CONFIDENTIAL Ss BMISEP 2014/EC0162/104 ES UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION COURSE MICROECONOMICS COURSE CODE ECO162/104 SEPTEMBER 2014 3 HOURS INSTRUCTIONS TO CANDIDATES 1 This question paper consists of three (3) parts: PART A (20 Questions) PART B (4 Questions) PART C (4 Questions) 2. ‘Answers ALL questions from PART A and PART B. Answers any two (2) questions from PART C. Answers PART A in the Objective Answers Sheet. ‘Answers PART B in the Answers Booklet and when necessary in the graph paper. ii) Answers PART C in the Answers Booklet. Start each answer on a new page. a Do not bring any material into the examination room unless permission is given by the invigilator. 4 Please check to make sure that this examination pack consists of i) the Question Paper il) an Answers Booklet ~ provided by the Faculty i) an Objective Answer Sheet — provided by the Faculty iv) a Graph Paper — provided by the Faculty DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO D0 SO This examination paper consists of 70 printed pages (© Hak Cipta Universiti Toknolog! MARA CONFIDENTIALCONFIDENTIAL, 2 BM/SEP 2014/ECO162/104 PART A (20 MARKS) 1 In the production possibilities curve, inefficient production is represented by a point ‘A. along the curve. B. beyond the curve. C. _ inside the curve. D. outside the curve. Mixed economy refers to an economy which has both ‘A. _ firm and household decisions making and government decision making. B. market and non-market sectors. C. product and factor market. D. businesses and household, A television station like ASTRO is an example of ‘A. public goods. B. free goods C. economic goods. D. economic services. If the demand for thumb drive decreases as income increases, thumb drive is ‘A. anormal good. B. —_aninferior good, C. a substitute good D. a complementary good. Supply for a product is considered as exceptional if ‘A. price and quantity supplied are negatively related. B. price and quantity supplied are positively related. C. price is not related to quantity supplied. D. ‘supply curve has a positive slope. If the price of Milo decreases, the demand curve for its close substitute will shift to the left. shift to the right remain unchanged. cannot be determined. vom> (© Hak Cipta Universiti Teknolog! MARA, CONFIDENTIALCONFIDENTIAL, 3 BMISEP 2014/EC0162/104 10. "1 12. If the income elasticity of demand is greater than 1 com> people will reduce their demand on the good as income increases. an increase in income has no effect on the demand for the goods. people will spend less on the goods as income increases. people will spend a larger fraction of their income on the good as income increases, A 15 percent increase in the price of Baju Kurung will reduce its quantity demanded by 20 percent. It can be concluded that the demand for Baju Kurung is gom> perfectly inelastic. unitary elastic. inelastic. elastic. Products which are purchased more frequently, such as sugar will tend to have A B. c. D. elastic supply. inelastic supply. elastic demand. inelastic demand. Which statement is true about maximum price? A B. cl D. ‘A maximum price sets by the government can cause a surplus. ‘A maximum price is sets so that poor people can afford to buy the basic goods. The government sets maximum price in order to encourage supplier to supply more goods and services. A maximum price sets by the government will enable to protect producers’ income. If the demand for chicken exceeds the supply A. the price of chicken to rise. B. _the price of chicken to fal. C. _ there will be a surplus of chicken in the market. D. _ there is no tendency for price of chicken to change. A subsidy given by a government will cause the. curve to shift to the A. demand, right. B. demand, left. C. supply, right. D. supply, left. (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, 4 BM/SEP 2014/ECO162/104 13, 14, 15. 16. 17. 18. Economies and diseconomies of scale explain why firm's long run average cost curve is U-shaped. the distinction between fixed and variable costs. the profit maximization level of production. Why firm's short run marginal cost curve cuts the short-run average variable cost curve at its minimum point. pomp Production function shows the relationship between. A. cost and input. B. cost and output. C. input and output D. wages and profit. When average product reaches its maximum, A. marginal product is equal to average product. B. average product is greater than marginal product. C. average product is less than marginal product. D. _ marginal product will increase rapidly. In monopolistically competitive market, firm A produces differentiated products. B. will enjoy supernormal profit. c. has a demand curve that is perfectly elastic D. is a price taker. In the long run, a monopolist A. can incur loss. B. break even, C. always poduces at the lowest point on the LRAC curve. D. —_can continue to make profit because entry into industry is blocked. A kinked demand curve explains why firms A. undertakes new investment. B. _have different level of efficiency. C. make abnormal profits. D. are not keen to engage in severe price competition. (© Hak Cipta Universiti Teknologi MARA, CONFIDENTIALCONFIDENTIAL 5 BMISEP 2014/ECO162/104 19. Ifa firm sells its output in a market that is characterized by many sellers and buyers, homogeneous product and unlimited long run resource mobility, then the firm is a A monopolist. B. monopolistic competitive firm, C. perfect competitor. D. —_oligopolist. 20. Which of the following characteristic is common for both the monopolistic competitive firm and monopoly firm? Large number of firms. Kinked demand curve. Downwards sloping demand curve. Free entry and exit. gom> (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, 6 BMISEP 2014/ECO162/104 PART B (40 MARKS) QUESTION 4 The table below shows a hypothetical demand and supply schedules for Pitaya in the local market Price per kg (RM) Quantity demanded (kg) ‘Quantity supplied (kg) 10 300 100 15 250 150 20 200 200 25 7 150 i 250 30 100 300 35 50 iseanEENE 250) a) Plot the demand and supply curve for Pitaya on a graph paper. (2 marks) b) Determine the equilibrium price and output for Pitaya. (2 marks) c) Assume that the government imposes sales tax of RM 5.00 per kg i) Show the effect of the tax on the same diagram in (a) (1. mark) d) ii) Calculate the amount of tax burden paid by the consumers and sellers, (2 marks) ili) Calculate the amount of tax revenue for government. (2 marks) Determine the amount of surplus or shortage if the market price is RM15 per kg. (1 mark) (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 7 BMISEP 2014/EC0162/104 QUESTION 2 ‘The schedule below shows the relationship between the price and quantity of good X and Y. Quantity Demand for | Quantity Demand | Price of goods X Income (RM) goods X —forgoods Y (RM) 5000 3500 5.25 70400 4550 3700 6.75 11600 c 4350 5600 8.95 12500 | 4150 7800 9.95 13400 3860 8970 10.55 14500 a) Calculate the value of price elasticity of demand good X if price increases from RM 5.25 to RM 8.95, (2 marks) b) Calculate the value of income elasticity of demand for good Y if income increases from RM 11 600 to RM 13 400. (2 marks) c) Based on question 2 b), identify good Y. (1 mark) d) Calculate the value of cross elasticity of demand for good Y if price of good X increases from RM8.95 0 RM10.55. (2 marks) ©) i) __ Based on question 2 d), what is the relationship between goods X and Y. (1 mark) ii) List any two (2) determinants of price elasticity of supply. (2 marks) (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, 8 BMISEP 2014/EC0162/104 QUESTION 3 a) The table below shows the costs of production of a firm. Complete the table. Total | Total Cost Total Average | Average | Average | Marginal Product | (RM) | Variable | Cost(RM) | Variable | Fixed Cost | Cost (units) Cost (RM) | Cost (RM) | _ (RM) (RM) 0 700 0 o | 0 0 = 200 280 350) 410 480 560 650 760 890 1045 (0 |c0|~) 09] cn] 5] c0| m3] 5 S| ( marks) b) The table below shows the production of pencil by “Ahmad Pintu” company. Fixed Factor | Variable Factor | Total Product Marginal ‘Average (Capital) (Labour) Product Product 25 1 740 25 2 350 25 3 510 25 4 620 25 5 670 25 6 670 25 7 630 i) Complete the table above. (2 marks) ii) Production is at maximum when the company hire. worker. (1 mark) iii) Diminishing Marginal Returns set in at number of worker. (2 marks) © Hak Cipta Universiti Teknologi MARA, CONFIDENTIALCONFIDENTIAL, 9 BMISEP 2014/EC0162/104 QUESTION 4 The diagram below represents short run equilibrium of monopolist fim. Answer the following questions. Revenue/price/cost a) by °) d) Output (units) 10 1517 Determine the equilibrium price and quantity (2 marks) Calculate the proft or loss at equilibrium point. (2 marks) Show how much is the total variable cost at equilibrium if average fixed cost is RM2.00, (2 marks) Is the firm operating in the short run or long run? Why? (2 marks) List down any two (2) characteristics of monopolist firm. (2 marks) @ Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, 10 BMISEP 2014/ECO162/104 PART C (40 MARKS) QUESTION 1 a) Define production possibilities curve (PPC).Using appropriate diagram, explain three (3) basic economic concepts. (10 marks) b) Discuss the differences between changes in demand and changes in quantity demanded. (10 marks) QUESTION 2 a) Discuss any four (4) determinants of supply. (10 marks) b) Define the income elasticity. Explain any four (4) degrees of income elasticity of demand. (10 marks) QUESTION 3 a) _ Define price ceiling. Discuss two (2) advantages and two (2) disadvantages of price ceiling (10 marks) b) With the aid of a diagram, explain the stages of production in the short run. (10 marks) QUESTION 4 a) Explain any four (4) characteristics of an oligopoly market structure. (10 marks) b) With the help of a diagram, discuss the shut down point of a perfectly competitive market. (10 marks) END OF QUESTION PAPER (© Hak Cipta Universit Teknologi MARA CONFIDENTIAL