CATS UNIVERSITY FOUNDATION
PROGRAMME
PREPARING YOU FOR UNIVERSITY SUCCESS
QUESTION TOTAL MARK FINAL MARK
CEG 0800 AVAILABLE
SECTION A
SUBJECT: ECONOMICS 1 15
PAPER: 1 2 5
DATE: 24 MAY 2019 AM 3 10
TIME ALLOWED: 1.5 HOURS SECTION B
1
2 35
3
TOTAL 65
OVERALL COMMENTS
INSTRUCTIONS MARKER
Read the paper carefully. Before you start work, make sure you
understand all the information.
Use black ink or ball-point pen.
Fill In the box at the top of this page with your CEG Number
There are two sections in this question paper. Answer all questions
from Section A and one question (both parts) from Section B.
Answer all questions in the spaces provided. Extra paper is
available if required. Label extra pages with page numbers and
write your CEG number on each page.
Show all steps in any calculations and state units. Use a maximum
of 2 decimal places for all calculations.
Check your answers if you have time at the end.
MODERATOR
INFORMATION
The maximum mark for this paper is 65.
The marks for each question are shown in brackets - use this as a
guide to how much time spend of each question.
Calculators may be used
Use the data sheet when answering Question 3c &3d.
SECTION A
Q1. In the market for apples, the demand and supply functions are:
QD = 190 – 18P; QS = 58 + 12P
Where price is given in £ per apple pack and quantity is given in thousands
of apple packs per month.
Q1a. Calculate the equilibrium price and quantity of apple packs.
[2 marks]
Q1b. Calculate the consumer spending on apple packs.
[2 marks]
2
Q1c. Calculate the Consumer Surplus in this market.
[4 marks]
Q1d. The government then grants a subsidy of £2 on apple packs, to encourage
their sales.
Calculate the supply function after the subsidy has been granted
[2 marks]
3
Q1e. Calculate the consumer spending on apple packs after the subsidy was
granted on the product.
[2 marks]
Q1f. Calculate the Consumer Surplus in this market after the subsidy has been
granted.
[3 marks]
Total for Question 1: 15 marks
4
Q2a. When the price of cabbage is £1, the quantity demanded for cabbage is
120. The price elasticity of demand (PED) of cabbage is -0.625. What is the
change in total revenue from the sale of cabbage if the price of each
cabbage rose by 80%?
[4 marks]
Q2b. As a result of the price of cabbage increasing by 80% the demand for
potatoes rose by 20%. What is the cross price elasticity of demand for
potatoes related to cabbages?
[1 mark]
Total for Question 2: 5 marks
5
Q3a. Complete the table for the values of TR; AR; MR and MC
Output Price TR: Total AR: MR: Total Marginal
(Q) Revenue Average Marginal cost cost (MC)
revenue revenue
1 50 35
2 45 45
3 40 60
4 35 80
5 30 105
6 25 135
7 20 170
8 15 210
[4 marks]
Q3b. Using the information in the completed table above; identify the profit
maximising level of output for the firm and calculate the supernormal
profit made.
[2 marks]
6
Q3c. Using the diagram (figure 1) on the data sheet; calculate the firm’s
supernormal profit or loss when the firm is maximising profit.
[2 marks]
Q3d. Using the diagram (figure 1) on the data sheet; calculate the firm’s
supernormal profit or loss if the firm decided to operate at the productively
efficient level of output.
[ 2 marks]
Total for Question 3: 10 marks
7
SECTION B
Choose one question to answer only. Answer both parts a. and b. Clearly
state which question you have chosen to answer.
Q1. a) Using an appropriate diagram and economic concepts; explain how
resources are allocated through changes in market prices.
[15 marks]
b) Using an industry of your choice; discuss the methods firms can use
to improve their price elasticity of supply.
[20 marks]
Q2. a) Using an appropriate diagram and economic concepts; explain why
some products are under consumed in the market.
[15 marks]
b) Using examples of your choice; discuss the ability of the
government to increase consumption of products that are under
consumed in the market.
[20 marks]
Q3. a) A monopoly firm decides to maximise revenue rather than profit;
use a diagram to explain what will happen to the firm’s price and
output.
[15 marks]
b) Evaluate the benefits to consumers of increased competition
between firms in an industry of your choice.
[20 marks]
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10
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