CONFIDENTIAL — BMIDEC 2014/ECO162/104 UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION COURSE : MICROECONOMICS COURSE CODE ECO162/104 EXAMINATION : DECEMBER 2014 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 iil) Answer PART C in the Answer Booklet. Start each answer on a new page. 3 Do not bring any material into the examination room unless permission is given by the invigitator. 4. Please check to make sure that this examination pack consists of 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 DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO This examination paper consists of 17 printed pages ‘© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 2 BMIDEC 2014/EC0162/104 PARTA 1 Microeconomics is concemed with ‘A. changes in the overall level of economic activities. B. the entire economic system. C. specific unit of the economic system. D. reducing inflation rate and stimulating economic growth. 2. Allthese are related to Islamic economics except A. achieving Al Falah. B. producing halal goods. C. strengthening brotherhood, D. separating economic activities from religion, 3. _ Ifthe price of a product increases, most likely ‘A. the quantity demanded will decrease. B. the quantity supplied will decrease. €. demand will decrease. D. supply will decrease. 4. As the ‘price of good A increases, demand for good B increases but demand for good C decreases. This implies that the relationships between A and B, and between A and C are ‘A. substitute goods and complementary goods. B. substitute goods and luxury goods. C. complementary goods and inferior goods. D. luxury goods and essential goods. 5. If the cross elasticity of demand between meat and fish is 2, then a 2% increase in the price of fish will result in ‘A. 1% increase in quantity of meat demanded B. a 20% increase in quantity of meat demanded. C. a 10% increase in quantity of meat demanded. D. a 4% increase in quantity of meat demanded, 6. If income increases by 10 percent and the quantity demanded for ice cream increases by 5 percent, income elasticity of demand for ice cream is 0.5 pom> © Hak Cipta Universiti Teknologi MARA, CONFIDENTIAL,CONFIDENTIAL 3 BMIDEC 2014/EC0162/104 10. " 12, If there is a shortage of a product, we can conclude that its price A. __ is below the equilibrium price. B. _is above the equilibrium price. C. will fallin the future. D. is in equilibrium, An increase in the sales tax on cigarettes raises the price of cigarettes by shifting the ‘A. demand curve for cigarettes rightward. B. demand curve for cigarettes leftward. C. supply curve for cigarettes rightward. D. supply curve for cigarettes leftward. ‘Which of the following is true at the point where diminishing returns set in? ‘A. both marginal product and marginal cost are maximum. B. both marginal product and marginal cost are minimum. C. marginal product is maximum and marginal cost is minimum. D. marginal product is minimum and marginal cost is maximum. The following statements best characterize an indifference curve, except A. the higher the indifference curve, the higher the level of satisfaction. B. _ indifference curve is convex to the origin due to increasing opportunity cost. C. _ indifference curve is negatively sloped. D. indifference curve cannot intersect another indifference curve, The distinguishing feature of the short run is that, ‘A. input prices are variable. B. at least one input is fixed. C. the level of output is fixed D. __ the amount of all resources can be varied. Which of the following statements is true from the Islamic perspective? interest is considered as a reward in Islamic economics. profit maximization is the main and only objective of Muslim producers. producers have to take care of their workers’ welfare. there is a separation between the world and the hereafter. pom> © Hak Cipta Universit Teknologi MARA, CONFIDENTIALCONFIDENTIAL, 4 BMIDEC 2014/EC0162/104 Questions 13 and 14 are based on the following table: 13. 14. 15. 16. 17, Total product (units) Total cost (TC) 0 70 1 120 2 190 3 280 The amount of total fixed cost is A -RM70 B. RM120 Cc. — RM300 D. —- RM460 The marginal cost of the 3” unit of output is A 70 B90 Cc. 130 D. 190 Which of the following is not a characteristic of oligopoly? A. mutual interdependence among firms. B. afew large firms C. —aperfectly elastic demand curve. D. differentiated products. The price of mandarin oranges is RM5.50 per kilogram, To maximize profit, a perfectly competitive firm must adjust production until the marginal cost of mandarin oranges is RM5.50 make sure the total revenue is maximized. charge a higher price to get maximum proft. Produces the mandarin oranges up to a point whereby average variable cost equals average revenue. vom> The long-run equilibrium position of a monopolistically competitive firm is where average cost is A. attheir maximum point. B. at their minimum point. C. increasing, D. decreasing. (© Hak Cipta Universiti Teknologi MARA, CONFIDENTIAL,CONFIDENTIAL 5 BMIDEC 2014/EC0162/104 18, Which of the following is true regarding the similarities and differences between monopolistic competition and monopoly? ‘A. a monopolist makes economic profits in the long run while a monopolistic. competitor makes zero economic profits in the long run. B. a monopolist faces a downward-sloping demand curve while a monopolistic competitor faces an elastic demand curve. ©. a monopolist charges a price above marginal cost while a monopolistic competitor charges a price equal to marginal cost. D. both the monopolist and the monopolistic competitor operate at the efficient scale. 19. The labor market is said to be in equilibrium if marginal revenue product of labor is equal to ‘A. marginal product of labor. B. demand for labor. C. total factor cost of labor. D. wage rate. 20. The marginal revenue product of labor curve is A. perfectly elastic. B. perfectly inelastic. C. downward sloping, D. upward slopping. (© Hak Cipta Universit Teknologi MARA, CONFIDENTIAL,CONFIDENTIAL 6 BMIDEC 2014/EC0162/104 PART B QUESTION 1 The table below shows a set of hypothetical production possibilities for a nation. ‘Combination Furniture (‘000 units) | Fruits (‘000 kg) A 0 ~ 400 B 20 20 Cc 40 70 D 60 40 E 80. 0 a) _ Byusing a graph paper, plot these production possibilities. (3 marks) b) Calculate the opportunity cost of i) producing 40,000 units of furniture. il) producing 70,000 kg of fruits. (2 marks) ©) __Label point M which lies inside the curve. Is this an inefficient point? Why? (1.5 marks) 4) Label point G which lies outside the curve. State the significance of this point (1 mark) ©) State two (2) factors that can shift the production possibilities curve. (2 marks) (© Hak Cipta Universit Teknolog! MARA, CONFIDENTIAL,CONFIDENTIAL, 7 BMIDEC 2014/EC0162/104 QUESTION 2 a) b) The following are hypothetical demand and supply schedules for rambutan at Batu Anam. Price ‘Quantity demanded (kg) | Quantity supplied (kg) 3 400 100 4 350 200 5 300 300 6 250 400 7 200 500 Based on the above table, answer the following questions: i) Plot the demand and supply curves for rambutan at Batu Anam on a graph paper. (3 marks) ii) Determine the equilibrium price and quantity of rambutan. (1 mark) iil) Calculate the price elasticity of demand for rambutan when price decreases from RM5.00 to RM3.00. Comment on the elasticity value. (2 marks) From the data given, answer the following questions. Marginal Worker Total Product | Average Product | preduet 0 0 1 40 _ 2 90 3 126 4 150 5. 165 6 174 7 168 i) Complete the above table. (2 marks) ii) Diminishing return sets in with the addition of worker. (1 mark) iii) At what stage of production will a rational producer choose to produce? (1 mark) (© Hak Cipta Universit Teknologi MARA CONFIDENTIALCONFIDENTIAL, QUESTION 3 BMIDEC 2014/EC0162/104 a) The table below shows the average cost (AC) for a purely competitive firm. The average revenue (AR) is constant at RMS per unit and the firm's total fixed cost (TFC) is RM4. Output (units) Total Revenue (RM) Average Cost | Total Cost | Marginal (RM) (RM) Cost (RM) 8 5.5 4 3.5 3.8 so] on] a }os)ro| 45 65 i) Fill in the values for total revenue (TR), total cost (TC) and marginal cost (MC) in the columns provided. ii) Determine the profit maximizing output. (3 marks) (1 mark) ili) If average revenue falls to RM3 per unit, calculate the firm's new profit or loss at equilibrium. (2 marks) b) A firm operates in a perfectly competitive labour market and produces a product which it charges RM10.00 per unit. |] Marginal Revenue | Number of workers Total Output pioaiet 41 100 2 220 3 380 — 4 520 i) Complete the table. (1 mark) li) __ If the wage rate is RM1200, how many workers should be the firms employ to minimize costs? (1 mark) iil) Sketch a diagram to show the equilibrium position of this firm. (© Hak Cipta Universiti Teknologi MARA (2 marks) CONFIDENTIAL,CONFIDENTIAL, 9 BMIDEC 2014/EC0162/104 QUESTION 4 The following graph shows the short run equilibrium position of Maju Delima Co Price of M Mc AC Quantity of M MR a) __Inwhich type of market structure is this firm operating? (1 mark) b) The equilibrium output for good X is units and the equilibrium price of good X is RM (1 mark) ©) __ State the two (2) assumptions of this model. (2 marks) d) Calculate the amount of profit / loss the firm is making at equilibrium. (2 marks) e) This firm earns profit because (2 marks) f) State two (2) characteristics of this market structure (2 marks) © Hak Cipta Universiti Teknolog! MARA CONFIDENTIALCONFIDENTIAL, 10 BMIDEC 2014/EC0162/104 PARTC QUESTION 1 a) Discuss any two (2) features to distinguish between a planned economic system and a free market economic system. (8 marks) b) Using appropriate diagrams, explain the effects on the market of imported hybrid cars in each of the following cases. i) The price of petrol increases. (4 marks) ji) Government lowers the tax of imported hybrid cars. (4 marks) iii) The price of national cars decreases. (4 marks) QUESTION 2 a) Differentiate between changes in quantity supplied and changes in supply using diagrams. (10 marks) b) With the aid of diagrams, explain four (4) degrees of price elasticity of demand, (10 marks) QUESTION 3 a) Explain four (4) determinants of demand. (10 marks) b) Discuss the consumer equilibrium using the indifference curve and budget line approach. (10 marks) (© Hak Cipta Universiti Teknolog! MARA CONFIDENTIALCONFIDENTIAL "1 BMIDEC 2014/EC0162/104 QUESTION 4 a) With the aid of a diagram explain the three stages of production (10 marks) b) Explain the long-run equilibrium of a perfectly competitive firm with an appropriate diagram. (10 marks) END OF QUESTION PAPER (© Hak Cipta Universiti Teknologi MARA, CONFIDENTIAL