THE COPPERBELT UNIVERSITY SCHOOL OF BUSINESS BF110 -PRINCIPLES OF ECONOMICS DEFERRED SESSIONAL EXAMINATIONS, OCTOBER 2019 TIME ALLOWED: THREE HOURS. Instruction: Choose any five questions. Each question carries 20 marks.QUESTION ©} 5). Tony and Patty produce skis and snowboards. Tables 1 and 1ow their production possibilities. Fach week, Tony produces 5 snowboards and 40 skis and Patty produces 10 snowboards and $ skis, Table 1: Tony's production possibl “Table 2 Path’ production possibilities Snawbaarde se ‘Snowboards Sue (per week) (per week (per week (per week) 3 0 20 © 20 10 10 3 15 20 ® 10. 0 30 5 40. a) Draw two separate production possibilities graphs for Tony and Patty. Show the combinations of snowboards and skis at which Tony and Patty choose to produce and mark these points as A.(7 marks) b) What is the opportunity cost of producing a snowboard for Tony? For Patty? Who has an advantage in producing snowboards? (Smarks) ©) What is the opportunity cost of producing a ski for Tony? For Patty? Who has an advantage in producing skis? marks) d) Mention three assumptions required for the construction of PPF (3 marks) QUESTION T! Answer all of the questions, The table below gives the demand and supply schedules for eat food. Price emanded (dollars per pound of eat Quantity supplied: fou) {1ons of eat food per year) 0 15 150 % 200 uM 2 40 3.00, ub 4) What is the equilibrium price and quamity? How ean you tell? (4 marks) b) I the price is K$.00 per pound of eat food, will there be a shortage, a surplus? Explain why. If there iva shortage. how much is the shortage? If there is a surplus, how much is the surplus? (4 marks) eases by 30 tons at every price, what is the new equilibrium price and quantity? e) IP the supply i Show your work. (6 marks) 4) -xplain market equilibrium stability in the cat food market. (Gmarks)QUESTION THREE ) In Pionger Ville, the price elasticity of demand for bus rides is 0.7, the income elasticit rides is + of bus 2 and cross price elasticity of demand for bus rides with respect to gasoline is 0.4 a) Is the demand for bus rides elastic or inelastic? Why? (4 marks) b) Would an increase in the price of bus rides increase the bus company’s total revenue? Explain your answer. (4 marks) oli {somes increase by 5 percent with no change in prices. how will the number of bus rides 7 Is a bus ride a normal good or an inferior good? Why? (6 marks) 4) Describe the relationship between bus rides and gasoline. If the price of gasoline increases by 10 nt with no chanze in the price of a bus ride, how will the number of bus rides change? Are bus ind gasoline complements or substitutes? Explain. (6 marks) QUESTION FOUR OU rides raphs to explain the behavioural pattem of the following cost variables (a). Total cost (b). Total fixed cost (c) Total variable cost (d). Average cost (¢). Average fixed cost (1). Average variable cost (20 marks) QUESTION FIVE ((). Give and explain in detail the features of monopolistic competition (6 marks) Gi), Give end explain in detail five causes of pure monopoly (6 marks) (ii), Draw a graph and use it to compare a firm operating under pure competition and monopolistic competition (8 marks) QUESTION SIX (ii), Explain in detail using graphs the two theorics of inflation (14 marks) (iii) Explain the three ways of addressing inflation (6marks) QUESTION SEVEN (+), Explain using a graph what would happen if any of the components of aggregate demand change (7 marks) (i) Explain using a graph what would happen if any of the components of autonomous aggregate demand change (7 marks) (iii). What cautions will you take into account when estimating GDP (6 marks) END OF EXA,