FAR EASTERN UNIVERSITY

INSTITUTE OF ACCOUNT, BUSINESS AND FINANCE

MGT 1115 – Section 15

Managerial Economics
Module 1 Paper Output
AY 2023 - 2024

One Lesson of Business: Wealth Creation

By:
Gamolo, Aila Jillian
Mallanes, Renz Joshua
Perez, Julliene
Salinas, Janine Anne
Sitjar, John Roi Vincent
Villanueva, Alessandra Kristine

SUBMITTED TO:
Dr. Shirley Catley-Riñoza

February 12, 2024

1
 Table of Contents
Title Page ………………………………………………………………………… 1

Table of Contents ………………………………………………………………… 2

CHAPTER

I Introduction ……………………………………………………………… 3

II The Problem ……………………………………………………………... 4

III The Solution …………………………………………………………….. 5

IV The Costing ……………………………………………………………… 6

V Appendices ………………………………………………………………. 7

2
 Introduction
The word ‘inefficiency’ is a contraction of a prefix ‘in-‘ which means “not” and the word ‘efficient’
which means “capable of producing desired results especially without waste” (Merriam-Webster,
2024). Therefore, the word ‘inefficiency’ can be defined as a situation wherein the incapability of
achieving the desired results without having waste of time and/or energy exist. Fortunately,
economists around the world found out a way to battle inefficiency through what we call wealth
creation. This chapter will discuss the inefficiency faced by the researchers and the wealth creation
they will utilize in order for them to create sustainable and efficient profit.

In the field of Economics, economic inefficiency can be characterized as a situation where not all
the available resources and goods are being distributed and used to their full capacity (Barnier &
Belluco- Chatham, 2020). One of the most prominent examples of economic inefficiency includes
product or material inefficiency which will be discussed in the next chapter. However, to give an
insight, material inefficiency refers to a situation where products are not being allocated,
distributed, and used to reduce waste and promote sustainability (International Electrotechnical
Commission, 2023).

Wealth creation, to continue, refers to accumulation of assets, investments, and other resources in
a period of time at a low value, and, after applying compounding interest, the person will be able
to sell it at much higher prices to generate profit. Numerous businesses have used wealth creation
to create wealth, secure financial statuses, and contribute to economic growth by using specific
economic inefficiencies available in their areas (Bhatt, 2023).

The report will showcase the importance of car restoration industry in the Philippines as a solution
to material inefficiency and as a profitable wealth creation device.

3
 The Problem
Ever since the first introduction of cars by Americans here in the Philippines in the early 20th
century until now, problems attached to it such as the high price of acquiring a unit, the amount of
pollution it omits on the roads, and the space it took in the streets, does not seem to be ending.
These problems must be solved not only for the growth of the country’s economy but also for the
welfare of its people.

In 1904, the Renault or the first car in the Philippines was owned by Don Benito Legarda for over
three thousand pesos (PHP 3,000) (Castro, 2019). Although it may not seem as a huge amount of
money in today’s world, this amount can buy hectares and hectares of land during the first decade
of the 20th century. Now, in the 21st century, although it cannot be denied that a lot of Filipinos has
access to different automobiles, acquiring one remains a privilege for the people with upper middle
to high social statuses since a brand-new car costs PHP 732,000 up to PHP 3,158,000 (Carmudi
Philippines, 2024).

Furthermore, due to its high price, buying new cars to replace the old ones has never been an option
to most of Filipinos, causing the air to be more polluted as the years goes on. In fact, according to
the Department of the Environment and Natural Resources (DENR), the air pollution that the
Filipino people are currently breathing is 2-5 times comparably higher than the recommended
levels of the World Health Organization (WHO). In addition, it is also found out that urine samples
from children who are living in the traffic streets of Manila contain high levels of lead due to being
exposed to exhaust fumes every day (IQAir, 2024).

Lastly, automobiles that are rendered useless by their owners, especially in the provinces, were
being dumped on the streets of neighborhoods because of their old age or malfunctioning parts is
a clear example of material inefficiency. These scrap materials are being left to rust for the reason
that they are deemed to be impractical to store because of their malfunctioning parts and other
defects. In addition, these types of vehicles do not only cause traffic because of the additional space
they occupy but also collect trash underneath it. In fact, according to a news report, these cars were
commonly left on the roads causing traffic and collecting loads of solid waste on some of the major
roads in the country (Grecia, 2023).

4
In conclusion, although cars have proved its importance on different aspects, Filipinos still cannot
deny the fact that acquiring this material is a social privilege, harms our environment through
pollution, and occupies huge amount of space in several urban places in the country.

The Solution
Due to the modernization and the advancement of the technologies, almost of day-to-day problems
has their own solutions. One of these solutions include the problem with scrap automobiles,
especially cars, with average to high levels of malfunctioning which render them useless.
Numerous businesspeople around the world noticed this material inefficiency and found out a way
to lessen the number of these products in the street by buying it for a low price and then
refurbishing it to sell it for profit. A prominent example of this business here in the Philippines is
the Manila Auto Display.

Manila Auto Display sells premium and quality secondhand cars that range from PHP 289,000 up
to PHP 1,499,000. They also offer MAD cars, MAD car values and services that can be availed by
their customers around Metro Manila and other places in Luzon. Furthermore, they offer a variety
of refurbished cars from pre-owned cars, low mileage used cars, auto sales and many more.

Manila Auto Display is only one of the numerous businesses that ventured into this field. Due to
their rise, the number of Filipinos without cars and the amount of material inefficiencies in the
Philippines significantly decreased due to the fact that refurbished cars are comparably cheaper
than brand-new cars and a lot of Filipino people sold their malfunctioning automobiles to different
auto refurbishing shops around the country, thus, helping on lessening the solid waste in the streets
(Maxfield, 2008).

5
 The Costing
This chapter shall present the amount spent and earned of a car refurbishing or car restoration
business. This chapter will present the purchasing cost, expenses incurred, selling price, and the
revenue earned by the business.

The diagram below illustrates an example costing from a PopularRestorations.com written by

Earls (2021). This example costing was chosen by the respondents as a replacement to an actual
costing of a car refurbishing business due to the fact that these types of businesses keep their
financial records to external users except to the internet.

Car Restoration Shop

Purchasing Cost (Scrap Car) $ 13,500

Expenses:

Body Work $ 1,000

Paint 5,000

Upholstery 3,000

Drive Train 5,000

Chrome 4,000

Tires and Brakes 2,000 $ 20,000

Total Cost $ 33,500

Selling Price $ 55,000

Total Cost $ (33,500)

Total Revenue $ 21,500

6
 References
Barnier, B. & Belluco-Catham, A. (2020, February 27). Economic efficiency: Definition and
examples. Investopedia.
https://www.investopedia.com/terms/e/economic_efficiency.asp#:~:text=A%20system%2
0is%20considered%20economically,losses%20may%20cause%20economic%20inefficie
ncies.

Bhatt, M. (2023, April 4). Wealth creation: Meaning, importance, and strategies. Fisdom.
https://www.fisdom.com/wealth-
creation/#:~:text=Wealth%20creation%20is%20the%20process,financial%20goals%20o
f%20wealth%20creation.

Carmudi Philippines. (2024). New cars in Philippines 2024. https://www.carmudi.com.ph/new-

cars/

Castro, A. (2019, April 19). 24 Rare photos of the early car industry in the Philippines: The
fascinating history of how cars arrived in the Philippines. Esquire.
https://www.esquiremag.ph/wheels/drive/car-industry-philippines-a2289-20190412-lfrm4

Earls, B. (2021). Estimating costs. Popular Restorations.

https://www.popularrestorations.com/Articles/Article060.htm

Grecia, L. (2023, January 17). Illegally parked vehicles worsen waste management problems—
not just traffic—in PH. Top Gear Philippines.
https://www.topgear.com.ph/news/motoring-news/illegal-parking-causing-littering-
problems-a4354-20230117

International Electrotechnical Commission. (2023, March 16). Circular economy: Understanding

material inefficiency. https://www.iec.ch/blog/circular-economy-understanding-material-
efficiency#:~:text=Material%20efficiency%20is%20about%20getting,they%20are%20no
%20longer%20useful.

IQAir. (2024). Air quality in the Philippines. https://www.iqair.com/philippines

7
Maxfield, M. (2008). Abandoned vehicles. Arizona State University.
https://popcenter.asu.edu/content/abandoned-vehicles-0

Merriam-Webster. (2024). Efficient.

https://www.merriamwebster.com/dictionary/efficient#:~:text=Kids%20Definition,efficie
nt,as%20of%20time%20or%20energy)