Total marks 15

Time 2 hours
Microeconomics
MBA E 72 1 B
Fall 2020
19 November 2020

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1. Explain with the help of an example the difference between Microeconomics and
Macroeconomics. (1.5 mark)
2. Explain the relationship between Scarcity, choice and opportunity cost by using one real
life example. ( 2 Marks)

3. Here is a production possibilities table for war goods and civilian goods: ( 2 marks)
Production Alternatives

Types of A B C D E
Production

Automobiles 0 3 6 9 12

Missiles 30 27 21 12 0

a. If the economy is at point D, what is the cost of one more automobile? One more
missile?
4. Explain how each of the following events affects the location of a country’s production
possibility curve? (Expand/Contract/No Change) (2 marks)
a. The quality of education increases.
b. The number of unemployed workers increases.
c. A new technique improves efficiency of production in the country.
d. A devastating earthquake destroys numerous production facilities.
5. What effect will each of the following have on the demand for product B?
(Increase/Decrease/No Change) (2.5 Marks)
a. Product B becomes more fashionable.
b. The price of substitute product C falls.
c. Income declines and product B becomes an inferior good.
d. Consumers anticipate the price of B will be higher in the near future.
e. The price of complementary product D falls
 6. Suppose the supply of apples sharply increases because of perfect weather conditions
throughout the growing season. Assuming no change in demand, explain the effect on
the equilibrium price and quantity of apples. Explain why quantity demanded increases
even though demand does not change. (2 marks)

7. Suppose that business travelers and holiday-makers have the following demand for airline
tickets from to Sydney to Melbourne: ( 3 marks)
Price Quantity Demanded Quantity Demanded ( Holiday-
( Business Travelers) Makers)
$150 2100 1000
200 2000 800
250 1900 600
300 1800 400

a. As the price of tickets rises from $150 to $ 200, what is the price elasticity of demand for (i) business
travelers (ii) holiday-makers?