CONFIDENTIAL BM/JAN 2013/ECO162/104

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE MICROECONOMICS
COURSE CODE ECO162/104
EXAMINATION JANUARY 2013
TIME 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)

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

i) Answer PART A in the Objective Answer Sheet.

ii) Answer PART B in the Answer Booklet and when necessary in the graph paper.
iii) Answer 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.

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

) the Question Paper

i) an Answer Booklet - provided by the Faculty
ii) an Objective Answer Sheet - provided by the Faculty
v) a Graph Paper - provided by the Faculty

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

This examination paper consists of 10 printed pages
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PART A

1. In order to save cost, the "Milk Industry" should use more labour than machines. This
statement refers to

A. What to produce?
B. How to produce?
C. For whom to produce?
D. None of the above.

2. According to the Islamic economic system, the main objective of the economic
agents is

A. to achieve ukhwah.
B. to get as much profit as possible.
C. to achieve Al- Falah.
D. to produce goods with high demand.

3. The law of supply states that

A. the higher the price, the higher the quantity demanded.

B. the higher the price, the lower the quantity supplied.
C. the lower the price, the lower the quantity supplied.
D. The lower the price, the lower the quantity demanded.

4. Any increase in the quantity demanded of a product due to its price reduction will be
shown by

A. a shift of the demand curve to the right.

B. a shift of the demand curve to the left.
C. a downward movement of a point on the same demand curve.
D. an upward movement of a point on the same demand curve.

5. If the quantity demanded for an item increases due to an increase in the price of
another item, the two items are

A. normal goods.
B. inferior goods.
C. complementary goods.
D. substitute goods.

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6. If the cross price elasticity of demand between product A and B is 2, then a 2%

increase in the price of product A will result in

A. a 1 % increase in quantity of product B demanded.

B. a 20% increase in quantity of product B demanded.
C. a 10% increase in quantity of product B demanded.
D. a 4% increase in quantity of product B demanded.

7. The price of pineapples falls by 5% and quantity demanded increases by 6%. This
means that the demand for pineapples is

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

8. Consumers will pay more tax burden if

A. the elasticity of supply is zero.

B. the elasticity of demand is zero.
C. the elasticity of demand is elastic.
D. the elasticity of supply is inelastic.

9. The slope of an indifference curve shows

A. marginal product.
B. marginal revenue.
C. marginal cost.
D. marginal rate of substitution.

10. Indifference curve is

A. parallel to x-axis.
B. straight line sloping downward.
C. convex to the origin.
D. none of the above.

11. The short run of production should have

A. insufficient time for firms to either enter or leave the industry.

B. the relevance of the law of diminishing returns.
C. the existence of at least one fixed input.
D. all of the above.

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12. When total product is at its maximum,

A. the average product of labour is zero.

B. the marginal product of labour is zero.
C. the average product of labour is negative.
D. the marginal product of labour is negative.

13. All of the statements below are the effects of a firm's total product increase except

A. increase of marginal product.

B. decrease of marginal product.
C. positive marginal product.
D. negative marginal product.

14. The law of diminishing marginal returns states that

A. beyond some point, the extra utility derived from additional units of a product
will yield the consumer smaller.
B. beyond some point, as successive units of one factor is added on to a fixed
amount of another factor, beyond some point, the extra output will decline.
C. the demand for a product is downward sloping.
D. proportionate increase in inputs of all resources will result in less than
proportionate increase in output.

15. Which of the following is most likely to be a fixed cost?

A. Shipping charges.
B. Property insurance premium.
C. Wages for unskilled labour.
D. Expenditure for materials.

16. Instant noodles are sold at most grocery stores in town. Each grocery store owner
can sell instant noodles, with different tastes and packaging from other stores. Thus,
the industry of instant noodles is an example of

A. perfect competition.
B. monopoly.
C. oligopoly.
D. monopolistic competition

17. For a monopolistically competitive firm, the price of its product is

A. always equal to marginal revenue.

B. always less than marginal revenue.
C. always greater than marginal revenue.
D. always equal to the average cost of production

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18. The output produced in monopolistic competition are

A. complementary goods.
B. close substitutes goods.
C. standardized goods.
D. differentiated goods.

19. If a purely competitive firm is confronted with an equilibrium price of RM5.00, its
marginal revenue

A. may be either greater or lesser than RM5.00.

B. will also be RM5.00.
C. will be lesser than RM5.00.
D. will be greater than RM5.00.

20. Which of the following statements about price discrimination is incorrect?

A. The seller has a monopolistic power.

B. The consumers can be segmented into sub-markets.
C. The sub-markets with an inelastic demand will be charged at a higher price.
D. The sub-markets with an elastic demand will be charged at a higher price.

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PARTB

QUESTION 1

a) The following is a set of hypothetical production possibilities for Samsung Galaxy S II

and Samsung Galaxy S III.

Combination - Samsung Samsung Opportunity Cost

Galaxy S II Galaxy S III of Samsung
Galaxy S II
A 30 0
B 28 1
C 24 2
D 18 3
E 10 4
F 0 5

i) Fill in the opportunity cost above.

(2 marks)

ii) Plot the Production Possibilities Curve (PPC) on a graph paper.

(2 marks)

iii) Suppose there is a major technological break-through in the production of

both the Samsung products. Show the new PPC in (b).
(1 mark)

b) For the following two cases, calculate the coefficient for the cross price elasticity of
demand and identify the type of relationship between the two products.

(i) The quantity demanded for product A increases from 50 to 60 units as the
price of product B increases from RM1.00 to RM2.00 per unit.
Coefficients: Relationship:

(ii) The quantity demanded for product X decreases from 3000 to 1800 units as
the price of product Y increases from RM15.00 to RM30.00 per unit.
Coefficients: Relationship:

(5 marks)

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QUESTION 2

The table below shows the quantities of corn demanded and supplied at various prices.

Price Quantity supplied Quantity Surplus/

per ton (RM) (kg) demanded Shortage (ton)
(kg)
80.00 600 1200
90.00 800 1100
100.00 1000 1000
110.00 1200 900

a) Complete the table above by specifying whether there will be a shortage or surplus
and determine each amount.
(4 marks)

b) On a graph paper, draw the demand and supply curves for the corn production.
(2 marks)

c) What is the equilibrium price and quantity of corn?

(1 mark)

d) The government gave farmers aids in the form of fertilizers and insecticide. As a
result, the com yield increased by 300 tons at every price level. Show on the same
graph, the effects of the aids on the market for corn.
(2 marks)

e) What is the new equilibrium price and quantity of corn?

(1 mark)

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QUESTION 3

a) The diagram below shows the equilibrium position of a consumer. The budget line
(BL) and indifference curve (IC) are shown in the diagram.

Product K

i) Which point represents the consumer equilibrium?

(1 mark)

ii) State three (3) characteristics of indifference curve?

(3 marks)

b) Given:
Average Cost = RM15.00
Average Variable Cost = RM 7.00
Total Output = 50 Units
i) Calculate the Total Fixed Cost (TFC), Total Variable Cost (TVC) and Total
Cost (TC).
(3 marks)

ii) Sketch the TFC, TVC and TC curves in a diagram.

(3 marks)

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QUESTION 4

The diagram below refers to a monopolist.

Price (RM)

15

13
12

10

• Quantity (unit)
105 140

a) Label the following curves:

(2 marks)

b) Determine the equilibrium price and quantity.

(2 marks)

c) Calculate the profit or loss at the equilibrium quantity. Identify the type of profit.
(3 marks)

d) List three (3) characteristics of a monopolist.

(3 marks)

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PART C

QUESTION 1

a) Differentiate three (3) characteristics of a Capitalist Economics System from that of

Centrally Planned Economic System.
(12 marks)

b) Explain four (4) determinants of price elasticity of supply.

(8 marks)

QUESTION 2

a) Using diagrams, illustrate the difference between the change in quantity supplied and
change in supply.
(10 marks)

b) Explain four (4) determinants of demand.

(10 marks)

QUESTION 3

a) Discuss three (3) differences between a perfect competition firm and an oligopoly
firm.
(12 marks)

b) Explain why the long run average cost curve of a firm has a U-shape.
(8 marks)

QUESTION 4

a) Explain the short run equilibrium of the monopolistic competition firm. Illustrate with
appropriate diagrams.
(12 marks)

b) Using Marginal Revenue Productivity Theory, explain how wage rate is determined in
a perfectly competitive labour market.
(8 marks)

END OF QUESTION PAPER

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