CONFIDENTIAL

BM/APR 2008/ECO162/161/169/104

UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION

COURSE COURSE CODE EXAMINATION TIME

: : : :

MICROECONOMICS ECO162/161/169/104 APRIL 2008 3 HOURS

INSTRUCTIONS TO CANDIDATES 1. This question paper consists of three (3) parts : PART A (20 Questions) PART B (4 Questions) PART C (4 Questions) Answer ALL questions from PART A and PART B and two (2) questions from PART C. i) ii) Answer PART A in the Objective Answer Sheet Answer PART B and PART C in the Answer Booklet. Start each answer on a new page.

2.

3.

Do not bring any material into the examination room unless permission is given by the invigilator. Please check to make sure that this examination pack consists of: i) ii) iii) iv) the Question Paper an Answer Booklet - provided by the Faculty an Objective Answer Sheet - provided by the Faculty a graph paper - provided by the Faculty

4.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 11 printed pages
Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

CONFIDENTIAL PART A 1.

BM/APR 2008/ECO162/161/169/104

The basic difference between microeconomics and macroeconomics is that A. B. C. D. microeconomics studies the behavior of individual consumers whilst macroeconomics studies the behavior of individual firms. microeconomics studies the behavior of individual consumers and firms whilst macroeconomics focuses more on the performance of the whole economy. microeconomics looks at the aggregate economy whilst macroeconomics is concerned with the behavior of individual markets. Microeconomics explores the causes of economic growth whilst macroeconomics studies the causes of unemployment and inflation.

2.

Excessive unemployment of economic resources in a production possibilities curve is indicated by A B. C. D. a movement along the curve. an inward shift of the curve. an outward shift of the curve. a point inside the curve.

3.

The demand curve for good H is downward sloping, so an increase in its price will cause A. B. C. D. an upward movement along the demand curve. a downward movement along the demand curve. a rightward shift of the demand curve. the demand curve to remain unchanged.

4.

Which of the following will reduce total revenue? A. B. C. D. Price Price Price Price increases when demand is elastic. decreases when demand is elastic. increase when demand is inelastic. increases when demand is unitary elastic.

5.

The larger the proportion of income spent on a good A. B. C. D. the less elastic is the good's demand curve. the more elastic is the good's demand curve. the more inelastic is the good's demand curve. no effect on the good's demand curve.

6.

Assume the government has intervened in the market and imposed a floor price on good F and a ceiling price on good G. What would be the effect on the market for good F and good G? A. B. C. D. Surplus in both markets. Shortage in both markets. A surplus in the good F market and an increase in the quantity of good G. A surplus in the good F market and a shortage in good G market.
CONFIDENTIAL

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

BM/APR 2008/ECO162/161/169/104

A family with an income of RM20.000 per annum purchases 100 units of a good per month. The family's income rises to RM25.000 per annum and income elasticity of demand is -2 for this good. What is the new quantity purchased each month?

A. B.
C. D. 8.

50. 75.

125
200

Which of the following is not a feature of Islamic economics? A. B. C. D. All economic decisions are based on the rules and regulations stated in the Qur'an and hadiths. It is religiously value loaded. There is separation between Islamic economics and Islamic religion. Islamic economic is man-centered and not wealth-centered.

9.

The figure below shows a consumer's budget line and indifference curves. Quantity of goodX

Quantity of good Z Point D in figure above is A. B. C. D. 10. where a consumer achieves his/her equilibrium. a point that does not use up all of the consumer's income. unattainable given the consumer's current budget constraint. attainable given the consumer's current budget constraint.

The coefficient of the price elasticity of supply for good H is estimated to be equal to 2.5. A two percent decrease in price would cause A. B. C. D. a5 a5 a5 a5 percent percent percent percent increase in the quantity demanded for good H. increase in the quantity supplied of good H. decrease in the quantity demanded for good H. decrease in the quantity supplied of good H.
CONFIDENTIAL

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

BM/APR 2008/ECO162/161/169/104

11.

One reason for economies of scale is A. B. C. D. increased specialization as the firms builds larger factories. problems in managing large operations. total output increases. the law of diminishing marginal returns.

12.

In a perfectly competitive market A. B. C. D. one firm produces the entire market supply. there are a few sellers in the industry. a firm cannot influence the price of its product. the demand curve is downward sloping.

13.

To maximize profit, a firm should adjust output until A. B. C. D. marginal revenue equals marginal cost. marginal revenue equals average cost. price equals cost. marginal revenue is greater than marginal cost.

14.

If a firm's total cost is RM 50 when 10 units are produced and RM 55 when 11 units are produced, the marginal cost of the 11 th unit is A. B. C. D. RM5 RM1 RM0.50 RM605

15.

The relationship between a series of short run average cost curves (SRACs) and the long run average curve (LRAC) is such that A. B. C. D. all of the SRACs are tangent to the LRAC and lie above it. some of the SRACs are tangent to the LRAC and lie below it. some of the SRACs are tangent to the LRAC and lie above it. the SRACs and the LRAC intersect at every point.

16.

When total product is at its maximum A. B. C. D. the the the the average product of labour is zero. marginal product of labour is zero. average product of labour is negative. average product of labour is declining.

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

CONFIDENTIAL

BM/APR 2008/ECO162/161/169/104

17.

Which of the following is not a characteristic of a monopolistic competitive market? A. B. C. D. Product differentiation. Mutual interdependence among firms. A downward sloping demand curve. A relatively large number of firms.

18.

According to the marginal productivity theory, the price of a factor approximates very closely to A. B. C. D. the the the the value of its marginal revenue product. value of the marginal product of the average firm. marginal productivity of the most efficient firm in the industry. cost of the factor.

19.

Which of the followings are barriers to entry? i. ii. iii. A. B. C. D. a natural monopoly. merging of small firms that enter the market. decentralisation of the firm. i and ii i, ii and iii i and iii ii and iii.

20.

The economic rent will increase, ceteris paribus, whenever the A. B. C. D. supply curve for land increases. price of land increases. demand for land increases. cost of production increases.

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

CONFIDENTIAL

BM/APR 2008/ECO162/161/169/104

PARTB

QUESTION 1

Farmers Dump 'Worthless' Choy Sum By Chan Li Leen Price hits all-time low of 30 sen a kilo IPOH: It looks like farmers are dumping their harvest of choy sum with the price spiralling further down to 30 sen a kilo. Farmer K.S.Ho, who sells sweet potato leaves and lady's fingers is lucky in that he does not plant any choy sum. "Harvesting choy sum needs a lot of manpower, which means it also costs more to harvest," he said. Since two weeks ago, the price of choy sum has plummeted from between RM1.50 and RM2 a kilo to about 50 sen on Wednesday. The prices of other greens are suffering a similar fate due to several factors, including imports from China and a bountiful harvest due to good weather. Farmers have also complained about the increased price of fertilizer from RM75 to RM110 for a 50kg packet, thus adding to their burden. Extract from The Star, Friday 11 January 2008

Answer the following questions. a) List down two (2) reasons why the price of choy sum has decreased tremendously. (2 marks) b) With the aid of a diagram, show how the price of choy sum decreases based on the reasons in part (a)above. (3 marks) Determine the suitable type of pricing policy the government agency will implement to protect these farmers. (1 mark) Explain diagrammatically the pricing policy suggested in part (c) and give two (2) disadvantages of such pricing. (4 marks)

c)

d)

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

CONFIDENTIAL

BM/APR 2008/ECO162/161/169/104

QUESTION 2 The table below shows the quantity demanded for Good L and Good M. Based on the table answer the questions below Price of Good M (RM) 15 20

Qty. demanded for Good L

(units) 100 80 50 20

Qty. demanded for Good M (units) 500 350 200 150

25
30

a)

Define price elasticity of demand and calculate the price elasticity of demand for Good M if the price increases from RM20 to RM25. (3 marks) Calculate the cross elasticity of demand for Goods L if price of Good M decreases from RM25 to RM20. Determine the relationship between the two goods. (2 marks) Assume the income elasticity of demand for Good M is +3.0. What does it mean? (1 mark) The following table shows the costs of an accounting firm with a fixed cost of RM100. Fill in the blanks.

b)

c)

Total product 1 2

Total variable cost (RM)

Total cost (RM)

Average cost (RM)

Marginal cost (RM)

Average variable cost (RM)

90 170
240 300

3 4
5 6 7 3 9 10

370
450 540 650 780 930 (4 marks)

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

CONFIDENTIAL

BM/APR 2008/ECO162/161/169/104

QUESTION 3 The table below shows the production possibility table for rice and tanks. Production Alternatives Tank (thousands) Rice (thousands of tons)

A
0 44

B
2 40

C 4

D 6 20

E . 8 4

F 10
0

32

a)

Define production possibility curve (PPC) and list down three (3) assumptions to construct a PPC. (3 marks) Sketch the production possibilities curve (tanks on the x-axis and rice on the y-axis). Determine the type of opportunity cost faced by the economy. (4 marks) What is the opportunity cost of producing the first two thousands of tanks? (2 marks)

b)

c) d)

Sketch the effect on the PPC curve if the economy decides to transfer more of its existing resources to produce more tanks. (1 mark)

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

CONFIDENTIAL

BM/APR 2008/ECO162/161/169/104

QUESTION 4

The diagram below shows a profit maximizing firm.

RM

16 13
14 * 12 10

MR=AR

20 a) b) c) d) e)

23 25

Quantity

In which market structure is this firm operating in? Why? (2 marks) What is the profit maximizing level of output and price? (2 marks) Is the firm experiencing profit or loss? State the value. (2 marks) Would you consider this firm to be in the short or long run? (1 mark) Should the firm shut down or continue production? Why? (2 marks)

f)

State two (2) reasons to be considered when a firm makes its decision whether to shut down or continue production. (1 mark)

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

CONFIDENTIAL

10

BM/APR 2008/ECO162/161/169/104

PARTC

QUESTION 1 a) Explain briefly the basic economic problems faced by every country. (9 marks) b) Discuss three (3) features to distinguish between a free market economy and a mixed economy. (11 marks)

QUESTION 2 a) Market disequilibrium is a temporary condition in a free market. With the aid of a diagram, discuss how a market could achieve equilibrium. (10 marks) Explain, using appropriate diagrams, the effects on the market for national cars in each of the following cases: i) ii) iii) iv) an increase in consumers' income (2.5 marks) an increase in the price of petrol (2.5 marks) an increase in the cost of inputs used to make cars (2.5 marks) an increase in the subsidy given to car manufacturers (2.5 marks) QUESTION 3 a) Differentiate between short run average cost and long run average cost curves. (8 marks) b) Using a diagram, explain the three (3) stages of production. (12 marks)

b)

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

CONFIDENTIAL

11

BM/APR 2008/ECO162/161/169/104

QUESTION 4 Write short notes on any two (2) of the followings: a) b) c) d) price discrimination (10 marks) comparing demand curve of perfect competition versus oligopoly (10 marks) demand for and supply of labour (10 marks) three principles of Islamic economic system (10 marks)

END OF QUESTION PAPER

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL