Applied Economics

Governor Pack Road, Baguio City, Philippines 2600

Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM 11
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 10- Economics Subject Teacher:

Applied Economics Page 1 of 5

 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM 11
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 10- Economics Subject Teacher:

CONTEMPORARY ISSUES FACING THE FILIPINO ENTREPRENEUR

Learning Objectives:
At the end of this module, the learners must be able to:
a) identify the contemporary issues faced by entrepreneurs; and
b) recognize the effect of contemporary issues to entrepreneurs.

CONTENTS:
Introduction
One of the challenges that entrepreneurs face is the opportunity cost of investing in different
portfolios and interest rates that go with. Investment defined as things that one buys for future use
expecting the value of it to increase.

Contemporary Issues
1. Investments and Interest Rate

An investment is a product that people buy with the hope that they will be beneficial or will
generate income in the future. We classify thee investments as either long term investments or
short term investments. One of the usual long term investments is buying a property or engaging
in real estate. The process is simple: you buy any property then wait for the value to increase as
years go by. Waiting time is over when you decide to sell the property, usually at a higher price,
and move on to the next opportunity to invest.

Banks offer a variety of short term investments. Savings and time deposits are the usual venues for
these types. Security risk is low, gain is also low, and interest rates are fixed. The only problem is
that opportunity cost is high. If you are well versed with other types of investments, it is possible
that you won’t go for these but rather look for other venues.

Other financial intermediaries usually offer other types of investments like stocks and bonds.
The Philippine Stock Exchange is a place where traders buy and sell stocks for profit. Ideally,
brokers buy stocks and sell them at a higher price later. Although it may sound simple, there are
many things that may complicate the profit objective. There are losers and gainers from trading,
you can’t win them all. Let us say you have no money and you are looking for a good portfolio
on what a company to invest with. You may consider the background and the financial
performance of a business before you buy its stocks. Businesses sell out stocks to private entities
like individuals in exchange for ownership to
gather money and expand or open new businesses.

After deciding on what to buy you are now part owner of the corporation and you are entitled
to a percentage share of all of its gains and losses. Owning shares of a company with a good
reputation will make the market value of such increase. In time, other factors will make or break
the reputation of a particular company. If your timing is right, you may sell or trade your stocks for
a better deal. Time is not definite when you trade shares of stocks; you may or may not benefit
from it. It is the risk in investing with such undertaking.

You may also invest in bonds where a company directly or indirectly borrows money from you
and in exchange you get an interest (higher than what banks offer as savings or time deposits)
after a given period of time. You can compute the future value of your money by simply
multiplying the interest rate to the value your investment and adding it to the amount you
invested. Unlike stocks, bonds mature and you need to renew it if you decide to invest with the
same company. You either gain or lose in trading stocks while you get a fixed interest rate on
bonds. In stocks, you get to be a part owner of the company until you let go of your shares while
in bonds you are treated as a temporary lender.

2. Rentals

Having your own small business is also an investment, but these are things that you should
Applied Economics Page 2 of 5
 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM 11
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 10- Economics Subject Teacher:

consider. In any kind of market structure, the first few months of operation is where the business
experience losses. This is because of fixed costs which include rent, machinery and equipment.
Theoretically, as a business continues to operate efficiently, both variable and fixed costs are
distributed among the output equally making it profitable. Profit will only be experienced by the
business if quantity output is exactly at the point where cost is at its lowest. If you do not expand,
there will come a time where the business will experience increasing costs because of the effect
of the Law of Diminishing Marginal Returns.

The law of diminishing returns states that as one input variable is increased, there is a point at
which the marginal increase in output begins to decrease, holding all other inputs constant. At
the point where the law sets in, the effectiveness of each additional unit of input decreases.

In case you decide to expand, (all things being constant) your business will incur profits. But you
need to consider the initial capitalization, cost of expanding, and vulnerability of the market
before you really venture in such project.

3. Minimum Wage

Increasing costs of businesses is brought about by the increasing wages. In the Philippine setting,
each region, has its own minimum wage determined by the standard of living of its residents.
Every now and then, the government tries to increase minimum wage. This minimum wage is
expected to be enough for the ordinary worker to afford things that he/she usually buys. The
objective of increasing minimum wage enough for subsistence is to improve the lives of ordinary
households. But in reality, it brings about unemployment. Setting a minimum wage will result to a
surplus of laborers which was already discussed in the previous lesson.

4. Taxes

Taxes is also a significant issue for issues facing the entrepreneur. Taxes are considered inflows for
the government and outflows for the firms. Business applies either a percentage tax on gross
receipts or on value added. This is a burden for the business. Any tax for that matter is a burden.
Business taxes should be paid every month and income tax from business is taxed quarterly.

Other Problems Faced Under Different Market Structures

Market structures are different composition of sellers and distinguishing quality of goods. It is
essential to identify which of the existing market structure one’s business belongs to and it is also
equally important to identify possible problems or challenges one might face upon entering such
market.

1. Pure Competition

Pure competition is a market structure where there are many buyers and sellers. Since there are
many participants, none of them can cause changes in prices and quantities of goods and services. For
example, when a buyer of “bangus” at Balintawak Market no longer participates in buying “bangus”
and posts a decrease in quantity demand, it does not follow that prices will decrease. This is due to the
fact that a single buyer is insignificant in this of structure and can easily be replaced by new buyers.
Sellers also experience the same scenario.

The usual problem that a competitor faces is how to survive and how to get a fair market share. In
order to be competitive; one has to adjust the size of his/her business to achieve the most efficient plant
size. This is attained by adding more labor inputs until the best combination of labor and capital is
experienced.

2. Monopoly

Monopoly is a market structure where there is only one seller that represents the whole industry. If
sellers are “price takers” in pure competition, a monopolist, on the other hand, is a “price maker”. In a
Applied Economics Page 3 of 5
 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM 11
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 10- Economics Subject Teacher:

monopoly, there is only one good or service with no close substitutes; hence consumers have no other
choice but to patronize that one product or service.

The usual problem that a monopolist faces is the improvement of its product or service. This
problem occurs because the monopolist lacks the foresight to become efficient due to the absence of
competition.

A very good example is the manila Rail Transport (MRT) where many consider the service as poor
and inappropriate. Although there seem to be an effort on the part of the owners to improve its service;
it is still insufficient. And we see the proof of a deteriorating service beyond control.

One solution is the transfer of ownership to an entity that has the resources to improve its services.
Enough funding is needed.

3. Oligopoly

There are many types of oligopoly; an example is where players are the same or there are no
disparities between them. Another example is a dominant player among several players; another
instance is where there are only two players (and some might even have this imperfect collusion). To
better appreciate this market structure type, focus will be given to the Oligopoly in a perfect collusion,
where there is a dominant player and products are homogenous.

Competitors in this kind of a structure collude and are called “player”. Either they play as one
team or they play in different teams. There are few sellers that prefer to make alliances than to compete.
In a duopoly, where there are two sellers, it is best if they work together rather than compete with each
other; or they can just work together and pretend they are competing with each other.

The problem faced here is the existence of barriers to entry where a competitor finds it hard to
enter the industry because of the initial capital requirement. Although it’s a good idea to be able to
have more sellers and producers; the task for the players to enter the industry is extremely difficult.

4. Monopolistic Competition

This market structure has different products with many sellers. Products belonging to the same
industry seem to be identical but they are not. Hair shampoos are an example. Though they have the
same purpose in personal hygiene, each brand is different because they have different compositions
and difficult and different target consumers. One might even lead the industry by being the pioneer or
by producing effective advertisements, or by being simply unique, thus becoming the best brand.

Our personal preference on certain brands has such a strong influence that we already use
certain brand names as generic terms. An example is the term XEROX to mean photocopy. Another
example is COLGATE to refer to toothpaste. In this market structure, “consumer’s loyalty” is experienced
by the seller, when certain consumers prefer their brand over others.

The common problem that a monopolistic competitor faces is how to be unique and different
from its competitors. Being unique is not only through advertisements; it must also yield loyal customers
and this will be the basis of your market share. Otherwise, you belong to pure competition where you
cannot dictate a price and you have no distinguishing quality that will set you above the rest.

Applied Economics Page 4 of 5

 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: ABM 11
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 10- Economics Subject Teacher:

TABLE 1 The Types of Market and their Characteristics
TYPE SELLERS PRODUCT ENTRY OF EXAMPLE COMMON
NEW FIRMS PROBLEM
Pure Profit/
Many Homogenous Free Sugar
Competition Market Share
Improvement
of product/
Monopoly One One No Telecom
service
High capital
Oligopoly Few Differentiated Restricted Oil/Fuel
requirement
Monopolistic Distinguishing
Many Differentiated Free Shampoo
Competition Quality

- - - - - - End of Discussion - - - - - -

References:
• BAL 330 B6301 2017. Boado, Sherry Amour. Applied Economics. Diwa Learning Systems Inc.
• BAL 330 T6355 2017. Nestor Torrefranca, Uriel J. Ancheta . Applied Economics. Fastbooks
Educational Supply, Inc.
• Azarcon, et al. (2008). Principles of Economics. Baguio City: Valencia Book team.
• Caoile, P. V. (2017). Applied Economics. Quezon City: Phoenix Publishing House, Inc.

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