2022

EDEN UNIVERSITY
DEPARTMENT OF BUSINESS STUDIES

BACHELOR OF SCIENCE IN BUSINESS MANAGEMENT

MICROECONOMIC

BBM 1312
2022 JANUARY INTAKE FINAL EXAMINATION

DURATION 3 HOURS JUNE 2022

INSTRUCTIONS:
1. There are SIX (6) Questions in this paper.
2. Answer ANY FIVE (5) Questions.
3. No Phones are allowed into the Exam room
4. Do not turn this page until you’re told to do so
QUESTION ONE

A. Suppose that a market is described by the following supply and demand equations:
s
Q =2 P
D
Q =300−P
i. Solve for the equilibrium price and the equilibrium quantity. 5 Marks
ii. Suppose that a tax of T is placed on buyers, so the new demand equation is;

Q D=300−(P+T )
Solve for the new equilibrium. What happens to the price received by sellers, the
price paid by buyers, and the quantity sold? 5 Marks
iii. Tax revenue is T x Q. Use your answer to part (ii) to solve for tax revenue as a
function of T. Graph this relationship for T between 0 and 300. Use the intervals
of 50. 10 Marks
[Total: 20 Marks]
QUESTION TWO

A. What does the domestic price that prevails without international trade tell us about
a nation’s comparative advantage? 5 Marks
B. When does a country become an exporter of a good? An importer? 5 Marks
C. Draw the supply-and-demand diagram for an importing country. What is consumer
surplus and producer surplus before trade is allowed? What is consumer surplus
and producer surplus with free trade? What is the change in total surplus?
10 Marks
[Total: 20 Marks]
QUESTION THREE

A. In a recent study found that the demand and supply schedules for Frisbees are as
follows:

Price Quantity Quantity

for Demande Supplied
Fish d
11 1 15
10 2 12
9 4 9
8 6 6
7 8 3
6 10 1

i. What are the equilibrium price and quantity of fish? 8 Marks

ii. If the government impose a price floor K2 above the equilibrium price. What is
the new market price? How many fish is sold? 4 Marks
iii. If the government removes the price floor and impose a price ceiling K1 below
the former price floor. What is the new market price? How many fish is sold?
4 Marks
B. Draw a supply-and-demand diagram with a tax on the sale of the good. Show the
deadweight loss. Show the tax revenue. 4 Marks

[Total: 20 Marks]

QUESTION FOUR

Write a brief essay advocating or criticizing each of the following policy positions:

A. The government should not allow imports if foreign firms are selling below their
costs of production (a phenomenon called “dumping”). 5 Marks
B. The government should temporarily stop the import of goods for which the
domestic industry is new and struggling to survive. 5 Marks
C. The government should not allow imports from countries with weaker
environmental regulations than ours. 5 Marks
D. List five arguments often given to support trade restrictions. How do economists
respond to these arguments? 5 Marks

[Total: 20 Marks]
QUESTION FIVE

A. Describe what a tariff is, and describe its economic effects. 5 Marks
B. What is an import quota? Compare its economic effects with those of a tariff.
3 Marks
C. What does a production possibilities curve show? Clear graph the PPF showing a
point of inefficient use of resources and a point beyond the available technology or
resources. 5 Marks
D. List and briefly explain the three principles concerning economic interactions.
3 Marks
E. What does the “invisible hand” of the marketplace do? 2 Marks
F. Why isn’t trade among countries like a game with some winners and some losers?
2 Marks
[Total:20 Marks]
QUESTION SIX
E. Give an example of a negative externality and an example of a positive
externality. 5 Marks
F. Use a supply-and-demand diagram to explain the effect of a negative externality
in production. 5 Marks
G. In what way does the patent system help society solve an externality problem?
5 Marks
H. List some of the ways that the problems caused by externalities can be solved
without government intervention. 5 Marks
[Total: 20 Marks]