Problem Sets in SS12

Prepared by Prof. GAB Orena

Problem Set 1: Law of Supply and Demand

1. What are the determinants of demand/supply?

2. What does a change in demand/supply suggest?
3. Show graphically how surplus/shortage is created?
4. State the law of demand/law of supply.
5. State the law of supply & demand. Illustrate.
6. What is a demand schedule? Cite examples.
7. What about a supply schedule? Cite examples.
8. What do shifts of the demand curve suggest?
9. What about shifts of the supply curve?
10. Illustrate in matrix and graphically varying market demand levels for prepaid
communication services (Globe, Smart & Suncel): types of demand curves
11. a. Illustrate in matrix and graphically an equilibrium situation for LRT/MRT prepaid
services. Show in the graph specific values of the prepaid tickets.
b. What about a graph showing a market equilibrium per station? (Consider
Santolan-Recto Line)
c. Contain now a time element: peak and non-peak hours.
12. Show graphically varying demand levels for TV network services on a primetime
viewing (Kapamilya, Kapuso, & Others). Be sure to specify the programs.

Problem Set S2: Graphing Exercises

Graphically show the relationship between the demand curve and the supply curve
in the following economic scenarios

1. A hoarding of goods due to a rising market demand resulting to higher prices of

the hoarded goods in the succeeding months.

2. A rumored coup d’etat against the Pinoy administration causing panic buying of
the basic commodities over the weekend.

3. A decrease in the purchasing power of the peso due to inflation that results in a
decrease in the demand for entertainment services
 4. A hypothetical “equal demand” for news program services between GMA-7 &
ABS-CBN 2.

5. A sustained importation of meat from China (at lower prices) despite a stable
market situation.

6. Impacts of the freeze in Bohol on the market equilibrium for basic commodities

Problem Set 3: Additional Exrecises on Graphing

PART 1. Graphically show the relationship between the demand curve and the
supply curve in the following economic scenarios:

1. A hoarding of goods due to a rising market demand resulting to higher prices of

the hoarded goods in three (3) succeeding months.
2. A 1-unit increase per month in the EP of Good X for 5 consecutive months
resulting to no change in the QD for Good X

PART II. Below is a hypothetical schedule of price, demand, and supply for the
flesh trade industry planet Mars:

Price/transaction Quantity Demanded Quantity Supplied

(in dollars) Per Year Per Year
$ 75 3 million 18 million
$ 50 6 million 15 million
$ 35 9 million 12 million
$ 25 12 million 9 million
$ 15 15 million 6 million
$ 10 18 million 3 million

Problem: Is there a possible “equilibrium” for the flesh trade industry in Mars?
Prove your answer mathematically or graphically.
 Problem Set 4: Demand Elasticity

Prove or disprove the following:

1. A price drop on a good with inelastic demand results to an increase in

profits on the assumption that PC < R.
2. A 50% cut in the price of a good with unitary demand pulls down its
revenue.
3. If PC = R, change in profit is zero for any good regardless of its
demand elasticity.
4. A 75% off in the price of a good with elastic demand necessarily pulls
up its revenues and profits.
5. Market inflation always pulls down market revenues.
6. Goods on sale with elastic demand create a positive impact on
revenues but do not necessarily mean a profit gain.
7. The demand elasticity for any good whose price and quantities
demanded do not change is perfectly inelastic.
8. Goods with perfectly inelastic demand create negative slopes (when
graphed.)
9. Revenues are always positive for any goods regardless of elasticity.
10. Change in revenue always results to a positive or pure profit
regardless of elasticity.

Problem Set 5: Production Costs

 QUANTITIES/OUTPUTS (QTY) VARIABLE COST (VC)
1 10
2 15
3 20
4 30
5 50

GIVEN: PRICE (P) of Good X = 15/UNIT; FIXED COST (FC) = 10 and the
variable costs (VC) indicated in the matrix, work on the following problems:

1. Expand the matrix & show all types of production costs for Good X
2. Would/should you produce each output level? Why?
3. What rules of production are applicable in making decisions?
4. What is the most efficient level of production?
5. What law is applicable in solving these problems?
6. What does the law state?
7. What cost approach helps you decide on the most efficient production level?
8. Is the price of good X right? Why?
9. What pricing strategy does the problem depict?
10. Does the strategy pay? Why?

Problem Set 6: A Basic Production Problem

1. Given the following factors/economies of scale for Business X in its 1st year
of operation:

Project Cost = 100k payable to BPI w/ 10% interest rate in one year on a
monthly installment basis;

1-month advance of 15k, a 2-month deposit of 30k & a Meralco deposit of 2k;

BIR tax: 15% of the total annual profit, payable on January in the succeeding
year;

Price of Good X = Php 14.00

Production Cost = 2k/day (inclusive of Meralco consumption cost)
Quantities produced & sold/ day = 300; and

Business contract is to be renewed after a year

Problems:
1. At the earliest, in what month will the business gain pure profit? Show
answers in a summary matrix and solutions below the matrix with labels.
 (5 points)
2. What is the total net profit for Business X in its first year of operation?
Show solutions (2 points).
3. What is the opportunity cost of borrowing from BPI? (1 point)
4. What is the average cost for good X? (1 point)
5. What is the production’s pricing strategy? Show mathematically.
(1 point)

Problem Set 7:

BASIC PROBLEMS ON THE COMPUTATION OF ANNUAL INCOME

TAX

1. Eng’r Gilbert Gonzales, single in status, earns a monthly income of Php 80,000
as a professor of MIT. His monthly payments include SSS – Php 1800, Philhealth
– Php 1200 & Pag-ibig – Php 1000. What is his income tax due?
2. Nestor, a Muslim with two wives with 5 children each - all below 18 years of age,
earns a monthly income of Php 60,000 for his professional services at Company
X. However, due to a severe political conflict in Mindanao, he filed a leave of
absence for the last two months of year 2014. How much did he pay at BIR for
his tax due for 2014?
3. Prof. Bartolome, married without any child, earns Php 60,000 per pay day at
Mapua Institute of Technology. His withholding tax per month is Php 6500. He
also earns Php 6000 per month as the extension coordinator the School of
Languages, Humanities and Social Sciences (SLHS), and Php 10,000 per month
for his consultancy services at the UST-Center of Innovation and International
Development (UST-CIID). What is his tax due, and net tax due, if any?
4. Ms. Michelle Perez, legally separated with one legally adopted child whose age is
15, has a monthly income of Php 50,000. Other than her regular compensation,
she receives a 13th month pay of Php 85,000 and a summer bonus of 50,000.
Compute for the tax due.
5. Mrs. Ramos earns Php 30,000 per month as a public elementary school teacher.
Her husband works in Dubai as a mechanical engineer sending a regular monthly
remittance of PHp 30,000. She has a child with exceptionality whose age is
already 25 years old, and three (3) other children as qualified dependents. What is
her gross compensation income? What about her total exemptions? What is her
tax due?
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