Yangon University of Economics

Department of Economics
Executive Master of Development Studies Program
18th Batch, EMDevS (Online Class)
First Year, First Quarter, Final Examination
November, 2022
(Answer Sheet)

Roll No. 55
Module & Subject’s Name EMDevS -111 Principles of Microeconomics I
Batch EMDevS- 18th Batch (Online Class)
Date 30th Nov. 2022

Ans-I

1.D

2.B

3.B

4.D

5.C

6.D

7.B

8.B

9.C

10.C

pg. 1
Ans-II

Price elasticity of Demand

If the value of price elasticity is greater than unity, then demand is elastic.

If the value of price elasticity is less than unity, then demand is inelastic.

Cross elasticity

If the value of cross elasticity is positive, the goods are substitutes.

If the value of cross elasticity is negative, the goods are complements.

Income elasticity

If the value of income elasticity is greater than unity, the good is a luxury.

If the value of income elasticity is less than unity, the good is a necessity.

If the value of income elasticity is negative, the good is an inferior good.

pg. 2
Ans-III

(a)Both countries have a dominant strategy of opting for Open. The equilibrium point of
welfare-maximization will be obtained at (Open, Open) with the payoffs (10,10).

(b)When U.S. politicians do not behave rationally and penalize Japan, Japan’s strategy
will be unaffected as it has a dominant strategy. However, the payoff for both countries
will be lowered, and the new equilibrium will be attained at (Open, Close) with payoffs
(5,5).

Ans.IV

(a)Price elasticity of demand=0.4

%change in quantity=20%
% change in price=?
∆Q
Price elasticity of demand =
∆P

ΔQ
% change in Price=
Price elasticity of Demand

20 %
= =50 %
0.4

Dollar Change in price=$5*50%=$2.5

Government should increase the price of a pack of cigarettes by 50% or $2.5.

(b) The policy will have large effect on smoking five years than one year, short run which
demand is inelastic.

pg. 3
In short-run, consumers might not respond to the price change but in the long –run consumers
will reduce their consumption due to high price demand where they could also acknowledge the
educational awareness if govt introduced both policy (Interdiction and education)
(c) Believed that might true causes smoking may not be as much of an ingrained habit in
teenager as it is amongst adults. Teenagers are new to smoking compared to the adults who are
addicts and find it difficult to reduce smoking even when the prices is increase. Teenagers are no
longer effort if the government increase the price to a level because their financial resources is
limited.

Moreover believed that a lot of teenagers smoke for fashioning because they though it look good
or peer pressure of all of the friend doing it.

Ans.V

(i)

a. faces a downward – sloping demand curve (monopoly firm)

b. has marginal revenue less than price (monopoly firm)

c. faces the entry of new firms selling similar products (monopolistic competition)

d. earns economic profit in the long run. (monopolistic competition)

e. equates marginal revenue and marginal cost ( monopoly firm)

f. produces the socially efficient quantity of output. (neither monopoly or monopolistic

competition)

(ii) Profit Maximization

pg. 4
As long as the marginal revenue from selling a unit of output is greater than the marginal cost of
producing that unit of output the firm will make a profit on that unit of output. When the firm can
produce fractional units of the good, profits are maximized at the quantity at which MR = MC.

Economic market structures can be grouped into four categories: perfect competition,
monopolistic competition, oligopoly, and monopoly.

The situations of profit maximizing output level of firms in four different markets structure can
be compared by buyers and sellers, product range, probability of market entry and exit, and also
pricing.

pg. 5
 Shutdown - In the short run, when a firm cannot recover its fixed costs, the firm will
choose to shut down temporarily if the price of the good (P) is less than average variable cost
(AVC). Production is stopped temporarily, perhaaps because of poor market conditions.

Exit - In the long run, when the firm cannot recover both fixed and variable costs, it will
choose to exit if the price is less than average total cost (ATC). Production is stopped
permanently.

pg. 6