ECON Applied Economics Midterm

Issue No.
1 Page 48 of 126
ST. THERESE- MTC COLLEGES ECONOMICS
Iloilo, Philippines APPLIED ECONOMICS
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STUDENT LEARNING MODULE
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Revision No. 2 Effectivity Date: Reviewed by: Approved by:
01 September 2021 QMR President
Lesson 4
Consumption and Production (6 hours)
Competence, Course Outcomes and Learning Outcomes
Competence:
Discuss the principles, nature, and components of economics
Course Outcome/s:
By the end of this course, the student is able to:
1. Explain the principles, nature, and components of economics
Learning Outcomes:
At the end of the lesson, the student is able to:
1. Describe the meaning of consumption, consumer price index,and opportunity cost.
2. Discuss propensity to consume and consumerism.
3. Evaluate R.A. 7394 otherwise known as “Consumer Act of the Philippine”.
4. Explain production and the role of entrepreneur as agent of production.
5. Enumerate Demings 14 points of quality.
6. Explain the law of diminishing marginal returns.
Overview
It would be difficult for us to live without buying something because the alternative to buying
something is making it ourselves. For example, if we want to eat bread, we have to undergo the
process of making bread. We collect our main raw material, the wheat. We remove the husk from
the wheat kernels and mill the grains into flour. Then we would mix this with eggs from the henhouse
and milk from a cow. We could add to this mixture some yeast we obtained from the nearby woods,
and any other ingredients we collected ourselves. We would mix, knead, form and bake the dough in
a stone oven fueled by wood we chopped earlier. By the time we finish baking, we might be too tired
to eat bread. We realize, it would have been a lot easier if we just bought the bread from a nearby
store. In economics, the act of using or buying things is called consumption.
©All Rights Reserved

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Discussion
Learning Module 4.1 Consumption

Consumption of basic needs is obvious, yet
more often than not, people consume more wants
than needs. Consumption is rational human
activity that reflects person’s choice or preference
in his or her purchase of goods and service. A
person is a rational consumer because he or she
buys only the things that could give him or her
satisfaction. It would be quite irrational if one buys something that one does not like.
Consumption follows production. In a market economy, good and services are made by
producers. They sell these products in the market and derive profit from them. Consumers buy these
products because they either need or want them. It is important to make the product available in the
market since nowadays convenience matters a lot to many people. By purchasing goods instead of
making them, we can have more time to pursue other productive activities.
Consumption is possible because of money or any other object that can function as money.
An ordinary consumer – or aptly called household in economics – earns money called wages or
salaries by working. Sometimes money is not used; the salary of a person could be given in kind,
such as in slabs of meat, pieces of fruits and vegetables, tools, clothing, or perhaps even salt. The
word salary came from the Latin word salarium. In ancient times, Roman soldiers received “payment
of salt” for services to the military. The money one receives as salary or wages becomes his or her
income, which would then be used for his or her consumption purchases. Consequently, an ordinary
person’s consumption could increase if his or her salary increases. Increase in consumption has
positive and negative effects in the economy that is why government agencies sometimes intervene
in matters concerning salary increases or wage hikes. The person’s use of his or her income to
purchase goods and services is called expenditure. Money that is left from deducting expenditure
from income is called savings.

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4.2 Consumer Price Index

In the Philippines, the Consumer Price
Index or CPI is the measure of the average
changes in the prices of a fixed basket of
goods and service that is purchased by a
sample of typical Filipino households for their
consumption relative to a base year. Since no
one could really account for all the purchases
of all Filipinos all the time, the goods and service identified in the CPI are not listed in detail. The CPI
serves many purposes. It is used to compute for the inflation rate or change in the general level of
prices of goods and services in the country. It is also used to monitor the purchasing power of the
peso. The CPI is also used to compute the cost of living in the country. The changes in price would
serve as a guide for government policy makers in managing the economy.
There are five major categories in the CPI. A typical Filipino household would allocate money
for the following items:
1. Food, beverages, and tobacco; items for ingestion of the body;
2. Nonfood and clothing needs of the body that is not necessarily eaten;
3. Housing repairs including plumbing, electrical, or any other home improvement effects;
4. Fuel, light, and water necessities in order to live comfortably in our homes; fuel and water
keep our vehicles running; and
5. Services that include any work done for us in exchange for payment such as laundry or
housekeeping services, haircuts in the salon or massage in the spa.
Finally, there are miscellaneous items, which include everything else that does not fit into any
other classifications.
The National Statistics Office (NSO) and the Bureau of Agricultural Statistics (BAS) are
agencies that determine and monitor the CPI for the Philippines. The NSO computes the CPI and
subsequently releases information on the CPI on a yearly and monthly basis to monitor the effects of
inflation on the prices of goods.

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The ordinary Filipino’s pattern of consumption reflects our unique culture that is a mixture of
cultures from eastern and the western culture that is a mixture of cultures from eastern and the
western influences. We have our Asian heritage – our native and the western influences with
Chinese, Indian, Japanese, Arab, and Indo-Malay influences. Our western influences include
Spanish. Mexican, and American cultures. Almost everything in our life mirrors these influences,
from the food we eat to the clothes we wear. These influences are evident in our languages. We also
see these influences in our lifestyles and vices, and even in our choice of leisure activities and
entertainment. Our culture continues to be enriched because we continually adopt the culture of
others, transforming these cultural elements to suit our tastes and preferences, and eventually
claiming them as our own.
4.3 Opportunity Cost

All producers and even consumers face an
important cost in every economic activity they
engage in, one that does not necessarily involve
money. It is the cost involving the producer or
consumer giving up the chance to use or avail of
something in exchange for something else. This is called opportunity cost. Every time producers or
consumers face a decision, they could only act on one choice and forgo the other. Every opportunity
that comes their way brings the chance of making a successful decision or perhaps ineffective
decision, out of any given situation.
Once the chance passes by, they suffer the consequences of letting go of opportunity. It
becomes a cost because in choosing one option every time they engage in production or
consumption, producers and consumers sacrifice the other best option. The quality of their raw
materials or products, the amount of money to invest or to spend, the number of people to hire vis-à-
vis the machinery available to each worker, and many more factors have to be carefully considered
by the producers and consumers alike. Keeping opportunity cost in mind would help us in carefully
evaluating our choices, because rash decisions could lead to dire consequences.

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4.4 Our Consumerist Society

The more we consumer, the faster the
wheels of the economy turn. As long as
people buy, there would be a reason for the
producer to make more products to sell. If all
people would stop buying goods and
services, it would be like stepping on the
brakes of a car. The economy would
screech to a halt. Production could slow down, businesses might close and people might lose their
jobs. Of course, when we buy, we normally don’t think of all the consequences of our actions. We
focus more on our personal needs and wants. When we purchase goods and services, we are
usually influenced by prices, mass media and advertisement, and other sociological factors such as
the demonstration effect and consumerism.
4.5 Our Propensity to Consumer

It is in our nature as human beings to consume things. It happens naturally, but certain factors
can influence our natural inclination or propensity to consume. Price is a good determinant for
consumers to purchase goods and service. If, for instance consumers perceive that the price of a
product is high, they will think twice before buying it, or perhaps they might even be discouraged to
buy the product, that is, holding other factors that might affect their decision as constant like their
income and preferences. They might look for the same product at a lower price from another store.
Alternatively, they might look for a substitute for it. Equally, if the price of a product were lower than
the usual price, people would probably be encouraged to buy more of it, again not taking into
consideration other factors that might affect their consumption. A good example for this is when
shopping centers hold mall-wide sales promotion. If a pair of shoes would be sold at 50% off the
regular price, one might not think twice in buying the pair.
Sometimes, through advertising and marketing, people are enticed into buying something they
do not really need. At times people buy more goods than what they actually need. More often than
not, some business people and advertisers successfully project in the minds of the people the

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usefulness or value of their goods. Others push the truth to certain limits, if only to persuade people
to buy their goods. We often see this in TV advertisements or commercials. For example, a
shampoo commercial promises consumers that if they use that particular brand of shampoo they will
have strong, straight, and tangle-free hair; or an advertisement for toothpaste that assure the
consumers to have stringer, whiter teeth just by using their particular brand of toothpaste.
Some marketing agencies package their products by using promotional tools such as “Buy
One, Take One” schemes or by giving frequent buyer privileges. Consumers buy more of their
product as a result. Through aggressive advertising, some people develop artificial needs for many
things. Others develop product preferences that lead to brand loyalty. Generally, there is nothing
wrong with brand loyalty if the brand preferred is known for its goods quality. What is not desirable,
however, is when people become loyal to a brand just because the purchase or possession of such
branded item makes an impression of a well-off buyer. The branded product becomes a status
symbol, especially when people buy beyond their means.
Oftentimes, children consume goods that their parents themselves consume. Social scientists
call this the demonstration effect. We often see this in our homes. Children who see their parent
eating vegetables themselves. The children’s confidence in eating vegetable largely affected by how
their parents demonstrate this behavior.
The demonstration effect also works in a wider social circle. For example, if a particular
restaurant has many patrons, other people might think that the food there is great. Thus, through
simple demonstration of other people’s patronage, customer tend frequent certain restaurants.
There are many other factors that affect our consumption. Some are true only for some
people, while others are not. Nonetheless, the every act of purchasing something makes us feel
empowered and esteemed. Economists call this act, consumerism, belief that puts more significance
on consumption than anything else. It highlights free choice where one is free to buy what he or she
wants and how much of it. Consequently, it leads to the belief that consumers command the
economic structure of society. This means that power lies in the hands of the buyers. The social
statuses of those who can buy more are generally looked upon as enviable and that one should
continue buying more products and service, a demonstration effect in action. Hence, people
consume more than what is necessary.

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Consumerism in excess of mere consumption is a situation where people find themselves

involved in uncontrollable spending. This extreme case of consumerism can happen to a few people,
but the vast majority can also temporarily experience this during holidays and other special
occasions. For example, Valentine’s Day become commercialized when people are compelled to
buy flowers, chocolates, and other gifts at very high prices. Buying something to show your
appreciation for someone is not wrong perse. What is wrong is that some people believe that they
must buy something for their loved ones, even when it is ridiculously costly.
Advertisements play a substantial role in our consumerist society. Producers have invested a
lot of their money for advertisements. Some of them cost millions of pesos, with the purpose to
convince people to buy their goods. Ironically, the costs of these ads are passed on to the consumer
where some portion of the retail price of the good is reserved for advertising cost. In a way, we also
pay for the ads that we see around us when we buy these goods. If we buy something because of
the convincing advertisement, we pay not only for the goods but also for the ads that enticed us to
buy them in the first place.
4.6 Our Rights as Filipino Consumers

As consumers in the Philippines, we enjoy
certain rights and responsibilities. These are
identified and listed in Republic Act 7394, also
known as the Consumer Act of the Philippines.
Consequently, we have a duty as Filipino citizens
to know the law and obey it. Sellers who willfully
cheat and take advantage of their buyers in the
market can be charged with fines and imprisonment by courts if proven guilty of violating RA 7394.
Consumers, who bought products that are already defective, have the right to return these products
to the seller or have them exchanged. The seller must replace these goods in good faith or refund
the money. Buyers, on the other hand, have the responsibility to take care of the goods they buy.
Otherwise, if the product gets ruined due to their carelessness, they cannot return these goods or

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have them exchanged for another. We must make every effort to know more about our rights as
consumers and pass the knowledge to others.
4.7 The Production Process

The discussion on production
occurs exclusively within the market
system. In the process of creating
goods, the mode of production uses a
combination of labor and capital. The
ultimate intention of production is to
gain profit by creating surplus of goods
that members of a society would need to be sold in the open market.
Production
If you look back at your purchases for the past few days, chances are, you have bought
something manufactured, or something that has undergone a process of packaging or assembly.
This means that the product you have been enjoying has gone through some transformation, that is,
a combination of raw materials together with the efforts of people and machinery has put together
the final product. This good may be totally different from its original form. In our earlier example of
the bread, we can say that it is the sum of flour, yeast, milk, eggs, shortening, and water, combined
by bakers using their cutters and high-speed sewing machine and the production coordinated by
managers and employers. The pop idol’ latest CD is the output of the pop idol’s talents singing the
composition written by the musician and the lyrics and recorded by the studio that produced the
entire project. The goods are all similar in that all of them have undergone production.
According to Paul Bennett, the Chief Economist of the New York Stock Exchange, production
is “the process whereby the various factors concerned (land, labor, and capital) are brought together
and transformed, using available technology, into an output.” The producer, who at times is also
referred to as the entrepreneur, is the person responsible for combining the three factors of
production: land, labor, and capital. In the production process, the producer concerns himself of
herself with the efficient use of labor and capital, among other things. He or she determines how

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much of the two factors they would combine in making goods. When we speak of method of
production, the producer is confronted by the choice of whether to be more labor intensive or more
capital intensive in production. To be labor intensive is to use more of the applicable technology. In
any situation, producers must make this important decision since their decision involves income and
wealth creation on one hand, and productivity and cost on the other.
Cost is the value of money incurred by producers in the production process. The producers
buy raw materials and machinery, pay the rent, as well as the salaries of the workers. If a machine
breaks down, producers incur additional costs to repair or replace the machine. Costs are necessary
because the producers need to start the business and keep it going. The costs of production are
eventually passed on to the buyers, as costs become the primary consideration of producers for
determining the price of the goods. Eventually the producers’ profits cover their costs; otherwise, the
producers face losses, even bankruptcy. The important principle to follow is that the revenue or
income of the producer from the sale of the goods produced should always be more than the cost of
producing them.
4.8 The Role of the Entrepreneur

The entrepreneurs that we have identified are
actually more than just producers are. They are a
unique factor of production, such that they have the
capacity to combine land, labor, and capital into a
rewarding enterprise. Entrepreneurs manage the
four M’s of production: man, materials, machines,
and method. They possess special skills that allow
them to determine the right combination of labor
(man) and capital (machines), and to maximize the
use of the resources (materials), using the most efficient process (method) so as to produce the
most quantity of goods with little wastage. Known also as manager, owing to the nature of their work
and skill, entrepreneurs have become the object of attention of many economists since they are only
few in numbers and yet they wield so much influence and power in the economy.

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As producers of goods and services, entrepreneurs have shown how they could influence the
buyer’s tastes and preferences. Thousands of people may even depend on them for jobs and
livelihood. At times, their power and influences enter into politics, where they support politicians, or
they themselves engage in politics and government. Nevertheless, and entrepreneur’s chief interest
still lies in production. Their business is to do business and their concern is to ensure that their
businesses continue to run smoothly in order to maximize their profit.
An American statistician, W. Edward Deming, published in 1982 the book, of the Crisis, where
he outlined 14 important points on how a form should be managed if an entrepreneur is after efficient
production. Deming said that manufacturing firms can attain quality production if there is a good
working relationship and open. In of communication between the workers and management. He
encouraged people to focus on quality over quantity because firm would benefit more in making
fewer excellent quality good over making numerous sub-standard products.
4.9 Deming’s 14 Point of Quality

Briefly, Deming recommends these 14 points as basis for transforming American firms to
achieve quality in its products and services. These points also apply to other large and small
organizations, even to departments or divisions in the firm.
1. The firm must constantly improve its product or services to become competitive, to stay in
business, and provide jobs.
2. The managers and workers of the firm must adopt and follow a corporate philosophy to
adapt to changes.
3. The producer must build quality into the product to minimize inspection costs.
4. The company must minimize total cost by establishment of long-term relationship to loyalty
and trust towards single supplier of one item.
5. The production system must be constantly improved and reduce costs.
6. The firms must institute training on the job.
7. The managers must actively lead to help people and machines to do better jobs.
8. The company must eliminate fear in the workplace and everyone can work effectively.

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9. The people in the departments of the company must want together as a team to maintain
productivity.
10. The management should eliminate exhortations to avoid adversarial relationship within the
workforce.
11. The firm must eliminate quotas in production and management by objective.
12. The firm must remove obstacles to worker’s right to pride in workmanship.
13. The company must encourage everyone to improve oneself through education.
14. The company must include everybody to accomplish transformation. Improvement of quality
and productivity is everybody’s job.
Entrepreneurs play a vital role in our economy. When entrepreneurs set up businesses on
whatever scale, just like what Henry Ford did in the United States, the wheels of the economy
continue to turn. Raw materials are utilized, people are employed, and more money is created out of
investments. This does not only benefit the businesspersons and capitals but the workers and the
whole society as well.
We see trade fairs every now and then, mostly in public places and malls. These events are
opportunities for the government and the business sector to encourage people from the middle class
or returning Overseas Filipino Workers to put up businesses. There are also government programs
that extend credit to incipient entrepreneurs who do not have enough money but deserving of help.
There are laws that grant tax exemptions and minimum wage requirements to newly created
businesses to help them get started. And by following Deming’s advice on management,
entrepreneurs can ensure quality of production, longevity, and profitability of their businesses.
4.10 The Law of Diminishing Marginal Returns

Some important considerations producers make are how to combine the factors of production
and how to manage resources in producing goods in order to make profit. In business, profits may
be increased by minimizing costs. In the short run producers are faced with two types of costs: fixed
and variable. Cost of production that do not change with the scale of producing goods are called
fixed costs. For example, in a candy factory, fixed costs like factory rent and salaries of permanent
employees do not change in the short run even if the producer decides to increase the production of

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candies. On the other hand, variable costs

change with the scale of production. When
the producer decides to increase the
production of candies five-fold, he or she
could hire additional workers or increase
their work hours, buy additional machines, or
extend the hours of the production using the
existing machines. Thus, he or she would be
incurring additional costs in the process. In
addition, in the long run, all costs will be
variable.
The goal of the producers is to earn profits from producing the most number of outputs with
the least cost of inputs incurred in production. Efficiency can be achieved if the producer is able to
do this. If a producer wants to increase his outputs, it is logical to increase inputs like raw materials,
labor, or capital. The task of the producer is to seek the balance between labor and capital and
efficiently use them.
Let us take the example of a small hamburger business where the store could normally cook
and sell about a hundred pieces of hamburgers in an ordinary weekday. The businessmen noticed
that on weekends and holidays, the demand for burgers increased to almost 100%. The producer
also noticed that if he did not serve burgers fast enough, the queues would get longer. He wanted to
cook and sell burgers quick enough to serve all the customers and to keep them coming to the store.
The producer might choose to be labor intensive in its production process by hiring more capital
intensive by expanding the store’s capacity, which means more tables and chairs, burgers grills,
cash registers, and many more. We might say that the logical solution for the producer is to hire
more people to cook in the kitchen and to serve the customers at the counter. If the producer does
increase his workforce, would there be a dramatic increase in sales? Economics tells us that the
expected increase in sales might not happen at all. In fact, the producer might be disappointed to
find out that at the end of the day, his income did not proportionately increase as expected. What
could have gone wrong?

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In hiring more people to cook, without increasing the number of flame grills, spatulas, and
other resources, the producer ends up having too many people working in a limited space thereby
slowing down the production of hamburgers. On the counter, having too many people taking down
orders without increasing the number of cash registers would also slow down the sale of burgers.
We can imagine too many crew members cramped in a small area, sharing a machine that could
only accommodate the workload for one person. This might result to little or no substantial increase
in the sale of burgers. Even worse, the producer might end up paying more people, thereby
increasing the cost of production. The speed and efficiency of the production process and the quality
of outputs produced are affected by the combination of labor and capital.
If we reflect on the saying, “many hands make light work,” we may observe that the work
indeed becomes light because we have less work to do since the amount of work is distributed.
However, it comes with a cost, as the consequences is less added output in the production process.
For example, five people producing 50 burgers may put in an average output of ten burgers per
person. Increasing workers to ten, without increasing other factor inputs lessens the average output
per person to five. However, let us say, the producer required additional outputs with the extra hands
he employed. Table 6 shows an increase in total output as more and more workers are hired.
Table 6: Production of Hamburgers at a Restaurant
Number of Workers Total Output Marginal Returns Average Output
5 50 - 10
6 80 20 13
7 90 10 13
8 95 5 12
9 99 4 11
10 102 3 10
11 103 1 9
12 100 3 8
From the table, we can see that as more and more workers are hired, more and more output are
produced from the original 50 hamburgers. However, if we look closely, the additional output
contributed by the additional worker, or the marginal returns, started to diminish. This is what
economist call diminishing marginal returns. The Law of Diminishing Marginal Returns says that,
“When one or more factors are held fixed, there will come a point beyond which the extra output
from additional units of the variable factor will diminish.” If producer increase one unit of input, with

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all other inputs remaining constant, the additional output would tend to decrease over time. This law
is one rule that all producers consider when hiring more workers to produce more output.
References
T1 – Peter Cruz (2011). Introduction to Economics IV. C and E Publishing Co.

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It is now time to use those

Checkpoint skills you have learned so
far. Goodluck!
Activity 7
Identification
Identify what is being asked and write your answer on the space provided.
____________ 1. The measure of the average changes in the prices of a fixed basket of goods and
services that is purchased by a sample of typical Filipino households for their
consumption relative to a base year.
____________ 2. The cost involving the producer or consumer giving up the chance to use a avail of
something in exchange
____________ 3. A good determinant for consumers to purchase goods or service.
____________ 4. The law or Consumer Act of the Philippines.
____________ 5. He introduced the 14 point of quality.
____________ 6. The law that says “when one or more factors are held fixed, there will come a
point beyond which the extra output from additional units of the variable factor will
diminish.”
____________ 7. A rational human activity that reflects person’s choice or preference in his
purchase of goods/service.
____________ 8. It computes the consumer price index and subsequently releases information on
the index on a yearly/monthly basis, to monitor the effects of information on the
prices of goods.
____________ 9. It is done when children consumer goods that their parents themselves consume.
____________ 10. It is creation of goods.

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Do this
Activity 8
Enumeration
Enumerate the 14 point of quality by Deming. Use keywords only.
Write your answer below:

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Assessment
Activity 4
A. Research
1. When you and your family go shopping in a grocery store or at the mall, do you often or
seldom change minds when deciding what to buy? Interview your mother or father on what
she or he uses as basis for buying certain products for the house or for personal use.
Submit report. (10pts.)
2. Are you willing to pay ₱85 to ₱100 for a cup of coffee? What would motivate a person to
pay for such a high price for a common commodity? Surf the Internet and research on the
idea of conspicuous consumption and relate this to what is happening in our society today.
Submit a written report. (10pts.)
B. Reaction
Give your reaction on the ff:
1. How important is quality in the production process? If we put quality as a priority, would it
mean better and more output or would it mean lesser output? (5pts.)
2. Do you still see signs that say “No Return, No Exchange” in stores? Have you experienced
returning defective items in stores or things bought that did not meet you expectations?
(5pts.)
C. Essay
Answer the following questions:
1. What is consumption to you? (2pts)
2. Do you think consumer price index is useful to you? (2pts.)
3. How do you compute for opportunity cost? (2pts.)
4. What is propensity to consume to you? (2pts.)
5. Analyze consumerism. Explain it. (3pts.)
6. Do you think the law, RA 7394 is successful in helping consumers? (3pts.)
7. What is production? (2pts.)
8. What is the role of entrepreneur in production? (2pts.)

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9. Do you think Deming 14 points of quality are effective? Justify. (5pts.)

10. What is the law of diminishing marginal returns? (2pts.)
C. Situational Analysis
1. As to RA 7394, read the law and analyze the provisions that are violated by the stores, if
any. Write you finding. (10pts.)
2. Analyze how Henry Ford become a successful entrepreneur as the author of mess
production concept. Make your findings. (10pts.)
3. Assess the role of the Department of Trade and Industry (DTI) in protecting the consumers
of the Philippines, being the lead agency to implement RA 7394. Write your report. (10pts.)
For handwritten output:

a. Write your output in an A4 size bond paper
b. Write legibly
For computerized output (online/physical submission)

a. Use A4 size bond paper
b. Font style/size: Arial Narrow 12
c. Spacing: 1.5
d. Alignment: Justified
e. Margin: 1 inch in all sides

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Lesson 5
Economic History of the Philippines (3 hours)
Competence:
Trace the economic history of the Philippine since ancient times to the present.
Course Outcome/s:
1. Outline the economic history of the Philippines
Learning Outcomes:
1. Trace the history of the Philippines from ancient times.
2. Compare the contributions of each era to the economy of the country.
Overview
We learned the two important

economic activities of consumption
and production. We learned that we
consume things for our own use and
purpose because consumption gives
us satisfaction. Consumption follows
production. In a market economy,
producers make goods and services.
The main motive behind
production is profit. In order to earn
profits, producers make as many goods as they can sell at minimum cost of producing these goods.
In this lesson, the evolution of the country’s economy will be briefly described.

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Discussion
Learning Module 5.1 Ancient Times

The people in ancient Philippines lived in small ethnic groups. They were scattered in places
near rivers, coastal areas, the highlands, mountain sides, valleys, and open plains. Many groups
engaged in either farming or fishing. Interisland and interethnic trading were also practiced. The
early inhabitants, whom we will call the ancient Filipinos, lived in separate communities governed by
local rulers. They were politically organized into barangays. The barangay was the basic social, as
well as economic unit in the archipelago. It was a limited datuship or sultanate by design, where the
leader called Datu, Rajah, or Sultan ruled like a king, but his powers were not absolute.
Ancient Philippine society was stratified,
which means that there were people higher or
lower in social status. But the stratified society in
the barangay was not permanent. Social class
mobility was allowed in pre-colonial Philippines.
Thus, one can climb up the social ladder or fall
from it depending on one’s good or bad deed in
society. At the top of the social system were the
maharlikas, followed by the timawas who comprised the middle class. There were also people called
aliping namamahay. They serve either under peonage or obligation because they were born to slave
parents. Peonage was a form of slavery, a system that forced people to serve manual work in
homes and farms to pay off debts. If the debts were settled then they would be set free. On the other
hand, there were people at the bottom rung of the society called aliping saguiguilid. They were the
poorest of the poor. Status in society was determined by wealth which was either earned or
inherited, by bravery in combat, or by acquisition through marriage.
The barangay was economically self- sufficient since its inhabitants already knew agriculture.
Farming was their main industry. Those that till the land had claim to it, therefore, there was already
private land ownership. But no large-scale ownership of lands was equivalent to hacienda or
plantations of later periods. Their staple crop was rice, but they regularly planted vegetables and root

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crops and raised animals for their own consumption. In the mountainous regions of Northern Luzon,
the mountain dwellers like the Ifugaos carved the mountainside into terraces where they could plant
rice and other crops. They employed irrigation technology in their rice terraces through locks, canals,
or small dams, where water was released from one terrace down to the next using gravity. Those in
the lowlands employed technology such as the slash-and-burn system, also known as kaingin.
Under the kaingin system, they managed to clear huge tracks of land through fire and the ashes
served as fertilizer before planting. The ancient people in the Philippines used wooden plows pulled
by animals.
According to economist and historian O.D. Corpuz, agriculture societies in the past had the
capability to produce surplus. Whatever surplus they might have produced, the ancient Filipino
traded with other barangays. Barangays located by the seaside derived all their produce from the
sea. They traded their salt, fish and other sea products with the barangays found inland, which in
turn would trade rice, root crops, and other inland products to them. The ancient did not have a
centralized system of coinage barter was practiced wherein products were traded for other products.
They obtained from nature the other product then needed for whatever purpose. The forests were
public lands and so forest products were freely available for everyone. There was very little evidence
on domestic trading in those days, though our main source for knowing these were the observations
of the Franciscan friar Juan de Plasencia, Captain Miguel del Loarca and Antonio de Morga. The
early inhabitants of the archipelago engaged in international trade, notably with the Chinese from the
Yuan Dynasty, whose scholars and historians had kept records of transactions.
Aside from agriculture, fishing, and raising livestock and poultry, the ancient Filipinos also
engaged in other industries such as mining, tool-making, and manufacturing weapons like sword and
defense. They were also skilled in lumbering, spinning and weaving, pottery, tanning leather, and
shipbuilding. Some of the technologies and know-how they engaged in were obtained from foreign
sources through trading, but many of these industries were 100% indigenous. The ancient Filipinos
were already skilled and were not just gatherers of seashell and wild fruits as what some historians
suggested.
In short, the ancient people of the archipelago were not as backwards as some people might
have believed. When it came to political organization, no arrangements were done by the ancients to

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consolidate the archipelago under one supreme monarch. The different barangays were scattered
on the islands; many peacefully co-existed with one another.
5.2 The Economy under Spanish Colonial Rule

After Ferdinand Magellan’s expedition, Spanish
conquistadores came to the Philippines one after the other to
control the archipelago. In 1965, they successfully conquered
the islands in the Visayas, then in Luzon, until eventually the
entire archipelago was subjugated under the Spanish Crown.
The Spaniards Christianized the natives, uprooted them from
their communities, and formed pueblos or towns. The purpose
of the pueblo was to create agricultural surplus that could be
achieved through the full employment of everyone in the
community. These concepts were unknown to the natives. The
Spanish King awarded lands to the Church friars with farms that the natives later on tilled and
maintained for the Spaniards.
The encomienda system developed when the Spanish King rewarded the colonizers with
private encomienda for their services to the Crown. The system gave the encomenderos the right to
collect tributes from the inhabitants of their pueblo either in the form of gold or silver as money or
farm products. The encomenderos were only allowed to collect tribute. They did not own the land
and the services of those who lived there since all these belonged to the Crown. In return, the
encomendero provided security for the inhabitants of his encomienda, assisted the missionaries in
converting the people to Catholicism, and educating them as well. Later, many religious orders and
encomenderos in the archipelago abused their power and authority just as their counterparts did in
Europe at that time. Eventually, the tributes turned into residence taxes or cedulas, which were
collected from the natives by the late 1800s.
Throughout the Spanish times, Spain traded with China and the rest of Asia using Manila as a
trading post and stopover before shipping the goods back to Europe. The Manila-Acapulco Trade,
also known as Galleon Trade began in 1565 and ended in 1815, years before Mexico declared

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independence from Spain. If this were to happen today, we could call it international free trade, but
back then, the Manila-Acapulco trade was considered as domestic trading between Mexico and the
Philippines which were both under the Spanish Empire. In 1767, Spain established the Manila –
Cadiz Trade as an attempt to bypass Mexico and trade directly with the Philippines. However,
trading with Mexico was preferred by the Philippines, thus, ending the Manila—Cadiz Trade in 1784.
The Galleon Trade brought about not only new and foreign products but also cultural
exchange among Asian, American, and European nations. However, as a business venture, it was
not profitable for the whole country, only a few benefited from the trade. Though the trade had the
features of a modern international trade, it cannot be strictly considered as free market trading. It
had the defining feature of the mercantilist system, which could qualify as a command system since
governmental control was exercised over the industries. It was an all-powerful monarch that does all
the planning for the empire’s economy. When the king got into business, no one else in the empire
was allowed to be in the same kind of business to compete with the king. This is called a royal
monopoly. In the Philippines, the first royal monopoly involved planting, harvesting, and selling of
tobacco under the strict ownership and supervision of King Charles III. Royal monopolies often
involved the production and sale of vices. They were highly profitable because people consumed the
products since they had addictive substances. People were compelled to buy these products.
Eventually, the royal monopolies began to include other vices such as wines, beer and alcoholic
beverages, gunpowder, and gambling such as cockfighting and even card games.
The Renaissance and the period of Enlightenment in Europe brought economic reforms to the
Philippines as mercantilist practices were gradually abolished. Liberalized trading albeit modest in
reforms followed. By 1834, the Spanish Queen Regent Maria Cristina instituted changes to
transform the old mercanlist economy to a more liberalized one. First, she abolished the bankrupt
Royal Company. She also lifted the royal monopoly on the production and sale of tobacco. Then she
liberalized the Philippine market. Free market enterprise caused banks to rise and invest in the
country. Banks were necessary in free markets, acting as intermediate to a free economy. They
were the convenient sources of money for capital and investment, and they were the holders of
savings and incomes as well. The liberalized market allowed the country to export more products
such as abaca, copra, and sugar. Under Queen Isabel II, the Banco Español-Filipino was created as

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the first government bank in the country and was authorized to print paper money in the islands.
Later on, foreign banks were allowed in the country.
Improvement in the Philippine economy was bolstered by the continued introduction of
technology in transportation and communications. There were already steam-powered ships in the
country since 1848. Railways and tramcars were in place by the 1890s. Manila and Hong Kong
postal services operated on monthly basis in 1854. By 1873, telegraph (and by 1890 telephone)
lines connected Manila to the rest of the world. This not only helped trade but also brought in more
ideas and technologies coming from the West.
The most important effect of a liberalized economy was the distribution of wealth, which
resulted in the rise of a middle class in society. The rise of the middle class signaled the birth of
democracy. Member of the middle class signaled the birth of democracy. Members of the middle
class were generally well off, educated, and tempered in manners. They were the main participants
in the democratic processes.
5.3 American and Japanese Colonial Periods

The Spanish-American war ended
with Spain losing its last two colonies ---
Cuba and the Philippines. With the signing of
the Treaty of Paris, Cuba gained its
independence and America purchased the
Philippines, the Americans quickly replaced
them. There was resistance among Filipinos
who felt betrayed by the Americans and this
precipitated into the Philippine-American
War. The Philippine-American War was brief,
but it was bloody and full of treachery and betrayal. Upon its conclusion, American rebuilt the
country’s government, economy, and society. Public education was afforded to all as they taught
Filipinos to read, write, and speak English. They infused American history and culture into the
Filipino society in order to make their presence acceptable to the people.

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The Americans saw potential in exporting Philippine products so they allowed lumbering and
mining of gold, copper, chromite, manganese, and other minerals. They also allowed the increase of
agricultural and for cultivation. Friar lands were either leased or sold to elite families or comprador
bourgeoisie families. These families established huge plantations were exported back to America. It
was also during these times that foreign businessmen and corporations, mostly Americans, were
allowed into the country. As a consequences, the economy grew substantially.
In 1913, the Underwood-Simmons Tariff Act was enacted by the United States, which
effectively established free trade between the Philippines and America. It was a one-sided deal.
Under this Act, America bought only the products it wanted from the Philippines, whereas the
Philippines bought all its goods from America. Nonetheless, there were export-led industrial
developments in the country that were long due since the Industrial Revolution swept in Europe and
America. From the old Spanish tobacco plantations, the cigar and cigarette industries grew, and
there were 30 cigar/cigarette factories existing in 1935. There were also around 40 coconut mills, 45
sugar centrals, 5 cordage manufacturers, about 350 shoe manufacturers, more banks were allowed
to operate in the country.
Transportation and communication significantly improved under the Americans. Roads were
paved and more bridges were constructed. Railways, sea and airports were built. The Manila
Electric and Railway Corporation (MERALCO) was established in 1903. It brought into the country
electricity, and with it came technology that helped improve the people’s live from radio broadcasting
and wireless telegraph to ordinary electric appliances like refrigerators and light bulbs. It also
brought in electric streetcars or tranvias. When airplanes were used for commercial purposes,
Manila’s geographic significance was realized, as it became a key stopover for all routes in Asia,
going to and coming from the Pacific. Manila became the most cosmopolitan city in the Aisa at that
time.
After the Japanese bombed Pearl Harbor in Hawaii on December 7, 1941. The United States
declared war with Japan. The Japanese invaded the Philippines shortly thereafter and in a few
months, the country was under Japanese control. The Japanese Military Administration was
established in the Philippines under Lt. Gen, Masaharu Homma. Even though they recruited Filipnios
to run the government, all instructions and approvals came from the Japanese Military

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Administration. As a result, the military authorities regulated and controlled all the industries,
factories, and banks. The Japanese took the US dollar and the peso out of circulation and replaced
them with Japanese war notes. These notes were next to useless, as one food or milk. Life was very
difficult because the war siphoned most of the resources of the country. The people were left
scavenging for necessities and gambling was allowed in part so the government can obtain funds
from it. Everywhere, the black market thrived as well.
During World War II, the Philippines was annexed to the Greater East Asia Co-Prosperity
Sphere (G.E.A.C.P.S), a one-way trading agreement established by Japan. This was Japan’s
version of international trade. Japan needed more resources if it were to remain a super power in
Asia. Under the G.E.A.C.P.S., Japan got most of its resources from the countries it invaded and
occupied such as China, Burma, Indo-China, Malaysia, Indonesia, and the Philippines. But this
international trading arrangement really did not bring prosperity to all the other countries experienced
extreme economic hardship. Towards the end of World War II, the combined Filipino and American
forces liberated the Philippines from Japan. Many destructive battles ensued since the Japanese
fiercely resisted the American forces. When the war ended, Manila was in ruins. It was considered
as the most ravaged city next to Warsaw, Poland.
5.4 The Third, Fourth, and Fifth Republic of the Philippines

When the Philippines achieved independence from America on July 4, 1946, President
Manuel Roxas assumed the Presidency of the Third Republic of the Philippines, heralding the
beginning of the country’s post-colonial period. The Second World War just ended and the country
was in total ruins. The priority of the New Roxas Administration was reconstruction. Manila and
many other cities and towns were destroyed, as were the farms, factories and industries, as well as
public infrastructures such as roads and bridges all over the country. The government was bankrupt,
and to finance the reconstruction, the Roxas Administration relied heavily on the United States.
Through the Was Damages Act passed by the US Congress, the Philippines got financial aid from
the United States. The Bell Trade Act established free trade with the United States, but it was a one-
sided deal since it set quotes or limits to the amount of goods we sold to the Americans. Probably

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the most unfair deal we had with the Americans was the Parity Laws amendment to the 1935
Constitution.
This amendment gave Americans equal rights with Filipinos to exploit the country’s natural
resources and to trade in the country with 100% ownership of the company. America benefited more
than the Philippines in these pro-US policies. Despite the country holding onto the loosing end of the
bargain, the economy improved and stabilized. President Roxas died of a heart attack in 1948, and
then Vice President Elpidio Quirino took over as presidency and won. President Quirino continued
with the economic reconstruction, which began with his predecessor. Most of his economic policies
were still tied to trading with America and its allies, influences by bipolarism and the Cold War with
the Soviet Union and their allies. Quirino, however, set the foundations for a modern economy: a
central bank, a base for industrialization, a stabilized peso that placed the Philippines as number one
in economic development in Asia.
Ramon Magsaysay succeeded Quirino as president. Before he became president, Magsaysay
was the Defense Secretary of President Quirino. His popularity with the ordinary people or the
masses made him won the presidency in 1953 over the nationalist Claro M. Recto and reelectionist
Elpidio Quirino. Under the Magsaysay Administration, the conditions of the barrios improved
dramatically due to the construction of more roads and bridges. The Agricultural Credit Cooperatives
Financing Administration (ACCFA) was established to assist the farmers in selling their crops. The
credit cooperative gave farmers access to credit thereby avoiding loan sharks. Water became
accessible to more people though artesian wells and irrigation. In, 1954, Senator (and former
president) Jose P. Laurel negotiated with the Americans for the gradual abolition of free-trade with
the United States, which led to the signing of the Laurel-Langley Agreement. Under Magsaysay, the
Philippines signed a Friendship Agreement with Japan, making the two countries officially at peace.
With that treaty, the Philippines received financial assistance from japan for the damages it caused
during the war.
It was unfortunate that Magsaysay did not finish his term. He died in a plane crash in Cebu en
route to Manila. Vice President Carlos P. Garcia took over as president to finish Magsaysay’s term.
He then ran for the presidency in 1958 and won. President Garcia came from the Nacionalista Party,
and he was a nationalist in all his policies including his economic policies. He instituted the Filipino

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First Policy which encouraged Filipino business persons and promoted Filipino industries. This policy
made retail trading exclusive for Filipinos, which affected the Chinese, Indian, and other foreign
business persons.
Garcia sought relection but was defeated in the 1961 presidential elections by Diosdado
Macapagal. Unlike his predecessor, Macapagal came from the Liberal Party and was true to his
party’s liberal ideas. He liberalized the economy by opening the market to foreign investments, and
he floated the value of the Philippine peso ending the U$ 1:Php 2 conversion rate. His policies in
effect reversed almost everything that Quirino and Garcia did. It was under his administration that
the United States stopped funding the country for war damages. In order to get the much-needed
money to finance his plans for the country, he authorized borrowing from the International Monetary
Fund and the World Bank. It was also during Macapagal’s term that the country first enacted a law
on agrarian reform. Despite its flaws, this law was a significant achievement because land reform
was long overdue for the country.
5.5 Economic Policies of the Marcos Administration

Ferdinand E. Marcos easily defeated
Macapagal in the 1965 elections.
Throughout his first term as president, the
country experienced financial stability. This
was due to a continued development in
rural and urban infrastructure funded though
a well – organized tax collection system.
Marco’s good performance during his
first term in 1965 earned him a reelection in
1969, the firs t and only presidential to have done so in history. However, on his second term,
Philippine economy was hit by a crisis brought about by world events. When the Organization of
Pertroleum Exporting Countries (OPEC) jacked up the price oil, they inadvertently created oil crisis
that affected all countries, including the Philippines. This depended on the oil they sell. Higher oil

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prices resulted to higher prices of goods. Many people lost their jobs. To ease the pressure on the
Philippine economy, Marco’s government devaluated in peso even more.
Before the end of Marcos’s second term, there was already much talk of him seeking a third
term as president. Marcos assured the public that he would not seek a third term, by those opposed
to him believed otherwise. In September 21, 1974, Marcos declared Martial Law. Everyone opposed
to Marcos were arrested. Some were put into prison, while those who could learn went on exile to
the United States. Marcos began to rule under presidential decrees, which means that the president
can also make laws. By 1973, a new constitution was completed, ratified and promulgated to
legalize everything that Marcos had done so far. The new constitution terminated all traces of the
Paris Rights with the Americans. It also created the National Economic Development Authority
(NEDA), which assisted the president in making economic policies and plans for the development of
the economy. In 1978, Marcos declared “Ang Bagong Lipunan” (The New Society) heralding the
Fourth Republic of the Philippines.
Under the Bagong Lipunan, Marcos placed important public utilities and industries such as
electricity, telephone services and steel industries under government control. Factories and
manufacturing in general were controlled either by the Marcos family members, next of kin, or by
cronies, who were overly loyal to Marcos. Government-protected businesses, especially those ‘baby
industries’ like hosiery and textile weaving. It was an attempt by the country to be self-sufficient,
especially in textile and garments production. However, because these industries had no
competition, they became less and less creative and competitive, and eventually their production
went down. Problems with the labor sector likewise caused the closure of some of these factories.
Marcos also had plans to implement agrarian reform. Unfortunately, not all his plans were
implemented. Small farmers especially those in Mindanao were displaced by large plantations
owned by foreigners. Pineapples, bananas, asparagus, and other products were planted in these
plantation, not for domestic consumption, but for export. People who were unemployed went abroad
to find work. They were called overseas contract workers (OCWs) at that time. Sending workers
abroad was the government’s short term solution to the increasing unemployment in the country.
They believed that since job contracts overseas were only temporary, the people would return when
more jobs are available back home. This did not happen because unemployment continued to rise.

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As a result, the country faced an even greater threat of “brain drain,” a phenomenon that happens
when the best and the brightest people would leave the country to seek greener pastures abroad.
Towards the end of Marco’s rule, the economy was failing, weakened further by crony-
capitalism and corruption. It became more and more dependent on foreign investors. Filipinos who
ran the local big business were either relatives of close friends of the president. The Marcoses
borrowed money heavily from foreign banks and creditors, to finance projects that were mostly
“white elephants” or glamour projects to generate any income that would have been used to pay
back the loans. The environment was largely sacrificed as the country’s virgin forests were
decimated by lumbering and mining for export. Corruption was rampant, and economic policies were
mostly for short-term benefits. In the end, poverty worsened and the people became more desperate
as the rich became richer and the poor poorer.
5.6 Economic Policies of Aquino, Ramos, and Estrada

The people’s uprising against
Marcos, after a confusing snap
presidential elections and a failed military
coup d’etat, successfully placed Corazon
Corjuangco Aquino to the presidency.
Aquino’s first executive order was the
creation of the Presidential Commission
on Good Government (PCGG), which
was tasked to recover the ill-gotten
wealth of the Marco’s family and their
cronies. She faced a myriad of socio-economic and political problems.
Topping her list of priorities was the move for reconciliation among socio-political/economic
divisions caused by the EDSA Revolution. Ideas for debt moratorium of the delay of payment of
debts incurred by the Marcos regime were floated around, but international creditors like the IMF and
the World Bank were assured that the country was going to pay all the debts it owed them as
originally scheduled. Many of the Marcos projects, the biggest of which was the Bataan Nuclear

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Power Plant, our country’s attempt to produce electricity using nuclear energy, were mothballed by
the government. In response to the call for a genuine land reform program, the government came up
with the Comprehensive Agrarian Reform Law (CARL). This land reform program differed from the
previous land reform programs because it has a more systematic processes of transferring land
ownership. Still, many landowners saw ways to avoid the land reform law.
The Aquino Administration found itself guilty of committing the same mistake as its
predecessor’s; that of appointing into public office people who are relatives and friends of the
president. After all Aquino’s efforts, the Philippine economy remained weak and unstable. Her
administration was plagued with coup attempts brought about by a disgruntled military. The frequent
power outages/brownouts slowed down businesses and industries. Towards the end of her term,
however, construction and infrastructures proved to be her legacy to the people as newly paved
roads and flyovers began to define the main thoroughfares of Metro Manila.
Fidel V. Ramos won in the 1992 presidential elections. During this time, the frequent power
outages greatly discouraged investors from coming in to the country. To solve the problem, Ramos
allowed independent power producers (IPPs) to set up generators and sell electricity to the National
Power Corporation (NAPOCOR). This ended the brownouts in Metro Manila, but caused electric bills
to shoot up. Ramos liberalized the economy further. Government-owned corporations and public
utilities were privatized to ensure efficient corporate management and to free the government from
paying for the debts incurred by these corporations. This move greatly improved the credit standing
of the country, and a surge in foreign investments followed.
Ramos’s policies were known for the three O’s where the country’s interests must be
protected: oil, OIC (Organization of Islamic Conference), and OFWs (Overseas Filipino Workers).
We cannot deny our dependence on oil for all practical purposes. Our close coordination with the
Organization of Islamic Conference is necessary if we are to have peace in Mindanao. Finally, the
short-term solution to unemployment, the Overseas Filipino Workers have become a long-term
reality we must face, and so we have to protect the interest of Filipino laborers abroad. Ramos was
known for his frequent travels abroad and the fruit of all his travels came in the form of foreign
investments which increased during his term of office. His plan was for the Philippines to be a newly

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industrialized country by the year 2000. This was almost achieved, were it not for the Asian Financial
Crisis in 1997.
There was a lot of optimism when Joseph Ejercito Estrada was elected president in 1998.
Though the Southeast Asian region was gravely affected by the Asian Financial Crisis of 1997, the
effects of the crisis were felt only during the first two years of Estrada’s presidency. He persisted in
his campaign to alleviate poverty in the country, and this was seen in the creation of the National
Anti-Poverty Commission (NAPC). He continued his predecessor’s commitment to globalization, free
trade, and the privatization of ailing government-owned and controlled corporations (GOCCs). At the
turn of the millennium, he represented the country in the United Nation Millennium Summit, where he
committed the country to the millennium development goals of the United Nations to substantially
alleviate the incidence of poverty. His presidency was marked by his impeachment in the House of
Representative on charges of graft and corruption. The impeachment trial proceeded in the Senate
but was cut short by the uprising of the people, led by the society elite and businessmen.
Throughout the Fifth Republic of the Philippines, the economy experiences ups and downs, a
cycle known as boom and dust. This is natural cycle experienced by all economies. The challenge
an economic planners in government is to prolong the periods of boom and hasten the period of
bust, so that the people would enjoy more the benefits of economic growth, and not to feel too much
the pinch of economic recessions.
References
T1 – Peter Cruz (2011). Introduction to Economics IV. C and E Publishing Co.

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skills you have learned so
Checkpoint far. Goodluck!
Activity 9
True or False
Analyze the statements below. Write TRUE if the statement is correct, FALSE if otherwise.
Use the space below to write your answer.
__________ 1. The people in Ancient Philippines lived in small ethnic groups.

__________ 2. The barangay was the social and economic unit in the archipelago.
__________ 3. Improvement in the Philippine economy was bolstered by the continued introduction
of technology in production and consumption.
__________ 4. Every barangay was economically self-sufficient during ancient times.
__________ 5. The Spanish King rewarded the colonizes with private encomienda for their services
to the Crown.
__________ 6. Manuel Roxas is the president of the Second Philippine Republic.
__________ 7. Philippines achieved independence from America on July 4, 1945.
__________ 8. The President who did not finish his term due to plane crash was Jarus.
__________ 9. Marcos declared Martial Law on September 21, 1974.
__________ 10. The new society of Marcos is called “Ang Bagong Lipunan.”

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Do this
Activity 10
Matching Type
Match column A with those of Column B. Write your answer on the space provided.
A B
________ 1. Ferdinand Magellan a. It was done by King Charles III

________ 2. Manila – Acapulco Trade b. A trading agreement established by
________ 3. Royal Monopoly Japan.
________ 4. Pearl Harbor c. He first enacted the law on agrarian
________ 5. Greater East Asia – Co – reform
Prosperity Sphere d. He led the Spanish conquistadas
________ 6. Diosdado Macapagal e. He was impeached during his term
________ 7. Cory Aquino f. Also known as Galleon Trade
________ 8. Joseph Estrada g. He instituted the first Filipino policy
________ 9. Fidel Ramos h. Japanese bombed this in Hawaii
________ 10. Carlos Garcia i. He is concerned of the OFW’s
j. She created the PC66

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Assessment
Activity 5
A. Essay
Answer the following questions:
1. Can you trace the economic history of the Philippines briefly from ancient times up to
Estradas Administration? (10pts.)
2. Can you write briefly the economic, contributes of each era from Marcos Administration to
Estrada Administration, as follows: (10 pts.)
a. President Ferdinand Marcos
b. President Aquino
c. President Fidel Ramos
d. President Joseph Estrada
3. In your own thinking, what are the significant contributions to the Philippine economy by
Pres. Noynoy Aquino and President Rodrigo Duterte? Cite at least three (3) and give your
insights on these. (10pts.)
B. Opinion
1. Give your own opinion on the most significant and most successful contributions of the six
(6) presidents. For you, who is the best among the rest? (10pts.) Justify your answer.
2. In your opinion, who among the six (6) are the worst or most controversial? Why? (10pts.)
C. Research
1. Surf Internet what initiatives, President Duterte has done during COVID-19 because this is a
great challenge to his present administration. Find out what positive reactions had made by
the public on his actions to minimize the cases of COVID – 19. Also give the negative
comments/reactions. Then, give you own comments. Print all of these and submit. (10pts.)

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D. Situational Analysis
Analyze the following and give your insights:
1. There are practices that the early inhabitants of the islands which are still being done today.
What are these? Should we change our old ways or continue doing them? Write your
answer. (10pts.)
2. How will your characterize Japan’s economic relations with its neighboring countries today?
How did we benefit from Japanese aids? Explain (10pts.)
3. Philippines has a last of debts with IMF. Find out how much do we use from IMF since the
Marcos time. It justify that the debts are great and the aids to the poor are so little or none at
all? Write your analysis.

b. Write legibly

c. Spacing: 1.5

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Lesson 6
Applied Economics (3 hours)
Competence:
Develop an understanding on the principles and application of applied economics
Course Outcome/s:
1. Discuss the principles and application of applied economics to economic issues
Learning Outcomes:
1. Define economics as applied science
2. Describe the application of the law oof supply and demand
3. Explain how market price is determined
4. Identify the determinants of demand and supply
Overview
This lesson covers the discussion on the principles of

economics as applied science, the law of supply and demand
and contemporary issues affecting the business. At the end of
the lesson, activities are provided for students to answer.
Applied economics forces on how the various theories
are used in decision making in order to solve or minimize the
effects of economic problem. It is important to emphasize that
although applied economics uses theory and principles, it is
not a field of economics, such as neo classical economics. The purpose of applied economics is to
improve the quality of practice in business, public policy, and daily life by thinking rigorously about
costs and benefits, incentives, and human behavior.

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Discussion
Learning Module 6.1 Economics as Applied Science

Applied Economics is the application of theories and principles to real world situations with the
desired aim of predicting potential customers. The use of applied economics is designed to
analytically review potential outcomes without the noise associated with explanations that are not
searched by numbers. Applied economics can in-value the use of econometrics and case studies. If
economics is the science of studying how people use various, limited means available to them to
achieve given ends, then applied economics is the tool to help choose the best means to reach
those ends. As a result, applied economics can lead to "to do" lists for steps that can be taken to
increase the probability of positive outcomes in real-world events.
Applied economics can also help businesses make better decisions. Understanding the
implications of economic laws of supply and demand combined with past sales data and marketing
research regarding their target market can help a business with pricing and production decisions.
Awareness of economic leading indicators and their relationship to a firm's industry and markets can
help with operational planning and business strategy. Understanding economic ideas such
as principal-agent problems, transaction costs, and the theory of the firm can help businesses
design better compensation schemes, contracts, and corporate strategies.
6.2 Introduction to the Application of Theory of Demand and Supply

The law of demand and supply greatly influences the
market through operation of the different forces. A market is
a situation that there is constant interaction between the
buyer and the seller and a transaction is completed. A
transaction is completed once there is an agreement
between the seller, who gives away his commodity at his
price, and the buyer who is willing to exchange his cash or
money for the commodity being purchased.

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Price is the monetary value of the commodity. Price plays a vital role in the completion of the
transaction. When the price of a goods and services being purchased is high, less quantity of said
commodity could be purchased. However, when the price is low the people would buy more.
Therefore, it is price that would decide whether a consumer will buy less or more of such commodity
at a given price.
Demand is referred to as the quantity of goods and services which buyers are willing to buy at
a various price at a given time and place. The time and place are important in determining the price
of the goods being purchased. The same kind of commodity or goods may dictate different price
when bought from two different places like SM and Divisoria. A person can only demand for
something if he gets enough money to buy that something, either the goods and services.
Supply is the number of units that seller are willing to sell at a given price, time and place,
other things being the same. (Uteris Paribus)
What is a Demand Schedule?
A demand schedule is a schedule showing the prices of the commodity and the corresponding
number of units that buyers are willing to buy at a given time and place.
Table 1 – Demand Schedule
Price Quantity Demand Total Amount
P 20.00 100 P 2,000. 00
P 40.00 80 P 3, 200.00
P 60.00 60 P 3, 600.00
P 80.00 40 P 3,200.00
The demand schedule tells us that more units are brought at a lower price, and less numbers
of units are bought at a higher price.
From the above illustration, we can conclude that the lower the price, the more units are
purchased or demanded, and the higher the price is, he less units are purchased or demanded. The
primary reason for this behavior of buyer is their desire to maximize the satisfaction. With a lower
price more goods could be purchased than with the higher price.

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What is the Law of Demand?

The law of demand states that when the price goes up, the number of goods purchased is
less, and when the price goes down the number es goods purchased is more, other things being
equal (ceteris paribus). This explains the generally observed behavior of people, that is, to buy more
goods when price is low, and buy less goods when price is high. Therefore, we can conclude that
people buy more goods when price is low and less when price is high, because this behavior would
enable them to maximize their level of satisfaction by consuming more with less amount of money.
In some cases, though, buyers are not willing to sacrifice quality with quantity.
What is a Demand Curve?
A demand curve is the graphical illustration of the demand schedule. A graph is defined as a
diagram that represents the variation of a variable in comparison with that of one or more other
variables. It is a diagram with a series of one or more points, lines, line segments, curves, or areas.
To show what a demand curve is, we need to prepare a graphical presentation of Table 1, the
demand schedule, where we have to indicate the price at the vertical axis and the quantity at the
horizontal axis.
Demand Curve

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6.3 The Determinants of Demand and Supply

Determinants of demand are the factors that will help the buyer to decide on how much he is
willing to buy at a given price. These variables that may affect changes are enumerated as follows:
1. Money income or salary. Money is the medium of exchange. You have the purchasing
power if you have money. People who are employed received income, therefore they have the
power to buy. As determinant of demand, people receiving higher income can afford to
demand more. But if more people are unemployed, they have less or no money at all,
therefore their demand is low. With low income and low demand, economy's productivity is
low.
2. Prices of goods and other goods. Price is the value of the goods in terms of money. Prices
of good for sale varies for several reasons. One of this pertains to the high cost of production.
Some raw materials are imported and some are seasonal. This condition pushes up the price
of the commodity or good. Another reason for increasing prices of the goods or commodity is
related to taxes imposed and collected by the government, and the percentage added by the
producer as mark-up representing profit.
3. Buyers' expectations. Expectation is defined as anticipation or the belief or feeling of
someone that something will happen. The expectations of buyers or consumers are related to
what is actually happening in the market. If buyers, for example, are expecting that price of a
kilo of rice will increase the following day, they will decide to buy now for their tomorrow's
consumption.
4. Number of consumers in the market. The number of consumers in the market referred to
here as the total population or number of people expected to demand goods and services.
They compose the number of people expected to be served by the sellers or the producers.
When more consumers are willing to participate in the market, more goods and services are
expected to be sold, indicating a high demand.
5. Consumers' taste and fashion. Consumers' tastes and fashion varies from one person to
another. Also tastes depend on peoples' culture, religion and lifestyle. Fashion, on the other
side, shifts from one season to another.

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What is the Supply Schedule?

A supply schedule is a schedule indicating the price of a commodity and the corresponding
number of units that the seller is willing to sell.
Price Quantity Demand Total Amount
P 20.00 40 P 8000. 00
P 40.00 60 P 2, 400.00
P 60.00 80 P 4, 800.00
P 80.00 100 P 8,000.00
Supply Schedule
From the illustration, therefore, we can make conclusion that the lower the price is, the less
units of goods the seller is willing to sell, and the higher the price is, the greater the number of units
of goods the seller is willing to sell. The justification for this is that, seller wants to maximize profit by
selling, more units of goods at a higher price.
What is the Law of Supply?
Based on the previous discussion on supply schedule, the law of supply is therefore, stated
that a lower price would induce seller to sell less, and sell more at a higher price. Thus, the higher
the price is, the more units of goods sold, and the lower the price, less units are sold.
What is Supply Curve?
Supply curve is a
graphical illustration of a
supply schedule. The
schedule provides the data
as regards of the price of
the commodity and the
corresponding number of
units that the seller is willing
to sell.

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Determinant of Supply
Determinants of supply are the things being taken into consideration by the producer or seller
in determining the selling price of the commodity. These factors that may shift the supply curve other
than price, include the following:
1. Changes in technology. Technology is the technique, the process or method used in the
production of goods or services. The technique or process of creating or manufacturing may
contribute to the productivity of a business, of its downfall or loss. The growth of a nation
depends largely on technology, modern technology. It will increase production and
employment opportunities. (Gordon 2012).
2. Changes in the price of factors of production. Factors of production are inputs in the
production process. The readily available supply of these factors would greatly influence the
volume supply in the market. Price is the monetary value of the factors of production. The
price of these factors as input in the production process is one of the many reasons why
supply in the market sometimes is low. High price of these factors will result to high cost of
production. To minimize the effect of high price to production cost, producers generally need
to reduce their production output, thus resulting to shortage in supply. Cases like this is
common among producers with less or limited capital.
3. Changes in the prices of substitute goods. Substitute goods are alternate or other goods
for which one could be used in place of the other. Prices of substitute goods also affected the
supply available in the market. With higher price of substitute goods production cost would
likewise increase. A lower price, though, would lower production, and an anticipated increase
of supply of goods in the market.
4. Changes in producers' expectation. Producers' expectations are what they anticipate to
happen in the future as regards changes in prices, government policies, and growth m the
economy. If producers expect higher price in the future, the tendency is for these producers to
supply less, than what they would have. They prefer to wait until such time when they could
sell their product at a higher price. This decision of the producer would bring them more
profits. For example, if the price of sugar per kilo will increase in two-weeks’ time, producer

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would limit the number kilos of sugar available for sale now and increase their supply for sale
when price of sugar per kilo increases, based on their expectation.
5. Changes in the number of competitors. Competitors are people or business firms trying to
outdo all others in order to stay or penetrate the market. The competitors in business are
always working towards improving the quality of their products and strives to do better than all
others The behavior of these competitors will depend on the number of firms existing in the
market, the ease with which firms can enter and exit the market, and the ability of these firms
to differentiate their products from one another (Sexton2012).
Movements in the Demand and Supply Curve
Due to changes that may occur on the determinants of demand and supply, it will either result
to “a shift in the curve” or “movements along the curve”. A change in one variables or determinants
of demand and supply, like price and quantity bought, will cause a movement along the curve. Shift,
on the other hand, is the change of the entire curve either upward or downward caused by change in
one variable, held constant.
References
T2 – Laraya, J. L et. al (2019). Applied Economics. Books Atbp. Publishing Corp.

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far. Goodluck!
Activity 11
Identification
Analyze the following items and write your answer on the space provided.
__________ 1. It is the number of units that seller is willing to sell at a given price, time and place,
other things being the same.
__________ 2. It is the application of theories and principles to real world situations with the desired
aim of predicting potential customers.
__________ 3. It is the monetary value of the commodity.
__________ 4. It is a situation that there is constant interaction between the buyer and the seller and
a transaction is completed.
__________ 5. It is referred to as the quantity of goods and services which buyers are willing to buy
at a various price at a given time and place.
True or False
Write TRUE if the statement is correct, and FALSE if it is wrong. Write your answer in the
space provided.
__________ 1. Supply is the value of the goods in terms of money.
__________ 2. The demand is low the people receiving higher income.
__________ 3. Expectation is defined as anticipation or the belief or feeling of someone that
something will happen.
__________ 4. Consumers are people or business firms trying to outdo all others in order to stay or
penetrate the market.
__________ 5. A lower price would induce seller to sell less, and sell more at a higher price is the
law of supply.

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Assessment
Activity 6
Essay
Provide and analysis and interpretation for your answers.
1. What determines the purchasing power of a consumer? What is your purchasing power?
2. Explain the effect of more investment to a country’s economy. How can a nation, like
Philippines, increase its investment?

b. Write legibly

c. Spacing: 1.5

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Lesson 7
Supply-Demand and Philippine Economic Problems (3 hours)
Competence:
Develop an understanding on the principles and application of applied economics
Course Outcome/s:
1. Discuss the principles and application of applied economics to economic issues
2. Identify the economic issues faced by Filipino Entrepreneurs
Learning Outcomes:
1. Identify the Philippine peso and foreign currencies
2. Analyze the housing shortage and real estate boom in the Philippines
3. Explain the concept of rent and price structure, savings and investment and minimum wage
Overview
The Philippines is one of the most

dynamic economies in the East Asia Pacific
region. With increasing urbanization, a
growing middle class, and a large and young
population, the Philippines’ economic
dynamism is rooted in strong consumer
demand supported by a vibrant labor market and robust remittances. Business activities are buoyant
with notable performance in the services sector including business process outsourcing, real
estate, tourism, and finance and insurance industries.
At the end of this lesson, activities are provided for students to answer. These activities will
further help them understand the lesson.

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Discussion
Learning Module 7.1 The Philippine Peso and Foreign Currencies

Trading with other countries is also an important economic activity that impacts on the
economy. Selling locally made products, called exports, means we earn dollars as payment for these
goods bought by foreign buyers. In the same manner, we buy goods from other countries, and these
are our imports. When we trade with other countries, we need a common currency to use to pay for
goods we buy from them and for them to pay us for goods we sell to them. When we travel to foreign
countries, we may bring peso or the US dollar, then convert them into the local currency of the
country which we visit. For example, we convert our dollars into baht when we go spending in
Thailand, to rupees in India, euros in Spain and other European countries, and yen in Japan. This is
why we need conversion rates, and these are based on the existing foreign exchange rates.
The rate of conversion of the Philippine peso to a foreign currency is reflected in the exchange
rate. If we have pesos that we need to convert into dollars, we need to know the current exchange
rate. These rates are dependent on the workings of demand for and supply of the currency in the
market. For example, if the US dollar is in demand, the price of the dollar will increase and will be
reflected in a higher exchange rate in favor of the dollar, which means one will need more pesos to
buy dollars.
Table 2. Peso-Dollar/ Euro Exchange Rates

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7.2 Housing Shortage and the Real Estate Boom in the Philippines
Demand and supply also play an important role
in the Philippine real estate. In the late 1990’s, during
the Asian financial crisis, construction hit low levels in
the Philippines. Some high-profile construction projects
were abandoned and demand for housing was at low
level. Some real estate companies even had to close.
This was the effect of decreased demand for construction project.
However, as soon as the Asian countries recovered from the crisis, the construction sector
also started to recover. High-rise condominium building and townhouse started to bloom in the
metropolis. In Metro Manila, new buildings are rising continuously. The real estate boom currently
being experienced in the country may also be traced to the booming Business Process Outsourcing
(BPO) sector in the country. With the rising number of BPOs in the metropolis, there is a need to put
up offices, which also means an increase in the demand for commercial spaces. And with more
employees working in this office, some moving from the province to Metro Manila, there is also a rise
in the demand for residential spaces.
Table 3. shows occupied housing units to give us an idea of demand for housing in the
country.
Decennial Census Total Population (in thousand)
1960 4,435.2
1970 5,668.8
1980 7,919.9
1990 11,161.7
2000 14,891.1
2010 19,715.7
Source: Philippine Statistics Authority, National Statistics Office, Aug. 2013
The residential market in the country continuous to grow because of Filipinos who pursue their
dream of owning houses. Rich people continue to have more options, with new housing available at
The Fort in the Global City in Taguig, as well as I Alabang, in Makati, Quezon City, and Paranaque.

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7.3 Rent and Price

The layman's concept of rent is payment for the use of land or buildings belonging others. It is
the compensation made to the owner of such land or building. From the point of view of economics,
rent refers to a payment made to or for a factor of production over above the amount expected by its
owner. Economic rent is the positive difference between the actual payment made for a factor of
production (such as land, labor, or capital) to is owner and the payment level expected by the owner,
due to its exclusivity or scarcity. Economic rent exists due to market imperfections. Without market
imperfections, there would be no need for payment of rent. Henry George (2014) describes the
concept of rent in economics as follows:
"In the economic meaning of rent, payments for the use of any of the products of human
exertion are excluded, and of the lumped payments for the use of houses farms, etc., only that part
is rent which constitutes the consideration for the use of the land. The part that is paid for the use of
buildings or other improvements is properly interest, as it is a consideration for the use of capital." In
short economic rent is any unearned income.
7.4 Savings and Investment

Savings and investment are necessary to
build the future. Savings is to investment as food
is to the body nourishment process. As food and
the nourishment process sustain body growth, so
do savings and investment to the growth of the
economy's productive capacity. But savings calls
for giving up the present in order to build up and,
therefore, invest for a better future. Savings and
investment are not only the concern of business but also of households and government. Investment
is defined as building up the capital stock for more future production and consumption. But the cost
of investment is savings defined as postponed consumption at present. Behind the use of money as
exchange medium are the real activities of savings and investment, which are clearly seen in
households that produce for their own consumption (e.g., subsistence farmer).

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Even the government borrows the savings of households and businesses to spend on capital
accumulation. Capital takes the basic forms of machineries, equipment, and buildings and
construction. While business builds additional factories that also create employment, households
continuously accumulate fixed assets like houses and cars for more services. On the other hand,
government invests in physical infrastructures like roads and bridges to encourage business
activities.
7.5 Minimum Wage

The problem of inadequate wage is intertwined with the problem of unemployment. Both
problems stem from the lack oof jobs for our large labor force. Figure 4 illustrates that excess labor
supply due to lack of jobs at Point A reduces wage from W1 to W0 at Point B. Yet, the resulting
increase in labor demand (L0 – L1) is not enough to employ excess labor (L0 – L2) simply because
jobs is not enough. Therefore, wage is more inadequate and unemployment rate is higher as more
and more people cannot find jobs that have become scarce. Reconstructing Figure 4, more excess
labor decreases wage and increases the number of unemployment even more.
Figure 4. Labor Supply-Demand

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7.6 Economic Icon

Alfred Marshall (26 July 1842 – 13 July 1924) was one of
the most influential economists of his time. Alfred Marshall was the
dominant figure in British economics (also in world economics) from
about 1890 until his death in 1924. He demonstrated an aptitude in
mathematics but experienced a mental crisis that led him to
abandon physics and switch to philosophy. His specialty was
microeconomics—the study of individual markets and industries, as
opposed to the study of the whole economy. In his most important
book, Principles of Economics, Marshall emphasized that the price
and output of a good are determined by both supply and demand. Their curves are like scissors
blades that intersect at equilibrium. He bought the ideas of supply and demand, marginal utility, and
costs of production into a coherent whole.
References
T4 – Dionio, R.P (2017). Applied Economics. Rex Book Store, Inc.

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far. Goodluck!
Activity 12
Multiple Choice
Instruction: Analyze the question and encircle the letter of the correct answer.
1. What refers to a payment made to or for a factor of production over above the amount
expected by its owner?
a. Minimum Wage
b. Rent
c. Price Structure
2. What is defined as building up the capital stock for more future production and
consumption?
a. Investment
b. Rent
c. Salary
3. What do you call for the amount of remuneration that an employer is required to pay for their
worker for the work performed during a given period?
a. Minimum Wage
b. Price Structure
c. Savings
4. Who describes the concept of rent in economics?
a. Alfred George
b. Alfred Marshall
c. Henry George
5. Who is the most influential economists of his time?
a. Alfred George
b. Alfred Marshall
c. Henry George

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Assessment
Activity 7
Research
1. Research the dollar to peso exchange rate from the time of the presidency of Rodrigo R.
Duterte. List down the rates over its first year and his last year and find the reason for abrupt
increase and even decrease in the exchange rate.

b. Write legibly

c. Spacing: 1.5

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Issue No.

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Competence, Course Outcomes and Learning Outcomes

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Learning Module 4.1 Consumption

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4.2 Consumer Price Index

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4.3 Opportunity Cost

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4.4 Our Consumerist Society

4.5 Our Propensity to Consumer

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Consumerism in excess of mere consumption is a situation where people find themselves

4.6 Our Rights as Filipino Consumers

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4.7 The Production Process

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4.8 The Role of the Entrepreneur

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4.9 Deming’s 14 Point of Quality

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4.10 The Law of Diminishing Marginal Returns

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candies. On the other hand, variable costs

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T1 – Peter Cruz (2011). Introduction to Economics IV. C and E Publishing Co.

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It is now time to use those

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