COLEGIO DE SAN JUAN DE LETRAN

College of Business Administration and Accountancy

AFE Programs
First Semester, SY 2021-2022
MIDTERM ALTERNATIVE ASSESSMENT TASK
ECO105(B)- Managerial Economics
Dr. Dennis A. Sandoval
Name: _Angelu Manoelle F. Guardian__ Score:______________ Grade:_________________
Year & Section:___1st Year-AC1B___ Permit No.:________ Date:__October 4, 2021____

Answer the following questions in a maximum of five statements. (10 points each)

1) If more is better, how can you explain that more pollution violates this principle?

Pollution is the occurrence of contaminating substances to a natural environment that may

result in severe and worse changes to the environment – affecting all living things in the world.
Therefore, the quotation “More is Better”, although this concept is really nice and compatible with
other aspects in life may it be food as an essential need of a person, or money which will be spent
wisely for the comfort of the whole family, it is not and never will be applicable to pollution
because increasing the amount of pollution in our environment means that contaminants in our
environment also increases. Because of this, it results to worst and severe cases of damages to our
nature which, in return, also affects us badly since we this is where we acquire all our essential
needs as a human being – collected and harvested from the natural resources which are in the world
we’re currently living in. Having more amount of pollution in our natural environment is not better
because if this continuously worsens with the same fast increasing rate, aside from losing resources
where we get our essential needs, our shelter itself may shut down and die, leaving us no other
option but death as well. As the saying goes, “prevention is better than cure,” we shall always
prevent and stop the increase of pollution in order to save our environment and save ourselves.
2) Explain why economists might disagree on the content of a model.

Economists, as they are originally defined, are experts and professionals who study
different nations’ economies along with the relationship of where the nations acquire their raw
materials to transfer into production to obtain outputs and the possible future standing of
economies in the world with the use of historical data, theories, and other economic models and
methods. Because of having hundreds of different theories economists right now in the world,
which are then adopted and understood contrastingly by each one of them, it gives out different
interpretations which eventually results in disagreements with the contents of a model.
Furthermore, relying on a single economic model as a basis to understand and study relationships
between the society and economy is widely inefficient and ineffective that is why economists tend
to disagree as much as they can to dig deeper and fully acknowledge every single little detail. Just
like when dealing with our personal lives in the world, we wouldn’t only rely on a single
perspective, theory, model, or interpretation to understand the real meaning behind an event or
occurrence, thus, also know and recognize the contradicting perspectives and interpretation for a
better understanding to derive to better solutions and methods.
3) Do you agree that if a model fits reality but doesn't generate testable predictions, it is of
little value to economists.

Yes, I agree that having realistic economic models that may be sensible and logical, but
doesn’t generate testable predictions, then it is not certainly valuable to economists. Basically
speaking, if a calculator looks like an actual calculator but doesn’t have a charged battery inside
for it to work and automatically calculate formulas, meaning it’s not working, it won’t really be
helpful and useful for someone in need of using the calculator to answer mathematical problems.
Economists may have a realistic model in hand, but it doesn’t generate testable predictions means
that it won’t be useful enough for producing accurate or approximate outcomes or results as
predictions which are then needed and will be used to know what preparations is necessary for a
nation or a business enterprise to be ready in fighting off the problems it is possibly going to
encounter in the near future. Having almost accurate predictions to be studied by economists is
important for a country or an enterprise because this serves as one of the main guides for making
decisions since it is forecasted prior and has undergone thorough studies made by economists.

4) Explain the difference between diminishing returns to labor and diminishing marginal
returns to labor.

Diminishing return means that there are proportionally smaller profits benefitted from
something wherein more money or energy was invested in it. In terms of diminishing returns to
labor, it occurs when a firm has invested in hiring more employees than what is required in the
firm’s production department, resulting in a slower pace of production – a smaller percentage of
outputs because of overcrowding in the department. Meanwhile, the diminishing marginal returns
(having almost the same concept as the previous one), occur when increasing one unit of
production, whilst holding other factors constant – results in lower levels of output and less
efficiency in production. An important aspect of diminishing marginal returns, is that output does
not necessarily start to decrease, and instead, the output is not increasing at such a high rate as
previously (Boyce, 2021).

5) During the "computer revolution" of the 1980s and 1990s, many firms replaced old
technology with new technology. What might explain why firms don't change technology as
quickly today?

If we were to search online when the start of the computer revolution started, it actually
began in the 1960s, followed by the invention of personal computers for customers during the
1980s, then later on followed with the internet for the third revolution and smartphones and tablets
for the fourth. If we are to observe thoroughly, the evolution of the computer has been in fast pace
during the early times of revolution since it is the beginning with many other factors to invent and
develop taking much more time, compared with the current technology we have now wherein
access to information is way easier and faster, resulting to improved and faster innovation and
developments new technology into newer technology. But aside from the fact that revolution of
computer has been at a much slower pace before than today, technically and economically
speaking, firms also don’t change technology as quickly as today because of the marginal rate of
technical substitution (MRT) of old technology for new technology was low in the past –
specifically during the 1980s and 1990s – but the recorded marginal rate of technical substitution
of new technology for a more updated technology with newer specifications is higher nowadays.
MRTs is an economic theory that illustrates the rate at which one factor must decrease so that the
same level of productivity can be maintained when another factor is increased (Investopedia, n.d.-
b).

6) Legislators argue that a minimum wage law is instituted to help poor people. Economists
can attack the minimum wage law on two fronts. First, some argue that government should
not help the poor. Second, some argue that minimum wage laws actually hurt the poor
because it creates unemployment. Which argument is normative, and which is positive?

If we will be looking at a closer perspective and understand thoroughly the statements

mentioned above, we are to identify the difference between the normative argument and the
positive argument. Positive statements are said to be based purely on facts, observation, and are
objective, but normative statements are based on opinions and are bound to be subjective. Given
the arguments above, we can then conclude that the first argument which was said by some that
the government should not help the poor is the normative argument since there are no given
supporting details regarding it. At the same time, governments are really tasked to manage and run
the country which also means to help the poor and every other citizen in the country. Meanwhile,
the positive argument is the latter which said that the minimum wage laws actually hurt the poor
because it creates unemployment because this argument is based on the actual observation about
the probable impacts of law, specifically the minimum wage laws.

7) Explain why a model that delivers good enough approximations is a good model.

Economists always need models that deliver good enough approximations or predictions.
Although these models are not expected to deliver exact values, it is helpful and valuable enough
for an economist if it derives almost accurate predictions. A model that delivers good enough
approximations are considered a good model because it lessens the difference between the
predicted value and the real value, which means that there were fewer and minimal errors. Since
the main goal of an economist is to obtain approximations with minimized errors, a model that
procures a more approximated value will have more unity and convergence of the true value,
considering the model as a good model to be used in approximating the predicted value. As a
result, it was considered to be a good model as it was said to be able to predict good enough
approximations with minimized errors – close enough to the true and real value.

8) Explain the phrase “If a good is not produced, then there is still demand for it.”

In order to satisfy people’s wants and needs, they demand goods and services. Nowadays,
the internet and social media, such as Facebook, Tiktok, Instagram, and Twitter, have been one of
the key influencers with what consumers think their needs and wants are. In return, consumers
tend to demand on goods or services even though it is not yet produced on their country or local
place which results to unproduced goods or services, but there is already a demand for it. In
addition, there are also various inventions that were made or developed based on the high demand
of consumers. Because of this, the phrase “if a good is not yet produced, then there is still demand
for it,” is factual enough as globalization has been reaching consumers widely and vastly –
increasing the market demand on a certain product even from a different place.

9) Why is the quantity of a good that consumers demand is not solely dependent on the
price of the good.

The quantity demand of a good that consumers demand doesn’t only depend on the price
of the good but also on two other factors. According to Investopedia (n.d.-a), also depends on two
factors: (1) its utility to satisfy a want or need, and (2) the consumer’s ability to pay for the good
or service. With this information stated, this further explains that the quantity demanded by
consumers in the market is not only dependent on the price but also on how much it is needed or
wanted by the consumer and with how is the consumer’s ability to back up its want or need using
his/her money, and his/her budget availability. Given these factors where the quantity of a good
that consumers demand means that there are various sub-factors under these wherein consumers
consider his/her tastes, likes, choices, preferences, and many other evaluation factors. Therefore,
evaluating the quantity demand of consumers for a good must be thorough since it is widely
important to help businesses in making decisions.

10) What is the meaning of the statement "correlation does not mean causation"?

Correlation is often defined as a mutual connection between two or more things wherein
these connected things or variables are linearly related as they change together, constantly, at the
same rate and time wherein whenever one changes, it is most likely that the other also changes.
Meanwhile, causation basically is the causality of the relationship between the cause and the effect,
meaning that there was a causal effect or happening occurring to something. Although these two
terms may sound like they occur at the same time, no, it doesn’t, because just because we have
observed two events happening and occurring at the same time, even though they look almost
related, it doesn’t actually mean that the correlation was caused by the other. One obvious real-
world example of this is the correlation between the increase of sales of ice creams along with the
increase of service revenues of swimming pool/beach resorts every summer season, wherein both
of these are likely to increase rates at the same time, but they don’t have any connection as sales
of ice creams do not affect nor increase the service revenues of swimming pool/beach resorts and
vice versa.
References:

Boyce, P. (2021, April 14). Law of Diminishing Marginal Returns. BoyceWire.

https://boycewire.com/law-of-diminishing-marginal-returns/

Investopedia. (n.d.-a). Demand Theory Definition. Retrieved October 4, 2021, from

https://www.investopedia.com/terms/d/demand_theory.asp

Investopedia. (n.d.-b). Understanding the Marginal Rate of Technical Substitution. Retrieved

October 4, 2021, from https://www.investopedia.com/terms/m/marginal-rate-technical-
substitution.asp