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Applied Economics
Mid-Term Examination

20 July 2018 3:00 pm -4:00 pm

Name: Date:

1. Explain why scarcity affects both the poorest and the richest persons in the Philippines.
2. Explain the link between scarcity of time or money and each of the following:
a. Opportunity cost of spending ten pesos on a new ballpen.
b. Opportunity cost of walking your dog a few blocks.
c. Opportunity cost of attending college.
3. Why do most Metro Manila residents travel to Baguio City by bus, while wealthy
businessmen are more likely to travel by air? Use the concept of opportunity cost in your
answer.
4. Attending high school is time-consuming and requires a lot of effort. So why do many young
people decide to attend high school? Use the concept of opportunity cost in your answer.
5. “Fast-food or quick service restaurants fulfil a valuable role by catering to time-pressured
costumers.” Discuss this statement. Use the concept of opportunity cost in your answer.
6. Make a list of devices that were developed in response to higher opportunity cost of time
spent cleaning the house and doing laundry.
7. Why is it very important to recognize that, from society’s point of view, there is no such
thing as free medical care, free housing, and bridges (“there is no charge to cross it”)?
8. Why is it very important to recognize that choices on electric power consumption are made
at the margin?
9. Suppose that there is a sudden new trend for high school students all over the Philippines to
ride bicycles more. How would the price system decide “who should get what is produced?”
How would the inputs used in bicycle production be affected?
10. True or false? Explain your answer. A price ceiling set below the equilibrium price does the
following:
a. Decrease quantity supplied
b. Makes some buyers better off and others worse off
c. Makes all sellers better off
11. True or false? Explain your answer. A price floor set above the equilibrium price does the
following:
a. Increases quantity demanded
b. Makes some sellers better off and some others off
c. Makes all buyers better off
12. Which of the following statements do you think indicate/s sound economic thinking? Explain
your answer.
a. My parents paid for this economics course. Therefore, I’m going to attend every lecture
even if it is useless and boring.
b. Because we own a house rather than rent, and the house is paid for, living in our own
house does not cost us anything.
 c. I own a desktop computer that I cannot afford to sell until I find a buyer who is willing to
let me cover at least my original payment.
13. Imagine that your family owns a house and your monthly house payment is P 5,000 (your
parents availed of a housing loan and the house is not paid for). Suppose your family plans
to relocate temporarily. Should your parents refuse to rent out the house you’re moving out
of for P 4,000 (if this is the best offer available) because it is less than their monthly house
payment? Explain your answer.