Lesson 1 Revisiting Economics as a Social Science

Economic- is a social science concerned with the production, distribution, and consumption of goods and services. It
studies how individuals, businesses, governments, and nations make choices about how to allocate resources.

Economics comes from greek word "oikanomia"meaning household management

 Fajardo, Economics is the proper allocation and efficient use of available resources.
 Samuelson, Economics is the study of how societies use scarse resources to produce valuable commodities and
distribute them among different people
 Nordhaus, Economics is the science of choice. It studies how people choose to use scarce resources
 Sicat, Economics is a scientific study which deals with how individuals and society in general make choices.
 Castillo, Economics is the study of how man could best allocate and utilize the scarce resources of society to
satisfy his unlimited want
 Webster, Economics is a branch of knowledge that deals with the production, distribution and consumption of
goods and services.

Economics covers all kinds of topics, but at the core, it is devoted to understanding how society allocates its scarce
resources.

IMPORTANCE OF ECONOMICS

Economics provides a framework for understanding the actions and decisions of individuals, businesses and
governments. It provides a means to understand interactions in a market-driven society and for analyzing government
policies that affect the families, jobs and lives of citizens.

 Studying economics provides one with not just an understanding of human behaviour, but also cultivates in
students the problem solving, analytical, communication and persuasion skills that are critical for success in
today's job market.

Nature of Economics

Economics is a science. A science is a body of systematic knowledge built upon by conscious efforts. Its laws and
principles are arrived at only after a long series of observation and experimentation.

 Economics is a social science which means it studies society and relationships between people. Economics is
classified as a social science because it deals with the study of man's life and how he lives with other men.
 Economics is not really about money, instead it is about the decisions that we take in our everyday life – from
who to date, whether to buy a house or which job to apply for. For every choice we make as individuals or as a
society, there is a cost and a benefit
 A study of economics can describe all aspect of a country's economy, such as how a country uses resources, how
much time laborer's devote to work and leisure, the outcome of investing in industries or financial products, the
effect of taxes on a population, and why business succeed or fail.

Economic Activities

 Earning money
 Buying goods and services
 Depositing and withdrawing money in bank

Economics is divided into two branches:

 Macroeconomics and
 Microeconomics

Macroeconomics- is the branch of economics that studies the behavior and performance of an economy as a whole. It
focuses on the aggregate changes in the economy such as unemployment, growth rate, gross domestic product and
inflation.

Microeconomics- is the study of individuals, households and firms' behavior in decision making and allocation of
resources. It generally applies to markets of goods and services and deals with individual and economic issues.

Lesson 2 - Economics as an Applied Science.

Applied economics- is the study of economics in relation to real world situation, as opposed to the theory of economics.
It is the application of economic principles and theories to real life situations, and trying to predict what the outcomes
might be.

Applied economics - is the study of observing how theories work in practice.

WHAT IS THE IMPORTANCE OF APPLIED

ECONOMIC APPLICATION?

I. Applying economics to the status of the economy of a company, household or a country helps to sweep aside all
attempts to dress up situation so that it will appear to be worse or better than it actually is

EXAMPLE

Applied economics can assess the profits of a certain company

The result can help the executives to do some strategies in order to boost its sales.

II. Applied economics acts as a mechanism to determine what steps can reasonably be taken to improve the current
economic situation.

EXAMPLE

 Purchase of goods and services

 Usage of raw materials
 Division of labor within entity

III. Applied economics can teach valuable lesson on how to avoid the recurrence of a negative situation, or at least
minimize the impact.

Econometrics - is the application of statistical and mathematical theories to economics for the purpose of:

 Testing hypotheses
 Forecasting future trends

Scarcity - is the root cause of all economic problems.

Scarcity refers to the tension between our limited resources and our unlimited wants and needs

Scarcity is the fundamental economic problem of having humans who have wants and needs in a world of limited
resources

- Poverty

- Unemployment

- Inflation

- Slow growth

Because of the scarcity of resources, every economic system is faced with the following problems

1. What to produce? -Goods and services based on the needs of consumer

2. How to produce? - proper combination of economic resources in producing right amount of output

3. For whom shall goods and services be produced- Once the goods are produced, how they shall be distributed

4. Are the country's resources are being utilized or some of them are lying idle and unemployed? when resources are
scarce, it is not in rightness of things to keep some of the available resources idle.

5. Is the economy's capacity to produce goods growing or remaining the same overtime? To achieve a growth in
productive capacity is a universal objective

Lesson 3 The Philippine Socio-Economic Development in the 21th Century

Agenda 21 is an action plan of the United Nations (UN) related to sustainable development and was the outcome of the
United Nations Conference on Environment and Development. It is adopted at the Earth Summit in Rio de Janeiro,
reflects a global consensus and political commitment at the highest level on development and environment cooperation.
The Agenda deals with both the pressing problems of today and the need to prepare for the challenges of the next
century.

The objectives of Agenda 21 require substantial assistance for developing countries. They need this additional support to
cover the incremental costs of actions to deal with global environmental problems and to accelerate sustainable
development. Money is also needed to allow international bodies to implement the recommendations of Agenda 21.

Philippine Agenda 21 Philippine Agenda 21 is the nation's blueprint for sustainable development. In concreting the
vision, it describes a path for individuals, families, households and communities; an action plan for each ecosystem
(coastal/marine, freshwater, upland, lowland, and urban); and across ecosystems in consideration of the interaction of
the various life capes and landscapes found therein. The path is grounded on respect and active advocacy for the
empowerment of the various social groupings of society to manage the economy, critical resources, society and culture,
politics and governance and in the arena of foreign relations.
Philippine Agenda 21 advocates a fundamental shift in development thinking and approach. It departs from traditional
conceptual frameworks that emphasize sector-based and macro concerns. Philippine Agenda 21 promotes harmony and
achieves sustainability by emphasizing.

1. A scale of intervention that is primarily area-based. The national and global policy environment builds upon and
supports area-based initiatives.

2. Integrated island development approaches where applicable. This recognizes the archipelagic character of the
Philippines which includes many small island provinces.

3. People and integrity of nature at the center of development initiatives. This implies the strengthening of roles,
relationships, and interactions between and among stakeholders in government, civil society, labor, and business. Basic
sectors have an important role to play in achieving equity and managing the ecosystems that sustain life

The Philippine Agenda 21 Visions

Poverty Reduction- improved employment, increased productivity, and income and attain food security

Social Equity- channeling of resources to developing areas where greater economic benefits accumulate and where
there is a greater need

Empowerment and Good Governance- Good governance is a necessary precondition to empowerment, as

empowerment to good governance.

Peace and Solidarity- The cycle of poverty and conflict goes on as the cost of war escalate in terms of various kinds of
destruction while with holding funds for basic services, resulting in more poverty and underdevelopment

Ecological Integrity- In general, the path towards enhancing the integrity of the country's ecological domain will have to
involve heightened and sustained implementation of environmental laws, as well as the continued pursuit of resource
conservation and environmental restoration/ enhancement programs., and environment.

Sustainable development is defined as an approach to developing or growing by using resources in a way that allows for
them to renew or continue to exist for others. Using recycled materials or renewable resources when the building is an
example of sustainable development.

Sustainable development- is defined as an approach to developing or growing by using resources in a way that allows for
them to renew or continue to exist for others. Using recycled materials or renewable resources when the building is an
example of sustainable development.

Sustainable development always encourages us to conserve and enhance our resources, by gradually changing the
manners in which we develop and use technologies. All Countries should meet their basic needs of employment, food,
energy, water, and sanitation. Everybody is rightful to a healthy, safe, and clean environment

7 Dimension of Development

1. Spiritual Development Spiritual growth enhances our ability to deal with life's ups and downs and bounce back from
those difficult experiences.

2. Human Development This means developing people's abilities and giving them a chance to use them. For example,
educating a girl would build her skills, but it is of little use if she is denied access to jobs, or does not have the skills for
the local labor market.
3. Social and Cultural Development

 Promoting resource access and upholding property rights

 Promoting environmental awareness, inculcating environment ethics, and supporting environment management
action

4. Political Development

 Empowering the people

 Maintaining peace and order

5. Economic Development

 Maintaining a sustainable population

 Maintaining productivity and profitability of environment and natural resources

6. Ecological Development

 Adopting environment management weapon in policy and decision making

 Protecting the environment and conserving natural resource

7. Principles of Sustainable Development

1. Primacy of developing full human potential- This puts man at the center of all development efforts.

2. Holistic Science and Appropriate technology- Implies development of appropriate technology to solve development
problems with due consideration to its impact to society and ecology

3. Cultural, Moral and Spiritual Sensitivity- Considers the inherent strengths of focal and indigenous knowledge,
practices and beliefs, while respecting cultural diversity, moral standards and spiritual nature of the Filipino society.

4. National Sovereignty- Self-determination at the national level to pursue social and ecological concerns in its
governance to achieve human, environment and food security

5. Gender Sensitivity- Recognize the importance of complementary roles and empowerment of both women and men in
development.

6. Peace, Order and National Unity- Makes sure that the right of everyone to a peaceful and secure existence is
respected.

7. Social Justice, Inter-and-IntraGenerational Equity and Spatial- Equal distribution of resources to everyone ( including
future generations) and the provision of equal access to development opportunities and benefits to all

8. Participatory Democracy- Puts value and support to the participation of all in the decision-making process.

9. Institutional Viability- Since SD is everyone’s concern, institutional structures should promote joint responsibility,
unity and partnership among all

10. Viable, Sound and Broad-based Economics Development- Requires working for development that is based on stable
economy, where everyone equally shares the benefits of progress.

11. Sustainable Population- Needs to maintain a number of people that can be supported by the limited capacity of our
natural resources.

12. Ecological Soundness- Requires that we recognize the earth as a common heritage that belongs to all of us, and
everyone should care for its capacity to support us and the future generations

13. Bio-geographical Equity and Community-Based Resource Management- Means entrusting to the people residing
near or within an ecosystem the primary right to manage its resources

14. Global Cooperation- Requires international solidarity of every nation’s effort to build a better life and safer
environment

Lesson 4 Application of Supply and Demand

Overview- Many individuals do not really understand how the prices of goods and services are determined. Many think
that prices are determined by the government. This is true in some basic goods and services like rice, gasoline, sugar, or
rent of apartments. In a market economy like ours, prices of goods and services are determined by the interaction
between demand and supply of goods and services. The government does not interfere. It is common fact that supply
also affects the prices of goods and services in the market. An understanding of the law of supply will give the individual
an insight why there is scarcity and surplus of goods and services in the market.

Demand- is the number of consumers who are willing and able to buy products at various prices during a given period of
time. Demand for any commodity implies the consumers' desire to acquire the good, the willingness and ability to pay
for it.
Supply- is a fundamental economic concept that describes the total amount of a specific good or service that is available
to consumers

Supply and demand is the number of goods and services that are available for people to buy compared to the number of
goods and services that people want to buy. If less of a product than the public wants is produced, the law of supply and
demand says that more can be charged for the product

The law of supply and demand- is a theory that explains the interaction between the sellers of a resource and the buyers
for that resource. The theory defines the relationship between the price of a given good or product and the willingness
of people to either buy or sell it.

What Is a Commodity?- A commodity is a basic good used in commerce that is interchangeable with other goods of the
same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a
given commodity may differ slightly, but it is essentially uniform across producers. When they are traded on an
exchange, commodities must also meet specified minimum standards, also known as a basis grade.

 Commodities are basic goods and materials that are widely used and are not meaningfully differentiated from
one another. Examples of commodities include barrels of oils, bushels of wheat, or megawatt-hours of
electricity.
 “Basic necessities” – refers to rice, corn, bread, fresh, dried, and canned fish and other marine products, fresh
pork, beef and poultry meat, fresh eggs, fresh and processed milk, infant formulas, fresh vegetables, root crops,
coffee, sugar, cooking oil, salt, laundry soap, detergents, firewood, charcoal, candles.

Prices of Basic Commodities- Rice remains the most important food item in the daily meals of Filipinos. It comprises the
bulk of their total volume of consumption and amount of expenditures for the 15 most commonly consumed agricultural
food commodities in the Philippines. However, at the individual level, rice consumption and expenditures vary
significantly across socio-demographic characteristics and locations of the consumers.

 If ever prices of basic commodities in the market increase, naturally, the tendency of the consumers is to look
for substitute products that are lesser in price. For example, if the price of meat increases in the market, the
consumers will look for a cheaper substitute

Labor Supply, Population Growth, and Wages

Labor laws and regulations have been devised to protect labor from abuses by employers and to improve the power of
labor to bargain for decent wages and working conditions. Practices and regulations in the labor market are focused on
minimum wage mandates, labor regulations concerning the hiring and firing of workers. Such practices have their cost.
They render the labor market less flexible. For instance, a long conflict resolution process raises the cost of employment.
Potential negative effects of these policies could defeat the objectives of improving labor welfare.

 Philippine minimum wage policy has been the object of a lot of attention because, from the very start,
government minimum wage mandates have been "high"." They were made to carry the burden of raising wages
for workers ". Because of the critical role played by minimum wages policy in setting wages for workers in the
country, the first order of business of the study was to focus on the evidence concerning minimum wages. "The
Philippine national minimum wage in 2021 was 537 pesos a day, it has not changed since 2019. in the long term,
the Philippine minimum daily wage will be around 537 pesos a day in 2022 and 547 pesos a day in 2023"

Migration is the movement of either people or animals from one area to another.

Internal migration - refers to the movement of people within one country (rural to urban migration)

International Migration - refers to the movement of people from one country to another

Causes of Migration

 Poverty
 Unemployment
 Victims of natural calamities
 Improve the standard of living
 Better Education
 Better Environment
 Economic Security

The term "Overseas Filipino Worker" (OFW) was used as early as the 1990s to refer to Filipino migrant workers, when
Republic Act 8042, also known as the Migrant Workers and Overseas Filipinos Act of 1995 was enacted. The term was
officially adopted by the Philippine government when the Philippine Overseas Employment Administration (POEA)
adopted the 2002 POEA Rules and Regulations Governing the Recruitment and Employment of Land-based Overseas
Workers. Historically, particularly during the administration of President Ferdinand Marcos, the term "Overseas Contract
Worker" (OCW) was used.[3] For statistical and probability purposes, the term "Overseas Contract Worker" refers to
OFWs with an active employment contract, while OFWs who are not OCWs are migrant workers currently without a
contract who had one within a given period of time.
Reasons behind OFW Phenomenon

1. High unemployment rate

2. Low salary offered by employers in the Philippines

3. Discrimination in job hiring in the Philippines

4. High withholding tax

The Philippine housing Shortage and the Real Estate Boom: Rent and Prices

 The Philippines is hit by frequent seismic activity and around 20 typhoons a year, destroying lives, livelihood, and
homes. According to the country's largest association of housing developers, the current housing deficit is
estimated at 4 million units
 Housing demand in the Philippines has been mainly dictated by housing affordability which refers not only to a
household's ability to pay but also to the price of housing in the market and the financing schemes available.
Housing affordability is low in the country because of these factors: The ratio of unit housing cost to income is
rapidly rising There are few low-cost alternatives to homeownership in the formal market.
 The Philippines' real estate market has suffered hard in 2020 due to the COVID-19 pandemic and will most likely
be in recovery mode in 2021. While prices have dropped by double digits, we also see reduced lease rates and
take-up rates

Lesson 5 - Contemporary Economic Issues Facing the Filipino Entrepreneur

In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to
create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income
in the future or appreciate and be sold at a higher price.

Investment refers to an increase in capital assets, and typically includes investment by business, investment in property
(‘dwellings’), and investment by governments in ‘social’ capital. Firms invest for two primary reasons: Firstly, the
investment may be required to replace worn-out, or failing machinery, equipment, or buildings. This is referred to as
capital consumption and arises from the continuous depreciation of fixed capital assets. Secondly, the investment may
be undertaken to purchase new machinery, equipment, or buildings in order to increase production capacity. This will
reduce long-term costs, increase competitiveness, and raise profits.

The gross investment includes both types of investment spending, but net investment only measures new assets rather
than the replacement of assets. This relationship is expressed in the following equation

Net investment = gross investment – depreciation

For example, if an airline replaces five worn out aircraft with identical new aircraft, and purchases two more aircraft in
order to be able to fly to more destinations, then gross investment is seven, replacement investment is five, and net
investment is two. In economic theory, net investment carries more significance, as it provides the basis for economic
growth.

The determinants of investment

The level of investment in an economy tends to vary by a greater extent than other components of aggregate demand.
This is because the underlying determinants also have a tendency to change.

The main determinants of investment are:

1. The expected return of the investment - Investment is a sacrifice, which involves taking risks. This means that
businesses, entrepreneurs, and capital owners will require a return on their investment in order to cover this risk, and
earn a reward. In terms of the whole economy, the amount of business profits is a good indication of the potential
reward for investment.

2. Business confidence - Similarly, changes in business confidence can have a considerable influence on investment
decisions. Uncertainty about the future can reduce confidence, and means that firms may postpone their investment
decisions until confidence returns.

3. Change in national income - Changes in national income create an accelerator effect. Economic theory suggests that,
at the macro-economic level, small changes in national income can trigger much larger changes in investment levels

4. Interest rates - Investment is inversely related to interest rates, which are the cost of borrowing and the reward to
lending. Investment is inversely related to interest rates for two main reasons.

Firstly, if interest rates rise, the opportunity cost of investment rises. This means that a rise in interest rates increases
the return on funds deposited in an interest-bearing account, or from making a loan, which reduces the attractiveness of
investment relative to lending. Hence, investment decisions may be postponed until interest rates return to lower levels.
Secondly, if interest rates rise, firms may anticipate that consumers will reduce their spending, and the benefit of
investing will be lost. Investing to expand requires that consumers at least maintain their current spending. Therefore, a
predicted fall is likely to discourage firms from investing and force them to postpone their investment decisions.

5. General expectations - Because investment is a high-risk activity, general expectations about the future will influence
a firm’s investment appraisal and eventual decisionmaking. Any indication of a downturn in the economy, a possible
change of government, war or a rise in oil or other commodity prices may reduce the expected benefit or increase the
expected cost of investment.

6. Corporation tax - Firms pay corporation tax on their profits, so a reduction in tax increases the profits they retain after
tax is paid, and this acts as an incentive to invest. There current rate of 20% will fall to 19% in 2017, and then to 18% in
2020.

7. The level of savings - Household and corporate savings provide a flow of funds into the financial sector, which means
that funds are available for investment. Increased saving may reduce interest rates and stimulate corporate borrowing
and investment.

The Accelerator Effect- Small changes in household income and spending can trigger much larger changes in investment.
This is because firms often expect new sales and orders to be sustained into the long run, and purchase larger quantities
of capital goods than they need in the short run. In addition, machinery is generally indivisible which means it cannot be
broken into small amounts and bought separately. Even small increases in demand can trigger the need to buy
completely new machines or build entirely new factories and premises, even though the increase in demand may be
relatively small. The combined effect of these two principles creates what is called the accelerator effect

 Among the current problems that Filipino entrepreneurs encounter today are the: inadequate access to
technology, financing capital, marketing advice and logistical problems in setting up and maintaining their
competitiveness in their community

Unemployment Status in the Philippines.

Despite rapid economic growth in the Philippines in recent years, unemployment remains a persistent problem for the
sprawling Southeast Asian nation of more than 100 million people. Unemployment Rate in December 2021 is Estimated
at 6.6 Percent | Philippine Statistics Authority.

Republic Act 7042, also known as the “Foreign Investments Act of 1991,” is a law regulating foreign investments in the
Philippines. The act allows foreign investors to invest up to 100% equity in domestic market enterprises but also sets
restrictions. The Philippines seeks foreign investment to generate employment, promote economic development, and
contribute to sustained growth. The Board of Investments (BOI) and PEZA are the lead investment promotion agencies
(IPAs). They provide incentives and special investment packages to investors

Foreign investments shall be encouraged in enterprises that significantly expand livelihood and employment
opportunities for Filipinos; enhance the economic value of farm products; promote the welfare of Filipino consumers;
expand the scope, quality, and volume of exports and their access to foreign markets.

For foreign investors to be able to own and operate a business in the Philippines, certain ownership requirements
should be met. Under the Foreign Investments Act of 1991 (“FIA”), a foreign investor is generally allowed to own 100%
of any local business enterprise. FDI boosts the manufacturing and services sector which results in the creation of jobs
and helps to reduce unemployment rates in the country. Increased employment translates to higher incomes and equips
the population with more buying powers, boosting the overall economy of a country

Taxes in the Philippines- Personal and corporate tax system of the Philippines are the "most uninviting and out of date"
among the Association of the Southeast Asian Nations (ASEAN) economies, several economist said. Mistakes in tax
payment can result in large penalties or even imprisonment.

Types of Business Taxes

 Value-added tax (VAT) - The tax is equivalent to a uniform rate of 12%, based on the gross selling price of goods
or properties sold, or gross receipts from the sale of services.
 Salary and Wage Taxes - as a business owner responding to the welfare of your employees, you must withhold
and remit to the proper government agencies employee income withholding taxes, SSS premiums, Pag-Ibig, and
Medicare.
 Amusement Taxes - amusement tax is payable by proprietors, lessees, or operators of theaters, cinemas,
concert halls, circuses, boxing stadia, and other places of amusement at a rate of not more than 10% of the
gross receipts from admission fees.
 Excise Taxes - apply to goods manufactured or produced in the Philippines for domestic sales or consumption or
for any other disposition and to things imported. The excise tax imposed shall be in addition to the value-added
tax
 Import Taxes - when your business involves the importation of goods as part of your raw material, you have to
pay customs duties. Importation of certain industrial machinery and equipment also entails payment of import
duties.
  Individual Income Taxes - Your income from a sole proprietorship business is considered personal income and
must be included in your Individual Tax Return (ITR)
 Corporate Income Taxes - If your business is structured as a corporation, the corporation pays its own income
taxes as if it is a separate tax-paying entity.
 Real Estate Taxes - If your business owns real estate or land, you must pay for real estate taxes on a quarterly
basis. There are penalties involved in late payment.
 Estate or Inheritance Taxes - When you passed away, your heirs pay inheritance taxes on money and property
that you leave to them

Effects of High Taxes on Business

Inadequate Incomes - The total outcome of all effects is a large tax burden.

Low Wages - Multiple governments levy so many taxes on business that "taxes" is the highest budget items on the
ledger sheets of most businesses.

High Prices - Multiple governments levy so many taxes on businesses that "taxes" is the highest budget items on the
ledger sheets of most business

Substandard Products - Substandard product means a product which fails to comply with an applicable consumer
product safety rule which creates a substantial risk of injury to the public.

Product Unavailability and Continuation - Product availability includes the cost of designing, manufacturing, storing, and
delivering different item variances. With high product availability, customers can visit a business knowing all of their
shopping needs can be fulfilled. Alternatively, low availability can result in lost sales and low customer retention.

Poverty and High Crime - Because more people can't afford to live on their incomes, the poverty rate goes up. This
causes an additional drain on the budgets of government social programs. This means that each poor person can't get
enough to live on.

The Comprehensive Tax Reform Program (CTRP) is needed to accelerate poverty reduction and to sustainably address
inequality, in order to attain the President's promise of tunay na pagbabago.

Why do we have Tax Reform?

Tax reform is the process of changing the way taxes are collected or managed by the government and is usually
undertaken to improve tax administration or to provide economic or social benefits.

What are the benefits of Tax Reform in the Philippines?

The Comprehensive Tax Reform Program will help the economy grow by 1.3% by 2022. GDP will be boosted as a result
of higher household consumption due to lower income tax and the cash transfers. Increased economic activity will be
buoyed by increased household consumption and higher investments