A Reaction Paper

Submitted to: Dr. Ruby B. Dimas Professor

In Partial Fulfillment of the Course Requirement in Soc. Sci. 15 (General Economics with LRT, Cooperatives and Current Issues)

Submitted by: Carla May D. Dagdag HRM1a 2nd Sem. A.Y 2010-2011

A Reaction Paper

Submitted to: Dr. Ruby B. Dimas

In Partial Fulfillment of the Course Requirement in Soc. Sci. 15 (General Economics with LRT, Cooperatives and Current Issues)

Submitted by: Harold Kristian A. Gatan HRM1b 2nd Sem. A.Y. 2010-2011

Economics is the study of how people choose to use resources. Resources include the time and talent people have available, the land, buildings, equipment, and other tools on hand, and the knowledge of how to combine them to create useful products and services. Important choices involve how much time to devote to work, to school, and to leisure, how many dollars to spend and how many to save, how to combine resources to produce goods and services, and how to vote and shape the level of taxes and the role of government. Often, people appear to use their resources to improve their well-being. Well-being includes the satisfaction people gain from the products and services they choose to consume, from their time spent in leisure and with family and community as well as in jobs, and the security and services provided by effective governments. Sometimes, however, people appear to use their resources in ways that don't improve their well-being. In short, economics includes the study of labor, land, and investments, of money, income, and production, and of taxes and government expenditures. Economists seek to measure well-being, to learn how well-being may increase overtime, and to evaluate the well-being of the rich and the poor. The economy of the nation also largely depends on the remittances from Filipinos residing overseas and investing in the homeland. However, exports are not evenly balanced by the imports that include heavy electronics, garments, various raw materials, intermediate goods and fuel. The influence of the Manila galleon on the nation's economy during the Spanish period, and bilateral trade when the country was a colony of the United States has resulted in the preference of a mixed economy over a centrally planned or market based one. It is very important to understand the shift during the Ferdinand Marcos leadership, from a market economy to a centrally planned economy, to relate to the economic recession that the country is now facing. It is only in the wake of economic liberalization and the makeover from the monopolies during the Marcos era that the country is now able to apply the fundamentals of a mixed economy to remain buoyant. Major Economic Problems of the Philippines Import-Export Imbalance: Among the many economic problems faced by the Philippines, one is the imbalance of imports and exports. The negative trade is heavy and only counterbalanced by the service account surplus. Over the last two decades, Philippine exports have shifted from commodity-based products to manufactured goods. However, in the midst of the current global economic recession, the exports of electronics, garments and textiles are yet to reach a level of import neutralization. Decline of the Philippine Peso: The economic downturn has resulted in the devaluation of the Philippine peso and subsequently, a fall in the stock market. The fiscal conservatism strategy adopted by the Philippine government has yet to reflect a positive effect on acceleration of economic growth. 6% growth in the gross domestic product (GDP) in 2004 and 7.3% in 2007 has yet to accelerate to the linear GDP growth projected by the government.

Reliance on Remittances: President Gloria Macapagal-Arroyo has pledged complete development of the economy by the year 2020. There have been a number of tax reforms put in place, alongside extensive asset privatization. Nevertheless, Philippines' dependency on remittances from non-resident investors is large. Neighboring competitors have been siphoning away big investors in infrastructure and outsourcing. This has resulted in an uneven regional development. These are just some of the economic challenges looming large over the Philippines. The government is taking extensive steps to ensure even distribution of economic growth within the nation, by promoting overseas and home-bound investments in the Philippine Islands. The country is facing significant decline in industrial production, gross domestic product, income and employment and sales. Nevertheless, the crossovers from import substitution to promotion of exports are slowly adding quality to various fiscal incentives. The abolishing of export taxes and liberalization of foreign investment laws have helped equalize trade deficit to a considerable extent.

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Economics is best described as the study of humans behaving in response to having only limited resources to fulfill unlimited wants and needs. Scarcity refers to the limited resources in an economy. Macroeconomics is the study of the economy as a whole. Microeconomics analyzes the individual people and companies that make up the greater economy. The Production Possibility Frontier (PPF) allows us to determine how an economy can allocate its resources in order to achieve optimal output. Knowing this will lead countries to specialize and trade products amongst each other rather than each producing all the products it needs. Demand and supply refer to the relationship price has with the quantity consumers demand and the quantity supplied by producers. As price increases, quantity demanded decreases and quantity supplied increases. Elasticity tells us how much quantity demanded or supplied changes when there is a change in price. The more the quantity changes, the more elastic the good or service. Products whose quantity supplied or demanded does not change much with a change in price are considered inelastic. Utility is the amount of benefit a consumer receives from a given good or service. Economists use utility to determine how an individual can get the most satisfaction out of his or her available resources. Market economies are assumed to have many buyers and sellers, high competition and many substitutes. Monopolies characterize industries in which the supplier determines prices and high barriers prevent any competitors from entering the market. Oligopolies are industries with a few interdependent companies. Perfect competition represents an economy with many businesses competing with one another for consumer interest and profits.

Economics may appear to be the study of complicated tables and charts, statistics and numbers, but, more specifically, it is the study of what constitutes rational human behavior in the endeavor to fulfill needs and wants. As an individual, for example, you face the problem of having only limited resources with which to fulfill your wants and needs, as a result, you must make certain choices with your money. You'll probably spend part of your money on rent, electricity and food. Then you might use the rest to go to the movies and/or buy a new pair of jeans. Economists are interested in the choices you make, and inquire into why, for instance, you might choose to spend your money on a new DVD player instead of replacing your old TV. They would want to know whether you would still buy a carton of cigarettes if prices increased by $2 per pack. The underlying essence of economics is trying to understand how both individuals and nations behave in response to certain material constraints. ((To learn how economic factors are used in currency trading, read Forex Walkthrough: Economics.) We can say, therefore, that economics, often referred to as the "dismal science", is a study of certain aspects of society. Adam Smith (1723 - 1790), the "father of modern economics" and author of the famous book "An Inquiry into the Nature and Causes of the Wealth of Nations", spawned the discipline of economics by trying to understand why some nations prospered while others lagged behind in poverty. Others after him also explored how a nation's allocation of resources affects its wealth. To study these things, economics makes the assumption that human beings will aim to fulfill their self-interests. It also assumes that individuals are rational in their efforts to fulfill their unlimited wants and needs. Economics, therefore, is a social science, which examines people behaving according to their self-interests. The definition set out at the turn of the twentieth century by Alfred Marshall, author of "The Principles Of Economics" (1890), reflects the complexity underlying economics: "Thus it is on one side the study of wealth; and on the other, and more important side, a part of the study of man." Economics may appear to be the study of complicated tables and charts, statistics and numbers, but, more specifically, it is the study of what constitutes rational human behavior in the endeavor to fulfill needs and wants. As an individual, for example, you face the problem of having only limited resources with which to fulfill your wants and needs, as a result, you must make certain choices with your money. You'll probably spend part of your money on rent, electricity and food. Then you might use the rest to go to the movies and/or buy a new pair of jeans. Economists are interested in the choices you make, and inquire into why, for instance, you might choose to spend your money on a new DVD player instead of replacing your old TV. They would want to know whether you would still buy a carton of cigarettes if prices increased by $2 per pack. The underlying essence of

economics is trying to understand how both individuals and nations behave in response to certain material constraints. ((To learn how economic factors are used in currency trading, read Forex Walkthrough: Economics.)

Today's Economy The Philippine economy proved comparatively well-equipped to weather the recent global financial crisis in the short term, partly as a result of the efforts over the past few years to control the fiscal deficit, bring down debt ratios, and adopt internationally-accepted banking sector capital adequacy standards. The Philippine banking sector--which includes 80% of total financial system resources--had limited direct exposure to distressed financial institutions overseas, while conservative regulatory policies, including the prohibition of investments in structured products, shielded the insurance sector. Although direct exposure to problematic investments and financial institutions was limited, the impact of external shocks to long-term economic growth, poverty alleviation, employment, credit availability, and overall investment prospects remains a concern. Real year-on-year GDP growth slowed to 3.8% during 2008, and sputtered to 0.9% during 2009, though the economy showed clear signs of recovery in the first half of 2010, growing 7.9% yearon-year. Overseas workers remittances increased at a slower 5.6% pace in 2009, down from the double-digit growth rates of previous years, but were nevertheless better than expectations and rose to $17.3 billion (nearly 11% of GDP), helping the economy avoid recession and supporting the balance of payments and international reserves. Government spending, a looser monetary policy, and a relatively resilient business process outsourcing industry also helped support the economy. Annual GDP growth averaged 4.3% under the Arroyo administration, but it will take a higher, sustained economic growth path--at least 7%-8% per year by most estimates--to make progress in poverty alleviation given the Philippines' annual population growth rate of 2.04%, one of the highest in Asia. The portion of the population living below the national poverty line increased from 30% to 33% between 2003 and 2006, equivalent to an additional 3.8 million poor Filipinos. The food, fuel, and global financial shocks and severe typhoon-related damages of 2008-2009 are expected to have pushed more Filipinos into poverty. Drought brought by the El Nino weather phenomenon reduced agricultural and hydroelectric production in late 2009 and early 2010.