MODULE

IN
ABM_AE12
Applied economics

RENZ MARRION M. VILLOTA, LPT

COMPILER
 MODULE 1
Introduction to Applied Economics
OBJECTIVES:
1. define basic terms in applied economics
2. identify the basic economic problems of the country
3. explain how applied economics can be used to solve economic problems

Activity1: FIX ME, I’M CRUMBLED!

Instruction: Fixed the following rumbled letters:
1. SEIPRENRTE =
2. ANDL =
3. RBOLA =
4. APITLCA=
5. CINOOEMC =

DISCUSSION
Economics
Study of what constitutes rational human behavior in the endeavor to fulfill needs and
wants. Understanding how society allocates its scarce resources. Almost always, human
activities involve economics

• a social science concerned with using scarce resources to obtain the maximum of the
unlimited wants of society.
• the study of how societies use scarce resources to produce commodities and distribute
them among different people.
• the study of production, distribution, selling and use of goods and services.
• the study of how people use their limited resources to try to satisfy unlimited wants.

ECONOMICS FROM DIFFERENT PERSPECTIVES

1. Fajardo 3. Sicat
Economics – is the proper allocation and Economics – is a scientific study which deals
efficient use of available resources for the with how individuals and society may
maximum satisfaction of human wants general choices

2. Nordhaus 4. Webster
Economics – is the science of choice. It Economics – branch of knowledge that
studies how people choose to use scarce deals with production, distribution and
resources to produce various commodities consumption of goods and services

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ECONOMICS IN A PROCESS

Economic activities
Earning money
Buying goods and services
Depositing and withdrawing money in bank

Economics is classified as a social

science because it deals with the
study of human’s life and how he
lives with other men.

TYPES OF ECONOMICS
Macroeconomics - Deals with the economic behavior
of the whole economy or its aggregates (composed of
individual units)

Macroeconomics Discusses the following: - Gross

national product - Level of employment - National
income - General level of prices
“EMPLOYMENT AND INCOME ANALYSIS”

Microeconomics - Deals with the economic behavior of individual

units such as: Consumers Firms Landowners
Microeconomics  Discusses the following: - Price of rice - Number
of workers in a certain firm - Income of Mr. Fu - Expenditures of
PLDT
“PRICE THEORY”

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1. Production – refers to the process of producing or creating goods needed by the households
to satisfy their needs.

Factors of production – inputs

Goods and services – outputs

PRODUCERS – a person or business who make goods or provide services.

CONSUMERS – a person or business who buys or uses goods or services.

2. Distribution – refers to the marketing of goods and services to different economic

outlets
3. Exchange – refers to the process of transferring goods and services to a person in
return for something present medium of exchange – money
4. Consumption – refers to the proper utilization of economic goods. However, goods
and services could not be utilized unless you pay for it. Hence, consumption could also be
spending money for goods and services
5. Public Finance – pertains to the activities of the government regarding taxation,
borrowings and expenditures. It deals with the efficient use and fair distribution of public
resources.

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ECONOMIC RESOURCES
1. Land 3. Capital

These resources consist of free gifts of Two economic definitions of capital:

nature which includes: - soil - rivers - lakes,
a. Capital – can represent the monetary
oceans - forests - mountains - mineral
resources use to purchase natural resources
resources
Ex: Companies use capital to buy land and
Land is considered an economic resource
other goods
because it has a price attached to it. * we
usually pay for it through rent or lease Land b. Capital – represents the major physical
is a limited resource. Physical land is a fixed assets individuals and companies use when
resource. producing goods and services Ex: buildings,
vehicles, equipment
2. Labor
Income derived from capital is interest
Also called “human resources”
4. Entrepreneurs
Labor- refers to all human efforts, be it
mental or physical, that help to produce French word which means “enterpriser”
satisfying goods and services. In return, he Entrepreneur – organizer and coordinator of
earns an income in forms of wages and other factors of production: land, labor and
salaries capital. He uses his initiative, talent and
Labor is a flexible factor of production - resourcefulness to create economic goods
workers can be allocated to different areas 5. Foreign Exchange
of the economy for producing goods and
services Refers to the dollar and dollar reserves that
the economy has. Foreign exchange is part of
economic resources because we need
foreign currency for international trading
and buying materials from other countries

International medium – dollar

Key points:
Scarcity - the limited nature of resources, which underlies the basic economic
problem
Economic Resources - the problem of having unlimited wants, but limited
resources to satisfy them
Natural Resources – came from nature that are used in production, including
land, raw materials, and natural process.
Capital Resources - the processed materials, equipment, and buildings used in
production
Human Resources - the efforts of people involved in production, including labour
and entrepreneurship
Needs - the essentials of life, such as food and shelter

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Wants - desires for non-essential items

SCARCITY
Scarcity is the reason why people have to practice economics.
Economics, as a study, is the social science that involves the use of scarce
resources to satisfy unlimited wants

Alfred Marshall described economics as study of mankind in the ordinary

business life. It examines part of the individual and social action that is most
connected with the attainment and use of material requisites of well-being.

Relative Scarcity-Is when a good is scarce compared to its demand.

Absolute Scarcity- is when supply is limited.

Choice and decision making

Because of the presence of scarcity, there is a need for man to make decisions
in choosing how to maximize the use of the scarce resources to satisfy as many
wants as possible.

Opportunity cost
Refers to the value of the best foregone alternative.

BASIC ECONOMIC PROBLEMS OF SOCIETY

■What to produce and how much
■How to produce
■For whom to produce

What to produce and how much?

■ Society must have to decide what goods and services should be produced in
the economy. Having decided on the nature of goods that will be produced, the
quantity of these goods should also decided on.

How to produce?
■Is a question on the production method that will be used to produced the goods
and services. This refers to the resource mix and technology that will be applied
in production.
For whom to produce

For whom to produce

■ Is about the market for goods. For whom will the goods and services be
produced? The young or old, the male or female market, the low-income or the
high-income groups?

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ECONOMIC SYSTEMS
Traditional economy
■Decisions are based on traditions and practices upheld over the years and
passed on from generation to generation. Methods are stagnant and therefore not
progressive.
Command economy

Command economy
This is the authoritative system wherein decision-making is centralized in the
government or a planning committee. Decision are imposed on the people who do
not have a say in what goods are to be produced. This economy holds true in
dictatorial, socialist, and communist nations.

Market economy
This is the most democratic form of economic system. Based on the workings of
demand and supply, decisions are made on what goods and services to produce..
People preferences are reflected in the prices they are willing to pay in the market
and therefore the basis of the producers’ decisions on what goods to produce

ASSESSMENT
I. Answer the following. Encircle the letter of the correct answer
1. Economics is derived from the Greek word “oikanomia” meaning:
a. Economic management b. Household management c. Social
management
2. Economics is a social science because it deals with:
a. Human nature b. Natural resources c. Experimentation
3. Scarcity of resources means:
a. minimum resources b. excess resources c. shortage of resources
d.no resources
4. These are examples of human wants except:
a. smartphone b. perfume c. watch d. clothing
5. Give your definition of economics

ASSIGNMENT
Identify what type of economics (Macro or Micro) discusses the ff:
1. Gross National Product 6. Price of leather jackets
2. Price of bananas 7. Inflation
3. Profits of Bread and Butter 8. Income of Sir Renz
4. Employment 9. National Income
5. Gross Domestic Product 10. Import and Export

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 MODULE 2
Applied Economics: application of supply and
demand
OBJECTIVES:
1. To explain the law of supply and demand, and how equilibrium price and quantity are
determined
2. To. discuss and explain factors affecting demand and supply
3.To explain how applied economics can be used to solve economic problems
4.To compare the prices of commodities and analyze the impact on consumers
5.To explain market structures (perfect competition, monopoly, oligopoly, and
monopolistic competition)

Activity 2
Answer this situation.

1. You decided to have a sari-sari store in front of your house. After you decide to have
that sari-sari store your neighbor was encourage and also, she creates her sari-sari store
as well. How can you make a fair competition with her in relevance with the demand of
your other neighbor?

application of supply and demand

Markets
• A market facilitates the interaction of a buyer and a seller as they
complete a transaction
• Buyers, as a group, determine the demand
• Sellers, as a group, determine the supply

Characteristics of Competitive Markets

• Identical goods or services
• Enough buyers and sellers so that no participant can influence the market
price – everyone is a price taker

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 Demand
DEMAND – refers to the willingness of the people to buy or purchase the goods
regardless whether it is a need or a want over a period of time at a given price.

• Law of demand • Demand curve

• Quantity demanded • Determinants of demand
• Demand schedule

The Law of Demand

✓ As the price of the commodity increases, the quantity demand decreases

or if the price of the commodity decreases, the quantity demand
increases.

Determinants of Demand
• Income • Tastes or preferences
• Price of related goods • Expectations
– Complements • Number of buyers
– Substitutes

Shifting Demand

REMEMBER:
➢ Shift to the right indicates increase in demand
➢ Shift to the left indicates decrease in demand

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 Supply
Supply – refers to the willingness of the people to sell or produce the goods
regardless whether it is a need or a want over a period of time at a given price.

• Law of supply • Supply curve

• Quantity supplied Determinants of supply
• Supply schedule

The Law of Supply

As the price
rises,

the quantity
supplied
rises.

➢ As the price of the commodities increases, the quantity supplied increases

or if the price of the commodity increases, the sellers are motivated to sell
the products.

Determinants of Supply
• Input prices • Expectations
• Technology • Number of sellers

Shifting Supply

REMEMBER:
➢ Shift to the right indicates increase in supply
➢ Shift to the left indicates decrease in supply

Market Equilibrium
EQUILIBRIUM POINT
- Is the point of the intersection and where DEMAND is equal to SUPPLY.

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 SHORTAGE
- More demand than supply
SURPLUS
- Less demand than supply

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Price Controls
• Price Ceiling • Price Floor
– If price is fixed BELOW – If price is fixed ABOVE
the market clearing the market clearing
price price
– Creates a shortage – Creates a surplus
because Qd > Qs because Qd < Qs
• Rent controls • Minimum wage

Price Elasticity of Demand

• Measures the responsiveness of quantity demanded to a change in price
• Determinants
– Availability of close substitutes

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 – Necessities versus luxuries
– Definition of the market (food vs. ice cream vs. chocolate ice
cream)
– Time horizon
Price Elasticity and Total Revenue
• If demand for a good is elastic, price increases lead to lower total revenue
• If demand for a good is inelastic, price increases lead to higher total
revenue
Price Elasticity of Supply
• Measures the responsiveness of quantity supplied to a change in price
• Determinants
– Availability of inputs
– Time

LAW OF DEMAND AND SUPPLY

 It is the point where the willingness of the buyer to buy and the willingness
of the seller to sell meet at a given price.
 The producers sell at equal quantity where the consumers buy at the
same equal quantity to an agreed price.

Market Structures
Type of market structure influences how a firm behaves:
Pricing Efficiency
Supply CompetitioN
Barriers to Entry
Degree of competition in the industry
• High levels of competition – Perfect competition
• Limited competition – Monopoly
• Degrees of competition in between

Determinants of market structure

Freedom of entry and exit Control over supply/output
Nature of the product – homogenous Control over price
(identical), differentiated? Barriers to entry
Perfect Competition:
Free entry and exit to industry Sellers are price takers – have to
Homogenous product – identical so accept the market price
no consumer preference Perfect information available to
Large number of buyers and sellers buyers and sellers
– no individual seller can influence
price
Examples of perfect competition:
Financial markets – stock exchange, currency markets, bond markets?

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Agriculture?
Advantages of Perfect Competition:
• High degree of competition helps allocate resources to most efficient use
• Price = marginal costs
• Normal profit made in the long run
• Firms operate at maximum efficiency
• Consumers benefit
What happens in a competitive environment?
New idea? – firm makes short term abnormal profit
Other firms enter the industry to take advantage of abnormal profit
Supply increases – price falls
Long run – normal profit made
Choice for consumer
Price sufficient for normal profit to be made but no more!
Imperfect or Monopolistic Competition
Many buyers and sellers
Products differentiated
Relatively free entry and exit
Each firm may have a tiny ‘monopoly’ because of the differentiation of their
product
Firm has some control over price
Examples – restaurants, professions – solicitors, etc., building firms – plasterers,
plumbers, etc.
Oligopoly – Competition amongst the few
Industry dominated by small number of large firms
Many firms may make up the industry
High barriers to entry
Products could be highly differentiated – branding or homogenous
Non–price competition
Price stability within the market - kinked demand curve?
Potential for collusion?
Abnormal profits
High degree of interdependence between firms
Examples of oligopolistic structures:
Supermarkets Oil
Banking industry Medicinal drugs
Chemicals Broadcasting
Measuring Oligopoly:
• Concentration ratio – the proportion of market share accounted for by
top X number of firms:
E.g. 5 firm concentration ratio of 80% - means top 5 five firms account for 80% of
market share
3 firm CR of 72% - top 3 firms account for 72% of market share

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Duopoly:
• Industry dominated by two large firms
• Possibility of price leader emerging – rival will follow price leaders pricing
decisions
• High barriers to entry
• Abnormal profits likely
Monopoly:
• Pure monopoly – industry is the firm!
• Actual monopoly – where firm has >25% market share
• Natural Monopoly – high fixed costs – gas, electricity, water,
telecommunications, rail
Monopoly:
High barriers to entry Possibility of price discrimination
Firm controls price OR output/supply Consumer choice limited
Abnormal profits in long run Prices in excess of MC
Advantages and disadvantages of monopoly:
• Advantages:
May be appropriate if natural monopoly Development of some products not
Encourages R&D likely without some guarantee of
Encourages innovation monopoly in production
Economies of scale can be gained –
consumer may benefit
• Disadvantages:
Exploitation of consumer – higher prices
Potential for supply to be limited - less choice
Potential for inefficiency –
X-inefficiency – complacency over controls on costs

ASSESSMENT
Answer the following
1. Create a demand graph using the following table of values:

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 PRICE QUANTITY
10 500
20 450
30 400
40 350
50 300
60 250
70 200

2. Create a supply graph using the following table of values:

PRICE QUANTITY
10 200
20 250
30 300
40 350
50 400
60 450
70 500
3. Create a graph by plotting the quantities both tables above into the graph below. Make
the demand quantity plots one color and the supply quantity plots another color. After your
plots are done, connect the lines and be sure to make the demand and supply lines
different colors. At which point do the two lines intersect? What is the price of this
intersection?

ASSIGNMENT
Encircle your chosen answer. a) there is only one
1. Monopolistic competition supplier of the product;
features: b) there are a many
a) many buyers and sellers; sellers of a differentiated
b) easy entry and exit; product;
c) differentiated product; c) there are a few sellers
d) all of the above. with comparable market
2. Imperfect competition occurs; shares;
a) when any individual d) there are many sellers
firm can increase its of a homogeneous product.
production and sales without 4. One of the main similarities of
affecting the price of the good; perfect competition and monopolistic
b) whenever firms are competition is:
losing money; a) free entry and exit;
c) when firms have some b) the amount of product
control over price; differentiation;
d) all of the above. c) the economic profit earned in
3. A tight oligopoly is a market the long run;
where: d) none of the above.

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5. Which of the following is a 9. In a market that is
structural and not legal barrier to characterized by free entry and exit,
entry into an industry: profit serves the function of:
a) economies of scale; a) drawing new firms into the
b) the issuing of patents; industry when profit is normal.
c) a government awarded b) drawing new firms into the
franchise; industry when profit is lower than
d) the licensing of professions. normal.
6. Which of the following would c) causing some firms to leave
not be a monopolistic competitor: when profit is greater than normal.
a) Joe’s barbershop; d) none of the above.
b) a grocery store in a big city; 10. Which of the following does
c) a Fish Taverna in Limassol; not represent a barrier to entry into a
d) Microsoft market:
7. For a firm to be considered a a) import quotas;
pure monopoly, it must: b) patent laws;
a) take as given the price of the c) government restrictive
product that is established in the practices legislation;
market; d) copyright laws.
b) be the only producer of a 11. Consider the market for
good for which there are no close wheat. You know that there are
substitutes; numerous firms in the market, all of
c) face only a few competitors which are relatively small. Assume
that produce similar, but not identical further that there are no entry costs
products; that cannot be recovered on exiting
d) none of the above the industry. Suppose that a health
8. When an industry is classified fad emerges that encourages the
as oligopolistic, it consists of: consumption of natural grains and
a) only one seller; cereals. What will be the effect on
b) many sellers with similar profits of wheat farmers, the price of
products; wheat and output in both the short-
c) only a few sellers with either run and the long-run? (Assume that
standardized or differentiated input prices are constant over the
products; relevant range.)
c) only a few buyers.

MODULE 3
Applied Economics: Contemporary Economic
Issues Facing the Filipino Entrepreneur

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OBJECTIVES:
1. To analyze the effects of contemporary issues such as migration, fluctuations in the
exchange rate, oil price increases, unemployment, peace and order, etc. on the
purchasing power of the people

Cause and effects of migration

Migration is the movement of people from one permanent home to another.

This movement changes the population of a place. International migration is the
movement from one country to another.

People who leave their country are said to emigrate. People who move into
another country are called immigrants. The movement of people into a country is
known as immigration.

Every year some people leave the UK and move abroad. At the same time
some people will move into the UK. Immigrants add to the total population and
emigrants are subtracted from the total.

Sometimes people just move from one region to another within the same
country. In many developing countries, large numbers of people have moved from
the countryside to the cities in recent years. This is called rural to urban migration.

Why do people migrate?

Sometimes people have a choice about whether they move, but sometimes they
are forced to move. The reasons people leave a place are called the push factors.
The reasons people are attracted to new places to live are called the pull factors

Advantages and disadvantages of migration

Migration can bring advantages and disadvantages to the country which is losing
people and also to the host country.

Country losing people

Advantages Disadvantages

Money sent home by People of working age move out reducing the size of the
migrants country's potential workforce

Decreases pressure on Gender imbalances are caused as it is typically men who seek
jobs and resources to find employment elsewhere. Women and children are left

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Advantages Disadvantages

Migrants may return with

'Brain drain' if many skilled workers leave
new skills

Host country

Advantages Disadvantages

Increasing cost of services such as health

A richer and more diverse culture
care and education

Helps to reduce any labour shortages Overcrowding

Migrants are more prepared to take on low Disagreements between different religions
paid, low skilled jobs and cultures

In addition, there are a number of obstacles that the migrant may need to
overcome, including:

• unemployment in new country

• racism and cultural differences
• language barriers
• lack of opportunities
UK migration

Migrants come to the UK from a variety of countries. People from the UK

also emigrate to countries around the world. Immigration is not new and the UK
has been a multicultural society for thousands of years. Many people in the UK are
descended from previous settlers and invaders such as the Romans, Vikings,
Saxons and Normans.

Recent migrants include people from other European countries such as Poland.
Any European Union resident is usually free to work in other European Union
countries. This freedom of movement has encouraged migration.

Another type of migrant is an asylum seeker, someone who has been forced to
leave their own country because they are in danger, eg fleeing as a result of their
religious beliefs or the danger of war.

What causes currency fluctuations?

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Currency fluctuations arise from the floating exchange rate system, which is
followed by most major economies. The exchange rate of currencies against
others depends on various factors such as relative supply and demand for
currencies, economic growth of countries, inflation outlook, capital flows, and so
on. As these factors are continually changing, currencies fluctuate with them. The
fluctuation of a country’s currency can have a far-reaching impact on the country’s
economy, consumers, businesses and remittance inflows. This means that
whether a country’s currency appreciates or depreciates, it will have both positive
and negative impacts on a country’s economy, depending on the sector. Let’s take
a closer look at the impact of exchange rate on economic growth.

The Economy
One of the most prominent impacts of currency fluctuations can be seen in
international trade. Generally, a weaker currency stimulates exports and makes
imports expensive, thus decreasing the country’s trade deficit depending on the
sector. On the other hand, a strong currency can reduce exports and make imports
cheaper, effectively widening the trade deficit. While it is generally assumed that a
strong currency is a good thing for a nation’s economy; in reality, it might not be
so. An unjustifiable strong currency can cause a drag on the economy over the
long term, as entire industries are rendered uncompetitive and thousands of jobs
are lost. As GDP is directly linked to exports, a weaker currency may actually help
the country’s economy, contrary to popular belief. On the other hand, a
depreciating currency can result in inflation as the cost of importing goods
increases. Currency fluctuations also have a direct impact on the monetary policy
of a country, as exchange rates play a vital role in deciding exchange rates set by
a country’s central bank. Constant currency fluctuations can also affect the market
adversely, causing it to become volatile, and affecting both local and foreign trade.

The Consumer
Currency fluctuations have a significant impact on the consumer. As mentioned
above, a weak currency increases the cost of imports and eventually, this cost is
borne by the consumer. For example, buying a foreign car might get more
expensive if your country’s currency depreciates, which means that you might end
up paying more money to get an item of the same value. On the other hand, a
stable currency allows consumers to buy more. This increased spending further
benefits the overall economy of the country. Gas prices are also affected in a big
way due to foreign currency fluctuations. When the US dollar strengthens against
other currencies, we see a dip in oil prices. To decode why that happens, it’s
important to know that major oil-exporting countries like Saudi Arabia have their
currencies pegged to the US dollar. So, when the greenback gets stronger, so
does the Saudi Riyal, making Saudi Arabia’s imports cheaper. Due to this, Saudi
Arabia can afford to charge lower prices for oil. With oil prices affecting the cost of
commodities worldwide, consumers can directly feel the effect of these inter-linked
fluctuations.

Business
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Currency fluctuations affect all kinds of businesses, but businesses that export or
import supplies from other countries are most severely affected. A change in
currency can have a direct impact on a business’s bottom line. For example, if a
company headquartered in the U.S projects a profit margin of USD 6 million in a
year, it could reduce to USD 5.5 million if the dollar weakens against the rupee.
Similarly, they could see an increase in their profit if the dollar performs strongly
against the rupee.
Even if a business does not buy or sell to other countries, these fluctuations can
have some unforeseen consequences. For instance, if a company uses trucks to
move its products and a currency change fluctuates the cost of fuel, there will be
a direct impact on shipping costs. On the other hand, a depreciating currency can
also help domestic businesses sell more locally by reducing the country’s imports.
Some smaller businesses might lack the back-up finances to deal with exchange
rate fluctuations. They usually establish a ‘forward contract’ to hedge their financial
risk and ensure that their business will be protected from significant losses arising
from foreign currency fluctuation.
Effect of Higher Oil Prices

Readers Question: With oil prices rising towards $100, what are the economic
effects of rising oil prices?
Demand for oil is inelastic, therefore the rise in price is good news for
producers because they will see an increase in their revenue. Oil importers,
however, will experience increased costs of purchasing oil. Because oil is the
largest traded commodity, the effects are quite significant. A rising oil price can
even shift economic/political power from oil importers to oil exporters.

Current Account
Higher oil prices will lead to an improvement in the current account position of oil
exporters like OPEC countries. It will lead to a deterioration in the current account
position of oil importers (e.g. Germany, China). Oil exporters will see an increase
in foreign currency reserves which they could use to purchase foreign assets. e.g.

21
Arabic countries, such as Saudi Arabia are an important purchaser of US
securities.

Inflation

Inflation in 2008 due to higher oil prices.

A marked rise in oil prices will contribute to a higher inflation level. This is because
transport costs will rise leading to higher prices for many goods. This will be cost-
push inflation which is quite different to inflation caused by rising aggregate
demand/excess growth.

Consumers will see a fall in discretionary income. They face higher transport costs,
but don’t have the compensation of rising incomes. Higher oil prices can lead to
slower economic growth – particularly a problem if consumer spending is weak.

Monetary Policy
Cost-push inflation caused by rising oil prices
presents a dilemma to policymakers. Higher
inflation usually requires higher interest rates to
keep inflation on target. But, to reduce inflation
may not be appropriate because output could be
well below full employment. Arguably, in early
2008, policymakers gave too much importance to
the cost-push inflation and too little weight to the
impending economic downturn.

Long-Term effects of higher prices

In the short term, demand for oil is inelastic. This means a rise in price only causes
a small fall in demand. Demand is price inelastic because consumers need oil-
based products, e.g. their car only runs on petrol.

However, in the long term, higher oil prices will encourage consumers to diversify
consumption (e.g. buy hydrogen-powered cars e.t.c.) Therefore, in the long-run,
demand may become more price elastic.

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After the oil price shock of the 1970s, manufacturers also started to change their
approach. US car manufacturers paid more attention to the fuel efficiency of
engines. It has also created an incentive to develop alternatives to petrol cars

Also, higher oil prices will encourage firms to try and find more oil supplies, even if
it is expensive. Since the oil price shock of the 1970s, a new wave of countries
began producing oil. In countries, such as Venezuela, Russia and remote places
like the Antarctic.

UNEMPLOYMENT

Overall social consequences The personal and social costs of unemployment

include severe financial hardship and poverty, debt, homelessness and housing
stress, family tensions and breakdown, boredom, alienation, shame and stigma,
increased social isolation, crime, erosion of confidence and self-esteem, the
atrophying of work skills and ill-health. Most of these increase with the duration of
unemployment (Dixon 1992; EPAC 1992; Cass 1988; White 1991; Victorian Social
Justice Consultative Council (VSJCC) 1992). Unemployed people report that being
unemployed is one of the worst things that can happen to them (White 1991). In
addition, unemployment falls disproportionately on already disadvantaged groups
in society, for example, lower income earners, recently arrived migrants and
indigenous Australians. The Brotherhood of St Laurence’s Life chances study
(Gilley 1993) found that compared with families who had an employed parent,
more mothers in families in which there was no parent employed reported: •
serious health problems of young children; • serious problems for themselves; •
serious disagreements with the partner; and • serious financial problems and
serious problems with housing. ‘A drastic effect financially. It creates disturbances,
causes stress. We feel hopeless.’ (mother’s comment, Gilley 1993, p. 85) Poverty
and hardship Unemployment is the major reason for poverty in Australia today.
King (1998) finds that unemployed people in Australia had the highest rate of
poverty with almost 70 per cent of unemployed people having incomes below the
Henderson after Housing Poverty Line in 1996. The Victorian Social Justice
Consultative Council (1992) has documented the rapidity with which unemployed
people experience hardship and a decline in their standard of housing, diet,
clothing and health care. Unemployment and health Australian and overseas
studies have unequivocally demonstrated a strong relationship between
unemployment and health (National Health Strategy 1992; Smith 1987). This
occurs for some specific causes of death (such as diabetes, pneumonia, influenza
and bronchitis) as well as for a number of specific chronic illnesses (National
Health Strategy 1992). Unemployment has been shown to cause certain forms of
mental illness, such as depression (Smith 1987). Long-term harm for children and
young people In 1997 702,800 children or 17.9 per cent of children under 15 years
of age were in families with no parent in paid employment (ABS 1997). This is not
only immediately distressing for the children’s lives but is also likely to have long
term consequences for their educational, employment and social futures. People
with low education and skills are more likely to be unemployed or to have low
23
wages (The World Bank 1993), and work by Williams and others (1993) indicates
that school completion is lower for young people with parents who have low
education and an unskilled occupational background (and thus who are more likely
to be unemployed). The Australian Institute of Family Studies found that
adolescents with lower levels of well-being (such as health and sociability) have
fathers or both parents with no paid work (Weston 1993). Family stress arising
from poverty and unemployment has been found to be associated with children’s
behavioural problems and with their adjustment over time (Shaw et al. 1994).
Unemployment is also contributing to substantial alienation of a large number of
teenagers and young adults. Social division There is increasing division between
those families with children with both parents in the paid work force and those with
no parents with paid work. The wives of unemployed men have much higher rates
of joblessness than wives of employed men. Female sole parents also have high
rates of joblessness (McClelland 1994). Unemployment may also contribute to
greater divisions according to where people live. McDonald (1995) highlighted the
higher rates of unemployment experienced by those in living in older industrial
areas such as north-west Melbourne and mid-west Sydney. Gregory and Hunter
(1995) found that there had been little or no employment growth for people living
in low socioeconomic areas between 1976 to 1991 in contrast with the better
experience of people living in higher socioeconomic areas. Unemployment and
retirement The problems of long term unemployment amongst older people could
lead to a resurgence in aged poverty in Australia in coming decades. High levels
of long-term unemployment alongside lower declining levels of labour force
participation of older men may prevent the possibility for important asset
accumulation (such as paying off the family home prior to retirement). Home
ownership has been a very important factor in containing aged poverty in Australia
in the past. In addition income inequality amongst older people could well increase
with some, as a result of long term unemployment and joblessness, entering old
age with very little and others having a substantial accumulation of superannuation
and other assets.

Peace and disorder: Its causes and effects

Ordinarily, the main responsibility of government is to establish and maintain peace

and order. For it is only under a regime of peace and order that we can have true
and effective governance. On the contrary, it is virtually impossible to accomplish
things in a situation of lawlessness and disorder.

Yet, peace and order is still an elusive paradise as many of its underlying causes
remain insufficiently addressed. And for as long as government is unable to
eradicate the causes, the destructive effects of a breakdown in peace and order
will continue to pervade.

A major factor that ensures a good level of peace and order is the level of literacy
and education of the people. Needless to state, a highly literate population
translates to a citizenry that respects authority and obeys the law. In our case, the
low level of education of the greater portion of our people is one of the causes of

24
the breakdown of law and order.

Another factor that contributes to the lack of respect and obedience to our laws
and authorities is the inability of government to dispense justice fairly, honestly and
immediately. The swift and fair dispensation of justice is a sine qua non to avert
citizens taking the law into their own hands and, instead, respecting the law and
our magistrates.

In the case of Mindanao, religious differences and intolerance is yet another cause
for the disturbance of the peace and order. Above all, however, in the Southern
Philippines, it is the uneven economic playing field between the Muslims and the
Christians that breeds resentment among our Muslim brothers to take up arms and
rebel against the republic.

Added to this, of course, is the deep-rooted feeling of the Muslims that historically
Mindanao was not part of the country such that the United States could not have
included it in the sale of the country to Spain under the Treaty of Paris. Thus, their
rebellion.

Still, the number one cause of the breakdown in peace and order is the mass
poverty that pervades and prevails all over the country to this day. Mass poverty
creates urban blight where the squatters, uneducated and without respect for the
law, turn to crime as their life-long career. Tragically, many times, owing to their
deep economic need and sub-human conditions, they are forced to be less than
civilized men.

So it has happened in the country that our people do not feel secure in and out of
their homes. Kidnappings, bank robberies, hold-ups and petty crimes such as
cellphone snatchings rule the streets. Just now, a series of hold-ups in restaurants
in Metro Manila have occurred. And, when our newspapers routinely carry banner
news of crime, it has become symptomatic of the breakdown of peace and order
in society.

It should not surprise us, therefore, that a foreigner, the Japanese Ambassador to
the Philippines, would air his observation about the seeming inability of
government to maintain the security and the peace and order. While such
statements may be a diplomatic transgression on the part of the Ambassador,
nonetheless, it is a good wake-up call for our authorities to do something about the
situation instead of denouncing the diplomat for an infringement on our national
dignity.

With its terrible effects on the economy and the people, the challenge, therefore,
is for government to confront and address the root causes of the breakdown in
peace and order. For we cannot build a country, much less develop, under a
regime of lawlessness and disorder.

25
The key to achieve peace and order, I believe, is for government to cultivate a
regime of justice, fairness and equal opportunity for all.

Equal opportunity means that everyone, regardless of sex, religion or social or

economic status, must be given and afforded the same economic opportunity for
him to earn a decent means of living. The playing field must be evened-out for
everyone to have a chance to make for himself and his family a better quality of
life.

Corollarial, the educational system must be strengthened to instill and foster upon
the citizens love for the country and our people.

A citizen who has the basic needs of life for food, shelter, clothing, education and
medical attention is a satisfied citizen. A citizen with a decent quality of life will not
disturb the peace and order but observe the law and respect the duly constituted
authorities.

ASSESSMENT
Direction: Summarize the causes and the effect of the following contemporary
issues.

1. Inflation

2. Unemployment

3. Migration

ASSIGNMENT
Aside from the above mention Contemporary issues, research about the
following issues and their effects to our economy:

1. Investment and interest rate

2. Rentals
3. Minimum wage
4. Taxes

26
 MODULE 4
Industry and Environmental Analysis: Business
Opportunities Identification
OBJECTIVES:
1. To identify and explain different principles, tools, and techniques in creating a
business
2. To. distinguish the different services/products of business and industry in the locality.

Activity 3

DISCUSSION
TYPES OF INDUSTRIES
Industry is something which produce goods to consume, service to use, for better life of
people.

INDUSTRIAL REVOLUTION
During the 18th century dramatic changes took place in history. People started to
shift from an agrarian culture to a more sophisticated machine culture.
First industrial revolution 1755-1855

27
During the 18th century dramatic changes took place in history. People started to
shift from an agrarian culture to a more sophisticated machine culture. Instead of
goods being produced by hand they were now mass-produced on machines.
From the year 1755 onwards workers became productive. Previously, goods were
manufactured by hand on a one to one basis. Hence the rate of production was
quite slow, with fewer goods produced. This made the products costly and they
could be afforded only by the rich. However, after machines were introduced the
rate of production increased and goods were produced in large numbers which
resulted in lowering of prices. Now they could be afforded by almost everyone.
This process of change from an agrarian, handicraft economy to one dominated
by industry and machine manufacture is known as the industrial revolution. It
began in England in the 18th century and from there spread to other parts of the
world. Although used earlier by French writers, the term Industrial Revolution was
first popularized by the English economic historian Arnold Toynbee (1852-83) to
describe England's economic development from 1760 to 1840. Since Toynbee's
time the term has been more broadly applied.
Before the first industrial revolution both England's economy was based on home
produced goods, also called the cottage industry. In this industry, which still exists,
a person had his business established at his residence. There was no shortage of
skilled labourers at that time in England for the entrepreneur to hire. Raw materials
were purchased from the merchants directly and the goods produced under his
supervision by the labourers with hand tools and handwork. Although this method
of manufacturing seemed too efficient, its productivity was low as the goods were
produced by hand. So prices were too high.

John Kay (1733) — the pioneer of Industrial

Revolution
In 1733 England's economy faced a crisis as there was
a great demand for ‘cotton cloth'. The cotton cloth
producers were unable to meet the demand. John Kay
paved the way for the use of machinery in England by
inventing the ‘Flying Shuttle' that cut weaving time in
half. Most workers did not accept machines and
destroyed various inventions. But what was started
and set into motion couldn't be stalled. Thus by 1755,
in England, industries had already started functioning.

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Industrial revolution in USA (1793)
As new inventions were being shaped, bent and created within factories followed
by falling prices, England
tried to keep the discoveries
of the industrial revolution a
secret. It wanted to
monopolize world industry
and so formed laws and
regulations to prohibit
anyone who had worked in a
factory to leave the country.
But its rival, USA, was keen
to industrialize and offered
rewards to anyone who could
build them a cotton- spinning
machine.

Samuel Slater — father of American industrial revolution (1789)

Samuel Slater was an English apprentice
working in an English cotton factory. When he
heard about the significant rewards America
had announced to any one who could build
them a cotton-spinning machine, he thought of
trying his luck. As English law prohibited him
from migrating, he disguised himself and
landed on American soil. Once in the United
States, Samuel Slater with the funding of
investors and assistance from skilled local
artisans, built the first successful water
powered textile mill in Pawtucket in 1793 from
memory. This announced the arrival of the
industrial revolution in USA.

Technological changes
The most important features of the industrial revolution was the technological
changes that made possible a tremendously increased use of natural resources
and mass production of manufactured goods. These technological changes
included the following:
• use of new basic materials, chiefly iron and steel
• use of new energy sources such as coal, the steam engine, electricity,
petroleum, and the internal-combustion engine

29
 • invention of new machines, such as the spinning jenny and the power
loom that permitted increased production with a smaller expenditure of
human energy
• the introduction of a new system of work known as the factory system,
which entailed increased division of labour and specialization of
function
• developments in transportation and communication, including the
steam locomotive, steamship, automobile, airplane, telegraph, and
radio, and
• increasing application of science to industry.
Consequences
The first industrial revolution had changed the world. Although the industrial
revolution was useful it also came with many negative effects for the world to deal
with.
As factories increased the demand of cheap labourers also increased. Factory
owners decided to employ women and children to run machines - thus child and
women labour was introduced.
The labourers were not given a healthy environment and safety precautions were
ignored. Many workers fell ill. Some died from the increase in toxic matter in the
area and the terrible working conditions.
Industrialization resulted in an increase in pollution. For example, the levels of CO2
in the atmosphere rose. Also a capitalistic and materialistic way of thinking was
introduced.

Second industrial revolution (1855)

The second industrial revolution
started in the mid 19th century (by
1855). During the 1800's many
chemical compounds were broken
down. The second industrial
revolution resulted in the use of
electricity with British scientist
Michael Faraday's demonstration
of how an electric current can be
produced.
The discovery of radioactivity as a
source of power by Marie Curie
later led to the invention of the

30
nuclear bomb. After the discovery of petroleum and gasoline, cars were seen on
the roads as well as the birth of a new industry.
The successful completion of the first airplane flight at the Kitty Hawk by the Wright
brothers led to the creation of the airplane industry.
Vaccines were discovered and medicines modified. X-rays were discovered
providing doctors with a quicker way of diagnosing medical problems. It was a time
for the reform of government and social policies. Art and culture flourished with
diverse styles.
The industrial revolution is said to have brought technology, wealth and power, but
at what cost? At the consequence of people living in dirty environments, being paid
very little wages in spite of working for unthinkable hours. This revolution has
shaped the modern social order. As Jean Jacques Rousseau once said,
"Civilization spoils people." However, I would like to ask "Did people spoil
civilization by inventing machines to perform our work?"

Ground-breaking inventions and their pioneers

1. John Kay and his Flying Shuttle in 1733.
2. Samuel Slater and his water powered textile mill in 1793.
3. Eli Whitney and his Cotton Gin in 1793.
4. Robert Fulton and his Steam Engine in 1780.
5. Francis Cabot Lowell and his American Textile Industry in 1800.
6. Orville and William Wright and Airplane industry in 1903.
CLASSIFICATION OF INDUSTRIES
1. Primary industries
• Agricultural industry which is responsible for production of raw vegetables,
fruits, grains and animals for meat. Agricultural industry is a vast industry
which includes: poultry industry and farming.
• Mining industry which is responsible for the mining of coal, minerals, stones
and metal form the earth’s surface
• Fishing industry which is responsible for gathering fish form seas, lakes and
rivers
• Forestry industry which is involved in the production of trees for raw wood
and plants.
2. Secondary industries
• Food industry which converts raw vegetables and meat into food. A bakery
where wheat is converted into bread is involved in the secondary industry.
• Textile industry

31
 • Automobile industry
• Building industry
• Sport good industry
3. Tertiary industries
• Banking
• Health services
• Education
• Civil defense forces
• Delivery services
• Insurance.
4. Quaternary Industries
• information systems and information technology (IT);
• research and development, including technological development and
scientific research;
• financial and strategic analysis and consulting;
• media and communications technologies and services; and
• education, including teaching and educational technologies and services.

ASSESSMENT
Using a Venn diagram identify the difference and similarities of each industries.

Tertiary industries
Quaternary Industries

Primary Industries
Secondary Industries

1. How can these 4 types of industries affect each other?

32
ASSIGNMENT
Answer the following:
1. Write a situation that affect each of the industries. (min. of 200 words)

2. What would be the major of industry malfunction in the macroeconomy?

33
 MODULE 5
Socioeconomic Impact Study
OBJECTIVES:
1 To identify and explain the various socioeconomic factors affecting
business and industry
2. To analyze and evaluate the viability of a business and its impact on the
community
3. To formulate recommendations and strategies on how to minimize and
maximize a business’s negative impact and positive impact, respectively

DISCUSSION

Defining Important Socio Economic Factors Affecting

Businesses Today
Socio economic factors are important characteristics which mostly influence consumers.
These factors are associated with the quality of life and determine the behaviors, tastes,
preferences, attitudes and lifestyles of people living within a society.

Socio economic factors have a high impact on businesses, whether big or small. This is
because the consumers are often at the heart of businesses and tend to affect growth of
all ventures. There are many socio economic factors that business persons need to look
out for in order to excel and compete effectively in an ever changing market.

Income capacity

Income capacity of consumers determines how much they can spend on certain
products. If citizens in a country have access to high incomes from employment and
personal business ventures, then they are more likely to spend on luxurious products.
This is because they can easily afford the products and also have a taste for good
things. On the other hand, low income earners may not be able to afford basic
commodities, let alone the luxurious products. The struggle to meet their basic needs
may blind these consumers from purchasing luxurious products.

34
It is thus essential for a business person to consider the income capacities of the
consumers before setting up the business. This factor should affect where the
entrepreneur sets up shop and the target clients he chooses. For high end products, an
entrepreneur should look for a shop in an up market area with access to high income
earners. For basic commodities, an entrepreneur should look for cheap suppliers and
set up shop near the low income earners.

Occupation

The occupation of consumers is largely related to the income they earn. Low skilled
laborers who work in menial jobs cannot earn the same as corporate managers. The
differences in occupations more often than not determine the income gaps of the
consumers.

As an entrepreneur you must carry out research on the occupations of your consumers.
This should influence your decision to venture into certain businesses with a specific
target at consumers who have good occupations or lowly jobs.

Education levels

Education levels influence the type of occupation a person can get and ultimately their
income level. Consumers with higher education tend to be skilled and also have better
jobs and incomes as compared to those without education. Education is determined by
the opportunities presented to the consumers and can influence how much a consumer
can afford.

In addition to this, the educated consumers have different tastes for products as
compared to the uneducated ones. The educated consumers are not only more
conscious about the contents of products but may also come off as demanding as
compared to the less educated ones. An entrepreneur may have to work harder to fulfill
the demands of these consumers as compared to when dealing with less educated folk
who are less demanding.

35
Economic growth

Economic growth and development of a country can also have an impact on the social
status of its citizens. Emerging economies such as China and India have proved that if a
country experiences high economic growth then the citizens may have better access to
incomes and also the middle class and upper class may grow. This may also attract
more investors into the country and increase employment rates. Inevitably positive
economic growth rates will increase spending and help businesses to grow.

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What Is Business Viability?

Business viability means that a business is (or has the potential to be)
successful. A viable business is profitable, which means it has more
revenue coming in than it's spending on the costs of running the business.

If a business isn't viable, it's difficult to recover. The business would need
to increase revenue, cut costs, or both. Viability is closely linked to profit as
well as solvency and liquidity.

How Business Viability Works

Creating a viable business is a two-part process. First, it means creating a
marketing strategy by knowing who you are, who you are selling to, and
who else is selling to them. Second, it means having your financial house
in order.

To create a marketing strategy that will make your business viable, you'll
need to have this information:

1. Unique selling proposition: This is a critical factor in having a viable

business. Being unique keeps your business out in front of the
competition.

36
 2. Stable customer base: To be viable, you have to know who is going
to buy your product or service. That means researching to find out
who these people are.
3. Competitive advantage: Even if your product is unique and you know
who you're selling to, you must always consider the competition.
Find out who your competitors are and keep them in mind as you
create your marketing strategy.

In addition to your marketing strategy, a continuing focus on your business'

financial status will help create a viable business. This includes:

• Cash stability: The most important factor that makes a business

viable is that it has enough assets (cash and other reserve funds) for
day-to-day operations and to weather the ups and downs that all
businesses experience. Getting to cash stability doesn't happen
overnight. It means being frugal, not over-spending in anticipation of
sales, and not taking too much out of the business.
• Continuing attention to your financial status: Having a viable
business means always knowing where your business is financially.
Get good financial software, input all your business information
regularly, and analyze it against your goals for cash stability and
other factors.

Use business check-up ratios to measure the health of your business.

Viability vs. Solvency

Viability

• A general assessment of whether a business is (or will be)

successful
• Involves multiple aspects of a business, including marketing and
financials

Solvency

• An assessment of whether a business has enough money

• Often measured using a current ratio

Business viability is often confused with two other terms that are often
used for business performance—solvency and liquidity. A business is
solvent when it has enough assets to cover its liabilities. Solvency is often
confused with liquidity, but it's not the same thing.

37
Solvency is often measured as a current ratio, which is a business's total
current assets divided by its total current liabilities. A business should have
a current ratio of 2:1 to be solvent and cover liabilities, which means that it
has twice as many current assets as it has current liabilities. You need
twice as many assets as liabilities because selling assets to raise cash
may result in losses. A business is solvent and not likely
to declare bankruptcy if its current ratio is over 2:1.

Viability vs. Liquidity

Viability

• An assessment of the overall business model, not just finances

• Looks at both short- and long-term profitability

Liquidity

• Short-term measure of financial health

• Looks at the ability of a business to quickly turn assets into cash

Liquidity is more of a short-term measure. It refers to the ability of a

business to quickly turn assets into cash without loss. If your business
needs money, you may have to sell assets. Unless the asset is cash, the
most liquid asset of all, you may lose money by selling. For example, you
may not get full value if you sell receivables. If you try to sell equipment,
you will probably take a loss because the equipment has most likely
depreciated.

If you're liquid, you have enough cash or other easily liquidated assets to
ensure you can pay your immediate bills and/or your employees. This is
called positive cash flow, and positive cash flow means liquidity.

How Business Affects Us

How business affects our personal life
Positive/Good Impact:
Education: Business can provide materials (like books) and pay for the education of poor
children. Play: Business provides play materials (like sports equipment). Food: Business
provides food. Training: Business provides training for the future. Jobs: Business
provides employment for youth.
Negative/Bad Impact:

38
 Pollution: Business pollutes the local environment in many ways, including releasing
chemicals into the air and even sound pollution when some businesses make too much
noise near schools. Child Labour: Business produces product(s) where child labour is
used.
HOW BUSINESS AFFECTS family life
Positive/Good Impact:
Income: Business creates an income for the family. Jobs: Business creates good jobs for
parents. Independence: Business helps family members to become self-dependent.
Materials: Business makes good products that the family needs.
Negative/Bad Impact:
Dangerous Jobs: Sometimes jobs that business creates are too dangerous for children
and accidents occur too often at work place due to the lack of safety measures. Poor
Paying Jobs: Jobs do not provide a good enough wage. Long Hours: Sometimes jobs
keep parents – especially mothers – away from children too often. Misleading
Advertisements: Business advertisements promise more than it can actually give to the
family and sometimes the product is not as good as the advertisement promised.
Discrimination: Some advertisements might increase “Eve teasing” (sexual harassment)
and gender discrimination.
HOW BUSINESS AFFECTS the community
Positive/Good Impact:
Jobs: Business provides jobs for youth in the area. Jobs near Home: Business provides
jobs near home so people don’t have to travel as far to go to work. Big Business Helps
Small Business: Big business helps small business survive and thrive in the community.
Recreation and Play: Business helps to promote/provide recreation in the community.
Negative/Bad Impact:
Space: Business takes over a lot of space and children have fewer places to play and
sometimes business takes over space where people were once living, forcing them to
move or migrate. Pollution: Business causes environmental pollution which has a great
impact on health.
HOW BUSINESS AFFECTS the country
Positive/Good Impact:
Jobs: Business creates jobs for the country. Raising Awareness: Business can make
people aware of various things – including child rights – through advertisements.
Materials: Business produces products and service to meet the people’s needs. Exports:
The country makes money through the exporting of business products. International
Relations: Business helps the country build relations with other countries. Taxation:
Business makes income through taxation. Disaster/Emergency Relief: Business can
help during disasters or emergencies.
Negative/Bad Impact:

39
Pollution: Business can pollute the environment through smoke, chemicals and sound.
Keeping Children/Youth out of School: Business can lead children and youth away from
education. Corruption: Business can sometimes be corrupt.

ASSESSMENT
1. What are the other viability of a business and its impact on the community?
2. Enumerate the other socioeconomic factors and its effect to business and
industry.

ASSIGNMENT
1. Formulate recommendations and strategies on how to minimize and maximize
a business’s negative impact and positive impact, in relation with the Business
owner, consumers, and shareholders benefits

40
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Introduction to Entrepreneurship by the Small Enterprises Research and Development

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2007. http://www.serdef.org/

Morato, Eduardo A., Jr. PhD. Preparing for Entrepreneurship. (Legaspi Village, Makati: ACE
Cetner for Entrepreneurship and Management Education, 2008).

Morato, Eduardo A., Jr. PhD. A Trilogy on Entrepreneurship: Text and Workbook. (Legaspi
Village, Makati: ACE Center for Entrepreneurship and Management Education,

2015).

Villegas, Bernardo M., PhD. Guide to Economics for Filipinos. 7th ed. (San Antonio Village,
Makati: Sinagtala Publishers, 2010).

Windows to Entrepreneurship: A Teaching Guide by the Small Enterprises Research and

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