Grade 12 Applied Economics and services at a lower opportunity cost produces only cotton sweaters.
produces only cotton sweaters. Each country can
FIRAL COVERAGE
LESSON 1: INTERNATIONAL
TRADE
INTERNATIONAL TRADE
If you walk in a supermarket and
find products of China, the United States,
Thailand, Malaysia, South Korea, you're
experiencing the effects of international
trade. International trade is the exchange
of goods and services between countries.
International trade allows countries to
expand their business in the global arena.
International trade is the key to the rise
of the global economy where supply and
demand, and so with the prices, are
affected by global events. Political change
in Asia, for example, could increase the
cost of labor, thereby increasing the
manufacturing costs for an American
sneaker company based in the Philippines
would increase the price charged at the
local mall. A decrease in the cost of labor,
on the other hand, would result in paying
less for the new shoes.
A product that is sold to the global market
is called export and a product that is
bought from the global market is called
import. Imports and exports are
accounted for in the country's current
account in the balance of payments.
Comparative Advantage
Comparative advantage refers to the
ability of the economy to produce goods
any form of electronic communication. E-
compared to trade partners. A
comparative advantage gives a company
the ability to sell goods and services at a
lower price than its competitors and
realize stronger sales margins.
The law of comparative advantage is
popularly attributed to an English political
economist, David Ricardo in his book
"On the Principles of Political Economy
and Taxation" in 1817, although it is
likely that Ricardo's mentor James Mill
originated the analysis
Global trade allows rich countries to use
their resources, whether labor, technology,
or capital, more efficiently. Since
countries are endowed with different
assets and resources, some countries may
produce the same goods more efficiently
and therefore sell it cheaper ten other
countries. If a country cannot efficiently
produce a good, it can obtain it by trading
with another country that can produce
more, this is known as specialization in
international trade.
Let's take a simple example. Country A and Country
B both produce cotton sweaters and wine. Country
A produces ten sweaters and six bottles of wine a
year while Country B produces six sweaters and ten
bottles of wine a year. Both can produce a total of
16 units. Country A, however, takes three hours to
produce the ten sweaters and two hours to produce
the six bottles of wine (total of five hours). Country
B. on the other hand, takes one hour to produce ten
sweaters and three hours to produce six bottles of
wine (a total of four hours).
But these two countries realize that they could
produce more by focusing on those products with
which they have a comparative advantage. Country
A then begins to produce only wine, and Country B
now create a specialized output of 20 units per year
and trade equal proportions of both products. As
such, each country now has access to 20 units of
both products.
International Trade in the Philippines
The country's total export sales in June
2020 amounted to USD 5.33 billion, a
decrease of 13.3% from the USD 6.15
billion total export generated in June
2019. The annual drop in June 2020 was
the fourth month that total exports had
consecutive negative growth. In the
previous month, the export value fell at an
annual rate of 26.9% while in June 2019,
it gained at a rate of 3.9%.
Of the top ten major commodity groups in
terms of exported value, eight had annual
decline which was led by metal components (-
30.5%), coconut oil (-29.7%); and machinery
and transport equipment (-26.3%).
Total imported goods in June 2020, which
amounted to USD 6.63 billion, plunged at an
annual rate of 24.5%. In the previous month,
the decline was faster at 40.6% while in June
2019, imports decreased by 7.2% annually.
The decrement of imported goods in June 2020
was due to the decrease in seven out of the top
10 major import commodities which were led
by transport equipment (-70.5%); mineral
fuels, lubricants, and related materials (-
56.9%); and iron and steel (-40.9%).
LESSON 2: E-COMMERCE
E-COMMERCE
Electronic Commerce (e-commerce,
eCommerce) is the exchange of
information or business transactions using
commerce operates in all four of the
following major market segments:
1. business to business;
2. business to consumer;
3. consumer to consumer; and
4. consumer to business.
E-commerce in facilitated through the use
of electronic devices such as computers,
tablets, and smartphones which may be
thought of like a digital version of mail-
order catalog shopping. With e-commerce,
businesses may establish a wider market
presence by providing cheaper and more
efficient distribution channels for their
products of services.
Advantages of E-Commerce
• Convenience. E-commerce can operate
24 hours a day, seven days a week.
• Increased selection. Many stores offer
a wider array of products online than
they carry in their brick- and mortar
counterparts.
Disadvantages of E-Commerce
• Limited customer service. if you are
going to buy a computer online, you
cannot simply ask an employee to
demonstrate a particular model's
features in person.
• Lack of instant gratification. When
you buy an item online, you must wait
for it to be shipped to your home or
office.
• Inability to touch the products.
Online images do not necessarily
 convey the whole story about an item,
and so e-commerce purchases can be
unsatisfying when the products
received do not match consumer
expectations.
E-Commerce in the Philippines
E-Commerce accounts for USD 1.3
trillion of the world's economy.
eCommerce allows local businesses to
broaden their markets well beyond
Philippine shores. Personal e-commerce
can easily be achieved by Filipinos
through any of the numerous bays and sell
sites currently available. While businesses
can set up their e-commerce facility using
their websites.
With the global pandemic, there is an increase
in the demand for e-commerce in the
Philippines. While the younger population
embraced online shopping, the need for social
distancing has pushed the cash-centric and
face to face shopping culture towards a more
digital one, and this is expected to continue.
What is lacking is the proper digital and
logistics infrastructure to truly enable a digital
economy. There is a need to upgrade the
bandwidth capacity to service the online
market.
Filipinos are prolific users of social media.
Estimates this year show that there are 76
million active social media users from the
Philippines. Of this number, 75 million are on
Facebook, 12 million on Twitter, and 4 million
are LinkedIn users. There is good reason to be
optimistic about e-commerce growth in the
Philippines.
Kemp and Moey (2019) released a study
about e-commerce in the Philippines.
According to their report, Filipinos spent a
total of USD 4.7 billion on online
purchases in 2018, with more than three-
quarters of this amount USD 3.5 billion
going to online travel purchases. Online
consumer goods purchases totaled just
USD 840 million in 2018, with electronics
and physical media accounting for the
greatest share within this total.
The market for digital media products in the
Philippines is particularly small, with the
country's internet users spending just USD 286
million across video games, video-on-demand
services like Netflix, digital music streaming
and downloads, and subscriptions to digital
news and magazines.
The average Filipino e-commerce shopper
spent USD 18 on online consumer goods
purchases in 2018, although it's worth
stressing that this figure doesn't include travel-
related purchases or spend on digital media.
LESSON 3: MICRO, SMALL AND
MEDIUM ENTERPRISES
Micro, Small and Medium Enterprises
(MSMEs)
According to the Magna Carta for
MSMEs, micro, small, and medium
enterprises are classified based on the
worth of the business assets. The
Microenterprises have a total asset up to
P3,000,000. The total assets for Small
Enterprises should range from $3,000,001-
15,000,000. For medium enterprises, the
total assets are from P15,000,0001-
100,000,000. MSMEs help to promote a
competitive economic activity, provide
employment and it can reduce poverty in
the country.
Number of MSMEs in the Philippines
The 2018 Lest of establishments of the
Philippine Statistics Authority (PSA)
recorded a total of 1,003,111 business
enterprises operating in the country. Of
these, 998,342 (99.52%) are MSMEs and
4,769 (0.48%) are the large enterprises.
Micro enterprises constitute 88 45%
(887,272) of total MSMEs establishments,
followed by small enterprises at 10.58%
(106,175) and medium enterprises at
0.49% (4,895). The majority of the
MIMEs be found in the National Capital
Region (NCR) with 203,312 (20.360)
business establishments.
The top five (5) industry sectors
according to the number of MSMEs in
2016 were:
1. Wholesale and Retail Trade with
101,765 establishments
2. Accommodation and Food Service
Activities with 144,535 establishments;
3. Manufacturing with 116,335
establishments,
4. Other Service Activities with 66,162
establishments; and
5. Financial and Insurance Activities
with 46,033 establishments.
Contribution of MSMEs on the
Philippine Economy
1. Employment Opportunities
These MSMEs generated a total of
5,714,262 jobs or 63.19% of the
country's total employment in 2018
The micro-enterprises produced the
biggest share (28.80%) closely
followed by small enterprises (27.04%)
whole medium enterprises were far
behind at 7.29%. Meanwhile, large
enterprises generated a total of
3,328,801 jobs or 36.81% of the
country's overall employment.
2. Exports Contribution of MSMES
MSMEs account for 25% of the
country's total export revenue. It is also
estimated that 60% of all exporters in
the country belong to the MSME
category. MSMEs can contribute in
exports through a subcontracting
arrangement with large firms, or as
suppliers to exporting companies.
Government Programs to Support
MSMEs
1. Barangay Micro Business Enterprise
(BMBE) Act or R.A. 9178.
It encourages the formation and growth
of BMBEs (or micro-enterprises) by
granting them incentives and other
benefits (i.e., exemption from income
tax, exemption from minimum wage.
As defined in the article, Barangay
Micro Business Enterprise refers to
any business entity or enterprise
engaged in the production, processing
or manufacturing of products or
commodities, including agro-
processing, trading, and services,
whose total assets including those
arising from loans but exclusive of the
 land on which the particular business
entity's office, plant and equipment are
situated, shall not be more than Three
Million Pesos (P3,000,000.00). It
includes also the enterprise engaged in
services, excluding those rendered by
anyone, who is duly licensed by the
government after having passed a
government licensure exam, in
connection with the exercise of one's
profession (e.g., accountant, lawyer,
doctor, etc.)
According to Section 7-8 of the article:
"All BMBEs shall be exempt from tax for
income arising from the operations of the
enterprise". "The BMBEs shall be exempt
from the coverage of the Minimum Wage
Law, provided, that all employees covered
under this Act shall be entitled to the same
benefits given to any regular employee
such as social security and healthcare
benefits."
2. Go Negosyo Act or R.A. 10644
The law seeks to promote "job generation
and inclusive growth through the
development of MSMEs" in the country. It
promotes "ease of doing business and
facilitates access to services for MSMEs
within its jurisdiction" by establishing of
Negosyo Centers in all provinces, cities,
and municipalities to promote. Business
advisory services through technology
transfer, production and management
training. and marketing assistance for
MSMEs. Business registration assistance
through the Philippine Business Registry
Databank under the Department of Trade
and Industry (DTI). Go Negosyo Act will
provide financial assistance for the
development and promotion of MSMEs in
priority sectors of the economy to be
sourced from the MSME Development
Fund and BMBE Fund.
LESSON 4: SOCIOECONOMIC
FACTORS AFFECTING BUSINESS
AND INDUSTRY: CONSUMER
BEHAVIOR
Consumer Theory
Consumer theory is the study of how
people decide to spend their money based
on their individual preference, and budget
constraints. Consumer theory shows how
individuals make choices, subject to how
much available income they have to
spend, and the prices of products.
Consumption refers to the sue of goods
and services to satisfy human wants.
Individuals have the freedom to choose
between different bundles of goods and
services. Consumer theory seeks or
predicts their purchasing patterns by
making the following three basic
assumptions about human behavior:
• Utility maximization - Individuals are
said to make calculated decisions when
shopping, purchasing products that
bring thin the greatest benefit known as
a maximum utility.
• Nonsatiation – People are seldom
satisfied with one trip to the shops and
always want to consume more.
• Decreasing marginal utility –
Consumers lose satisfaction in a
product the more they consume it.
The Utility Function
A consumer aims to maximize the
satisfaction he/she derives from the use of
a good or service. The utility is a term in
economics that refers to the total
satisfaction received from consuming a
good or service. Economic Theories based
on rational choice usually assume that
consumers will strive to maximize their
utility. The economic utility of a good or
service is important to understand,
because it directly influences the demand,
and therefore price, of that good or
service. In practice, a consumer's utility is
impossible to measure and quantity. In
order easily understand the concept of
utility, we shall assume that it is
measurable in units, which is called util.
Util is one unit of satisfaction.
The utility function shows the relationship
between utility and consumption. In the
equation form, it is 𝑈 = 𝑓(𝐶), which is
simply stated as: utility is a function of
consumption. Also, the utility for the
consumption of goods X and Y can be
expressed as 𝑈 = 𝑓(𝑋, 𝑌).
The important measures of utility are
Total Utility and Marginal Utility.
Total Utility refers to the combined utility
derived from consuming an additional unit
of a good.
Marginal Utility refers to the additional
utility derived from consuming an
additional unit of a good
Law of Diminishing Marginal Utility
The Law of Diminishing Marginal
Utility states that, as additional units of
goods are consumed, the additional utility
derived from each additional unit tends to
diminish. In other words, as a consumer
takes more units of a good, the extra
utility or satisfaction that he derives from
an extra unit of the good goes on falling. It
should be carefully noted that the marginal
utility, and not the total utility, that
declines as the consumption of good
increases. The law of diminishing
marginal utility means that the total
utility increases but at a decreasing rate.
The law is based upon the fact that the
total wants of humans are virtually
unlimited, each single want is satiable.
Therefore, as an individual consumes
more and more units of goods, the
intensity of his want for that goods
declines, to the point that he no longer
wants to consume more goods. When the
saturation point is reached, the marginal
utility of goods becomes zero. The zero
marginal utility of goods implies that the
individual has reached his/her satisfaction.
LESSON 5: SOCIOECONOMIC
FACTORS AFFECTING
BUSINESSAND INDUSTRY:
PRODUCTION THEORY
Production is a process of combining
various inputs to produce an output for
consumption. It is the act of creating
output in the form of a commodity or a
service that contributes to the utility of
individuals. The term Input refers to the
resources used to produce goods and
services. Output refers to the product
created as a result of the combination of
input in the production process.
Production Theory
In economics, production theory explains
the principles in which the business has to
take decisions on how much of each
commodity it sells, how much it produces,
and how much of raw material i.e., fixed
capital and labor it employs. It defines the
relationships between the price of the
commodities and productive factors on
one hand, and the quantities of these
commodities and productive factors that
are produced on the other hand.
The Production Function is an equation
showing the maximum output of a
commodity that a firm can produce per
time with each set of inputs.
𝑄 = 𝑓(𝑖)
Where:
𝑄 = 𝑜𝑢𝑡𝑝𝑢𝑡 𝑎𝑛𝑑 𝑖 = 𝑖𝑛𝑝𝑢𝑡
To be more specific, output depends on
the quantity of land, labor, and capital
available. Thus, 𝑄 = 𝑓(𝐿𝑑, 𝐿𝑏, 𝐶).
Basically, production analysis is
concerned with the analysis in which
resources such as land, labor, and capital
are employed to produce a firm's final
product. To produce goods, the basic
inputs are classified into two divisions:
fixed inputs and variable inputs
Fixed inputs are resources that remain actually result in a smaller increase in
constant in the short-run. output.
Variable inputs are resources which can Output produced is measured in three
be changed in the short-run or long-run. forms:
The short-run is the period in which at 1. Total Product (TP) – is the combined
least one factor of production is production of several units of a given
considered fixed. Usually, the capital is input.
considered constant in the short-run. In the 2. Marginal Product – is the additional
long-run, all factors of production are output produced by an additional unit
variable, while in the very long-run all of the input and is equal to change in
factors of production are variable and total product/change in input.
research and development are possible. 3. Average Product – refers to the
Economic models and theories are not average contribution per unit of input
dynamic, but they are fixed to a period. and is equal to TP/i.
So, economists based their models on the
short-run or long-run. The difference in
these periods is the ability to change the
factors of production given the time. For
example, in the short run, it is impossible
to set up a new factory, but more plausible
to hire new workers. It shows that in a
period, the current output can change with
one factor, while in the long run, you can
make any changes.
Law of Diminishing Marginal Returns
If more variable factors of production are
used in a combination with a fixed factor
of production, the marginal product, and
then the average product will eventually
decline. The law of diminishing
marginal returns determines the behavior
of output in the short-run.
The law of diminishing marginal returns
is a theory in economies that predicts
when the optimal level of capacity is
reached, adding a factor of production will