Q1.

Using supply-and-demand diagrams, show and explain the effects of the following
events on the price of CD-Rs and the quantity of CD-Rs sold. For each event, identify which
of the determinants of demand or supply is affected, how it influences demand or supply,
and what happens to the equilibrium price and quantity. (20 marks)
a) The price of CD burners falls. (CD burners and CD-Rs are complementary goods in
consumption) (5 marks)
b) Workers who make CD-Rs get a pay raise. (5 marks)
c) Producers introduce new cost-saving technologies in their CD-Rs production plants. (5
marks)
d) Consumers' incomes increase and CD-Rs are normal goods. (5 marks)

Q2 The table below shows the aggregate production function in the economy of Singapore.
The people of Singapore pay no taxes and are willing to work 248 million hours a year for a
real wage rate of $8 an hour, and for each dollar increases in the real wage, they are willing
to work 4 million additional hours per year. (24 marks)
Labor Real GDP
(millions of hours per year) (millions)
200 6,800
240 7,680
280 8,400
320 8,960
360 9,360
a) Draw the economy's aggregate production function. (5 marks)
b) List Singapore's supply of labor schedule based on the information above (list the
quantity of labor supplied at 4 real wage rate levels) and draw Singapore's supply of labor
curve (8 marks)

Real wage rate Quantity of labor demanded

(dollars per hour) (millions of hours per year)
24 200
20 240
16 280
12 320

c) Singapore's demand for labor schedule is showed by the table above. Draw Singapore's
demand for labor curve. (5 marks)
d) What are the economy's full-employment quantity of labor and equilibrium real wage
rate? What is the economy's potential GDP? (6 marks)

Q3. Using supply-and-demand diagrams, predict the changes in equilibrium price and
quantity in the following situations: (24 marks)
a. Decrease in both supply and demand (12 marks)
b. Decrease in demand and increase in supply (12 marks)

Q4. Assume that a firm wants to set up a factory. It considers four different locations. The
rent of the factory space and the time taken to transport the products from each of the
locations to the market is shown in the table below. It is also given that the opportunity cost
of time is $10 per hour. (18 marks)
a) Which is the optimum location using total cost (calculate the total cost for each and
every location)? (6 marks)
b) Which is the optimum location using Marginal analysis (calculate the marginal
opportunity cost and marginal rental cost when switching from 1 to 2, 2 to 3, and 3
to 4) ? (6 marks)
c) If the opportunity cost of time changes to $30 per hour, is there any change in the
optimum location? (6 marks)

Time Taken to Transport

Products to the Market
Location (hours per month) Rent ($ per month)
1 180 3,000
2 150 3,200
3 100 3,600
4 60 4,100

Q5. A typical household in Orangeland consumes only orange juice and shorts. Last year,
which was the base year, the household spent $400 on juice and $120 on shorts. In the base
year, juice was $2 a bottle and shorts were $10 a pair. This year, juice is $3 a bottle, shorts
are $12 a pair, and a typical household has bought 180 bottles of juice and 14 pairs of
shorts. (14 marks)
a) What is the CPI basket? (4 marks)
b) Calculate the CPI in the current year. (6 marks)
c) Calculate the inflation rate in the current year. (4 marks)