APPLIED ECONOMICS

MODULE 2 - Lesson 3.1 Contemporary Issues Facing Filipino Entrepreneurs

INTEREST - Interest is the amount of money a lender or financial institution receives for
lending out money. Interest can also refer to the amount of ownership a stockholder has in
a company, usually expressed as a percentage.

TYPES OF INVESTMENT
1. FIXED INCOME INVESTMENT - are investments that provide fixed periodic sources of
income over a certain period. Types of investment security that pay investors fixed
interest or dividend payments until its maturity date. Common fixed income
investments include Treasury bonds, government and agency bonds, municipal
bonds, corporate bonds, and mortgage-backed securities, as well as certificates of
deposit.

2. VARIABLE INVESTMENT - Are forms of investment that are suitable for risk tolerant
individuals. Returns are not fully guaranteed, and money or resources invested may
also not be fully recovered. The reason is that their returns from variable income
investments are strongly influenced by economic situations and the behaviour of the
financial market. Type of investment where there is no assurance that all of the
money invested will be recovered, and the amount of any potential returns will not
be guaranteed or known in advance.

Issues/Problem/s associated with Investing Stocks

Businesses sell out stock to private entities like individuals in exchange for ownership to
gather money and expand or open new businesses. After deciding what to buy, you are now
part- owner of the company, and you are entitled to a percentage share of all its gains or
losses. If your timing is right, you may sell or trade your stock for a better deal. The risk of
investing is you gain, or you lose to it.

INSIDERS TRADING - the trading of a company's securities by individuals with access to

confidential or material non-public information about the company. Asymmetry of
information gives market players unfair advantage.
RENTALS - refers to the use of the property for a certain amount naturally it would be the
amount you pay if you are renting a house, an apartment, or living in a dormitory or
boarding house.
RENT - is the price you paid for the use of land and other natural resources or factors of
production that is fixed in supply. Traditionally associated with land, which is a fixed factor
of production.
Issues/Problem/s associated with rentals
Many business owners, especially small businesses, have many things to consider. In any
kind of market structure, the first few months of operation usually find the business
experiencing loss. This is because of the fixed cost which includes rent, machinery, and
equipment.
Investing in the land takes a long time to profit because it takes a long time to sell such
property, which means money is not easily realized.
On the other hand, if the demand for land and apartments is high, then price will increase
thus making it hard for the average person to own a place.

WAGES - is monetary compensation (or remuneration, personnel expenses, labor) paid by

an employer to an employee in exchange for work done.
SALARY - is a form of payment from an employer to an employee, which may be specified in
an employment contract. It is contrasted with piece wages, where each job, hour, or other
unit is paid separately, rather than on a periodic basis.

MINIMUM WAGES - In the Philippines, each region has its own wage determined by the
standard of living of its residents. Every now and then, the government tries to increase the
minimum wage. This minimum wage is expected to be enough for the ordinary worker to
afford things that he or she usually buys. The objective of increasing the minimum wage is
to improve the lives of ordinary households. But in reality, it brings about unemployment.
Setting a minimum wage will result in a surplus of laborers

Issues/Problem/s associated with wage.

Just like in rentals, the business has many things to consider before starting up, especially
those small businesses, these includes the rentals on land, wages, and salaries of the
employees, capital and machinery, the competitors and etc. form these things, an
entrepreneur needs a big amount of money before starting up a business in consideration of
these factors.
What is the correct minimum wage? Too high and it is bad for businesses, especially small
businesses. Too low and it is bad for workers. It might bad for the whole economy as well as
people spend.
Note: poor and middle-class people spend a greater percentage of their income on
goods/services than rich people. High income inequality is not actually good for the
economy as rich people tend to spend a lesser percentage of their income. A greater
percentage of their income is saved/invested.
TAXES - are the lifeblood of the government. Inflows of the government and outflow for the
firms. Without taxes, the government will not be able to provide services to its people, such
as public works, health, education, defenses and police protection, and social services.

TYPES OF TAXES
1. DIRECT TAXES - are taxes levied by the government on the income and wealth
received by households and businesses to raise government revenue and to act as an
instrument of fiscal policy. Taxes levied on households are called individual income
taxes. If you earn a certain amount of money, you must pay these taxes. Taxes on
business are called corporate income taxes. If a corporation earns a profit, it must
pay a corporate income.
2. INDIRECT TAXES - Are taxes levied by the government on goods and services to raise
revenue and to act as an instrument of fiscal policy. Taxes on goods and services
include the value-added tax (VAT) and exercise taxes on certain products.

Issues/Problem/s associated with Taxes

This is one of the burdens of the business. Any tax that matters is a burden. Business taxes
should be paid every month while income taxes from business are paid quarterly. Aside
from rentals, wages, capital, machineries and equipment, taxes also bring burden to the
business because it adds to the expenses of the business firms. Therefore, businesses should
provide a big amount of money to start up or to continue the business.

Lesson 3.2 Types of Investments

TYPES OF INVESTMENTS

 Stocks
 Bonds
 Mutual Funds
 Real Estate
 Savings/ Certificate of Deposit
 Collectables

STOCKS - an investment that represents ownership in a company or corporation.

 How Well the Stock Market is Doing
Overall UPS & DOWNS

 The term bull market means the market is doing well because investors are
optimistic about the economy and are purchasing stocks.

 The term bear market means the market is doing poorly and investors are not
purchasing stocks or selling stocks already owned.

Purchasing Stock
BEOKERS - is a person who is licensed to buy and sell stocks, provide investment advice, and
collect a commission on each purchase or sale.

ORGANIZED EXCHANGES - minimum requirements for a stock to ensure only reputable

companies are used. Each exchange has a limited number of seats available which
brokerage firms purchase to give them the legal right to buy and sell stocks on the
exchange.

BONDS - a security representing a loan of money from a lender to a borrower for a set
period, which pays a fixed rate of interest.
MUTUAL FUNDS - an investment that pools money from several investors to buy a
particular type of investment, such as stocks.
REAL ESTATE - an investor buys pieces of property, such as land or a building, in hopes of
generating a profit.
SAVINGS/ CERTIFICATE OF DEPOSITS - a deposit that earns a fixed interest rate for a
specified length of time.
COLLECTABLES - unique items that are relatively rare or highly valued.

RISK VS. RETURN

 On average, stock have a high rate of return - a deposit that earns a fixed
interest rate for a specified length of time.
 Higher rate of return - a deposit that earns a fixed interest rate for a specified
length of time.
 Stocks provide portfolio diversification - a deposit that earns a fixed interest rate
for a specified length of time.
Short-term investment strategies
BUYING ON MARGIN - is where an investor borrows part of the money needed to invest in a
stock from a brokerage firm.
SHORT SELLING - is where an investor sells shares of stock that they don’t own with the
intent to buy them back later at a lower price.

Long-term Investment Strategies

DIVERSIFICATION - is spreading your assets among different types of investments to reduce
risk.
DOLLAR COST AVERAGING - is buying an equal amount of the same stock at equal intervals.
BUY AND HOLD TECHNIQUE - is where an investor buys stock and holds on to it for a
number of years.

How Can Government Regulations Protect Investors?

REGULATORY PYRAMID - A network of safeguards that surrounds the securities industry -
from individual brokerages all the way up to the U.S. Congress.
Sources of Investment Information
PROSPECTUS - a formal written offer to sell securities that sets forth a plan for a proposed
business enterprise. A prospectus should contain the facts that an investor needs to make
an informed decision.
ANNUAL REPORT - A document detailing the business activity of a company over the
previous year, and containing an income statement, cash flow statement, and balance
sheet.
FINANCIAL PUBLICATIONS - Wall Street Journal, Fortune, Kiplingers Personal Finance
ONLINE INFORMATION - http://finance.yahoo.com, http://moneycentral.msn.com
How Do You Buy and Sell Investments?

 Full-service broker
 Discount broker
 Online broker
 Investment advisors

MODULE 3 - Lesson 2: Types of Industries

INDUSTRIES - are defined as a way of grouping or classifying firms according to the main
business activity. This can be defined in different ways depending on which characteristics
are being emphasized. Business activities are traditionally divided into three broad
categories or economic sectors, agriculture, industry, retail and service, and international
trade.

A. AGRIBUSINESS/ AGRICULTURE
- Agribusiness earns most or all of the revenues from the agriculture of the country.
Agriculture serves as the foundation of the economy. All progressive countries
started from a strong agricultural base. Agribusiness, as implies to its term,
refers to the business side of agriculture which includes not only farming,
fishing, forestry, but also the production, processing, and marketing of
agricultural products.

Here are some areas of agriculture Philippines is well known of:

1. Cacao/ Tablea
2. Carrageenan
3. Condiments
4. Processed Fruits
5. Processed Meat
6. Processed Shrimp
Some Challenges in the Philippine Agriculture Sector:
1. The Philippine agricultural sector is low in productivity compared to developed
countries or even compared to our ASEAN neighbors such as Thailand, Vietnam etc.
The country lags behind in terms of innovation, modernization and the application of
R&D in the agricultural sector.
2. The average farmer in the Philippines rangers from 55 to 59 years old. There are few
graduates who want to work in the agricultural sector. This threatens the country's
food security as we can become more dependent on other countries for food.
 B. MANUFACTURING
- Manufacturing refers to those industries involved in the production and
processing of items and involve in either creation of products or the innovation
of existing products. Manufacturing is also important because it is linked to the
agricultural and service sectors. The inputs of their products can either function
as finished goods which are for consumption or intermediate goods which as
used to produce another good.
Here are some of the examples of manufacturing industries in the Philippines:
1. Transportation
2. Electronics
3. Chemical Industry
4. Pharmaceutical Industry
5. Paper Industry
6. Printing and Publishing
7. Industrial Equipment
8. Furniture and Fixtures
9. Building Materials
10. Fashion Industry
11. Sporting Goods
12. Toys
Some Challenges in the Philippine Manufacturing Sector:
1. High electricity cost and poor infrastructure (internet and transport infrastructure)
make the Philippines' manufacturing sector unappealing as compared to competitors
like Vietnam, Thailand etc.
2. Taxation in the Philippines is relatively high compared to many ASEAN neighbors
thus it is more appealing for foreign investors to invest in them compared to the
Philippines.
3. The Philippines is also behind when it comes to investment in R&D, adoption of
technology in the workplace.

C. RETAIL AND SERVICES

- The retail industry has contributed largely to the economic growth of the country.
Retailing is the process of buying and selling consumer goods and services
through multiple avenues of distribution to earn a profit. Goods can be sold
through stores, kiosks, or even mail on the internet.
Here are some of the examples of retailers in the Philippine:
1. Department Stores
2. Grocery stores and supermarkets
3. Warehouse retailers
4. Specialty/ outlet retailers
5. Discount retailers
6. Internet/ mobile retailers
SERVICE INDUSTRY - n the other hand creates services rather than tangible objects. This can
include everything else like banking, communications, all professional services like
engineering, architecture, medical practitioners, and software development.

Some Challenges in the Philippine Service Sector:

1. While the Philippines is ahead than most of its ASEAN neighbors when it comes to
English proficiency, this area can still improve as access to high quality education
remains a big challenge in the Philippines.

D. INTERNATIONAL TRADE
- Trading globally gives consumers and countries the opportunity to be exposed to
new markets and products. International Trade is the exchange of goods and
services along the international borders. This allows the countries to expand
their markets that otherwise may not be available to us.

EXPORTS - are local goods that shipped to other countries.

IMPORTS - are the foreign goods that are sold and shipped into the home country.
BALANCE OF TRADE - difference between exports and imports of the country.
TOTAL TRADE - the sum of all exports and imports.
TRADE SURPLUS - If a country has a lot of exports, they are experiencing a trade
surplus.
TRADE DEFICIT - if they are experiencing greater imports, they are experiencing a
trade deficit.

ADVANTAGES OF INTERNATIONAL DISADVANTAGES OF INTERNATIONAL

TRADE TRADE

 Optimal use of  Exhaust of natural

natural resources resources of
 Availability of all types country
of goods  Too much import may
 Specialization cause a threat for
 Large scale of production local products.
 Stability of Price  Welfare of the people
 Exchange of in countries who are
technical know-how producing goods for the
and sake of higher profit.
establishment of new  Essential goods
industries are exported for
 Increase of efficiency other
 Development of the countries and not used by
means of transport and the country itself
communication