Reaction Paper - January Issue

Aquino to DOE: Soften oil price hike impact on   public

01/22/2011 | 09:23 PM 

President Benigno Aquino III on Saturday ordered the Department of Energy (DOE) to soften the impact of oil price hikes on the public.

Presidential Communications Operations Office head Herminio Coloma Jr. said Aquino is bothered with continued hikes in world prices of oil.

“We are constantly monitoring the price movements and I assure you that we have not yet been seeing any price manipulation taking place locally since we can calculate accurately the petroleum price increases on commodity prices," Coloma said, according to a statement released Saturday evening by Malacañang.

The Palace statement said diesel retail prices had shot up to P40.25 per liter.

But Coloma also reminded oil companies not to take advantage of the situation because of the law of supply and demand.

When oil prices get too high, he said Filipinos' buying habits will change and very few will be left buying their products.

He added DOE Secretary Jose Rene Almendras is now persuading executives of major oil companies if they could give special rates to public transport vehicles, including jeepneys and buses, which directly affect the riding public.

Also, he said that the Land Transportation Franchising and Regulatory Board (LTFRB) is studying asking the public transport drivers to continue granting discounts for students, as well as senior citizens. — TJD, GMANews.TV




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Personal Reaction:

This one's a good issue! I totally agree to President Noy for making this move. I think this one will give the public a big sigh of relief. As what I've said in my last month's post, everything else is increasing every now and then except the amount of money earned by the people directly affected by the increase. And on that note, I suppose that the public would appreciate if the order made by our President to soften the impact of oil price hikes will be implemented. 

This issue is somewhat related to my recent post and so I am very happy hearing this order because it will not only benefit the people owning cars but the majority of the Filipinos who ride jeepneys and buses everyday.  And as what Presidential Communications Operations Office head Herminio Coloma Jr. said about President Aquino being bothered with continued hikes in world prices of oil, All I can say is that such an increase is really bothering! And I believe that I share the same sentiment with the Filipino people. It is also good to hear that the government is keeping an eye on the price movements and assuring the public that there are no  price manipulations taking place locally as what has been said by Presidential Communications Secretary Sonny Coloma.

Regarding the increases in oil price, I could only suggest that the government will take an action concerning the issue. And President Noy giving an order to the Department of Energy (DOE) to soften the oil price hike impact on the public is a good thing! Actually, it is a good response to the issue affecting the Filipino people. Another suggestion I made concerning this issue was for the oil companies to lower their price increase. As a student taking up economics, I can only agree to Coloma reminding the oil companies not to take advantage of the situation because of the law of supply and demand. The changes in the oil prices would really affect the buying habits of the Filipinos. If these companies will not consider the public (buyers/consumers) in setting their price(s), they would be the ones to suffer in the long run. As what Coloma said: "When oil prices get too high, Filipinos' buying habits will change and very few will be left buying their products." And then I realized, It is indeed important to have a basic knowledge and understanding of the law of supply and demand.

I would also recommend that DOE Secretary Jose Rene Almendras continue to persuade executives of major oil companies to give special rates to public transport vehicles, including jeepneys and buses, which directly affect the riding public. I bet this one is a good idea! Moreover, I commend the idea that the Land Transportation Franchising and Regulatory Board (LTFRB) is studying asking the public transport drivers to continue granting discounts for students, as well as senior citizens. Another good move I suppose! 

I believe that there is always a way for everything. The suggestions above may sound as if they are in favor of the public and not the suppliers and oil companies. But I trust that such an act of President Noy would benefit both parties in different ways - The buyers as well as the sellers. 

Reaction Paper

Shell, Eastern Petroleum hike oil prices

By ELLSON A. QUISMORIO

December 28, 2010, 8:35pm

MANILA, Philippines – Big oil player Pilipinas Shell and leading independent player Eastern Petroleum Philippines announced last night price hikes as high as P1 per liter on their fuel products.

Shell, in its advisory, said that it would increase all its gasoline prices by P1 a liter and diesel by P0.75 a liter effective past midnight Wednesday.

On the other hand, Eastern Petroleum Chief Executive Officer (CEO) Fernando Martinez said the company would implement a similar hike on their products later Wednesday.

“In fact we have advised our dealers of such movement today (Tuesday), but we will implement it at 7 a.m. Wednesday,” Martinez said.

No adjustment will be made on prices of kerosene.

Meanwhile, other oil companies contacted by the Manila Bulletin said they’ve “noted” the announcement of Shell and Eastern Petroleum but could not make their own adjustment official as of press time.

Local oil firms usually copy one another’s price movement within one or two days from the first announcement of a price tweak.

Two hefty fuel price hikes have previously been enforced this month. Last December 13, pump prices were raised by as much as P1.25 a liter while hikes reaching up to P1.50 a liter was implemented on December 7.

There was no price adjustment on the part of the oil firms last week, which ran through Christmas.

The latest hike, likewise, brought up the average prices for “main grade” fuel products to follows: diesel, P38 a liter; unleaded gasoline, P48.50 a liter and kerosene, P46.50 a liter.

Department of Energy (DoE) Undersecretary Jay Layug earlier told the public to brace for another pump price hike before the close of 2010, if only due to the movements in the international oil market.

Last week saw a surge in the Asian crude market wherein prices hit a two-year high of over $90 per barrel. The surge in international prices was due to speculations that oil demand would improve.

The Associated Press (AP) reported that the price of crude oil slid to $91 per barrel from $91.19. Despite the slight dip, the price remained relatively high considering that oil traded in the $70s for most of this year.

This reflects the price surge in the fourth quarter to a two-year high last week amid strong crude consumption growth in emerging economies and optimism that demand in the US is slowly recovering from last year's recession.

source: http://www.mb.com.ph/articles/295275/shell-eastern-petroleum-hike-oil-prices

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Personal Reaction:

Honestly, I don't like the idea of oil price hikes or any form of price hikes...but I have to live with it. There's nothing left to do but accept the fact that it would be implemented every now and then as they say "due to the movements in the international oil market"(for oil). I actually don't have my own car so I can say I'm not directly affected by the price adjustments. And maybe that is the reason why I can't figure out why people who own cars overreact hearing the news of such adjustments. Although, I understand that prices of almost everything increases now and that's not good. Maybe I will only fully understand everything when I get to pay for the bills and feed my own car. But then I realized that I'm somehow affected by the increase in oil price. First of all, our family own a car. My father gets to feed it and I see his reaction every time he hears the news of the increase. And like any other expenses, it means another adjustment in the budget I suppose. Another is that I ride jeepneys everyday. And oil price hike might anytime mean an increase in the jeepney fare. Now, I am directly affected. It is also a good point to notice that a peso might sound a very small amount if regarded as per liter. But the thing is that a car won't run and get you somewhere with just a liter of gas! Therefore, an increase per liter is a big thing already. It means an additional budget and expense to people earning the same amount of money.


Anyhow, I know that there is nothing that would stop the increase and the increases that will follow a day, months or years after the said increase. But I would like to suggest that oil companies specially the big ones(known co's.) lower there price increase. If they could only lessen 50% to it, it would already be a big thing. I put emphasis on the big companies because they usually determine the pump prices while other smaller companies/local oil firms copy their price movement. Another is that the government should take an action regarding the increases. They(e.g. DOE) could actually advice the companies to lessen/lower the increase or they could think of other ways on how to lower the price so that it won't cost much. What other ways? I do not know. I have no idea.. but I believe that the people responsible for the increase are more knowledgeable and they can suggest regarding this matter. For me, I could only recommend that they lower the increase in oil price.

Review Questions (Chapter 3) for Econ111

1.

The production possibilities frontiers used to explain trade in the text are straight lines because: a. the author assumes the farmers can switch at a constant rate from producing meat to producing potatoes. b. that's how it turns out to be when the same person produces the two goods. c. one farmer is better than the other in producing both goods. d. the gains of trade will benefit both farmers.

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2.

The principle of Absolute Advantage refers to the situation in which one producer: a. can produce a good in greater quantities than other producers. b. can produce a good using fewer resources than other producers. c. is able to produce exactly the same quantity of a good as other producers. d. has access to more resources than other producers.

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3.

The principle of Comparative Advantage refers to the situation in which one producer: a. has a lower opportunity cost than other producers in the production of a good. b. can produce a good in greater quantities than other producers. c. has access to more resources than other producers. d. can produce a good using fewer resources than other producers.

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4.

Which of the following is true regarding the principle of Absolute Advantage? a. Nations should specialize in producing those goods for which they have a lower opportunity cost. b. Nations should export goods for which they do not have an Absolute Advantage. c. Nations should specialize in producing those goods for which they have an Absolute Advantage. d. Nations should export goods for which they have a higher opportunity cost.

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5.

Which of the following is true regarding the principle of Comparative Advantage? a. Nations should specialize in producing those goods for which they use the least amounts of resources. b. Nations should specialize in producing those goods for which they have the lowest opportunity cost. c. A nation has nothing to gain from trade if it uses fewer resources than other nations to make any good. d. A nation has nothing to gain from trade if it uses more resources than other nations to make any good.

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6.

The boy next door has offered to mow Tiger Woods' lawn. It will take this boy twice as long as Tiger Woods to mow the lawn. Would Tiger Woods let the boy mow his lawn, instead of doing it himself? a. Yes, as long as the boy's opportunity cost is less than half of Tiger Woods' opportunity cost. b. Yes, because the boy next door needs the money and Tiger Woods can help him out that way. c. No, because it will be more efficient if Tiger Woods mows his own lawn, since he can do it faster. d. No, because Tiger Woods has better things to do with his money than pay the boy to mow the lawn.

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7.

Suppose that engaging in free trade means we have to stop making cars, which will cause bankruptcies and will make people lose their jobs. Is it still worth having free trade? a. Yes, because in spite of the lost jobs, we still want to get along with other nations. b. Yes, because the gains outweigh new business the losses:es and new jobs will flourish in other industries. c. No, because we need to protect our jobs. d. No, because our wages would have to fall drastically to make us remain competitive with low wage countries.

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8.

Suppose that Jill can type 10 pages per hour in the computer, while Jim can only type 8. Further suppose that Jill can review 5 articles per hour while Jim can only review 2. If they are working on a final project together, who should specialize in what task in order to be as productive as possible? a. Jill should specialize in typing and Jim in reviewing articles. b. Jill should specialize in reviewing articles and Jim in typing. c. Jill should perform both tasks, since she is better at both than Jim. d. Jim should perform both tasks, since he is better at both than Jill.

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9.

Suppose that Jill can type 10 pages per hour in the computer, while Jim can only type 8. Further suppose that Jill can review 5 articles per hour while Jim can only review 2. Based on this, we can say that: a. Jim has a comparative advantage over Jill in reviewing articles. b. Jill has an absolute advantage over Jim in reviewing articles. c. Jim has an absolute advantage over Jill in typing. d. Jill has a comparative advantage over Jim in typing.

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10.

The principle of Comparative Advantage argues all of the following, EXCEPT: a. specialization allows producers to produce goods for which they have a lower opportunity cost. b. free trade tends to cause bankruptcies and high unemployment in the long run. c. free trade allows producers to specialize. d. as producers specialize, overall production increases, making everybody better off.

Review Questions (Chapter 2) for Econ111

1.

Which of the following is FALSE, regarding economics as a science? a. Economic knowledge is obtained through the scientific method, just as in any other science. b. It is difficult to conduct experiments in economic matters. c. Economists pay close attention to natural experiments resulting from historical events. d. Economic theories represent irrefutable facts.

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2.	Economists use assumptions in order to: a. recreate real situations accurately, with all their complexity. b. avoid dealing with issues they would rather not talk about. c. simplify economic theories, so as to make it possible to answer economic questions. d. make their theories more realistic.

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3.	Economic models are: a. simplified versions of economic theories. b. created by making assumptions. c. usually composed of diagrams and equations. d. all of the other options are true.

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4.

All of the following are characteristics of the Circular Flow Model of the economy, EXCEPT: a. the model has two markets: one for goods and services and one for factors of production. b. the model includes two sectors: the Firms sector and the Households sector. c. the model describes two circular flows: one for inputs and one for resources. d. the two flows described by the model move in opposite directions.

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5.

The circular flow model of the economy demonstrates that: a. the economy actually has only two sectors: firms and households. b. dollars in the economy are used over and over in an endless cycle. c. firms produce and provide factors of production. d. government is the source of revenue for households to purchase goods and services from firms.

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6.

Which of the following is true regarding the Production Possibilities Frontier Model of the economy? a. Any point along the PPF represents an efficient level of production. b. Any point in the area below the PPF represents a combination of production that is not feasible. c. The opportunity cost of producing one more unit of one of the goods represented in the PPF remains the same at any point along the PPF. d. Increases in the resources available for production will cause the PPF to shift towards the origin.

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7.	Economic growth in the economy can be portrayed in the Production Possibilities Frontier model as a: a. movement up and to the left along the PPF. b. shift of the PPF away from the origin. c. movement down and to the right along the PPF. d. shift of the PPF towards the origin.

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8.	Microeconomics is the study of: a. how governments can get the economy out of a recession. b. economy-wide phenomena, including inflation, unemployment, and economic growth. c. how households and firms make decisions and how they interact in markets. d. how governments can reduce inflation.

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9.

Which of the following is an example of a normative statement? a. Higher interest rates will cause people to borrow and invest less. b. The government should increase spending during recessions, so that the economy recovers quickly. c. When the price of a good increases, consumers respond by reducing the quantity that they want to purchase of the good. d. Over the past 50 years, the number of women that participate in the labor force has increased dramatically.

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10.

Economists tend to disagree with each because: a. different economists espouse different theories, so they believe different things are going on in the economy. b. different economists make different assumptions, leading them to different conclusions in economic matters. c. different economists have different values and priorities in economic matters. d. all the other options are true.

Review Questions (Chapter 1) for Econ111

1. Government policies designed to promote efficiency:

a. usually do so at the expense of equity. b. tend to cause the economy to grow more slowly. c. always fail. d. require very high taxes.

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2.	All of the following can be considered a student's costs of going to college, EXCEPT: a. textbooks. b. tuition and fees. c. room and board (that costs her about the same as she was paying before entering college). d. the student's time, which can no longer be devoted to earning a salary.

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3.

An airline's plane from Los Angeles to New York is about to take off, but it still has a few seats empty. If the average cost per seat is $500, what price should the airline charge passengers in standby to fill in those remaining seats? (Consider that quantitative decisions are made at the margin) a. At least $500. b. Exactly $500. c. Any price above zero that will entice standby passengers to take the flight. d. Slightly less than $500.

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4.

The Federal government enacted regulation in the 1960s requiring people to wear seatbelts in their cars. All of the following resulted from this regulation, EXCEPT: a. overall deaths due to car accidents changed very little in the United States. b. fewer deaths occurred per accident. c. fewer pedestrians were killed in car accidents. d. the frequency of accidents increased.

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5.	When two persons trade goods: a. one person always gains at the expense of the other. b. both persons usually gain from the exchange. c. one person usually gains at the expense of the other. d. the overall well being of the two persons remains unchanged.

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6.	In a market economy, the decisions of what and how much to produce are made by: a. voters in elections. b. all producers and consumers. c. the government only. d. non governmental agencies.

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7.

Even though markets do a great job in organizing economic activity, governments are needed to do all of the following EXCEPT: a. establish and enforce property rights. b. intervene when markets fail due to externalities. c. intervene when markets fail due to market power. d. decide what and how much should be produced.

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8.

Living standards in the United States have risen tremendously over the years, mainly due to: a. relentless increases in the productivity of labor over the years. b. the forceful efforts of labor unions. c. successive increases in the minimum wage. d. trade protection from competition from countries with low wages, such as China.

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9.	Rapid and persistent inflation occurs mainly due to: a. high wage increases demanded by labor unions. b. greedy firms that abuse consumers with higher-than-necessary prices. c. rapid increases in the quantity of money in the economy. d. trade with other countries.

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10.	A government that implements a policy designed to reduce inflation can expect unemployment to: a. increase in the short-run. b. decrease in the short-run. c. increase in the long-run. d. decrease in the long-run.