MIDTERM-EXAM-APPLIEDECO PDF

MODULE 4 THE PRESENT ECONOMIC ISSUES AFFECTING THE FILIPINO ENTREPRENEURS PHILIPPINE PESO AND FOREIGN CURRENCIES FACTORS Currency Volatility - This refers to the frequent and unpredictable changes in the exchange rate of the Philippine Peso (PHP) against major currencies like the US D...

MODULE 4 THE PRESENT ECONOMIC ISSUES AFFECTING THE FILIPINO ENTREPRENEURS PHILIPPINE PESO AND FOREIGN CURRENCIES FACTORS Currency Volatility - This refers to the frequent and unpredictable changes in the exchange rate of the Philippine Peso (PHP) against major currencies like the US Dollar (USD) and the Euro (EUR). Impact on Import-Export Businesses - Businesses involved in import and export are particularly vulnerable to currency exchange rate changes and it affects pricing, costing, and overall business viability. Inflationary Pressures - Currency depreciation can contribute to higher inflation rates as imported goods become more expensive. Uncertainty in Business Planning - Frequent currency fluctuations create uncertainty in financial planning and introduces a layer of unpredictability that can put off investment and expansion efforts. INVESTMENT AND INTEREST RATES INVESTMENT What is investment? Process of building up capital stock, or the expenditure which determines the income production in the economy. Investment Expenditure - means capital spending. Investment involves capital spending on the purchase of physical assets such as plant, machinery, and equipment (also known as fixed investment) and stocks (also known as inventory investments). 2 TYPES OF INVESTMENT: FIXED INCOME INVESTMENT a. Fixed Income Investment These investments provide regular, predictable income over time and are generally safer. They are low-risk, the returns are typically lower but guaranteed. VARIABLE INCOME INVESTMENT b. Variable Income Investments: These are riskier investments that can offer higher returns but come with less certainty. The returns depend on market conditions and economic factors, meaning there is a chance of losing money. INTEREST RATES Interest rates are the percentage a lender charges for borrowing money or assets.  These assets could include cash, property, or equipment. Interest rates are important because they affect how much capital an entrepreneur can invest. “ The higher the interest rate, the lower the quantity of investments; the lower the interest rate, the higher the quantity of investments” EFFECTS ON ENTREPRENEURS: Low interest rates make it easier for entrepreneurs to start or expand their businesses. High interest rates, on the other hand, make it more expensive to borrow money, limiting opportunities for entrepreneurs to grow their businesses. RENTALS, MINIMUM WAGE, AND TAXES RENTALS RENT – this generally refers to the money paid for the use of property over a specified period. It is the cost of using a property specifically a land and other resources that are limited in availability. FACTORS: Rental Costs Size and Location MINIMUM WAGE The legally mandated lowest amount of pay that employers must provide to employees for their work, typically expressed as an hourly rate. It ensures that workers receive a basic level of income. FACTORS: Increased Labor Costs Wage Changes Alvin H. Hansen - ‘Wages is the payment to labour for its assistance to production.’ Frederic Benham - ‘A wage may be defined as the sum of money paid under contract by an employer to the worker for the services rendered.’ Campbell R. McConnell - ‘Wage is the price paid for the use of labor.’ TAXES Taxes are mandatory payments made by individuals or businesses to the government. These funds are used to finance public services and infrastructure. Taxation is the method by which the government obtains funds from citizens and companies to serve as a means for the government to raise the funds required to maintain and run the country. FACTORS: Complex System High Taxes INDUSTRY AND ENVIRONMENTAL ANALYSIS THE ECONOMIC INDUSTRY An industry or sector is the whole of all economic activities by companies, people, and organizations involved in the production of goods and services for a particular field. THREE-SECTOR MODEL/ECONOMIC SECTORS 1. Primary Sector Of The Economy - The primary sector of the economy involves the extraction and production of raw materials from natural resources. Ex. Agricultural Mining Forestry Fishing 2. Secondary Sector Of The Economy - The secondary sector of the economy involves the transformation of raw materials into finished goods or products. It focuses on manufacturing, processing, and construction, where raw materials (often from the primary sector) are converted into goods used by consumers or other industries. Examples: Automobile Manufacturing Textile Industry Food Processing Steel Production Construction Companies Importance of Secondary Sector In conclusion, the secondary sector plays a critical role in bridging the gap between raw materials and the finished products that power modern life. From automobiles and electronics to infrastructure and textiles, this sector fuels industrial growth, generates employment, and adds significant value to primary resources. As economies evolve, the secondary sector often reflects the level of industrialization, innovation, and technological advancement within a country. Moving forward, we can explore how this sector interacts with both the primary sector that supplies its materials and the tertiary sector, which facilitates the distribution and consumption of these goods, completing the economic cycle. 3. Tertiary Sector Of The Economy - The tertiary sector of the economy, also known as the service sector, involves the provision of services rather than the production of goods. This sector is focused on delivering intangible goods to consumers and businesses, such as expertise, convenience, experiences, and solutions to everyday needs. It does not involve the direct extraction of natural resources (primary sector) or the manufacturing of physical products (secondary sector), but it plays a crucial role in supporting both. Example: Healthcare Transportation Education Tourism and Hospitality Finance Importance of Tertiary Sector In summary, the tertiary sector is the backbone of modern economies, driving growth through services that support both individuals and industries. It represents the shift from industrial production to service-based economies, offering everything from healthcare and education to entertainment and financial services. As societies become more complex and interconnected, the importance of this sector continues to grow, enhancing quality of life and contributing significantly to economic stability. Looking ahead, the tertiary sector will remain vital, adapting to technological advances and evolving consumer needs to sustain its integral role in the global economy. MAJOR INDUSTRIES Agriculture and Agribusiness Manufacturing Services AGRICULTURE AND AGRIBUSINESS Agriculture is about growing crops and raising animals for food and other products. It includes farming activities like planting wheat, growing vegetables, or raising cows and chickens. Agribusiness is a larger term that covers everything involved in getting food from the farm to the consumer. This includes not only farming but also the companies that process, package, and sell food. It also includes businesses that provide farmers with tools, seeds, and machines to help them grow their crops or raise their animals. AGRICULTURE: Growing Crops, Raising Livestock Farming And Ranching AGRIBUSINESS: Processing, Packaging, Distributing Everything From Farm To Table MANUFACTURING Manufacturing is about making products using raw materials, workers, and machines. This process happens in factories where things like cars, electronics, clothes, and furniture are made. Manufacturing covers many different industries, from producing household goods to building large machines and vehicles. It’s a key part of the economy because it creates a lot of the items we use daily. Turning Raw Materials Into Products Factories, Machines, And Workers EXAMPLE: Cars, Electronics, Clothes Factories Turn Materials Into Products EXAMPLES: Phone, Cars, Furniture SERVICES The service industry includes businesses that provide helpful actions rather than physical goods.. For example, when you visit a doctor, go to a bank, or even get a haircut, you are using a service. Services make up a huge part of modern economies because we rely on people’s expertise and assistance in so many areas of life. Non - Physical Products (Actions, Expertise) Largest Sector In Many Economies Paying For Time, Skills, Or Expertise EXAMPLES: Doctor’s Visit, Bank Services, Haircut MODULE 6: BUSINESS OPPORTUNITIES IDENTIFICATION PRINCIPLES, TOOLS, AND TECHNIQUES IN CREATING A BUSINESS A. TYPES OF BUSINESS STRUCTURE What Is Business Structure? A business structure refers to the legal framework within which a business operates. It determines how the business is organized, how it functions, its tax obligations, and how much liability the owners assume. The structure you choose has a direct impact on aspects like day-to-day operations, the distribution of profits, liability protection, and tax filings. TYPES OF BUSINESS STRUCTURE 1. Sole Proprietorship A sole proprietorship is the simplest and most common type of business structure, where a single individual owns and operates the entire business. There is no legal separation between the owner and the business, meaning the owner is personally responsible for all the business’s debts and obligations. In this structure, the owner has full control of the business, and all profits or losses are reported on the owner’s personal tax return. Example: A self-employed photographer who manages their business, clients, and finances on their own would be a sole proprietor. 2. General Partnership A general partnership is a business structure where two or more individuals own and manage a business together. In this arrangement, each partner shares equal responsibility for the management, profits, and debts of the business. Partners are jointly and individually liable for the obligations of the business, meaning if the business incurs debt or legal issues, each partner’s personal assets may be at risk. Profits are typically divided equally, unless otherwise agreed upon in a partnership agreement, and each partner reports their share of the profits or losses on their personal tax returns. Example: A law firm owned by two attorneys who jointly manage the firm, share profits, and are both liable for any debts or legal obligations is an example of a general partnership. 3. Limited Partnership A limited partnership (LP) is a business structure that consists of two types of partners: general partners and limited partners. The general partners manage the business and are personally liable for its debts and obligations. On the other hand, limited partners contribute capital but have little to no involvement in the business's operations and have limited liability, meaning they are only responsible for business debts up to the amount they invested. This structure allows businesses to bring in passive investors without giving them decision-making authority. Example: In a film production company, the producers (general partners) manage the production process, while the investors (limited partners) provide funds but are not involved in running the business. 4. Corporation A corporation is a legal entity that is separate from its owners (called shareholders). It is created by law and can enter into contracts, own assets, and be held liable for debts, just like an individual. The owners (shareholders) are not personally liable for the corporation’s debts or legal obligations beyond their investment in the company. Corporations are more complex to manage and come with stricter regulations. They can raise capital by selling shares of stock, making this structure ideal for larger businesses. Corporations pay taxes on their profits, and in the case of C corporations, shareholders are also taxed on any dividends they receive, leading to double taxation. Example: Microsoft Corporation is owned by numerous shareholders, managed by executives and a board of directors, and is legally responsible for its own financial obligations, not its individual owners. 5. Limited Liability Company A Limited Liability Company (LLC) is a flexible business structure that combines the benefits of both a corporation and a partnership. Owners of an LLC, known as "members," are not personally liable for the company’s debts or legal obligations, meaning their personal assets are protected. LLCs provide flexibility in how the business is managed and taxed. It can be taxed as a sole proprietorship, partnership, or corporation, depending on the number of members and their preferences. This structure is popular for small to medium-sized businesses because it offers liability protection without the complexity of forming a corporation. Example: A family-owned restaurant that is jointly managed but seeks to protect personal assets from business risks would likely be structured as an LLC. 6. Nonprofit Organization A nonprofit organization is a business entity that operates to fulfill a charitable, educational, religious, scientific, or public service mission, rather than to generate profits for its owners. Any surplus revenue is reinvested into the organization's activities, not distributed to members or shareholders. Nonprofits are often eligible for tax-exempt status, meaning they do not pay federal income taxes, and donations made to them may be tax-deductible. The primary goal of a nonprofit is to benefit the public or a specific cause rather than to make money for owners or investors. Example: The Red Cross is a nonprofit organization that provides disaster relief and emergency medical assistance worldwide. It operates solely to serve humanitarian purposes, and all funds raised go toward its mission. 7. Cooperative (Co-op) A cooperative (co-op) is a business organization that is owned and operated by its members, who benefit from its services or goods. Unlike traditional businesses where ownership is separate from the users, in a co-op, the members are both the owners and the customers. The primary goal of a cooperative is to meet the needs of its members rather than to generate profits for outside investors. Each member typically has an equal say in decision-making, regardless of how much they invest. Profits (or surpluses) are either reinvested into the cooperative or distributed among members. Example: A food cooperative where local farmers pool their resources to sell their products directly to consumers, and the profits are shared among the farmer-members, is an example of a co-op. TOOLS IN EVALUATING A BUSINESS SWOT Analysis TOWS Analysis Porter’s Five Forces of Competitive Position Analysis. What is SWOT Analysis? ⚫Technique is credited to Albert Humphrey who led a research project at Stanford University in the 1960s and 1970s. ⚫Planning tool used to understand Strengths, Weaknesses, Opportunities, & Threats involved in a project / business. ⚫Used as framework for organizing and using data and information gained from situation analysis of internal and external environment. STRENGTH Internal attributes that give the business an advantage over others. (e.g., strong brand, loyal customer base, unique technology). WEAKNESS Internal attributes that put the business at a disadvantage relative to competitors (e.g., limited market reach, outdated technology, lack of capital). OPPORTUNITIES External factors that the business could exploit to its advantage (e.g., market expansion, technological advancements, changes in consumer behavior). THREATS External factors that could cause trouble for the business (e.g., new competitors, regulatory changes, economic downturns, increasing costs). What is TOWS Analysis? ⚫TOWS was published in a paper called The TOWS Matrix A Tool for Situational Analysis by Heinz Weirich in 1982. ⚫ an extension of the SWOT Analysis framework that identifies your Strengths, Weaknesses, Opportunities and Threats but then goes further in looking to match up the Strengths with Opportunities, Strengths with Threats, Weaknesses with Opportunities, and Weaknesses with Threats. Porter's Five Forces of Competitive Position Analysis: ⚫Porter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E Porter of Harvard Business School ⚫Porter's Five Forces is a framework for analyzing the level of competition within an industry and developing a business strategy. ⚫Attractiveness in this context refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. Components of Porter’s Five Forces Model: 1. Threat of new entrants 2. Threat of substitutes 3.Bargaining power of buyers 4.Bargaining power of suppliers 5.Rivalry inside the industry 1.Threat of new entrants The ease with which new competitors can enter the market. If barriers to entry are low (ex., low capital requirements, no strong brand loyalty), the threat is higher, potentially reducing profitability. In a perfect world, there would be no restrictions on entering or leaving the market, and each company would make profits that are equivalent. However, this isn't relevant to the real estate market. In actuality, every industry has certain characteristics that safeguard their large earnings and aid in keeping out any new competitors by creating obstacles. 2. Threat of substitutes The likelihood that customers will switch to a different product or service of other industries that meet the same need. A high threat can limit pricing power and profitability. Example: Coffee can be a substitute for tea, as it can be also used as a caffeine drink in the morning. When the number of substitute product increases, the competition also increases as the customers have more alternatives to select from. This forces the companies to raise or lower down the prices. Hence, it can be concluded that the competition created by the substitute firms is ‘price competition’. 3. Bargaining power of buyers When there are many producers and there is a single customer in the market, then that situation is called as ‘monopsony’. In these markets, the position of the buyer is very strong and he sets the price. In reality, only a few monopsony markets exists. The bargaining power of the buyers compels the firms to reduce the prices and may also demand a product or service of higher quality at low price. 4. Bargaining power of suppliers The power suppliers have to drive up prices or reduce the quality of goods/services. If few suppliers exist or if a supplier offers a unique product, they have more power. 5. Rivalry inside the industry The intensity of competition among existing firms in the industry. High rivalry can reduce profitability as companies might engage in price wars or increase spending on marketing. SUMMARY: SWOT Analysis is about identifying the internal and external factors that affect a business. TOWS Analysis takes it a step further by turning those insights into actionable strategies. Porter's Five Forces focuses on the competitive environment to help businesses understand their industry's dynamics and develop strategies to improve their competitive position. IDENTIFYING BUSINESS OPPORTUNITIES Environmental Scanning 1. Policy Analysis 2. Economic Indicators 3. Global Economic Trends Industry Analysis Demand And Supply Porter's Five Forces Regulatory Environment ECONOMY'S PRODUCING SECTORS: Primary Sector Secondary Sector Tertiary Sector MODULE 7 THE INFLUENCE OF HOUSEHOLD AND GOVERNMENT ON BUSINESS Households and Businesses Households are individuals or people living together as decision-making units. Firms (businesses) are institutions that organize production of goods and services. Duterte signs Higher Sin Tax for Tobacco 1. INFLUENCE OF GOVERNMENT ON BUSINESS a. Basic Concepts of Government Budgeting in the Philippines The national budget is a critical tool for shaping the economic and business environment. It reflects the government’s priorities in terms of spending and revenue generation, influencing how businesses operate within the country. Understanding how the budget is structured helps businesses anticipate policy changes, government spending, and potential market opportunities. THE NATIONAL BUDGET The National Budget of the Philippines is an annual financial plan that dictates how government resources are allocated for the year. It involves the distribution of funds to various sectors, public programs, and agencies, impacting both public and private enterprises. The budget outlines both expenditures and the expected revenue, influencing taxation, public investment, and regulatory actions. BUDGET PHILOSOPHY Budget philosophy refers to the guiding principles or approach that a government uses when planning and allocating its financial resources. It reflects the government's priorities, such as promoting economic growth, ensuring social welfare, maintaining fiscal responsibility, and supporting sustainable development. These principles shape how the budget is structured and how funds are distributed across various sectors. BUDGET DIMENSIONS BY SECTOR (TRADITIONAL SYSTEM) Budget Dimensions by Sector (Traditional System) refers to the way the national budget is divided into broad categories or sectors, reflecting the major areas of government responsibility. These sectors include Economic Services (e.g., agriculture, industry), Social Services (e.g., education, health), Defense and Security, General Public Services, and Debt Servicing. This system helps in organizing and allocating funds based on the government's primary functions and priorities. BUDGET DIMENSION BY SECTOR (COFOG - CLASSIFICATION OF FUNCTIONS OF GOVERNMENT) Budget Dimension by Sector (COFOG - Classification of Functions of Government) refers to an internationally standardized system used to categorize government spending based on its functions or purposes. This system divides the budget into specific functional categories such as health, education, public safety, defense, and social protection, among others. COFOG provides a more detailed breakdown of how government funds are allocated, making it easier to compare public spending across different countries and assess how resources are used for various government functions. BUDGET DIMENSION BY EXPENSE CLASS Budget Dimension by Expense Class refers to the categorization of government expenditures based on the type of spending. This classification helps in organizing the budget to clearly identify how funds are allocated across different types of expenses. Common expense classes include: 1. Personnel Services (PS): Salaries and wages for government employees. 2. Maintenance and Other Operating Expenses (MOOE): Costs associated with the daily operations of government agencies, such as utilities and supplies. 3. Capital Outlays (CO): Investments in infrastructure, equipment, and long-term projects. 4. Financial Expenses (FE): Costs related to servicing government debt, such as interest payments. BUDGET DIMENSIONS BY RECIPIENT UNIT Budget Dimension by Recipient Unit refers to how government spending is categorized based on the specific agencies or departments that receive the funds. This helps identify which parts of the government are responsible for different programs and services. For example: Department of Education: Receives funds for schools and education programs. Department of Health: Allocated money for healthcare services. Department of Public Works and Highways: Gets budget for infrastructure projects. THE TOP 10 DEPARTMENTS ACCORDING TO BUDGET ALLOCATION The top 10 departments in the Philippines according to budget allocation typically include: 1. Department of Education (DepEd) 2. Department of Health (DOH) 3. Department of Public Works and Highways (DPWH) 4. Department of National Defense (DND) 5. Department of Social Welfare and Development (DSWD) 6. Department of the Interior and Local Government (DILG) 7. Department of Agriculture (DA) 8. Department of Transportation (DOTr) 9. Department of Environment and Natural Resources (DENR) 10. Department of Trade and Industry (DTI) BUDGET DIMENSIONS BY REGION The "Budget Dimensions by Region" in the Philippines means how the government divides its money among different areas based on their specific needs. Each region gets funding according to its economy, population, and priorities. For example, Metro Manila gets a lot of money for urban development, while regions focused on agriculture receive funds for farming and rural support. Some areas, like the Bangsamoro region, get extra funding for peace and development. 2. INFLUENCE OF HOUSEHOLDS ON BUSINESS What is households in Economics? In economics, a household refers to a group of individuals living together and making joint decisions about resource allocation, consumption, and financial management. Key Characteristics of Households: Economic Unit Consumption Decisions Income Sources Demographic Factors Impact on the Economy Relationship between business and household The relationship between business and households is reciprocal and vital to the economy, as households serve as primary consumers, driving demand for goods and services, while also supplying labor for production. KEY ASPECTS OF THIS RELATIONSHIP:  Consumer Demand: Households are the primary consumers of goods and services. Labor Supply: Households provide labor to businesses. Savings and Investment: Households save money, which can be invested in businesses through banking systems, enabling growth and expansion. Entrepreneurship: Some households engage in entrepreneurship, starting their own businesses that contribute to economic diversity and job creation. Feedback Loop: Business performance affects household income and employment stability. Conversely, changes in household income and preferences can prompt businesses to adapt their strategies. Household Population, Number Of Households, And Averaging Household Size Of The Philippines (Census Of Population And Household). As of the latest census, the Philippines has a significant household population, with millions of households recorded across the country. PHILIPPINE POPULATION BASED ON VARIOUS CENSUS YEARS Introduction The primary purpose of the 2020 CPH was to conduct an inventory of the whole Filipino population and gather fundamental data regarding its attributes. Its goal was to supply demographic data— particularly the most recent barangay population count—to government executives, policy makers, and planners so they could utilize it as a starting point for their plans, policies, and programs related to social and economic development. Philippine population based on various census years 1980 - Approximately 48.1 million 1990 - Approximately 60.4 million 2000 - Approximately 76.5 million. 2010 - Approximately 92.3 million 2020 - Approximately 109.6 million Household Population, Number of Households, and Average Household Size Based on Various Census Years HOUSEHOLD POPULATION The Philippines had 109,035,343 people living there as of May 1, 2020. A total of 108,667,043 people, or 99.7% of the total, were in households. This is a rise of 8.09 million from the 100,573,715 households registered in 2015 and a rise of 16.57 million from the 92,097,978 households registered in 2010. NUMBER OF HOUSEHOLDS The institutional population, or those living in communal or institutional housing, such as hospitals, orphanages, and military camps, makes up the remaining 0.3 percent of the overall population. It also includes Filipinos stationed in Philippine embassies, consulates, and missions overseas. AVERAGE HOUSEHOLD SIZE In 2020, there were 26,393,906 households in the entire nation. In comparison to the 22,975,630 households in 2015 and the 20,171,899 households in 2010, this represents an increase of 3.42 million and 6.22 million, respectively. Two in every five households in the country are in CALABARZON, NCR, and Central Luzon. 2020 saw the greatest number of households among the 17 administrative regions, with 4.06 million in Region IV-A (CALABARZON), 3.50 million in the National Capital Region (NCR), and 3.04 million in Region III (Central Luzon). Of all households in the nation, 40.2 percent were located in these three regions. With 439,166 households, the Cordillera Administrative Region (CAR) had the fewest number of households. Conclusion The relationship between families and the government in shaping business dynamics in the Philippines is addressed and discussed in this Module. Key ideas in government budgeting are outlined, with emphasis on top departments and regional allocations. These ideas include the national budget, budget philosophy, and sectoral elements. With the help of census data on household size, population, and distribution across different years and areas, it also defines households economically and looks at how they interact with businesses. This thorough knowledge emphasizes how household demographics and governmental regulations both influence the corporate environment.