/e/economics.asp 38 CNN Philippines Staff (2020) Workers brave Metro Manila roads as PH relaxes COVID-19 lockdown rules Retrieved from https://www.cnnphilippines.com/news/2020/6/1/ Metro-Manila-GCQ- lockdown-COVID-19.html Cullen, H., (2017) Lesson 2 Economics as an Applied Science Retrived from https://www.slideshare.net/HannahCullen/lesson-2- economics-as-an-applied-science Enriquez, Hanna (2017) Revisiting Economics as Social Science. Retrived from https://www. slideshare.net/HannahCullen/revisiting- economics-as-a-social-science Fullcoll.edu. Market Equilibrium Retrieved from https://staffwww.fullcoll.edu/fchan/Micro /1MKTEQUIL.htm (Accessed June 12, 2020) Inflate Your Mind. Determinants of Demand, Retrieved from https://inflateyourmind.com/ macroeconomics/unit-2/section-6-demand- determinants/ (Accessed June 12, 2020) Kwatiah, N. Five Basic Problems of the Economy Retrieved from https://www.economicsdiscussion.net/economic-problems/5-basic- problems-of-an-economy-with-diagram/18173 (Accessed June 9, 2020) Lanzona L.Jr.A. (2014) Effects of minimum wage on the Philippine economy. Philippine Institute for Development Studies (PIDS)www.pids.gov.ph/ Retrieved from: https://www.eldis.org/document/A74918 Lumen Learning, Economic Models Retrieved from https://courses.lumenlearning.com/ boundless- economics/chapter/economic-models/ (Accessed June 9, 2020) Lumen Learning, Market Supply. Retrieved from https://courses.lumenlearning.com/boundless-economics/chapter/supply/ (Accessed June 12, 2020) Malindog-Uy, A. (2020) Is the Philippines Winning Its COVID 19 Fight? Retrieved from https:// theaseanpost.com/ article/philippines-winning-its- covid-19-fight Mizpa, H. Applied Economics (2017) Retrieved from https://www.slideshare.net/MizpaHerbuela/applied- economics77458768?from_action=save Pettinger , T. (2019) Investment and the Rate of Interest Retrieved from: https://www.economicshelp.org/blog/425/interest-rates/investment-and- the-rate-of-interest/ San Juan,. (2020) MRT-3 bus program implements strict 5-minute interval for faster travel time. Retrieved from 39 https://news.mb.com.ph/2020/06/06/mrt-3-bus-program-implements- strict-5-minute-interval-for-faster-travel-time/ Study.com. Market Demand, Retrieved from https://study.com/academy/answer/explain-the-difference-between- individual-demand-and-market-demand.html (Accessed June 12, 2020) The ASEAN, (2020) Virus sparks food shortage in the Philippine Retrieved from https:/ /theaseanpost.com/article/virus-sparks-food- shortage-philippines Wikipedia, Labor policy in the Philippines Retrieved from: https://en.wikipedia.org/wiki/ Labor_policy_in_the_Philippines Woodruff, J (2019) Analysis of Demand and Supply Retrieved from https://bizfluent.com/how-7897646-explain-economics.html Vat Taxes. mpm Retrieved from https://mpm.ph/vat-vs-non-vat/ (Accessed June 19,2020) 40 For inquiries or feedback, please write or call: Department of Education - Valenzuela Pio Valenzuela Street, Marulas Valenzuela City Telefax: 8-292-4340 Email Address: [email protected] 41

Applied Economics Quarter 1 – Module 1 PDF

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