Economic Analysis Worktext

worktext
ECONOMIC
ANALYSIS
on
Jameson N. Estrada
Pangasinan State University
LINGAYEN CAMPUS
PANGASINA
N
STATE U
NIVERSIT
Y
PANGASINA
N
STATE U
N
IVERSITY
1979 Lingayen, Pangasinan

Economics 111 with the course title Economic Analysis explores basic economic
theories and principles both in Microeconomics and Macroeconomics which are
supported 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 objectives
would be achieved, a need for a teaching resource material is necessary. Thus, this
worktext has been prepared.
The worktext is intended for use by students of AB Economics program taking
up the subject Econ 111 with the goals of helping them master the principles essential
for understanding economic analysis and assisting them to apply the economic
perspective in order to reason accurately and objectively about economic matters.
Likewise, this has been designed as an instrument for learning development and
assessment, providing students with a practical approach to applying the knowledge
learned in the lectures. Each worktext covers exercises that is built upon the lessons
of 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 – to
study and learn the subject. But, it is assured that the effort is well worth it. It is
hoped this modest work helps everyone. So, the best of luck as you begin your journey
in 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

1
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 resources
to satisfy their unlimited wants. ____________
3. Goods are scarce because people desire much more
than the economy can produce. ____________
4. Macroeconomics views the performance of the economy
as a whole. ____________
5. Economists seldom use theories, or models, to help
understand the effects of an economic change.
____________
6. Economic models and theories are accurate statements
of reality. ____________
7. People usually respond to incentives, exploiting
opportunities to make themselves better off. __________
8. Firms buy the resources they need to produce goods and
services in factor markets. ____________
9. Wants are unlimited and resources are limited. ________
10. Scarcity is a situation in which something is being
wasted. ____________
11. If an economist wants to analyze how a market works, he
applies a macroeconomic model. ____________
12. A production-possibility frontier depicts the unlimited
wants of society. ____________
13. Positive economics deals with factual statements while
normative economics reflects value judgments.
____________
14. Consumer goods satisfy wants directly, whereas capital
goods do so indirectly by aiding the production of
consumer goods. ____________
15. Labor is a human resource that combines the factors of
production 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 individual
entities 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 they
try to satisfy their wants in a world of scarcity.
19. __________ is the condition in which our wants are
greater than the resources available to satisfy them.
20. __________ are inputs into the production process and
can be classified as land, labor, capital, and
entrepreneurial ability.
21. __________ refers to the physical and mental efforts
and talents that people contribute, provide or render to
the production of goods and services.
22. __________ is a simplified representation of complex
economic activities, systems, or problems.
23. __________ denotes the most effective use of a
society’s resources in satisfying people’s wants and
needs.
24. __________ allows analysis of the effect of a change in
one factor by holding all other relevant factors
unchanged.
25. ___________ represents transactions within the
economy as flows of goods, services, and money
between households and firms.
Republic of the Philippines
Lingayen 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 the
following 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 marketing
strategies
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% in
December 2013. ___________
47. Philippine GDP, adjusted for inflation, grew by 7.6
percent in 2013. ___________
48. A strong typhoon hit the country that reduced the supply
of agricultural commodities. ___________
49. Last week many commercial banks lowered their
interest rate on business loans by one-half of 1
percentage point. ___________
50. The consumer price index rose by 2.2 percent in 2013.
___________
51. The price to be charged for an automobile by a
manufacturer. ___________
52. A worker’s decision regarding how much to work each
week. ___________
53. An unexpected mad cow disease in China reduced the
beef supply and caused the price of beef to rise.
___________
54. Blackberry Mobile laid off five thousand workers last
year. ___________
55. The factor that causes interest rates to be low one year
and 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 iPhones
exported to France? ___________
59. The government policies to be adopted to promote
employment 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 in
Metro Manila. ___________
63. Increasing the minimum wage results in more
unemployment. ___________
64. What government policies should be adopted to make it
easier for low-income students to attend college?
___________
65. How many people are employed in the economy as a
whole this year? ___________
66. Measuring the impact of tax policies on total consumer
spending 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 the
purchasing power of the consumers. ___________
69. The cost of living has increased 18 percent over the past
5 years. ___________
70. What factors that induce the demand for Ipad tablets to
rise. ___________
71. The industrial companies should cut back on our use of
carbon-based fuels such as coal and oil. ___________
72. A 10 percent in income results to a 5 % increase in the
consumption of lobsters. ___________
73. If costs of production increase, the supply of DVD players
decrease. ___________
74. Philippine trade restrictions cost consumers P35 billion a
year. ___________
75. What determines the overall level of prices in the
economy 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. Assumption
C. 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 through
the ____________.
92. Businesses receive revenue from households through
the ____________.
93. The resource market is the place where households
____________ resources.
94. In this circular flow diagram, money income and
consumption expenditure flow ____________.
95. In this circular flow diagram, inputs and outputs flow
____________.
96. In the market for the factors of production, households
are sellers, and firms are ____________.
97. In the product market, ___________ combine resources
to produce and sell goods and services.
98. In the resource market, households provide the
____________ that firms use to produce goods and
services.
99. Households sell labor to the resource market and
receive factor payment in the form of ____________.
100.Households use the income they have received from
the sale of resources to ____________ goods and
services.
Goodsan
d
services
Revenue
Goods and
services
Consumption
expenditures
Money incom
e
(wages,rents,
interes
t,profits)
neuria
lability
Cost
s
Resou
rces
BUSINESSES HO SEHOLDS
PRODUCT
MARKET
RESOURCE
MARKET Labor, land, capi
tal,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 relationship
between two variables. _____________
2. A bar graph is a convenient way to represent the different
parts of something that when added together equal the
whole. _____________
3. Two variables are directly related if one variable rises as
the other falls. _____________
4. An inverse relationship is a positive relationship between
two 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 only
the upper right quadrant of the coordinate system is used
in economics. _____________
8. A downward-sloping line (left to right) represents two
variables that are inversely related. _____________
9. A dependent variable changes as a consequence of a
change in independent variable. _____________
10. The point at which a straight line cuts the vertical y-axis
is 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-variable
relationship are allowed to change, the graph of the
relationship 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 II
C. Quadrant III D. Quadrant IV
E. Quadrant V
14. In the equation of a straight line 𝑦 = 𝑚𝑥 + 𝑏, 𝑚 represents the
A. vertical intercept. B. dependent variable.
C. constant term. D. independent variable.
E. slope.
15. A linear equation is given 𝑃 = 50 − 3𝑄 𝑑 where P represents
the price and 𝑄 𝑑 represents quantity demanded. What is the
vertical intercept?
A. 50 B. 25
C. 3 D.
50
3
E. 1
16. Graphs are a convenient and revealing way to represent
economic relationships. Which of the following is not a form of
graph?
A. pie chart B. scatter diagram
C. line graph D. bar graph
E. linear equation
17. What is the coordinate (ordered pair) of point A as shown in
the 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
2
𝑦 − 4 B. 𝑥 = 2𝑦 + 8
C. 𝑦 = 2𝑥 + 4 D. 𝑥 = 8𝑦 + 16
E. 𝑥 =
1
4
𝑦 − 2
Lingayen Campus
WORKTEXT 2 : GRAPHICAL ANALYSIS
NAME: _______________________________________ SCORE: ___________________________________
4

19. What is the slope of the line containing the points (4, 5) and
(−8, −7)?
A. 4 B. −0.5
C. 1 D. 12
E. −3
20. When a direct relationship is graphed, the resulting line or
curve 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 exhibit
an 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 goes
up. In this statement you can predict that the relationship between
variables 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. 5
B. 3
C. −1
D. 1
E. 0.5
24. Given the following diagram, the slope of straight line EF is
A. −5
B. 3
C. −1
D. 1
E. 5
25. A shift in a curve represents a change in
A. 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 direct
or inverse. Draw a graph and explain the relationships you would
expect to find between the variables.
26. Price of concert tickets and concert attendance at
Pangasinan State University (PSU). ____________
27. Weekly income earned by a worker and his weekly
consumption on personal care goods. ____________
28. No. of millimeters of rainfall per month and the sale of
umbrellas. ____________
29. Amount of tuition fee and the level of enrollment at a
university. ____________
30. The popularity of a celebrity and the price of her play
tickets. ____________
31. The apartment rental and the no. of apartment units
occupied. ____________
32. Annual government budget and government
expenditure on infrastructure. ____________
33. The price of refrigerators and the production of
refrigerators. ____________
34. The price of toothbrushes and the quantity
manufacturers will sell per month. ____________
35. The cost of raw materials for shoes and the no. of units
produced by a shoe firm. ____________
36. The hourly wage and the no. of hours worked per week
by a working student. ____________
37. No. of hours (study time) and the points (examination
score). ____________
38. The number of children in a family and the number of
toys 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 the
athletic budget. ____________
41. A person’s income and the number of Chowking’s
Lauriat consumed per month. ____________
42. The amount of fertilizer added to a hectare of land and
the amount of watermelon grown on that land in one
growing season. ____________
43. An automobile’s horsepower and its gasoline mileage (in
miles per gallon). ____________
44. The age of a student leader and his height. __________
45. The price of car and the demand for gasoline.
___________
5

B. Consider the following statements and indicate which diagram
below matches each statement. Which variable would appear on
the horizontal and which on the vertical axis? In each of these
statements, is the slope positive, negative, zero, or infinity?
46. The number of apps downloaded in App Store goes up
when the number of Apple devices sold increases.
___________
47. Regardless of its price, a restaurant buys the same
quantity of salt. ___________
48. If the price of movie tickets decreases, more consumers
go to see movies. ___________
49. More experienced workers typically have higher incomes
than less experienced workers. ___________
50. Whatever the temperature outside, Filipinos consume the
same number of pork barbecue per day. ___________
51. Consumers tend to buy less hamburgers when the price
of pizza falls. ___________
52. A research finds no relationship between the number of
diet e-books purchased and the number of pounds lost
by the average dieter. ___________
53. Because they are considered necessary for diabetic
patients, 1000 insulin injections are bought every month,
regardless of price. ___________
54. A subscriber pays the internet provider company P1500
per month for unlimited an internet connection
(regardless the number and length of time).
___________
55. The price of washing machines increases when the cost
of production rises. ___________
C. The following data shows the relationship between two
variables 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 by
sector for 2014 provided by DBM.
57. Represent the above data in pie chart form.
E. Suppose the following information reflects the number of
smartphones 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 income
tax paid by six individuals. Apart from the fact that they receive
different salaries and paid different amounts of income tax, these
six 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. Put
the annual salary on the vertical axis.
60. What is the average slope of the curve between the
points 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 the
points 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? What
does this relationship imply about how the level of
income taxes affects a person’s incentive to earn a
higher 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

DepEd
23%
DPWH
17%
DND
14%
DILG
13%
DA
10%
DSWD
9%
DOH
8%
DOTC
7%
Governmnet Budget Allocation
DepEd
DPWH
DND
DILG
DA
DSWD
DOH
DOTC
G. Suppose the graph below tells the new jobs added to the
Philippine economy in 2013. Answer the following.
63. The diagram above that shows the number of jobs
generated in 2013 is what form of graph? ___________
64. What month has the lowest number of jobs added to the
economy? ___________
65. What month has the greatest number of jobs added to the
economy? ___________
66. How many jobs are created in May 2013? ___________
67. What are the months with same number of jobs added to
the economy? ___________
H. Suppose the graph below indicates the budget allocation of the
Philippine government by department in 2013. Answer the
following.
68. The diagram above that shows the Philippine
government budget allocation by department is what form
of graph? ___________
69. What government department received the highest
amount of budget in 2013? ___________
70. What government department received the least amount
of 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 firm
to answer the following.
73. The diagram above that shows the relationship between
total cost and output produced is what form of graph?
___________
74. Based on the graph, what linear relationship exists
between 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 a
total cost of P500,000 ? ___________
77. When the firm produces 5 units of output, how much will
the cost be incurred by the firm? ___________
J. Suppose you are given the following data on wage rates and
number 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 seven
points. Label each point A, B, C, and so on. Which
variable do you think should be measured on the vertical
axis, and which variable should be measured on the
horizontal 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. What
is the slope as you move from point A to point F?
0
10
20
30
40
50
60
70
80
90
100
NumberofJobs(inthousands)
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 10
TotalCost(nthousandpesos)
Output Produced
7

K. The following shows the revenue data of a firm selling good
X.
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 the
vertical axis and quantity as the horizontal axis and plot
the 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 columns
2 and 3. Use total revenue as the vertical axis and
quantity as the horizontal axis.
83. What is total revenue when the price is P550? Will total
revenue increase or decrease when the price is lowered?
L. The following table contains data on the relationship between
consumption 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 level
of income?
M. Assume a research firm collects survey sales data that reveal
the relationship between the possible selling prices of
smartphones and the quantity of smartphones consumers would
purchase per month at alternative prices. The report is disclosed
by the following table.
88. Based on these data, describe the relevant relationship
between the price of a smartphone and the quantity
consumers are willing to purchase, using a verbal
statement a graph or an equation. Which model do you
prefer and why?
89. Plot the data.
90. From this relationship between price and quantity
demanded, derive a linear equation.
N. Determine the slope, the 𝑥-intercept and the 𝑦-intercept of the
following linear equations. Graph each equation using the derived
intercepts.
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
8
𝑥 − 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 quantity
demanded. _________
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 of
demand. _________
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 certain
price. _________
11. Willingness and ability of a consumer to buy a good under
various conditions. _________
12. Graph that shows relationship between price and quantity
demanded. _________
13. All other things being equal or held constant. _________
14. Reflects various quantities of a good at various prices on
a table. _________
15. Amount of money that a buyer pays for a good. ________
EXERCISE 2
16. When demand increases, the demand curve shifts
A. 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 purchase
more 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 consumer
that causes a movement along a demand curve?
A. tastes and preferences B. income
C. price of the good D. prices of related good
E. expectations
19. Which of the following pairs of goods are most likely
substitutes?
A. milk and sugar B. DSLR and lens
C. Google and Apple D. tablet and smartphone
E. lettuce and salad dressings
20. People come to expect that the price of a liter of gasoline will
rise 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 good
demanded 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 Good
B, 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.
Lingayen Campus
WORKTEXT 3 : DEMAND ANALYSIS
NAME: _______________________________________ SCORE: ___________________________________
9

23. If a good is an inferior good, then the demand for that good
decreases when the
A. number of buyers increases. B. price of a substitute rises
C. price of the good increases. D. income increases.
E. income decreases.
24. Which of the following will shift the demand curve of onions to
the 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 traveling
by 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 the
original good increases. _________
67. When the price of a complement rises, demand for the
original good decreases. _________
68. When income rises, demand for an inferior good
decreases. _________
69. When income rises, demand for a normal good
increases. _________
70. When tastes change in favor of a good, demand for the
good increases. _________
71. When tastes change against a good, demand for the
good decreases. _________
72. When income rises, demand for an inferior good
73. When income falls, demand for an inferior good
74. When the price is expected to fall in the future, demand
for the good decreases today. _________
75. When the price is expected to rise in the future, demand
for the good increases today. _________
76. When the price of a complement falls, demand for the
original good increases. _________
77. When the price of a substitute falls, demand for the
original good decreases. _________
78. When the price of a good rises, quantity demanded
79. When the price of a good falls, quantity demanded
80. When the number of consumers rises, market demand
for the good increases. _________
81. When the number of consumers falls, market demand for
the 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 the
good 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
following problems.
A. Determine whether each of the following will have effect on the
change in the quantity demanded (movement along the demand
curve) or change in demand (shift of the demand curve)? Indicate
what variable or factor causes the change.
86. A new version of a mobile game app just came out and
Adrian purchased it now because it has improvements
over the current version. _________
87. The demand for laptops falls due to the mass
distribution of affordable tablets in Metro Manila. ______
88. The price of Fuji apples falls, thus a market goer buys
more. _________
89. The price of sugar (a complement) eventually
increases, therefore, the weekly demand for milk tea
90. When the price of beef rises, consumers tend to
increase their purchases for pork. _________
91. A store owner finds that customers are willing to pay
more for umbrellas on rainy days. _________
92. When PLDT, a long-distance telephone service
provider, offered reduced rates on weekends, its volume
of weekend calling increased sharply. _________
93. People buy more long-stem roses the week of
Valentine’s Day, even though the prices are higher than
at other times during the year. _________
94. A sharp rise in the price of gasoline leads many
commuters to join carpools in order to reduce their
gasoline purchases. _________
95. When the price of Apple Ipads decreases, the demand
for Samsung tablets (a substitute) falls. _________
96. A new study reports that chocolate has significant
benefits. Eventually, the demand for Hershey’s and
Cadbury chocolate brands increases. _________
97. When the price of lobster increases, the demand of
Salazar family for steak increases. _________
98. The demand for Windows-based computers rises when
the price of Apple computers goes up. _________
99. Everyone thinks that the price of tomatoes will go up
next week, thus people demand more for tomatoes this
week. _________
100.Because of the increased price, a restaurant reduces its
purchases for olive oil and decides to increase its
demand for corn oil. _________
11

101.Due to increase in their income, many company
managers have availed condominium units in the Grand
Midori, a twin–tower luxury condo in Makati City.
_________
102.When Pepito’s income rises, his demand for secondhand
clothes declines as he prefers to buy brand-new clothes.
_________
103.As the population increases in Pangasinan, the demand
for Lingayen’s fish sauce (patis) rises. _________
104.A company did a full-blast media advertisement for its
improved product brand. _________
105.Globe Telecom decided to reduce its postpaid plan rates
for its new line-up of smartphones. Many subscribers
eventually demand for postpaid plans. _________
B. Think about and consider the demand for the three tablet
brands: Apple Ipad Mini, Google Nexus 7, and Samsung Galaxy
Tab 8.0. Explain the effect of the following events on the demand
for Ipad Mini and the quantity of Ipad Mini demanded, other things
remaining the same.
106.The price of a Google Nexus 7 falls by 20%. _________
107.The number of people willing to download apps and
games 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 to
increase due to in demand use of tablet apps. _________
111.The price of Ipad Mini is anticipated to rise rapidly in the
near future. _________
112. It has been found out that the latest batch of Ipad Mini
produced and distributed have factory defects with
software glitches. _________
113.A new tablet brand from HTC that is a close substitute for
Ipad Mini introduced to the market. _________
114.Many telecom carriers have ordered Ipad Mini for their
internet plan offerings. _________
115.Samsung Galaxy Tab offers an attractive promotion
wherein it is bundled with a Samsung digital camera
where a customer can save P6, 000. _________
116.The prices of smart cover and dock keyboard for Ipad
mini decline. _________
117. Apple aggressively advertises in print ads and TV the
unique selling points of Ipad Mini. _________
C. Given the options below, choose the appropriate letter that
corresponds to the effect on demand of Coffee X, an instant
coffee. Based on the chosen letter; indicate what variable or
determinant of demand affects the change and show through
graph the change of the demand curve.
A. Increase in Quantity Demanded
B. Decrease in Quantity Demanded
C. Increase in Demand
D. Decrease in Demand
118.The price of Coffee X increases by 5%. Aling Rosing
buys less for her sari-sari store. _________
119. A decrease in the price of tea, a related good, caused
Aling Rosing to reduce its purchases of Coffee X.
_________
120. Many consumers like the new flavor variant of Coffee
Y than that of Coffee X. _________
121.A new coffee brand, Coffee Z, has introduced in the
market with full-blast media advertisement. ________
122.Many coffee shops and internet café chops in
Pangasinan have been established. _________
123.The price of a particular coffee creamer brand had
price roll back promo of less 20% off. _________
124.The supply for sugar decreases thus the price of sugar
125.It is reported that frequent intake of instant coffee
increases the risk of a certain illness. _________
126.Because it’s summer season, the demand for cold
drinks 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 increase
tomorrow. _________
129.The profit earned of Aling Rosing from her sari-sari
store increases. _________
130.Consumers expect that stocks of Coffee X in
supermarkets will be running out next week.
_________
131.Due to rainy and cold season, consumers tend to
purchase more of Coffee X. _________
132.Both prices of Coffee Y and Coffee Z rise. _________
133.Some imported instant coffee brands from Japan
flocked 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
following problems.
A. The demand curve for a commodity is given by the
equation, = 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 this
commodity?
141.What quantity would be demanded if the commodity
were free?
142.Graph the demand curve
B. Suppose the demand for onions per kilo in Pangasinan is
represented in the table below, expressed as = − .
Price (per kilo) Quantity Demanded
8 260
16 220
24 180
32 140
40 100
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 (a
substitute), the demand for onions decreases, and at
each of the prices on the original demand schedule, the
quantity demanded is now 40 kilos lower than it was
previously. Create a new demand schedule
representing the lower demand for onions and derive a
new demand function based on the new demand
schedule. Graph the original and new demand curve.
145.Now assume that due to rising incomes, buyers in
Pangasinan have increased their purchases of onions
thus demand increases. If at each of the prices on the
original demand schedule, the quantity demanded is 20
kilos higher that it was previously, what is the new
demand schedule and new demand equation? Graph
the original and new demand curve.
EXERCISE 8
following problems.
146.Suppose that you own s store that sells t-shirts. You
survey your customers and analyze your sales data to
see how many t-shirts you can expect to sell at various
prices. If your research enables you to have a market
schedule, create a hypothetical demand schedule for
that. Based on the demand schedule, plot the demand
curve and derive the demand equation.
147.Choose one of the following products: iced tea,
hamburgers or pencils. Name and list at least five
substitutes and five complements for the chosen
product.
148.Think about different brands of baby diapers: Pampers,
Huggies, EQ, Magic Color, etc. What factors affect
demand for Huggies baby diaper? List ten examples of
a change in demand in the market for Huggies baby
diaper. For each example, identify which factor that
affects demand is involved.
149.Roger goes to the department store to buy a P1,200
pair of blue jeans and discovers that they are on sale
for P600. If Roger buys two pairs, is this an example of
the income effect or the substitution effect? Explain
your answer.
150.Choose a product used by most consumers, and
create a hypothetical demand curve showing demand
for that product in a town of 1,000 people. Label it A.
On the same graph, add a demand curve showing
demand if the population drops to 700. Label it B.
Which factor does the shift in the demand curve
represent?
13

1
WORKTEXT 4 : Supply Analysis Econ 111 – Economic Analysis
EXERCISE 1
number.
1. Firms want to earn a profit, so when the price of a good
rises 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 supply
of a good, shifting the supply curve to the right. ________
4. The increased price of an input causes a decrease in
supply, shifting the supply curve to the left. ___________
5. The market supply curve is the sum of the individual
supply curves of all firms in the market. ____________
6. When the price of a good changes, this results in
a movement along the supply curve and a change in the
quantity supplied. ____________
7. The law of supply states that producers are willing to sell
less of a good or service at a higher price. ____________
8. Change in supply is an increase or decrease in the
amount of a good or service that producers are willing to
sell because of a change in price. ___________
9. Input costs are a major factor that affects production
costs and, therefore, supply. ____________
10. Taxes tend to increase supply; subsidies have the
opposite effect. ____________
11. If a farmer expects the price of corn to be higher in the
future, he may store some of the current crop, thereby
increasing supply. ____________
12. An increase in the number of firms means increased
competition, which may eventually drive less-efficient
firms out of the market, decreasing supply. ___________
13. Supply refers to the willingness and ability of consumers
to offer goods and services for sale. ____________
14. Labor productivity involves the application of scientific
methods to the production process. ____________
15. Because the market supply curve holds other things
constant, the curve shifts when one of the factors
changes. ____________
EXERCISE 2
16. An improvement in production technology for a specific good
will 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 because
A. 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, then
A. 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 broccoli
increases, 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.
Lingayen Campus
WORKTEXT 4 : SUPPLY ANALYSIS
NAME: _______________________________________ SCORE: ___________________________________
14

21. Which of the following shifts the supply curve for Baguio
strawberries?
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 the
price of image sensor rises, there is a shift in the supply curve of
digital 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 to
which 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 supply
of 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 .
following problems
A. Determine whether each of the following will have effect on the
change in the quantity supplied (movement along the supply
curve) or change in supply (shift of the supply curve). Indicate
what variable or factor causes the change.
36. Many manufactures of android phones came out in the
market recently. _____________
37. The research team of a certain company develops a new
technology that increases supply of a branded product.
_____________
38. A rise in the wages of paid workers is implemented by
the management in a toy factory. _____________
39. Many homeowners put their houses up for sale during a
real estate boom that causes house prices to rise.
_____________
40. More construction workers temporary move to areas that
have suffered typhoon damage, lured by higher wages.
_____________
41. New technologies have made it possible to build large
cruise ships, Econ cruise lines offer more cabins, at
lower prices, than before. _____________
42. Immediately after the school year begins, fast-food
chains must raise wages, which represent the price of
labor, to attract workers. _____________
43. Potato farmers in Baguio City open temporary roadside
stands during harvest season, even though prices are
usually low at that time. _____________
44. An increase in the excise tax of a certain tobacco
company leads to the reduction of its cigarette supply.
_____________
45. An increase in the number of Internet service providers
increases the supply of such services. _____________
46. Econ Phone develops an effective wireless technology
thus, it increases the supply of cell phones. __________
47. Coco lumber firms expects that there will be a
substantial rise in future prices of coco lumbers, thus the
firms decrease their supply of coco lumbers today.
_____________
48. Since the price of cucumbers increases sharply, a
farmer decreases its supply of watermelons.
_____________
49. The price of notebook computers sharply falls so many
manufacturers produce less. _____________
50. Since bicycles are made out of steel and the price of the
latter increases, many bicycle producers reduce their
supply for bicycle. _____________
15

B. What effect will each of the following have on the supply of
product J? Illustrate with a graph.
51. A technological advance in the methods of producing
product J. _____________
52. A decline in the number of ﬁrms in industry of product J.
_____________
53. An increase in the prices of inputs required in the
production of B. _____________
54. The expectation that the equilibrium price J will be lower
in the future than it is currently. _____________
55. A decline in the price of product A, a good whose
production requires substantially the same techniques
and 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 of
product J produced. _____________
58. A disastrous weather occurred that affects the production
of Good J. _____________
59. A rise in the wages of workers producing product J.
_____________
60. An increase in the cost of media advertisement for
product J. _____________
C. Given the options below, choose the appropriate letter that
corresponds to the effect on supply of Pinoy Mobile, an
android tablet. Based on the chosen letter; indicate what
variable or determinant of supply affects the change and
show through graph the change of the supply curve.
A. Increase in Quantity Supplied
B. Decrease in Quantity Supplied
C. Increase in Supply
D. Decrease in Supply
61. The price of Pinoy Mobile android tablet rises._______
62. A new machinery on production technology speeds up
the manufacturing process of Pinoy Mobile. _________
63. Major internet providers offer Pinoy Mobile as one of the
tablet brands for postpaid plan subscription. _________
64. A flock of android phone brands from China
manufacturers came into the Philippine market.
_________
65. The prices of LCD displays and processor chips used in
Pinoy Mobile sharply rise. _________
66. The government levies an increase sales tax on tablet
products. _________
67. The union workers at Pinoy Mobile factory negotiate a
large wage increase. _________
68. The mass supply distribution of major competing tablets
like Ipad and Galaxy Tab affects the supply of Pinoy
Mobile. _________
69. The company producing Pinoy mobile anticipates that
there will be a sharp price reduction of android tablets
after two months. _________
70. A strong typhoon hit the manufacturing site that
stopped production of Pinoy Mobile for several days.
_________
71. The government extends a subsidy of P100 for each
unit produced of Pinoy Mobile. _________
72. Price of Pinoy Mobile drops by 10 percent. _________
73. Better-trained and more-skilled workers are hired to
increase labor productivity in assembling Pinoy Mobile.
_________
74. Firms expect that prices of electronic gadgets will
dramatically rise next month. _________
75. The input costs of producing Pinoy mobile decline.
_________
EXERCISE 5
following problems.
A. Consider the following supply curve of Econ Phone, a new
brand of smartphone in the market. This reflects the relationship
between price (in pesos) and quantity supplied (in thousands).
76. Based on the above supply curve, fill in the supply
schedule below.
Price (P) Quantity Supplied
3,000
30
12,000
24,000
77. If the price per unit of Econ Phone is P18, 000, how
many units would smartphone manufacturer be willing
to 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 and
quantity supplied (in thousands of jeans), draw the
supply curve for branded jeans. Describe the curve.
80. Suppose the yearly supply of cauliflower in Baguio City
is described by the equation 𝑄𝑠 = 150 + 2𝑃 where 𝑄𝑠
is the quantity supplied (in thousands of kilos) and 𝑃 is
the price (in pesos per kilo). What is the quantity of
cauliflower 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 type
are available for sale; when the price is P750, 100 of the
MP3 players are available. Derive the supply equation.
82. At a price P1, 200 per unit, a firm will supply 9,000 of
processor chips for tablets; at P900 per unit it will supply
6,000 units. Determine the equation of the supply
function for this product. Graph the equation.
B. The supply curve for a product is represented by the
equation, 𝑄𝑠 = 600 +
1
2
𝑃, 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 table
below, 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 the
costs of production of sport shoes and the quantity
supplied therefore decreases at each price by 50 units.
Create a new supply schedule demonstrating the
impact of the higher production costs for sport shoe
manufacturers. Plot the original and new demand curve
and explain the graph.
90. Now assume that due to advanced technology and
improvement in supply-chain efficiency, producers are
able to produce more resulting to increased supply of
sport shoes. If at each of the prices on the original
supply schedule, the quantity demanded is 40 kilos
higher that it was previously, what is the new supply
schedule and new supply equation? Graph the original
and new demand curve and explain the graph.
EXERCISE 6
following problems.
91. Suppose that you want to analyze the market supply of
cabbage in Baguio City. You survey all the farms that
produce and sell cabbage and determine how many
kilos they are willing to sell at various prices. If your
survey enables you to make a market supply schedule,
create a hypothetical supply schedule for cabbage. Use
this market supply schedule to draw a market supply
curve and derive a supply equation.
92. You sell eggplants at the Villasis’ Bagsakan Market. If
the price of eggplants increased from Php 30 to Php 45
per kilo, how would your quantity supplied of eggplants
change? How your quantity supplied would change if the
price decreased to Php 15?
93. Why are producers like famers and manufacturers
willing to spend or sell more when prices are higher?
94. Suppose that you are a manufacturer of laptop
computers. What factors affect supply for laptops? List
10 examples of a change in supply in the market for
laptop. For each example, identify which factor that
affects supply is involved and state whether supply
increases or decreases.
95. Choose an item of food clothing or electronic product
that you buy regularly. Name and list 10 input costs that
might affect the supply of that product.
96. If the price of a video game rises, what will the law of
supply 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 supply
of fruits and vegetables in your local supermarket?
99. Suppose a technological improvement reduces the cost
of manufacturing TV screens. Draw a diagram to depict
what happens in the market for TV screens.
100.When appliance manufacturers expect the price of
washing machine to be higher next year, what happens
to 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
1. Which of the following implies what will happen in the market
for tomatoes if a salmonella outbreak is attributed to tainted
tomatoes?
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 technological
advance 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 the
A. 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 will
be a _____ of Iphones and the price will _____.
A. surplus; fall B. shortage; falls
C. shortage; rise D. surplus; rise
E. 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 equilibrium
price 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 A
C. 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 supply
increase 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 for
cookies, what will the equilibrium quantity be?
A. 6 B. 2
C. 3 D. 10
E. 5
10. Leather belts and leather shoes are substitutes in production.
If style changes increase the demand for leather belts, the supply
curve 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 the
A. 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 in
A. excess supply. B. a surplus.
C. a shortage. D. increased supply.
B. increased demand.
Lingayen Campus
WORKTEXT 5 : MARKET EQUILIBRIUM ANALYSIS
NAME: _______________________________________ SCORE: ___________________________________
18

EXERCISE 2
following problems.
A. Assume that you are analyzing the market of digital cameras.
In each of the following events, determine (i) the market in
question; (ii) whether a shift in demand or supply occurred, the
direction of the shift, and what induced the shift; and (iii) the effect
of the shift on the equilibrium price and quantity.
13. One company invented a new machinery on production
technology that speeds up the manufacturing process
of its camera products. _________
14. Many companies introduced their new digital camera
models in the market during the 1st
quarter of the year.
_________
15. The prices of image sensors and LCD screens used in
digital cameras sharply increase. _________
16. The government placed an increased sales tax on
digital camera products. _________
17. The workers working for camera manufacturers have a
substantial increase in their wages. _________
18. Many consumers are not induced to purchase a digital
camera because of the decreased price of smartphones
with built-in camera. _________
19. Manufactures expect the price of digicams to increase
next month._________
20. A disastrous weather affects factories of major
manufacturers producing digicams. _________
21. The government extends a subsidy of P500 for each
camera unit produced. _________
22. Consumers anticipate the price of digital cameras to fall
next week. _________
23. The market size (population) in a certain area
24. Firms expect that prices of electronic gadgets will
dramatically 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 (closed
substitute for digicams). ________
28. Consumers expect the stocks of digicams from
manufacturers to be running out next month. ________
29. Buyers like the retro design and improved camera
features of the newly introduced camera models.
________
30. Because of the Christmas holiday season, the demand
for digital cameras eventually goes up. _________
B. Use a diagram to illustrate how each of the following events
affects the equilibrium price and quantity demanded of spaghetti.
31. The price of mozzarella cheese rises. _________
32. The health hazards of hamburgers are widely
publicized. _________
33. The price of spaghetti sauce falls. _________
34. The incomes of consumers rise and spaghetti is an
inferior good. _________
35. Consumers expect the price of spaghetti to fall next
week. _________
36. The price of carbonara, a close substitute for spaghetti
rises. _________
37. Most consumers like the improved taste of spaghetti.
_________
C. Use a diagram to illustrate how each of the following events
affects the equilibrium price and quantity supplied of pancit
guisado.
38. The price of meat and vegetables which are major
ingredients for pancit guisado increases. _________
39. Some restaurants who sell pancit guisado have shut
down in business operation. _________
40. Since the price of pancit palabok increases sharply,
most restaurants decrease their supply of pancit
guisado. _________
41. Sellers who sell pancit guisado expect that price of the
latter will decrease soon. _________
42. A new technology in cooking helps most restaurants to
cook and sell more pancit guisado. _________
43. An increased tax rate is placed on the sales of pancit
products. _________
D. In a supply and demand diagram, draw the shift of the demand
curve for hamburgers in your hometown due to the following
events. In each case, show the effect on equilibrium price and
quantity.
44. The price of pizza decreases. _________
45. All hamburger sellers raise the price of their French
fries. _________
46. Income falls in town. Assume that hamburgers are a
normal good for most people. _________
47. Consumers expect the price of hamburger to fall in
the 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 diagram
below.
49. What is the quantity demanded if price is Php 2.00
50. 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 the
willingness 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 rise
or fall?
57. Sellers want to receive the highest possible price, so
why would they be willing to accept less than P160 for
a pancit palabok.
58. If the price of the pancit palabok is P120, is there a
shortage or a surplus and does the price rise or fall?
59. Buyers want to pay the lowest possible price, so why
would they be willing to pay more than P120 for a pancit
palabok?
C. The demand for flash drives has the equation = −
while the supply has the equation = + . In both
equations, 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 the
demand and equations simultaneously.
E. The demand and supply schedules for lanzones in Pangasinan
are given by the following. (Price is in pesos and quantity is in
thousand kilos)
Price Quantity
Demanded
Quantity
Supplied
20 180 60
40 140 100
60 100 140
80 60 180
100 20 220
62. Draw a graph of the market for lanzones and mark in
the equilibrium price and quantity.
63. If the price of lanzones is Php 70 per kilo, describe the
situation in the lanzones market and explain how the
price adjusts.
64. If the price is Php30 per kilo, describe the situation in
the lanzones market and explain how the price adjusts.
65. Suppose that a disastrous typhoon destroys some
farmlands that produce lanzones and the quantity of
lanzones supplied decreases by 40 thousand kilos a
month at each price. Explain what happens in the
market for lanzones and draw a graph to illustrate the
changes.
66. If at a time the typhoon occurs there is an increase in
income of consumers, which increases the quantity of
lanzones demanded by 20 thousand packs a month at
each price, what are the new equilibrium price and
quantity of lanzones. Illustrate these changes on the
graph.
F. The demand function for a product is = 1000 − 6 and the
supply function is = 200 + 4 .
67. Find the equilibrium price and quantity for the product.
68. If the demand function shifts to = 1200 − 6 , find
the equilibrium price and quantity.
69. Describe the change in demand by comparing the two
demand functions.
70. Graph on the same set of axes the demand and supply
curves. Indicate the point of equilibrium and show on
the same diagram the change in demand.
0
2
4
6
8
10
12
0 100 200 300 400 500 600
Quantity (in millions)
S1
D1
0
20
40
60
80
100
120
140
160
180
0 100 200 300 400 500
Quantity (pancit per day)
S1
D1
20

1
WORKTEXT 6 : Elasticity Analysis Econ 111 – Economic Analysis
EXERCISE 1
number.
1. If the demand for a product is said to be elastic, this is
demand for which price elasticity is less than 1.
___________
2. Supply of a good is said to be elastic if the quantity
supplied responds substantially to changes in the price.
___________
3. Demand is inelastic if it does not respond much to price
changes.
___________
4. Demand tends to be more price inelastic when there are
closed substitutes for a product. ___________
5. Supply is perfectly inelastic and the supply curve is
vertical if the quantity supplied is the same regardless of
the price. ___________
6. The elasticity of supply varies directly with the amount of
time producers have to respond to the price change.
___________
7. Perfectly inelastic demand is graphed as a line parallel to
the vertical axis. ___________
8. Demand for necessities tends to be inelastic.
___________
9. When the income elasticity of demand is positive, the
good is an inferior good. ____________
10. Price elasticity of demand indicates how sensitive the
purchase of one product is to changes in the price of
another product. _____________
EXERCISE 2
11. The demand for table salt is probably more inelastic than the
demand 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 reduces
by 3 percent the quantity purchased, the price elasticity of
demand for newspapers is
A. 2.0 B. 2. 5
C. 5.0 D. 0.6
E. 0.7
13. If at a price of P5 the quantity demanded of itlog maalat (salted
egg) is 400 per day, and at P10 the quantity demanded is 300 per
day, then the price elasticity of demand for itlog maalat is
A. 2.40 B. 0.67
C. 3.51 D. 0.43
E. 0.32
14. Which of the following goods would be expected to have the
highest price elasticity of demand?
A. mineral water B. soft drinks
C. Coke or Pepsi D. lemonade
E. soda
15. Which of the following characteristics of a product tend to
make 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 Samsung
smartphones and you wish to increase revenues from your
Galaxy product line. Samsung's chief economist informs you that
the price elasticity of demand for Galaxy smartphones is
estimated 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.
Lingayen Campus
WORKTEXT 6 : ELASTICITY ANALYSIS
NAME: _______________________________________ SCORE: ___________________________________
21

17. When the price of coffee rose 25% the quantity of coffee sold
fell 30% and the sale of creamer also fell 20%. This set of facts
implies 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 the
income 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. You
notice that when you charge P70 per pack, you sell 200 packs.
Also, when you raise the price to P100, you sell 150 packs. As the
price goes up from P70 to P100, your total revenue _____,
therefore the demand for homemade shanghai must be _____.
A. increases; elastic B. increases, inelastic
C. decreases; elastic D. decreases; inelastic
E. 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 very
competitive as the business will lose half of the
customers if the price of distilled water is raised by as
little as 10%. ______________
42. When the price of all-purpose cream declines by 10%, a
supplier increases its quantity of macaroni salads
demanded by 12%. ______________
43. After Cristine’s income increased from P30,000 to
P40,000 a month, her demand for movie tickets
increased from 3 to 5 tickets. ______________
44. Fewer people want to fly to Boracay during June than
during any other month thus, airlines cancel about 10%
of their flights as ticket prices fall about 20% during this
month. ______________
45. A study found that a 4% increase in tuition led to an
approximately 3% fall in the number of students enrolled
in a certain university. ______________
46. Due to decreased number of visitors this summer, a 25%
decline in the price of a vacation rental leads more than
half of homeowners to occupy their vacation homes
themselves during the summer. ________________
47. Because they are considered necessary for diabetic
patients, 1000 insulin injections are bought every month,
regardless of price. ______________
48. Some goods that were once considered luxuries, like a
cellphone, are now considered virtual necessities. As a
result, the demand curve for telecom services has
become steeper over time. ______________
49. Consumers will buy 1,000 doses of anti-venom per year
regardless of the price. ______________
22

50. Consumers buy more frozen yogurt when the price of ice
cream goes up. ______________
51. A subscriber pays the internet provider company P1500
per month for unlimited internet connection (regardless
the number and length of time). ______________
52. An increase in the toll fee by 20% from P80 to P96 leads
to a fall in the quantity by 10% of drivers who use the
expressway. ______________
53. An increase in demand this summer for luxury cruises
leads to a huge jump in the sales price of a cabin on the
Asian Cruise. ______________
54. The price of a kilowatt of electricity is the same during
periods of high electricity demand as during periods of
low electricity demand. ______________
55. The price of Baguio strawberries falls from P150 to P100
per carton and the quantity demanded goes from 1,000
to 2,000 cartons. ______________
EXERCISE 5
following problems.
56. Given the demand data for restaurant meals subject to
the change in income, calculate the income elasticity for
restaurant meals. Is demand elastic, inelastic or unitary?
Is the good normal or inferior?
Income
(per month)
Quantity Demanded
(No. of Meals)
P20,000 3
P30,000 6
57. When the price of pandesal per piece is P2, Santos family
usually bought 20 pieces every morning. When the price
increased to P3.00, the family now buys 15 pieces.
Based on the data, compute for the price elasticity of
demand. Interpret the computed elasticity value and
determine whether the good (pandesal) is a necessity or
a luxury.
58. Given the demand data of Sunrise bakery for loaf bread
subject to price increase of flour, calculate the cross
elasticity for loaf bread. Identify if it is elastic, unitary or
inelastic and determine whether the loaf bread and flour
are substitutes or complements.
Flour Price
(per bag)
Quantity Demanded
(per month)
P1,000 1,400
P1,250 1,300
59. Given the demand data of Sunriser Bakery for margarine
subject to price decrease of butter, calculate the cross
elasticity for margarine. Identify if it is elastic, unitary or
inelastic and determine whether the butter and margarine
are substitutes or complements.
60. When the price per hour of web-design services
increases from P50 to P80, the number of hours
transacted increases from 2,100 to 4,000. Using the
midpoint method, calculate the price elasticity of supply.
Is supply elastic, inelastic, or unitary elastic?
61. Assume that a linear demand curve is represented by
the formula, = 500 − 2 . What is the price elasticity
of demand at = 30? At = 10?
62. Suppose the demand equation for cellphone case in a
store is given by equation, = 900 − 2 . In this
equation, P denotes the price per case in pesos. Fill in
the following table. At what price is demand elastic? At
what price is demand inelastic?
Price 50 100 175 200 400
63. Based on the accompanying demand data, use the
midpoint formula for Ed to determine price elasticity of
demand for each of the five possible P20-price changes.
Compute also for the total revenue by filling in the table
below.
Price Quantity
Demanded
Elasticity Total
Revenue
0 1200
20 1000
40 800
60 600
80 400
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 18
P500 16
23

1
WORKTEXT 6 : Consumer Behavior Analysis Econ 111 – Economic Analysis
EXERCISE 1
number.
1. The slope of the indifference curve measures the
marginal rate of substitution. _____________
2. According to the principle of diminishing marginal utility,
each successive unit of a good or service consumed
adds less to total utility than the previous unit.
_____________
3. If the marginal utility per last peso spent on each good is
equal and the entire budget is spent, total utility is
maximized. _____________
4. Indifference curves farther from the origin are preferred
because they yield higher levels of total utility.
_____________
5. The ratio of the price of good X on the horizontal axis to
the price of good Y on the vertical axis is the slope of the
budget line. _____________
6. Marginal utility typically rises as successive units of a
good are consumed. _____________
7. An indifference curve consists of quantity combinations
of two goods that yield negative marginal utilities.
_____________
8. Given the prices of two goods, all quantity combinations
inside the budget line are unattainable. _____________
9. Consumer equilibrium occurs where the budget line is
tangent to the lowest attainable indifference curve.
_____________
10. When total utility is at a maximum, marginal utility is
negative. _____________
EXERCISE 2
11. A utility function shows the relationship between
A. 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 the
consumption 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 the
consumption of a particular good increases.
A. total utility increases. B. marginal utility increases.
C. total utility decreases. D. marginal utility decreases
E. marginal utility stays the same.
14. As a person consumes more of a given good, the marginal
utility 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 of
consumption of mangoes are 12, 28, 40, 48, and 52, respectively.
What is the marginal utility associated with the third unit?
A. 20 B. 16
C. 12 D. 8
E. 4
16. Suppose the person experienced a diminished taste for a
particular 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.
Lingayen Campus
WORKTEXT 7 : CONSUMER BEHAVIOR ANALYSIS
NAME: _______________________________________ SCORE: ___________________________________
24

17. After eating nine scoops of mocha ice creams, you are offered
a tenth scoop of ice cream. You turn down the ice cream. Your
refusal 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 the
consumer has ranked them so that D is preferred to C, A is not
preferred 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 curves
representing a consumer’s tastes between food and clothing, both
of which are economic goods?
A. A given basket of food and clothing cannot be on more than
one 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 the
product 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, the
budget 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 will
A. 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 amounts
of 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 income
by purchasing 10 units of A and 8 units of B at prices of P2 and
P4 respectively. The marginal utility of the last units of A and B
are 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 reach
consumer equilibrium, the individual must consume pizza and
cola 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 the
price of X if the price of Y is P100?
A. 200 B. 50
C. 25 D. 375
E. 10
28. A consumer is making purchases of products A and B such
that the marginal utility of product A is 20 and the marginal utility
of product B is 30. The price of product A is P10 and the price of
product B is P20. The utility- maximizing rule suggests that this
consumer 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 good
X and P20 for good Y, the budget line can be found by joining the
intercept 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 quantities
that maximize his utility. His marginal utility from a banana is 30
units and his marginal utility from an apple is 60 units. If the price
of a banana is P4, then you are sure that the price of an apple is
A. 4 B. 8
C. 2 D. 12
E. 10
25

EXERCISE 3
Analyze and answer what is required in the following problems.
A. In each of the following cases, decide whether Pepito has
diminishing, constant, or increasing marginal utility. Explain your
answer.
31. The more Pepito exercises, the more he enjoys each
additional visit to the gym. ______________
32. Although Pepito’s classical CD collection is huge, his
enjoyment from buying another CD has not changed as
his collection has grown. ______________
33. Pepito enjoys watching reruns of the show Bitoy’s
Funniest Videos. He claims that these episodes are
always funny, but he does admit that the more he sees
an episode, the less funny it gets. ______________
34. Pepito likes loud music. In fact, according to him, “the
louder, the better.” Each time he turns the volume up a
notch, he adds 6 utils to his total utility. ______________
35. The more dancing classes Pepito takes, the more he
enjoys the activity. And the more classes he takes, the
easier each one gets, making him enjoy each additional
class even more than the one before. ______________
B. Refer to the total utility schedule of a consumer for chocolate
bars to answer the questions below.
36. Derive the marginal utility per chocolate bar
consumed. _______
37. What is the marginal utility of the third chocolate bar
to this consumer? _______
38. If chocolate bars
are P6 each, what
is the marginal
utility per peso of
the 3rd
chocolate
bar? _______
39. This consumer
begins to
experience
diminishing
marginal utility
when he consumes how many units? _______
40. Marginal utility becomes negative if the consumer
consumes how many units? _______
C. In the following cases, find all the consumption bundles that lie
on the consumer’s budget line. Illustrate these consumption
possibilities in a diagram and draw the budget line through them.
41. The consumption bundle consists of movie tickets and
buckets of popcorn. The price of each ticket is P100.00,
the price of each bucket of popcorn is P50, and the
consumer’s income is P200.00. In your diagram, put
movie tickets on the vertical axis and buckets of popcorn
on the horizontal axis.
42. The consumption bundle consists of infant milk and
infant diaper. The price of each can of infant milk is
P400, the price of each economy pack of infant diaper is
P200, and the consumer’s income is P1,200. In your
diagram, put infant milk on the vertical axis and infant
diaper on the horizontal axis.
D. For each of the following situations, draw a diagram containing
Emma’s indifference curve between two goods.
43. For Emma, shampoo and conditioner are perfect
complements, but in a ratio of 1:4 that is, for each
shampoo, Emma wants exactly four conditioners. Label
and number the axes of your diagram by placing
conditioners on the horizontal axis and shampoos on the
vertical axis.
44. Emma gets utility only from her caffeine intake. She can
consume Nescafe coffee and Pepsi cola. The latter
contains twice as much caffeine as the former. Label
and number the axes of your diagram by placing Pepsi
cola on the horizontal axis and Nescafe coffee on the
vertical axis.
E. Shown below is the utility schedule of a consumer for a good.
Units
Consumed
Total Utility Marginal
Utility
0 0 0
2 21
4 78
6
8 124
10 132
12 0
14 138
45. Fill in the missing values to complete the table.
46. Draw the TU curve on a graph and the MU curve on
another graph and indicate the diminishing marginal
utility by using demarcation lines in the graphs.
F. The following table represents a combination of puto and
dinuguan that yields equal total utility for a given consumer.
47. Compute for the absolute value of the slope of points
of indifference curve (MRS).
48. Graph the indifference curve
Chocolate
bars
consumed
Total
Utility
Marginal
Utility
0 0
1 10
2 18
3 24
4 28
5 30
6 30
7 28
Choice Dinuguan
(Y)
Puto
(X)
MRS
A 8 3
B 6 6
C 4 7
D 3 8
E 2 10
26

F. Jecelle loves sandwiches. The graph below shows three
curves from her indifference map – , , , expressing her
preferences for sandwiches and a composite good. The points
A, B and C are tangency points between the indifference
curves 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) bundle
when Jecelle is subject to budget constraint ?
G. The following table shows the marginal utility schedules for
goods A and B for a hypothetical consumer. The price of Good
A 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 to
spend this all to buy flash drives (good X) and MP3
players (good Y). Flash drive costs P300 per unit, and
MP3 player costs P600 per unit. Draw the consumer’s
budget line and determine its slope.
62. If a consumer has an income of P100, the price of good
U is P10, and the price of good V is P20, what is the
maximum quantity of good U the consumer is able to
purchase?
I. Refer to the diagram below that shows the consumer
equilibrium 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 can
spend 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 an
indifference curve and his budget line, placing notepads
on the vertical axis and cafeteria meals on the horizontal
axis. Label the indifference curve L1 and the budget line
BL1.
68. The price of notepads falls to P10; the price of cafeteria
meals remains the same. On the same diagram, draw
Jeric’s budget line with the new prices and label it BL2.
69. Lastly, Jeric’s income falls to P900. On the same
diagram, draw his budget line with this income and the
new prices and label it BL3. Is he worse off, better off, or
equally as well off with these new prices and lower
income than compared to the original prices and higher
income? (Hint: Determine whether Jeric can afford to
buy his original consumption bundle of 16 meals and 10
notepads with the lower income and new prices.
Illustrate your answer using an indifference curve and
label it L2.
70. Give an intuitive explanation of your answer to no. 69.
GOOD A GOOD B
Quantity Total
Utility
MUA Quantity Total
Utility
MUB
1 8 1 10
2 15 2 18
3 23 3 24
4 28 4 28
5 32 5 31
6 35 6 33
7 37 7 34
27

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