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ECONOMICS PART A MUF0061 FINAL EXAMINATION June 2008 Question Booklet

Time Allowed: Reading Time: 10 minutes Writing Time: 2 hours

Structure of the Examination Sections Number of Questions A B C 12 4 2 Number of Questions to be answered 12 4 1 Total Marks of Examination 12 24 24

An Answer Booklet containing the Multiple Choice Answer Sheet, and script books are provided with this booklet. Materials Permitted A scientific calculator is allowed.

Directions to Candidates Answer ALL questions in Section A and B. Each question in Section A is worth 1 mark. The marks for each question in Section B are indicated by the question. Answer ONE question from Section C. Each question is worth 24 marks. Section A must be answered on the Multiple Choice Answer Sheet in the Answer Booklet. Section B AND Section C questions must be answered in the Answer Booklet provided. At the end of the examination place the Answer Booklet inside the back cover of the script book/s

Section A
Specific Instructions for Section A Section A consists of 12 multiple choice questions and is worth 20 per cent of the total marks available for this examination. Choose the response you consider most correctly answers the question or completes the statement and mark your choice on the multiple choice answer sheet in the Answer Booklet according to the instructions on that sheet. A correctly answered question scores 1, an incorrect answer scores 0. No credit will be given for a question if two or more letters are marked for that question. Marks will not be deducted for incorrect answers and you are urged to attempt every question.

Question 1 A situation in which peoples wants exceed their resources is called A. abundance. B. choice. C. allocation. D. scarcity. Question 2 Nick loves to play cricket with his friends on week-ends. If he has a choice of playing cricket and studying for exam, the pleasure he gets from playing cricket is A. the opportunity cost of studying for the exam. B. greater than the value of studying for the exam. C. not comparable to the value of studying for the exam. D. equal to the value of studying for the exam.

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Question 3 More of one good means less of another good when A. the economy is moving from a point inside the Production Possibility Frontier (PPF) to another point also inside the PPF. B. the economy is moving from a point inside the PPF to a point on the PPF. C. the economy is moving from a point on the PPF to another point also on the PPF. D. an outward shift of the PPF occurs. Question 4 According to the law of demand, other things being equal, A. as the price of electronic games increases, the quantity of electronic games demanded will increase. B. as the price of electronic games increases, the quantity of electronic games demanded will decrease. C. as household income rise, the quantity of electronic games demanded will decrease. D. as the demand for electronic games increases, the price of electronic games will fall. Question 5 The generalisation that producers will plan to sell more of a good as its price increases is referred to as A. the law of supply. B. the law of demand. C. a change in supply. D. a change in demand. Question 6 A petrol shortage is a predictable consequence of A. a ceiling price for petrol that is higher than the market equilibrium level. B. a ceiling price for petrol that is lower than the market equilibrium level. C. a ceiling price that is equal to the market equilibrium level. D. shifts in demand for and the supply of petrol in an unregulated competitive market for petrol.

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Question 7 In economics, the short run refers to a time period A. of one year or less. B. too short to enable a firm to start making profit. C. too short to permit an increase or decrease in production. D. long enough for a firm to change the quantity of some inputs but too short for it to vary the quantity of all its inputs. Question 8 The marginal cost curve (MC) intersects the A. ATC and AFC curves at their minimum points. B. AVC and AFC curves at their minimum points. C. ATC and AVC curves at their minimum points. D. ATC, AVC, and AFC curves at their minimum points. Question 9 In a perfectly competitive market, the firms demand curve A. is the same as the market demand curve. B. is normally downward sloping to the right. C. is normally upward sloping to the right. D. is horizontal at the equilibrium market price which equates industry demand and industry supply. Question 10 To maximise profit, a perfectly competitive firm should produce that level of output at which A. marginal revenue is equal to price. B. marginal revenue is equal to marginal cost. C. total revenue is maximized. D. average total cost is minimized. Question 11 Economic profit is A. the difference between total revenue and total explicit costs. B. the difference between total revenue and total opportunity costs. C. synonymous with normal profit. D. composed of normal profit plus abnormal profit.
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Question 12 If both the demand for and supply of Christmas pudding increase during the Christmas season, we could expect A. both the price and quantity of Christmas pudding traded to increase. B. the price of Christmas pudding to fall, but the quantity of Christmas pudding to increase. C. the quantity of Christmas pudding traded to increase but the equilibrium price to either rise or fall, or stay the same. D. the price of Christmas pudding to increase but the quantity traded could either increase or decrease, or stay the same.

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Section B
Specific Instructions for Section B Section B consists of 4 questions and is worth 40 per cent of the total marks available for this examination. The marks allotted to each question are indicated below the question. Answer ALL questions. The answers to these questions must be written in the spaces provided in the Answer Booklet provided.

Question 1 Using a clearly labeled diagram, explain how the equilibrium price and equilibrium quantity are determined under a monopoly. (6 marks) Question 2 What actions can the government take to correct the effects of a negative externality? (6 marks) Question 3 Outline and explain the characteristics of monopolistic competition. (6 marks) Question 4 Discuss any THREE determinants of price elasticity of demand. (6 marks)

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Section C
Specific Instructions for Section C Section C consists of 2 questions and is worth 40 per cent of the total marks available for this examination. Each question is worth 24 marks.

Answer ONE QUESTION ONLY.

Answers to these questions must be written in one or more script books. Begin each answer on a NEW PAGE. Write the question number at the beginning of each answer

Question 1 (24 marks) In the early 2000s, many ageing persons started retiring and moving from suburban houses to beach houses. Assuming all other things to be constant and using appropriate diagrams, analyze the effect of this move on: a. the market for beach houses. b. the market for suburban houses. (12 marks) (12 marks)

Question 2 Using diagrams explain the relationship between the marginal cost (MC) and marginal product (MP). In your answer, clearly discuss how MC is derived from MP. (24 marks)

End of Examination

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