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Basic Microeconomics

Bautista, Jamille V.
11-BBA-04

CHAPTER 1

CHAPTER QuickQuiz
1. a.
2. c.
3. b.
4. b.
5. d.
6. a.

QUESTIONS FOR REVIEW

1. Three examples of trade-offs I face in life are staying out late to do school works or
other important stuff rather than sleeping on time; spending more time on studying
one subject rather than following my original allotted time for each subject; and,
walking some distance rather spending money on fare fee (which has increased much
recently).
2. The opportunity cost of a vacation to Disney World is the total cash expense of the
trip, the value of my time and of course the value of all the things I could have
accomplished if I chose not to go on such a trip.
3. Comparing water’s marginal benefit from its marginal cost, I think it is pretty
beneficial for an individual. As it is a necessity for mankind to drink, having to
quench your thirst with water than other drinks is less costly. One would think that
drinking water is plain, but when compared with other drinks, drinking plain water
could give us physical benefits at a lower cost.
4. Incentives encourage people to act, whether it is by reward or by punishment. If
policymakers want to put peace and order in a community, they must be able to
effectively and efficiently move the community and what could be a great way to do
so? By making incentives, policymakers can induce the community to act in a way
they want them to implement peace and order.
5. This is because trade done by countries helps both parties. It is a win-win situation.
6. The invisible hand drives the market to reach certain favorable market outcomes
without the help of the government or other parties forcing the market into anything
that is contrary to what is natural to happen.

PROBLEMS AND APPLICATIONS

1. In case A, there is a trade-off between family expenditures and car purchase costs. In
case B, there is a trade-off between government expenditure on national parks and
spending on other resources. In case C, a decision must be made between the expense
of building a new factory and the cost of using the space for another purpose. In case
D, there is a trade-off between allocating time to preparation and allocating it to
personal use. In case E, choosing between going to school or looking for work
significance to customers.
2. A trip will have varied expenses and advantages for various people. Therefore,
whether or not the benefit outweigh the cost highly depends on the individual.
Everyone have various reasons for traveling. Some use this to unwind, some use this
to spend time with family, but others use it for their own personal enjoyment.
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Basic Microeconomics

Therefore, it cannot be regarded a cost and will instead be a gain if a person believes
they need some psychological relaxation and manages to get it while on vacation.
However, there will be a cost if they don't experience any psychological advantages.
3. The term "opportunity cost" describes the advantages a person or group of people
would have obtained by selecting one option over another. Skiing costs include both
the expense of skiing itself as well as the cost of not working that day or not receiving
wage. As a result of taking a day off to go skiing, no payment will be made for that
day. While the cost involved will be the knowledge lost while skiing rather than
coming to the library while skiing, however this gaining of knowledge may vary for
each individual. Let's say a student decides to go skiing instead of preparing for an
exam that is due the following week. The price will be failing to earn high marks on
the test.
4. The principal is $100 and the interest rate is 5%. The opportunity cost is the gain or
loss an individual experiences as a result of selecting one decision or alternative over
another. If money is deposited in a bank, $5 will be the interest amount. If the money
is spent right away, there will be a $5 opportunity cost that cannot be recovered.
5. A further $1 million is needed to complete the product's development; the $5 million
initial investment cannot be recovered. The entire investment, or a loss of $5 million,
will be lost if the product development is discontinued. As a result, the final price will
be $6 million, which will include an additional $1 million in development costs. The
business will have a chance to recover its $3 million loss if it invests more than $1
million. As a result, the total is $6 million and the potential reward is $3 million.
Therefore, the maximum amount that will be paid for the product's development will
be no more than $3 million, as if the cost increases above $3 million, there will be no
chance of making a profit.
6. A. This government action will lower the welfare fund, which is typically raised by
taxes paid by working individuals, diminishing their motivation to work.
B. This adjustment will lessen equality while boosting efficiency.
7. A. a concern about efficiency which involves monopoly in market failure
B. a concern about equality
C. a concern about efficiency, involving market failure due to negative externality
D. a concern about efficiency, involving market failure due to monopoly
E. a concern about equality
F. a concern about efficiency, involving market failure due to negative externality
8. A. Although guaranteed healthcare policies adhere to the equality concept, they do not
adhere to the efficiency principle. It can be explained by the fact that the marginal
value of keeping extra healthcare resources (such as competent medical staff or
cutting-edge hospital technology) always outweighs the marginal cost of their
generation.
B. The guarantee of benefits for unemployed workers is an example of a policy that
promotes equity for all members of society in addressing their most basic needs. In
addition, because it discourages job searching and reduces the supply of workers on
the labor market, it violates the efficiency principle.
9. I think the difference occurs on the level of technology available during our different
times. As it is very apparent that technologies of today are very developed or
advanced than how they were during my parents’ or grandparents’ time, I guess I am
living a much more convenient and comfortable life.
10. The banks use the savings that people have saved. Banks then lend money to
companies, who then utilize it to build new factories to increase their production.
Because production capacity rise together with per capita production, productivity
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Basic Microeconomics

grows more quickly as a result. Workers, business owners, and all households profit
from the increased productivity. Since there is a cost associated with saving money,
society does not benefit completely from it. People delaying their immediate demands
in favor of future needs stimulates economic productivity.
11. When more money is printed, consumers, and especially cash holders, are "taxed."
Inflation will increase as new money is printed. A reduction in a currency's
purchasing power is shown by inflation. As a result, the government has decreased
cash's purchasing power. Since they often maintain a bigger percentage of their
savings in cash and spend the majority of their income on consumption, lower and
middle income groups are typically the ones who suffer the most from this. High
earners occasionally benefit from this because they own assets like real estate, the
value of which rises along with inflation.
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Basic Microeconomics

CHAPTER 2

CHAPTER QuickQuiz
1. c.
2. a.
3. b.
4. c.
5. d.
6. a.

QUESTIONS FOR REVIEW

1. It is considered a science as it has a systematic process of studying the “flow” of the
economy through models, e.g. diagrams, formulas. Speaking formulas, if economics
uses math to explain economic matters then it is science as math is considered to be
the language of science.
2. Assumptions are made by economists in order to make different economic concepts
much simpler than how complex they actually are. Furthermore, because of the
assumptions, studying and improving one's comprehension of those economic
processes is incredibly simple.
3. As a result of being too complex to comprehend, an economic model cannot
accurately explain reality. The economist understands what is essentially relevant
thanks to a model's simplification.
4. In the market for the factors of production, my family mother works as a teacher
providing labor inputs for their school to be able to produce teaching services to
students and my family owns a fish pond that it rents out to someone who grows fish
to sell. In the product market, we buy our food and other necessities at the wet market
or at malls.
5. Barter between households because transactions are not made through cash and
households usually obtain goods in the market in the circular-flow diagram.
6. The production of cookies is taken on the X-axis, while that of milk is taken on the Y-
axis. The initial production possibility frontier will be MC. If a disease kills half of
the cows in the economy, the production of milk is likely to decline, and the new
production possibility frontier will be MC1.
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Basic Microeconomics

7. Efficiency is achieved when all of an economy's resources are fully utilized for
production. Operating on the frontier curve maximizes efficiency on a production
possibilities frontier. Because efficiency relates to making the best use of resources,
an economy cannot have a single point where it is completely efficient.
8. Both macroeconomics and microeconomics are subfields of economics. The general
economy and factors like inflation and unemployment are the main topics of
macroeconomics. While the focus of microeconomics is more specific, e.g.,
marketplaces and households.
9. Positive statements are economic assertions that can be backed up with evidence as
either true or untrue. "An increase in taxation will result in less consumption" is an
example of a positive statement. Since they provide value judgments, or opinions, on
how markets and economies should function, normative statements cannot be justified
or disproved. An example of this is a statement, "Women should be provided higher
school loans than men."
10. There are two main explanations which are: first, economists may dispute on the
certainty of competing positive viewpoints; and, second, economists may hold
varying normative perspectives on the objectives of policy as a result of their varying
values.