Module

G12-ABM-AS-MELC 6 6
CONTEMPORARY ECONOMIC ISSUES AFFECTING A Week
FILIPINO ENTREPRENEUR 6

I What I Need to Know

Entrepreneurs face constant uncertainty, spelling trouble for who are unprepared for
what lies ahead. However, if you can identify and be aware of the factors working against
you as a young entrepreneur, then you will be able to come up with effective counter
strategies to for you to succeed.

At the end of the module, you should be able to:

1. Identify and discuss the contemporary economic issues faced by Filipino
Entrepreneurs
2. Analyze the effects of contemporary issues affecting business

D What I Know

TASK 1: Choose the best answer in each of the given items.

1.Millionaires depend on only one revenue stream.

A. True
B. False

2. Fixed income investments are investments that provide fixed periodic sources of income
over a certain period of time.
A. True
B. False

3. Special deposit accounts offered by the Bangko Sentral ng Pilipinas (BSP) is a good
example of variable income investment
A. True.
B. False.

4. The purpose of minimum wages is to protect employers against unduly low pay.
A. True.
B. False.

5. TRAIN 2 program will have negative effects on businesses.

A. True.
B. False.

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 D What is It?

Entrepreneurship in the Philippines

In the Philippines, entrepreneurship is viewed as important to empowering the poor,

enhancing production, and as an impetus to innovation. The 1987 Philippine Constitution
recognizes entrepreneurship as an engine of economic growth. Article XII Section 1
highlights the role of private enterprises in supporting equitable distribution of income
and wealth, sustaining production of goods and services and expanding productivity,
therefore raising the quality of life.

The Philippine Development Plan (PDP) further reinforces the thrust on entrepreneurship
through trade and investment to achieve the government’s goal of economic development
and job creation. Based on the plan, measures for macro-economic stability, employment,
trade and investment, agribusiness, power-sector reforms, infrastructure, competition,
science and technology, and anti-corruption are being pursued to strengthen
Philippines’s competitiveness and contribute to job creation.

Economic Issues affecting the Filipino Entrepreneur

A. Investment and Interest Rate

Studies show that millionaires do not depend on only one income but at least seven
streams of income. They do this simply by investing.

Investment
An investment is an asset or item acquired with the goal of generating income or
appreciation.

Two types of Investment

1. Fixed Income Investments- investments that provide fixed periodic sources of
income over a certain period of time. This is suitable for investors who are averse to
risk fixed income investments as these investments are guaranteed to have a lower
risk of losses.
e.g.
 Government securities like treasury bonds, treasury bills and notes
 Corporate bonds (which have higher interests compared to government
securities)
 Special deposit accounts offered by the Bangko Sentral ng Pilipinas (BSP)
 Foreign currency time deposits

2. Variable Income Investment - investment that is suitable for risk tolerant

individuals. Returns are not fully guaranteed and money or resources invested may
also not be fully recovered as investments are strongly influenced by economic
situations and the behavior of financial markets.
e.g.
 Business ownerships in the form of equities
 Company stocks
 Investment fund shares that have a high level of liquidity since they can
be easily converted to cash

Investment and Interest Rates

Interest is the price paid for the use of money. Borrowers exchange the ability to purchase
today in exchange for purchasing in the future — some of the money they receive in the
future will be used to repay the loan ( loanable funds - the amount of money lent out by
a lender to a borrower, for which the borrower will pay an interest rate to the lender for

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 the use of that fund). In economics, Interest has been defined in a variety of ways.
Commonly, Interest is regarded as the payment of the use of service of capital.

Interest rates play a key role in increasing capital stock, which in turn affect
investments. Typically, higher interest rates reduce investment, because higher rates
increase the cost of borrowing and require investment to have a higher rate of return to
be profitable.

 Figure 5.1 shows the market for loanable funds where the demand is the amount of
funds that firms and individuals will
 borrow at a given interest rate.

 A downward sloping demand curve indicates low interest rates, which means that
borrowing money is quite cheap. When the cost of borrowing is low; more people are
encouraged to avail of loans.

 The supply curve is the amount that individuals wish to save. It is upward sloping since
individuals get a higher return on their money when interest rates are high, and they are
thus willing to save more.

 Interest rates affect the level of production of investment goods. A change in interest rates
results in a change in investment demand.

 The rate at which a borrower pays for the money that is borrowed is usually influenced
by macroeconomic conditions such as inflation-which reduces the purchasing power of
capital-and money supply. This relationship is best described by the investment demand
curve.

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 A change in the interest rate causes a movement along the investment demand curve as
shown in Figure 5.2.

Other factors affecting investment:

1. Confidence/ expectation - Investment is riskier than saving. Firms will only

invest if they are confident about future costs, demand and economic prospects.
As expectations change, anticipating future returns from investments, the
investment demand curve shifts to the right. On the other hand, if there are
expectations of lower profits, the investment demand curve shifts to the left.
2. Economic growth - Firms invest to meet future demand. If demand is falling, then
firms will cut back on investment. If economic prospects improve, then firms will
increase investment as they expect future demand to rise. When GDP is high, the
level of production increases. This boosts demand for capital and encourages
higher investments. When household incomes increase, consumption also goes
up, which further leads to a rise in aggregate demand.
3. Technological developments (productivity of capital) - Long-term changes in
technology can influence the attractiveness of investment. If there is a slowdown
in the rate of technological progress, firms will cut back investment as there are
lower returns on the investment.
4. Government policies - Some government regulations can make investment more
difficult. For example, strict planning legislation can discourage investment. On
the other hand, government subsidies/tax breaks can encourage investment. In
China and Korea, the government has often implicitly guaranteed – supported
the cost of investment. This has led to greater investment – though it can also
affect the quality of investment as there is less incentive to make sure the
investment has a strong rate of return.

B. Rentals
Rent typically refers to the use of property for a certain amount. It has been traditionally
associated with land, which is a fixed factor of production. Rent, in economics, the income
derived from the ownership of land and other free gifts of nature.

Rentals is an arrangement to rent something, or the amount of money that you pay to
rent something.

Rent is part of fixed cost. Fixed costs can be a contributor to better economies of scale
because fixed costs can decrease per unit when larger quantities are produced. The most
successful companies operate based on known fixed costs while maintaining the highest
turnover of goods with the least amount of long-term stored inventory, while also keeping
the cost per unit at the lowest level.

C. Wages
In economics, wages is the price paid to labor for its contribution to the process of
production. Labor is an important factor of production. If there is no labor to work, all
other factors, be it land or capital, will remain idle.

Minimum wages have been defined as “the minimum amount of remuneration that an
employer is required to pay wage earners for the work performed during a given period,
which cannot be reduced by collective agreement or an individual contract”. The purpose
of minimum wages is to protect workers against unduly low pay. They help ensure a just
and equitable share of the fruits of progress to all, and a minimum living wage to all who
are employed and in need of such protection. However, a sudden jolt to the lower reaches
of the pay scale could have negative implications for many of the people it was intended
to help - potentially encouraging / forcing businesses to cut jobs, or raising inflation and
thereby defeating its own objective.

To emphasize further, raising minimum wage can result to margins being cut, targets
being raised, and competitors getting ready to have a bigger slice of the market share.
These things of course, are not good for an entrepreneur.

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 D. Taxes

At the national level, 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.

There are a massive 47 tax payments to make each year which consume an average of
193 business hours. Employee-paid tax requirements involve the most payments per
year, and corporate income tax - flat rate of 30% - and VAT take the longest time to
process.

The government has been aggressively reforming the taxation system in the country
especially after the successful passage of the Tax Reform for Acceleration and Inclusion
(TRAIN). The proposed second package for the TRAIN 2 program will have impactful effects
on businesses. In sum, the bill proposes to implement fixed rates when it comes to
corporate taxation and time limits on some important business incentives.

E What’s More?

TASK 2

Interview 3 owners of micro/small/medium enterprises in your community regarding the

challenges they need to face to be successful in their business.

Name of business Type of business Challenges to success

owner

E What can I Engage In?

TASK 3: Analyze the situations and answer according to the concepts discussed in this
module.

1. If you could have P100,00 right now or P150,000 in one year, which would you choose
and why? Discuss the factors you considered in making the decision.

2. Explain the impact of an increase in interest rate on investment. Cite an example in

your discussion.

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 A What I have Learned

TASK 4: Supply the needed information.

1. An investment is

.
2. Investment and interest rates are related because

3. Wages is .

4. TRAIN 2 proposes to

A What I can do

TASK 5: POST-TEST. Choose the best answer from the given choices.

1. All are current issues affecting an entrepreneur, EXCEPT

A. Crime rate.
B. Investment and interest rate.
C. Rentals.
D. Taxes.

2. Interest rates and bond prices,

A. move in the same direction.
B. move in opposite directions.
C. sometimes move in the same direction, sometimes in opposite directions.
D. have no relationship with each other (i.e., they are independent).

3. The minimum wage is an example of:

A. Price floor.
B. Price ceiling.
C. Equilibrium wage.
D. Efficiency of labor.

4. As for the cost of production of an individual farmer, the rent paid by him:
A. Enters into the price of his product.
B. Does not enter into price of his product.
C. Is unjustified
D. None of the above.

5. With decrease in price of bonds, rate of interest:

A. Decreases.
B. Increases.
C. Does not change.
D. None of the above.

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References

Hall, R and Lieberman, M., (2017). Microeconomics, Principles and Applications.

https://kupdf.net/download/microeconomics-principles-and-applications-robert-e-hall-
marc-lieberman_5b092516e2b6f5675e86f03c_pdf#
Online:

https://www.britannica.com/topic/rent-economics
https://dictionary.cambridge.org/us/dictionary/english/rental
https://www.cipe.org/resources/entrepreneurship-philippines-opportunities-
challenges-inclusive-growth/
https://www.cuvantis.com/fixed-vs-variable-rate-intevesting/
https://www.economicshelp.org/blog/425/interest-rates/investment-and-the-rate-of-
interest/
https://www.economicshelp.org/blog/136672/economics/factors-affecting-investment/
https://www.ilo.org/global/topics/wages/minimum-
wages/definition/WCMS_439072/lang--en/index.htm
https://kmcmaggroup.com/research-insights/2019/how-train-2-will-affect-businesses- in-
the-philippines/
https://oxfordbusinessgroup.com/overview/key-points-detailed-look-tax-laws-
businesses
https://www.tmf-group.com/en/news-insights/business-culture/top-challenges-
philippines/

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ASSESSMENT (Weeks 1-6)

PART I. Multiple choice. Choose the best 7. If Francis receives a decrease in his pay,
answer from the given choices. we would expect
a. Francis’s demand for each good he
1. Economics deals primarily with the purchases to remain unchanged.
concept of b. Francis’s demand for normal goods
a. scarcity. to increase.
b. poverty. c. Francis’s demand for luxury goods to
c. change. increase.
d. power. d. Francis’s demand for inferior goods
to increase.
2. What you give up to obtain an item is
called your
a. opportunity cost. 8. If the price of a substitute to good X
b. explicit cost. increases, then the
c. true cost. a. demand for good X will decrease.
d. direct cost. b. market price of good X will decrease.
c. demand for good X will increase.
3. In the circular-flow diagram, money d. quantity demanded for good X will
spent by households increase
a. is earned from the sale
of factors of production. 9. A country with an aging population will
b. becomes profit to firms. generally experience
c. cannot be tracked in the diagram. a. no change in either market demand or
d. is used to purchase factors of individual demand for prescription drugs.
production. b. a decrease in the market demand for
prescription drugs.
c. an increase in individual demand for
prescription drugs, but no change in market
demand.
d. an increase in the market demand for
prescription drugs.

10. When quantity demanded decreases at

every price we know that the demand curve
has
a. shifted to the left.
b. shifted to the right.
c. not changed, but we have moved down
the curve to a new point.
d. not changed, but we have moved up the
curve to a new point.
4. According to a simple circular-flow
diagram, households and firms interact in
11. A supply curve slopes upward because
a. only one type of market.
a. as more is produced, total cost of
b. two types of markets.
production falls.
c. three types of markets.
b. an increase in input prices increases
d. Households and firms do not
supply.
interact.
c. a decrease in input prices decreases
supply.
5. In a simple circular-flow diagram, firms
d. an increase in price gives
own the factors of production and use them
producers incentive to supply a larger
to produce goods and services.
quantity.
a. True.
b. False.
12. Workers at a bicycle assembly plant
currently make minimum wage. If the
6. Which of the following would NOT be a
federal government increases the minimum
determinant of demand?
wage by $1.00 an hour it is likely that the
a. the price of related goods
a. demand for bicycle assembly workers will
b. income
increase.
c. tastes
b. supply of bicycles will shift to the right.
d. the prices of the inputs used to
c. supply of bicycles will shift to the left.
produce the good
d. firm must increase output to maintain
profit levels.

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13. An increase in the price of oranges
would lead to
a. an increased supply of oranges.
b. a reduction in the prices of inputs used in
orange production.
c. an increased demand for oranges.
d. a movement up the supply curve for
oranges.
14. An advance in production technology will
a. increase a firm’s costs.
b. allow firms to raise the price of their
product.
c. shift the supply curve to the right.
d. Both a and b are correct.
15. If the number of sellers in a market
increases, the
a. demand in that market will increase.
b. supply in that market will increase.
c. supply in that market will decrease.
d. demand in that market will decrease.
16. The price where quantity supplied equals
quantity demanded is called the
a. coordinating price.
b. monopoly price.
c. equilibrium price.
d. All of the above are correct.
17. If, at the current price, there is a
shortage of a good,
a. sellers are producing more than
buyers wish to buy.
b. the market must be in equilibrium.
c. the price is below the equilibrium price.
d. quantity demanded equals
quantity supplied.
18. According to the graph, at a price of $35,
a. there would be a shortage of 400 units.
b. there would be a surplus of 200 units.
c. there would be a surplus of 400 units.
d. the market would be in equilibrium.
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19. Which of the four graphs represents the
market for peanut butter after a major
hurricane hits the peanut-growing south?
a. A
b. B
c. C
d. D
20. If a shortage exists in a market we know
that the actual price is
a. below equilibrium price and quantity
demanded is greater than quantity supplied.
b. above equilibrium price and quantity
demanded is greater than quantity supplied.
c. above equilibrium price and quantity
supplied is greater than quantity demanded.
d. below equilibrium price and quantity
supplied is greater than quantity demanded.
21. If a good is a necessity, demand for the
good would tend to be
a. elastic.
b. horizontal.
c. unit elastic.
d. inelastic.
22. A perfectly inelastic demand implies that
buyers
a. decrease their purchases when the
price rises.
b. purchase the same amount when the
price rises or falls.
c. increase their purchases only slightly
when the price falls.
d. respond substantially to an increase in
price.
23. When a supply curve is relatively flat,
a. the supply is relatively elastic.
b. the supply is relatively inelastic.
c. sellers are not at all responsive to a
change in price.
d. quantity supplied changes slightly when
the price changes.
24. You have just been hired as a business
consultant to determine what pricing policy
would be appropriate in order to increase
the total revenue of a major shoe store. The
first step you would take is to
a. increase the price of every shoe in the
store.
b. look for ways to cut costs and increase
profit for the store.
c. determine the elasticity of demand for the
store’s products.
d. suggest that the store purchase an
entirely new line of shoes that they
could sell more cheaply.
25. According to the graph, total revenue at
a price of $30 would be
a. $9,000.
b. $7,000.
c. $5,000.
d. $3,000.
26. Which of the following is NOT a
characteristic of a perfectly
competitive market?
a. Firms are price takers.
b. Firms have difficulty entering the market.
c. There are many sellers in the market.
d. Goods offered for sale are largely the
same.
27. Which of the following scenarios best
represents a monopoly situation?
a. Bill and Tom work separately from one
another but both sell a very rare form of the
same diamond. They are the only sellers of
this type of diamond in town.
b. Tom owns a fishing tackle shop in Miami,
Florida, in which he sells the top-of-the-line
fishing equipment.
c. Bill owns the only grocery store in a
small community that lies 200 miles from
the nearest city.
d. None of the above adequately represents a
monopoly.
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28. Monopolistic competition differs from
perfect competition because in
monopolistically competitive markets
a. there are barriers to entry.
b. all firms can eventually earn economic
profits.
c. each of the sellers offers a somewhat
different product.
d. strategic interactions between firms is
vitally important.
29. Which of the following market
structures features free entry and exit?
(i) perfect competition
(ii) monopolistic competition
(iii) monopoly
a. (i) only
b. (i) and (ii) only
c. (ii) and (iii) only
d. All of the above are correct.
30. Markets with only a few sellers, each
offering a product similar or identical to
the others, are typically referred to as
a. competitive markets.
b. monopoly markets.
c. monopolistically competitive markets.
d. oligopoly markets.
PART II.
A. Using this outline, draw a circular-flow
diagram representing the interactions
between households and firms in a simple
economy. Explain briefly the various parts of
the diagram.
B. Imagine yourself as an
entrepreneur considering a small
business:
1. What kind of enterprise will you build?
2. What risks and sacrifices does such an
enterprise demand? Are you willing to
take the risks?
3. What will be your strategies in
overcoming the challenges and accomplish
your goal of making profits?