CONFIDENTIAL

BM/JAN 201 2/ECOI 62/104

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE MICROECONOMICS

COURSE CODE EC01621104

EXAMINATION JANUARY 2012

TIME 3 HOURS

INSTRUCTIONS TO CANDIDATES
This question paper consists of three (3) parts: PART A (20 Questions)
PART B (4 Questions)
PART C (4 Questions)

2. Answer ALL questions from PART A, PART B and two (2) questions from PART C.

i) Answer PART A in the Objective Answer Sheet.

ii) Answer PART B and Part C in the Answer Booklet. Start each answer on a new
page.

Do not bring any material into the examination room unless permission is given by the
invigilator.

4 Please check to make sure that this examination pack consists of

i) the Question Paper

ii) an Answer Booklet - provided by the Faculty
iii) an Objective Answer Sheet - provided by the Faculty

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

This examination paper consists of 11 printed pages
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CONFIDENTIAL 2 BM/JAN 20121EC01621104

PART A

Which of the following is concern with microeconomics?

A. Price of sugar increases to RM2.30 per kilogram.

B. General price of goods increase.
C. Economic growth of a country is expected to grow less than 5%.
D. Unemployment rate achieved an average of 3.6% in 2010.

2 The following are related to laissez-faire economy system except

A. less government intervention in making economic decisions.

B. producers' objective is to maximize profit.
C. freedom in making choices.
D. limitation in own property.

An increase in the price of new houses is likely to

A. decrease the price of apartment.

B. shift the demand curve for the apartment to the left.
C. increase the demand for apartment.
D. decrease the supply of new houses.

4 If an economist says a good is price elastic, then the price elasticity is

A. equal tol.
B. less than 1.
C. greater than 1.
D. greater than O.

5 The price of hand phone increases by 16% and the quantity demanded decreases
by 19%. This indicate that demand for handphone is

A. perfectly elastic.
B. unitary elastic.
C. elastic.
D. inelastic.

6 An increase in the service tax on Belcom postpaid will shift the

A. supply curve to the right.

B. supply curve to the left.
C. demand curve to the right.
D. demand curve to the left.

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7. If government imposes a ceiling price of sugar below the equilibrium price, then
there will be a

A. surplus of sugar.
B. shortage of sugar.
C. change in variable cost.
D. change in marginal cost.

8. Which of the following statement is true?

A. A price floor is above equilibrium price and causes surplus.

B. A price floor is above equilibrium price and causes shortage.
C. A price floor is below equilibrium price and causes surplus.
D. A price floor is below equilibrium price and causes shortage.

9. Consumer equilibrium is achieved when they choose a combination that will

A. minimize their utility at several income.

B. maximize their utility at several income.
C. minimize their utility at a given income.
D. maximize their utility at a given income.

10. Implicit cost refers to the cost

A. on building rental.
B. of fuel and electricity.
C. of factors of production that is owned by a firm.
D. of factors of production that is not owned by a firm.

11. The law of diminishing marginal return states that

A. the demand for a product will diminish.

B. the more labours are hired, the more amount of fixed input are used.
C. the marginal product will diminish as more variable input are used.
D. the marginal product will increase as more variable input are used.

12. Which of the following statement is correct?

A. Marginal product equals to zero when total product is at maximum.

B. Marginal product equals to marginal revenue.
C. Total product starts to decrease as average product decreases and becomes
negative.
D. Average product increases as total product decreases.

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13. Suppose that fixed cost of 1000 units of output is RM250, then the fixed cost is

A. RMO when output is zero.

B. less than RM250 when output is zero.
C. RM250 when output is 200.
D. RM500 when output is 200.

14. Diseconomies of scale arises primarily because

A. the building rental falls as firm becomes bigger.

B. of specialization of labor.
C. a firm's long run average cost curve is decreasing.
D. of low productivity and higher wages of professionals and specialists.

15. When average fixed cost falls

A. average cost falls.

B. average cost falls until minimum and then it rises.
C. marginal cost falls.
D. marginal cost falls until negative.

16. The demand curve for perfectly competitive market is

A. downward sloping from left to the right.

B. inelastic as marginal revenue is below the average revenue.
C. perfectly elastic as marginal revenue equals to average revenue.
D. perfectly elastic as marginal cost equals to average cost.

17. A condition for effective price discrimination is

A. cost of transportation must be high.

B. elasticity of demand must not be different for separated market.
C. the market must be separated.
D. buyers must have an identical taste.

18. A monopolistic competitive firm is similar to a monopoly firm in terms of its

A. long run equilibrium.

B. short run equilibrium.
C. elasticity of demand.
D. barriers of entry.

19. Mutual interdependence means that each firm

A. faces a perfectly elastic demand for its product.

B. produces an identical product from its rivals.
C. produces a similar but not an identical product from its rivals.
D. must consider the action of its rival.

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20. The marginal revenue product curve for labor is

A. downward sloping.
B. upward sloping.
C. perfectly elastic.
D. perfectly inelastic.

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PART B

QUESTION I

Car Market Remains Vibrant and Demand Still Strong

DESPITE the supply woes faced by Japanese vehicle marques after the earthquake and
tsunami in Japan in March, the outlook for the automotive sector still looks bright. Demand
for new passenger cars remained strong in the first four months of 2011. The Malaysian
Automotive Association (MAA) reported sales of 187,880 passenger cars (a 6.3% year-on-
year growth) from January to April this year. Automotive analysts say the higher sales
volume was driven partly by the introduction of upgraded and new models such as the
Proton Inspira and Ford Fiesta, increased marketing efforts from carmakers, promotion
packages with free vehicle maintenance and extended warranties, and subsidized or low
hire-purchase interest rates. For example, the 1.6-litre Peugeot 308 Turbo presently comes
with a low interest rate of 1.88% (priced at RM118,888 on the road), while Volkswagen
models such as the 1.4-litre Golf TSI are offered with five-year warranty and unlimited
mileage packages.

"This could also be due to car buyers anticipating the likelihood of another interest rate hike
later this year," said an analyst from AmResearch. Proton Holdings Bhd must be happy with
the sales of 58,108 units, or a 13% year-on-year sales growth, in the first four months of this
year, fuelled by demand for its Saga, Persona, Exora and Inspira models. This has resulted
in the national automaker closing the distance on its rival Perusahaan Otomobil Kedua Sdn
Bhd (Perodua), which strangely enough, saw a 6.6% year-on-year dip in sales to 59,440
units in the first four months of this year.

Adapted from The Star, June 7, 2011

a) Explain the law of demand.

(2 marks)

b) List three (3) reasons why there is a higher sales for new passenger cars.
(3 marks)

C) With the aid of diagrams, show the effect of an increase in the price of Proton car on
the demand for Perodua car. State the relationship between these two products.

(5 marks)

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QUESTION 2

a) The following table shows the production of rice and computer in an economy.

Combination Rice Computer Opportunity cost

(kg) (unit)
A 30 0
B 28 1
C 24 2
D 18 3
E 10 4
F 0 5

Calculate the opportunity cost of producing computer.

(2 marks)

ii) Sketch a Production Possibilities Curve (PPC). Indicate point Z to show

inefficient point and point Y to show resource scarcity.
(3 marks)

iii) Using the answer in part (ii), show the changes in PPC to indicate the effect
of improvement in technology in the production of computer.
(1 mark)

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b) The diagram below shows the budget line (BL) and indifference curve (IC) of a
consumer.

Good Y

20

15

10

5 IC

ood X
6 8 12 18

i) Define indifference curve and budget line.

(2 marks)

ii) At which point does the consumer achieve equilibrium? State the quantity of
good X and good Y at the equilibrium.
(2 marks)

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QUESTION 3

Table below shows the price of good K and demand for good L, M and N.

Price of Good K Demand

(RM)
(unit)
Good L Good M Good N
30 40 80 50
40 30 100 40
50 20 120 30
60 10 140 20
70 0 160 10

a) Define cross elasticity of demand.

(1 mark)

b) If the price of good K decreases from RM60 to RM40, calculate the cross elasticity of
demand for good

i) K and L.
(2 marks)

ii) K and M.
(2 marks)

C) State the relationship of good K to good L and M.

(2 marks)

d) Given the income of household increases from RMI,500 to RM2,100, the quantity
demanded for good N decreases from 30 to 10 units. Calculate the income elasticity
of demand for good N. What type of good is good N?
(3 marks)

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QUESTION 4

The diagram below shows the short run equilibrium of a firm.

Cost (RIVI) AC

42
40

30
15

I I
Quantity
20 24 3040

a) In which market structure is this firm operating? Give a reason.

(2 marks)

b) Determine the profit maximizing price and output?

(2 marks)

C) Calculate the amount of profit earned by the firm. Determine the type of profit.

(3 marks)
d) Should the firm close down its operation? Justify your answer.
(2 marks)
e) Name the type of profit earned in the long run.
(1 mark)

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PART C
QUESTION I
a) Explain any three (3) characteristics for Capitalist economic system and Islamic
economic system.
(12 marks)

b) With the aid of diagrams, explain the differences between the demand curve and
marginal revenue curve in perfect competition firm and monopoly firm.
(8 marks)

QUESTION 2
a) With the aid of a diagram, explain how a market achieves equilibrium.
(10 marks)

b) Discuss any four (4) determinants of price elasticity of supply.

(10 marks)

QUESTION 3
a) Using a diagram, explain the three (3) stages of production. State the most efficient
stage of production.
(12 marks)

b) Using a diagram, discuss why short run average cost curve of a firm is U-Shaped.

(8 marks)

QUESTION 4
a) With the aid of diagrams explain three (3) types of short run profit under monopolistic
competition firm.
(12 marks)

b) Explain four (4) types of goods from Islamic perspective.

(8 marks)

END OF QUESTION PAPER

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