ELAINE JOYCE R.

GARCIA BSA 2A

EXERCISE 1:

1. What is the relation of price to the quantity demanded? Explain.

❖ Price has an inverse relation to quantity demanded. This means that
when the price rises, the quantity demand for that good or service
falls. Also, if the price of the goods or service drops, the demand for
that good or service will grow. In other terms, if the price decreases,
the demand increases/ people tend to buy more and if the price
increases, the demand decreases/ people tend to buy less. Price is
inversely proportional to quantity demanded.

2. What is the relation of consumers’ income for normal goods to the

quantity demanded? Explain.
❖ Normal goods have a positive elasticity of quantity demanded. This
means that if there is an increase in consumer’s wages/ income,
demand for normal goods increases, on the contrary, if consumer’s
wages/ income declines, it will lead to the reduction of demand. This
causes an outward shift in the demand curve.

3. What is the relation of consumers’ income for inferior goods to the

quantity demanded? Explain.
❖ Inferior goods have a negative elasticity of quantity demanded. This
means that if the income of the consumer rises, the demand for the
inferior goods decreases then the demand for inferior goods
increases when the consumer’s income/ economy deteriorates.
Inferior goods are the goods that people does not want own if they
have more money because people tend to choose higher-quality
goods/services than inferior goods.

4. Explain the concept of diminishing utility. Cite an example.

❖ The Law of Diminishing Marginal Utility states that the utility of a
product decreases as its consumption increases. In other words, the
more you tend to consume, the lesser the satisfaction you get.

❖ For instances, you are hungry and you want to buy a slice of cake
then you realized that one slice would not be enough so you bought
a whole cake. At your first slice, you would achieve the high benefit
of satisfaction from the cake. Then on your second slice, you would
observe that your appetite is already being satisfied, in this you gain
smaller benefit and enjoyment compared to the first. Your third
slice, as before, holds even less utility as you are not hungry
anymore. In fact, the fourth slice of cake has experienced a
 diminished marginal utility as well, as it is difficult to be consumed
because you are already experiencing discomfort upon being full.
Finally, the few slices of cakes left cannot even be consumed. You
are so full from the first four slices that consuming the rest of the
cake results in negative utility. This demonstrates the decreasing
utility that is experienced upon the consumption of any good.

5. If the government passed a tax law on increasing the tobacco as main

input of cigarettes by 50% that would be effective tomorrow, what is
its effect on the demand and price of cigarettes today? Explain.
❖ One of the determinants of quantity demanded is the expectations
of consumers on the prices of the goods/services. If the government
will pass a law on increasing the tobacco as main input of cigarette
by 50% which will be effective by tomorrow, people would expect that
the price of tobacco will increase by tomorrow. Since there will be an
increase in price that will happen tomorrow, then the quantity
demanded for today will increase since the price that the tobacco
today is lower than the expected price for tomorrow.

6. ABC Sports Collectibles is a shop that sells basketball cards. The

demand function for basketball card boxes in the community is 𝑄𝑑 =
25,000 − 10(𝑃). If the price of each basketball box is at ₱ 2,000, what
is the total quantity demanded?
❖ 𝑄𝑑 = 25,000 − 10𝑃
= 25,000 – 10(2,000)
= 25,000 – 20,000
𝑄𝑑 = 5,000

7. Refer to item no. 6. Using the same information, if the purchase price
of the basketball card boxes increased by 20%, how many basketball
card boxes were reduced from the previous quantity demanded of
ABC Sports Collectibles?
❖ 𝑄𝑑 = 25,000 − 10𝑃
= 25,000 – 10 [2,000 + (2,000 x 20%)]
= 25,000 – 10(2,400)
= 25,000 – 24,000
𝑄𝑑 = 1,000
 8. Refer to item no. 6. Using the same information and demand
function, if the quantity demanded is 1,550 basketball card boxes,
how much will each box cost?
❖ 𝑄𝑑 = 25,000 − 10𝑃
1,550 = 25,000 – 10P
10P = 25,000 – 1,550
10𝑃 23,450
=
10 10
P = 2,345

EXERCISE 2:

1. What is the relation of the number of firms manufacturing or selling

the same product to the quantity supplied? Explain.
❖ The number of firms manufacturing or selling the same product has
a direct effect/ relationship to quantity supplied. As more markets
enter the industry, the more suppliers it gains. By adding all the
suppliers, we can get an aggregate supply and by this, the supply
would tend to increase since the market also increases

2. What is the relation of the technology to the quantity supplied?

Explain.
❖ The improvement of technology has a direct proportional relationship
to the quantity supply. If there will be change in technologies that
will help to make an easier and faster production, the producers will
be producing more supplies. If there will be no improvement in
technology, the quantity supply will decrease. Therefore, a change
in technology would also result to the change in the supply curve.

3. Mr. Tee sells t-shirts. His supply equation for selling t-shirts is 𝑄𝑠 =
240 + 3(𝑃). How many t-shirts is Mr. Tee willing to supply if the price
of each t-shirt is ₱ 60.
❖ 𝑄𝑠 = 240 + 3(𝑃)
= 240 + 3(60)
= 240 + 180
𝑄𝑠 = 420
 4. Refer to item no. 3. What is the price at which Mr. Tee is no longer
willing to sell his t-shirts?
❖ 𝑄𝑠 = 240 + 3(𝑃)
0 = 240 +3P
3P = 240 - 0
3𝑃 240
= 3
3

P = 80

5. Ollie’s Oil sells bottled fragrance oils to the market at cheap price.
Assume that its supply function is 𝑄𝑠 = −30 + 10𝑃.
a) Prepare a supply schedule for prices ₱ 4.00 – ₱ 12.00.

Price (₱) Quantity Supply

4 10
5 20
6 30
7 40
8 50
9 60
10 70
11 80
12 90

SOLUTIONS:

𝑄𝑠 = -30 + 10(𝑃) 𝑄𝑠 = -30 + 10(𝑃)

= -30 + 10(4) = -30 + 10(5)
= -30 + 40 = -30 + 50
𝑄𝑠= 10 𝑄𝑠= 20

𝑄𝑠 = -30 + 10(𝑃) 𝑄𝑠 = -30 + 10(𝑃)

= -30 + 10(6) = -30 + 10(7)
= -30 + 60 = -30 + 70
𝑄𝑠= 30 𝑄𝑠= 40
 𝑄𝑠 = -30 + 10(𝑃) 𝑄𝑠 = -30 + 10(𝑃)
= -30 + 10(8) = -30 + 10(9)
= -30 + 80 = -30 + 90
𝑄𝑠= 50 𝑄𝑠= 60

𝑄𝑠 = -30 + 10(𝑃) 𝑄𝑠 = -30 + 10(𝑃)

= -30 + 10(10) = -30 + 10(11)
= -30 + 100 = -30 + 110
𝑄𝑠= 70 𝑄𝑠= 80

𝑄𝑠 = -30 + 10(𝑃)
= -30 + 10(12)
= -30 + 120
𝑄𝑠= 90

b) Make a graph to show the figures from the supply schedule of the
product on item a.

14

12 12
11
10 10
9
8 8
Price (₱)

7
6 6
5
4 4

0
10 20 30 40 50 60 70 80 90

Quantity Supplied (Qs)

 c) Prepare a supply schedule for prices ₱ 4.00 – ₱12.00 if the supply
function changed to 𝑄𝑠 = −30 + 12𝑃.

Price (₱) Quantity Supplied

4 18
5 30
6 42
7 54
8 66
9 78
10 90
11 102
12 114

SOLUTIONS:

𝑄𝑠 = -30 + 12(𝑃) 𝑄𝑠 = -30 + 12(𝑃)

= -30 + 12(4) = -30 + 12(5)
= -30 + 48 = -30 + 60
𝑄𝑠= 18 𝑄𝑠= 30

𝑄𝑠 = -30 + 12(𝑃) 𝑄𝑠 = -30 + 12(𝑃)

= -30 + 12(6) = -30 + 12(7)
= -30 + 72 = -30 + 84
𝑄𝑠= 42 𝑄𝑠= 54

𝑄𝑠 = -30 + 12(𝑃) 𝑄𝑠 = -30 + 12(𝑃)

= -30 + 12(8) = -30 + 12(9)
= -30 + 96 = -30 + 108
𝑄𝑠= 66 𝑄𝑠= 78

𝑄𝑠 = -30 + 12(𝑃) 𝑄𝑠 = -30 + 12(𝑃)

= -30 + 12(10) = -30 + 12(11)
= -30 + 120 = -30 + 132
𝑄𝑠= 90 𝑄𝑠= 102
 𝑄𝑠 = -30 + 12(𝑃)
= -30 + 12(12)
= -30 + 144
𝑄𝑠= 114

d) Make a graph to show the figures from the supply schedule of the
product on item a and item c.

14
13
12
11
10
9
8
7
6
Price (₱)

5
4
3
2
1
0
0 10 20 30 40 50 60 70 80 90 100 110 120

Quantity Supplied (Qs)

EXERCISE 3:
EXERCISE 4:

A. How is the supply of sport shirts (substitute in production) affected if

the price of window curtains should change? Make a graph to present
its effect in supply curve.

1. Suppose the price of window curtains increases.

Price

S2
S1

P2
P1

Q2 Q1 Quantity

2. Suppose the price of window curtains decreases.

Price

S1
S2

P1
P2

Q1 Q2 Quantity
B. How is the supply of leather (complement in production) affected if the
price of beef should change? Make a graph to present its effect in supply
curve.

1. Suppose the price of beef increases.

Price

S1
S2

P2
P1

Q2 Q1 Quantity

2. Suppose the price of beef decreases.

Price

S2
S1

P1
P2

Q1 Q2 Quantity
EXERCISE 5:

1. Assume that EGG Refrigerator’s demand and supply curve are as

follows:

𝑄𝑑 = 100,000 − 60𝑃
𝑄𝑠 = 28,000 + 30𝑃

𝑃 represents the price of EGG Refrigerators.

a) What is the equilibrium price?

𝑄𝑑 = 100,000 − 60𝑃
𝑄𝑠 = 28,000 + 30𝑃

100,000 − 60𝑃 = 28,000 + 30P

30P + 60P = 100,000 – 28,000
90P = 72,000
90P 72,000
=
90 90

P = 800

b) What is the quantity of EGG Refrigerators bought and sold at

equilibrium?

𝑄𝑑 = 100,000 − 60𝑃 𝑄𝑠 = 28,000 + 30𝑃

= 100,000 – 60(800) = 28,000 + 30(800)
= 100,000 – 48,000 = 28,000 + 24,000
𝑄𝑑= 52,000 𝑄𝑠 = 52,000

2. E-numan Drinks is an online store selling beer and deliver’s it to its

customers for a fee. E-numan Drinks’ shift from physical store to online
store was due to Covid19 pandemic. In anticipation for the lifting of liquor
ban in the city next week, Enuman Drinks purchased 500 cases of beer
and sells it for PhP 500 per case. Enuman Drinks only sold half of the
cases it purchased.
 a) What economic situation is E-numan Drinks facing?

Since only half of 500 cases bought were sold, a surplus is

experienced.

b) The price will reduce/decrease in order for the equilibrium to be

attained.

c) Prepare a graph to show the effect or change in equilibrium.

Price

Excess supply S

P2

P1

Q1 Q3 Q2 Quantity

Excess supply

Since there is a surplus, the store would reduce price and supply less.
This would encourage more demand and therefore the surplus will be
eliminated. The new equilibrium will be at P1 and Q3.