NAME: MONTECILLO, IVORY MAE D.

SECTION: BSBA FM 2-1

Exercise 1

I. Consider the production possibility table below.

Alternatives
Goods
M E L C A H
Machines 15 14 12 9 5 0
Burgers 0 1 2 3 4 5
Note: Machines and Burgers are in Thousands

1. Draw a Production Possibility Curve (PPC) using the table.

2. List the assumptions in analyzing PPC.

(1) Full Employment
(2) Productive Efficiency,
(3) Fixed Resources,
(4) Fixed Technology and
(5) Two Goods (burgers as consumer good and machines as capital good in thousands).

3. Explain the trade-off of the two commodities and the Law of Increasing Opportunity Cost.
You can produce from alternative M to H or from alternative H to M. Considering the first
process, alternative M shows that there are 15,000 machines and 0 burger. Moving to
alternative E, 1,000 unit of machine was sacrificed just to have unit of burger. From E to L,
2,000 units of machines were sacrificed to have additional unit of burger. From L to C,
3,000 units of machines were sacrificed to have additional unit of burger. From C to A,
4,000 units of machine were sacrificed to have additional unit of burger. Lastly, 5,000 units
of machines were sacrificed to have additional unit burger from A to H. The production of
burger is increasing by one thousand unit from 1 alternative to another alternative while the
number of machines given up is increasing (1, 2, 3, 4 and 5). Therefore, the law of
increasing opportunity cost is present in machines. The Law of increasing opportunity cost
happens when all resources are being used. An increase in the production of one good will
lead to greater forgone production of another good. In this case resources are not perfectly
suited for both goods that is why it led to an increasing opportunity cost
 4. Where are the attainable area and unattainable area? How to attain the
unattainable area? What will the economy achieve if this happens?

The shaded part is the attainable area, and the unshaded part are the unattainable area.
Since the fixed resources were fully employed at the PPC, point Z is unattainable and the
same time inefficient, it is desirable but impossible. If the resources and advance technology
will increase it could increase PPC that leads to an upward shift of the PPC to attain point Z.
It will have a positive impact and the economy will grow.

II. Underline the correct answer. (20 pts.)

There are three forms of economic resources or factors of production. 1.

(Land, Capital) includes natural resources that can be extracted from water, air,
and land itself specifically, mineral deposits. 2. (Labor, Entrepreneurial ability)
pertains to the physical or mental talents that are utilized to produce goods and
services. Lastly, 3. (investment, capital) refers to the goods that are used for
production of other goods and services. However, these resources are 4.
(unlimited, limited) in relation to our needs and wants.

Furthermore, 5. (luxury goods, basic goods) are not necessary for our
basic existence while 6. (luxury goods, basic goods) are goods which stay with us
through a lifetime. In reality, when one of your needs is satisfied, you still look for
more. It is because needs and wants are 7. (unlimited, limited). Thus, 8.
(Economics, Macroeconomics) deals with the efficient allocation of scarce
resources in producing goods and services to satisfy human wants and needs.

Economists view things through a unique perspective. 9. (Marginal

Analysis, Rational Behavior) means that the same person may make different
choices under different circumstances but looking for opportunity to increase his
utility. In addition, 10. (Marginal analysis, Rational Behavior) involves in the
comparison of additional benefits and additional costs. Lastly, 11. (Scarcity,
Rational Behavior) limits options and necessities that we make choices

Moreover, there are methodologies used in understanding economy. 12. (Applied

Economics, Descriptive Economics) is simply the compilation of data that
describe phenomena or facts. Those data from surveys and interviews are 13.
(secondary data, primary data). While data taken form released book, journal, or
previously conducted researches are 14. (secondary data, primary data). When the
facts are brought into order and tied up to provide meaning, placed in correct relation,
and generalized from them, 15. (economic theory, economic policy) arises. These
are used to formulate policies in solving economic problems, thus becoming 16.
(theoretical economics, policy economics). Moreover, when we consider
someone’s value judgment about what economy should to be, we are using 17.
(normative economics, positive economics). But when we deal with facts and
principles to remove our value judgment, we are using 18. (normative economics,
positive economics). On the other hand, economy can also be explained through
reasoning. The process of reasoning from the particular to the general is called
19. (deductive reasoning, inductive reasoning). On the other hand, reasoning
from general to particular is called 20. (deductive reasoning, inductive reasoning).
III. Identify each of the following as either a positive or a normative statement. Write
PS if the statement is a Positive Statement and NS if the statement is a Normative
Statement before the number.

NS 1. The government should provide basic healthcare to all citizens.

PS 2. Government-provided universal healthcare increases public expenditures.

PS 3. Other things held constant, an increase in price reduces the quantity demanded.

NS 4. The government should give ABS-CBN a franchise to continue its operation.

PS 5. GDP posts 6.4% growth in the 4th quarter of 2019.