University of the Philippines

SCHOOL OF ECONOMICS
Economics 11
First Exam – December 11, 2009– SET LANTERN PARADE 2009
Dr. G. Sicat/ Ms. Rhea Molato and Ms. Loresel Abainza 2nd Semester, 2009-2010
________________________________________________________________________
MULTIPLE CHOICE: You are asked to fill in the blank or answer the question with the BEST
ANSWER ONLY from among the choices available.
[Notice: Any cell phone found active during the exam shall be confiscated and turned over to the
school authorities who will take appropriate action against the student.]

1. The study of Economics encompasses the decisions involving the decisions of _________.
a) governments to tax or to subsidize economic activities; and
b) local governments to allocate resources for public parks, the arts, sports, and education,
among others.
c) firms and households to buy or sell their services and products;
d) All of the above.
e) All except c).
2. “Opening the country to international trade ought to be made only together with high taxes
on foreign goods in order to protect domestic industries.” This is an example of a _________
statement.
a) positive
b) normative
c) informative
3. “Competition reduces the price and increases the quantity of goods sold.” This is an example
of a _________ statement.
a) positive
b) normative
c) informative
4. Born out of the limitations of poverty, Manny Pacquiao and Charice Pempengco (for those
who are not familiar with her, she is today a famous Filipina young singer whose voice has
the range and style of Celine Dione) developed their respective talents by devoting more of
their time to practice and self-improvement. In making these choices during their young age,
they undertook to solve their own problem of ___________.
a) distribution
b) production
c) consumption
5. A nuisance good which requires expense to get rid of it, as in the case of garbage, is ______
good.
a) a free
b) not an economic
c) an economic
G. Sicat, Economics 11 Test 1 Lantern Parade 2009 Page 2 of 9; Last printed 7/1/2010 9:51:00 PM

6. When you go to pinball machines, play Nintendo games, or connect to your Facebook
choices of activities (if you have internet and Facebook options) for your own leisure, you
are solving the economic problem of __________.
a) production
b) consumption
c) distribution

The next questions make use of Figures 1, 2 and 3. Be careful you understand the question fully
before answering.

Oekonomiya’s resources produce only two types of goods – Rice and Textiles. All the human
wants of people in this economy can be met by the use of Rice and Textiles. For the moment,
focus first on Fig. 1. Later, all the other figures are used.

7. These two combinations of Rice and Textile production shown in Fig. 1 represent full
employment of Oekonomiya’s factors of production.
a) A and C.
b) B and Z.
c) C and Y,
8. From among different combinations of Rice and Textiles and ignoring the issue of
employment, this point ___________ (in the figure) implies the highest level of possible
production of Textiles.
a) A.
b) B.
c) C,
d) Z.
G. Sicat, Economics 11 Test 1 Lantern Parade 2009 Page 3 of 9; Last printed 7/1/2010 9:51:00 PM

9. The trade-off in the use of Oekonomiya’s factors of production is strictly described by the
following combination of points in Fig. 1 in which producing more of one good means
sacrificing the production of some of the other good.
a) A and C.
b) B and Z.
c) C and Y.
d) Y and Z.
10. The graph shown in ________ demonstrates a shift in the production possibility frontier
showing improved production technology that happens in the Textile sector only.
a) Fig. 1.
b) Fig. 3.
c) Fig. 2.
11. In this example, technological change that happens in the Textile industry makes it possible
to produce ____________.
a) more of both Rice and Textiles
b) only more of Textiles
c) only more of Rice
12. This figure, __________, demonstrates a balanced expansion in the output possibilities for
Rice and Textiles as economic resources in the economy expand.
a) Fig. 1.
b) Fig. 3.
c) Fig. 2.
13. Suppose that Oekonomiya has exactly the same amount of resources as before but it
experiences an improvement in the production technology involving both the Rice and
Textile industries. This figure, ______, would best describe the outward expansion of the
production possibility schedule?
a) Fig. 1.
b) Fig. 3.
c) Fig. 2.

[Questions #14 to #18.] The following problem concerns Enrique’s entertainment over the
weekend. The number of hours he spends listening to CD music (he only plays his favorite music
all the time) is mainly determined by the cost of his listening time which to him is almost free
(since it is weekend) and so his satisfaction or entertainment level is what matters most to him.

No. of hours of listening 0 1 2 3 4 5

Entertainment Level 0 40 60 65 60 55

14. Enrique derives the most satisfactory level of enjoyment from each additional hour of
listening at the point of the _______ hour of playing the CD music player.
a) first
b) 3rd
c) 4th
G. Sicat, Economics 11 Test 1 Lantern Parade 2009 Page 4 of 9; Last printed 7/1/2010 9:51:00 PM

15. By virtue of the law of diminishing marginal utility, continuing to listen to the sixth hour of
musical listening will cause the level of satisfaction to be ________ 55.
a) higher than
b) lower than
c) equal to
16. Enrique would be better off to stop the CD player after the _______ hour.
a) first
b) 3rd
c) 4th
d) None of the above.
17. (Continued.) The reason for your answer to #17 is that ________ at that particular listening
hour.
a) his MU from listening is negative
b) his TU from listening is rising still
c) his MU is falling and still positive

[Questions #18 to #21.] For the next one week, a project manager uses manual labor to transfer
newly mixed cement from a mixer to the various sites of a construction project involving a
cementing job. The more laborers there are, the more crowded the project site becomes as they
have to navigate a narrow path to the specific spots to be cemented. Below is a table of
achievements as the number of laborers are added to the project.

No. of Laborers per day 0 1 2 3 4 5

Tons of Cementing Accomplished 0 10.0 18.0 22.0 24.0 25.0

18. The total product _______ as more labor is employed.

a) rises
b) falls
c) remains unchanged
19. The marginal product of each new labor _________ as more and more labor is added to the
construction job.
a) rises
b) falls
c) remains unchanged
20. The marginal product of the third laborer is _______ tons per day.
a) 22
b) 4
c) 10
d) _______ (your calculation).
21. Suppose that the construction manager has to pay each laborer at the equivalent of 2 tons of
cementing job per day of work, the manager will hire exactly _________ laborers.
a) 2
b) 3
c) 4
d) _______ (your own calculation).
G. Sicat, Economics 11 Test 1 Lantern Parade 2009 Page 5 of 9; Last printed 7/1/2010 9:51:00 PM

[Questions #22 to # 27.] Only two television studios – Kapamilya and Kapuso – have the
capacity to produce television programs. Each of them is endowed with a given amount of talents
to use according to the table below. These talents are available at costs shown in terms of the
number of weeks that it takes to conceptualize and finish specific shows of the same quality in
each studio.

Game Show Sitcom

Kapamilya 1 2
Kapuso 2 2

22. With respect to game shows, Kapamilya studio has ________ advantage in producing them
compared to Kapuso studio.
a) absolute
b) comparative
c) both absolute and comparative
23. In the case of sitcoms, Kapuso studio has _________ advantage in producing them compared
to Kapamilya studio.
a) absolute
b) comparative
c) both absolute and comparative
24. If both studios have their own TV channels and they can buy programs that are produced by
the other studio, then you can reasonably predict that each studio will specialize in their
production strategy. In this case, Kapuso will specialize in the production of __________
shows.
a) game
b) sitcom
c) both game and sitcom
25. (Continued.) On the other hand, Kapamilya will specialize in producing __________ shows.
a) game
b) sitcom
c) both game and sitcom
26. (Continued.) You can also predict that the TV channel of Kapamilya will produce more
________ shows in order to reduce costs.
a) game
b) sitcom
27. (Continued.) In this transaction, both studios will be able to __________.
a) reduce their cost of production
b) improve their profitability
c) all workers in each studio will be more productive
d) All of the above.
e) Both a) and c) only.

[Questions #28 to #36.] The following questions are on supply and demand. First a table of
supply and demand schedules is given. You will analyze what happens to price and quantity.
Imagine the table to be for market for a basic good such as rice. Per unit demand is in kilogram.
Demand and supply quantities are in million kilos.
G. Sicat, Economics 11 Test 1 Lantern Parade 2009 Page 6 of 9; Last printed 7/1/2010 9:51:00 PM

Price Per Quantity Quantity

Kilo Demanded Supplied
(pesos)
40 5 45
30 15 35
25 25 25
20 30 15
10 35 5

28. If the price of rice is 10 pesos per kilo, there is __________.

a) demand surplus
b) market balance
c) demand shortage
d) supply surplus
29. (Continued.) The price will _________.
a) rise
b) fall
c) remain in place
30. If the price 40 pesos per kilo, there is __________.
a) supply shortage
b) demand surplus
c) market balance
d) supply surplus
31. (Continued.) This will cause the price to _________.
a) rise
b) fall
c) remain in place
32. Market balance will be achieved when the price is _________ per kilo.
a) 30
b) 25
c) 20
d) ________ (your estimate).
33. At the price of ________ pesos per kilo, there is excess supply or demand is also in shortage.
a) 29
b) 22
c) 20
34. The price elasticity of demand measures the __________ of demand to the change in the
price of the good.
a) quality
b) response or sensitivity
c) quantity
G. Sicat, Economics 11 Test 1 Lantern Parade 2009 Page 7 of 9; Last printed 7/1/2010 9:51:00 PM

35. The elasticity of demand when the price of rice per unit is in the range of 30 to 25 is
___________.
a) 1
b) 2
c) 5
d) __________ (Your calculation).

[Questions #36 to #42.] We extend the problem about the market for rice when there are changes
in market conditions.

36. Suppose that because of bad weather the expected crop during the harvest months falls far
short of the anticipated harvest of palay. This means that the supply of rice in the market
________.
a) falls
b) shifts to the right
c) shifts to the left
d) Both a) and c)
e) Both a) and b)
37. (Continued.) Then, the price of rice can be expected to _________.
a) rise
b) fall
c) likely remain unchanged
38. (Continued.) In order to maintain rice supply levels at the retail market, the government in
the short run would need to __________ rice.
a) import the expected shortfall
b) export the expected windfall
c) to do nothing in the market for
39. To assure that the price of rice ___________ relative to the going price during the planting
period, sufficient stocks of rice have to be supplied to the retail market to replenish periodic
purchases of the grain.
a) does not fall
b) does not rise
c) remains volatile
40. During a very good weather planting period, there is a bumper crop of harvests far exceeding
the country’s targeted output needs. This means that the supply of rice will __________.
a) fall
b) rise
c) shift to the left
41. (Continued.) Government planners now would expect the price of rice to ____________ if
nothing is done.
a) fall
b) increase
c) remain steady
G. Sicat, Economics 11 Test 1 Lantern Parade 2009 Page 8 of 9; Last printed 7/1/2010 9:51:00 PM

42. (Continued.) In order that the market for rice would remain steady as before, the government
must __________ any excess rice stocks.
a) import
b) export
c) do nothing but let the market settle

(Continueation of changes in market conditions.) Suppose that the government changed its
medium term priorities and decided to invest in irrigation systems – through repair and upgrade
of existing systems and especially in drought ridden rice farm areas). In addition, the government
put high priority to the expansion of productivity through improved practices, including the
adoption of high yielding varieties of rice. Within five years, these new investments expand the
output of rice.

43. (New.) Suppose that high priority to agriculture, investments in infrastructure and adoption of
high yielding varieties lead to high expansion of rice. Other things remaining the same, the
price of rice will __________.
a) rise
b) fall
c) remain unchanged
44. In addition however, if the population level increases, the impact of this on demand for the
commodity will make the price of rice _______________.
a) to rise
b) to fall
c) to likely remain unchanged
45. (New question.) If at the beginning the market for a different commodity is at equilibrium and
the government decides to introduce a tax on the sale per unit of this good. The price after tax
of the good will ________.
a) increase
b) decline
c) remain unchanged
46. (Continued.) The quantity after tax sold will __________.
a) fall
b) rise
c) remain unchanged
47. (New.) Suppose that there are two goods in question, Good A, for which supply is elastic, and
Good Z, for which the supply is inelastic. If these two goods have a 5 percent increase in
their respective prices, Good A will have a ________ increase in price than the price of Good
Z.
a) higher
b) lower
c) (an) equal
G. Sicat, Economics 11 Test 1 Lantern Parade 2009 Page 9 of 9; Last printed 7/1/2010 9:51:00 PM

48. From a position of relative market equilibrium, the Philippines experiences an increase in
world demand for its exports. As a result, the peso exchange rate for the US dollar could
___________.
a) fall
b) rise
c) remain the same
49. (Continued.) In addition to the above change affecting the exchange rate, suppose the volume
of OFW (overseas Filipino worker) remittances from abroad also rises. In this case, the
exchange rate of the peso could __________ in relation to the dollar.
a) weaken further
b) strengthen further
c) remain the same
50. A country with a high rate of output growth and a low population growth rate is likely to
attain a __________ for its people than another with the same rate of output growth but with
a higher level of population growth.
a) lower standard of living
b) higher standard of living
c) increasing level of employment
d) Both a) and c).
e) Both b) and c)
51. For months the stock price of MERALCO was only within a small trading range. Then, a big
investor decided to buy a large amount of stocks that is owned by an existing group of stock
holders. The price of MERALCO stock ___________.
a) went up by a large jump
b) fell by a large drop
c) went up within usual range
d) fell within usual range
52. (Continue.) Suppose the situation in the previous question were very different. A group
owning a large percentage of the stocks decides to sell all of it holdings and there is no big
buyer immediately interested. The price of the stock would ______________.
a) rise by a large jump
b) fall by a large drop
c) fall as usual
d) rise as usual

END OF EXAM