APPLIED ECONOMICS

QUARTER II – Business Opportunities and Challenges

 MACROENVIRONMENT ANALYSIS
Negative externalities – lead to harmful effects
Macroenvironment Analysis – deals with factors that may affect several or all indus-
tries in the economy, while industry analysis deals with factors that may impact only
the industry under study.
TOOLS IN MACROENVIRONMENT ANALYSIS & BUSINESS OPPORTUNITY IDENTIFICATION
Macroenvironment Factors - PESTLE Approach
Externalities help explain two other types of goods in the economy—merit and demerit goods

Merit goods – have

positive externalities but
the benefits are often
underestimated

Political Factor – pertains to government laws, and fiscal policy changes that influence
an industry or organization
Tax reforms – refer to revisions on the implementation and collection of taxes
Demerit goods – have
negative externalities and
consumption of which
causes harm to society

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ACTIVITY 2
DIRECTION: Classify the following goods as public, private, club, or common goods.
1. Fireworks display _______________ Sin tax – an excise tax imposed on
goods considered as vices
2. Higher education _______________ Sin Tax Reform Law (RA No. 10351)
3. Personal computer _______________
4. Gym membership _______________
5. Gasoline _______________
6. National defense _______________
Government Spending – as part of fiscal
7. Cable television _______________ policy, the government monitors its
expenditure to ensure it remains within the
8. Smartphone _______________
budget
9. Light Rail Transit _______________
10. Street Light _______________
The Free Rider Problem – market failure due to the availability of public goods to
everyone
Because it is hard to exclude anyone from using public goods and it is not Political Stability – strength and
practical to charge a fee for their use, public goods are made available for free. Thus, effectiveness of the government in
the government provides them from the taxes collected. For instance, most roads and upholding its sovereignty and
infrastructure projects by the government are funded by taxes collected from its implementing the rule of law
citizens and business. Once available, everyone including those who are not paying
taxes can use the public good.
Externalities happen when consumption of a good affects another party

New Government Regulations – to

streamline procedures in all government
Positive externalities – leads to benefits agencies and improve the ease of doing
to third parties business

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Economic Factor – economic policies that aim to promote overall growth open up Based on rivalry and excludability criteria, there are two additional types of goods that
opportunities in the business sector are sometimes considered as subtypes of public goods.

Gross Domestic Product Growth – GDP Club goods – public goods with restriction on the
equivalent to total output is a measure of use or access
a country’s economic performance

Inflation – the lost in Common goods (free goods) – it is difficult to

value of money prevent other people from consuming the
same good, but the use or consumption
somehow reduces the quantity available
from others

The figure below summarizes the public and private goods categorization based on
Interest Rate – the level of interest rate rivalry and excludability criteria.
is largely the responsibility of the
central bank

Foreign Exchange – Philippines has a

floating exchange rate

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Employment Structure of the Economy – refers to the concentration of labor in the Social Factor – examines the importance of culture, population, and other social
main sectors of the economy
Demography – is formally the study of the population and its attributes
Public Sector versus Private Sector
Public sector – composed of government-owned enterprises
Private sector – institutions that are privately owned

Private sectors entities are goods characterized by rivalry and excludability.

Rivalry – a good consumed by an individual cannot

be consumed by another individual or household

Lifestyle and Trends – there

Excludability or exclusiveness – paying for a good
is a growing trend for
or service prevents access by others who have not
consumers to lead a fit and
paid for the good
healthy lifestyle

Private goods are driven by profit.

Public goods are characterized by nonrivalry and non-excludability.
Nonexcludability – consumption or
use of a public good does not
prevent other individuals from Religion – drives
consuming or using the same good demand through
regardless if they paid for it or not consumer preferences
Nonrivalry – consumption or use
does not reduce the quantity of the
good available for others

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Technological Factor – present opportunities for business
Innovations – largely driven by continuous
technology development and research
Research and Development – the
backbone of innovation
Technology-related Legislation – the importance
of technology in staying competitive is
acknowledged in governance
Department of Information
Communications Technology (RA No. 10844)
INDUSTRY ANALYSIS & COMPETITION
BUSINESSES ARE GROUPED INTO INDUSTRIES AND INDUSTRIES ARE GROUPED INTO SECTORS.
Economic sectors – based on the production
process
Primary sector – includes industries in the
business of extracting raw materials from
natural resources
Secondary sector – groups industries that
process raw materials into goods through
manufacturing and construction
Tertiary sector – covers the marketing and
selling of raw and manufactured products
(Fourth sector – human and technological
development)
A. Agriculture and Fishing – primary sector B. Industry Sector – secondary sector
1. Agriculture, hunting, and forestry 1. Mining and quarrying
and 2. Fishing 2. Manufacturing
3. Construction
4. Electricity, gas, & water supply

Legal Factor – covers new regulations and government mandates that influence
operations of business
New Regulations – regarding the
welfare of employees
C. Service Sector – tertiary sector
1. Transport, storage, and
communication
2. Trade and repair of motor
vehicles, motorcycles, and
personal and household
goods
3. Financial intermediations
4. Real estate, renting, and
business activities
5. Public administration,
Employment Trends – the growing defense, and compulsory
importance of promoting gender equality in social security
the form of equal employment opportunities
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 Environmental Factor – strategic analysis of a business is not complete until evaluation
of natural resources is conducted

Resource Constraints – natural inputs of

production are generally fixed

_______________8. Promote science, technology, and the creative arts to enhance

innovation and creative capacity towards self-sustaining, inclusive
development.
_______________9. Improve social protection programs, including the government’s
Conditional Cash Transfer program, to protect the poor against
instability and economic shocks.
Environmental Regulations – the DENR is the
government agency tasked to look after the
natural resources of the country
Clean Air Act (RA No. 8749)

_______________10. Strengthen implementation of the Responsible Parenthood and

Reproductive Health Law to enable especially poor couples to
make informed choices on financial and family planning.

Clean Water Act (RA No. 9275)

Climate Change Act (RA No. 9729)

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Climate Change – one of the most
pressing environmental issues at this
time across the world
Greenhouse Effect – greenhouse
gas emissions contribute to global
warming
Renewable Energy – energy derived
from the sun, wind, flowing water,
and other naturally renewable
sources
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ACTIVITY 1
DIRECTION: This is the 10-point action plan of the Duterte administration, which was
released soon after he was sworn into office in 2016. Notice that the
plan covers all the components of the PESTLE approach. Read each item
carefully and identify which component of the PESTLE approach it
covers. Write your answers on a sheet of paper.
_______________1. Continue and maintain current macroeconomic policies, including
fiscal, monetary, and trade policies.
_______________2. Institute progressive tax reform and more effective tax
collection, indexing taxes to inflation. A tax reform package will
be submitted to Congress by September 2016.
_______________3. Increase competitiveness and the ease of doing business. This
effort will draw upon successful models used to attract business to
local cities and pursue the relaxation of the Constitutional
restrictions on foreign ownership, except as regards land
ownership, in order to attract foreign direct investment.
_______________4. Accelerate annual infrastructure spending to account for 5% of
GDP, with Public-Private Partnerships playing a key role.
_______________5. Promote rural and value chain development toward increasing
agricultural and rural enterprise productivity and rural tourism.
_______________6. Ensure security of land tenure to encourage investments, and
address bottlenecks in land management and titling agencies.
_______________7. Invest in human capital development, including health and
education systems, and match skills and training to meet the
demand of businesses and the private sector.