University of the Philippines

SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #1

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

MULTIPLE CHOICE
Instructions: Choose the letter of the best answer to each question.

1. Economics is about the allocation of scarce resources. Which of the following is not an example of
economic scarcity?
A. If Bryan brings Trisha out to the movies, he will not be able to afford dinner with Marissa.
B. If Marissa goes for a run today, she will have less time to study for her Economics exam.
C. If Bryan dates both Trisha and Marissa, he will have to buy two Christmas presents.
D. If Trisha receives several books for Christmas, she will have to reallocate space on her
bookshelves to accommodate new books.

2. Economies can choose alternative production combinations through:

A. Production possibility curves
B. Social welfare curves
C. Indifference curves
D. Utility curves

3. Which of the following concepts is demonstrated by an economy’s PPF?

A. Equity
B. Opportunity cost
C. Elasticity
D. Preferences

4. One of the fundamental principles in economics states that a mutually beneficial trade can make
everyone better off. On what basis does such trade occur?
A. Comparative advantage
B. Absolute advantage
C. Resource endowments
D. None of the above

5. In a free market, the market mechanism is the tendency for:

A. Consumers to adjust their preferences until the market clears
B. Buyers to adjust their costs until the market clears
C. The government to set the price
D. None of the above

6. Which of the following will most likely cause a movement along the demand curve for footballs in
the Philippines?
A. The Azkals (Philippine football team) lose all their games in one season.
B. Phil Younghusband (Azkals superstar) gets engaged to his movie star girlfriend.
C. Toby’s sports store offers a sale in footballs.
D. All of the above
 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #1

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

7. The equilibrium price in a market is

A. The price at which the market will tend to be stable, with no tendency for price or quantity
to change
B. The price at which demand equals supply
C. The price towards which the market mechanism will adjust if the market is competitive
D. All the above

8. If fertilizer prices increase, we can expect a:

A. Downward movement on the demand curve for palay
B. Upward movement on the demand curve for palay
C. Shift to the left of the demand curve for palay
D. Shift to the right of the demand curve for palay

9. Which of the following could cause the equilibrium price and quantity for cars to increase?
A. Imports of cheaper car components from China
B. A rise in average income of consumers
C. An increase in the world price for diesel and gasoline
D. An agreement among car dealers to increase the retail price of cars

10. An increase in income levels causes the demand curve for rice to shift to the right. Assuming the
rice market is competitive, what effect will this have on the supply of rice?
A. There will be a movement along the supply curve.
B. The supply curve will also shift to the right to meet demand.
C. There will be no change in supply since income only affects the demand side.
D. None of the above
 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #1

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

SHORT ANSWERS
Instructions: Give short answers (in 2 to 3 sentences if possible and/or with the required graph/s) to the
following questions. Be sure to put your complete answers in your answer sheet, including all graphs.

1. The information below shows the production possibilities for the country of Genovia for two
commodities: food and machines. It shows potential pairs of outputs that can be produced with
the given resources and available technological knowledge of Genovia, assuming that all resources
are fully employed. The country can choose one of the following combinations.

Possibility Food Machines

A 0 150
B 10 140
C 20 120
D 40 50
E 50 0

A. Given the information available in the preceding table, construct Genovia’s production
possibility frontier (PPF). Take note of the appropriate use of the elements of a graph (i.e. labels,
axes, legends).
 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #1

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

B. Plot the following producing point when Genovia is producing:

a. 30 units of food and 90 units of machine (label as point F)
b. 100 units of machine and 35 units of food (label as point G)
c. 80 units of machine and 25 units of food (label as point H)

C. Relative to its position from the PPF, what do points F, G, and H each represent?

➢ Point F lies on Genovia’s PPF. This production possibility is efficient.

➢ Point G lies outside Genovia’s PPF. This production possibility is infeasible.
➢ Point H lies inside Genovia’s PPF. This production possibility is inefficient. Genovia can still
increase the production of both food and machine given its available resources.

D. Assume that a devastating typhoon hit Genovia and resulted in the destruction of the country’s
infrastructure necessary in its production. How will this affect Genovia’s PPF?

The destruction of infrastructure causes a decrease in the production of both food and machine. Hence,
Genovia’s PPF will shift inward.
 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #1

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

2. Consider two hypothetical countries called Tom Republic and Jerry Republic. Refer to the table
below that shows the production of two products, fish and cheese, by both Tom Republic and Jerry
Republic, to answer the questions that follow.

Necessary Labor Hours for Production

Product
Tom Republic Jerry Republic
1 unit of fish 3 2
1 unit of cheese 12 4

A. Which of the two countries has an absolute advantage in producing fish?

Jerry Republic has the absolute advantage in the production of fish since it needs fewer inputs (2 labor
hours) to produce a unit of fish compared to Tom Republic that needs 3 labor hours to produce the same
amount of fish.

B. Which of the two countries has an absolute advantage in producing cheese?

Jerry Republic also has the absolute advantage in the production of cheese since it needs fewer inputs (4
labor hours) to produce a unit of cheese compared to Tom Republic that needs 12 labor hours to produce
the same amount of cheese.

C. What is the cost of producing one (1) unit of fish, in terms of cheese, in Tom Republic?
The opportunity cost of producing 1 unit of fish in Tom Republic is the foregone ¼ unit of cheese.

D. What is the cost of producing one (1) unit of cheese, in terms of fish, in Tom Republic?
The opportunity cost of producing 1 unit of cheese in Tom Republic is the foregone 4 units of fish.

E. What is the cost of producing one (1) unit of fish, in terms of cheese, in Jerry Republic?
The opportunity cost of producing 1 unit of fish in Jerry Republic is the foregone ½ unit of cheese.

F. What is the cost of producing one (1) unit of cheese, in terms of fish, in Jerry Republic?
The opportunity cost of producing 1 unit of cheese in Jerry Republic is the foregone 2 units of cheese.

G. Which of the two countries has a comparative advantage in producing fish? Why?
Tom Republic has the comparative advantage in the production of fish because it can relatively more
efficiently produce fish compared to Jerry Republic. That is, it only has to give up fewer units of cheese
to produce 1 unit of fish than what Jerry Republic needs to forego.

H. Which of the two countries has a comparative advantage in producing cheese? Why?
Jerry Republic has the comparative advantage in the production of cheese because it can relatively more
efficiently produce cheese compared to Tom Republic. That is, it only has to give up fewer units of fish
to produce 1 unit of cheese than what Tom Republic needs to forego.
 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #1

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

3. Consider the market for ice cream where there are only two consumers, Katherine and William,
who have the following demand schedules:

Katherine’s demand equation: 𝑸𝑲𝒂𝒕𝒉𝒆𝒓𝒊𝒏𝒆

𝑫 = 𝟔𝟓 − 𝑷
Price of Ice Cream (₱) Quantity of Ice Cream Demanded
₱0 65
₱5 50
₱ 10 35
₱ 15 20
₱ 20 5

William’s demand equation: 𝑸𝑾𝒊𝒍𝒍𝒊𝒂𝒎

𝑫 = 𝟒𝟓 − 𝑷
Price of Ice Cream (₱) Quantity of Ice Cream Demanded
₱0 45
₱5 40
₱ 10 35
₱ 15 30
₱ 20 25

A. Derive and illustrate the corresponding market demand equation.

 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #1

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

The market demand equation is given by:

⟹ 𝑄𝐷 = 𝑄𝐷𝐾𝑎𝑡ℎ𝑒𝑟𝑖𝑛𝑒 + 𝑄𝐷𝑊𝑖𝑙𝑙𝑖𝑎𝑚
⟹ 𝑄𝐷 = (65 − 3𝑃) + (45 − 𝑃)
⟹ 𝑸𝑫 = 𝟏𝟏𝟎 − 𝟒𝑷
B. What is the quantity demanded at the price ₱ 10?

From the market demand equation:

⟹ 𝑄𝐷 = 110 − 4𝑃 ≡ 110 − 4(10)
⟹ 𝑄𝐷 = 110 − 40
⟹ 𝑸𝑫 = 𝟗𝟎

C. Why does quantity demanded decrease when price increases? What two reasons determine
the slope of the demand curve? Explain.

This is because of the law of downward-sloping demand wherein when the price of a good is raised, other
things held constant, buyers tend to buy less of the commodity. The reasons behind this are (1) the
substitution effect which occurs when a good becomes relatively more expensive compared to
substitutable goods when its price rises, and (2) the income effect where a higher price makes the
consumer somewhat poorer than he/she was before.

D. Given an increase in price from ₱ 15 to ₱ 20, what happens to the market demand? Would
this increase in price cause a shift in the demand curve? Why or why not?

The market demand moves along the demand curve and decreases by 20 ice cream cones. This price
increase would not cause a shift in the demand curve since only non-price factors can cause such shifts.
Changes in price cause movements along the demand curve.

4. In the same market for ice cream, assume that there are two producers, Ben and Jerry, with identical
𝑱𝒆𝒓𝒓𝒚
supply equations given by: 𝑸𝑩𝒆𝒏𝑺 = 𝑸𝑺 = −𝟐𝟎 + 𝟑𝑷.

A. Derive and illustrate the corresponding market supply equation.

The market supply equation is given by:

𝐽𝑒𝑟𝑟𝑦
⟹ 𝑄𝑆 = 𝑄𝑆𝐵𝑒𝑛 + 𝑄𝑆
⟹ 𝑄𝑆 = (−20 + 3𝑃) + (−20 + 3𝑃) = 2(−20 + 3𝑃)
⟹ 𝑸𝑺 = −𝟒𝟎 + 𝟔𝑷
 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #1

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

B. What is the quantity supplied at the price ₱ 10?

From the market supply equation:

⟹ 𝑄𝑆 = −40 + 6𝑃 ≡ −40 + 6(10)
⟹ 𝑄𝑆 = 60 − 40
⟹ 𝑸𝑺 = 𝟐𝟎

C. Give three major elements that affect the slope of the supply curve.

➢ Production costs
➢ Prices of related goods
➢ Government policy or special influences

D. Given a decrease in price from ₱ 20 to ₱ 15, what happens to the quantity supplied? Would
this decrease in price cause a shift in the supply curve? Why or why not?

The quantity supplied decreases to 50. This decrease in price caused the market to move along, and
not shift, the supply curve to reach the corresponding quantity. Only changes in non-price factors
cause a shift in the supple curve.
 University of the Philippines
SCHOOL OF ECONOMICS

Economics 100.1
1st Semester, AY 2021-2022
REVIEWER FOR QUIZ #1

Prof. MS Gochoco-Bautista J. Abong/L. Garces/P. Benedicto

5. Taking the demand and supply curves for ice cream from items 3 and 4:
A. Illustrate the market equilibrium in a graph.

B. What is the equilibrium price and quantity in the market for ice cream?

➢ Market equilibrium is where 𝑸𝑫 = 𝑸𝑺 . Hence, we can solve for the market-clearing price 𝑷∗ :

⟹ 𝑄𝐷 = 𝑄𝑆
⟹ 110 − 4𝑃 ∗ = −40 + 6𝑃 ∗
⟹ 10𝑃∗ = 150
⟹ 𝑷∗ = 𝟏𝟓

➢ We plug in 𝑷∗ to either 𝑸𝑫 or 𝑸𝑺 to solve for the equilibrium quantity of ice cream 𝑸∗ :

⟹ 𝑄 ∗ = 𝑄𝐷 (𝑃 ∗ ) or ⟹ 𝑄 ∗ = 𝑄𝑆 (𝑃∗ )
⟹ 𝑄 ∗ = 110 − 4(15) ⟹ 𝑄 ∗ = −40 + 6(15)
⟹ 𝑄 ∗ = 110 − 60 ⟹ 𝑄 ∗ = −40 + 90
⟹ 𝑸∗ = 𝟓𝟎 ⟹ 𝑸∗ = 𝟓𝟎