Introduction to Economic Theory

Name: _____________________________________________ Professor: ________________________________________

Year and Section: __________________________________ Rating: __________________________________________

Exercise 1
Identify what is being described. Write the letter of the best answer on the line before each number.

____________ 1. The economic system in which production decisions are made according to customs and
traditions.

a. Traditional economic c. Market system

b. Command economy d. Mixed economy

____________ 2. That systems that works under the principle that the interest of society should prevail over that of
the individual.

a. Traditional economic c. Market system

b. Command economy d. Mixed economy
_____________ 3. The system in which market prices serve as signal to the producers about what goods to
produce and how much of these goods should be produced.

a. Traditional economic c. Market system

b. Command economy d. Mixed economy

____________ 4. Under this system, the economic problems are answered predominantly though the price
mechanism and modified through government intervention.

a. Traditional economic c. Market system

b. Command economy d. Mixed economy
____________ 5. An economy where individuals exercise free enterprise.

a. Traditional economic c. Market system

b. Command economy d. Mixed economy

____________ 6. It is considered as basic consuming unit.

a. Firm c. Resource
b. Household d. Mixed economy
____________ 7. It includes water, forest, minerals, and animals.

a. Land c. Resource owners

b. Labor d. None of the above
____________ 8. It refers to man mental and physical efforts exerted in production.

a. Land c. Entrepreneur
b. Labor d. Capital

____________ 9. It refers to machine, tools, and equipment used in production.

a. Land c. Entrepreneur
b. Labor d. Capital
____________ 10. “The brains” behind the business.

a. Land c. Entrepreneur
b. Labor d. Capital
____________ 11. Inputs used in production.

a. Land c. Capital
b. Labor d. All of the above
____________ 12. It corresponds to the price of capital.

a. Rent c. Profits
b. Wages d. Interest
____________ 13. The payment made for labor.

a. Wage c. Profits
b. Labor d. Interest
____________ 14. The payment for the use of land.

a. Rent c. Profits
b. Wages d. Interest
____________15. It pertains to the national income analysis.

a. Macroeconomics c. Normative economics

b. Microeconomics d. Positive economics
____________ 16. The study of what is

a. Macroeconomics c. Normative economics

b. Microeconomics d. Positive economics

____________ 17. It is also known as the price theory.

a. Macroeconomics c. Normative economics

b. Microeconomics d. Positive economics

____________ 18. It deals with what should be.

a. Macroeconomics b. Microeconomics
 c. Normative economics d. Positive economics
____________ 19. The desires and needs of consumers that have to be satisfied.

a. Basic needs c. Wants

b. Luxury goods d. All of the above
____________ 20. Man’s need required for survival

a. Basic needs c. Wants

b. Luxury goods d. All of the above

Exercise 2
Identify the terms or concepts being referred to in the following.

____________ 1. The study of how society allocates the scarce resources to satisfy as many wants as possible.

____________ 2. It depicts the relationship between independent and dependent variables.

____________ 3. A factor on which quantity can be changed or measured.

____________ 4. The process of directing and determining relationships among variables

____________ 5. Model/s that consistently predict/s broad range of real world phenomena.

____________ 6. Interventions or courses of action taken to manipulate the results of economic activity.

____________ 7. A question of the types of goods society desires.

____________ 8. The market to which the producers will sell their products

____________ 9. A state in which there is a balance between two opposing forces

____________ 10. The diagram of economic activity

 Exercise 3
Write the letter of the phrases (column B) that best describes the terms (column A) below

A B

__________ 1. Microeconomics a. subject to change or variations

__________ 2. Macroeconomics b. intervention by the government

__________ 3. Theories c. basic consuming unit of the economy

__________ 4. Variables d. economic analysis

__________ 5. Household e. what, how, how much and for whom to

__________ 6. Normative economics produce

__________ 7. First step in constructing a theory f. economy as a whole

__________ 8. Law of supply and Demand g. communist countries

__________ 9. Basic economic problems h. customs and traditions

__________ 10. Traditional economic problems i. price theory

__________ 11. Command economy j. state of balance

__________ 12. Philippine economy k. best – known economic model

__________ 13. Equilibrium l. hypothesis

__________ 14. Economic policy m. definition of postulates

__________ 15. Unemployment n. a problem that leads to existence of idle

resources

o. mixed economy

p. principles

q. deals with what should be

Exercise 4

Write the letter of the correct answer on the line before each number.

___________ 1. Another term used for “equilibrium”

a. Deflation c. Growth
b. Static d. None of the above

___________ 2. Theories of models _________.

a. On which hypothesis seems realistic
b. That are always expressed in mathematical notation
c. That consistently predict phenomena
d. Which assumptions correspond to the facts
___________ 3. The following techniques are employed in microeconomics EXCEPT
_________.
a. Models c. Mathematics
b. Dissection d. Comparative statics

___________ 4. The statement, “If the supply of rice increases, the price of rice will
 decline” is an example of _________.
a. Fallacious logic
b. General equilibrium analysis
c. Partial equilibrium analysis
d. Composite economic analysis
___________ 5. Demand is a function of price, income, population, prices of related
products, and advertising” is an example statement of _________.
a. Fallacious logic
b. General equilibrium analysis
c. Partial equilibrium analysis
d. Composites economic analysis
___________ 6. The word “Economic” is most closely associated with the word ______.
a. Free c. Unlimited
b. Scarce d. Unrestricted

___________ 7. The economic problem that refers to the nature of goods and services
the economy should produce _________.
a. What to produce
b. How to produce
c. How much to produce
d. For whom to produce
___________ 8. A hypothesis is _________.
a. A fact c. An assumption
b. A principle d. All of the above
___________ 9. In a market economy, the basic economic problems are solved by
_________.
a. The price mechanism
b. A planning committee
c. The elected representatives of the people
d. The ancestors
___________ 10. Microeconomics studies how a market economy determines
a. The prices of goods
b. The price of economic resources
c. The prices economic resources
d. All of the above
___________ 11. A function refers to _________.
a. The demand for commodity
b. The supply of a commodity
c. The relationship among variables
d. All of the above
___________ 12. The equilibrium for a commodity is determined by _________.
a. The market demand for the commodity
b. The market supply of the commodity
c. The balancing forces of the demand and supply of the commodity
d. All of the above
___________13. Which of the following statements is CORRECT?
a. Statistics provides the empirical evidence in testing hypothesis.
b. The use of geometry is applicable to models with the three or more variables
c. Logic permits inductive and deductive reasoning in formulating conclusions.
d. Both A and C are correct.
___________ 14. Which of the following statements is INCORRECT?
 a. Normative economics deals with what actually
b. Positive economics deals with what should take place in the economy.
c. Positive economics and normative economics are always identical.
d. Positive economics need not conform with normative economics.
___________ 15. Which of the following is non – economic resource?
a. Air c. Buildings
b. Minerals d. None of the above
___________ 16. The dictator of the planning committee determines what to produce
in a _________.
a. Market economy c. Command economy
b. Traditional economy d. Mixed economy
___________ 17. The economic problem which determines how much of the wants
Of each consumer is to be satisfied
a. What to produce
b. How to produce
c. How much to produce
d. For whom to produce
___________ 18. Microeconomic theory studies the economic behavior of _________.
a. A consumer c. A business firm
b. A resource owner d. For whom to produce
___________ 19. Which of the following is NOT classifiable as a natural resource?
a. Land c. Minerals
b. Capital d. Forest
___________ 20. Goods that are required for a man’s survival
a. Essentials goods c. created wants
b. Luxuries d. all of the above
 Demand and Supply

Name: _____________________________________________ Professor: ________________________________________

Year and Section: __________________________________ Rating: __________________________________________

Exercise 1

On the line before each number, write TRUE if the statements is correct and FALSE if incorrect.
__________ 1. A market is a mechanism of interaction between buyers and sellers for trade or
exchange. The consumer sells and the seller buys.
__________ 2. The demand for a product is the quantity of a good that the buyers are willing to buy at
a certain prices. A demand schedule shows the different quantities that will be sold by the sellers
given at various prices.
__________ 3. A demand function shows how the quantity demanded of a good is dependent on its
determinants, the most important of which is the price of the goods itself.
__________ 4. One of the non – price determinants of demand is taste. Taste or preference may vary
from person to person.
__________ 5. The consumers’ income does not influence the demand for goods and services. The
increase in demand due to an increase in income is not experience in the economy.
__________ 6. An increase in population results in a greater demand since there will be more
consumers as population increases.
__________ 7. The supply of a product is the quantity of goods that sellers are willing to sell. The supply
schedule shows the different quantities that will be sold.
__________ 8. The demand curve is upward sloping to the right while the supply curve is downward
sloping to the left.
__________ 9. When the income of the consumer increases, it can shift he demand curve upward to
the right, representing increase in demand.
__________ 10. Expectations as to future incomes and prices may cause a shift in the demand curve.

Exercise 2

On a graphing paper, illustrate the shortage or surplus of demand or supply using the following
data to complete the table below.
Price Qd Qs Shortage/Surplus
2 80 20
4 70 40
6 60 60
8 50 80
10 40 100
12 30 120
14 20 140
 Exercise 3

Determine whether the curve will shift to the right or to the left. Write A on the line before each
number if it shifts to the right and B if it shifts to the left
I. Demand
__________ 1. Increase in population
__________ 2. Decrease in income
__________ 3. Increase in income
__________ 4. Increase in taste
__________ 5. Decrease in population

II. Supply
__________ 1. Increase in size of population
__________ 2. Increase technology
__________ 3. Decrease in cost of production
__________ 4. Typhoon hit the rice lands
__________ 5. Decrease in technology

Exercise 4

Write the letter of the phrase (column B) that describes the terms (column A) below.
A B
__________1 Price system a. technology
__________ 2. Non – price determinant of demand b. movement in demand curve
__________ 3. Non – price determinant of supply c. movement in the supply curve
__________ 4. Rightward shift of demand curve d. demand = supply
__________ 5. Leftward shift of demand curve e. coffee and tea
__________ 6. Surplus of good f. coffee and sugar
__________ 7. Shortage of goods g. supply > demand
__________ 8. Inelastic demand h. population growth
__________ 9. Elastic demand i. % Qd < % P
__________ 10. Unitary elastic demand j. decrease in income
__________ 11. Market surplus k. Increase in income
__________ 12. Equilibrium point l. Income elasticity of food expenditures
__________ 13. Substitute good m. decrease cost of production
__________ 14. Complementary n. decreased cost of production
__________ 15. Market supply o. %∆Ԛd = %∆P
p. %∆Ԛd = %∆P
q. aggregate demand of buyers
r. Demand > Supply
s. signals in market economy
t. Aggreagate supply of sellers
 Exercise 5

Determine the state of the Philippines market demand and supply curves for oil whether it will
increase, decrease, or remain the same the following conditions. Write INCREASE, DECREASE, or SAME
on the space provided.
Electric – run cars are introduced and used in the country.
1. On demand ____________ 2. On supply ____________
The oil fields of Iraq, a major supplier of the country, are burned.
3. On demand ____________ 4. On supply ____________
OPEC decides to decrease the price of oil.
5. On demand ____________ 6. On supply ____________
An increase in the price of dollar causes oil to be more expensive in the country.
7. On demand ____________ 8. On supply ____________
Carless days are made compulsory by the government.
9. On demand ____________ 10. On supply ____________
Oil mines are discovered in Palawan.
11. On demand ____________ 12. On supply ____________
Saudi Arabia increases its quotas in oil sales to the Philippines.
13. On demand ____________ 14. On supply ____________
A substitute for oil is discovered by Filipino inventors.
15. On demand ____________ 16. On supply ____________

Exercise 6

Choose the letter of the correct answer. Write it on the line before each number.

____________1. The price of consumer goods which has been adjusted upward due to the
Peso devaluation will result in a change in ____________.
a. Demand c. Quantity
b. Quality d. None of the above
____________2. Demand for television increases despite the increase in price is due a change in
____________.
a. Supply c. Demand
b. Quantity d. None of the above
demanded
____________3. A decrease in the number of sellers shifts the demand curve to the ____________.
a. right c. downward
b. left d. none of the above
____________4. If the increases in supply offsets the increase in demand, price ____________.
a. Increases c. Is constant
b. Decreases d. Varies
____________6. An increase in income shifts the demand curve rightward instead of leftward
because ____________.
a. Of more demand c. Of lower price
b. Price is constant d. None of the above
____________7. An increase in the sales of DVD player will cause the demand for compact disc
 rentals to ____________.
a. Decrease c. Remain constant
b. Increase d. Vary
____________8. If the cost of producing a good decreases, the ____________.
a. Supply curve will shift to the right
b. Supply curve will shift to the left
c. Demand curve will shift to the right
d. All of the above
____________9. Which of the following statements is true?
a. The supply of inputs used affects the supply of a good.
b. The lower the price of a good, the smaller the quantity that will be offered
by the supplier.
c. The lower the price of a good, the bigger the quantity that will be
demanded by the buyer.
d. All of the above
____________10. A shift in the producer’s supply curve means ____________.
a. A change in the entire supply curve
b. A change in the quantity supplied
c. Both a and b
d. Neither a nor b

Exercise 7

I. Assume that the demand function is equal to Qd = 5,000 – 1000P, where price range is 1 to 5 pesos.
Derive the demand schedule economics.
Price Quantity Demand

II. Baesed on the following functions for demand and supply, compute the demand and supply
schedules:
A. Qd = 500 – 20P Qs = 50 + 10P
Price Quantity Demand Quantity Supplied
5.00
10.00
15.00
20.00
25.00
B. Plot the schedules in Exercises A on a single graph. Identify the equilibrium price and
equilibrium quantity.
Prices

Quantity

C. Bases on the schedules and given prices below, put a check under the Surplus column if a
surplus exist and put the amount of surplus under the Quantity column. If a shortage exist, put
a check under the Shortage column and put the amount of shortage under the Quantity
column.
Price Surplus Shortage Quantity
5.00
10.00
15.00
20.00
25.00