Economics Chapter: Law of Supply and Cost Concepts
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Questions and Answers

What does the law of supply state about the relationship between price and supply?

  • Higher prices lead to greater quantity supplied. (correct)
  • When the price rises, supply contracts.
  • Lower prices lead to greater quantity supplied.
  • When the price falls, supply extends.

    • Which of the following is an example of a luxury good?

  • A fur coat (correct)
  • Banking services
  • Clothing for employees
  • Food supplies for a factory

    • What are consumer goods primarily used for?

  • Satisfying consumer desires (correct)
  • Producing other goods
  • Maintaining industrial infrastructure
  • Generating profit for enterprises

    • Which of the following best describes fixed costs?

    <p>Costs that are incurred regardless of production levels.</p> Signup and view all the answers

    Producer goods and services are primarily used for what purpose?

    <p>To create additional consumer goods and services.</p> Signup and view all the answers

    What is an example of a necessity in a business context?

    <p>Cash supply for employee wages.</p> Signup and view all the answers

    How does a decrease in price generally affect supply?

    <p>Supply contracts.</p> Signup and view all the answers

    Which type of costs must be paid regardless of the output level?

    <p>Fixed costs.</p> Signup and view all the answers

    What is the primary reason why money available now is considered more valuable than the same amount in the future?

    <p>It has a higher potential for earning interest.</p> Signup and view all the answers

    Which of the following costs is associated with day-to-day operations of an enterprise?

    <p>Operation and Maintenance costs</p> Signup and view all the answers

    What defines the Salvage Value of equipment?

    <p>The estimated selling price after its useful life.</p> Signup and view all the answers

    How does simple interest differ from compound interest?

    <p>Simple interest grows linearly while compound interest grows exponentially.</p> Signup and view all the answers

    Which formula is used to calculate the total amount owed when using compound interest?

    <p>Principal * (1 + Rate)^Time</p> Signup and view all the answers

    In financial decision-making, why is it essential to understand the concept of Time Value of Money (TVM)?

    <p>It aids in evaluating the potential growth of investments.</p> Signup and view all the answers

    Which financial approach ensures that the utility of goods and services is effectively valued?

    <p>Balancing both physical laws and economic factors.</p> Signup and view all the answers

    What is the impact of compounding periods on the growth of investments?

    <p>More frequent compounding leads to higher total amount earned.</p> Signup and view all the answers

    What is the formula to calculate the annual worth (AW) in cash flow analysis?

    <p>AW = AW of cash inflows - AW of cash outflows</p> Signup and view all the answers

    For a project to be acceptable using the AW method, what condition must be met?

    <p>AW must be greater than zero</p> Signup and view all the answers

    Which of the following cash flow components represents disbursements in a project?

    <p>Annual operating costs incurred</p> Signup and view all the answers

    What is the significance of the salvage value in the context of cash flow analysis?

    <p>It affects the cash flow in the final year of the project</p> Signup and view all the answers

    In the future worth analysis, how is the future worth (FW) calculated for an investment with a first cost?

    <p>FW = -A(A/P, i, n) + A(A/F, i, n)</p> Signup and view all the answers

    What does an Annual Worth (AW) of zero indicate about a project?

    <p>The annual return equals the effective interest earned.</p> Signup and view all the answers

    In the formula for Future Worth (FW), what do you subtract from the FW of cash inflows?

    <p>FW of cash outflows</p> Signup and view all the answers

    Which formula correctly represents the conversion from Annual Worth to Present Worth?

    <p>AW = A(A/P, i%, n)</p> Signup and view all the answers

    If the investment cost for new equipment is ₱25,000 and the market value after 5 years is ₱5,000, what is the total cash outflow at the end of the study period?

    <p>₱20,000</p> Signup and view all the answers

    What is the interest rate used in the example for evaluating the project?

    <p>20% per year</p> Signup and view all the answers

    Which of the following variables represents the future value in the Annual Worth formula?

    <p>F</p> Signup and view all the answers

    What is the primary purpose of calculating the Annual Worth (AW) for a project?

    <p>To represent an equal annual series of cash amounts.</p> Signup and view all the answers

    In the context of the provided content, what does 'n' represent?

    <p>Time period</p> Signup and view all the answers

    What is the total interest paid on a loan of ₱11,000 if the total amount to be repaid after one year is ₱11,550?

    <p>₱550</p> Signup and view all the answers

    What interest rate is applied on a loan of ₱11,000 resulting in a total repayment of ₱11,550 after one year?

    <p>5% per year</p> Signup and view all the answers

    If you borrow ₱1,500 at an interest rate of 8% per year for three years, what is the total interest paid?

    <p>₱360</p> Signup and view all the answers

    What is the total amount to be repaid after borrowing ₱1,500 for three years at an interest rate of 8% per year?

    <p>₱1,860</p> Signup and view all the answers

    If ₱1,200 is invested at a simple interest rate of 6% for 4 months, how much interest is earned?

    <p>₱24</p> Signup and view all the answers

    What is the total amount to pay after investing ₱1,200 at a simple interest rate of 6% for 4 months?

    <p>₱1,224</p> Signup and view all the answers

    What is the interest formula used to determine the total interest on a loan?

    <p>I = Pni</p> Signup and view all the answers

    In the context of simple interest, if a loan was borrowed for 2 years at a rate of 10%, how would you express the interest earned?

    <p>I = P<em>n</em>i</p> Signup and view all the answers

    Study Notes

    Law of Supply

    • The law of supply states that as the price of a good rises, the quantity supplied will also rise.
    • Conversely, as the price of a good falls, the quantity supplied will also fall.

    Types of Goods and Services

    • Goods and services can be categorized into two types: consumer goods and services and producer goods and services.
    • Consumer goods and services are products or services that are directly used by individuals to satisfy their needs and desires. Examples include food, clothing, homes, and telephones.
    • Producer goods and services are products or services that are used to produce consumer goods and services or other producer goods. Examples include manufacturing infrastructure, machinery, and transportation systems.

    Cost Concepts

    • Fixed Costs: Costs that remain consistent regardless of the level of production or resources used. These are unavoidable costs that must be paid.
    • Operation and Maintenance Costs: Costs associated with running a project or enterprise, including labor, materials, energy, and information.
    • Working Capital: Funds necessary for the day-to-day operations of a business.
    • Salvage Value: The estimated value of an asset at the end of its useful life, considering depreciation and potential resale value.

    Time Value of Money (TVM)

    • Money available now has a higher value than the same amount in the future because of its potential to earn interest and grow over time.
    • This principle is crucial in financial decision-making and is the foundation of how capital is used to generate wealth.
    • Simple Interest: Calculated only on the principal amount and grows linearly.
    • Compound Interest: Accumulates interest on both the principal and previously earned interest. This results in faster growth over time.

    Simple Interest Formula

    • Total Interest (I) = Principal (P) * Number of Interest Periods (n) * Interest Rate (i)
    • Total Amount (F) = Principal (P) * (1 + Number of Interest Periods (n) * Interest Rate (i))

    Compound Interest Formula

    • Total Amount (F) = Principal (P) * (1 + Interest Rate (i)) ^ Number of Interest Periods (n)

    Annual Worth (AW) Method

    • The Annual Worth (AW) method expresses the economic performance of a project as an equivalent annual series of cash flows for a specified period.
    • If the AW is greater than or equal to zero, the project is considered economically attractive.
    • If the AW is less than zero, the project is not economically attractive.

    Annual Worth Formula

    • AW = AW of cash inflows - AW of cash outflows

    • AW of cash inflows = A (A/P), i%, n)

    • AW of cash outflows = A(A/F, i%, n)

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    Description

    This quiz covers fundamental concepts in economics, focusing on the law of supply, types of goods and services, and various cost concepts such as fixed costs. Test your understanding of how pricing affects supply and the differences between consumer and producer goods.

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