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Supply-Demand and Philippine Economic Problem

1) The document discusses several economic issues facing the Philippines including housing shortage, real estate boom, rising rents, minimum wage, taxes, and savings and investment. 2) It provides background on how supply and demand affects currency exchange rates and explains how the Philippine peso is traded relative to foreign currencies. 3) Several factors contributing to the housing shortage are outlined, including the recovery from the Asian financial crisis increasing demand for construction projects in the late 1990s.

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Catherine Rose Villarin Alferez
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1K views

Supply-Demand and Philippine Economic Problem

1) The document discusses several economic issues facing the Philippines including housing shortage, real estate boom, rising rents, minimum wage, taxes, and savings and investment. 2) It provides background on how supply and demand affects currency exchange rates and explains how the Philippine peso is traded relative to foreign currencies. 3) Several factors contributing to the housing shortage are outlined, including the recovery from the Asian financial crisis increasing demand for construction projects in the late 1990s.

Uploaded by

Catherine Rose Villarin Alferez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Supply-Demand and

Philippine Economic
Problem
The Philippine Peso and Foreign Currencies

Selling locally made products called exports, mean we earn


dollars as payment for these goods bought by foreign buyers. In
the same manner, we buy goods from other countries, and these
are our imports. When trading with other countries, we need a
common currency to use pay for goods from them and for them
to pay us for goods we sell to them. When travelling to foreign
countries, money conversion is needed according to its local
currency of a country which we visit.
The rate of conversion of the
Philippine Peso to a foreign
currency depends on the workings
of demand for and supply of the
currency in the market.

When the supply of a currency


increases, its value tends to decrease
and we pay a lower price for it. When
the demand for a foreign currency
increases, its value will increase and
we pay a higher price for it.
Housing shortage and the real estate
boom in the Philippines
• In the late 1990’s, during the Asian financial crisis, construction hit
low levels in the Philippines. Some high profile construction
projects were abandoned and demand for housing was at a low level.
Some real estate companies even had to close. This was the effect of
decreased demand of construction projects.
• However, as soon as the Asian countries recovered from the crisis,
the construction sector also started to recover. High-rise
condominium buildings and townhouses started to bloom in the
metropolis.
With the rising of Business
Process Outsourcing (BPO) in the
metropolis, there is a need to put up
offices, which also means an increase
in the demand for commercial spaces.
And with more employees working in
these offices, some moving from the
province to Metro Manila, continue to
rise new buildings, there is also a rise
in the demand of residential spaces.

The increase in residential demand may also be traceable to the OFW sector, with
remittances allowing their families back home to buy more affordable houses. Office
buildings and high-rises continue to sprout all around us. We see numerous construction
sites, as developers try to meet the backlog in housing for Filipinos. Promotion of housing
developers is so aggressive, we walk around the malls and their agents come up to us with
beautiful brochures informing us of available condominiums or townhouses with financing
made east and with light terms for the buyers.
Rent and Price Structure
• From the point of view of economics, rent refers to a payment made to or for a
factor of production over and above the amount expected by its owner.
Economic rent is the positive difference between the actual payment made for a
factor of production (such as land, labor, or capital) to its owner and the
payment level expected by the owner, due to its exclusivity or scarcity.
Economic rent exists due to market imperfections. Without market
imperfections, there would be no need for payment of rent. Henry George
(2014) describes the concept of rent in economics as follows:
• “In the economic meaning of rent, payments for the use of any of the products
of human exertion are excluded and of the lumped payments for the use of
houses, farms, etc. only that part is rent which constitutes the consideration for
the use of the land. The part that is paid for the use of buildings or other
improvements is properly interest, as it is a consideration for the use of capital.”
• In short, Economic rent is any unearned income.
Savings and Investment
• Saving and investment are necessary to build the future. Savings is to investment as
food is to the body nourishment process. As of food and the nourishment process
sustain body growth, so do savings and investment to the growth of the economy’s
productive capacity. But saving calls for giving up the present in order to build up
and, therefore, invest for a better future. Savings and investment are not only the
concern of business but also of households and government.
• Investment is defined as building up the capital stock for more future production
and consumption. But the cost of investment is savings defined as postponed
consumption at present. Behind the use of money as exchange medium are the real
activities of savings and investment, which are clearly seen in households that
produce for their own consumption (e.g., subsistence farmer)
The use of money as exchange and credit
medium can maximize savings and
investment. While one constantly saves
money for future use, another one spends on
investment even before accumulating
savings by borrowing. One can borrow and
repay against future accumulated savings.

All capital accumulations redound to bigger


productive capacity to sustain household
consumption. The economy’s capital
formation (investment) has always been
greater than savings since government
investment is also financed by taxes and at
times, foreign borrowings
Rent
The problem of unaffordable decent
housing is the problem not so much of
the middle class as the poor due to
poverty. Typical middle class household
members pitch in to afford decent
housing rental and eventual ownership.
Lacking skills, the poor are either self-
employed (E.g., vendors) or not
regularly employed (e.g., construction
workers). Thus, the poor squat on other
people’s lands or rent squatter housing
in subhuman living condition they can
only afford.
Minimum Wage
The problem of inadequate wage is intertwined with
the problem of unemployment. Both problems stem
from the lack of jobs for our large labor force.
Therefore, wage is more inadequate and unemployment
rate is higher as more and more people cannot find jobs
that have become scarcer. But the relatively few
employers can exploit many who badly need jobs all
the more. For this reason, the government mandates a
minimum wage to protect workers. Employers force
helpless workers to accept a wage even lower than the
minimum wage (Fig. 2.14). employers are banned from
paying wages below the minimum standard set by
government. Yet, most of the wages are still below the
minimum standard due to lack of enforcement (Fig.
2.15)
Taxes
• We pay taxes for government to provide public goods and services that empower and enable
individuals and institutions alike (e.g., school, business corporation) to pursue their dreams. Taxes are
yet our burden even as we ultimately benefit from the public goods and services we get in return.
Taxes can dampen the incentive to do business for the benefit of society as they can eat up profit.
Taxes can also distort savings, investment and consumption as income earners shift to substitute to
avoid the tax burden. Ideally, tax benefit is maximized as its burden is minimized
• The main issue that hobbles the government to maximize tax benefit while minimizing its burden is
the shortfall of tax collections due to corruption. What is worse is that government borrows from the
public to make up for the deficit and stretch government spending. Shortfalls of tax revenues and
government spending can mean less road maintenance, books for the public schools, medical services
and medicines for the poor, to name a few. On top of the shortfalls, corruption misallocates spending
on the not-so-important from the more important public goods and services (e.g., road beautification
instead of free medical services for the poor).
Economic Icon
He was one of the most influential economics of his time for
he demonstrated nan aptitude in mathematics but experienced a
mental crisis that led him to abandon physics and switch to
philosophy. His specialty was microeconomics – the study of
individual markets and industries, as opposed to the study of the
whole economy. He emphasized in his most important book,
principles of economics, that the price and output of a good are
determined by both supply and demand. He bought ideas of supply
and demand, marginal utility and cost of production into a coherent
whole. The main technical contribution of his book was a masterful
analysis of the issues of elasticity, consumer surplus, increasing and
diminishing returns, short and long terms and marginal utility. He
used concepts, price elasticity of demand and consumer surplus, to
measure the changes in well-being from government policies such
as taxation. Despite economists have refined the measures during
Marshall's time, His basic approach to what is now called welfare Alfred Marshall
economics stand still. ( Jul 26 1842 – Jul 13 1924)

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