Professional Documents
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Organization and
Management
Quarter 1 – Module 4:
The Business Environment: Role
of Business in the Economy
Quarter 1
Module 4, Week 4
The Business Environment: Role of Business in the
Economy
__________________________________________________________________________________
What I Know
Multiple Choice: Write the letter of your answer on a separate sheet of paper.
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4. Business ideas are catalysts of innovation to provide solutions to human
problems.
A. False C. Maybe
B. True D. Not applicable
5. The business sector helps hasten the economic recovery process of the
Philippines during financial turmoil or crackdown.
A. False C. Maybe
B. True D. Not applicable
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12.It is a type of business which involves in transforming raw materials into
finished products.
A. Service C. Manufacturing
B. Merchandising D. Farming
15. A business organization owned and managed by two or more people who
agree to contribute money, property, and expertise in a common venture
with the intention of dividing the profits among themselves.
A. Partnership C. Manufacturing
B. Merchandising D. Sole proprietorship
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Lesson Roles of Business in Relation to
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the Economy
This lesson is designed to help you understand the roles of business to the
other groups in the economic environment and how the environment affects the
firm.
So, are you now ready to further explore the business environment? Come on
and enjoy learning this module and feel free to go over the discussion and examples
if you have not yet mastered a concept.
At the end of this lesson you are expected to: (1) Examine the role of business
to the other group of the economy; and (2) Develop concepts of entrepreneurship to
better one’s economic status in life.
What’s In
Do the following task and write your thoughts on a separate sheet of paper.
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What’s New
Whatever your answers will be, take a closer look at the discussion that
follows and check whether you get it right.
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What Is It
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The Relationship Between Business and the Economy
The business firm produces goods and services from the factors of
production provided by the environment. Consumers, in turn, buy these goods
and services. Business firms thus contribute to the country’s economic growth.
One measure of economic growth is the Gross National Product (GNP), which is
defined as the total market value of goods and services produced by a country in
any given period (usually computed quarterly, semi-annually, annually)There are
three different approaches in computing GNP namely, (1)final expenditure
approach: An approach in computing GNP by summing up the total expenditure
of household, firm, government, and the rest of the world. (2)Factor income
approach: This approach uses data from income received by the household, firm,
government and external sector. (3)Value-Added approach: This approach sums
up the total value added or the additional value added contributed by different
sectors as the product goes through production. Let us have the staple food of
the country, rice, as an example. Before rice is sold in the market and reached to
our tables, it undergoes a process from grain to milled rice. In every process,
value is added to the product due to the expense incurred by the different sectors
in production. Computing GNP will be further discussed in your Applied
Economics subject in Grade 12. In this lesson we just need to learn how GNP
measures economic growth.
Consequently, to produce goods and services, the business firm must
purchase materials, components, or semi-finished goods from other producers,
thereby creating a demand for the outputs of other businesses. It must also pay
wages to its personnel. These wages form the income of the workers, who in turn
buy foods, clothes, and other goods and services. A business firm co-exists and
interrelates with other member groups in the economic system. Some business
firm manufacture the same products or substitutes for others. When we combine
this firms as a group, we call them an industry. Thus, we may define industry as
a group of business firms offering similar goods or services. Some examples are
electronics, car, chemicals, petroleum, banking and finance, shipping, aviation,
and construction industries.
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What’s More
Activity 4.1 Provide the role of business given the following scenario.
Write your answer in a separate sheet of paper.
Activity 4.2 Do the following and write your answer in a separate sheet of
paper
This lesson discusses the transition of economic development from one phase
to another as it is usually gradual, and a country may find itself under economic
phases at different points of time.
At the end of this lesson you are expected to classify the phases of economic
development as to means of livelihood, extent of economic activity, and medium of
exchange.
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What’s In
Cite situations where you can justify that business improved the lives of
people. Write your answer in a separate sheet of paper.
___________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
What’s New
Are you familiar with the terms etched in the maze block found in figure 4.3?
Which phase do you think comes first? In what phase do you think are we now?
Don’t worry if the terms are totally unfamiliar because we will discuss each of
them in the next part of the lesson.
What is It
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Economic development is only possible if a country has maximized the use
of its economic resources. These economic resources are called factors of
production, in the form of land, labor, capital, and the entrepreneur. Land
pertains to all-natural resources including timber, minerals, petroleum, and the
land itself. Labor refers to the physical and mental input of the people who
produce the goods and services. Capital includes every man-made good that are
used in the production process. The Entrepreneur or businessperson buys and
organizes the other three factors of production (land, labor, capital) to provide
goods and services. In return, he profits if his products are in demand and
inherent in all business ventures.
Since these resources differ greatly in quality and quantity, some countries
experienced drastic developments. As these resources become extensively scarce,
their proper allocation and utilization need extensive research and study.
We can classify the phases of economic development as to means of
livelihood, extent of economic activity, and medium of exchange.
A. Means of Livelihood
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in machines and equipment. Large factories were established and there
was also an increased in employment. Industrial cities emerged and trade
flourished. Transportation was improved with the construction of canals,
waterways, roads and railroads and these enabled the quick and easy
transport of raw materials and finished goods over long distances.
7. Fordism (1880 – 1970). This phase saw the rise of multinational
corporations through the pioneering work of Henry Ford of Ford Motor
Company. Ford introduced a standardized production process for his Ford
Model T Automobile which resulted in increased production and profit.
Ford’s innovation led to the introduction of the assembly line, a production
process where the assembly of an automobile is done, usually a moving
conveyor, with workers performing specific and repetitive tasks in a series.
Ford also introduced the electric motor in his factory which greatly
improved efficiency, leading to lower production costs. During this period,
the term “Fordize” became popular and this meant “to standardize a
product and manufacture it by mass means at a price so low that the
common man can afford to buy it.”
8. Post-Fordism (1970 – 2010). In this phase, production is no longer
confined to manufacturing plants and could be done anywhere in the
world through improvements in production methods and information
technology. Computer-controlled tools and efficient techniques customized
and tailored the production process to a location. The internet provided a
more convenient medium for communication among customers, suppliers,
investors, and employees, enabling easy access and purchase of products
as well as their quick delivery to customers.
9. Globalization (2010 – present). The current economic phase is the age of
globalization where companies are operating within a global marketplace
and economy. This has given rise to the establishment of regional
economic organizations that enable companies from different countries to
engage in free trade with each other. This period is also characterized by
stiff competition among companies and the constant need to maintain
quality in order to attract customers. Another important concern in this
period is sustainability, which refers to the conduct of business operations
with due regards to its effects on the environment.
1. Household Economy. Since the family is the smallest and earliest social
unit, the first phase is the termed household economy. The needs of the
family were satisfied largely by the efforts and contributions of all
members of the family.
2. Village Economy. When several families organize a village, economic and
social relations spread among the various families resulting in the rise of
the village economy.
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3. National Economy. This phase involves the grouping of villages into
bigger and broader social units. Consequently, nation building develops
economic activities on a nationwide scale.
4. International Economy. With better and modern means of
transportation and communication, a country expands its economic
relationship through international trade and diplomatic cooperation.
C. Medium of Exchange
1. Barter Economy. During the primitive era, exchange was done through
barter which was the direct exchange of goods for goods, service for service,
goods for service or service for goods. Money was not used, instead,
commodity is offered. If the commodity offered by the person was not
acceptable to another person, no exchange took place. Since barter
involved physical transfer of commodities with every transaction, it was
very inconvenient.
2. Money Economy. While barter was used, there came to circulate in the
market certain objects, such as bars of metals, buttons, tools, and utensils
which were stable in value, durable and generally accepted by the public.
Through time and evolution, money was used as a medium of exchange.
Money solve the problem of barter economy when such objects became
standardized in value and regular in appearance so that it became
identified and accepted by the public as a medium of exchange.
Consequently, a monetary system evolved.
Money is anything which is characterized by its general acceptability, its
redeemability in precious metals, or public acceptance in any institution
using it.
3. Money and Credit Economy. When transactions continued to increase in
volume and frequency, it became imperative to allow others to purchase
one’s goods or engage one’s service with payments to be paid at some
future date. This was proven when credit transactions in modern business
became far greater in volume than cash transactions. Credit is the power
to obtain economic goods and services in exchange for the promise to pay
the agreed equivalent at some future time. Credit supplements money as a
medium of exchange. Modern business operations have expanded through
the availment of credit facilities because the use of credit makes possible
the growth of production and of sales.
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What’s More
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Phases of Economic Development Tabular Format:
At the end of this lesson you are expected to be able to: (1) differentiate the
various forms of business organizations; and, (2) recognize the nature of business
activities performed by business firms.
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What’s In
Did you remember Vira and her Courier Business in Activity 4.3? Let us take
a little review and reflect on her case using the guide questions below. Write your
answer on a separate sheet of paper.
1. What are the factors of production did she need for her to be able to start
operation?
2. What role did her business do to her cousins?
3. How do you think her entrepreneurial idea will help her neighbors?
4. Did it ever occur in your mind what is the nature of business activity will
she going to register in getting her business permit?
5. What form of business ownership is ideal for her and her business?
What’s New
One of the most difficult questions which anyone starting a business must ask
himself is: Which is the best form of ownership for me to organize? Each of the
several legal forms of business ownership has its peculiarities and, because of this,
the future of an undertaking may very well depend on the appropriateness of the
form selected for carrying it out.
Business organizations can be classified according to its nature of activities
which refers to the main activities during the normal course of doing business and
form of organization which refers to the category of business according to the
number of owners.
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What is It
NATURE OF
DESCRIPTION
ACTIVITIES
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B. BUSINESS CLASSIFICATION AS TO FORM OF ORGANIZATION
FORMS OF
BUSINESS OWNERSHIP ADVANTAGES DISADVANTAGES
ORGANIZATION
1. Minimal costs 1. Resources are
and limited as the capital
requirements in is provided only by
the formation the owner
2. Owner can 2. The liability of the
withdraw the owner is unlimited
assets and as he/she is
profits of the accountable to all
business creditors of the
1.Sole A business owned anytime at business
proprietorship and managed by his/her 3. Infusion of
only one person. discretion knowledge in the
3. Decision making management of the
is solely in the business is limited to
hands of the one person only,
owner which is the owner
4. The duration of
the life of the
business solely
depends on its
owner
1. The partners are
liable for the actions
of each partner
1. Minimal costs
because of mutual
and
agency.
requirements in
A form of 2. A general partner
the formation.
business has unlimited
2. There are more
organization liability if the other
funds
owned and partners are limited
contributed from
managed by two partners or are
the investment of
or more people insolvent.
the partners.
who agree to (insolvency means
2. Partnership 3. There is infusion
contribute money, unable to pay long
of more
property, and term obligations)
knowledge,
expertise in a 3. Disagreements
experience, and
common venture between or among
skills from two
with the intention partners can lead to
or more
of dividing the the withdrawal of
partners.
profits among one or more partners
There can be
themselves. 4. The death,
division of labor
retirement,
between or
withdrawal, or
among partners.
incapacity of a
partner results in
the dissolution of the
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partnership
FORMS OF
BUSINESS OWNERSHIP ADVANTAGES DISADVANTAGES
ORGANIZATION
A form of 1. Stockholders 1. A corporation entails
business only have many requirements
organization limited liability and is more costly
managed by an as their liability than a partnership.
elected board of extends only up 2. The government
directors. The to the amount exercises strict
investors are of their capital control over
called investment. corporations and
stockholders and 2. A corporation imposed high taxes.
the unit of has continuous 3. Shareholders have
ownership is existence as its little or no
called shares of life is indefinite. participation in the
stocks 3. There is more management of the
infusion of corporation.
Section 10 of funds from the 4. Distribution of net
R.A. 11232 of stockholders or income depends
2019 otherwise investors. upon the declaration
known as The 4. Shares of of dividends by the
Revised stocks can be board of directors.
Corporation transferred 5. In large
Code of the without the corporations, there
Philippines consent of other is formal or
3. Corporation
amends the Old shareholders. impersonal
Corporation Code 5. Management of relationship between
that instead of the the corporation employees and
minimum 5 is vested upon management due to
persons to its board of the big number of
organize a directors. employees. Hence,
corporation, it is chances of creating a
now reduced to personal and
one (1) but not friendly atmosphere
more than in the corporate
fifteen(15) setting are minimal.
incorporators.
A corporation with
a single (1)
stockholder is
considered a
One Person
Corporation as
described in Title
XIII, Chapter III of
this Code.”
Incorporators are
the founders of
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the corporation or
the original
owners.
FORMS OF
BUSINESS
OWNERSHIP ADVANTAGES DISADVANTAGES
ORGANIZATION
1. The prices of 1. There is limited
A duly registered products offered capital due to
association of to consumers underprivileged
persons, with a are lower due to members.
common bond of direct purchases 2. The cooperative is
interest, who have of cooperative strictly for members
voluntarily joined members from only and shares
together to achieve producers or cannot be
a lawful common manufacturers. transferred to non-
social or economic members.
end, making
equitable 2. Cooperatives are 3. Lack of efficient
4.Cooperative contributions to managed by the management as it is
the capital members managed only by its
required and themselves; members.
accepting a fair thus, saving on
share of the risks management
and benefits of the costs which
undertaking in leads to lower
accordance with prices for the
the universally benefit of the
accepted consumers.
cooperative 3. Dividends are
principles. non-taxable
What’s More
Example:
(1.) NAME OF BUSINESS : Chika Lang Bakeshop
(2.) Form of business organization : Sole Proprietorship
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(3.) Nature of Activity : Manufacturing
Factors of production (8.) What are their (9) Who are their
products or services customers?
they offer?
(4.) ENTREPRENEUR: Answer: Answer:
How many owners do Bread Households within
the business have? Cakes the locality
Answer: 1 owner cookies
(5.) CAPITAL: Online customers
What are the tools and for special
machines the use to occasions
produce bread?
Answer: Oven, mixer, resellers
flour
(6.) LABOR:
Who are the people
making the breads?
Answer: Bakers
(7.) LAND: (10.) Write down the actual advantages and the
How many square disadvantages of the “business case” you chose in
meters of land Chika terms of form of ownership.
Lang Bakery occupies?
Answer: An estimate of
60 square meters Advantages: (write as many as you can)
Activity 4.6 Fill in the table with the appropriate business type according to its
corresponding classification. Write your answer on a separate sheet of paper.
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Activity 4.7 Provide two advantages and disadvantages for each form of
business organization.
Form of
Business Advantages Disadvantages
Organization
1. Sole 1.____________________ 1.____________________
Proprietorshi 2.____________________ 2.____________________
p
2. Partnership 1.____________________ 1.____________________
2.____________________ 2.____________________
3. Corporation 1.____________________ 1.____________________
2.____________________ 2.____________________
4. Cooperative 1.____________________ 1.____________________
2.____________________ 2.____________________
What I Can Do
Activity 4.8 Classify the following businesses by filling out the table as to its form
of organization on the first column and nature of activity on the succeeding
column. Write your answer on a separate sheet of paper.
Form of Business
Business Name Nature of Activity
Organization
Example: Cebu Pacific Air Corporation Service
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NOTE:
(Business naming for corporation may be attached with initials like “Corp.” “Co”. or
“Inc.”)
Assessment
Multiple Choice: Write the letter of your answer on a separate sheet of paper.
6. The primary role of business to the economy is NOT being the provider of
products and services to consumers.
A. False C. Maybe
B. True D. Not applicable
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8. Business firms also provides of employment to the labor force.
A. False C. Maybe
B. True D. Not applicable
10. The business sector helps hasten the economic recovery process of the
Philippines during financial turmoil or crackdown.
A. False C. Maybe
B. True D. Not applicable
11. A cashier in SM is under what factor of production?
A. Land C. Capital
B. Labor D. Entrepreneur
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Answer Key
Activity ANSWERS
4.1 1. Helps hasten the economic recovery process of the
Philippines due to Covid19 pandemic.
2. Provider of employment to the labor market.
3. Provider of product to the consumer.
4. Provider of fund to the government in the form of taxes.
5. Assists the national government in its desire to have
favorable economic ratings in the ASEAN Market.
4.2 A.
1. Provider of products and services to consumers.
2. Provider of economic opportunities to business
operators.
3. Provider of funds to the government in the form of taxes.
4. Provider of employment to the labor force.
5. Supplier of products and services to other businesses.
6. Catalyst of innovation to provide solutions to human
problems.
7. Introducer of entrepreneurial niche in the world market.
8. Facilitator of the smooth flow of money in the local
market.
9. Helps hasten the economic recovery process of the
Philippines during financial turmoil or crackdown.
10. Assists the national government in its desire to have
favorable economic ratings in the world market.
B.
4.3
1. Entrepreneur
2. Land
3. Capital
4. Labor
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4.4 A. Means of Livelihood
1. Hunting and fishing phase
2. Pastoral phase
3. Handicraft phase
4. Agricultural phase
5. Mercantilism
6. Industrial revolution
7. Fordism
8. Post-fordism
9. Globalization
C. Medium of exchange
1. Barter economy
2. Money economy
3. Money and credit economy
1. Service 1.Sole
proprietorship
2. Manufacturin 2.Partnership
g
3. Merchandisin 3.Corporation
g
4.Cooperative
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References
Books:
Zarate, C.A. (2016). Organization and Management. Quezon City, Philippines.
C & E Publishing, Inc. (pages 64,65,66)
Iñigo, C.E., Jr. (2014). Management for Filipinos. Sampaloc, Manila
Philippines. Gemini Phils. Graphic Arts Corp. (pages 5,6 and 12,13,14)
Ong, F.L. (2016). Fundamentals of Accountancy, Business and Management1.
Quezon City Philippines. C & E Publishing Inc. (pages 13,14,15,16)
Aduana, N.L. (2017). Entrepreneurship in the Philippine Setting. Quezon City
Philippines. C & E Publishing Inc. (page42)
Medina, R.G. (2010). Entrepreneurship and Small Business Management.
Sampaloc, Manila, Philippines. Rex Bookstore, Inc. (page 17)
PDF:
Organization and Management Teacher’s Guide,CG: Department of
Education, 2016
Organization and Management MELC: Department of Education,2020
Online Sources(figure):
www.economics help.org/blog/glossary/the-role-of-firms-in-the-economy/
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