MIDTERM EXAMINATION 

MANAGERIAL ECONOMICS 

Write TRUE if the statement is TRUE and write FALSE if the statement is FALSE. 
If FALSE, make the statement correct/true by revising the statement. 

1. For a demand curve to slope upward, the substitution effect must outweigh the
income effect. TRUE
2. The main problem with indifference curve analysis is that people don’t actually
calculate utility when making choices. TRUE
3. A Giffen good must be an inferior good, but not all inferior goods are Giffen
goods. TRUE
4. For a normal good, the income effect of an increase in price leads to decreased
consumption. FLASE, INFERIOR GOODS
5.  The substitution effect of a price increase always leads to lower consumption.
TRUE
6. The indifference curve between San Miguel Beer and Beer na Beer is likely to be
straighter that the indifference curve between San Miguel Beer and Coca
Cola.TRUE 
7. It is not possible for every good to be an inferior good for a consumer. FALSE,
POSSIBLE
8. The income effect of a price change is the change in consumption that results
from movement to a higher or lower indifference curve without any change in
relative price. TRUE
9. A price ceiling above equilibrium tends to cause shortages. FALSE, BELOW
10. A price floor above equilibrium tends to cause surpluses. TRUE
11. A tax levied on buyers of a good or service shifts the demand curve up.
FALSE,CURVE DOWN
12. A tax levied on sellers of a good or service shifts the supply curve up. TRUE 
13. A PHP1.00/unit tax on sellers generally will raise price by PHP1.00. TRUE
14. A PHP5.00/unit tax on buyers generally will lower the equilibrium price by less
than PHP5.00. TRUE
15. Regardless of who is the legal taxpayer, taxes are always shifted to consumers
in the form of higher prices. TRUE
16. A PHP1.00/unit tax on sellers is economically equivalent to a PHP.00/unit tax on
buyers, except that the tax on sellers is more equitable for low-income buyers.
FALSE, NOT EQUAL
17. Rent controls are least likely to cause large shortages of housing if the supply of
housing is inelastic. TRUE
18. The burden of tax always falls on the side of the market with the smaller price
elasticity. TRUE
19. The demand for Toyota is more elastic than the demand for automobiles in
general. TRUE
20. The longer the time period, the more elastic the demand for a good or service, all
else equal. TRUE
 21. A normal good is one for which the income elasticity is greater than one. TRUE
22. A good perceived by the consumer to be a necessity will tend to have an elastic
demand. FALSE, INELASTIC
23. For a good with a price elasticity of demand of 0.8, an increase in price will cause
total consumer spending on the good to rise. TRUE
24. The major problem facing agriculture in the Philippines today is the slow pace in
implementing necessary technological changes in the production and distribution
of food. TRUE
25. If I allocate PHP500 as my monthly expenditure on beer and spend no more and
no less, regardless of price, then my demand for beer is unit elastic. 
FALSE, INELASTIC

Essay: 

1. How could a good such as a new mid-priced car be both an inferior good and a
normal good? 
Based on the question itself, it is stated that how could a good such as a new
mid-priced car be both an inferior good and normal good? Basically, it is inferior
goods because of its price which is mid-priced or (middle means not too high and
not too low), and it is inferior because we can purchase the car even if our income is
not too high, for me the reason is the car is budget friendly. While the normal goods,
in the question it says that the car is “good such as new”, so my understanding is the
car is not that old enough and it can be a semi- brand new car. Therefore, we can
say that the car is both inferior and normal goods because of its “affordability” and
it is semi brand new.

2. Minimum wage laws dictate the lowest wage that employers must pay their
employees. Such laws are enacted when policymakers believe that the market
wage rate is unfair to workers, and their introduction is viewed as one way to
raise the income of the working poor. How can we measure the benefits received
and the costs incurred of a minimum wage law? Should policymakers use
minimum wage laws as a tool to raise income of the working poor and increase
society’s overall level of welfare? 

I think there is a law that explains and shows how to measure one’s
minimum wage. Basically, the minimum wage here in Manila is Php 400 above and
from that wages there are some deductions like in SSS, PhilHealth, and such. But
the best measurement to measure the benefits they received was their status in life,
if the wages are enough for their respective family. The second question is should
policymakers use minimum wage laws as a tool to raise income of the working poor
and increase society’s overall level of welfare? No, the best way  to raise the income
for me is to add more work and jobs and also the policymakers need to increase the
salaries of one employee because the cost of living is increasing even if their salaries
are not.