BAECODEX Economic Development Reviewer Term 1 Midterms PDF

(BAECODEX) ECONOMIC DEVELOPMENT REVIEWER TERM 1: MIDTERM Prepared by: NU-Clark JPIA Academics Committee (A.Y. 2024 - 2025) Prepared for the BSA Nationalian Students September 14, 2024  ECONOMIC DEVEL...

(BAECODEX) ECONOMIC DEVELOPMENT REVIEWER TERM 1: MIDTERM Prepared by: NU-Clark JPIA Academics Committee (A.Y. 2024 - 2025) Prepared for the BSA Nationalian Students September 14, 2024  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS - “People are never satisfied resulting in scarcity.” C1 INTRODUCTION TO ECONOMICS - It tackles the phrase “Unlimited Wants, Limited Means” Economics Scarcity It is one of the social sciences. A study of production, - One of the fundamental issues in economics. distribution, and consumption of goods and services. - Lack of resources Note: Every time you make a choice it results to the Everything revolves around choices. Primarily because following: the world has scarce resources. a. Trade - Off → You sacrifice something in Economic Methodology return or exchange. b. Opportunity Cost → Result of Trade - Off. Answers The Following Questions: You lost the benefits you could have gotten. 1. How does the economy function? 2. How could it function? SOLVING THE ECONOMIC PROBLEM 3. How should it function? 4. How are we currently functioning as an PAUL SAMUELSON (1915 - 2009) economy - The 1st American that won the Nobel Prize in Economics. Note: Human beings are rational beings. - He provided 3 questions that will help alleviate scarcity. rational - self interest - utility - the satisfaction a. What to produce? b. How to produce? TERMS c. For whom to produce? Thinking about the THE PRODUCTION POSSIBILITY FRONTIER Rational Self Interest consequences. (PPF) A graphical representation of a country’s most The satisfaction obtained efficient production. Utility from consuming a good or a service.. The result of too much Selfishness rational self interest. THE ECONOMIC PROBLEM ADAM SMITH (1723 - 1790) - The Father of Modern Economics - Publish the first ever book about economics. An Inquiry into the Nature and Causes of the Note: Wealth of the Nations 1. Any point inside or under the line means - 1776 allocative inefficiency. - “Bible of Capitalism” 2. Any point within the line means peak  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS production. 3. Any point outside or above the line is unattainable. Ceteris Paribus - A Latin word - “Holding other things constant or equal; we have to isolate every single decision.” - All other variables remain the same. DEMAND 2 BRANCHES OF ECONOMICS - The amount of product that a consumer is Macroeconomics willing and able to purchase at each price. - Overall Economies (Regions, Countries, - The demand curve can shift even without any Continents) price change. - Includes topics about the government fiscal and monetary policy, unemployment rates, growth, and business cycles. Note: Demand - Willingness + Ability to Buy - Gross Domestic Product (GDP) Quantity Demanded ≠ Demand Overall shift to the right = increase Microeconomics Overall shift to the left = decrease - Focuses on how individual consumers and producers make their decisions. - Smaller group but could have macro QUANTITY DEMANDED repercussions. - Business owners, buyers, and sellers. - Quantity / Number - Follows the changes in the demand THE LAW OF SUPPLY AND DEMAND Note: Shift within curve to the right = increase ALFRED MARSHALL Shift within to the left = decrease - Credited with attempting to apply rigorous mathematics to economics to turn it into more FACTORS AFFECTING DEMAND of a science than philosophy. - First to develop the standard supply and - Income demand graph. - Unemployment Rates - He used the scientific method. - Disposable Income (Income - Expense) - Changing Tastes / Preferences Economics of Industry (1892) - Substitute Goods - Popularized the use of supply and demand - Changes in expectations about future prices functions and equilibrium as tools of price and events. determination. THE LAW OF DIMINISHING MARGINAL UTILITY The Law of Demand - As the price of a good or service increases, - Marginal means additional. consumer demand for it will decrease or vice - Focused on the demand side versa (ceteris paribus). - More consumption = level of utility - An inverse relationship. (satisfaction) decreases. - Focused on the consumers.  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS The Law of Supply THE LAW OF DIMINISHING MARGINAL RETURNS - As the price of good / service increases, quantity supplied increases and vice versa - Focus on the supply side - There is no negative supply - If one factor of production is increased while - Direct relationship other factors are held constant, the marginal output per unit will eventually diminish. - High cost of production = low returns of the input. EQUILIBRIUM - In a free market, there will be a single price that brings demand and supply into a balance - Equilibrium Price = Market Clearing Price - It is efficient as there is neither excess supply / wasted output nor a shortage – the market clears efficiently. SUPPLY - Refers to the willingness of a seller to sell the specified amount of a product within a particular price and time. - High the price = high opportunity income Note: Quantity Supplied ≠ Supply Overall shift to the right = increase Overall shift to the left = decrease QUANTITY SUPPLIED Note: a. Surplus = price exceeds the EQ price. - Quantity / Number b. Shortage =price is below the EQ price. - Follow the changes in the supply. c. Price Ceiling = maximum price a seller can sell the product. Note: d. Price Floor = least price a seller can sell the Shift within curve to the right = increase product. Shift within to the left = decrease MARKET SATURATION FACTORS AFFECTING SUPPLY - The volume of a product or service in a marketplace has been maximized - Cost of productions - “Market is full” - Natural conditions - Growth can be achieved through various - Technology product improvements, designing products to - Transport conditions wear down with time, creating price - Government regulations and policies differentiations such as low-cost or premium pricing, and being disruptive in a market to create a demand.  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS EXAMPLES Note: Delimiters = Highest point 𝑆 𝑄𝑥 = 𝑥 − 𝑎𝑥𝑖𝑠 𝑣𝑎𝑙𝑢𝑒 / 𝑥 − 𝑖𝑛𝑡𝑒𝑟𝑐𝑒𝑝𝑡 1. Cebu Pacific Air - Low cost flight but you get (𝑃𝑥) = 𝑖𝑛𝑑𝑒𝑝𝑒𝑛𝑑𝑒𝑛𝑡 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒𝑠 what you paid for. 𝑛 = 𝑑𝑒𝑙𝑖𝑚𝑖𝑡𝑒𝑟𝑠 (𝑔𝑖𝑣𝑒𝑛) 2. PAL - Premium airline in the PH 𝑄𝑥 = 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑑 3. Air Asia - A Malaysian brand 𝑃𝑥 = 𝑦 − 𝑎𝑥𝑖𝑠 𝑣𝑎𝑙𝑢𝑒 / 𝑝𝑟𝑖𝑐𝑒 THE DEMAND SCHEDULE How to Solve? (Both Demand and Supply THE DEMAND FUNCTION Schedyle) 1. Solve for the delimiters first for you to be able 𝑑 - 𝑄𝑥 (𝑃𝑥) = 𝑛𝑄𝑥 − 𝑛𝑃𝑥 to plot. 2. Remove any (Px) as it is an independent variable. 3. Use the given function throughout solving the problem. 4. Any point within the x/y line = zero 5. If the answer is a fraction convert it to a decimal. THE EQUILIBRIUM SCHEDULE THE EQUILIBRIUM FUNCTION Note: Delimiters = Highest point 𝑑 𝑄𝑥 = 𝑥 − 𝑎𝑥𝑖𝑠 𝑣𝑎𝑙𝑢𝑒 / 𝑥 − 𝑖𝑛𝑡𝑒𝑟𝑐𝑒𝑝𝑡 𝑑 𝑠 - 𝑄𝑥 = 𝑄𝑥 (𝑃𝑥) = 𝑖𝑛𝑑𝑒𝑝𝑒𝑛𝑑𝑒𝑛𝑡 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒𝑠 𝑛 = 𝑑𝑒𝑙𝑖𝑚𝑖𝑡𝑒𝑟𝑠 (𝑔𝑖𝑣𝑒𝑛) 𝑄𝑥 = 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 Note: 𝑃𝑥 = 𝑦 − 𝑎𝑥𝑖𝑠 𝑣𝑎𝑙𝑢𝑒 / 𝑝𝑟𝑖𝑐𝑒 The equilibrium price and demand has an asterisk ( * * 𝑄 , 𝑃 ) THE SUPPLY SCHEDULE The equilibrium price and demand should be equal. THE SUPPLY FUNCTION MARKET SYSTEM (ECONOMIC SYSTEM) 𝑠 - 𝑄𝑥 (𝑃𝑥) = 𝑛𝑄𝑥 + 𝑛𝑃𝑥 Traditional - The offshoot of the original 3 market systems. - Can coexist with others - Goods and services that are related to its beliefs, customs, and traditions. Command / Communist - One dominant centralized power governing the community — the government. - Only North Korea implements this today (1948 - Now) - China, Russia, and Denmark have implemented this system before - 100% of everything is the government  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS - Communism - Where, there will be no government - An economic system 100% controlled by the intervention. government. Note: State of Anarchy - lawlessness CHINA (1949 - 1980) KARL MARX - During the time of former Chairman Mao Zedong, everything that you do and have is by - The proponent for Marxist School and for the government. - Contradicts Adam Smith’s idea. - Equality - He wants power to the people. - Full communism was then removed when the - Friedrich Engels is his follower. economy of China was getting lower. Note: They both want communist manifesto - China made itself a manufacturing hub / centralized country. High power with people → overthrow the - “Made in China” government → people becoming the government Laissez - Faire → everything will be controlled by the people - A free market - A French word for “allow them to do” – Marxist School Adam Smith - Marxistism - The proponent is Adam Smith - For the command system to happen again. - Still a theoretical concept until today as the - Power to the proletariat – working class – government does not want this to happen. rather than power to the people as a whole, as - It can work when mixed with other market it will only cause power to the bourgeoisie – systems. capitalist. - Power to the people = people will be irrational THE WEALTH OF NATIONS - Both 100% government and 100% free market won’t work. - By Adam Smith - Tackles how people are rational beings ANCIENT IDEALS - Also talks how even without the government, the economy can still run because of the Aristotle people. - The rule of the Golden Mean (average) - He described the people as string puppets - Anything that is extreme = evil being controlled by the puppeteer so that the - To find the golden mean will result to the best economy can still run without the government of both worlds — “the invisible hand” - Birth of the mixed - market Note: Mixed - Market Invisible Hand - The combination of Command and Laissez - - Invisible forces that runs the economy Faire Market - Someone or something is controlling people - There should still be a government to have rational self-interest intervention. - A mixture of both the market systems. THE SCHOOL OF THOUGHT - Implemented by most of the countries. Note: Can sell things unless illegal as per stated by - The general idea regarding economics. the government. There is no freedom from consequences The Original Economics, School of Thought - Proposes Laissez - Faire  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS JOSEPH SCHUMPETER C2 THE DEVELOPMENT THEORIES - Focused on the side of the supplier - Answer the question, “How could it - Made the model “Creative Destruction” function?” - Capitalism as a relentless drive toward Rational Choice Theory progress. - Economy also evolves on the side of the ADAM SMITH supplier. - It is not stable due to the new developments = - Individualistic drive for progress - People make rational choices and achieve - Innovation = progress on the economy outcomes that are aligned with their own Note: objectives. Creative Destruction – Suppliers destroy the - Maximizing an individual’s self-interest status scope = economy evolves. - Rational self interest – Rational Choices = lesser trade off, but maximum utility - However, people are not always rational. Folk - Urban Continuum Hence, they make choices without thinking. - This causes the economy to not stabilize, ROBERT REDFIELD rather it evolves. - Folk society comes in contact with urban Evolutionary Theory civilization and inherits certain characteristics. - Has two kinds: Consumer and Supplier - Between literate and illiterate, between focused. developed and underdeveloped societies. - Folk society is losing its characteristics THORSTEIN VEBLEN because of urban contact. - Consumer’s side Linear Growth Theories - School of Thought of Evolutionary - Economic processes evolve and that WALT WHITMAN ROSTOW economic behavior is determined by both individuals and society as a whole. - Proposed one of the first growth theories in - Economy is not stagnant, as there is people the early 1960s. power. - An American Economic Historian. - Psychology factors and key drivers - Economies must go through a number of - Both the individual and the society have social developmental stages towards greater factors. economic growth. - He is the first to fuse psychology and economics Developmental Stages - Economy is dynamic and chaotic, rather than always tending toward a state of equilibrium. Follows a logical sequence. - Consumers are chaotic as they tend to like 1. Traditional Society pricier things and they get influenced by other - Dominated by agriculture and barter people exchange. Note: 2. Pre - Take - Off Stage Conspicuous Consumption – buying goods to - Development of education and understating of show off and does not follow the law of demand science and supply. - The application of science to technology and transport  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS - The emergence of entrepreneurs and a simple on the behavior of institutions and their banking system, and hence rising savings. members. - Interrelations between the parts of society 3. Take - Off contributed to social unity. - Positive growth rates in particular sectors. - How structures or institutions in a society - Organized systems of production and reward work together. replace traditional methods and norms. CONFLICT THEORY 4. Drive to Maturity KARL MARX - An ongoing movement towards a diverse economy, with growth in many sectors. - Society is in a state of perpetual conflict because of competition for limited resources. 5. Stage of Mass Consumption - Social order is maintained by domination and - Where citizens enjoy high and rising power, rather than by consensus and consumption per head. conformity. - Rewards are spread more evenly - It ascribes most of the fundamental developments in human history, such as ROY F. HARROD AND EVSEY D. DOMAR democracy and civil rights, to capitalistic attempts to control the masses [as opposed - Importance of savings and investment. to a desire for social order]. - Economies must save and invest a certain INTERNATIONAL DEPENDENCE REVOLUTION portion of their income to grow at a certain - Underdevelopment exists because of the rate. dominance of developed countries. - Failure to develop is caused by the failure to save, and accumulate capital. THREE MAJOR STREAMS OF THOUGHT Two Determinants of The Rate Growth of A 1. Neocolonial Dependence Model Country - First Major Stream 1. First Element - An indirect outgrowth of Marxist thinking. - Relationship between changes in the capital - Historical evolution of a highly unequal stock of a country [capital investment], and its international capitalist system of a rich country output [capital - output ratio] - poor country relationships. - New capital is needed to create a given - The less developed countries struggle to be amount of new national income. independent due to the influence and power of the developed countries. 2. Second Element - Relationship between savings and national 2. False - Paradigm Model income [savings ratio] - A second and less radical - Shows how much is saved from a given international-dependence approach to amount of national income development. - Developing countries have failed to develop STRUCTURAL FUNCTIONALISM because their development strategies (usually given to them by developed countries) have EMILE DURKHEIM been based on an incorrect model of development. - French Social Scientist 3. Dualistic - Development Thesis - Parts of the society are interdependent and - Implicit in structural - change theories and that this interdependency imposes structure explicit in international - dependence theories.  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS - Represents the existence and persistence of C3 ECONOMICS AND DEVELOPMENT increasing divergences between rich and poor nations / people on various levels. THE SCIENCE OF MACROECONOMICS Note: Four Key Elements MACROECONOMICS a. Different sets of conditions, of which some are “superior” and others “inferior”, can - The study of how households and firms make coexist in a given space. decisions and how these decision makers b. This coexistence is chronic and not merely interact in the marketplace. transitional. Not simply a historical - Concerned with the overall economy phenomenon that will be rectified in time. - Local and/or global economy c. Not only do the degrees of superiority or - Boundless inferiority fail to show any signs of diminishing, but they even have an inherent DATA tendency to increase. d. The interrelations between superior and - Most important in macroeconomics inferior elements are such that existence of - Everything is based on research / questioning the superior elements does little or nothing / service / data. to pull up the inferior element. RESEARCH NEOCLASSICAL COUNTER REVOLUTION - Advocates for freer markets and the - To advance human thought dismantling of public ownership, central - Anything is researchable planning by the state and government regulation of economic activity. CASUAL OBSERVATION - Human’s desires and unlimited wants foster ever-increasing productivity and economic - One of the sources of information about what growth. is happening in the economy. 3 MAIN SOURCES / FOCUS IN THE STUDY OF NEW GROWTH THEORY MACROECONOMICS - Knowledge is treated as an asset for growth that is not subject to finite restrictions or GROSS DOMESTIC PRODUCT (GDP) diminishing returns like other assets such as - The nation’s total income and total capital or real estate. expenditure on its output of goods and - Innovation internally is one of the reasons for services. organizations to invest in human capital - Estimated value of the total worth of a [Human Capital Theory]. country’s production and services, within its boundary by its nationals and foreigners. GDP - Gawa Dito Sa Pinas - As long as the production is within the borders of a country. GNP - Gross National Product - Gawa ng Pinoy  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS - Basis of the productivity of workers / citizens 𝑀𝑒𝑎𝑠𝑢𝑟𝑒𝑚𝑒𝑛𝑡 𝑜𝑓 𝐼𝑛𝑐𝑜𝑚𝑒 𝐺𝑁𝐼 𝑝𝑒𝑟 𝐶𝑎𝑝𝑖𝑡𝑎 = of the country and outside. 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑃𝑒𝑜𝑝𝑙𝑒 𝑖𝑛 𝑡ℎ𝑒 𝐶𝑜𝑢𝑛𝑡𝑟𝑦 - Except if he or she is a naturalized citizen. TWO TYPES OF GDP CONSUMER PRICE INDEX (CPI) - The level of prices / changes of prices 1. Nominal GDP - A measurement that examines the weighted - Based on the present / face value of the average of prices of a basket of consumer production. goods and services. 2. Real GDP (𝑄 𝑥 𝑁𝑒𝑤 𝑃𝑟𝑖𝑐𝑒 ) + (𝑄 𝑥 𝑁𝑒𝑤 𝑃𝑟𝑖𝑐𝑒) 𝐶𝑃𝐼 = (𝑄 𝑥 𝐵𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒) + (𝑄 𝑥 𝐵𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒) - We account for the inflation. - Estimation is made at constant prices. BASKET OF GOODS Real GDP = Total Goods Sold x Base Price - Groups of common goods and services Total Goods Sold = Overall Production [present] x - This refers to the relatively fixed set of Price [present] consumer products and services valued on an annual basis and used to track inflation in a REAL GDP PER CAPITA specific market or country. - Capita is a Latin word for per head / per INFLATION person - The average production level of each - Sustained increase in the general level of individual in a country prices for goods and services in a country, - Factor: Population and is measured as an annual percentage change. 𝑅𝑒𝑎𝑙 𝐺𝐷𝑃 - In solving the Inflation Rate, the base year is 𝑅𝐸𝐴𝐿 𝐺𝐷𝑃 𝑝𝑒𝑟 𝐶𝑎𝑝𝑖𝑡𝑎 = 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 the first year or the year before the present year. Gross National Income 𝑁 𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒 = 100 𝑥 𝑌𝑒𝑎𝑟 1 𝐶𝑃𝐼 - The measurement of a country’s income - Overall income of the citizens 𝑁 = 𝑌𝑒𝑎𝑟 2 𝐶𝑃𝐼 − 𝑌𝑒𝑎𝑟 1 𝐶𝑃𝐼 - To know the average income - The World Bank provides this information, What Causes Inflation? converted to US Dollars. 1. Demand - Pull Inflation Note: Top Countries with Highest Earners - Caused by the overall increase in demand for Liechtenstein = USD 116,440. Also where the goods and services, which bids up their Swiss Banks accounts are stored. prices. Singapore = USD 64,010. The only Asian country - By the buyers / Consumers Philippines = USD 3,640. 121th Rank 2. Cost - Push Inflation - Cost of production is being pushed on to the consumers. GNI PER CAPITA - By the supplier 3. Monetary Inflation - The average income per head - Oversupply of money in the economy. Other Events Related to Inflation  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS 1. Disinflation - During recessionary periods and declines - Still a positive inflation rate but it decreases. during period of economic growth - Laid - off workers cause of bankruptcy 2. Hyperinflation - Comes around due to the business cycle - Unusually rapid inflation itself. - Starts at 50% inflation rate. 3. Structural Unemployment 3. Stagflation - Technological Advances or when people lose - Stagnant economy but high inflation rates. their jobs because their skills are outdated. 4. Deflation 4. Seasonal Unemployment - Negative Inflation, the opposite of inflation. - Regular changes in the season. [Ski - General level of prices is falling. Instructors , Resort Workers] - It rarely happens as it creates a deflationary spiral. 5. Classical Unemployment - Happens when wages are higher than the laws of supply and demand would normally Note: dictate. Deflationary Spiral - “Why spend money when - Also known as “Real Wage” each dollar can buy more the day after?” 6. Under Unemployment UNEMPLOYMENT RATE - Workers who have jobs but they aren’t - A phenomenon that occurs when a person working for their full capacity or skill level. who is actively searching for employment is - Can happen because of the salary. unable to find work. - Job Mismatch 𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 𝑃𝑒𝑜𝑝𝑙𝑒 DEVELOPMENT 𝑈𝑅 = 100 𝑥 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑒𝑜𝑝𝑙𝑒 𝑖𝑛 𝑡ℎ𝑒 𝑙𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒 - A process that creates growth, progress, positive change or the addition of physical, LABOR FORCE economic, environmental, social and demographic components. - The sum of the number of people in the - Should be a positive not negative change. country who are employed and unemployed. TYPES OF DEVELOPMENT JOBLESS - A long term process of structural societal - Jobless by choice. transformation. - Those who are not looking for work - A short to medium term outcome of desirable - Stay at home parents, retired, students targets Note: Development as a dominant “discourse” of DIFFERENT KINDS OF UNEMPLOYMENT western modernity” 1. Frictional Unemployment - Least Problematic TRADITIONAL APPROACH - Time in between two jobs [when you resign then finds another job] - Development strictly in economic terms. - Does not last long 2. Cyclical Unemployment  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS GROWING APPROACH - Development including improvements in material welfare especially for persons with lowest income and eradication of mass poverty with the availability of resources and their distribution. - Human Resources are at the core of economic development. NON ECONOMIC FACTORS - Factors present in society which have no direct effect in the economy of a country. - Relates to sociocultural and political changes in society which either lead to economic growth or a hindrance. UNDERDEVELOPMENT - Caused by the coexistence of unutilized and underutilized manpower and unknown resources. Note: Developing Countries = Countries with high rate of development.  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS Encircle the letter of the correct answer. 8. When the price of a product is above the 1. Who is considered the "Father of Modern equilibrium price, there is a: Economics"? a) Market saturation a) Paul Samuelson b) Shortage b) John Maynard Keynes c) Surplus c) Alfred Marshall d) Perfect competition d) Adam Smith 9. Which of the following is NOT a type of economic 2. The problem of scarcity in economics is best system? described as: a) Centralized economy a) Limited resources and unlimited wants b) Mixed economy b) Excessive production c) Traditional economy c) Equal resources and wants d) Command economy d) Unlimited resources and limited wants 10. A mixed economic system includes: 3. Ceteris Paribus means: a) Only private ownership of resources a) Equilibrium in the market b) A combination of free markets and government b) Government intervention in the economy control c) Increasing marginal returns c) No government involvement in the economy d) Holding other things constant d) Complete government control over all industries 4. Microeconomics primarily studies: 11. Who is considered the father of the Rational a) International trade Choice Theory? b) Government fiscal policies a) Joseph Schumpeter c) The global economy b) Emile Durkheim d) Individual consumers and producers c) Adam Smith d) Thorstein Veblen 5. What does the law of diminishing marginal utility describe? 12. According to Rational Choice Theory, individuals a) As consumption of a good increases, satisfaction make decisions based on:[LD1] from each additional unit decreases a) Government regulation b) As price increases, utility increases b) Self-interest c) Producers benefit more when they supply more c) Social needs goods d) Rational calculations d) Consumers’ total satisfaction always increases with more consumption 13. Who coined the term "Evolutionary Economics"? a) Joseph Schumpeter 6. The law of supply suggests that: b) Thorstein Veblen a) Supply remains constant regardless of price c) Karl Marx b) As price decreases, quantity supplied increases d) Roy Harrod c) As price increases, quantity supplied increases d) Price and supply are unrelated 14. Which economist is known for the concept of "Creative Destruction"? 7. What is the definition of market equilibrium? a) Adam Smith a) The point where supply exceeds demand b) Joseph Schumpeter b) The price at which quantity demanded equals c) Thorstein Veblen quantity supplied d) Roy Harrod c) The minimum price producers will accept d) The maximum price consumers will pay  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS 15. What is the term used to describe the purchase of 22. Which statistic is the estimated value of the total goods for the purpose of displaying one's worth of a country’s production and services by its wealth?[LD2] nationals and foreigners within its boundary? a) Conspicuous consumption a) Consumer Price Index (CPI) b) Rational consumption b) Gross National Income (GNI) c) Invisible hand c) Unemployment Rate d) Pre-take-off stage d) Gross Domestic Product (GDP) 16. According to the New Growth Theory, real GDP 23. What is inflation? per capita will:[LD3] a) A decrease in the general level of prices a) Stagnate without external intervention b) A sustained increase in the general level of prices b) Decline with increased innovation c) A measure of total income c) Be unaffected by entrepreneurship d) The rate at which GDP grows d) Perpetually increase due to the pursuit of profits 24. Which of the following is a cause of Demand-Pull 17. Who is credited with introducing the concept of Inflation? social structure? a) An oversupply of money in the economy a) Emile Durkheim b) Decrease in wages b) Karl Marx c) Increased demand for goods and services c) Walt Rostow d) Increased costs of production d) Roy Harrod 25. What is the phenomenon where prices are rising 18. What concept describes the coexistence of rapidly, often more than 50% in a single month? superior and inferior conditions in the same society? a) Disinflation a) Evolutionary economics b) Hyperinflation b) Dualism c) Deflation c) Structuralism d) Stagflation d) Neocolonialism 26. Which type of unemployment occurs when 19. According to the Dualistic-Development Thesis, someone is in-between jobs? the coexistence of wealth and poverty is: a) Seasonal Unemployment a) Solvable through government intervention b) Frictional Unemployment b) Chronic and increasing over time c) Cyclical Unemployment c) Temporary and will soon diminish d) Structural Unemployment d) Necessary for economic progress 27. Which type of unemployment is caused by 20. Who proposed the concept of the folk-urban technological advances or outdated skills? continuum? a) Frictional Unemployment a) Robert Redfield b) Structural Unemployment b) Walt Rostow c) Underemployment c) Emile Durkheim d) Classical Unemployment d) Thorstein Veblen 28. Which statement best describes the unemployment rate? 21. What does macroeconomics primarily study? a) The total number of unemployed people a) Individual labour market b) The number of unemployed people divided by the b) Household decisions number of people in the labor force c) Overall economy c) The number of unemployed people divided by the d) Individual interest total population d) The total number of people in the labor force  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS Calculate the Consumer Price Index (CPI) for Year 2, 29. Which economic condition is characterized by using Year 1 as the base year. rising prices coupled with slow economic growth and 7. In 2022, the Consumer Price Index (CPI) for Darwin Town was recorded as 150. By the end of high unemployment? 2023, the CPI increased to 162. Calculate the a) Disinflation inflation rate for 2023. b) Hyperinflation c) Stagflation d) Deflation UNEMPLOYMENT RATE: 8. In Zulia City, the total labor force is 30,000 30. What is Deflation? people in 2021. Out of these, 20,000 people are a) A measure of price changes in consumer goods employed, and the rest are unemployed. Calculate b) When the general level of prices is rising the city’s unemployment rate in 2021. c) When the general level of prices is falling 9. There are currently 15,000 people unemployed d) An increase in the unemployment rate and 10,000 people employed in Trinidad City. Calculate for the city’s current unemployment rate. COMPUTATION. Write your complete solution on one sheet of paper and box your final answer. (2 decimal placements will be followed for final answers. Use Philippine peso as the monetary unit.) ANSWER KEY DEMAND, SUPPLY, EQUILIBRIUM: 1. D 11. C 21. C 1. If Qxᵈ = 750 – 10Px, find the market price when 2. A 12. D 22. D the quantity demanded amounts to 600. 3. D 13. B 23. B 2. If Qxˢ = 0 + 5Px, find the quantity supplied when 4. D 14. B 24. C the market price amounts to 750 pesos. 5. A 15. A 25. B 3. Compute for the equilibrium quantity and price if: Demand: Qxᵈ = 600 – 2P 6. C 16. D 26. B Supply: Qxˢ = 300 + 4P 7. B 17. A 27. B 8. C 18. B 28. B REAL GDP PER CAPITA: 9. A 19. B 29. C 4. In 2024, Country A had a real GDP of 10. B 20. A 30. C P1,500,000,000 and a population of 3,000,000 people. Calculate the real GDP per capita for Country A in 2024. 5. What is the real GDP per capita of an economy that has 50,000 people and real GDP of P600,000,000? CONSUMER PRICE INDEX & INFLATION RATE: 6. In Brodei City, there are two goods in the market basket. In the base year (Year 1), the quantities and prices are as follows: Good A: 10 units at P20 per unit Good B: 5 units at P40 per unit In the current year (Year 2), the prices of the goods have changed to: Good A: P22 per unit Good B: P45 per unit  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS DEMAND, SUPPLY, EQUILIBRIUM 1. If Qxᵈ = 750 – 10Px, find the market price when the quantity demanded amounts to 600. Quantity Demanded = 𝑄𝑥ᵈ (𝑃𝑥) = 𝑛𝑄𝑥 – 𝑛𝑃𝑥 𝑄𝑥ᵈ = 750 − 10𝑃𝑥 600 = 750 − 10𝑃𝑥 10𝑃𝑥 = 750 – 600 10𝑃𝑥 = 150 10𝑃𝑥 150 10 = 10 Px = 15 pesos 2. If Qxˢ = 0 + 5Px, find the quantity supplied when the market price amounts to 750 pesos. Quantity Supplied = 𝑄𝑥ˢ(𝑃𝑥) = 𝑛𝑄𝑥 + 𝑛𝑃𝑥 𝑠 𝑄𝑥 = 0 + 5(750) 𝑠 𝑄𝑥 = 3750 𝑠 𝑄𝑥 = 3750 3. If Qxᵈ = Qxˢ, compute for the equilibrium price when: Demand: Qxᵈ = 600 – 2P Supply: Qxˢ = 300 + 4P 𝑑 Equilibrium = 𝑄𝑥 = 𝑄𝑥ˢ 600 – 2P = 300 + 4P 600 – 300 = 2P + 4P 300 = 6P 6𝑃 300 6 = 6 P* = 50 pesos CHECK: Qxᵈ = 600 – 2P 600 – 2(50) 600 - 100  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS Qxᵈ* = 500 Qxˢ = 300 + 4P 300 + 4(50) 300 + 200 Qxˢ* = 100 Qxᵈ* = Qxˢ* 500 = 500 REAL GDP PER CAPITA 4. In 2024, Country A had a real GDP of P1,500,000,000 and a population of 3,000,000 people. Calculate the real GDP per capita for Country A in 2024. Given: Real GDP = P1,500,000,000 Population = 3,000,000 people 𝑅𝑒𝑎𝑙 𝐺𝐷𝑃 Real GDP per Capita = 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 1,500,000,000 Real GDP per Capita = 3,000,000 Answer: The real GDP per capita for Country A in 2024 is P500. 5. What is the real GDP per capita of an economy that has 50,000 people and real GDP of P600,000,000? Given: Real GDP = P600,000,000 Population = 50,000 people 𝑅𝑒𝑎𝑙 𝐺𝐷𝑃 Real GDP per Capita = 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 600,000,000 Real GDP per Capita = 50,000 Answer: The real GDP per capita of the economy is P12000.  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS CONSUMER PRICE INDEX & INFLATION RATE 6. In Brodei City, there are two goods in the market basket. In the base year (Year 1), the quantities and prices are as follows: - Good A: 10 units at P20 per unit - Good B: 5 units at P40 per unit In the current year (Year 2), the prices of the goods have changed to: - Good A: P22 per unit - Good B: P45 per unit Calculate the Consumer Price Index (CPI) for Year 2, using Year 1 as the base year. Consumer Price Index = (𝑄 𝑥 𝑁𝑒𝑤 𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝐺𝑜𝑜𝑑 𝑖𝑛 𝑡ℎ𝑒 𝑠𝑎𝑚𝑒 𝑏𝑎𝑠𝑘𝑒𝑡) + (𝑄 𝑥 𝑁𝑒𝑤 𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝐺𝑜𝑜𝑑 𝑖𝑛 𝑡ℎ𝑒 𝑠𝑎𝑚𝑒 𝑏𝑎𝑠𝑘𝑒𝑡) (𝑄 𝑥 𝐵𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝐺𝑜𝑜𝑑 𝑖𝑛 𝑡ℎ𝑒 𝑠𝑎𝑚𝑒 𝑏𝑎𝑠𝑘𝑒𝑡) +(𝑄 𝑥 𝐵𝑎𝑠𝑒 𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝐺𝑜𝑜𝑑 𝑖𝑛 𝑡ℎ𝑒 𝑠𝑎𝑚𝑒 𝑏𝑎𝑠𝑘𝑒𝑡) (10×22)+(5×45) (10×20)+(5×40) 445 400 × 100 Consumer Price Index = 111.25 7. In 2022, the Consumer Price Index (CPI) for Darwin Town was recorded as 150. By the end of 2023, the CPI increased to 162. Calculate the inflation rate for 2023. 𝐶𝑃𝐼 𝑌𝑒𝑎𝑟 2 − 𝐶𝑃𝐼 𝑌𝑒𝑎𝑟 1 Inflation Rate = 100 × 𝐶𝑃𝐼 𝑌𝑒𝑎𝑟 1 162 − 150 12 100 × 150 150 0. 08 𝑥 100 8% Inflation Rate = 8%  ECONOMIC DEVELOPMENT BAECODEX TERM 1 - MIDTERMS UNEMPLOYMENT RATE 8. In Zulia City, the total labor force is 30,000 people in 2021. Out of these, 20,000 people are employed, and the rest are unemployed. Calculate the city’s unemployment rate in 2021. 𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 Unemployment Rate = 100 × 𝐿𝑎𝑏𝑜𝑟 𝐹𝑜𝑟𝑐𝑒 30,000 – 20,000 – 10,000 (unemployed) 10,000 30,000 × 100 = 33. 33% 33.33% Unemployment Rate 9. There are currently 15,000 people unemployed and 10,000 people employed in Trinidad City. Calculate for the city’s current unemployment rate. 15,000 25,000 × 100 = 60% 60% Unemployment Rate