Intermediate Microeconomic Theory. W3 W4
Intermediate Microeconomic Theory. W3 W4
Quirino Stadium, Zone V, Bantay, Ilocos Sur, Philippines 2727 ISCC Barangay Demo Farm Campus
Tel. No. (077) 604-0285 Barangay Labnig, San Juan, Ilocos Sur
e-mail address: [email protected] Tel. No. (077) 722-5870
The course introduces the students to the economics of the firm and how resource is allocated by
individual decision- making units. In particular, the course expounds on the basic microeconomic
theories governing the concepts of demand and supply; production theory; costs theory, and pricing
and output determination.
V. COURSE POLICIES
a. The mode of delivery for this subject will be a combination of offline (modules) and
online. The course package contains necessary information needed in this subject. To
enhance further your learning, there will be pre-recorded lectures uploaded in our
virtual classroom;
b. You must follow the study schedule set for this subject for you to be properly guided
and to maintain your progress;
c. You are allowed to have your own pacing in reading the module and other reading
materials but please be reminded that there are some activities that requires you to meet
deadlines and submit your home-based tasks on time;
d. You are free to utilize reading materials online or printed books to enhance your
learning;
e. You are advised to frequently check on the virtual classroom and to the group chat for
any update on learning activities given by the instructor;
ILOCOS SUR COMMUNITY COLLEGE
Quirino Stadium, Zone V, Bantay, Ilocos Sur, Philippines 2727 ISCC Barangay Demo Farm Campus
Tel. No. (077) 604-0285 Barangay Labnig, San Juan, Ilocos Sur
e-mail address: [email protected] Tel. No. (077) 722-5870
VII.
STUDY SCHEDULE
TIME FRAME OUTLINE OF TOPICS
MODULE 1: Introduction
a. Review of Supply and Demand Analysis
Week 1 – 3
➢ this icon represents the references made used for the contents of this course
package;
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learner must study;
ILOCOS SUR COMMUNITY COLLEGE
Quirino Stadium, Zone V, Bantay, Ilocos Sur, Philippines 2727 ISCC Barangay Demo Farm Campus
Tel. No. (077) 604-0285 Barangay Labnig, San Juan, Ilocos Sur
e-mail address: [email protected] Tel. No. (077) 722-5870
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requirement;
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package;
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this course package including all the learning activities embedded in each
information sheet;
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guides, assessment guides, study guides) that shall help them accomplish this
course package;
Information sheet 1:
LEARNING ACTIVITIES
1. Read and understand information sheet 1 containing the concept of elasticity.
Income elasticity of demand is useful for governments and firms to help them decide what
gods to produce and how a change in overall income in the economy affects the demand for their
products, i.e., whether it’s elastic or inelastic.
Income elasticity of demand can be positive or negative. This depends on the type of good. A
normal good has a positive sign, while an inferior good has a negative sign.
For example, if a person experiences a 20% increase in income, the quantity demanded would
be 20% / 20% = 1. This would make it a normal good.
The formula for calculating the Income Elasticity of Demand is defined as the ratio of the
changes in income.
Example:
1. Aggregate consumer income is P600 million / year and quantity demanded by these consumers is
40,000/year. If income increases to P900 million/year, demand for this normal good also increases
to 100,000/year. Computing for the income elasticity of demand,
A 1 percent increase in consumer income leads to a 3 percent increase in the quantity demanded
for air travel.
2. Aggregate consumer income is P500 million / year and quantity demanded by these consumer is
300,000 km/year. If income increases to P700 million/year, the demand for the bus ride falls to
100,000 km/year. Computing fort the income elasticity of demand,
Ei = [(Q2 – Q1) / Q1]/ [(I2 – I1) / I1)]
= [(100,000 – 300,000) / 300,000]/ [(700M – 500M) / 500M)]
= ( -200,000 / 300,000) / (200M / 500M)
= - 0.67 / 0.4
= -1.68 (inferior good)
A 1 percent increase in aggregate consumer income decreases the quantity of bus rides demanded
by 1.68 percent.
For business, Exy is an important strategic tool. This elasticity measure can help determine
whether or not it is a good move to increase or decrease selling prices, or to substitute one for
another to generate revenues
Knowing a product’s cross price elasticity of demand for other related products allows a firm
to better understand the market that it is serving. This firm can better identity how many competitors
share the same product space in the eyes of consumers, as well as how sensitive sales revenues are to
changes in the marketing strategy of complementary products outside f its own market. This kind of
valuable information can reduce the firm’s exposure to financial risk. Firms use this information to
develop targeted strategies that optimal respond to the price changes of both competing and
complementary products.
How to Calculate Cross price elasticity
Exy = Percentage Change in Quantity Demanded for Good X
Percentage Change in the Price of Good Y
= [(Qx2 – Qx1) / Qx1]/ [(Py2 – Py1) / Py1)]
Qx2 – New Quantity Demanded of Good x
Qx1 – Old Quantity Demanded of Good x
Py2 – New Price of Good Y
Py1 – Old Price of Good Y
Example:
1. Consider two goods, tea and coffee, which are substitute. The quantity of tea demanded is 1000
kg/year. Suppose that the price of coffee increase from P150/kg. to P450/kg. As people
substitute tea for coffee, the demand for tea increase to 1800 kg/year, leading to an outward shift
in the demand curve. To compute:
ILOCOS SUR COMMUNITY COLLEGE
Quirino Stadium, Zone V, Bantay, Ilocos Sur, Philippines 2727 ISCC Barangay Demo Farm Campus
Tel. No. (077) 604-0285 Barangay Labnig, San Juan, Ilocos Sur
e-mail address: [email protected] Tel. No. (077) 722-5870
And like the price elasticity of demand, the price elasticity of supply is categorized according to its
value.
1. Price-elastic supply (Es > 1) = the percentage change in quantity supplied is greater than
the percentage change in price.
2. Perfectly elastic (Es = ∞ ) = any change in price will result in an infinite amount of change
in quantity.
3. Unit elastic supply (Es = 1) = the percentage change in quantity supplied is the same as the
percentage change in price.
4. Price inelastic supply ( Es < 1) = the percentage change in quantity supplied is less than the
percentage change in price.
5. Perfectly inelastic (Es = 0) = there is no change in quantity supplied when the price
changes.
ILOCOS SUR COMMUNITY COLLEGE
Quirino Stadium, Zone V, Bantay, Ilocos Sur, Philippines 2727 ISCC Barangay Demo Farm Campus
Tel. No. (077) 604-0285 Barangay Labnig, San Juan, Ilocos Sur
e-mail address: [email protected] Tel. No. (077) 722-5870
DISCUSSION FORUM: for the benefit of interacting with your fellow classmates, a
discussion board has been created in our virtual classroom with guide questions where
you are required to comment your insight regarding the topic. Please refer to the attached
discussion forum guide at the end of this module for the complete instruction and how you will be
evaluated.
IX.ACTIVITY GUIDE
(Instructions/guidelines/procedures in performing each learning activity intended to
assess learning of all students are completely explained in this area)
1. DISCUSSION FORUM GUIDE
GUIDELINES
Discussion forum is an electronic message boards for asynchronous communication regarding the
concepts being tackled in our class. You are expected to post your thoughts in a conversational
tone.
i. I will be posting guide questions for discussion in our virtual classroom. You
are expected to post at least twice to thrice on each forum. Your first post
will an answer for the guide question, and you are also encouraged to
respond or react to the postings of your classmates;
ii. Discussion forums are intended for conversations about our topic, you are
expected to be at your modest when interacting with each other. Postings
that are out of the topics gives the learner a deduction point;
iii. Remember that when you post your comments/reactions, you must respect
the opinions of your classmates and to always have proper netiquette when
conversing with each other;
iv. Please refrain from copy-pasting works of others. You can use them as your
reference then summarize the idea/thought but make sure to properly cite
your sources;
v. Be guided by the rubric to be uploaded in the virtual classroom for the
assessment of your participation.
RUBRICS:
CRITERIA 4 3 2 1
2. ACTIVITY GUIDE
i. Your activity/assessment test on this chapter will be uploaded at our
google classroom
ILOCOS SUR COMMUNITY COLLEGE
Quirino Stadium, Zone V, Bantay, Ilocos Sur, Philippines 2727 ISCC Barangay Demo Farm Campus
Tel. No. (077) 604-0285 Barangay Labnig, San Juan, Ilocos Sur
e-mail address: [email protected] Tel. No. (077) 722-5870
CRITERIA 4 3 2 1
X. ASSESSMENT GUIDE
(Performance of learners will be graded as the following assessment percentage presented
below)
LECTURE CLASS STANDING 60%
• Discussion forum
• Journal
• Narrative report
GRADING SYSTEM:
a. MIDTERM GRADE:
Class standings = 60%
Major Exam = 40%
I. REFERENCES
ILOCOS SUR COMMUNITY COLLEGE
Quirino Stadium, Zone V, Bantay, Ilocos Sur, Philippines 2727 ISCC Barangay Demo Farm Campus
Tel. No. (077) 604-0285 Barangay Labnig, San Juan, Ilocos Sur
e-mail address: [email protected] Tel. No. (077) 722-5870
(the following materials are used as references in creating the content of these course
package)