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BM/APR 2007/ECO415

UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION

COURSE COURSE CODE EXAMINATION TIME

: : : :

ECONOMICS ECO415 APRIL 2007 3 HOURS

INSTRUCTIONS TO CANDIDATES 1. This question paper consists of two (2) parts : PART A (2 Questions) PART B (4 Questions)

2.

Answer ALL questions from PART A and any three (3) questions from PART B 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: i) ii) the Question Paper an Answer Booklet - provided by the Faculty

3.

4.

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

This examination paper consists of 5 printed pages Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

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BM/APR 2007/ECO415

PART A

QUESTION 1

SWITCH TO APPROVED SEEDLINGS Farmers who fail to use approved padi seedlings beginning 2009 will automatically lose their right to enjoy free fertilizer, Agriculture and Agro-based Industries Minister Tan Sri Muhyiddin Yassin said. He said with 2009 being the deadline, it was logical farmers try out the approved seedlings from now. Muhyiddin said the decision to use only approved seedlings grown at some 680,000ha of padi fields in the country was to enable farmers to have better yields. He said the free fertilizers which the farmers enjoyed were worth RM240 for every hectare of padi land. Muhyiddin was speaking to reporters after launching a nationwide campaign to increase padi yield in Selinsing, Semanggol, near here, yesterday. Adapted from The STAR, February 7, 2007

a)

Using market equilibrium, illustrate and explain how price of padi is determined. (4 marks)

b)

Illustrate using a diagram, the effect of the approved seedlings on the market for padi. (4 marks) Explain three (3) factors that may influence the supply of pad other than those mentioned in the article above. (6 marks) The supply of padi is inelastic. Explain three (3) factors why it is so. (6 marks)

c)

d)

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QUESTION 2

INFLATION UNDER CONTROL, COUNTRY ON SOLID GROUND

The economy is on solid ground and doing well on all fronts. Banks are doing extremely well and non-performing loans are low and manageable. Budget deficit and inflation is also under control. This view of the country's economic health was given by the Malaysian Institute of Economic Research executive director Emeritus Professor Dr Mohamed Ariff Mohamed Kareem. He said the economy was performing better than expected and this year should be just as good. "This is because the feared slowdown in the United States and Europe and economies appears to be somewhat muted now. It also might be offset by the domestic sector and the Ninth Malaysia Plan (9MP). We also had an unexpected windfall when the happenings in Thailand caused foreign direct investment (FDI) there to be diverted to neighbouring countries." Mohamed Ariff said more portfolio investment and FDI were also expected to flow into the country due to the strengthening of the ringgit. The lower oil prices were also good for the economy though bad for the government, said Dr Mohamed Ariff. Adapted from NST, February 8, 2007.

a) b)

Define inflation and deficit budget. (4 marks) Suggest three (3) monetary tools that can be used by the government to control inflation. (6 marks) As stated in the article above "... the economy was performing better than expected and this year should be just as good". How do you measure economic performance? Explain. (4 marks) Explain how the expected increase in portfolio investment and FDI will affect the economy. (6 marks)

c)

d)

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PARTB

QUESTION 1 a) b) Explain three (3) factors that influence price elasticity of demand. (6 marks) Explain the differences between changes in quantity demanded and changes in demand. (8 marks) Differentiate between the long-run equilibrium of a perfectly competitive firm and a monopolistic firm. (6 marks)

c)

QUESTION 2 a) With the aid of a diagram, explain ceiling price and its disadvantages. (6 marks) b) In the long run, as a firm gets bigger it experiences lower average cost of production. Explain. (6 marks) "Price rigidity is associated with oligopoly". Explain the statement using a diagram. (8 marks)

c)

QUESTION 3 a) b) Explain four (4) macroeconomic objectives. (8 marks) Explain four (4) problems in calculating national income. (8 marks) c) Explain two (2) effects of a deficit in the balance of payments of a country. (4 marks)

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QUESTION 4 a) Define unemployment and explain four (4) different types of unemployment. (10 marks) b) Define protectionism and explain four (4) arguments for this policy. (10 marks)

END OF QUESTION PAPER

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