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APPLIED ECONOMICS
QUARTER 2 – Module 5
SOCIO-ECONOMIC IMPACT OF A
BUSINESS AND GOVERNMENT
IMPACT ON BUSINESS

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INTRODUCTION (What I Need to Know)
Small business owners are important part of the community in which they live and work.
Thus, they tend to recognize how their decisions impact their neighbors. In addition, local small
business entrepreneurs tend to be involved in the community. Different sectors such as:
consumer, supplier and investors, government, households and sometimes even international
trade can affect business in a wide range. Create and have a thorough study on marketing
strategies that could help, last in a long run and lead to venturing into various of businesses.

(MELC) Most Essential Learning Competency

Evaluate the viability and impacts of business on the community.

At the end of this module, you should be able to:

a. analyze the viability of a business and its impact on the community;
b. evaluate the viability of a business and its impact on the community;
c. express the impact of business in the community.

DISCUSSIONS AND ACTIVITIES (What is It)

SOCIO-ECONOMIC IMPACT OF A BUSINESS

Today, putting up a business is not just all about profits. It is also concerned with consumer
welfare, job creation, environmental issues, uplifting the quality of life and contributing to the
economy. Let us now look at how a business can impact the consumer, the suppliers and the
investors, the government, and households.

Impact on the Consumer

A new business especially one that is innovative and focused on bringing some new product
or service to the market is always welcome to the consumer who is looking value for his money. If
the new business is selling product that has close substitutes in the market when the owner of
the business will try his best to win the consumers away from the existing sellers by offering
something that will benefit the buyers.
How can the new business accomplish this? One good way is to innovate the product, come
up with new features that are not found in the existing competing goods. This can be in a form of
better appearance, a new feature or ingredient or a new convenient way of making the product
available. A new business therefore means new products or services available to the buyers, giving
them more choices.
Since the new seller will try to attract buyers, another strategy that could be adopted is to
improve the quality of the good making it a notch higher than those already being sold in the
market. Although this may mean high prices, for better quality goods, this could cater to a market
is more after quality than low price.
Initially, as a business starts, the seller may make the product available at introductory
prices lower than the other substitutes in the market. This will definitely be an advantage to the
price conscious buyers who have limited budgets.
As long as new business can provide new goods and services, better quality of goods and
more options, the consumer can benefit from it. But if a business comes up with a low quality
good does not provide the consumer value for his money, then this business will have a negative
impact on the market. (Dinio, Villasis 2017)
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Impact on Suppliers and Investors

A new business will also provide new opportunities for suppliers and investors. If a new
construction company is set up, then this opens up opportunities for the other businesses that
will supply them their needs, tools, wood, cement, steel, paints, nails, screws, and decorators.
Many suppliers will now get a chance to sell to the newly established business, which means
income for them.
Demand for the goods provided by the suppliers will increase. These suppliers will now need
to produce more of them and they will need to hire more workers who will earn wages from being
employed. More capital will be needed to invest in the production of these tools and materials,
generating again income for the economy. Investors get to earn returns on their investments, with
capital plowed back into more investments and generating more income for the economy, thus
leading to economic growth.

Impact on the Government

The government will also benefit from the establishment of new businesses, through
revenues earned on fees collected from them and on taxes imposed on the incomes of the
businesses. Before a business can be set up, it has to meet requirements to start operating. First,
the business owner has to apply to start its business, Licenses have to be obtained. Organizational
fees have to be paid. On municipal level, the local government earns revenue from these fees and
licenses. This means money added to their local budget to provide social services to the
community, for the development of the company, to pay salaries of local officials and workers, to
maintain peace and order and to subsidize public schools.
On the national level, the government gets to impose taxes on the incomes earned by the
businesses. Employees hired by these businesses also have to pay personal income taxes to the
Bure of Internal Revenue (BIR). For employed workers, these taxes are regularly withheld by their
employers and remitted to the BIR. These tax revenues fuel development because they are used
by the government for national activities and for budget allocations for its programs. The national
government has revenues to finance its projects, to pay government officials, to build schools, to
improve the military, to promote peace and order all over the country, to build housing for the
poor and to provide them services and improved welfare programs for the people.

Impact on Households

New businesses mean employment opportunities for the Filipinos. Those who have jobs but
are earning low wages may find better paying jobs with the new companies. Unemployed workers
looking for work may have the chance for being employed by these companies. The pool of
unemployed workers will definitely decrease. Being employed will enable them to buy their basic
needs and even some luxuries. This means that their quality of life and their standard of living will
improve.
Acquisition of wealth and assets can now follow both for the business owners and the
employees they hire. Profits earned by the owners can be invested back into the business for
expansion, or some can be withdrawn by the owners which they can use to buy new cars or new
houses. Success stories on television shows feature rags to riches stories of entrepreneurs who
used to be very poor, but with hard work and persistence were able to make their businesses
succeed, enabling them to send their children to good expensive schools, building big houses, and
buying two or more cars housed in their garage. The owners, because of their success, manage to
acquire wealth and buy assets which are fruits of their hard work. (Dinio, Villasis 2017)

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Impact on the Community

Corporate Social Responsibility (CSR) has become a growing trend among businesses today.
As a result of this, corporations and even small businesses have increased their focus on projects
that provide scholarship to poor but deserving students, allocating budgets for housing for low-
income families such as participation in programs like the Gawad Kalinga, environmental
protection including tree planting, elimination of pollution and other environment related
programs. Communities benefit from business-sponsored activities that include sports fest and
wellness programs, livelihood projects, micro financing, and even medical and dental missions.

SOCIO-ECONOMIC AND GOVERNMENT IMPACT ON BUSINESS

Government Impact on Business

While the government increasingly spends on socio-economic services to improve business

condition, size and adequate infrastructure and support services limit the growth of opportunities
of micro enterprises. Declining debt payments to local and international debtors have given way
to more spending on services like road development and education. On the other hand, size limits
business access to technology, credit and market networks in the absence of government support
services. On top of the limitation of size, poor road conditions and adequate support industries
further limit production and marketing by adding cost to doing business. Poor road condition
increases transport cost and the risk of perishability especially of agricultural and fishery
products. High costs of electricity and real estate acquisition increase production cost especially
of manufacturers. Other difficulties in doing business in the country are high taxes, costly
registration, and bureaucratic corruption. Foreigners and foreign companies face the same
obstacles in developing local operation and marketing. The Philippines, as well as Indonesia, has
the highest costs of electricity and real estate acquisition in the ASEAN region. It also has the
highest tax rate on additional income negating investment incentives and further increasing cost
of registration from bureaucratic red-tape or delay. Thus, local enterprises especially those micro
scale are yet weak to face competition from imports and foreign investment from the liberalization
policies of the 1990s.

Household Impact on Business

Although the country’s population is still young with a majority (68%) aged below 29 years
old, it is gradually becoming older with declining fertility and mortality rates. More than one-third
(35%) aged 15 to 34 years old are given to sophisticated consumption. One-third (33%) aged up to
14 years old are children needing growing up care and only (7%) aged 60 years old and above need
elderly support. But as fertility rate (children per woman) is declining, so is the proportion of
children needing growing up care (below 15 years old). For example, fertility dropped from six (6)
in 2000 to three and one-half (3.5) in 2010 while the percentage of children up to age 15 years old
correspondingly dropped from thirty-seven percent (37%) to just thirty-three percent (33%). Also,
as mortality rates of all ages dropped from 2000 to 2010, life expectancy correspondingly increased
from 67 to 71 years old with one-half of the population not younger than 23 from 21 years old in
2000. Fast forward, the National Statistics Office (NSO) forecasts elderly population to increase to
almost ten percent (10%) in 2023 from just seven percent (7%) in 2010. ( Dinio, Villasis 2017)

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 However, the declining purchasing power of wage has marginalized the consumption of said
age groups in at least forty percent (40%) of families. Complied with inadequate wage,
unemployment has also trapped more than one-fourth (26%) of families in poverty. A typical family
hardly saves and spends most income on food (43%) and housing, utilities, and fuel (21%). Figure
4.8 also shows that only a pittance (8%) is spent on education and health. Thus, the Philippines
has the lowest rate (% of income) of savings mostly of corporations even in the ASEAN region. Due
to the limited purchasing power of income, many Filipino consumers have become price sensitive
and are only able to afford cheap but shoddy items. Low quality characterizes local products
especially manufactures that are largely food items. Low-quality consumption can mean
inadequate care for the young (below 15 years old) and the elderly. Also, as non-essentials are
crowded out of the budget, so is sophisticated consumption especially of the youth (15-34 years
old). In the end, some micro businesses may be crowded out of the market in view of limited
consumer demand to inadequate income.

Figure 4.8 Annual Family Expenditure (2012)

Dinio, Rosemary P., PhD & Villasis, George A. 2017. Applied

Economics. Manila Philippines. REX Book Store. P.93

Trade and Capital Movements

The external sector shapes the foreign exchange market (foreign currency inflow-outflow)
through its trade, capital movements, and financial flows. Trade include factor payments such as
remittances from overseas contract workers and profit remittances of foreign companies to their
home countries. Capital movements include both short and long-term foreign investments in the
country and Filipino investments abroad. Financial flows involve international debts and loans
and their repayments.
The economy’s production is yet to go deeper into more technology-based stages that it imports
the capital goods even including consumer items that it could otherwise produce. But it only
exports raw materials and some consumer items using low technology (e.g., garments). Local
manufacturing which largely produces light manufactures (low technology) of food and other
consumer items can hardly stand up to imported competitive products. Machineries and
electronics exports are simply products from their imported components assembled locally by
transnational corporations. Electronics exports hardly contribute to local output and employment
being import-dependent and without much need for technology. (Dinio, Villasis 2017)

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 As the country exports little but imports much, it spends more but hardly earns foreign
currencies (largely dollars). What buoy the foreign currency market are net capital inflows (foreign
investment, loans) that offset trade deficits (imports exceed exports) resulting in mostly BOP
surpluses. Nonetheless, foreign exchange rate (peso to foreign currency) is relatively high making
peso imports costly while exports are becoming more competitive with more peso profit margin for
the same dollar price. Unfortunately, local production can hardly fill in for costly imports as
handicapped by limited scale, access to technology and government incentives against the
backdrop of stiff import competition. On the other hand, they have to contend with higher cost of
doing business due to costly capital and material imports. Thus, local businesses engaged in low
technology production and trade that includes cheap and shoddy imports of consumer items.
Further stifling the foreign currency market is the decline of its exchange rate against rising
local prices (inflation) that makes the peso overvalued against the dollar in recent years. The
increasing value of the pesos together with the other Asian currencies against the weakening dollar
stems from capital flows avoiding the recession in the U.S. and Europe and finding opportunities
in Asia. The resulting decline of the real exchange rate (exchange rate divided by price index) has
two (2) implications. Imports are becoming cheaper relative to local goods while exports are
becoming less competitive with less peso profit margin for the same dollar price. Much less are
exports competitive as our neighbors and rivals (Malaysia, Thailand, and Indonesia) have
successfully reversed their exchange rate conditions to make their exports more competitive. In
turn, cheapening imports with less competitive exports further fans foreign currency demand
relative to supply to keep the exchange rate high. Despite Central Bank’s intervention to minimize
fluctuations by buying and selling dollars, the peso-dollar exchange rate is still above forty (40)
pesos. Thus, imports for an imports dependent economy is still costly while exports continue to
lose price competitiveness.

HERFINDAHL-HIRSCHMAN INDEX (HHI)

As final note to help guide the proponents of a business proposal in choosing what type of
industry to enter, the use of the Herfindahl-Hirschman Index -HHI would be useful since it helps
the proponent identify markets are highly competitive and saturated and those markets with high
market concentration.
The HHI is commonly accepted measure of market concentration. It is calculated by
squaring the market share of each firm competing in the market, and then summing the resulting
numbers. Market share is equal to the Revenue of the Firm/Revenue of the Industry and is actually
a percentage. However, the whole numbers of the market share are used to compute the HHI.
The HHI number can range from close to zero to 10,000. The HHI is expressed as:
HHI = MS2 of Firm 1 + MS2 of Firm 2 + MS2 of Firm 3 … + MS2 of Firm n
The closer a market is to being a monopoly, the higher the market’s concentration (and the
lower its competition). If, for example, there was only one firm in the industry, that firm would
have 100% market share, and the HHI would equal 10,000 (100 2) indicating a monopoly. Or, if
there were thousands of firms competing, each would have nearly 0% market share, and the HHI
would be close to zero, indicating nearly perfect competition. This means the market is highly
competitive and is characterized by the existence of numerous competitors.
Results of the HHI would indicate the following:
 HHI below 100 indicates a highly competitive market.
 HHI below 1000 indicates an unconcentrated market.
 HHI between 1000 to 1800 indicates moderate market concentration.
 HHI greater than 1800 indicates high market concentration.
(Dinio, Villasis 2017)

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 BUSINESS ICONS

Philippine Business Icon: Manuel V. Pangilinan

In 2008, he was the 39th richest man in the Philippines with a net worth of 39 million US
dollar. Now 68 years old, Pangilinan was not born with the literal golden spoon in his mouth, but
he worked his way to what he is today. Graduating from the Ateneo de Manila with a degree of
Bachelor of Arts in Economics, cum laude, he proceeds to earn an MBA degree in 1968 from the
Wharton School of Finance and Commerce at the University of Pennsylvania, as a Procter and
Gamble fellow. He subsequently worked with the PINMA group, Bancom International Limited,
American Express Bank, and the First Pacific Company.
Among his notable accomplishments are the First Pacific Group which he himself put up,
the chairmanship of the PLDT as well as of the Metro Pacific Investment Corporation and the
Smart Communications, Inc.
MVP, as he is lovingly called, wears many other hats. He is active in the support of sports,
medicine and health, vocational, social and cultural activities, crime prevention and the
rehabilitation of the Pasig River.
Mr. Pangilinan has been recognized in various fields, by the TOYM, the Office of the
President of the Philippines, and by schools such as the San Beda College and the Xavier
University.
His contribution to Philippine business and industry is outstanding.

Global Business Icon: Bill Gates

Born in 1955, relatively young entrepreneur Bill Gates founded the world’s largest software
business, Microsoft, with Paul Allen, and subsequently became one of the richest men in the world.
An early bloomer, he began to show an interest in computer programming at age 13. In
1970, at the age of 15, Bill Gates went into business with his pal, Paul Allen. They developed “Traf-
o-Data,” a computer program that monitored traffic pattern in Seattle, and netted 20,000 dollars
for their efforts. Gates and Allen wanted to start their own company, but Gates’ parents wanted
him to finish school and go on to college where they hoped he would work to become a lawyer.
Gates’ acumen for not only software development but also business operations put him in the
position of leading the company and working as its spokesperson. He personally reviewed every
line of code the company shipped, often rewriting code when he saw it necessary. As the computer
industry began to grow with companies like Apple, Intel, and IBM developing hardware and
components, Bill was continuously out on the road touting the merits of Microsoft software
applications. He often took his mother with him. Mary was highly respected and well connected
with her membership on several corporate boards including IBM. It was through Mary that Bill
Gates met the CEO of IBM.
In November 1985, Bill Gates and Microsoft launched Windows. Bill Gates’ intelligence
allowed him to be able to see all sides of the software industry – product development and corporate
strategy. Giving back to the community set off Gates’ philanthropic activities. In 1994, Gates and
his wife established the William H. Gates Foundation which was dedicated to supporting
education, world health, and investment in low-income communities. In 2000, the couple
combined several family foundations to form the Bill and Melinda Gates Foundation. They started
out by making a 28-billion-dollar contribution to set up the foundation. (Dinio, Villasis 2017)

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ACTIVITY 1. NAME IT!

Directions: Identify at least 10 goods that you always consume at home and write beside each
item if it is an IMPORTED or a LOCAL product in your answer sheet.

1. ___________________________ - _____________________________
2. ___________________________ - _____________________________
3. ___________________________ - _____________________________
4. ___________________________ - _____________________________
5. ___________________________ - _____________________________
6. ___________________________ - _____________________________
7. ___________________________ - _____________________________
8. ___________________________ - _____________________________
9. ___________________________ - _____________________________
10. ___________________________ - _____________________________

ACTIVITY 2. PAIR IT RIGHT!

Directions: Match column A with the correct answer in column B. Write your answer in your
answer sheet.

COLUMN A COLUMN B

1. Corporations and even small businesses

have increased their focused-on projects
 Impact on Community
that provide scholarship to poor but
deserving students.
2. New businesses mean employment
 Impact on the Government
opportunities for the Filipinos.
3. A business has to meet requirements to
 Impact on the Consumer
start operating.
4. The seller makes the product available at
introductory prices lower than the other  Impact on Suppliers and Investors
substitutes in the market.
5. A new company is set up and this opens
 Impact on Households
up opportunities for the other businesses.

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ACTIVITY 3. WRITE IT RIGHT!

Directions: Write a meaningful and well-thought explanation to answer the given question guided
by rubrics below.

“How does the overvaluing of the peso keep the exchange rate high?”
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Rubrics

Criteria Description Points

Content Contents are clearly discussed 5

The ideas are clearly presented based on

Connection of ideas 5
the words used.

Grammar Correct use of grammar. 5

TOTAL 15

ASSESSMENT

I. Directions: Examine the name of products below. Write LOCAL in your answer sheet if the
product is locally made and IMPORTED if it is foreign products.

_____1. Mr. Chips

_____2. Hershey’s Chocolate

_____3. Victoria Secret

_____4. Star Margarine

_____5. Rebisco Biscuits

II. Directions: Determine whether the following factors gives positive or negative impacts on
business. Write your answer in your answer sheet.

1. Poor road conditions.

2. High cost of electricity and real estate acquisition.
3. Higher household income.
4. Low taxes on businesses.
5. Bureaucratic corruption.
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 6. Maintained peace and order.
7. Heavy traffic in urban areas.
8. Promotion of tourist spots.
9. Low interest on business loans.
10. Widespread terrorism acts.

III. Directions: Write a meaningful and well-thought explanation to answer the given question
guided by rubrics below.

 Explain how government influence business activity.

_______________________________________________________________________________________________
_______________________________________________________________________________________________
_______________________________________________________________________________________________
_______________________________________________________________________________________________

Rubrics

Criteria Description Points

Content Contents are clearly discussed 5

The ideas are clearly presented based on

Connection of ideas 5
the words used.

Grammar Correct use of grammar. 5

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ANSWER KEY FOR ACTIVITIES

Investors
Hersheys -IMPORTED 3. Suppliers and Impact on 5.
Colgate -LOCAL 2. the Consumer Impact on 4.
Victoria Secret - IMPORTED 1. the Government Impact on 3.
Households Impact on 2.
Possible Answers Community Impact on 1.
ACTIVITY 1 ACTIVITY 2

Refer to rubrics
ACTIVITY 3

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References:
A. Books:

Dinio, Rosemary P., PhD & Villasis, George A. 2017. Applied Economics. Manila Philippines.
REX Book Store. P. 83-99

DIVISION QUALITY ASSURANCE TEAM IN HUMANITIES AND SOCIAL SCIENCE

WRITER:

BENJAMIN G. BIAGTAN

VALIDATORS:

DR. MARILEX A. TERCIAS ZOSIMO IRENE H. FERNANDEZ

DR. EUGENE M. TORALBA MA. JOCELYN J. SOTONG
DR. ALBERTO O. RABANG DANILO T. SIBLAG
DR. VIRGINIA B. FREGILLANA VICTOR B. ABAN
JEANNEROSE M. ACOSTA JAMILIE M. CRISPINO

COSULTANTS:

DR. MAYBELENE C. BAUTISTA

DR. JEROME S. PARAS
DR. CORNELIO R. AQUINO
DR. TEODORA V. NABOR
DR. DANILO C. SISON

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Assessment
III.
Refer to rubrics
Assessment
Assessment
II.
I.
1. NEGATIVE 6. POSITIVE
1. LOCAL
2. NEGATIVE 7. NEGATIVE
2. IMPORTED
3. POSITIVE 8. POSITIVE
3. IMPORTED
4. POSITIVE 9. POSITIVE
4. LOCAL
5. NEGATIVE 10. NEGATIVE
5. LOCAL
ANSWER KEY FOR ASSESSMENT