Part A Question 1 Price (RM) 500 600 700 800 900 1000 Quantity Demanded (tonnes) 15000 13000

11000 9000 7000 5000 Quantity Supplied (tonnes) 1000 3000 6000 9000 12000 15000 New Quantity demanded (tonnes) 12000 9000 6000 3000 1000 -

(a) P = RM800 Q = 9000 tonnes (b) TR = P x Q = 800 X 9000 = RM 7,200,000 (c) There is excess supply in the market. Price would decrease. (d) New: P = RM700 Q = 6000 tonnes TR = P x Q = 700 X 6000 = RM 4,200,000 The revenue earned is decreased.

Question 2 The table below illustrates the market for curry mee in Penang. Price (RM) 10 20 30 40 50 60 70 80 90 (a) P = RM50 Quantity supplied (units) 0 10 20 30 40 50 60 70 80 Q = 40 units Quantity demanded (units) 80 70 60 50 40 30 20 10 0 New Quantity demanded (units) 20 30 40 50 60 70 80 90 100

(b) TR = P x Q = 50 X 40 = RM 2000 (c) (i) Shown in the table. (ii) P = RM40 Q = 50 units

(iii) TR = P x Q = 40 X 50 = RM 2000 The revenue is the same, it did not decrease or increase.

Question 3 When the price per carton of Coke falls from RM16 to RM14, the quantity demanded increases from 200 to 300 cartons per month. The demand for Pepsi falls from 250 to 200 cartons per month. Price 1 : RM16 Price 2 : RM14 Quantity 1 : 200 Quantity 2 : 300

(a) Price elasticity of demand (midpoint formula) = (Q2-Q1) / [(Q2+Q1)/2] (P2-P1) / [(P2+P1)/2] = (300-200) / [(300+200)/2] (14-16) /[(14+16)/2] = -3% (Value <1 is Inelastic)

(b) Since the demand of coke is inelastic, an increase in price of coke causes an increase in the total revenue. This is because the increase in price does not have a large impact on quantity demanded. (c) CPEoD = (% Change in Quantity Demand for Good X) (% Change in Price for Good Y)

Question 4 Tax is imposed on the sale of petrol. In the diagram below, S0 is the supply curve before tax and S1 is the supply curve after tax.

(a) The price after tax : RM10 Decrease in price shift back to the left, and the new equilibrium intersection shows the increase in tax price. (b) A is at price at RM10, B is at price at RM2 and they both intersect quantity at 10. So you have RM8 as the tax paid for 10 units. Therefore 8/10 or 0.8 is the tax per unit. (c) Tax revenue = base X height = 10 X (10-2) = 10 X 8 = RM80 (d) Consumers burden of tax What consumer pays (difference) = RM10-RM5 = RM5 TAX = The difference X the Quantity = RM5 x 10 = RM50 Producers burden of tax What producers pays (difference) = RM5-RM2 =RM3 TAX = The difference X the Quantity = RM3 X 10 = RM30 The tax is made up of RM80 = RM50 (by consumer) and RM30 (by producer) (e) Producers tax revenue = base X height = 10 X 2 = RM 20

Part B Question 1 Indicate whether each of the following statements belong to microeconomics or macroeconomics. (a) Ah Beng allocates his money between food and clothes. Microeconomics (b) The number of workers in the entertainment industry has increased over the last five years. Microeconomics (c) The inflation rate in Cambodia has increased since the country opened up. Macroeconomics (d) The price of vegetables has increased as a result of higher tariff rate. Macroeconomics (e) Demand for fashion accessories will rise since the government had raised the income of civil servants. Macroeconomics

Question 2 Indicate whether each of the statements is positive or normative. (a) Government should eliminate subsidy for petrol and diesel. Normative (b) The elimination of subsidy will decrease the usage of vehicles. Positive (c) An increase in the income of consumers will increase the demand for goods and services. Positive (d) Protectionism policies on imported goods are necessary for all countries and it should be practiced. Normative (e) Higher tariff rate on imported goods will increase the price of imported goods. Positive

Question 3 Elaborate the effects of each of the following events on the equilibrium price and quantity in the Malaysian market. (Draw a diagram for EACH event) (a) A terrible drought wipes out 80 percent of rice production. What would happen to the equilibrium price and quantity of rice?

The change in price, affects the supply curve. By raising the costs of production, it reduces the amount that the company produces and sells at any given price. The demand curve does not change because the higher cost of inputs does not directly affect the amount the buyer wants to buy. The supply curve shifts to the left because, at every price the total amount that buyers are willing to buy and able to sell is reduced.

(b) Suppose consumer incomes rise. What would happen to the equilibrium price and quantity of LCD television sets?

An event that raises quantity demanded at any given price shifts the curve to the right. The equilibrium price and the equilibrium quantity both rises.

(c) Suppose that paper has become cheaper and government is giving tax exemptions on book purchases. How will this affect the market for books?

An increase in supply shifts the supply curve to the right and an increase in demand shifts the demand curve to the right. As a result of these changes there will definitely be an increase in the equilibrium quantity in the market, but whether price is higher or lower will depend on whether the shift in supply or demand is greater and the elasticities of supply and demand. The supply and demand curves have shifted because there has been a change in the determinants of supply and demand. For example, there may have simultaneously been a increase in the level of income and also a decrease in the firm's costs.

Question 4 Using appropriate diagrams, explain the effects the following elasticities have on total revenue when price increases: (a) elastic demand When the demand is elastic (a price elasticity greater than 1), price and total revenue move in the opposite direction.

The demand curve is elastic. In this case, an increase in the price leads to a decrease in quantity demanded and is proportionally larger, so the total revenue decreases.

(b) inelastic demand When demand is inelastic (a price elasticity less than 1), price and total revenue move in the same direction

The demand curve is ineslatic. In this case an increase in the price leads to a decrease in quantity demanded that is proportionally smaller, so the total revenue increases.