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BM/APR 2011/ECO120/108

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE

PRINCIPLES OF ECONOMICS

COURSE CODE

ECO120/108

EXAMINATION

APRIL 2011

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 in PART A and PART B, and two (2) questions from PART C.
i)
ii)

Answer PART A in the Objective Answer Sheet.

Answer PART B and 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
invigilator.

4.

Please check to make sure that this examination pack consists of:
i)
ii)
iii)
iv)

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 10 printed pages
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BM/APR 2011/EC0120/108

PART A

1.

Economics is the study of

A.
B.
C.
D.

2.

Which of the following is not an opportunity cost?

A.
B.
C.
D.

3.

a movement along the production possibilities curve.

an outward shift in production possibilities curve.
an inward shift in production possibilities curve.
a movement inside the production possibilities curve.

what, how and why to produce.

what ,when and why to produce.
what, how and for whom to produce.
what, when and for whom to produce.

If the price of a product increases, most likely

A.
B.
C.
D.

6.

I study, I must give up going to the football game.

I buy a computer, I must do without a 35" television.
I spend now, it means I will spend more in the future.
I spend more on clothes, I must spend less on food.

The basic economic problems are

A.
B.
C.
D.

5.

If
If
If
If

Economic growth is depicted by

A.
B.
C.
D.

4.

how society manages its scarce resources.

how to fully satisfy our limited wants.
how to reduce our wants until we are satisfied.
how society manages its unlimited resources.

the quantity supplied will increase.

supply will increase.
demand will decrease.
quantity demanded will increase.

Which of the following will not cause a movement along the supply curve?
A.
B.
C.
D.

Changes in sellers' expectations.

Increases in taxes per unit of output.
Advances in technology.
All of the above.

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7.

negative and therefore K is an inferior good

positive and therefore K is luxury good.
less than 1 and therefore supply is inelastic.
more than 1 and therefore supply is elastic.

Cyclical unemployment exists because

A.
B.
C.
D.

12.

price elastic.
price inelastic.
perfectly elastic.
perfectly inelastic.

Suppose that the price of Product K rises by 10 percent and the quantity supplied
increases by 8 percent. The coefficient of price elasticity of supply for good K is
A.
B.
C.
D.

11.

a lower equilibrium quantity.

a higher equilibrium quantity.
a lower equilibrium price.
a higher equilibrium price

In general, a flatter demand curve is more likely to be

A.
B.
C.
D.

10.

substitutes.
complements.
normal goods
Inferior goods.

A leftward shift in a demand curve and an equivalent leftward shift in a supply

curve both result in
A.
B.
C.
D.

9.

BM/APR 2011/ECO120/108

If an increase in the price of blue jeans leads to an increase in the demand for tennis
shoes, then blue jeans and tennis shoes are
A.
B.
C.
D.

8.

some workers have lost their jobs during a recession.

some workers lost their jobs due to seasonal factors.
some workers quit their job to look for another job.
some workers lack marketable job skills.

As output expands,
A.
B.
C.
D.

declines.

average fixed cost.

average variable cost.
average total cost.
marginal cost.

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13.

income approach.
expenditure approach.
product approach.
investment approach.

Which of the following is a macroeconomic statement?

A.
B.
C.
D.

18.

used goods sold in the current time period.

foreign produced goods.
intermediate as well as final goods.
all of the above.

National income can be calculated using all of the following methods except
A.
B.
C.
D.

17.

monopolistic competitors.
oligopolists.
perfect competitors.
monopolists.

Gross domestic product (GDP) does not include

A.
B.
C.
D.

16.

Many firms and a homogeneous product.

Few firms and differentiated products.
Few firms and a homogeneous product.
Many firms and differentiated products.

Mutual interdependence applies to actions of

A.
B.
C.
D.

15.

BM/APR 2011/ECO120/108

Which of the following is a characteristic of the monopolistic competition market

structure?
A.
B.
C.
D.

14.

The price of petrol is expected to increase in December 2010.

The Gross Domestic Product of Malaysia falls due to global recession.
Local automotive sales decline by 8% last year.
Allocation for scholarship will be increased due to inflation.

Gross Domestic Product (GDP) measured in terms of the price of the base year is
A.
B.
C.
D.

nominal GDP.
current GDP.
real GDP.
base GDP.

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19.

BM/APR 2011/ECO120/108

Cost-push inflation in our country may occur when

A.
B.
C.
D.

20.

aggregate demand increases faster than aggregate supply.

general price level increases continuously.
price of resources increase.
neighboring countries have inflation

Which of the following policies is inappropriate to correct a balance of payments

deficit?
A.
B.
C.
D.

Encouraging the import of capital.

Discouraging the import of goods.
Appreciation of the currency.
Imposition of foreign exchange control.

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BM/APR 2011/ECO120/108

PARTB

QUESTION 1

The following table shows the individual demand and supply schedules of oranges in a
market.

Price (RM/kg)
2
3
4
5
6

Quantity demanded
(kg)
Zetty Shima Aiman
15
25
25
12
20
23
10
17.
18
8
12
15
2
3
5

Quantity supplied
(kg)
Shop 1
Shop 2
12
3
20
10
25
20
30
30
35
40

a)

Based on the information provided, plot the market demand and supply curves for
oranges.
(3 marks)

b)

Determine the market equilibrium price and quantity for oranges.

(1 mark)

c)

Due to health report saying that eating oranges can improve a person's skin texture
and immune system, the demand for oranges increases by 5 kg at every price levels.
Draw the new demand curve in diagram 1(a) to show the changes. State the new
equilibrium price and quantity.
(3 marks)

d)

Suppose the government is imposing a price control of RM5,

i)

what is the legal price called?

(1 mark)

ii)

determine whether there will be a surplus or shortage in the market.

(1 mark)

iii)

calculate the amount of surplus or shortage.

(1 mark)

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BM/APR 2011/ECO120/108

QUESTION 2
Below is the cost schedule for producing chocolate cake.
Chocolate
cake
(unit)
0
1
2
3
4
5
6

a)

Total
Variable
Cost

Total
Cost

Marginal
Cost

Average
Variable
Cost

Average
Cost

65

165

Average
Fixed
Cost

100
65
84
114
137
162
189

19
23
27

Complete the table above.

(5 marks)

b)

What is the total fixed cost for the firm?

(1 mark)

c)

Without scale, sketch the average cost, average variable cost, average fixed cost
and marginal cost.
(2 marks)

d)

Define the law of diminishing returns.

(2 marks)

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BM/APR 2011/ECO120/108

QUESTION 3
Consider the following diagram showing the cost and revenue conditions of a firm.
RM
ii

^^_1_

bU
58

L^^

45
35

100

a)

150

Quantity of output

Identify the market structure the firm is operating in.

(1 mark)

b)

Label g, h, i and j .
(2 marks)

c)

What is the shut down price for the firm?

d)

Determine the amount of profit at equilibrium. State the type of profit.

e)

Based on (d), should the firm continue or shut down its operation? Why?

f)

List two (2) characteristics of this market structure.

(1 mark)

(3 marks)

(2 marks)

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BM/APR 2011/ECO120/108

QUESTION 4
Table below shows national income data for a country for the year 2010.

Items
Private investment
Transfer payment
Public expenditure
Exports
Indirect taxes
Public investment
Private consumption
Imports
Changes in stock
Subsidies
Capital consumption
Net income earned abroad
Social security contribution
Employee provident fund

a)

RM Million
230
100
350
170
120
320
380
190
-10
80
170
200
125
230

Compute the following:

i)

Gross domestic product at market price

(4 marks)

ii)

National income
(3 marks)

iii)

Personal income
(1 mark)

b)

Compute the real rate of economic growth between 2008 and 2009 given the real
GNP in 2008 and 2009 as RM94 million and RM102 million respectively.
(2 marks)

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BM/APR 2011/ECO120/108

PART C

QUESTION 1
a)

Explain with the aid of a diagram the concept of scarcity, choice and opportunity cost
using the production possibilities curve.
(10 marks)

b)

Define law of demand. Briefly explain the differences between change in quantity
demanded and change in demand.
(10 marks)
QUESTION 2
a)

Explain using diagram the concept of profit maximization using the marginal
approach.
(6 marks)

b)

Briefly explain the kinked demand curve.

(10 marks)

c)

Briefly explain any two(2) characteristics of monopoly.

(4 marks)

QUESTION 3
a)
b)

c)

Briefly explain any three (3) macroeconomic objectives.

(6 marks)
Differentiate between Gross Domestic Product (GDP) and Gross National Product
(GNP).
(4 marks)
Define inflation. Explain how fiscal policy is used to overcome inflation.
(10 marks)

QUESTION 4
a)

Define international trade and explain any four (4) gains from international trade.
(10 marks)

b)

Explain protectectionism and four (4) tools used for this policy.
(10 marks)
END OF QUESTION PAPER

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