economic analysis worktext

worktext ECONOMICANALYSIS

on

Jameson N. Estrada

Pangasinan State University

Pangasinan State University LINGAYEN CAMPUS

PAN

GA

SIN

AN STATEUNIVE

RSITYPA

NG

AS

INAN STATE UNIV

ER

SITY

1979 Lingayen, Pangasinan

Economics 111 with the course title Economic Analysis explores basic economictheories and principles both in Microeconomics and Macroeconomics which aresupported not only by theory but with the use of economic models such as tables,graphs and equations for a more intellectual analysis. To ensure the course objectiveswould be achieved, a need for a teaching resource material is necessary. Thus, thisworktext has been prepared.

The worktext is intended for use by students of AB Economics program takingup the subject Econ 111 with the goals of helping them master the principles essentialfor understanding economic analysis and assisting them to apply the economicperspective in order to reason accurately and objectively about economic matters.Likewise, this has been designed as an instrument for learning development andassessment, providing students with a practical approach to applying the knowledgelearned in the lectures. Each worktext covers exercises that is built upon the lessonsof each chapter containing the following.

● Introduction to Economic Analysis● Graphical Analysis● Demand Analysis● Supply Analysis● Market Equilibrium Analysis● Elasticity Analysis● Consumer Behavior Analysis● Production Analysis● Cost Analysis● Profit Analysis● Introduction to Macroeconomics● National Income Accounting● Inflation● Unemployment

Keep in mind that it takes sustained effort – and some dedicated patience – tostudy and learn the subject. But, it is assured that the effort is well worth it. It ishoped this modest work helps everyone. So, the best of luck as you begin your journeyin answering the worktext!

PREFACE

TABLE OF CONTENTS

1 Introduction to Economic Analysis

4 Graphical Analysis

9 Demand Analysis

14 Supply Analysis

18 Market Equilibrium Analysis

21 Elasticity Analysis

24 Consumer Behavior Analysis

28 Production Analysis

31 Cost Analysis

35 Profit Analysis

38 Introduction to Macroeconomics

40 National Income Accounting

45 Inflation

47 Unemployment

PAGE CONTENT

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WORKTEXT 1 : Introduction to Economic Analysis Econ 111 – Economic Analysis

EXERCISE 1

True or False. Determine whether each of the following statements is true or false. Write the answer on the blank after the number.

1. Because scarcity exists, people must make choices,which means they do not incur opportunity costs.____________

2. Sociology studies how people use their limited resourcesto satisfy their unlimited wants. ____________

3. Goods are scarce because people desire much morethan the economy can produce. ____________

4. Macroeconomics views the performance of the economyas a whole. ____________

5. Economists seldom use theories, or models, to helpunderstand the effects of an economic change.____________

6. Economic models and theories are accurate statementsof reality. ____________

7. People usually respond to incentives, exploitingopportunities to make themselves better off. __________

8. Firms buy the resources they need to produce goods andservices in factor markets. ____________

9. Wants are unlimited and resources are limited. ________

10. Scarcity is a situation in which something is beingwasted. ____________

11. If an economist wants to analyze how a market works, heapplies a macroeconomic model. ____________

12. A production-possibility frontier depicts the unlimitedwants of society. ____________

13. Positive economics deals with factual statements whilenormative economics reflects value judgments.____________

14. Consumer goods satisfy wants directly, whereas capitalgoods do so indirectly by aiding the production ofconsumer goods. ____________

15. Labor is a human resource that combines the factors ofproduction creatively and efficiently. ____________

EXERCISE 2

Identification. Identify each of the following statements. Write your answer on the blank provided for by looking at the concepts given in the box below.

16. __________ is concerned with the behavior of individualentities such as markets, firms, and households.

17. __________ is the most highly valued, or next best,alternative that is forfeited when a choice is made.

18. __________ studies the choices people make as theytry to satisfy their wants in a world of scarcity.

19. __________ is the condition in which our wants aregreater than the resources available to satisfy them.

20. __________ are inputs into the production process andcan be classified as land, labor, capital, andentrepreneurial ability.

21. __________ refers to the physical and mental effortsand talents that people contribute, provide or render tothe production of goods and services.

22. __________ is a simplified representation of complexeconomic activities, systems, or problems.

23. __________ denotes the most effective use of asociety’s resources in satisfying people’s wants andneeds.

24. __________ allows analysis of the effect of a change inone factor by holding all other relevant factorsunchanged.

25. ___________ represents transactions within theeconomy as flows of goods, services, and moneybetween households and firms.

Republic of the PhilippinesPangasinan State UniversityLingayen Campus

WORKTEXT 1 : INTRODUCTION TO ECONOMIC ANALYSIS Econ 111 – Economic Analysis

NAME: _______________________________________ SCORE: ___________________________________

YEAR AND COURSE: ___________________________ DATE: ____________________________________

1


EXERCISE 3

Classification. To which category of resources does each of thefollowing belong? Write LD for land, LR for labor, CL for capital and EP for entrepreneurship.

26. ___________ Industrial robots

27. ___________ Manufacturing plant

28. ___________ Farm tractors

29. ___________ Nuclear physicist

30. ___________ Trucks

31. ___________ A country’s mineral deposits

32. ___________ Jameson’s work as a sales specialist

33. ___________ A journalist telling news on a television

34. ___________ Pasture land

35. ___________ Crude oil

36. ___________ Computers

37. ___________ Someone inventing a new product

38. ___________ Construction worker

39. ___________ A forest

40. ___________ A manager introducing new marketingstrategies

41. ___________ Computer software

42. ___________ 2-hour of legal counsel

43. ___________ Production workers in a factory

44. ___________ A development site

45. ___________ A farm land

EXERCISE 4

Classification. Indicate whether each of the following statements applies to microeconomics or macroeconomics. Write MI for Micro and MA for Macroeconomics.

46. The unemployment rate of the Philippines was 7% inDecember 2013. ___________

47. Philippine GDP, adjusted for inflation, grew by 7.6percent in 2013. ___________

48. A strong typhoon hit the country that reduced the supplyof agricultural commodities. ___________

49. Last week many commercial banks lowered theirinterest rate on business loans by one-half of 1percentage point. ___________

50. The consumer price index rose by 2.2 percent in 2013.___________

51. The price to be charged for an automobile by amanufacturer. ___________

52. A worker’s decision regarding how much to work eachweek. ___________

53. An unexpected mad cow disease in China reduced thebeef supply and caused the price of beef to rise.___________

54. Blackberry Mobile laid off five thousand workers lastyear. ___________

55. The factor that causes interest rates to be low one yearand high the next. ___________

56. A consumer’s decisions about what to buy. _________

57. The factors that affect the supply of pineapples.___________

58. The determinants that increased the number of iPhonesexported to France? ___________

59. The government policies to be adopted to promoteemployment and growth in the economy as a whole.___________

60. The level of output a firm produces. ___________

EXERCISE 5

Classification. Determine whether each of the following statements is normative or positive. Write N for Normative and P for Positive.

61. The inflation rate in this country is too high. _________

62. The government should increase the minimum wage inMetro Manila. ___________

63. Increasing the minimum wage results in moreunemployment. ___________

64. What government policies should be adopted to make iteasier for low-income students to attend college?___________

65. How many people are employed in the economy as awhole this year? ___________

66. Measuring the impact of tax policies on total consumerspending in the economy. ___________

67. Every Filipino should have equal access to health care.___________

2


68. An increase in Value Added Tax (VAT) tends to lower thepurchasing power of the consumers. ___________

69. The cost of living has increased 18 percent over the past5 years. ___________

70. What factors that induce the demand for Ipad tablets torise. ___________

71. The industrial companies should cut back on our use ofcarbon-based fuels such as coal and oil. ___________

72. A 10 percent in income results to a 5 % increase in theconsumption of lobsters. ___________

73. If costs of production increase, the supply of DVD playersdecrease. ___________

74. Philippine trade restrictions cost consumers P35 billion ayear. ___________

75. What determines the overall level of prices in theeconomy as a whole? ___________

EXERCISE 6

Classification. Choose the letter that indicates the type of economic model to be used in each of the following.

A. Descriptive model (statement/words)B. AssumptionC. Graphs (chart/diagrams, etc.)D. Mathematical model (equation/function)

76. ___________Law of demand

77. ___________ Ceteris paribus

78. ___________ Supply curve

79. ___________ Cost equation

80. ___________ Production possibility frontier

81. ___________ Circular flow of income diagram

82. ___________ Consumption function

83. ___________ Budget line

84. ___________ Law of diminishing marginal returns

85. ___________ Definition of inflation

86. ___________ Cartesian plane

87. ___________ Approaches in GDP measurement

88. ___________ Concept of scarcity

89. ___________ Total utility schedule

90. ___________ Unemployment rate

EXERCISE 7

Graphical Analysis. Fill in the blanks with the appropriate word or phrase that completes each statement. Refer to the circular diagram below to answer the questions that follow.

91. Households receive income from businesses throughthe ____________.

92. Businesses receive revenue from households throughthe ____________.

93. The resource market is the place where households____________ resources.

94. In this circular flow diagram, money income andconsumption expenditure flow ____________.

95. In this circular flow diagram, inputs and outputs flow____________.

96. In the market for the factors of production, householdsare sellers, and firms are ____________.

97. In the product market, ___________ combine resourcesto produce and sell goods and services.

98. In the resource market, households provide the____________ that firms use to produce goods andservices.

99. Households sell labor to the resource market andreceive factor payment in the form of ____________.

100.Households use the income they have received fromthe sale of resources to ____________ goods andservices.

Go

ods

and servicesRevenue

Goods and

serv

ices

Consumption

expe

ndit

ures

Money income(w

ages, rents,

interest, profits)

neurial ability

Cos

ts

Reso

urces

BUSINESSES HO SEHOLDS

PRODUCTMARKET

RESOURCEMARKET Labor, land, capital, entrepre-

3

1

WORKTEXT 2 : Graphical Analysis Econ 111 – Economic Analysis

EXERCISE 1

Modified True or False. Write T in the blank if the statement is correct. If not, underline the word or phrase that makes it false and write on the blank the correction.

1. Graphs provide a visual representation of the relationshipbetween two variables. _____________

2. A bar graph is a convenient way to represent the differentparts of something that when added together equal thewhole. _____________

3. Two variables are directly related if one variable rises asthe other falls. _____________

4. An inverse relationship is a positive relationship betweentwo variables that change in the same direction._____________

5. The slope of a vertical line is zero. _____________

6. An inverse relationship has a positive slope._____________

7. Most economic data are positive numbers, so often onlythe upper right quadrant of the coordinate system is usedin economics. _____________

8. A downward-sloping line (left to right) represents twovariables that are inversely related. _____________

9. A dependent variable changes as a consequence of achange in independent variable. _____________

10. The point at which a straight line cuts the vertical y-axisis called the x-intercept. _____________

11. A line parallel to the vertical axis has an infinite slope._____________

12. When the other variables that might affect a two-variablerelationship are allowed to change, the graph of therelationship will likely shift to a new location._____________

EXERCISE 2

Multiple Choice. Encircle the one alternative that best completes the statement or answers the question.

13. In which quadrant does the point, (8, −3) be plotted?A. Quadrant I B. Quadrant IIC. Quadrant III D. Quadrant IVE. Quadrant V

14. In the equation of a straight line 𝑦 = 𝑚𝑥 + 𝑏, 𝑚 represents theA. vertical intercept. B. dependent variable.C. constant term. D. independent variable.E. slope.

15. A linear equation is given 𝑃 = 50 − 3𝑄𝑑 where P representsthe price and 𝑄𝑑 represents quantity demanded. What is thevertical intercept?

A. 50 B. 25C. 3 D. 50

3

E. 1

16. Graphs are a convenient and revealing way to representeconomic relationships. Which of the following is not a form ofgraph?

A. pie chart B. scatter diagramC. line graph D. bar graphE. linear equation

17. What is the coordinate (ordered pair) of point A as shown inthe cartesian plane below?

A. (−2, − 3)B. (4, −2)C. (0, 2)D. (−4, 3)E. (5,3)

18. What is the inverse function of the equation 𝑦 = 2𝑥 + 8 ?

A. 𝑥 =1

2𝑦 − 4 B. 𝑥 = 2𝑦 + 8

C. 𝑦 = 2𝑥 + 4 D. 𝑥 = 8𝑦 + 16

E. 𝑥 =1

4𝑦 − 2

Republic of the Philippines Pangasinan State University

Lingayen Campus

WORKTEXT 2 : GRAPHICAL ANALYSIS Econ 111 – Economic Analysis

NAME: _______________________________________ SCORE: ___________________________________


4


19. What is the slope of the line containing the points (4, 5) and(−8, −7)?

A. 4 B. −0.5C. 1 D. 12E. −3

20. When a direct relationship is graphed, the resulting line orcurve is

A. vertical. B. parallel.C. horizontal. D. downward sloping.E. upward sloping.

21. Which of the following variable pairs is the most likely to exhibitan inverse relationship?

A. A buyer’s annual income and his consumption on a good.B. The amount of time you study and your GPA.C. The price of LPG and the quantity of LPG a family bought.D. Basketball players’ salaries and their shooting averages.E. The costs of ingredients and the no. of glasses of halo-halo

produced.

22. Consumers buy more tokneneng when the price of balot goesup. In this statement you can predict that the relationship betweenvariables is

A. positive. B. negative.C. constant. D. zero.E. not significant.

23. Given the following diagram, the slope of straight line AB is

A. 5B. 3C. −1D. 1E. 0.5

24. Given the following diagram, the slope of straight line EF is

A. −5B. 3C. −1D. 1E. 5

25. A shift in a curve represents a change inA. the movement of a variable along a curve.B. a third variable that is not on either axis.C. the variable on the horizontal axis.D. the variable on the vertical axis.E. any variable that is relevant to the relationship being graphed.

EXERCISE 3

Problem Analysis. Analyze and answer what is required in the following problems.

A. In each case, state whether the expected relationship is director inverse. Draw a graph and explain the relationships you wouldexpect to find between the variables.

26. Price of concert tickets and concert attendance atPangasinan State University (PSU). ____________

27. Weekly income earned by a worker and his weeklyconsumption on personal care goods. ____________

28. No. of millimeters of rainfall per month and the sale ofumbrellas. ____________

29. Amount of tuition fee and the level of enrollment at auniversity. ____________

30. The popularity of a celebrity and the price of her playtickets. ____________

31. The apartment rental and the no. of apartment unitsoccupied. ____________

32. Annual government budget and governmentexpenditure on infrastructure. ____________

33. The price of refrigerators and the production ofrefrigerators. ____________

34. The price of toothbrushes and the quantitymanufacturers will sell per month. ____________

35. The cost of raw materials for shoes and the no. of unitsproduced by a shoe firm. ____________

36. The hourly wage and the no. of hours worked per weekby a working student. ____________

37. No. of hours (study time) and the points (examinationscore). ____________

38. The number of children in a family and the number oftoys in a family. ____________

39. The price of coffee and the demand for of iced tea._________

40. The number of football games won by Askal and theathletic budget. ____________

41. A person’s income and the number of Chowking’sLauriat consumed per month. ____________

42. The amount of fertilizer added to a hectare of land andthe amount of watermelon grown on that land in onegrowing season. ____________

43. An automobile’s horsepower and its gasoline mileage (inmiles per gallon). ____________

44. The age of a student leader and his height. __________

45. The price of car and the demand for gasoline.___________

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B. Consider the following statements and indicate which diagrambelow matches each statement. Which variable would appear onthe horizontal and which on the vertical axis? In each of thesestatements, is the slope positive, negative, zero, or infinity?

46. The number of apps downloaded in App Store goes upwhen the number of Apple devices sold increases.___________

47. Regardless of its price, a restaurant buys the samequantity of salt. ___________

48. If the price of movie tickets decreases, more consumersgo to see movies. ___________

49. More experienced workers typically have higher incomesthan less experienced workers. ___________

50. Whatever the temperature outside, Filipinos consume thesame number of pork barbecue per day. ___________

51. Consumers tend to buy less hamburgers when the priceof pizza falls. ___________

52. A research finds no relationship between the number ofdiet e-books purchased and the number of pounds lostby the average dieter. ___________

53. Because they are considered necessary for diabeticpatients, 1000 insulin injections are bought every month,regardless of price. ___________

54. A subscriber pays the internet provider company P1500per month for unlimited an internet connection(regardless the number and length of time).___________

55. The price of washing machines increases when the costof production rises. ___________

C. The following data shows the relationship between twovariables 𝑥 and 𝑦.

56. Is the relationship between 𝑥 and 𝑦 positive or negative?Calculate the slope of the relationship when 𝑥 equals 2

and when 𝑥 equals 5. How does the slope change as the value of 𝑥 increases?

D. The following table depicts the budget of the Philippines bysector for 2014 provided by DBM.

57. Represent the above data in pie chart form.

E. Suppose the following information reflects the number ofsmartphones sold in the Philippines from 2008 – 2013.

Year Number of Smartphones Sold

2008 7,800 2009 10,300 2010 15,900 2011 18,000 2012 23,100 2013 28,500

58. Represent the above data in bar graph form.

F. The accompanying table illustrates annual salaries and incometax paid by six individuals. Apart from the fact that they receivedifferent salaries and paid different amounts of income tax, thesesix individuals are otherwise identical.

Name Annual Salary (Pesos)

Annual Income Tax Paid

Pedro 250,000 30,000 Diego 180,000 21,600 Eduardo 460,000 55,200 Leopoldo 600,000 72,000 Emilio 90,000 10,800 Honorio 375,000 45,000

59. Draw a scatter diagram illustrating this relationship.Draw a (nonlinear) curve that connects the points. Putthe annual salary on the vertical axis.

60. What is the average slope of the curve between thepoints for Diego’s and Leopoldo’s salaries and taxes?How would you interpret this value for slope?

61. What is the average slope of the curve between thepoints for Pedro’s and Eduardo’s salaries and taxes?How would you interpret that value for slope?

62. What happens to the slope as salary increases? Whatdoes this relationship imply about how the level ofincome taxes affects a person’s incentive to earn ahigher salary?

𝑥 0 1 2 3 4 5 𝑦 30 25 21 16 12 7

Sector Budget (in trillions of pesos)

Economic Service 0.59 Social Service 0.84 General Public Service 0.37 Debt Service 0.35 Defense 0.11 TOTAL 2.26

6


DepEd23%

DPWH17%

DND14%

DILG13%

DA10%

DSWD9%

DOH8%

DOTC7%

Governmnet Budget Allocation

DepEd

DPWH

DND

DILG

DA

DSWD

DOH

DOTC

G. Suppose the graph below tells the new jobs added to thePhilippine economy in 2013. Answer the following.

63. The diagram above that shows the number of jobsgenerated in 2013 is what form of graph? ___________

64. What month has the lowest number of jobs added to theeconomy? ___________

65. What month has the greatest number of jobs added to theeconomy? ___________

66. How many jobs are created in May 2013? ___________

67. What are the months with same number of jobs added tothe economy? ___________

H. Suppose the graph below indicates the budget allocation of thePhilippine government by department in 2013. Answer thefollowing.

68. The diagram above that shows the Philippinegovernment budget allocation by department is what formof graph? ___________

69. What government department received the highestamount of budget in 2013? ___________

70. What government department received the least amountof budget in 2013? ___________

71. If the total government budget is P1.14 trillion pesos,how much is the budget allocated for DILG? _________

72. If the total government budget is P1.14 trillion pesos,how much is the budget allocated for DSWD? ________

I. Refer to the graph below showing the total cost curve of a firmto answer the following.

73. The diagram above that shows the relationship betweentotal cost and output produced is what form of graph?___________

74. Based on the graph, what linear relationship existsbetween total cost and output produced? ___________

75. Based on the graph, what is the independent variable?___________

76. How many outputs can be produced if the firm incurs atotal cost of P500,000 ? ___________

77. When the firm produces 5 units of output, how much willthe cost be incurred by the firm? ___________

J. Suppose you are given the following data on wage rates andnumber of hours worked.

Point Hourly Wage (Pesos)

Hourly Hours per Week

A 0 0 B 25 10 C 50 20 D 75 30 E 150 40 F 175 50

78. Construct and label a set of axes and plot these sevenpoints. Label each point A, B, C, and so on. Whichvariable do you think should be measured on the verticalaxis, and which variable should be measured on thehorizontal axis? Describe the resulting curve.

79. Compute the slope of the curve between points A and B.Between points B and C. Between points C and D. Whatis the slope as you move from point A to point F?

0102030405060708090

100

Num

ber o

f Job

s (in

thou

sand

s)

Months of 2013

New Jobs Added to the Phillipine Economy (2013)

0

100

200

300

400

500

600

700

0 1 2 3 4 5 6 7 8 9 10Tota

l Cos

t (n

thou

sand

pes

os)

Output Produced

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K. The following shows the revenue data of a firm selling goodX.

Price Quantity Sold

Total Revenue

900 200 180,000 800 300 240,000 700 400 280,000 600 500 300,000 500 600 300,000 400 700 280,000 300 800 240,000 200 900 180,000

80. Plot the data listed in the table above. Use price as thevertical axis and quantity as the horizontal axis and plotthe first two columns.

81. Show what quantity is sold when the price is P550.

82. Directly below the graph in part a, plot the data in columns2 and 3. Use total revenue as the vertical axis andquantity as the horizontal axis.

83. What is total revenue when the price is P550? Will totalrevenue increase or decrease when the price is lowered?

L. The following table contains data on the relationship betweenconsumption and income.

Income per Week Consumption per Week

3,000 4,500 0 1,500

1,000 750 2,000 3,000 5,000 2,250 4,000 3,750

84. Rearrange these data into a meaningful order and graph.

85. What is the slope of the line? The vertical intercept?Interpret the meaning of both the slope and the intercept.

86. Write the equation that represents this line.

87. What would you predict saving to be at the P4,000 levelof income?

M. Assume a research firm collects survey sales data that revealthe relationship between the possible selling prices ofsmartphones and the quantity of smartphones consumers wouldpurchase per month at alternative prices. The report is disclosedby the following table.

88. Based on these data, describe the relevant relationshipbetween the price of a smartphone and the quantityconsumers are willing to purchase, using a verbalstatement a graph or an equation. Which model do youprefer and why?

89. Plot the data.

90. From this relationship between price and quantitydemanded, derive a linear equation.

N. Determine the slope, the 𝑥-intercept and the 𝑦-intercept of thefollowing linear equations. Graph each equation using the derivedintercepts.

91. 𝑦 = 7𝑥 + 3

92. 2𝑥 − 4𝑦 + 8 = 0

93. 𝑦 = 0.3𝑥 + 20,000

94. 3𝑥 + 7𝑦 = 210

95. 𝐶 = 800 + 0.75𝑌 (Consumption function)

96. 𝐶(𝑥) = 300𝑥 + 40,000 (Cost function)

97. 𝑄𝑠 = −10 + 4𝑃 (Supply function)

98. 𝑅(𝑥) = 150𝑥 (Revenue function)

99. 𝑦 = −3

8𝑥 − 5.5

100. 𝑦 − 3 = −3(𝑥 − 1)

.

Price (Pesos) Quantity Demanded

5,000 1200 10,000 1000 15,000 800 20,000 600 25,000 400 30,000 200

8

1

WORKTEXT 3 : Demand Analysis Econ 111 – Economic Analysis

EXERCISE 1

Identification. Match the following statements to the items inside the box below. Write your answer on the blank provided.

1. Negative relationship between price and quantitydemanded. _________

2. Movement along the demand curve. _________

3. Shifting of the demand curve to the left. _________

4. Shifting of the demand curve to the right. _________

5. Goods that are used in place of each other. _________

6. Factors affecting demand other than price. _________

7. Caused by a change in non-price determinants ofdemand. _________

8. Good that varies directly with income. _________

9. Place where buyers and sellers meet for transaction._________

10. Amount of good that a buyer is willing to buy at a certainprice. _________

11. Willingness and ability of a consumer to buy a good undervarious conditions. _________

12. Graph that shows relationship between price and quantitydemanded. _________

13. All other things being equal or held constant. _________

14. Reflects various quantities of a good at various prices ona table. _________

15. Amount of money that a buyer pays for a good. ________

EXERCISE 2


16. When demand increases, the demand curve shiftsA. along a demand curve. B. down and to the left.C. to the right and upward. D. counter-clockwise.E. away from origin.

17. According to the law of demand, consumers will purchasemore of a good when the

A. market price of the good rises. B. income rises.C. market price of the good falls. D. supply price increases.E. related price of a good decreases.

18. Which of the following influences buying plans of a consumerthat causes a movement along a demand curve?

A. tastes and preferences B. incomeC. price of the good D. prices of related goodE. expectations

19. Which of the following pairs of goods are most likelysubstitutes?

A. milk and sugar B. DSLR and lensC. Google and Apple D. tablet and smartphoneE. lettuce and salad dressings

20. People come to expect that the price of a liter of gasoline willrise next week. What’s the effect?

A. This week’s demand rises. B. this week’s demand falls.C. Next week’s demand rises. D. this week’s supply falls.E. Next week’s demand will not change.

21. The law of demand states that the quantity of a gooddemanded varies

A. directly with its price. B. directly with income.C. inversely with its price. D. directly with population.E. inversely with the price of substitute goods.

22. If a rise in the price of Good A decreases the demand for GoodB, then

A. Good A and Good B are complements in consumption.B. Good A and Good B are substitutes in consumption.C. Good A and Good B are both inferior goods.D. Good A is an inferior good and Good B is a normal good.E. Good A is elastic good and Good B is inelastic good.


WORKTEXT 3 : DEMAND ANALYSISEcon 111 – Economic Analysis

NAME: _______________________________________ SCORE: ___________________________________


9


23. If a good is an inferior good, then the demand for that gooddecreases when the

A. number of buyers increases. B. price of a substitute risesC. price of the good increases. D. income increases.E. income decreases.

24. Which of the following will shift the demand curve of onions tothe right?

A. The price of onion per kilo decreases.B. The income of a customer who buys onions goes up.C. The price of a substitute good for onions decreases.D. The price of a complement good for onions decreases.E. Income increases.

25. What happens in the market for c when the price of travelingby rail decreases?

A. Demand increases. B. Demand decreases.C. Supply increases. D. Supply decreases.E. Demand equals supply.

EXERCISE 3

Classification. Identify the following pairs of goods as substitutes or complements. Write S for substitutes and C for complements after each number.

26. Beer and vodka _________

27. Eggs and hash browns _________

28. Coke and Pepsi _________

29. Laptop and tablet _________

30. Computer hardware and software _________

31. Ball-point pens and paper _________

32. Salt and pepper _________

33. Ice cream and frozen yogurt _________

34. Butter and margarine _________

35. Gasoline and automobiles _________

36. LED TV and plasma TV _________

37. DSLR and lens _________

38. Coffee and creamer_________

39. Knorr Cubes and Magic Sarap Granules _________

40. Taxi and city bus _________

41. DVD player and DVDs _________

42. Bacon and egg _________

43. Smart prepaid and Globe prepaid _________

44. Hotel or inn _________

45. Ketsup and banana _________

EXERCISE 4

Classification. Identify the following pairs of goods as normal or inferior. Write N for normal good and I for inferior good after each number.

46. Secondhand clothes _________

47. Imported beer _________

48. Luxury car _________

49. Restaurant meals _________

50. Carinderia meals

51. Dried fish (tuyo) _________

52. Bus rides _________

53. Single-ply paper towels _________

54. Low-rent housing units _________

55. Condominium _________

56. Surplus TV units _________

57. NFA rice _________

58. Airline travel _________

59. Health club memberships _________

60. New hi-tech gadgets _________

61. Affordable smartphone _________

62. Generic paracetamol_________

63. Used books _________

64. E-books _________

65. Branded jeans _________

EXERCISE 5

Graphical Analysis. Among the four diagrams below, choose what graph represents each of the following changes. Write the letter of choice after the statement.

10


66. When the price of a substitute rises, demand for theoriginal good increases. _________

67. When the price of a complement rises, demand for theoriginal good decreases. _________

68. When income rises, demand for an inferior gooddecreases. _________

69. When income rises, demand for a normal goodincreases. _________

70. When tastes change in favor of a good, demand for thegood increases. _________

71. When tastes change against a good, demand for thegood decreases. _________

72. When income rises, demand for an inferior gooddecreases. _________

73. When income falls, demand for an inferior goodincreases. _________

74. When the price is expected to fall in the future, demandfor the good decreases today. _________

75. When the price is expected to rise in the future, demandfor the good increases today. _________

76. When the price of a complement falls, demand for theoriginal good increases. _________

77. When the price of a substitute falls, demand for theoriginal good decreases. _________

78. When the price of a good rises, quantity demandeddecreases. _________

79. When the price of a good falls, quantity demandedincreases. _________

80. When the number of consumers rises, market demandfor the good increases. _________

81. When the number of consumers falls, market demand forthe good decreases. _________

82. When the income is expected to rise in the future,demand for the good increases today. _________

83. When income is expected to fall in future, demand for thegood decreases today. _________

84. When good is expected to be unavailable in the future,demand for the good increases today. _________

85. When credit rises, the demand for the good rises._________

EXERCISE 6


A. Determine whether each of the following will have effect on thechange in the quantity demanded (movement along the demandcurve) or change in demand (shift of the demand curve)? Indicatewhat variable or factor causes the change.

86. A new version of a mobile game app just came out andAdrian purchased it now because it has improvementsover the current version. _________

87. The demand for laptops falls due to the massdistribution of affordable tablets in Metro Manila. ______

88. The price of Fuji apples falls, thus a market goer buysmore. _________

89. The price of sugar (a complement) eventuallyincreases, therefore, the weekly demand for milk teadecreases. _________

90. When the price of beef rises, consumers tend toincrease their purchases for pork. _________

91. A store owner finds that customers are willing to paymore for umbrellas on rainy days. _________

92. When PLDT, a long-distance telephone serviceprovider, offered reduced rates on weekends, its volumeof weekend calling increased sharply. _________

93. People buy more long-stem roses the week ofValentine’s Day, even though the prices are higher thanat other times during the year. _________

94. A sharp rise in the price of gasoline leads manycommuters to join carpools in order to reduce theirgasoline purchases. _________

95. When the price of Apple Ipads decreases, the demandfor Samsung tablets (a substitute) falls. _________

96. A new study reports that chocolate has significantbenefits. Eventually, the demand for Hershey’s andCadbury chocolate brands increases. _________

97. When the price of lobster increases, the demand ofSalazar family for steak increases. _________

98. The demand for Windows-based computers rises whenthe price of Apple computers goes up. _________

99. Everyone thinks that the price of tomatoes will go upnext week, thus people demand more for tomatoes thisweek. _________

100.Because of the increased price, a restaurant reduces itspurchases for olive oil and decides to increase itsdemand for corn oil. _________

11


101.Due to increase in their income, many companymanagers have availed condominium units in the GrandMidori, a twin–tower luxury condo in Makati City._________

102.When Pepito’s income rises, his demand for secondhandclothes declines as he prefers to buy brand-new clothes._________

103.As the population increases in Pangasinan, the demandfor Lingayen’s fish sauce (patis) rises. _________

104.A company did a full-blast media advertisement for itsimproved product brand. _________

105.Globe Telecom decided to reduce its postpaid plan ratesfor its new line-up of smartphones. Many subscriberseventually demand for postpaid plans. _________

B. Think about and consider the demand for the three tabletbrands: Apple Ipad Mini, Google Nexus 7, and Samsung GalaxyTab 8.0. Explain the effect of the following events on the demandfor Ipad Mini and the quantity of Ipad Mini demanded, other thingsremaining the same.

106.The price of a Google Nexus 7 falls by 20%. _________

107.The number of people willing to download apps andgames from the App Store continues to rise. _________

108.The price of an Ipad mini falls from P15,000 to P12,000________

109. Consumers’ incomes increase significantly. _________

110. Developers who create apps for Apple devices tend toincrease due to in demand use of tablet apps. _________

111.The price of Ipad Mini is anticipated to rise rapidly in thenear future. _________

112. It has been found out that the latest batch of Ipad Miniproduced and distributed have factory defects withsoftware glitches. _________

113.A new tablet brand from HTC that is a close substitute forIpad Mini introduced to the market. _________

114.Many telecom carriers have ordered Ipad Mini for theirinternet plan offerings. _________

115.Samsung Galaxy Tab offers an attractive promotionwherein it is bundled with a Samsung digital camerawhere a customer can save P6, 000. _________

116.The prices of smart cover and dock keyboard for Ipadmini decline. _________

117. Apple aggressively advertises in print ads and TV theunique selling points of Ipad Mini. _________

C. Given the options below, choose the appropriate letter thatcorresponds to the effect on demand of Coffee X, an instantcoffee. Based on the chosen letter; indicate what variable ordeterminant of demand affects the change and show throughgraph the change of the demand curve.

A. Increase in Quantity DemandedB. Decrease in Quantity DemandedC. Increase in DemandD. Decrease in Demand

118.The price of Coffee X increases by 5%. Aling Rosingbuys less for her sari-sari store. _________

119. A decrease in the price of tea, a related good, causedAling Rosing to reduce its purchases of Coffee X._________

120. Many consumers like the new flavor variant of CoffeeY than that of Coffee X. _________

121.A new coffee brand, Coffee Z, has introduced in themarket with full-blast media advertisement. ________

122.Many coffee shops and internet café chops inPangasinan have been established. _________

123.The price of a particular coffee creamer brand hadprice roll back promo of less 20% off. _________

124.The supply for sugar decreases thus the price of sugarincreases. _________

125.It is reported that frequent intake of instant coffeeincreases the risk of a certain illness. _________

126.Because it’s summer season, the demand for colddrinks rises. _________

127.The price of Coffee X goes down due to price off promo(Less P15). _________

128.Consumers expect the price of Coffee X to increasetomorrow. _________

129.The profit earned of Aling Rosing from her sari-saristore increases. _________

130.Consumers expect that stocks of Coffee X insupermarkets will be running out next week._________

131.Due to rainy and cold season, consumers tend topurchase more of Coffee X. _________

132.Both prices of Coffee Y and Coffee Z rise. _________

133.Some imported instant coffee brands from Japanflocked the Philippine market. _________

134.Most consumers’ incomes go up. _________

135.An additional increase of 4% in VAT (Value-added Tax)has been levied on Coffee X. _________

12


EXERCISE 7


A. The demand curve for a commodity is given by theequation, = 200 − 5 , where is quantity demanded and is price.

136.What is the quantity demanded if the price is 20?

137.What is the quantity demanded if the price is 50?

138.What is the price if the quantity demanded is 40 units?

139.What is the inverse demand curve?

140.What is the highest price that would be paid for thiscommodity?

141.What quantity would be demanded if the commoditywere free?

142.Graph the demand curve

B. Suppose the demand for onions per kilo in Pangasinan isrepresented in the table below, expressed as = − .

Price (per kilo) Quantity Demanded

8 26016 22024 18032 14040 100

143.Using the information in the demand schedule above,derive the demand equation for onions.

144.Assume that due to a decrease in the price of garlic (asubstitute), the demand for onions decreases, and ateach of the prices on the original demand schedule, thequantity demanded is now 40 kilos lower than it waspreviously. Create a new demand schedulerepresenting the lower demand for onions and derive anew demand function based on the new demandschedule. Graph the original and new demand curve.

145.Now assume that due to rising incomes, buyers inPangasinan have increased their purchases of onionsthus demand increases. If at each of the prices on theoriginal demand schedule, the quantity demanded is 20kilos higher that it was previously, what is the newdemand schedule and new demand equation? Graphthe original and new demand curve.

EXERCISE 8


146.Suppose that you own s store that sells t-shirts. Yousurvey your customers and analyze your sales data tosee how many t-shirts you can expect to sell at variousprices. If your research enables you to have a marketschedule, create a hypothetical demand schedule forthat. Based on the demand schedule, plot the demandcurve and derive the demand equation.

147.Choose one of the following products: iced tea,hamburgers or pencils. Name and list at least fivesubstitutes and five complements for the chosenproduct.

148.Think about different brands of baby diapers: Pampers,Huggies, EQ, Magic Color, etc. What factors affectdemand for Huggies baby diaper? List ten examples ofa change in demand in the market for Huggies babydiaper. For each example, identify which factor thataffects demand is involved.

149.Roger goes to the department store to buy a P1,200pair of blue jeans and discovers that they are on salefor P600. If Roger buys two pairs, is this an example ofthe income effect or the substitution effect? Explainyour answer.

150.Choose a product used by most consumers, andcreate a hypothetical demand curve showing demandfor that product in a town of 1,000 people. Label it A.On the same graph, add a demand curve showingdemand if the population drops to 700. Label it B.Which factor does the shift in the demand curverepresent?

13

1

WORKTEXT 4 : Supply Analysis Econ 111 – Economic Analysis

EXERCISE 1


1. Firms want to earn a profit, so when the price of a goodrises they are willing to supply more of it. ___________

2. A rise in the expected price of a good will increase supply,shifting the supply to the left. ____________

3. Cost-saving technological advances increase the supplyof a good, shifting the supply curve to the right. ________

4. The increased price of an input causes a decrease insupply, shifting the supply curve to the left. ___________

5. The market supply curve is the sum of the individualsupply curves of all firms in the market. ____________

6. When the price of a good changes, this results ina movement along the supply curve and a change in thequantity supplied. ____________

7. The law of supply states that producers are willing to sellless of a good or service at a higher price. ____________

8. Change in supply is an increase or decrease in theamount of a good or service that producers are willing tosell because of a change in price. ___________

9. Input costs are a major factor that affects productioncosts and, therefore, supply. ____________

10. Taxes tend to increase supply; subsidies have theopposite effect. ____________

11. If a farmer expects the price of corn to be higher in thefuture, he may store some of the current crop, therebyincreasing supply. ____________

12. An increase in the number of firms means increasedcompetition, which may eventually drive less-efficientfirms out of the market, decreasing supply. ___________

13. Supply refers to the willingness and ability of consumersto offer goods and services for sale. ____________

14. Labor productivity involves the application of scientificmethods to the production process. ____________

15. Because the market supply curve holds other thingsconstant, the curve shifts when one of the factorschanges. ____________

EXERCISE 2


16. An improvement in production technology for a specific goodwill cause a(n)

A. increase in demand and an increase in price.B. increase in demand and a drop in price.C. drop in price and increase in quantity demanded.D. increase in supply and an increase in price.E. None of the above.

17. The supply curve is upward-sloping becauseA. as the price increases, consumers demand less.B. as the price increases, so do costs.C. as the price increases, suppliers earn higher levels of profit.D. as price increases, suppliers justify lower marginal cost to

produce more. E. None of these.

18. If the cost of computer components falls, thenA. the demand curve for computers shifts to the left.B. the demand curve for computers shifts to the left.C. the supply curve shifts to the right.D. the supply curve shifts to the left.E. the supply curve moves along the curve.

19. The law of supply states that, ceteris paribus,A. firms will produce less of a good as inputs become scarcer.B. firms will produce more of a good the higher its price.C. firms will produce less of a good the more it costs to

produce it. D. firms will produce more of a good the less it costs to

produce it. E. firms will produce more of a good the lower its price.

20. Consider the market for broccoli. If the price per kilo of broccoliincreases, what will happen to the supply curve?

A. The supply of broccoli will increase.B. The supply of broccoli will decrease.C. There will be no change in the supply of broccoli, but

instead will be a decrease in the quantity supplied of broccoli. D. There will be no change in the supply of broccoli, but

instead will be an increase in the quantity supplied of broccoli. E. None of these.

Republic of the Philippines Pangasinan State University

Lingayen Campus

WORKTEXT 4 : SUPPLY ANALYSIS Econ 111 – Economic Analysis

NAME: _______________________________________ SCORE: ___________________________________


14


21. Which of the following shifts the supply curve for Baguiostrawberries?

A. An increase in income for all strawberry consumers.B. A change in tastes of strawberry consumers.C. An increase in the price of grapes, a substitute in consumption

for strawberries. D. Disastrous weather that destroys this year’s strawberry crop.E. An increase in population of Baguio City.

22. Image sensor is one component used in digital cameras. If theprice of image sensor rises, there is a shift in the supply curve ofdigital cameras that leads to

A. a temporary surplus of digital cameras.B. a permanent surplus of digital cameras.C. an increase in the price of digital cameras.D. a shift in the demand curve for digital cameras.E. a decrease in the price of digital cameras.

23. The supply of bicycles falls if any of the following occur except;A. an increase in the price of steel, an input for bicycles.B. an increase in the wages of bicycle assembly line workers.C. a decrease in the price of cars.D. a decrease in the number of producers.E. an increase in income of bicycle buyers.

24. A technological advance in the textbook production will lead towhich of the following?

A. A decrease in textbook supply.B. An increase in textbook demand.C. An increase in textbook supply.D. Movement along the supply curve for textbooks.E. An increase in textbook prices.

25. Which of the following will not result in a change in the supplyof digital camcorders?

A. New firms enter the industry.B. Prices of photographic equipment increase dramatically.C. Production technology advances rapidly.D. Capital costs increase.E. Consumer increasingly prefer digital camcorders over

cameras.

EXERCISE 3

Classification. Classify the following pairs of goods as substitutes or complements in production. Write S for substitutes and C for complements after each number.

26. French fries and baked potatoes _________

27. Shirts, ties and sock _________

28. Vitamin pills and surgery _________

29. College tuitions and textbook _________

30. Leather purses and leather shoes. _________

31. Gasoline and kerosene _________

32. Digital camera and digital camcorder _________

33. Coke Light and Coke Zero _________

34. Bread and roll cake _________

35. Cup and saucer _________

EXERCISE 4 .

Problem Analysis. Analyze and answer what is required in the following problems

A. Determine whether each of the following will have effect on thechange in the quantity supplied (movement along the supplycurve) or change in supply (shift of the supply curve). Indicatewhat variable or factor causes the change.

36. Many manufactures of android phones came out in themarket recently. _____________

37. The research team of a certain company develops a newtechnology that increases supply of a branded product._____________

38. A rise in the wages of paid workers is implemented bythe management in a toy factory. _____________

39. Many homeowners put their houses up for sale during areal estate boom that causes house prices to rise._____________

40. More construction workers temporary move to areas thathave suffered typhoon damage, lured by higher wages._____________

41. New technologies have made it possible to build largecruise ships, Econ cruise lines offer more cabins, atlower prices, than before. _____________

42. Immediately after the school year begins, fast-foodchains must raise wages, which represent the price oflabor, to attract workers. _____________

43. Potato farmers in Baguio City open temporary roadsidestands during harvest season, even though prices areusually low at that time. _____________

44. An increase in the excise tax of a certain tobaccocompany leads to the reduction of its cigarette supply._____________

45. An increase in the number of Internet service providersincreases the supply of such services. _____________

46. Econ Phone develops an effective wireless technologythus, it increases the supply of cell phones. __________

47. Coco lumber firms expects that there will be asubstantial rise in future prices of coco lumbers, thus thefirms decrease their supply of coco lumbers today._____________

48. Since the price of cucumbers increases sharply, afarmer decreases its supply of watermelons._____________

49. The price of notebook computers sharply falls so manymanufacturers produce less. _____________

50. Since bicycles are made out of steel and the price of thelatter increases, many bicycle producers reduce theirsupply for bicycle. _____________

15


B. What effect will each of the following have on the supply ofproduct J? Illustrate with a graph.

51. A technological advance in the methods of producingproduct J. _____________

52. A decline in the number of firms in industry of product J._____________

53. An increase in the prices of inputs required in theproduction of B. _____________

54. The expectation that the equilibrium price J will be lowerin the future than it is currently. _____________

55. A decline in the price of product A, a good whoseproduction requires substantially the same techniquesand resources as does the production of J._____________

56. The levying of a specific sales tax on product J._____________

57. The granting of a 2-peso per-unit subsidy for each unit ofproduct J produced. _____________

58. A disastrous weather occurred that affects the productionof Good J. _____________

59. A rise in the wages of workers producing product J._____________

60. An increase in the cost of media advertisement forproduct J. _____________

C. Given the options below, choose the appropriate letter thatcorresponds to the effect on supply of Pinoy Mobile, anandroid tablet. Based on the chosen letter; indicate whatvariable or determinant of supply affects the change andshow through graph the change of the supply curve.

A. Increase in Quantity SuppliedB. Decrease in Quantity SuppliedC. Increase in SupplyD. Decrease in Supply

61. The price of Pinoy Mobile android tablet rises._______

62. A new machinery on production technology speeds upthe manufacturing process of Pinoy Mobile. _________

63. Major internet providers offer Pinoy Mobile as one of thetablet brands for postpaid plan subscription. _________

64. A flock of android phone brands from Chinamanufacturers came into the Philippine market.

_________

65. The prices of LCD displays and processor chips used inPinoy Mobile sharply rise. _________

66. The government levies an increase sales tax on tabletproducts. _________

67. The union workers at Pinoy Mobile factory negotiate alarge wage increase. _________

68. The mass supply distribution of major competing tabletslike Ipad and Galaxy Tab affects the supply of PinoyMobile. _________

69. The company producing Pinoy mobile anticipates thatthere will be a sharp price reduction of android tabletsafter two months. _________

70. A strong typhoon hit the manufacturing site thatstopped production of Pinoy Mobile for several days.

_________

71. The government extends a subsidy of P100 for eachunit produced of Pinoy Mobile. _________

72. Price of Pinoy Mobile drops by 10 percent. _________

73. Better-trained and more-skilled workers are hired toincrease labor productivity in assembling Pinoy Mobile._________

74. Firms expect that prices of electronic gadgets willdramatically rise next month. _________

75. The input costs of producing Pinoy mobile decline._________

EXERCISE 5


A. Consider the following supply curve of Econ Phone, a newbrand of smartphone in the market. This reflects the relationshipbetween price (in pesos) and quantity supplied (in thousands).

76. Based on the above supply curve, fill in the supplyschedule below.

Price (P) Quantity Supplied

3,000

30 12,000

24,000

77. If the price per unit of Econ Phone is P18, 000, howmany units would smartphone manufacturer be willingto supply?

78. Derive the supply equation.

0

5000

10000

15000

20000

25000

30000

0 10 20 30 40 50 60

Supply of Econ Phone

S1

16


79. From the following table of prices of branded jeans andquantity supplied (in thousands of jeans), draw thesupply curve for branded jeans. Describe the curve.

80. Suppose the yearly supply of cauliflower in Baguio Cityis described by the equation 𝑄𝑠 = 150 + 2𝑃 where 𝑄𝑠is the quantity supplied (in thousands of kilos) and 𝑃 isthe price (in pesos per kilo). What is the quantity ofcauliflower supplied per year when price is Php 50?Sketch the supply curve for cauliflower.

81. When the price is P500, 50 MP3 players of a fixed typeare available for sale; when the price is P750, 100 of theMP3 players are available. Derive the supply equation.

82. At a price P1, 200 per unit, a firm will supply 9,000 ofprocessor chips for tablets; at P900 per unit it will supply6,000 units. Determine the equation of the supplyfunction for this product. Graph the equation.

B. The supply curve for a product is represented by theequation, 𝑄𝑠 = 600 +

1

2𝑃, where 𝑄𝑠 is quantity supplied and 𝑃 is

price.

83. What is the quantity supplied if the price is Php 500?84. What is the price if the quantity supplied is 400 units?85. What is the highest price to be paid for this commodity?86. What quantity would be supplied if the product is free?87. What is the inverse equation of the supply curve? Graph

the supply curve

C. Suppose the supply of sport shoes is represented in the tablebelow, expressed as 𝑄𝑠 = 𝑎 + 𝑏𝑃.

Price per unit Quantity Supplied

400 200 800 400

1,200 600 1,600 800 2,000 1,000 2,400 1,200

88. Using the information in the supply schedule above,derive the supply equation for sport shoes.

89. Now assume that there is a significant increase in thecosts of production of sport shoes and the quantitysupplied therefore decreases at each price by 50 units.Create a new supply schedule demonstrating theimpact of the higher production costs for sport shoemanufacturers. Plot the original and new demand curveand explain the graph.

90. Now assume that due to advanced technology andimprovement in supply-chain efficiency, producers areable to produce more resulting to increased supply ofsport shoes. If at each of the prices on the originalsupply schedule, the quantity demanded is 40 kiloshigher that it was previously, what is the new supplyschedule and new supply equation? Graph the originaland new demand curve and explain the graph.

EXERCISE 6


91. Suppose that you want to analyze the market supply ofcabbage in Baguio City. You survey all the farms thatproduce and sell cabbage and determine how manykilos they are willing to sell at various prices. If yoursurvey enables you to make a market supply schedule,create a hypothetical supply schedule for cabbage. Usethis market supply schedule to draw a market supplycurve and derive a supply equation.

92. You sell eggplants at the Villasis’ Bagsakan Market. Ifthe price of eggplants increased from Php 30 to Php 45per kilo, how would your quantity supplied of eggplantschange? How your quantity supplied would change if theprice decreased to Php 15?

93. Why are producers like famers and manufacturerswilling to spend or sell more when prices are higher?

94. Suppose that you are a manufacturer of laptopcomputers. What factors affect supply for laptops? List10 examples of a change in supply in the market forlaptop. For each example, identify which factor thataffects supply is involved and state whether supplyincreases or decreases.

95. Choose an item of food clothing or electronic productthat you buy regularly. Name and list 10 input costs thatmight affect the supply of that product.

96. If the price of a video game rises, what will the law ofsupply predict about the quantity supplied of the game?

. 97. Why do taxes and subsidies affect supply differently?

98. Why might a rise in oil prices lead to a fall in the supplyof fruits and vegetables in your local supermarket?

99. Suppose a technological improvement reduces the costof manufacturing TV screens. Draw a diagram to depictwhat happens in the market for TV screens.

100. When appliance manufacturers expect the price ofwashing machine to be higher next year, what happensto the supply of washing machine today? Explain.

Price (P) Quantity Supplied

250 20 500 50 750 70

1,000 80 1,250 90 1,500 100

17

1

WORKTEXT 5 : Market Equilibrium Analysis Econ 111 – Economic Analysis

EXERCISE 1

Multiple Choice .Encircle the one alternative that best completes the statement or answers the question.

1. Which of the following implies what will happen in the marketfor tomatoes if a salmonella outbreak is attributed to taintedtomatoes?

A. Supply will decrease and price will increase.B. Supply will decrease and price will decrease.C. Demand will decrease and price will increase.D. Demand will decrease and price will decrease.E. Supply and demand will both decrease.

2. An increase in the number of buyers and a technologicaladvance will cause

A. demand to increase and supply to increase.B. demand to increase and supply to decrease.C. demand to decrease and supply to increase.D. demand to decrease and supply to decrease.E. no change in demand and an increase in supply.

3. A shortage causes theA. price to fall. B. price to rise.C. supply curve to shift rightward. D. supply to equal demand.E. demand curve to shift leftward.

4. If the price of an Iphone is above the equilibrium price, there willbe a _____ of Iphones and the price will _____.

A. surplus; fall B. shortage; fallsC. shortage; rise D. surplus; riseE. none of these

5. When the quantity demanded exceeds the quantity supplied,then there is

A. a surplus and the price is below the equilibrium price.B. a surplus and the price is above the equilibrium price.C. a shortage and the price is below the equilibrium price.D. a shortage and the price is above the equilibrium price.E. a market equilibrium where demand is greater than supply.

6. Which of the following definitely raises the equilibrium price?A. An increase in both demand and supply.B. A decrease in both demand and supply.C. An increase in demand combined with a decrease in supply.D. A decrease in demand combined with an increase in supply.E. None of the above.

7. Which of the following will lead to an increase in the equilibriumprice of product A?

A. increase in consumer incomes if product A is an inferior good.B. increase in the price of machinery used to produce product AC. technological advance in the production of good A.D. decrease in the price of good B (a substitute for good A).E. expectation by consumers that the price of good A will fall.

8. Which of the following is certainly true if demand and supplyincrease at the same time?

A. The equilibrium price will decrease.B. The equilibrium price will increase.C. The equilibrium quantity will decrease.D. The equilibrium quantity will increase.E. The equilibrium quantity may increase or decrease.

9. Kazuma sells cookies according to his supply function =−15 + 3 . Kioske buys cookies according to his demand function= 27 − 4 . If the two of them make up the entire market forcookies, what will the equilibrium quantity be?

A. 6 B. 2C. 3 D. 10E. 5

10. Leather belts and leather shoes are substitutes in production.If style changes increase the demand for leather belts, the supplycurve of leather shoes will shift

A. rightward and the equilibrium price of leather shoes will fall.B. leftward and the equilibrium price of leather shoes will rise.C. leftward and the equilibrium price of leather shoes will fall.D. rightward and the equilibrium price of leather shoes will rise.E. None of these.

11. The market for a good is in equilibrium if theA. supply and demand are equal.B. price equals costs plus a profit.C. rate of technological change is steady.D. quantity supplied equals quantity demanded.E. price and quantity of a good are equal.

12. A price below the equilibrium price results inA. excess supply. B. a surplus.C. a shortage. D. increased supply.B. increased demand.


WORKTEXT 5 : MARKET EQUILIBRIUM ANALYSISEcon 111 – Economic Analysis

NAME: _______________________________________ SCORE: ___________________________________


18


EXERCISE 2


A. Assume that you are analyzing the market of digital cameras.In each of the following events, determine (i) the market inquestion; (ii) whether a shift in demand or supply occurred, thedirection of the shift, and what induced the shift; and (iii) the effectof the shift on the equilibrium price and quantity.

13. One company invented a new machinery on productiontechnology that speeds up the manufacturing processof its camera products. _________

14. Many companies introduced their new digital cameramodels in the market during the 1st quarter of the year._________

15. The prices of image sensors and LCD screens used indigital cameras sharply increase. _________

16. The government placed an increased sales tax ondigital camera products. _________

17. The workers working for camera manufacturers have asubstantial increase in their wages. _________

18. Many consumers are not induced to purchase a digitalcamera because of the decreased price of smartphoneswith built-in camera. _________

19. Manufactures expect the price of digicams to increasenext month._________

20. A disastrous weather affects factories of majormanufacturers producing digicams. _________

21. The government extends a subsidy of P500 for eachcamera unit produced. _________

22. Consumers anticipate the price of digital cameras to fallnext week. _________

23. The market size (population) in a certain areaincreases. _________

24. Firms expect that prices of electronic gadgets willdramatically rise next month. _________

25. The input costs of producing camera units rise. _______________

26. The incomes of camera buyers fall significantly.________

27. There is a sharp decrease in the price of DSLRs (closedsubstitute for digicams). ________

28. Consumers expect the stocks of digicams frommanufacturers to be running out next month. ________

29. Buyers like the retro design and improved camerafeatures of the newly introduced camera models.________

30. Because of the Christmas holiday season, the demandfor digital cameras eventually goes up. _________

B. Use a diagram to illustrate how each of the following eventsaffects the equilibrium price and quantity demanded of spaghetti.

31. The price of mozzarella cheese rises. _________

32. The health hazards of hamburgers are widelypublicized. _________

33. The price of spaghetti sauce falls. _________

34. The incomes of consumers rise and spaghetti is aninferior good. _________

35. Consumers expect the price of spaghetti to fall nextweek. _________

36. The price of carbonara, a close substitute for spaghettirises. _________

37. Most consumers like the improved taste of spaghetti._________

C. Use a diagram to illustrate how each of the following eventsaffects the equilibrium price and quantity supplied of pancitguisado.

38. The price of meat and vegetables which are majoringredients for pancit guisado increases. _________

39. Some restaurants who sell pancit guisado have shutdown in business operation. _________

40. Since the price of pancit palabok increases sharply,most restaurants decrease their supply of pancitguisado. _________

41. Sellers who sell pancit guisado expect that price of thelatter will decrease soon. _________

42. A new technology in cooking helps most restaurants tocook and sell more pancit guisado. _________

43. An increased tax rate is placed on the sales of pancitproducts. _________

D. In a supply and demand diagram, draw the shift of the demandcurve for hamburgers in your hometown due to the followingevents. In each case, show the effect on equilibrium price andquantity.

44. The price of pizza decreases. _________

45. All hamburger sellers raise the price of their Frenchfries. _________

46. Income falls in town. Assume that hamburgers are anormal good for most people. _________

47. Consumers expect the price of hamburger to fall inthe near future. _________

48. Hot dog stands cut the price of hot dogs. _________

19


EXERCISE 3

Analyze and answer what is required in the following questions and problems.

A. Suppose the market for candies is described by the diagrambelow.

49. What is the quantity demanded if price is Php 2.0050. What is the price if quantity supplied is 400 units?51. What is the equilibrium price?52. What is the equilibrium quantity?53. At a price of Php10.00, there is a surplus of how many

units?54. At a price of Php 4.00, there is a shortage of how many

units?

B. The market for pancit palabok is given by the following diagram,

55. Label the two curves. Which curve shows thewillingness to pay for the pancit palabok?

56. If the price of the pancit palabok is P160 per small bilao,is there a shortage or a surplus and does the price riseor fall?

57. Sellers want to receive the highest possible price, sowhy would they be willing to accept less than P160 fora pancit palabok.

58. If the price of the pancit palabok is P120, is there ashortage or a surplus and does the price rise or fall?

59. Buyers want to pay the lowest possible price, so whywould they be willing to pay more than P120 for a pancitpalabok?

C. The demand for flash drives has the equation = −while the supply has the equation = + . In bothequations, denotes the market price.

Price 200 250 300 350 400

60. Fill in the above table.

61. Find the equilibrium price and quantity by solving thedemand and equations simultaneously.

E. The demand and supply schedules for lanzones in Pangasinanare given by the following. (Price is in pesos and quantity is inthousand kilos)

Price Quantity Demanded

Quantity Supplied

20 180 6040 140 10060 100 14080 60 180

100 20 220

62. Draw a graph of the market for lanzones and mark inthe equilibrium price and quantity.

63. If the price of lanzones is Php 70 per kilo, describe thesituation in the lanzones market and explain how theprice adjusts.

64. If the price is Php30 per kilo, describe the situation inthe lanzones market and explain how the price adjusts.

65. Suppose that a disastrous typhoon destroys somefarmlands that produce lanzones and the quantity oflanzones supplied decreases by 40 thousand kilos amonth at each price. Explain what happens in themarket for lanzones and draw a graph to illustrate thechanges.

66. If at a time the typhoon occurs there is an increase inincome of consumers, which increases the quantity oflanzones demanded by 20 thousand packs a month ateach price, what are the new equilibrium price andquantity of lanzones. Illustrate these changes on thegraph.

F. The demand function for a product is = 1000 − 6 and thesupply function is = 200 + 4 .

67. Find the equilibrium price and quantity for the product.

68. If the demand function shifts to = 1200 − 6 , findthe equilibrium price and quantity.

69. Describe the change in demand by comparing the twodemand functions.

70. Graph on the same set of axes the demand and supplycurves. Indicate the point of equilibrium and show onthe same diagram the change in demand.

0

2

4

6

8

10

12

0 100 200 300 400 500 600Quantity (in millions)

S1

D1

020406080

100120140160180

0 100 200 300 400 500Quantity (pancit per day)

S1

D1

20

1

WORKTEXT 6 : Elasticity Analysis Econ 111 – Economic Analysis

EXERCISE 1


1. If the demand for a product is said to be elastic, this isdemand for which price elasticity is less than 1.___________

2. Supply of a good is said to be elastic if the quantitysupplied responds substantially to changes in the price.___________

3. Demand is inelastic if it does not respond much to pricechanges.___________

4. Demand tends to be more price inelastic when there areclosed substitutes for a product. ___________

5. Supply is perfectly inelastic and the supply curve isvertical if the quantity supplied is the same regardless ofthe price. ___________

6. The elasticity of supply varies directly with the amount oftime producers have to respond to the price change.___________

7. Perfectly inelastic demand is graphed as a line parallel tothe vertical axis. ___________

8. Demand for necessities tends to be inelastic.___________

9. When the income elasticity of demand is positive, thegood is an inferior good. ____________

10. Price elasticity of demand indicates how sensitive thepurchase of one product is to changes in the price ofanother product. _____________

EXERCISE 2


11. The demand for table salt is probably more inelastic than thedemand for potatoes because:

A. potatoes require salt but salt does not require potatoes.B. salt will keep longer than potatoes before spoiling.C. there is so much potential salt in the ocean.D. salt is cheap relative to most consumer's incomes and has

few good substitutes.E. None of these.

12. If each 5 percent increase in the price of newspapers reducesby 3 percent the quantity purchased, the price elasticity ofdemand for newspapers is

A. 2.0 B. 2. 5C. 5.0 D. 0.6E. 0.7

13. If at a price of P5 the quantity demanded of itlog maalat (saltedegg) is 400 per day, and at P10 the quantity demanded is 300 perday, then the price elasticity of demand for itlog maalat is

A. 2.40 B. 0.67C. 3.51 D. 0.43E. 0.32

14. Which of the following goods would be expected to have thehighest price elasticity of demand?

A. mineral water B. soft drinksC. Coke or Pepsi D. lemonadeE. soda

15. Which of the following characteristics of a product tend tomake the elasticity of demand greater?

A. The product is a necessity.B. The time period is relatively short.C. The product is relatively expensive.D. There are no good substitutes for the product.E. A, B and C

16. Suppose you are in charge of pricing at Samsungsmartphones and you wish to increase revenues from yourGalaxy product line. Samsung's chief economist informs you thatthe price elasticity of demand for Galaxy smartphones isestimated to be E = 2.17. Based on this, you would

A. increase price. B. decrease price.C. not change price. D. increase output.E. not enough information to make a rational decision.


WORKTEXT 6 : ELASTICITY ANALYSISEcon 111 – Economic Analysis

NAME: _______________________________________ SCORE: ___________________________________


21


17. When the price of coffee rose 25% the quantity of coffee soldfell 30% and the sale of creamer also fell 20%. This set of factsimplies that:

A. the demand for coffee is price elastic.B. the demand for creamer is price elastic.C. the cross price elasticity between coffee and creamer is

negative so the two are complements.D. the cross price elasticity between coffee and creamer is

positive so the two are substitutes.E. Coffee and creamer are inferior good.

18. If the income elasticity of demand for tuyo is - 0.25 and theincome elasticity of demand for tuna is 1.2

A. tuyo and tuna are substitutes.B. tuyo and tuna are complements.C. tuyo is a normal good and tuna is an inferior good.D. tuyo is an inferior good and tuna is a normal good.E. tuyo and tuna are both normal good.

19. If the price elasticity of demand for a good is 1.5, then a 5%decrease in the price of the good will cause a

A. 7.5% increase in the quantity demanded.B. 7.5% decrease in the quantity demanded.C. 3.33% increase in the quantity demanded.D. 3.33% decrease in the quantity demanded.E. None of these.

20. Suppose you produce and sell homemade shanghai. Younotice that when you charge P70 per pack, you sell 200 packs.Also, when you raise the price to P100, you sell 150 packs. As theprice goes up from P70 to P100, your total revenue _____,therefore the demand for homemade shanghai must be _____.

A. increases; elastic B. increases, inelasticC. decreases; elastic D. decreases; inelasticE. stays the same; unitary elastic

EXERCISE 3

Classification. Identify the following goods as either elastic or inelastic. Write E for elastic and I for inelastic after each number.

21. Milk _________

22. Movies _________

23. Sports Car _________

24. Automobile repair _________

25. Bread _________

26. Gasoline _________

27. Sugar _________

28. Restaurant meals _________

29. Clothing _________

30. Electricity (household) _________

31. Prepaid and postpaid services _________

32. Eggs _________

33. Red wine _________

34. Apple Iphone smartphone _________

35. Airline travel _________

36. Cigarettes _________

37. Toothpaste _________

38. Rice _________

39. Housing _________

40. Nestea Iced Tea _________

EXERCISE 4

Classification In each of the following cases, analyze and indicate whether the demand for the good would become (i) elastic, (ii) unitary, (iii) inelastic, (iv) perfectly elastic or (v) perfectly inelastic. Identify what type of demand elasticity is involved.

41. The water refilling business in this town is verycompetitive as the business will lose half of thecustomers if the price of distilled water is raised by aslittle as 10%. ______________

42. When the price of all-purpose cream declines by 10%, asupplier increases its quantity of macaroni saladsdemanded by 12%. ______________

43. After Cristine’s income increased from P30,000 toP40,000 a month, her demand for movie ticketsincreased from 3 to 5 tickets. ______________

44. Fewer people want to fly to Boracay during June thanduring any other month thus, airlines cancel about 10%of their flights as ticket prices fall about 20% during thismonth. ______________

45. A study found that a 4% increase in tuition led to anapproximately 3% fall in the number of students enrolledin a certain university. ______________

46. Due to decreased number of visitors this summer, a 25% decline in the price of a vacation rental leads more thanhalf of homeowners to occupy their vacation homesthemselves during the summer. ________________

47. Because they are considered necessary for diabeticpatients, 1000 insulin injections are bought every month,regardless of price. ______________

48. Some goods that were once considered luxuries, like acellphone, are now considered virtual necessities. As aresult, the demand curve for telecom services hasbecome steeper over time. ______________

49. Consumers will buy 1,000 doses of anti-venom per yearregardless of the price. ______________

22


50. Consumers buy more frozen yogurt when the price of icecream goes up. ______________

51. A subscriber pays the internet provider company P1500per month for unlimited internet connection (regardlessthe number and length of time). ______________

52. An increase in the toll fee by 20% from P80 to P96 leadsto a fall in the quantity by 10% of drivers who use theexpressway. ______________

53. An increase in demand this summer for luxury cruisesleads to a huge jump in the sales price of a cabin on theAsian Cruise. ______________

54. The price of a kilowatt of electricity is the same duringperiods of high electricity demand as during periods oflow electricity demand. ______________

55. The price of Baguio strawberries falls from P150 to P100per carton and the quantity demanded goes from 1,000to 2,000 cartons. ______________

EXERCISE 5


56. Given the demand data for restaurant meals subject tothe change in income, calculate the income elasticity forrestaurant meals. Is demand elastic, inelastic or unitary?Is the good normal or inferior?

Income (per month)

Quantity Demanded(No. of Meals)

P20,000 3P30,000 6

57. When the price of pandesal per piece is P2, Santos familyusually bought 20 pieces every morning. When the priceincreased to P3.00, the family now buys 15 pieces.Based on the data, compute for the price elasticity ofdemand. Interpret the computed elasticity value anddetermine whether the good (pandesal) is a necessity ora luxury.

58. Given the demand data of Sunrise bakery for loaf breadsubject to price increase of flour, calculate the crosselasticity for loaf bread. Identify if it is elastic, unitary orinelastic and determine whether the loaf bread and flourare substitutes or complements.

Flour Price (per bag)

Quantity Demanded (per month)

P1,000 1,400P1,250 1,300

59. Given the demand data of Sunriser Bakery for margarinesubject to price decrease of butter, calculate the crosselasticity for margarine. Identify if it is elastic, unitary orinelastic and determine whether the butter and margarineare substitutes or complements.

60. When the price per hour of web-design servicesincreases from P50 to P80, the number of hourstransacted increases from 2,100 to 4,000. Using themidpoint method, calculate the price elasticity of supply.Is supply elastic, inelastic, or unitary elastic?

61. Assume that a linear demand curve is represented bythe formula, = 500 − 2 . What is the price elasticityof demand at = 30? At = 10?

62. Suppose the demand equation for cellphone case in astore is given by equation, = 900 − 2 . In thisequation, P denotes the price per case in pesos. Fill inthe following table. At what price is demand elastic? Atwhat price is demand inelastic?

Price 50 100 175 200 400

63. Based on the accompanying demand data, use themidpoint formula for Ed to determine price elasticity ofdemand for each of the five possible P20-price changes.Compute also for the total revenue by filling in the tablebelow.

Price Quantity Demanded

Elasticity Total Revenue

0 120020 100040 80060 60080 400

100 200

Suppose you are a siomai seller who wants to predict how changes in the price of siomai affect the total revenue you earned from the sale of that good. How would the following changes in price affect total revenue? That is, would total revenue increase, decrease, or remain unchanged? Use a diagram to illustrate the change.

64. Price of siomai rises and demand is elastic.

65. Price of siomai falls and demand is inelastic.

66. Price of siomai rises and supply is elastic.

67. Price of siomai rises and supply is inelastic.

68. Price of siomai rises and demand is inelastic.

69. Price of siomai falls and demand is elastic.

70. Price of siomai falls and demand is unit elastic.

Butter Price (per bag)

Quantity Demanded (per month)

P700 18P500 16

23

1

WORKTEXT 6 : Consumer Behavior Analysis Econ 111 – Economic Analysis

EXERCISE 1


1. The slope of the indifference curve measures themarginal rate of substitution. _____________

2. According to the principle of diminishing marginal utility,each successive unit of a good or service consumedadds less to total utility than the previous unit._____________

3. If the marginal utility per last peso spent on each good isequal and the entire budget is spent, total utility ismaximized. _____________

4. Indifference curves farther from the origin are preferredbecause they yield higher levels of total utility._____________

5. The ratio of the price of good X on the horizontal axis tothe price of good Y on the vertical axis is the slope of thebudget line. _____________

6. Marginal utility typically rises as successive units of agood are consumed. _____________

7. An indifference curve consists of quantity combinationsof two goods that yield negative marginal utilities._____________

8. Given the prices of two goods, all quantity combinationsinside the budget line are unattainable. _____________

9. Consumer equilibrium occurs where the budget line istangent to the lowest attainable indifference curve._____________

10. When total utility is at a maximum, marginal utility isnegative. _____________

EXERCISE 2


11. A utility function shows the relationship betweenA. price and a consumer’s utility.B. income and a consumer’s utility.C. quantity demanded and a consumer’s utility.D. the amount of goods consumed and a consumer’s utility.E. revenue and a consumer’s utility.

12. The amount of added utility that a consumer gains from theconsumption of one more unit of a good is called

A. total utility. B. incremental utility.C. diminishing utility. D. marginal utility.E. preference.

13. According to the law of diminishing marginal utility, as theconsumption of a particular good increases.

A. total utility increases. B. marginal utility increases.C. total utility decreases. D. marginal utility decreasesE. marginal utility stays the same.

14. As a person consumes more of a given good, the marginalutility of that good to the consumer

A. rises at an increasing rate. B. rises at a decreasing rate.C. falls. D. rises.E. stays constant.

15. The total utilities associated with the first 5 units ofconsumption of mangoes are 12, 28, 40, 48, and 52, respectively.What is the marginal utility associated with the third unit?

A. 20 B. 16C. 12 D. 8E. 4

16. Suppose the person experienced a diminished taste for aparticular good. As a result the

A. TU curve would get steeper.B. MU curve would get flatter.C. TU and MU curves would shift downward.D. MU curve, but not the TU curve, would collapse to the

horizontal axis.E. TU is at an increasing rate.


WORKTEXT 7 : CONSUMER BEHAVIOR ANALYSISEcon 111 – Economic Analysis

NAME: _______________________________________ SCORE: ___________________________________


24


17. After eating nine scoops of mocha ice creams, you are offereda tenth scoop of ice cream. You turn down the ice cream. Yourrefusal indicates that the

A. total utility for mocha ice creams is negative.B. marginal utility for mocha ice creams is negative.C. marginal utility is positive for the 9th and negative for the 10th

ice cream.D. total utility was zero because you ate one cookie and refused

the other.E. None of these.

18. If A, B, C, and D are any four market baskets, and if theconsumer has ranked them so that D is preferred to C, A is notpreferred to B, and B is not preferred to C, then

A. A is preferred to C.B. A is preferred to D.C. B is preferred to D.D. D is preferred to A.E. D is not preferred to B.

19. Which of the following is not a property of indifference curvesrepresenting a consumer’s tastes between food and clothing, bothof which are economic goods?

A. A given basket of food and clothing cannot be on more thanone indifference curve.

B. No two indifference curves for the same consumer can cross.C. The indifference curves are parallel (though not necessarily

straight lines).D. The indifference curves are downward sloping.E. The indifference curves reflect the marginal utility of food in

terms of clothing.

20. If bundles of goods A and B lie on the same indifference curve,one can assume the individual

A. prefers bundle A to bundle B.B. prefers bundle B to bundle A.C. enjoys bundle A and B equally.D. bundle A contains the same goods as bundle B.E. None of these.

21. To derive the demand curve of a product, the price of theproduct is varied. For the indifference curve analysis, the

A. budget line is held constant.B. tastes and preferences of the consumer are held constant.C. prices of other products the consumer might purchase

change.D. money income of the consumer changes.E. the values of marginal utility are varied.

22. If the prices of both goods increase by the same percent, thebudget line will

A. shift parallel to the left.B. shift parallel to the right.C. pivot about the x axis.D. pivot about the y axis.E. none of the above.

23. A decrease in income willA. shift the budget line inward and increase its slope.B. shift the budget line outward and increase its slope.C. shift the budget line outward and have no effect on its slope.D. shift the budget line inward and have no effect on its slope.E. None of these.

24. Assume that a person’s consumption of just the right amountsof pork and beef is in equilibrium. We can conclude that the

A. marginal utility of pork must equal the marginal utility of beef.B. price of pork must equal the price of beef.C. ratio of marginal cost to price must be the same in both the

pork and the beef markets.D. ratio of marginal utility to price must be the same for pork and

beef.E. none of these.

25. Suppose that Mr. J is currently exhausting his money incomeby purchasing 10 units of A and 8 units of B at prices of P2 andP4 respectively. The marginal utility of the last units of A and Bare 16 and 24 respectively. These data suggest that Mr. J

A. considers A and B to be complementary goods.B. considers A and B to be substitute goods.C. should buy less A and more B.D. should buy less B and more A.E has preferences that are at odds with the principle of

diminishing marginal utility.

26. Suppose an individual consumes pizza and cola. To reachconsumer equilibrium, the individual must consume pizza andcola so that the

A. diminishing marginal utility happens.B. price paid for the two goods is the same.C. ratio of marginal utility to price is the same for both goods.D. marginal utility of the two goods is equal.E. ratio of the marginal utility of cola to the marginal utility of

pizza is 1.

27. A tourist is maximizing his satisfaction consuming two goods,X and Y. If the marginal utility of X is half that of Y, what is theprice of X if the price of Y is P100?

A. 200 B. 50C. 25 D. 375E. 10

28. A consumer is making purchases of products A and B suchthat the marginal utility of product A is 20 and the marginal utilityof product B is 30. The price of product A is P10 and the price ofproduct B is P20. The utility- maximizing rule suggests that thisconsumer should increase consumption of product

A. B and decrease consumption of product A.B. B and increase consumption of product A.C. A and decrease consumption of product B.D. make no change in consumption of A and B.E. All of these.

29.. If the consumer's income is P200, the prices are P10 for goodX and P20 for good Y, the budget line can be found by joining theintercept terms, which are:

A. 10 on the X axis and 5 on the Y axis.B. 20 on the X axis and 10 on the Y axis.C. 20 on the X axis and 20 on the Y axis.D. 10 on the X axis and 20 on the Y axis.E. 15 on the X axis and 15 on the Y axis.

30. Pedro buys only banana and apple and he buys the quantitiesthat maximize his utility. His marginal utility from a banana is 30units and his marginal utility from an apple is 60 units. If the priceof a banana is P4, then you are sure that the price of an apple is

A. 4 B. 8C. 2 D. 12E. 10

25


EXERCISE 3

Analyze and answer what is required in the following problems.

A. In each of the following cases, decide whether Pepito hasdiminishing, constant, or increasing marginal utility. Explain youranswer.

31. The more Pepito exercises, the more he enjoys eachadditional visit to the gym. ______________

32. Although Pepito’s classical CD collection is huge, hisenjoyment from buying another CD has not changed ashis collection has grown. ______________

33. Pepito enjoys watching reruns of the show Bitoy’sFunniest Videos. He claims that these episodes arealways funny, but he does admit that the more he seesan episode, the less funny it gets. ______________

34. Pepito likes loud music. In fact, according to him, “thelouder, the better.” Each time he turns the volume up anotch, he adds 6 utils to his total utility. ______________

35. The more dancing classes Pepito takes, the more heenjoys the activity. And the more classes he takes, theeasier each one gets, making him enjoy each additionalclass even more than the one before. ______________

B. Refer to the total utility schedule of a consumer for chocolatebars to answer the questions below.

36. Derive the marginal utility per chocolate barconsumed. _______

37. What is the marginal utility of the third chocolate barto this consumer? _______

38. If chocolate barsare P6 each, whatis the marginalutility per peso ofthe 3rd chocolatebar? _______

39. This consumerbegins to experience diminishing marginal utility when he consumes how many units? _______

40. Marginal utility becomes negative if the consumerconsumes how many units? _______

C. In the following cases, find all the consumption bundles that lieon the consumer’s budget line. Illustrate these consumptionpossibilities in a diagram and draw the budget line through them.

41. The consumption bundle consists of movie tickets andbuckets of popcorn. The price of each ticket is P100.00,the price of each bucket of popcorn is P50, and theconsumer’s income is P200.00. In your diagram, putmovie tickets on the vertical axis and buckets of popcornon the horizontal axis.

42. The consumption bundle consists of infant milk andinfant diaper. The price of each can of infant milk isP400, the price of each economy pack of infant diaper isP200, and the consumer’s income is P1,200. In yourdiagram, put infant milk on the vertical axis and infantdiaper on the horizontal axis.

D. For each of the following situations, draw a diagram containingEmma’s indifference curve between two goods.

43. For Emma, shampoo and conditioner are perfectcomplements, but in a ratio of 1:4 that is, for eachshampoo, Emma wants exactly four conditioners. Labeland number the axes of your diagram by placingconditioners on the horizontal axis and shampoos on thevertical axis.

44. Emma gets utility only from her caffeine intake. She canconsume Nescafe coffee and Pepsi cola. The lattercontains twice as much caffeine as the former. Labeland number the axes of your diagram by placing Pepsicola on the horizontal axis and Nescafe coffee on thevertical axis.

E. Shown below is the utility schedule of a consumer for a good.

Units Consumed

Total Utility Marginal Utility

0 0 02 214 7868 124

10 13212 014 138

45. Fill in the missing values to complete the table.

46. Draw the TU curve on a graph and the MU curve onanother graph and indicate the diminishing marginalutility by using demarcation lines in the graphs.

F. The following table represents a combination of puto anddinuguan that yields equal total utility for a given consumer.

47. Compute for the absolute value of the slope of pointsof indifference curve (MRS).

48. Graph the indifference curve

Chocolate bars

consumed

Total Utility

Marginal Utility

0 01 102 183 244 285 306 307 28

Choice Dinuguan (Y)

Puto(X)

MRS

A 8 3B 6 6C 4 7D 3 8E 2 10

26


F. Jecelle loves sandwiches. The graph below shows threecurves from her indifference map – , , , expressing herpreferences for sandwiches and a composite good. The pointsA, B and C are tangency points between the indifferencecurves and the budget constraints , , .

49. What is Jecelle’s total weekly budget? 700

50. What is the price of a sandwich in budget constraint ?

51. What is the optimal (sandwich, composite good) bundlewhen Jecelle is subject to budget constraint ?





G. The following table shows the marginal utility schedules forgoods A and B for a hypothetical consumer. The price of GoodA is P1 and the price of good B is P2.

56 – 60.

The income of the consumer is P9 and he spends this all. How many units of good A and good B should be bought in order to maximize utility.

H. Solve for the following:

61. A consumer has an income of P3,000 and he wants tospend this all to buy flash drives (good X) and MP3players (good Y). Flash drive costs P300 per unit, andMP3 player costs P600 per unit. Draw the consumer’sbudget line and determine its slope.

62. If a consumer has an income of P100, the price of goodU is P10, and the price of good V is P20, what is themaximum quantity of good U the consumer is able topurchase?

I. Refer to the diagram below that shows the consumerequilibrium and answer the questions below.

63. At point A, a consumer would be ____________.

64. At point B, a consumer would be ____________.

65. At point C, a consumer would be ____________.

66. At point D, a consumer would be ____________.

J. Jeric is a utility maximizer. His income is P1000, which he canspend on cafeteria meals and on notepads. Each meal costs P50,and each notepad costs P20. At these prices Jeric chooses to buy 16 cafeteria meals and 10 notepads.

67. Draw a diagram that shows Jeric’s choice using anindifference curve and his budget line, placing notepadson the vertical axis and cafeteria meals on the horizontalaxis. Label the indifference curve L1 and the budget lineBL1.

68. The price of notepads falls to P10; the price of cafeteriameals remains the same. On the same diagram, drawJeric’s budget line with the new prices and label it BL2.

69. Lastly, Jeric’s income falls to P900. On the samediagram, draw his budget line with this income and thenew prices and label it BL3. Is he worse off, better off, orequally as well off with these new prices and lowerincome than compared to the original prices and higherincome? (Hint: Determine whether Jeric can afford tobuy his original consumption bundle of 16 meals and 10notepads with the lower income and new prices.Illustrate your answer using an indifference curve andlabel it L2.

70. Give an intuitive explanation of your answer to no. 69.

GOOD A GOOD BQuantity Total

UtilityMUA Quantity Total

UtilityMUB

1 8 1 102 15 2 183 23 3 244 28 4 285 32 5 316 35 6 337 37 7 34

27

1

WORKTEXT 8 : Production Analysis Econ 111 – Economic Analysis

EXERCISE 1


1. For each different combination of inputs, the productionfunction shows the maximum quantity of output a firm canproduce over some period of time. _____________

2. The long run is defined as the period required for allinputs to be variable._____________

3. Households combine inputs to produce outputs._____________

4. Total product is the minimum quantity of output that canbe produced from a given combination of inputs._____________

5. The average product of labor indicates the averageamount of output per unit of labor. _____________

6. A variable input is any resource for which the quantitycannot change during the period of time underconsideration. _____________

7. Geometrically, the total product at any point is simply theslope of the marginal product curve at that point._____________

8. There are diminishing returns to an input when itsmarginal product declines as more of the input is used,holding the quantity of all other inputs fixed._____________

9. The MRTS at any point is simply the absolute value of theslope of the isoquant at that point. _____________

10. The marginal product of labor is the additional outputproduced when one more worker is hired. ___________

11. If a proportional increase in every input yields a less thanproportional increase in output, then there is increasingreturns to scale. _____________

12. The total output of a firm will be at a maximum whereMP is zero. _____________

EXERCISE 2


13. Fixed inputs are factors of production thatA. can be increased or decreased quickly as output changes.B. are determined by a firm’s plant size.C. cannot be increased or decreased as output changes.D. the firm can vary at any time.E. can be varied in the short run.

14. The long run is characterized byA. the relevance of the law of diminishing returns.B. at least one fixed input.C. insufficient time for firms to enter or leave the industry.D. the ability of the firm to change its plant size.E. the combination of fixed and variable inputs.

15. If a variable input is added to some fixed input, beyond somepoint the resulting extra output will decline. This statementdescribes

A. economies and diseconomies of scale.B. the law of diminishing returns.C. returns to scale.D. the law of diminishing marginal utility.E. marginal rate of transformation.

16. The units of variable input in a production process are 1, 2, 3,4, and 5 and the corresponding total outputs are 7, 21, 33, 42,and 49, respectively. What is the marginal product of the fourthunit?

A. 12 B. 9C. 6 D. 5E. 42

17. If 9 workers can produce 1,850 units of output and 10 workerscan produce 1,750 units of output, then the marginal product ofthe 10th worker is

A.1,750. B. 1,850.C. 100. D. – 100.E. 50.

18. Suppose a car wash has 2 washing stations and 5 workersand is able to wash 100 cars per day. When it adds a third station,but no more workers, it is able to wash 150 cars per day. Themarginal product of the third station is

A. 100 cars per day. B. 150 cars per day.C. 5 cars per day. D. 50 cars per day.E. 12 cars per day


WORKTEXT 8 : PRODUCTION ANALYSISEcon 111 – Economic Analysis

NAME: _______________________________________ SCORE: ___________________________________


28


19. Marginal productA. diminishes at all levels of production.B. may initially increase, then diminish, but never become

negative.C. may initially increase, then diminish, and ultimately become

negative.D. is always less than average product.E. None of these

20. Which of the following is not correct?A. Where marginal product is greater than average product,

average product is rising.B. Where total product is at a maximum, average product is

also at a maximum.C. Where marginal product is zero, total product is at a

maximum.D. Marginal product becomes negative before average product

becomes negative.E. Marginal product rises faster than average product and also

falls faster than average product

21. Which of these statements concerning the relationshipsbetween total product (TP), average product (AP), and marginalproduct (MP) is incorrect?

A. AP continues to rise so long as TP is rising.B. AP reaches a maximum before TP reaches a maximum.C. TP reaches a maximum when the MP of the variable input

becomes zero.D. MP cuts AP at the maximum AP.E. None of these.

22. When the average product is at its maximum,A. the marginal product is increasing as output increases.B. the marginal product is negative.C. it is equal to the marginal product.D. total product is also at its maximum.E. total product is at its minimum.

23. At low levels of output, the marginal product curve usually ____and the marginal cost curve usually ____.

A. slopes upward; slopes downwardB. slopes upward; slopes upwardC. slopes downward; slopes downwardD. slopes downward; slopes upwardE. is horizontal; is horizontal

24. Which of the following statements correctly describes a totalproduct curve?

A. Points above the total produce curve are efficient.B. The curve shows that output always increases as labor

employed increases.C. The curve separates attainable outputs from unattainable

outputs.D. The curve shows minimum levels of output.E. The curve first falls, reaches a minimum, and then rises.

25. At what stage of the production function in which rationaldecision by a firm to maximize its profit is made?

A. stage IB. stage IIC. stage IIID. stage IVE. stage V

EXERCISE 3

Classification. Identify the following as either fixed input or variable input. Write F for fixed input and V for variable input.

26. 10-hectare farm _________

27. Fuel _________

28. Mortgage on factory _________

29. Machineries _________

30. Electricity _________

31. Transportation _________

32. Wages of workers _________

33. Business property taxes _________

34. Raw materials_________

35. Manufacturing plant _________

EXERCISE 4


A. Assume that the production function describing rice yieldresponse to nitrogen fertilizer is represented by = 0.2 +0.08 − 0.004 .

36. Find the total output for values of x between 0 and 20.37. Derive the marginal function and average product

function.38. Determine and graph the corresponding values of

marginal product and average product.

B. The production function is expressed by = 6 − .

39. Fill in the following table for TP, MP and AP

Labor Total Output

Marginal Product

Average Product

0123456

C. Buko ni Juan is a small buko vending shop that sells bottles ofbuko shakes in a shopping mall. Juan owns one vending cart andfour blender machines. His other inputs are refrigerator, bukoshake mix, bottles, and, of course, workers. He estimates that hisdaily production function when he varies the number of workersemployed (and at the same time, the other inputs) is as shown inthe accompanying table.

29


Quantity of Labor (Workers)

Quantity of Buko Shakes (Bottles)

0 01 2002 3603 4804 5605 6006 6007 540

40. What are the fixed inputs and variable inputs in theproduction of bottles of buko shakes?

41. Draw the total product curve.42. What is the marginal product of the first worker up to the

seventh worker?

D. Refer to the following production schedule..

Inputs of labor

Total product

Marginal Product

Average Product

0 02 304 686 1108 146

10 17612 19614 20816 20818 200

43. Complete the following table by calculating marginalproduct and average product from the data given.

E. Given the schedule for shoe production in a particular shoefactory, reflecting TP, MP and AP.

Number of Employees

Total product (No. of shoes

per day

Marginal Product

Average Product

0 0 0 01 12 12.02 183 53 17.74 185 886 100 16.77 88 111 39 0 12.3

10 106

44. Complete the above production data.

45. Plot the TP, MP and AP curves on a graph using thecompleted data on the table and indicate the three stagesof production in the drawn graph

F. A flower farm in Baguio City uses the inputs of fertilizer, labor,and hothouses to produce roses. Suppose that when the quantityof labor and hothouses is fixed, the relationship between thequantity of fertilizer and the number of roses produced is given bythe following table:

Pounds of Fertilizers per week

Number of Roses per week

0 01 1,0002 2,0003 3,7004 4,2005 4,5006 4,5007 4,100

46. What is the average product of fertilizer when 5 poundsare used? What is the marginal product of the sixthpounds of fertilizer?

47. Does this total product function exhibit diminishingmarginal returns? If so, over what quantities of fertilizerdo they occur?

48. Does this total product function exhibit diminishing totalreturns? If so, over what quantities of fertilizer do theyoccur?

G. The level of production in a furniture factory is represented bythe following diagram.

49. Label the axes on the graphs and the three productioncurves.

50. Indicate the three stages of production by usingdemarcation lines in the drawn graphs.

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1

WORKTEXT 9 : Cost Analysis Econ 111 – Economic Analysis

EXERCISE 1

Matching Type. Match each term with its correct definition by placing the appropriate letter next to the corresponding number.

_______ 1. Cost A. Total cost per unit of output

_______ 2. Inputs B. Product innovation

_______ 3. Business firm C. A natural resource

_______ 4. Short-run D. ( ) = +_______ 5. Long-run E. Economic resources

_______ 6. Fixed cost F. Variable cost divided by output

_______ 7. Variable cost G. A firm engaged in production

_______ 8. Accounting profit H. A process of combining inputs

_______ 9. Economic profit I. Payment incurred for an input

_______ 10. Sunk cost J. Costs that don’t vary w/ output

_______ 11. Total cost K. A human resource

_______ 12. Marginal cost L. All inputs are variable

_______ 13. AFC M. Some input are fixed

_______ 14. AVC N. Unrecovered cost

_______ 15. ATC O. Incremental cost

_______ 16. Production P. Costs that vary with output

_______ 17. Land Q. TR – TC (Explicit Cost)

_______ 18. Labor R. TR – TC (Explicit + Implicit)

_______ 19. Technology S. Fixed cost divided by output

_______ 20. Cost function T. Fixed cost + variable cost

EXERCISE 2


21. The government says that firm X must pay P10,000 in taxessimply because it is in the business of producing a good. Whatcost curves, if any, does this tax affect?

A. variable cost B. fixed costC. marginal cost D. average costE. sun

22. If you operated a small bakery, which of the following wouldbe a variable cost in the short run?

A. baking ovens B. Baking suppliesC. baking equipment D. interest on business loanE. annual lease payment for building

23. The average variable cost curve and the average total costcurve get closer to each other as output_________.

A. increases B. decreasesC. stays the same D. doublesE. becomes zero

24. The ATC and MC curves are shaped like the letterA. S B. NC. V D. UE. C

25. If the marginal cost is greater than the average total cost, theaverage total cost will

A. rise B. fallC. stay the same D. become negativeE. turn zero

26. The marginal cost curve first declines and then increasesbecause of

A. increasing, then diminishing, marginal utility.B. the decline in the gap between ATC and AVC as output rises.C. increasing, then diminishing, marginal returns.D. constant marginal revenue.E. increasing fixed cost.

27. The vertical distance between ATC and AVC measuresA. marginal cost. B. total fixed cost.C. average fixed cost. D. economic profit per unit.E. diseconomies of scale


WORKTEXT 9 : COST ANALYSISEcon 111 – Economic Analysis

NAME: _______________________________________ SCORE: ___________________________________


31


28. Average total Cost (ATC) isA. TC x Q B. MC - AVCC. AFC + AVC D. AVC - AFCE. AVC + MC

29. When the marginal cost curve liesA. above the ATC curve, ATC rises.B. above the AVC curve, ATC rises.C. below the AVC curve, total fixed cost increases.D. below the ATC curve, total fixed cost falls.E. below the AVC curve, ATC falls.

30. If marginal product is rising, marginal cost isA. negative. B. zero.C. also rising. D. falling.E. undetermined.

31. The fixed cost curve is a ______ line.A. horizontal B. downward slopingC. vertical D. upward sloping lineE. diagonal

32. A flower shop incurs a fixed cost of P6, 000 per day and avariable cost of P150 per bouquet of flowers. How many bouquetsof flowers can be made for a total daily cost of P24,000?

A. 570 B. 120C. 375 D. 60E. 3,000

33. V-ta is planning to introduce a new papaya beauty soap. Thefixed cost for production is P180,800. The variable cost forproducing each soap is P32. To calculate its cost at each level ofoutput, the firm will use which of these equations?

A. ( ) = 180,800 − 32 B. ( ) = 180,800C. ( ) = 180,000 + 32 D. ( ) = 180,000 + 32E. ( ) = ,

34. As we move to the northeast in the isocost map, isocost linescorrespond to

A. higher levels of total cost. B. lower levels of total cost.C. lower levels of marginal cost. D. equal level of total cost.E. higher levels of outputs.

35. The downward-sloping segment of the long-run average costcurve corresponds to

A. diseconomies of scale.B. both economies and diseconomies of scale.C. the decrease in average variable costs.D. economies of scale.E. diminishing marginal returns.

36. Long-run diseconomies of scale exist when theA. short-run average total cost curve falls.B. long-run marginal cost curve rises.C. long-run average total cost curve falls.D. short-run average variable cost curve rises.E. long-run average cost curve rises.

37. Long-run constant returns to scale exist when theA. short-run average total cost curve is constant.B. long-run average cost curve rises.C. long-run average cost curve is flat.D. long-run average cost curve falls.E. long-run average cost curve is constant.

EXERCISE 3

Classification. Classify the following as either fixed cost or variable cost. Write FC for fixed cost and VC for variable cost.

38. Medical insurance payments a company makes for itsemployees _________

39. A manager’s salary paid by the firm _________

40. Payments for an internet service provider for wirelessconnection _________

41. A monthly electric bill incurred by a firm _________

42. Purchase of a new production machinery _________

43. Transportation expenses on the delivery of products._________

44. Meal allowance provided for out-based employees_________

45. Mortgage incurred on factory _________

46. Payment for newly purchased raw materials. _________

47. Business property taxes incurred. _________

48. Interest loan an owner makes to his company. ________

49. Payments for labor purchased in the labor market. ______

50. Rent paid for the use of a warehouse. _________

EXERCISE 4


A. Consider the following cost data for a perfectly competitive firmin the short run.

51. Construct the cost schedule by filling in the missingvalues of cost items.

52. Plot the FC, VC and TC in a graph.

Total Output

Fixed Cost

Variable Cost

Total Cost

MC AFC AVC ATC

0 100 02 100 3004 100 4006 100 4508 100 475

10 100 52512 100 62514 100 77516 100 97518 100 122520 100 1525

32


B. The following table is composed of production and cost items ofJNE’s firm operating in short-run. Assume that labor and capitalare the only inputs used. Capital is fixed at 3 units, which cost P50each. Workers can be hired for P250 each.

Capital Input

Labor Input

Total Product

MP AP FC VC TC MC

3 0 03 1 43 2 103 3 203 4 283 5 283 6 243 7 203 8 18

53. Complete the above table to show marginal product(MP), average product (AP), fixed cost (FC), variable cost(VC), total cost (TC) and marginal cost (MC).

54. Plot the MP and MC in a graph and describe theirrelationship.

C. Suppose the firm has this cost equation, ( ) = 900 + 260 .

Output Fixed Cost

VariableCost

Total Cost

05

10152025303540

55. Fill in the missing values in the cost schedule above bycalculating the FC, VC and TC.

56. Graph the fixed cost, variable cost, and total cost curvesfor the derived data. Describe each curve.

D. The isocost schedule of a firm operating with a cost of P20,000per month is provided below. It is described by the equation =200 + 100 in which = 200 per labor-hour, = 100 permachine-hour.

Firm's Choice

Labor Capital Total Cost ( + )A 0 200B 20 160C 60 80D 80 40E 100 0

57. Fill in the total cost computation for each firm’s choice.

58. Compute the slope of the isocost line.

59. Graph the isocost line.

EXERCISE 5

Graphical Analysis. Graph what is required in the following problems.

A. Make use of the following total cost schedule for Mang Juan’sPanciteria to answer the following.

No. of Bilaos

Total Cost

ATC MC

0 5010 200020 3,50030 470040 6,00050 7,50060 9,30070 11,70080 15,30090 21,000

100 30000

60. Calculate Mang Juan’s ATC.

61. Calculate Mang Juan’s MC.

62. Plot the TC curve on graph A below and plot the ATCand MC curves on graph B.

33


B. The diagram below shows the relationship of marginal andaverage cost curves of Lorna’s Siomai House. Cost is in pesosand output is in thousand pieces.

63. What does cost curve A represent? _____________

64. What does cost curve B represent? _____________

65. What does cost curve C represent? _____________

66. What does cost curve D represent? _____________

67. What cost curve is downward sloping? _____________

68. What cost curve has a U-shaped pattern? ____________

69. What cost curve goes through the minimum points of theATC and AVC curves? _____________

70. What is the average variable cost if output produced is4,000 pieces of siomai? _____________

71. What is the average fixed cost if there are 2000 pieces ofsiomai produced? _____________

72. What is the quantity of siomai produced if the firmincurred a cost of P9,000? _____________

C. Suppose a firm has only three possible scales of productionas shown below.

73. Which scale of production is most efficient when =65?

74. Which scale of production is most efficient when =75?

75. Trace out the long-run average cost curve on thediagram.

34

1

WORKTEXT 10 : Profit Analysis Econ 111 – Economic Analysis

EXERCISE 1


1. Profit is maximized at the output level at which totalrevenue exceeds total costs by the greatest amount, atthe point at which MR = MC. _________

2. If the firm shuts down temporarily, it receives no revenueand incurs no variable costs. _________

3. An increase in output will always lower profit whenevermarginal revenue is less than marginal cost. _________

4. The firm has a loss if total cost exceeds total revenue._________

5. As output increases, total revenue increases, but totalcost also increases. _________

6. When total revenue is less than total variable cost, thefirm’s loss will exceed total fixed cost. _________

7. Marginal revenue is the firm’s change in total revenuefrom selling an additional unit. _________

8. If price is less than average variable cost, the firmminimizes its loss by shutting down. _________

9. When marginal revenue is less than marginal cost, thereis more output and profit is reduced. _________

10. The firm’s profit function is: ( ) = ( ) − ( )._________

11. Break-even point (BEP) is the point at which total costand total revenue are equal. _________

12. An increase in output will always raise profit as long asmarginal revenue is greater than marginal cost._________

EXERCISE 2


13. The ultimate goal of business firms is toA. increase market share. B. sell as much as possible.C. maximize profit D. minimize debts.E. receive highest revenue.

14. A perfectly competitive firm's marginal revenueA. is less than the market price of its product.B. decreases as the firm produces more output.C. increases as the firm produces more output.D. equals the market price of its product.E. is the same as the total cost of output produced.

15. On the graph of a firm’s total cost and total revenue curves,the profit-maximizing level of output is found where

A. TR is at a maximum.B. TR lies above TC by the greatest amount.C. TR becomes verticalD. TR and TC intersect.E. TC intersects the vertical axis.

16. The figure below depicts the marginal revenue and costs ofa perfectly competitive firm. The firm's profit is maximized whenthe firm produces

A. 210 units of output.B. 130 units of output.C. 75 units of output.D. 170 units of output.E. 90 units of output

17. Refer to the diagram above to determine the marginal costof the last unit produced.

A. 4 per unit.B. 16 per unit.C. 8 per unit.D. 20 per unitE. 12 per unit.


WORKTEXT 10 : PROFIT ANALYSISEcon 111 – Economic Analysis

NAME: _______________________________________ SCORE: ___________________________________


35


18. A firm's shutdown point is the output and price at which thefirm just covers it

A. total fixed cost. B. marginal cost.C. total cost. D. total variable cost.E. total revenue.

19. Consider a perfectly competitive firm in the following situation:output = 90 units, market price = P150, fixed costs = P5,000,variable costs = P5,000, and marginal cost = P150. To maximizeprofits the firm should

A. not change output. B. expand output.C. reduce output. D. increase the market price.E. shut down.

20. Suppose that in a perfectly competitive industry, the marketprice of the product is P70. Firm A is producing the output level atwhich average total cost equals marginal cost, both of which areP90. Average variable cost is P60. To achieve its optimum output,firm A should

A. not change output. B. expand output.C. reduce output. D. increase the market price.E. shut down.

.

EXERCISE 3


A. A souvenir shop has a fixed cost of P300 per day and a variablecost of P15 per piece of a particular type of souvenir items. Theshop sells its product for P30. The output schedule is providedbelow.

Output Total Revenue

Total Cost Profit / Loss

0102030405060708090

100

21. Calculate the total revenue.

22. Calculate the total cost.

23. Calculate the profit.

24. Determine the break-even point.

25. Graph the total revenue and total cost curves. Mark in theloss, profit and break-even point.

B. A perfectly competitive firm has the following fixed and variablecosts in the short run. The market price for the firm’s product is P180.

26. Complete the table.

27. At what output rate does the firm maximize profit orminimize loss?

28. What is the firm’s marginal revenue at each positive rate ofoutput?

29. What can you say about the relationship between marginalrevenue and marginal cost for output rates below the profit-maximizing (or loss-minimizing) rate? For output ratesabove the profit-maximizing (or loss-minimizing) rate?

C. The figure below depicts the marginal revenue and costs of aperfectly competitive firm selling its product a P5 per unit.

Quantity produced

MR TR TC MC ATC Profit

0 0 16 -1 5 20 20.02 10 24 12.03 15 27 9.04 20 30 7.55 25 32 6.46 30 34 5.77 35 35 5.08 40 37 4.69 45 40 4.4

10 50 44 4.411 55 49 4.512 60 56 4.713 65 66 5.114 70 80 5.715 75 95 6.3

30. Calculate the marginal revenue at each level of output.

31. Calculate the marginal cost.

32. Calculate the profit.

33. Determine what output level when profit is maximized.

34. Graph the marginal revenue and marginal cost curves.Mark in the profit-maximizing output.

Quantity produced

FC VC TC TR Profit/Loss

0 100 0 1001 100 200 1802 100 280 804 300 400 720 3205 100 440 900 3606 100 700 10807 100 7808 100 900 1080 1440 360

36


D. Suppose the following diagram depicts the revenue and costcurves of firm X selling good Y. Identify and interpret each curve.

35. Curve A _______________

36. Curve B _______________

37. Curve C _______________

38. Curve D _______________

39. Curve E _______________

40. Curve F _______________

E. JNE Electronics is planning to introduce a new 7-inch androidtablet in the market. The fixed costs for production are P480,000.The variable costs for producing each tablet are P4,000. The firmwants to sell each tablet for P7,000. Find the following.

41. The total cost ( ) of producing tablets.

42. The total cost of producing 350 units of tablets.

43. The total revenue of selling 265 units of tablet.

44. The total revenue of selling 500 units of tablet.

45. The total profit ( ) from the production and sale of xtablets.

46. The profit or loss from the production and sale of 450units.

47. The profit or loss from the production and sale of 110units.

48. The break-even quantity.

49. The break-even amount for revenue and cost.

50. Graph the revenue and cost equations and mark in thebreak-even point.

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1

WORKTEXT 11 : Introduction to Macroeconomics Econ 111 – Economic Analysis

EXERCISE 1


1. Macroeconomics is the economic analysis of theeconomy as a whole. ___________

2. Economists rely on macroeconomic models to analyzereal-world issues such as the causes of inflation.___________

3. Macroeconomics does not cover the performance of theglobal economy. ___________

4. Government uses fiscal and monetary policies to affectthe economy. ___________

5. During the business cycle, the economy’s level of outputand its unemployment rate move in opposite directions.___________

6. An efficient economy is one that produces what peoplewant at the least possible cost. ___________

7. One of the components of the macroeconomy is theforeign sector which represents the rest of the world.___________

8. During the recession phase of a business cycle,unemployment falls. ___________

9. Over longer periods of time, economists focus oneconomic growth. ___________

10. Macroeconomic models used by both governments andbusiness firms to assist in the development andevaluation of economic policy and business strategy.___________

11. Macroeconomics is concerned with the price of aparticular good or service rather than the general level ofprices in the economy. ___________

12. Business cycle explains the alternation betweeneconomic downturns an upturns in the macroeconomy.___________

EXERCISE 2

Identification. Match the following statements to the items inside the box below. Write your answer on the blank provided

13. An increase in the general (average) price level of goodsand services in the economy. ___________

14. The number of people who are actively looking for workbut aren’t currently employed. ___________

15. The use of government expenditure and revenuecollection (taxation) to influence the economy.___________

16. An increase in the total output of an economy.___________

17. A period during which aggregate output declines.___________

18. The total demand for final goods and services in theeconomy at a given time and price level. ___________

19. The total supply of goods and services that firms in anational economy plan on selling during a specific timeperiod. ___________

20. Government policies concerning the supply of money.___________

21. The difference between the monetary value of exportsand imports of output in an economy over a certainperiod. ___________

22. The market value of all final goods and servicesproduced domestically within a year. ___________


WORKTEXT 11 : INTRODUCTION TO MACROECONOMICSEcon 111 – Economic Analysis

NAME: _______________________________________ SCORE: ___________________________________


38

WORKTEXT 11 : Introduction to Macroeconomics Econ 111 – Economic Analysis

EXERCISE 3

Classification. Determine what macroeconomic goal is described. Write E for economic growth, P for price stability, F for full employment and B for balance of trade.

23. An increase in productivity, which lowers the inputs for agiven amount of output.__________

24. The result of population growth and of the introduction ofnew products and services. __________

25. A decrease in the real value of money and othermonetary items over time. __________

26. A long-run trend in production due to basic causes suchas industrialization. __________

27. Mismatch between the supply and demand of laborerswith necessary skill sets. __________

28. It is caused by an excessive growth of the money supply.__________

29. An absolutely 0% rate of unemployment. __________

30. The availability of adequate foreign exchange with whichto pay for import. __________

31. A sustained rise in GDP growth rate. __________

32. All persons willing and able to work at the prevailingwages are able to do so. __________

33. Increase in taxes or restrictions on trade. __________

34. Shortages of goods occur due to hoarding. __________

35. Exports exceeds imports. __________

EXERCISE 4

Identify the phase of the business cycle represented by the letters shown in the following diagram.

36. Point A __________

37. Between points A and B. __________

38. Point B __________

39. Between points B and C __________

40. Point D __________

EXERCISE 5

Fill in the Blanks. Fill in the blanks with the appropriate word or phrase that completes each statement by referring to the circular flow diagram that connects the four sectors of the economy .

41. This ___________ shows the income received andpayments made by each sector of the economy.

42. Households ___________ the factors of production tofirms in exchange for income in the form of wages,interest, profit, and rent.

43. Households spend by buying goods and services fromfirms and by paying ___________ to the government.

44. Most households derive the bulk of their income fromwages earned by selling ___________.

45. The ___________ receives taxes from firms andhouseholds.

46. Funds flow from firms to households in the form ofwages, profit, interest, and rent through ____________.

47. ___________ to the rest of the world generate a flow offunds into the economy.

48. Some of the income households earn is not spent onconsumer goods or paid in taxes but is deposited inchecking or savings accounts in _____________.

49. Households and the government purchase goods andservices from firms in the _____________.

50. People in other countries____________ goods andservices produced domestically.

39

1

WORKTEXT 12 : National Income Accounting Econ 111 – Economic Analysis

EXERCISE 1


1. National income accounting is a framework thatsummarizes and categorizes productive activity in aneconomy over a period of time. ____________

2. The most common measure of a nation’s output is GDP.____________

3. GNP is the total market value of all final goods andservices produced within a country in a given year.____________

4. Exports generate an inflow of funds into the country fromthe rest of the world_____________

5. Real GDP measures output after eliminating the effectsof price changes. ____________

6. Goods requiring further processing are called final goods.____________

7. Nominal GDP is calculated using the prices current in theyear in which the output is produced. ____________

8. An index that measures changes in the average prices ofconsumer goods and services is the Producer PriceIndex (PPI). ____________

9. To avoid the problem of double counting, only final goodsand services are included in GDP. ____________

10. Net Exports is exports plus imports. ____________

11. Investment includes spending on durable goods,nondurable goods, and services. ____________

12. Disposable income is personal income minus personaltaxes. ____________

13. GDP per capita is GDP divided by the size of the population. ____________

14. GDP can be calculated by the expenditure approach as+ − + ( − ).15. Foreign -produced goods and services are not included

in calculations of GDP. ____________

EXERCISE 2


16. When comparing a country’s economic performance orposition with other countries, one should see its

A. money supply in circulation. B. net exports.C. Gross Domestic Product. D. natural resources.E. population.

17. If GDP in one year is measured at 225 billion (in US dollars)and a year later it is measured at 250 billion, then the rate of GDPgrowth that year is

A. 11.11% B. 1.7%C. 120.8% D. 67.6%E. 34.1%

18. What sector has the highest percentage compositionrepresenting 57% of GDP of the Philippine economy?

A. manufacturing sector B. industrial sectorC. real estate sector D. services sectorE. agricultural sector

19. Spending on intermediate goods in the economy isA. not part of final goods.B. is included in GDP but only after backing out the sales of final

goods.C. included in the calculation of GDP.D. not included in GDP so as to avoid double counting.E. none of these

20. Which of the following is included in GDP?A. intermediate goods B. used goodsC. foreign-produced goods D. changes in inventoriesD. financial assets (stocks and bonds)

21. Which of the following components makes up the largestpercentage of GDP measured by aggregate spending?

A. consumer spending B. investment spendingC. imports D. exportsE. government spending


WORKTEXT 12 : NATIONAL INCOME ACCOUNTINGEcon 111 – Economic Analysis

NAME: _______________________________________ SCORE: ___________________________________


40


22. Using the table data below, which of the following representsthe GDP of this hypothetical economy?

A. 1,360B. 2,540C. 1,260D. 980E. 3,490

23. Which of the following is counted in GDP?A. the value of homemaker servicesB. the value of produced PCsC. the value of oil used in the production of gasoline.D. security benefits received by retireesE. the sale of a used television

24. In a simple economy, three goods are produced during theyear, in these quantities: 18 units of good A, 34 units of good B,and 40 units of good C. The price of good A is P55 each, the priceof good B is P80 each and the price of good C is P75 each. Whatis the market value of these three goods for the economy?

A. 10.5% B. 1.7%C. 120.8% D. 67.6%E. 34.1%

25. GDP can be calculated by the expenditure approach asA. + + − ( − )B. ( ) + − ( − )C. − + + ( − )D. + + + ( − )E. − − + ( − )

EXERCISE 3

Classification. Determine whether each of the following transactions will be included or counted in GDP for the Philippine economy? Write Y if it will be included and N if it is not. Briefly explain why or why not:

26. An engineer purchased a new automobile manufacturedin Japan. ______________

27. A person paid P3,400 to buy some of an illegal drug.______________

28. Mrs. Reyes cooked and cleaned for her family.______________

29. PAL sold one of its existing airplanes to Cebu Pacific Air.______________

30. Mr. Morris bought an existing share of SM Corporation’sstock. ______________

31. Panfilo just sold his 2005 Honda Civic to Jackson forP450, 000. ______________

32. A celebrity purchased a bottle of French perfume inFrance. ______________

33. A government employee bought a secondhand laptop.______________

34. A restaurant owner received income from the sale of itsrestaurant meals. ______________

35. Ayala Land constructed 865 townhouses.______________

36. JNE Corporation increased its business inventories byP5 million. ______________

37. Mr. Estrada purchased a PLDT corporate bond.______________

38. SSS paid security benefits to retired membersamounting to P5 billion. ______________

39. A real estate agent received commission from the saleof house and lot priced at P2 million. ______________

40. Aling Puring earned P8,000 from her sari-sari storebusiness. ______________

EXERCISE 4

Classification. Consider the following goods and services and identify what expenditure is made by each of the four economicsectors. Write C for consumption spending, I for investment, G for government spending and N for net export spending.

41. Salon spa ______________

42. Fashion accessories______________

43. Car repair ______________

44. Semiconductor inventories ______________

45. Factories ______________

46. Smartphones made in South Korea ______________

47. Government purchases on textbooks _____________

48. Imported chocolates ______________

49. New residential housing ______________

50. China-made glassware ______________

51. Police cars ______________

52. Highways and bridges ______________

53. A tank purchased by the government _____________

54. Coffee machines ______________

55. Exported pineapples ______________

Consumption 630Investment 150Government Spending 380Exports 200Imports 100

41


EXERCISE 5

Determine whether each of the following goods and services is intermediate or final. Write I for intermediate good and F for final good.

56. Car engines ______________

57. Banking services ______________

58. Tires ______________

59. Steel ______________

60. Newsprint ______________

61. Hospital services ______________

62. Computer chips ______________

63. Hotel ______________

64. Buses ______________

65. Newspaper ______________

66. Bicycles ______________

67. Aircraft ______________

68. Plasma TVs ______________

69. Ipad tablets ______________

70. Watches ______________

EXERCISE 6

Analyze whether the following will be counted in GDP or GNP for the Philippine economy. Write GDP or GNP in the blank after the question.

71. A Filipino citizen owns a business in South Korea.______________

72. Juan is an OFW working in the United States.______________

73. A Canadian BPO firm is operating in the Philippines.______________

74. A Filipino businessman purchased a new leather jacketin Paris. ______________

75. Unilab domestically produces pharmaceutical productsfor export in Asia Pacific region. ______________

76. The Philippine government purchased helicopters madefrom Germany. ______________

77. A domestic real estate developer sold 1,500condominium units. ______________

78. Unilever, a British-Dutch multinational company owneda plant which produces major personal care products inthe Philippines.______________

79. Jollibee, a fast food chain, runs five branches in Dubai.______________

80. New car models are made at a Toyota factory in thePhilippines. ______________

81. Twelve thousand units of semiconductors produceddomestically are purchased by a Japanese citizen.______________

82. San Miguel Corporation has a mass beer production inHong Kong. ______________

83. Starbucks coffee shops in SM Malls purchase coffeebeans in Batangas. ______________

84. A German tourist paid an overnight rate when staying atthe Manila Hotel. ______________

85. Coca-Cola builds a new bottling plant in Mindanao.______________

EXERCISE 7


A. Suppose a hypothetical economy produces only three goods:refrigerators, televisions, and washing machines. The table below shows the prices and output of the three goods for the years 2010to 2013.

Year Refrigerator Television Washing machine

Price Qty Price Qty Price Qty2010 10,000 600 15,000 1,000 7,000 4002011 11,000 650 15,500 1,200 8,500 5002012 12,000 700 16,000 1,400 10,000 6002013 13,000 800 16,500 1,600 11,500 700

86. What is the percent change in production of each of thegoods from 2010 to 2011, 2011 to 2012 and from 2012to 2013?

87. What is the percent change in prices of each of thegoods from 2010 to 2011, 2011 to 2012 and from 2012to 2013?

88. Calculate nominal GDP for each of the four years. Whatis the percent change in nominal GDP from 2010 to2011, 2011 to 2012 and from 2012 to 2013?

89. Calculate real GDP using 2011 prices for each of thefour years. What is the percent change in real GDP from2010 to 2011, 2011 to 2012 and from 2012 to 2013.

42


B. Refer to the data below to answer the following questions.

90. Calculate the annual growth rate of nominal GDP from2010 – 2011.



.C. Given the following hypothetical data in which quantity is fixedand price is varied each year.

93. Calculate the price index for each year. (Use 2011 asbase year.)

94. Calculate the nominal GDP for each year.

95. Calculate the real GDP for each year.

D. The following table depicts a group of selected years with thecorresponding nominal GDP data.

96. Calculate the price index for each selected year.

97. Calculate the Real GDP.

98. Indicate in each calculation whether it is inflating ordeflating the nominal GDP data.

E. Use the following information to calculate the following.

99. Calculate the GDP.

100.Calculate the GNP.

101.Calculate the NNP.

102.Calculate the NI.

F. Suppose that the GDP of a particular economy is measuredwith the use of expenditure approach. The hypothetical data arerepresented by the following table.

103.Calculate consumer spending.

104.Calculate private investment spending.

105.Calculate net exports.

106.Calculate government purchases of goods and services.

Year Nominal GDP

GDP Growth Rate

2010 370.322011 394.252012 410.182013 450.83

Year Quantity Price Price Index

Nominal GNP

Real GDP

2009 400 502010 400 602011 400 702012 400 802013 400 902014 400 100

Year PriceNominal

GDPPrice Index

(2005 = 8,000

Real GDP

1973 50 7241983 100 1,5761993 150 3,9892003 200 7,1392013 250 11,808

Item Amount (in trillion pesos)

Consumption 350Imports 12Net investment 44Government purchases 65Exports 25Capital consumption allowance 25Statistical discrepancy 5Receipts of factor income from the rest of the world

15

Payments of factor income to the rest of the world

12

Category ( of trillion pesos)

Components of GDP

Personal Consumption Expenditure (C)Durable goods 844.37Nondurable goods 1162.24Services 3596.55

Private Domestic Investment ( I )Fixed investment spending 512.51Nonresidential 265.18Structures 98.56Equipment and software 103.45Residential 91.78Change in private inventories - 102.23

Government expenditure on goods and services (G)Personal services 500.31Capital Outlay 212.65Infrastructure 433.53Other Services 194.47Net Exports (X - M)

Exports on goods and services 956.25Imports on goods and services 732.09

43


107.Calculate gross domestic product.

108.Calculate consumer spending on services as apercentage of total consumer spending.

109.Calculate exports as a percentage of imports.

110.Calculate the percentage of GDP measured by personalconsumption spending.

G. Suppose the following are data for a given year from the annualreport of NEDA

GDPAmount

(Billions Pesos)

Corporate profits 343Depreciation 522Gross private domestic investment 759Personal taxes 608Personal saving 163Government expenditures 967Imports 590Net interest 380Compensation of employees 2,691Rental income 62Exports 470Personal consumption expenditure 3,009Dividends 130Indirect business taxes 413Contributions for social security 437Transfer payments 586Proprietor's income 371

111.Calculate GDP using the expenditure approach.

112.Calculate GDP using the income approach.

113.Compute the national income (NI) by making the requiredsubtraction from GDP.

114.Derive personal income (PI) from national income (NI).

115.Calculate the disposable income.

44

1

WORKTEXT 13 : Inflation Econ 111 – Economic Analysis

EXERCISE 1


1. Inflation is a sustained rise in the average level of prices._________

2. The inflation rate is the negative percentage change inthe price level on an annual basis. _________

3. Inflation increases the purchasing power of money._________

4. The higher the price level, the lower the real value orpurchasing power of money. _________

5. Inflation becomes a problem when income rises at aslower rate than prices. _________

6. Deflation is beneficial for consumers since they would getmore goods and services for the same amount of money._________

7. Consumer Price Index measures the overall cost of thegoods and services produced by firms.

8. Hyperinflation is characterized by double- or triple-digitpercentage increase in inflation rate annually. ________

9. Unexpectedly high inflation hurts those creditors andbenefits debtors.

10. The lower the CPI, the lower the cost of living. ________

11. Cost-push inflation caused by increasing demand foroutput. _________

12. Falling prices due to an increase in supply is beneficial._________

13. An index of the price level for all final goods and servicesincluded in GDP. _________

14. Debtors who have debts with a fixed nominal rate ofinterest will see a reduction in the "real" interest rate asthe inflation rate rises. _________

15. People whose incomes are fixed see their real incomesfall when inflation occurs. _________

EXERCISE 2

Classification. In each of these conditions, determine what type of inflation occurs. Write DP for demand-pull inflation and CS for cost-push inflation. Use a supply and demand diagram to illustrate each condition.

16. Labor unions successfully negotiate for a higher wage.____________

17. Increases in production costs cause firms to raise pricesto avoid losses. ____________

18. A decrease in the world oil supply leads to higher oilprices. ____________

19. Increased government spending for war weapons causethe level of Philippine prices to rise. ____________

20. Increased spending for agricultural grain productscauses the price of rice to rise. ____________

21. Suppliers increase their profit margins by raising pricesfaster than their costs increase. ____________

22. Many worker members of the labor unions ask for wageincrease from their employers. ____________

23. The demand for domestic products from foreign buyersrises. ____________

24. A natural disaster occurs that causes the aggregatesupply to fall. ____________

25. Government spends a lot of money to produce goods forthe war. ____________

EXERCISE 3

Classification. Determine whether the following is a winner or loser from inflation Justify your answer.

26. Consumers ______________

27. Producers ______________

28. Creditors ______________


WORKTEXT 13 : INFLATIONEcon 111 – Economic Analysis

NAME: _______________________________________ SCORE: ___________________________________


45

WORKTEXT 13 : Inflation Econ 111 – Economic Analysis

29. Debtors ______________

30. Savers ______________

31. Fixed income receivers

32. Wage earners______________

33. Flexible income receivers _____________

34. Exporters ______________

35. Importers ______________

EXERCISE 4


A. Consider the following price information for two goods.

Good Year 1 Year 2

Good X 40 60

Good Y 10 20

36. What is the relative price of Good X and Good Y?

37. What is the absolute price of Good X and Good Y?

38. What happened to the price of Good X relative to that ofGood Y between year 1 and year 2?

39. What is the inflation rate between year 1 and year 2?

B. Based on the given information below.

Good 2012 2014Pork P170 per kilo P210 per kilo

Gasoline P36 per liter P46 per liter

40. Calculate the CPI market basket and the percentage ofthe average household budget spent on pork in thereference base year. (Base year is 2012)

41. Calculate the CPI in 2014 and the inflation rate between2012 and 2014. (Base year is 2012)

C. Consider the following quantity information for five goods of asimplified economy with the corresponding prices in 2005, 2010and 2015. (Base year is 2010)

Item Quantity Price (2005)

Price (2010)

Price (2015)

Good A 20 80 100 130Good B 40 70 110 150Good C 60 60 80 110Good D 80 50 60 80Good E 100 40 45 60

42. Calculate the CPI for the year 2005.



D. Suppose a hypothetical economy has the following CPI data.

Year CPI Inflation/Deflation Rate

Strain of Inflation

2007 95.342008 97.242009 96.232010 99.452011 104.652012 110.642013 115.812014 120.28

45. Compute the inflation rate for each year 2007–2014.Determine which years will be years of inflation.

46. In which years does the deflation occur?

47. Determine the strain of inflation for each year.

E. Consider the following CPI and nominal interest rate data(Assume that each CPI number tells us the price level at the endof each year.)

Year CPI Nominal Interest

Rate

Real Interest

Rate2008 100 - -2009 112 16%2010 120 12%2011 121 8%2012 118 7%2013 115 5%

48. Calculate the real interest rate for years 2008 – 2013.

F. Consider the following data on CPI and nominal wages.

Year CPI Inflation Rate

Nominal Wage

Real Wage

2008 100 400 -2009 105 4402010 110 4802011 108 5002012 116 5252013 124 580

49. Calculate the inflation rate for years 2008 – 2013.

50. Calculate the real wage for years 2008 – 2013.

46

1

WORKTEXT 14 : Unemployment Econ 111 – Economic Analysis

EXERCISE 1


1. The unemployment rate is the percentage of the totalnumber of people in the labor force who are unemployed._____________

2. The labor force is equal to the difference of the employedand the unemployed. _____________

3. Some people who are officially unemployed are not in thelabor force. _____________

4. Economists measure the cost of unemployment in termsof lost output. _____________

5. Cyclical unemployment results from fluctuations ineconomic activity caused by the business cycle._____________

6. Full employment occurs when cyclical unemployment iszero. _____________

7. Discouraged workers are workers who have given uplooking for work but who would still like a job._____________

8. A person is in the labor force if he is working or activelyseeking work. _____________

9. Frictional unemployment accounts for a larger share oftotal unemployment when the unemployment rate is low._____________

10. Potential real GDP is the output produced at the naturalrate of unemployment. _____________

11. Structural unemployment is situation where jobs exist butworkers looking for work do not have the necessary skillsfor these jobs _____________

12. Efficiency wage theory states that firms operate moreefficiently if wages are above the equilibrium level._____________

EXERCISE 2


13. According to NCSO, labor force of all individuals whoA. 15 years of age and older.B. 18 years of age and older who are working.C. 16 years of age and older.D. 15 years of age and older, capable of engaging in work.E. 21 years of age and older who are not working.

14. A person who moved to a new place and took two months tofind a new job experienced which type of unemployment?

A. Frictional unemploymentB. Structural unemploymentC. Natural unemploymentD. Cyclical unemploymentE. Seasonal unemployment

15. A person who is unemployed because of a mismatch betweenthe quantity of labor supplied and the quantity of labor demandedis experiencing what type of unemployment?

A. Frictional unemploymentB. Structural unemploymentC. Natural unemploymentD. Cyclical unemploymentE. Seasonal unemployment

16. Which of the following can affect the natural rate ofunemployment in an economy over time?

A. Labor force characteristics such as age and work experienceB. The existence of labor unionsC. Advances in technologies that help workers find jobsD. government job training programsE. All of the above

17. When the economy goes into recession, the biggestincrease in unemployment is _______.

A. structural because jobs are lost in most places.B. cyclical because jobs are lost in many industries as they cut

production.C. frictional because the creation of jobs slows.D. the combination of structural and frictional as few new jobs

are created.E. seasonal unemployment because in-demand jobs falls.


WORKTEXT 14 : UNEMPLOYMENTEcon 111 – Economic Analysis

NAME: _______________________________________ SCORE: ___________________________________


47


18. The sum of the frictional and structural unemployment rates isequal to the

A. potential unemployment rate.B. real unemployment rate.C. natural unemployment rate.D. zero unemployment rate.E. cyclical unemployment rate.

19. Consider a shoe factory that permanently closes because offoreign competition. If the shoe factory’s workers cannot find newjobs because their skills are no longer marketable, then they areclassified as

A. seasonally unemployed. B. frictionally unemployed.C. structurally unemployed. D. cyclically unemployedE. technologically unemployed

20. When the unemployment rate_______ the naturalunemployment rate, real GDP is _______ potential GDP and theoutput gap is _______.

A. exceeds; below; negativeB. is below; below; negativeC. exceeds; above; positiveD. is below; above; negativeE. is constant; below; negative

21. If the number of unemployed stays the same and the numberof people in the labor force rises,

A. the unemployment rate will rise.B. the unemployment rate will fall.C. the unemployment rate will stay the same.D. the unemployment rate will fall and become zero.E. the unemployment cannot be measured.

22. People who are not working will be counted as employed ifthey are

A. on vacation.B. on sick leave.C. absent from their job because of bad weather.D. absent from their job because of a labor dispute.E. all of the above.

23. John Steinbeck’s Cannery Row describes a character whotakes his own life because of poor job prospects. If he was anunemployed person who gave up looking for work, he would beconsidered:

A. chronically unemployed.B. a discouraged worker.C. a member of the labor force.D. frictionally unemployed.E. all of the above.

24. The results of the December 2013 Labor Force Surveyrevealed that there were 2.88 million unemployed people. What isthe unemployment rate if there were 41.3 million persons in thelabor force?

A. 71.42% B. 6.97%C. 12.93% D. 33.18%E. 1.86%

25. If the unemployment rate is 12 percent and 75 million peopleare working, how many people are unemployed?

A. 5 million B. 9 millionC. 24 million D. 7 millionE. 3 million

EXERCISE 3

Determine whether each of the following would be considered frictional, structural, seasonal, technological, or cyclical unemployment.

26. A promodiser who was hired for the Christmas seasonis laid off after Christmas. ___________

27. Many workers are laid off due to reduced aggregatedemand in the economy. ___________

28. A worker in a DVD rental store becomes jobless asvideo-on-demand cable service becomes more popular.___________

29. A new college graduate is looking for employment.___________

30. When a telephone exchange in a city is automated,some jobs in that city are destroyed. ___________

31. Sony Corporation plans to reduce its workforce by12,000 jobs to remedy its dire financial situation.___________

32. A public relation officer resigned from her job and iscurrently searching for a new one.

33. Because of reduced demand, an appliance companytemporarily closes one of its factories and lays offworkers. ___________

34. Job applicants do not match the job qualifications wantby a manufacturing company. ___________

35. A broadsheet writer leaves her job to make a switch intotelevision writer. She has been looking for a new job forseveral months. ___________

36. A local travel agency has to close down because of thewidespread availability of direct online booking options.___________

37. The economy gets worse, so an electronics companyshuts down a factory for four months, laying off workers.

38. An automobile company lays off 2,000 workers andreplaces them with robots. The workers start looking forjobs outside the auto industry. ___________

39. About three workers per month at a plastic plant quittheir jobs because they want to live in another town.They start searching for work in the new town.___________

40. A mining company goes bankrupt and lays off itsworkers, who immediately start looking for new jobs.__________

41. After an unsuccessful search, some of the laid-offworkers quit looking for new jobs. ___________

48


42. Some zoo keepers left their job due to unfair laborpractices of the new management. ___________

43. A stock market boom induces newly enriched 60-year-oldworkers to take early retirement. ___________

44. Due to the current slump in investment spending, aworker has been laid off from his programming job.___________

45. Rice farmers lost their jobs after harvest season.___________

EXERCISE 4

Indicate whether each of the following people would be counted as unemployed. Write Y if yes and N if no. Justify your answer.

46. Robylyn, an older worker, has been laid off and gave uplooking for work five months ago. ___________

47. Joshua, a schoolteacher, is not working during his three-month summer break. ___________

48. Grace, a sales agent, has been terminated and iscurrently searching for another position. ___________

49. Rogelio, a trained musician, can only find work playingfor local parties. ___________

50. Andrelyn, a graduate student, went back to schoolbecause jobs were scarce. ___________

51. Kristine, a laid-off worker, quit looking for new jobs afteran unsuccessful search. ___________

52. Reynald, a fresh college graduate, starts to look for anavailable job. ___________

53. Ronel, a full time college student, loses his part-time jobas a library clerk. ___________

54. Jessica, an architect, who is working only with a clerk’sposition. ___________

55. Miriam, a data analyst, is currently employed in ABCCorporation. ___________

56. Mr. Braganza, a retired police, is enjoying his retirementbenefits. ___________

57. Michael, an autoworker who is still out of work two yearsafter her plant closed. ___________

58. Mikee, a homemaker returning to the labor market afteran absence of 10 years and looking for work.

59. Johnry, a factory worker who is laid off until businesspicks up again. ___________

60. Eric, prison in New Bilibid Prison ___________

EXERCISE 5


A. When the following cases occur, does the unemployment raterise, fall, or stay the same?

61. Workers are laid off and start looking for work.

62. People without jobs who are looking for work find work.

63. People without jobs and looking for work give up andstop looking.

64. People without jobs and not looking for work becomeencouraged and decide to start looking for work.

65. People without jobs and not looking for work take a jobimmediately.

B. What is the labor market classification of each of the followingindividuals? Be as specific as possible, and explain your answer.

66. Julie has a graduate degree in mechanical engineering.She works full-time mowing lawns.

67. Jeff was laid off from his previous job. He would verymuch like to work at any job, but, after looking for workfor a year, has stopped looking for work.

68. Ian is working 25 hours per week at a bookstore, andhas no desire to work full time.

69. Raj has decided to take a year off from work to stayhome with his daughter.

C. Are the following workers more likely to experience short-termor long-term unemployment? Explain.

70. A construction worker laid off because of bad weather.

71. A manufacturing worker who loses her job at a plant inan isolated area.

72. A stagecoach-industry worker laid off because ofcompetition from railroads.

73. A short-order cook who loses his job when a newrestaurant opens across the street.

74. An expert welder with elementary education who loseshis job when the company installs automatic weldingmachinery.

D. Use the data provided below to calculate each of the following.Show how you calculate each.

Population age 16 year old and order 17 millionEmployment 11 millionUnemployment 650 thousand

75. The size of the labor force.

76. The labor force participation rate.

77. The employment rate.

78. The unemployment rate.

49


E. The results of the January 2014 Philippine Labor Force Survey(LFS) revealed that approximately 37.94 million were employed,2.89 were unemployed and 22.93 million were not in the laborforce. Use this information to calculate the

79. Adult population.

80. Labor force.

81. Labor force participation rate.

82. Employment rate.

83. Unemployment rate.

F. Calculate the unemployment rate and the labor forceparticipation rate in the following cases:

84. Employed: 100 million. Population: 250 million. In laborforce: 160 million.

85. Unemployed: 9 million. Population: 200 million.Employed: 90 million.

86. In labor force: 70 million. Population: 80 million.Unemployed: 2 million.

G. Determine the impact on each of the following if 1.8 millionformerly unemployed workers decide to return to school full timeand stop looking for work:

87. The labor force participation rate.

88. The size of the labor force.

89. The unemployment rate.

H. Suppose that NSO survey reported the following data in abarangay of 1,000 people: 480 worked at least 1 hour as paidemployees; 120 did not work but were temporarily absent fromtheir jobs; 240 did not have jobs and didn’t want to work; 90 wereavailable for work and last week they had looked for work; and 70were available for work and were waiting to be recalled to theirprevious job.

90. Calculate the unemployment rate.

91. Calculate the labor force participation rate.

I. Suppose there are 180 million people in the labor force, theunemployment rate is 7.0%, the labor force participation rate is70%, and the natural rate of unemployment is 3%.

92. How many people are in the adult population?

93. How many people are not working?

94. How many people are working unemployed?

95. How many people are unemployed?

96. How many percentage points is output above or below itspotential?

J. In a municipal economy, in May 2014, 40,000 were employed,3,500 were unemployed. During June 2014, 120 lost their jobsand didn’t look for new ones, 40 people quit their jobs and retired,180 people who had looked for work were hired, 70 peoplebecame discouraged workers, and 60 new graduates looked forwork

97. Calculate the change in the unemployment rate fromMay 2014 to June 2014.

K. Suppose there is only one labor market in Econland. Allworkers have the same skills, and all firms hire workers with theseskills. Use the accompanying diagram, which shows the supply ofand demand for labor, to answer the following questions. Illustrateeach answer with a diagram.

98. What is the equilibrium wage rate in Econland?

99. At the equilibrium wage rate, what are the level ofemployment, the size of the labor force, and theunemployment rate?

100.If the government of Econland sets a minimum wageequal to P30 per hour, what will be the level ofemployment, the size of the labor force, and theunemployment rate?

101.If unions bargain with the firms in and set a wage rateequal to P60 per hour, what will be the level ofemployment, the size of the labor force, and theunemployment rate?

102.If the concern for retaining workers and encouraginghigh quality work leads firms to set a wage rate equal to50, what will be the level of employment, the size of thelabor force, and the unemployment rate?

L. A rise in the unemployment rate accompanies a fall in realGDP. Which of the following are consistent with the observedrelationship between growth in real GDP and changes in theunemployment rate? Which are not?

103.A rise in the unemployment rate accompanies a fall inreal GDP.

104.An exceptionally strong business recovery is associatedwith a greater percentage of the labor force beingemployed.

105.Negative real GDP growth is associated with a fall in theunemployment rate.

50

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Boyes, William and Melvin, Michael, ECONOMICS, 9th Edition, South-WesternCengage Learning, Mason USA, 2014

Brue, S.L. et al. ESSENTIALS OF ECONOMICS, 3rd Edition, New York McGraw HillIrwin, 2014

Cowen, Tyler and Tabrrok, Alex, MODERN PRINCIPLES OF ECONOMICS, 2nd Edition,Worth Publishing, USA, 2013

Cruz, Peer T. INTRODUCTION TO ECONOMICS Quezon City, C & E Publishing Inc.,2011

Dornbusch, R.et al. MACROECONOMICS Boston McGraw Hill Irwin, 2004

Krugman, Paul and Wells, Robin, ECONOMICS, 3rd Edition, Worth Publishing, USA,2013

Mankiw, N. Gregory, PRINCIPLES OF ECONOMICS, 6th Edition, South-WesternCengage Learning, Mason USA, 2012

Medina, Roberto G. PRINCIPLES OF ECONOMICS. 856 Nicanor Reyes SR. St.Sampaloc Mla: Rex Book Store Inc, 2003

Nicholson, Walter and Snyder Christopher, MICROECONOMIC THEORY: BASICPRINCIPLES AND EXTENSIONS, 10th Edition, Thomson Learning AcademicResource Center, 2008

Roger, Arnold A., ECONOMICS, 11the Edition, South-Western Cengage Learning,Mason USA, 2014

Rosser, Mike, BASIC MATHEMATICS FOR ECONOMISTS, Routledge Taylor andFrancis Group, New York City, USA.

Schiller, Bradley R. THE MACROECONOMY TODAY Boston McGraw Hill Irwin, 2008

Varian, Hal R. INTERMEDIATE ECONOMICS: A MODERN APPROACH W.W Nortonand Company, Inc., New York, 2010

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