Prices-of-basic-commodities.

APPLICATION OF DEMAND AND SUPPLY A. PRICES OF BASIC COMMODITIES Commodities are raw materials or primary agricultural products that can be bought and sold in the market like corn, wheat, copper, crude oil, etc. Basic consumer goods in the Philippines A. Oil Products like gasoline, diesel, liquefied petroleum gas (LPG) B. Processed and Manufactured Commodities 1. Canned goods 2. Processed milk 3. Instant noodles 4. Bread 5. Commercial rice 6. Sugar 7. Cooking oil 8. Meat and poultry 9. Fish vegetables 10. Basic medicines WHAT CAUSES COMMODITIES PRICE TO CHANGE? 1. When supply exceeds demand, prices fall and when demand is greater than supply prices rise. 2. Natural disasters can also cause prices to change like the El Nino and La Nina climate phenomenon, volcanic eruptions, earthquakes, typhoon, and landslide, among others. 3. Production costs can also cause price to rise or fall like the implementation of Salary Standardization Law and Minimum Wage Law, and the shifting of production from human to technology. WHAT ARE THE ADVANTAGES OF RISING AND FALLING OF PRICES OF COMMODITIES? 1. Consumers will benefit from low prices in the form of cheaper gas or diesel, cheaper utilities and lower inflation. 2. Consumers will benefit from low prices of goods and services. 3. Industries like manufacturing, mining and trade will benefits due to increase in production costs. 4. Producers profit will increase due to increase in the prices of their output. 5. Government income in the form of taxation will increase due to increase in business and employment opportunities from both private and public sectors. WHAT ARE THE DISADVANTAGES OF RISING AND FALLING PRICES OF COMMODITIES? 1. Falling oil prices will hurt the economies of oil producing countries. Brazil, Middle east, and Russia 2. Low prices will discourage investors/producers to invest/produce 3. Government will be affected by falling prices of oil in the Middle east. The Overseas Filipino Workers (OFW) remittances will decline due to freeze hiring our outright layoffs 4. An employment will increase and government income will be affected when the OFW’s working in the oil producing countries return to the mother country IMPORTANT TO KNOW:  If ever prices of basic commodities in the market increases , naturally , the tendency of the consumers is to look for substitute products which are lesser in price.  If the quantity demanded changes a lot when prices change a little, a product is said to be elastic.

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When there is a small change in demand when prices change a lot, the product is said to be inelastic. Elasticity is important because it describes the fundamental relationship between the price and demand of goods. Elastic goods and services generally have plenty of substitute. Inelastic goods have fewer.

B. LABOR SUPPLY, POPULATION GROWTH AND WAGES

e: December 20, 2019

LABOR FORCE = Employed + Unemployed • The size of the labor force is used to determine the unemployment rate. The percentage of the unemployed is called the unemployment rate. UNEMPLOYMENT RATE = (Unemployed/Labor Force) * 100 • A person is unemployed if he or she is willing and able to work, actively looking for job but no suitable job available. • People who are voluntarily idle or not actively looking for a job are not classified as unemployed. • Labor force participation rate is the percentage of the total population over 15 years of age. UNDEREMPLOYMENT  situation where employed persons expressed their desire to have an additional hour of work in their present job, or to have additional job, or to have a new job with longer working hours. LABOR SUPPLY  the number of hours people are willing and able to supply at a given wage rate.  It is the number of workers willing and able to work in a particular job or industry for a given wage.  It simply means that as wage increases, workers are usually attracted to work more hours. LABOR DEMAND - number of hours that an employer is willing to pay based on current market price of labor LABOR DEMAND The law of demand also functions of labor markets. A higher price (salary) in the labor market lead to a decrease in the quantity of labor demanded by employers, while a lower price(salary) in a labor market leads to an increase in the quantity of labor demanded. • As the salary for workers increases, the quantity of labor demanded for will decrease..

POPULATION GROWTH • refers to an increase in the number of people living in a country, province or city. • The Philippines’ growing population would mean increase in the supply of labor in the labor market that reduce unemployment problem and increase productivity. • The 2020 population is 109.58 million, according to the latest UN estimates. • 1.6% average growth per year • The Philippine economy like other country’s economy consists of different types of market, the resource market, the product market and the labor market. A Resource Market is a place where business owner purchase all the resources needed in producing goods and services. A Product Market is a place where workers consumers, business, and the public sector purchase finished goods and services. A Labor Market is a place where workers and employers interact with each other. • In this three (3) markets, population is needed since they act as consumers and producers or the supply and demand sides of the economy.

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WAGES

Causes of Labor Migration • The desire of the job seeker to increase income and to improve standard of living • The emergence of new industries • The relocation of the production facilities of a given business to a new area.

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Is a monetary remuneration computed on HOURLY, DAILY, WEELY or PIECE WORK basis paid by an employer to an employee in exchange for work done.

Minimum Wage - The minimum wage rates applicable per region, province and industry sector as stated in the Wage Rationalization Act, Republic Act No. 6727. WAGE DIFFERENTIAL - Refers to the difference in wages between workers with the differential skills in the same industry or localities or between workers with the same skills in different skills or localities. MINIMUM WAGE - Is the lowest remuneration that the employers may pay to workers.  When minimum wages are raised, business enterprises reduce their hiring. It means that employment rate will decrease.  JOBLESS GROWTH – a description of this poor quality of performance in which growth was accompanied by low creation of quality jobs. LABOR MIGRATION and the OVERSEAS FILIPINO WORKER (OFW) phenomenon MIGRATION - Refers to the movement of people from one place to another. Different Types of Migration  Internal Migration - Refers to the movement of people within one country.  International Migration - Refers to the movement of people from one country to another. Causes of MIGRATION • Poverty • Unemployment • Victims of Natural Calamities

Civil Wars Improve standard of living Better education Better Environment Economic Security

Effects of Migration • POSITIVE Increase of Labor Supply Cheap Labor • NEGATIVE Overcrowded Lack of Housing Activities Increase inequality in the distribution of income and wealth Heavy pollution like noise, air, water, sound etc. Traffic congestion The occurrence of squatter areas and slums Unemployment LABOR MIGRATION - Is the process of shifting a labor force from one physical location to another. Labor migration takes place with the support of the labor force.

Overseas Filipino Worker (OFW) Phenomenon • Bagong bayani • December each year is marked as the month of ofwS through proclamation no. 276 signed by former president Corazon Aquino in 1988 • According to Philippine statistics authority or psa the number of ofws as per april to September 2015 was about 2.4 million • For 5 years, the highest number of ofws was in Saudi arabia followed by united arab emirates • DEVELOPMENT DEMOCRACY • Philippines cannot do without the cash remittances from OFWs • remittances from January to August in 2015 reached $16.21 billion (P764 billion) • In 2014, personal remittances from OFWs hit almost $24 billion (P1.178 trillion). The major sources were the United States, Saudi Arabia, the United Arab Emirates, the United Kingdom, Singapore, Canada, Japan, and Hong Kong. remittances from January to August in 2015 reached $16.21 billion (P764 billion)*. • PHILIPPINES IS 45TH LARGEST ECONOMY IN THE WORLD WITH a GDP of $216 billion (2011) and 355.50 USD Billion • Philippines has been transitioning from agriculture based economy to one that relies on services and manufacturing agriculture only accounts for roughly 30% of the workforce and 14% of gdp. • Was the second largest in east asia after world war ii • A new program of economic liberalization was introduced leading to economic recovery until 1997.

• Three (3) government agencies to attend to the needs of the Overseas Contract Workers (OCSs) • •

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National Seamen Board (NSB) - Was created to develop and maintain a comprehensive program for Filipino Seamen employed overseas Overseas Employment Development Board (OEDB) - Was created undertake a systematic program for overseas employment of Filipino Workers. Bureau of Employment Services (BES) - Was responsible for the regulation of private sector participation in the recruitment of local and overseas workers.

Reasons behind OFW Phenomenon  High Unemployment Rate  Discrimination in Job Hiring in the Philippines  High Withholding Tax  Low Salary offered by employers of the Philippines

Philippine Overseas Employment Administration (POEA) National Economic and Development Authority (NEDA) Philippines Statistics Authority (PSA) Gross Domestic Product (GDP) PHILIPPINE PESO AND FOREIGN CURRENCIES  

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Definition of MONEY - MONEY can be anything that is generally accepted in payment for goods and services Prior to introduction of a formal currency, trade in the Phil. Was performed using a barter system and later on “piloncitos” (small pieces of gold) and gold barter rings. 1521 when Spanish introduced coins in the Phil. Central Bank of the Philippines was stablished in 1949. Philippine peso (PHP currency code) and (₱ symbol)

Qualities of Good Money Material • Acceptability • Stability • Portability • Durability • Uniformity • Divisibility • Recognizable Functions of Money • Medium of Exchange • Unit of Account • Store of Value • Standard of Deferred Payments Types of Money • Currency in circulation - Consists of coins and paper money (bills) that we use in our daily transactions. • Demand deposit - Is a checking account. It can be “demanded” by an account holder at any time

Traveler’s check - Often used by individuals travelling on vacation to foreign countries and can be used in a place of hard currency. Other checkable deposits - Are checking account balances maintained by, and available through, depository banking institutions, including commercial banks, savings and loan associations, credit unions, and mutual savings bank.

Purchasing Power - Is the value of the currency expressed in terms of the amount of goods or services that one unit of money can buy. • Importance All else being equal, inflation decreases the amount of goods or services you would be able to purchase. Deflation increases the amount of goods or services you would be able to purchase INFLATION - Is a phenomenon of rising general level of prices of goods and services over a period of time. A decrease in the general level of prices of goods and services is called deflation.  The value or purchasing power of money decreases during inflation and increases during deflation.  Inflation decreases the people’s ability to pay goods and services and increases people’s ability to pay for goods and services during deflation. Types of Inflation  Demand–pull Inflation - Results from a more rapid increase in production. It is called demand-pull because changes in the price level have been attributed to an excess of total demand. “Too much money chasing too few goods.”  Cost-push Inflation - When cost production increases-inputs required to produce goods and services ( wages, raw materials, and utilities), the said increase is passed along to consumers in the form of high prices.  Structural Inflation - Inflation that occurs because a government pursues an excessively loose monetary policy. CAUSES OF INFLATION Inflation resulted from following factors:  It results from a more rapid increase in income than the increase in production. This happens when money income rises rapidly, demand for goods and services tend to expand more rapidly. If production does not catch up the excessive demand, it will increase the price.  Too much money in circulation would mean more money to spend, the people demand more than their usual consumption.  A rise in the rate of Value Added Tax (VAT) would cause an increase in prices of domestic products because it increases production cost.  An increase in the price of crude oil and other imported commodities would also increase price of goods and services. EFFECTS OF INFLATION  We cannot buy the same number of goods and services prior to inflation.  The purchasing power of our real income decreases if the nominal income is constant.  There is a panic buying among consumers.  Channeling of Investment funds into real estate and other unproductive goods like jewelry.

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It reduces more the already low level of voluntary savings in the country. Inflation tends to become self-reinforcing or cumulative as income recipients strike or agitate for higher wages. Inflation distorts incentive in favor of imports against exports and favor the use of foreign capital instead of high-priced domestic labor. Inflation tends to prevent foreign capital and encourage domestic savers to safeguard their wealth abroad.

Losers of Inflation  FIXED INCOMES  SAVERS  CREDITORS Gainers of Inflation  DEBTORS  BUSINESS OWNERS  GOVERNMENT OFW REMITTANCES  Remittances from OFWs sent to the country is a “key factor” for the resilience of the Philippines according to World Bank  NEDA (National Economic and Development Authority)

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EXCHANGE RATE is one of the most important factors of our country’s relative level of economic well-being. states the price, in terms of one currency, at which another currency can be bought. A higher currency makes a country’s exports more expensive and imports cheaper in foreign markets; A lower currency makes a country’s exports cheaper and its imports more expensive in foreign markets.

How is exchanged rate determined?  If the rate were below equilibrium level, the quantity of dollar demanded would exceed the quantity of dollar supplied, and the price of dollar would be bid up.  If the rate were above the equilibrium level, the quantity supplied would exceed the quantity demanded, and the price of dollar would fall. FACTORS THAT DETERMINE DEMAND FOR FOREIGN CURRENCY • Imports of goods and services. • Foreign Trip • Demand for a country’s financial assets leads to a demand for its currency. • Direct foreign investment leads to a demand for a country’s currency. • Speculation. FACTORS THAT DETERMINE SUPPLY FOR FOREIGN CURRENCY • Exports of Goods and Services • Foreign Investment • Remittances • Speculation FLOATING EXCHANGE RATE - Is determined in free markets by the law of supply and demand.

FIXED EXCHANGED RATE - Is a system in which the value of country’s currency is matched against another currency’s value through government intervention. ADVANTAGES OF FIXED EXCHANGE RATE 1. Fixed exchange rate helps promote international trade. 2. It promotes economic stability and checks unnecessary changes in the prices of goods and services within the economy. 3. It promotes foreign investment. 4. It eliminates the speculative activities in the foreign relations. DISADVANTAGES OF FIXED EXCHANGE RATE 1. It discourages long-term foreign investment. 2. Under the fixed exchange rates system, a country is deprived of its monetary dependence. 3. Fixed exchange rate systems require foreign exchange reserves that would result to problem of international liquidity. POSITIVE EFFECTS OF EXCHANGE RATES 1. Tourism and investment activities will increase as it will be less costly and more desirable for foreigners to travel and invest in the Philippines. 2. It helps to reduce inflation. 3. A country needs to have a relatively stable currency to attract investment capital from foreign investors. NEGATIVE EFFECTS OF EXCHANGE RATES 1. A weak peso worsens inflation 2. Currency depreciation may discourage overseas investor. THE PHILIPPINE PESO AND FOREIGN CURRENCIES DEPRECIATION OF PESO=HIGHER PRICES IN PESO EFFECTS OF PESO DEPRECIATION AGAINST US DOLLARS 1. Higher prices in peso terms for imported goods and services. 2. A weak peso will negate the impact of falling crude oil prices abroad. 3. Increase in the pump-prices of gasoline and other petroleum products. 4. If fuels inflation due to increase in the price of imported goods 5. Higher debt servicing on the part of the government 6. Domestic tourists find it expensive to visit place abroad because they will need more pesos to buy dollars. POSITIVE EFFECTS 1. Exporters and OFWs and their dependents now receive more pesos for every dollar they exchange. 2. Foreign tourists find it attractive to visit the Phil with their dollars buying more pesos. THE PHILIPPINE HOUSING SHORTAGE AND THE REAL ESTATE BOOM: RENT AND PRICE STRUCTURE Causes of Housing Shortage 1. Majority of the households are unable to pay for the cost of housing and land. 2. The minimum housing cost of Php150,000 per unit is 3.8 times the yearly wages of an unskilled laborer in 1997. 3. A Php250,000 unit housing is 3.1 times the annual income of an employee earning a median income of Php6,700.00 per month.

WHAT CAN BE DONE TO SOLVE HOUSING PROBLEM? • Government policy on housing. • Taxation. • Financing. • Subsidies and other source of funding. • Alternative housing. REAL ESTATE BOOM • The Philippine real estate industry will grow because of the ASEAN Integration and the region’s increasing role in global economy. RENT AND PRICE STRUCTURE • Even with the increase in rental rates across all business districts , investors are willing to pay for the quality and value that they can get in the Philippines. CONTEMPORARY ECONOMIC ISSUES FACING THE FILIPINO ENTREPRENEUR •

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Entrepreneurship - It refers to the talent that some people have for recognizing the resources of land, labor and capital to produce goods, seek new business opportunities, and develop new ways of doing things. Entrepreneur - Is an individual who attempts to organize his own business rather that working as an employee.

ECONOMIC ISSUES FACING THE FILIPINO ENTREPRENEUR 1. Investment and Interest Rate 2. Rentals 3. Minimum Wage 4. Taxes a. Percentage Tax b. Value Added Tax c. Income Tax INVESTMENT AND INTEREST RATES INVESTMENT – the purchase of goods that are not consumed today but are used in the future to create wealth. DETERMINANTS OF INVESTMENT 1. The expected return on the investment 2. Business confidence 3. Changes in national income 4. Interest rates 5. General expectations 6. Corporation tax 7. Level of savings ACCELERATOR EFFECT – created when there is a change in national income. CHALLENGES FOR THE FILIPINO ENTREPRENEURS 1. Government Licensing and Permits 2. Prohibitive Rental Rates and other Clauses in Malls 3. There are many who have no jobs. CURRENT PROBLEMS OF FILIPINO ENTREPRENEURS 1. Inadequate access to technology 2. Financing capital 3. Marketing advice

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Logistical problems in setting up and maintaining their competitiveness in their community

TAXES The Phil currently has the second highest personal and highest corporate income tax systems among its ASeAN-6 peers. TYPES OF TAXES 1. VAT (Value-Added Tax) – 12% VAT must be collected for almost all kinds of product. It should be reflected in sales invoice receipts. 2. SALARY AND WAGE TAX – employee income withholding tax 3. AMUSEMENT TAX – for cockpits, movie houses, cabarets, basketball games, etc 4. EXCISE TAX – for alcohol, tobacco and petroleum products, jewelry or automobile 5. IMPORT TAXES 6. INDIVIDUAL INCOME TAX – for sole proprietorship business, share in a partnership 7. CORPORATE INCOME TAXES 8. REAL ESTATE TAXES 9. ESTATE OR INHERITANCE TAXES

FOUR MARKET STRUCTURES Refer to the different characteristics of a market that influence buyers and sellers.

Characteristics

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

No. of producer/seller

Many buyers and sellers

One

One or two producers

Few

Conditions of entry/exit

No barriers to entry or exit the market

Restricted When a company has a copyright or patent that prevents others from entering the market

Few barriers to entry and exit

High barrier or Difficult to entry

Type of product

Similar products in nature Many substitute

Unique product/ no close substitutes

Differentiated products but not perfect substitute

Nearly identical or (homogeneous or differenciated) Cartel

Control over product price

-Price taker Prices are determined by demand and supply

Price maker

No business has control over price

Price setter Firm has the power to influence market prices

Non-price competition

No competition on the basis of product quality, advertising or sales promotion

May or may not engage in extensive advertising and sales promotion

Non-price differences among the competitors product

Identical- none Differentiated- more emphasis on advertising and promotion

Products

Farm products

Water and Electricity

Clothing, shoe, restaurant (branding)

Homogenoussteel,cement Differentiatedoil,car,wines, household appliances