MICROECONO

MICS
[Date]

ECC-122
PROF. Arabelle
Pontillar-Aloquina
-MBA
STEVE MENDOZA BSENTREP-1A MODULE 7 ANSWERS

Exercises/Drill I. Write TRUE if the statement is true and FALSE if otherwise.

TRUE 1. The quantity of loanable funds supplied in the market increases as the interest rate
decreases.
TRUE 2. Economist is defined rent as the amount a person pays to the landlord.
TRUE 3. Location rents for store in remote areas would increase as malls would be built around
its outskirts.
FALSE 4. Profit is a form of wage income.
FALSE 5. The value input is the total revenues received by the entrepreneur while the value of
output is the total is the total costs incurred in the exercises of the business.
FALSE 6. Nominal interest rate is the interest rate adjustment for inflation.
FALSE 7. Supply of land is perfectly elastic.
TRUE 8. Payments made to entrepreneurs as the return on their risk taking is called normal
profits.
FALSE 9. Interest rates do not affect the level of production of investment good.
TRUE 10. Market niche is defined as a segment of the market that demands a commodity that is
slightly differentiated from other commodities.

II. Compute the following exercises

1. Company WIMWAM borrowed P120,000 to buy equipment. It is payable in 5 year and the
rate of interest is 15%. How much is the incurred interest?
Given: P= 120,000 R= 15%= 0.15 T=5 years
I=PRT
= 120,000x0.15x5
=P90,000

2. Adelle deposited her 500,000 in the stock market and after a year showed a return on
investment of 550,000. How much is the interest rate?
550,000-500,000=P50,000
I
R= (100)
P
50,000
= (100)
500,000
=0.10(100)
=10%
STEVE MENDOZA BSENTREP-1A MODULE 7 ANSWERS

Evaluation I. Answer comprehensively the questions being asked.

1. How do interest rate affect you as a consumer?

As a consumer, the interest rate has significant effect. The higher

the interest rates can affect my spending manners in both substitution
and income effects. Then, the higher the interest rates the lower the
consumption. The consumption will be diminishing since the price is
increasing and expenditures will minimize. Unlike that the interest rate
is getting down, the purchasing power will increase.

In overall, as the consumer, the interest rate plays significant role

specially in the buying process wherein once the interest rate is
increasing the buying habit is declining, while the interest rate is
decreasing, the buying behavior will increase.

2. What are the effects of interest in the business?

The interest is one of the factors that affects the business. We can
fully understand it by putting ourselves in this situation, wherein, the
higher the interest, the less money in customer’s pockets. This can
reduce the ability to buy certain goods and services, so the business may
suffer from a decrease in sales. When the interest is in lower level, the
customers will patronize the business since the people got paid their loan
payables in the bank.

3. What do you think of the possibilities of considering loanable

funds in the future?
STEVE MENDOZA BSENTREP-1A MODULE 7 ANSWERS

Based on what is happenings at these present days, I do believe

that on the future, the loanable fund in the future will increase the
interest rate since everything now a days are raising. Even though there
are a lot of banks competing with one another. But still, the demand of
the barrower is increasing. Based, on what I had learned, in the past, the
interest rate in owing money is in the lower level, but currently, it is
increasing and increasing until in the future will had a higher interest
rate. Another reason behind it is that there are a lot of businesses will
arise. It sounds that, there are a lot of barrower and bundles of money
will move in the society.

4. How important is the cost of rent to the business? Explain it and

consider the area where the rent is cheaper but less traffic vs high
rent with high traffic?

The cost of rent to the business differs on its location and size. We
can relate it and understand fluently by putting ourselves in this
situation: First, an area where the rent is cheaper but less traffic, and
other one is that, with high rent and high traffic. Upon the situation, the
area where the rent is cheaper, but less traffic signifies that there are
fewer customers.

5. What kind of profits do entrepreneurs received?

The entrepreneur plays significant role in the arena of business.

Wherein, they are the equipped workers that belongs to the white-collar
STEVE MENDOZA BSENTREP-1A MODULE 7 ANSWERS

job since they are using the power of their mind to manage the business
greatly with their learnings and experience from their education and
work.
Normal profit refers to the profit that receives by an entrepreneur
as exchange by investing his/her existing knowledge, skills, ability, and
experiences to manage the entity efficiently and effectively to meet the
demands of the market and to create profit.
In short, the normal profit is the entrepreneurs’ reward of his
efforts and time invested in a business.

II. Problem Solving You will be opening a bakery.

You decided to buy a big oven machine that cost P225,500 from a specialty
company. The interest rate is 10 percent and the annual income from the
investment is 180,000. Do you think you got a good deal on the machine you
bought? Why or why not?
STEVE MENDOZA BSENTREP-1A MODULE 7 ANSWERS

Solving:
I=PRT
225,500x10%x1
=225,500x0.10x1
I= 22,550
Amount to be paid in 1 year=P+I
=225,500+22,500
= 248,050

We can completely relate it in this additional Income from the business for 5 years
solving,
=annual income *time
Wherein, the loan will be payable for 2 years.
=180,000x2
I=PRT
=360,000
=225,500x0.10x2

= 45,100
Net proceeds= Income for 2 years – payable

=360,000-270,000
Total payable after 2 years
= 89,400
=225,500+45,100

=270,600

Based on the solving that I had presented above, I’ve got a great deal in purchasing that amazing
machine since the net proceeds after 2 years is higher than its accounts payable. It signifies that through
acquiring that asset is an ideal way because it produces high income for the progress of the business and
success of the owner.
STEVE MENDOZA BSENTREP-1A MODULE 7 ANSWERS

GOD
BLESS US
ALL AND
KEEP SAFE