CHAPTER 2 APPLIED ECONOMICS: • 2.1 Application of Supply and Demand A. Prices of basic commodities B. Labor supply, population growth, and wages C. Labor migration and the Overseas Filipino Worker (OFW) D. The Philippine peso and foreign currencies E. The Philippine housing shortage and the real estate boom: Rent and Price Structure APPLICATION OF SUPPLY AND DEMAND • Supply-and-demand analysis may be applied to markets for final goods and services or to markets for labor, capital, and other factors of production. It can be applied at the level of the firm or the industry or at the aggregate level for the entire economy. • Appropriate to use when competition exists among buyers and sellers. • The interaction of buyers and sellers covers all types of prices and goods for which a market exists. • Interaction of supply and demand solves two major economic is problems simultaneously the quantity sold and the price. • Forces affecting supply and demand could come from any number of influences. LAW OF SUPPLY AND DEMAND • The law of supply states that the quantity of a good supplied rises as the market price rises, and falls as the price falls. Conversely, the law of demand says that the quantity of a good demanded falls as the price rises, and vice-versa. • One function of markets is to find “equilibrium” prices that balance the supplies of and demands for goods and services. An equilibrium price (also known as a “market-clearing” price) is one at which each producer can sell all he wants to produce and each consumer can buy all he demands. FACTORS THAT AFFECT SUPPLY AND DEMAND 1) Financial Performance 2) Management 3) Industry Performance 4) Social Awareness 5) Legal Issues 6) Government regulations 7) The Media FINANCIAL PERFORMANCE •Which includes sales revenue, earnings, debt load, return on assets, return on equity. MANAGEMENT • Which could be a direct correlation to the financial performance of the company. Mismanagement could include fraudulent or unethical business practices. As of late, many CEO’s and corporate executives have been prosecuted for misuse of company funds among other things INDUSTRY PERFORMANCE • Is a reflection of the industry as a whole. With the development of new technology, some industries become obsolete. There are no longer enough sales to support the business SOCIAL AWARENESS • Involves the effect that a business has on society as a whole. Some products that companies make affect a person’s health or well-being. Their manufacturing process may effect the environment. Some companies use child labor and underpay employees. Because of these social issues, a company can suffer in relation to sales and ultimately the stock price will be affected LEGAL ISSUES • Involve lawsuit, settlements and bad press. If a company is not a mega-corporation, a lawsuit can destroy it. as a result, legal problems can adversely affect the financial performance of a company thus affecting its stock price GOVERNMENT REGULATIONS • Involves laws passed by the government which can affect a corporation. It can also involve a government, whether local, state, or federal, exercising its authority to hinder business operations. There have been instances when local governments have exercised eminent domain to disallow a corporation from building in their community THE MEDIA • Plays a major role in how a company is perceived. You might not be aware of any of the factor listed above if it were not for the media. The media includes television, newspaper, magazines, radio and the internet. The media outlets that specialize in business reporting are great resources for information about a particular company, but you still have to do your own research. A. PRICES OF BASIC COMMODITIES • Price stabilization is best undertaken through indirect approaches by managing the supply of the commodity. • It could mean influencing only the market conditions, mainly through the supply side, to avoid extreme swings of prices. • Includes setting the prices of commodities that are being stabilized. B. LABOR SUPPLY, POPULATION GROWTH, AND WAGES • The wage rate, which represents the incomes of workers, provides some indication of the standard of living. • High wages result from the interaction of the demand and supply of labor • In countries where the supply of labor is very abundant, many workers are willing to accept low wages in exchange for their services. LABOR • Is the amount of physical, mental and social effort used to produce goods and services in an economy • Labor supplies the expertise, manpower and service needed to turn raw materials into finished products and services. SUPPLY • Is a fundamental economic concept that describes the total amount of a specific good or service that is available to consumers. • Supply can relate to the amount available at a specific price or the amount available across a range of prices if displayed on a graph. POPULATION GROWTH • An increase in the number of people that reside in a country, state, country or city. To determine whether there has been population growth. HOW SUPPLY AND DEMAND AFFECTS THE POPULATION • Salary structure affects prices and prices affect supply and demand, which affect consumption. In a market-oriented economic system, the impact of population size on market demand affects supply and demand and prices. WAGES •Money that is paid or received for work or services, as by the hour, day or week C. LABOR MIGRATION AND THE OVERSEAS FILIPINO WORKER (OFW) • What is migration? • Migration– refers to the movement of people from one place to another. • 2 types of Migration: a. Internal Migration – refers to the movement of people within one country( i.e. rural to urban migration) b. International Migration – refers to the movement of people from one country to another CAUSES OF MIGRATION • Poverty • Unemployment • Victims of natural calamities • Improve standard of living • Better education • Better environment • Economic study • Labor Migration- is the process of shifting a labor force from one physical location to another. • Labor Migration takes place with the support of labor force CAUSES OF LABOR MIGRATION 1. The desire of job seekers to increase income and to improve the standard of living 2. The emergence of new industries 3. The relocation of production facilities of a given business to a new area WHAT ARE OFW’S? • Overseas Filipino Workers (OFWs) – are Filipinos who are presently and temporarily working outside the country. They may be land-based of sea-based workers. • Ex. Domestic Helpers, Teachers, Seaman. Nurses. REASONS BEHIND THE OFW PHENOMENON 1. High unemployment rate • Newly graduates join the labor force that increases the competition in the labor market. Instead of waiting for them to be hired locally, Filipinos seek employment overseas. 2. Low Salary offered by employers in the Philippines • Filipinos are willing to work abroad due to low salary. Even professionals like nurse, engineers and teachers would prefer to work abroad as household help or office workers because of the higher sales offered overseas. 3. Discrimination in job hiring in the Philippines • Local employers tend to hire candidates even if they’re not the most qualified for jobs. The qualified and overage applicants who were not able to find jobs decide to work abroad 4. High Withholding Tax • The Philippines has a high income tax rates for workers. Workers’ take home pay decreases after deducting the withholding tax, GSIS/SSS premium, Pag-ibig and Philhealth and other mandatory deductions.
