CONFIDENTIAL BM/AUG 2022/ECO162/104

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : MICROECONOMICS
COURSE CODE : ECO162
EXAMINATION : AUGUST 2022
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of two (2) parts: PART A (20 Questions)
PART B (4 Questions)

2. Answer ALL questions

3. Do not bring any material into the examination room unless permission is given by the invigilator.

4. Please check to make sure that there are enough number of questions.

5. Answer ALL questions in English.

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

This examination paper consists of 1212 printed pages

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PART A
Multiple-choice Questions

QUESTION 1
Which of the following statements about the use of resources is NOT one of the key
economic problems?
A A firm’s decision to adopt a new technology to increase productivity.
B Producers respond to changing demands and buying habits of consumers.
C Firms to ensure an equal distribution of income among society.
D Firms need to make decision regarding the goods to be produced.
(2 marks)

QUESTION 2
The phase ‘opportunity cost’ which is used frequently in economic concept means
A choices to maximize satisfaction.
B cost of input used in production of one good.
C cost involved when choosing one alternative over another.
D limited resources to satisfy unlimited human wants.
(2 marks)

QUESTION 3
The economic system where is no government intervention in making economic decisions, is
termed a
A mixed economy.
B capitalist economy.
C command economy.
D traditional economy.

(2 marks)

QUESTION 4
Suppose the producer expect the price of chicken to rise next month, the producer is likely to
A incline to sell fewer today.
B sell as many chickens today as they can.
C reduce the supply of chicken next week.
D does not change the supply.

(2 marks)

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QUESTION 5
Assuming Honda Civic and Toyota Camry are substitute goods, an increase in the price of
Honda Civic will
A decrease the demand for Toyota Camry.
B increase the demand for Toyota Camry.
C increase the price of Honda Civic.
D decrease the price of Honda Civic.

(2 marks)

QUESTION 6
Which of the following predictions is NOT made by the law of demand?
A Quantity demanded for good X will increase, resulting in higher prices for Good X.
B Quantity demanded for good X will increase, resulting in declining prices for Good X.
C There is negative relationship between price and quantity demanded.
D The relationship between price and quantity demanded shows by the movement along the
demand curve.

(2 marks)

QUESTION 7
When Proton X70 is facing tougher competition this year due to several new launches of
new SUVs car, the elasticity demand for Proton X70 is likely become
A less elastic.
B more elastic.
C unitary elastic.
D undefined.

(2 marks)

QUESTION 8
If the coefficient of the price elasticity of demand is 0.9, it indicates that demand is
A unitary elastic.
B inelastic.
C elastic.
D perfectly inelastic.
(2 marks)

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QUESTION 9
A 10 percent increase in the quantity of good X demanded results from a 20 percent decline
in its price. The price elasticity of demand for good X is
A 20.0.
B 1.0.
C 0.5.
D 2.0.
(2 marks)

QUESTION 10
If the cross elasticity of demand between product J and K is 0.5, then a 10% increase in the
price of product J would result in
A 10% increase in the quantity demanded of product K.
B 2.5% increase in the quantity demanded of product K.
C 0.5% increase in the quantity demanded of product K.
D 5% increase in the quantity demanded of product K.

(2 marks)

QUESTION 11
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 fall in the future.
D is in equilibrium.

(2 marks)

QUESTION 12
Market equilibrium may not reach equilibrium if there are
A only price ceiling.
B neither price ceiling nor price floor.
C only price floor.
D both price floor and price ceiling.

(2 marks)

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QUESTION 13
The price floor is set _____________ the equilibrium price.
A equal to.
B lower than.
C higher than.
D none of the above.

(2 marks)

QUESTION 14
An increase in population tends to
A increase in both equilibrium price and quantity.
B decrease in both equilibrium price and quantity.
C increase equilibrium price and decrease equilibrium quantity.
D increase equilibrium quantity and decrease equilibrium price.
(2 marks)

QUESTION 15
In the short run, all factors of production are
A fixed.
B variable.
C semi-fixed.
D fixed and variable.
(2 marks)

QUESTION 16
Which of the following is true when the total product of labour is maximized?
A Marginal product is increasing.
B Marginal product is negative.
C Marginal product is zero.
D Average product is increasing.

(2 marks)

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QUESTION 17
Markets which large number of sellers producing identical products, and that are easy to
enter and exit from the industry are
A oligopolistic.
B monopolist.
C perfectly competitive.
D monopolistically competitive.

(2 marks)

QUESTION 18
In which market structure, entry is the most difficult?
A Pure competition.
B Monopolistic competition.
C Oligopoly.
D Pure monopoly.
(2 marks)

QUESTION 19
Entry into an oligopolistic market may be difficult due to
A government regulation.
B the cost of capital required to produce efficiently.
C the amount of advertising expenditures required to secure a profitable share of the market.
D all of the above.
(2 marks)

QUESTION 20
Mutual interdependence means that
A each firm produces a product identical to the products produced by its rivals.
B each firm faces a perfectly elastic demand for its product.
C each firm must consider the reactions of its rivals when it determines its pricing strategy.
D each firm produces a product similar but not identical to the products produced by its rivals.

(2 marks)

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PART B
Short Answer Questions

QUESTION 1
a) The following table below shows the production possibilities combination of two products
in a particular country: computer and television

Combination
A B C D E
Computer (unit) 60 45 30 15 0
Television (unit) 0 10 20 30 40

i) Based on the table above, sketch the production possibilities curve (PPC) for the
country.
(2 marks)
ii) Calculate the opportunity cost for the first 10 units of televisions. State the type of
opportunity cost faced by the country.
(2 marks)
iii) What causes an inefficient point in a PPC.
(1 mark)

b) Given the following information of Good A and Good B.

Price of Quantity Demanded Quantity Demanded Quantity Supplied

Good A (RM) for Good A (units) for Good B (units) for Good A (units)
2 150 100 30
4 120 80 60
6 100 60 90
8 90 50 120
10 80 40 150
12 60 20 180

Based on the table above, answers the following questions.

i) Calculate the price elasticity of demand for Good A if the price of Good A increases
from RM2 to RM6.
(2 marks)
ii) Calculate the price elasticity of supply for Good A if the price of Good A increases from
RM4 to RM8.
(2 marks)

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iii) Calculate the cross elasticity of demand for Good B if the price of Good A decreases
from RM12 to RM10. State the relationship between these two goods.
(3 marks)
iv) State two (2) determinants of price elasticity of supply.
(2 marks)
v) Define the income elasticity of demand.
(1 mark)

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QUESTION 2
The following table shows the demand and supply of ice-cream market.

Price (RM) Quantity Demanded (units) Quantity Supplied (units)

2.50 550 150
3.00 450 250
3.50 350 350
4.00 250 450
4.50 150 550

a) Sketch the market equilibrium of ice-cream market. State the equilibrium price and quantity
of ice-cream.
(3 marks)

b) Assuming the government implements a price control of RM4.00, state the name of the
price control and determine the amount of shortage/surplus.
(2 marks)

c) Show the price control that is implemented by the government in a diagram you have
drawn in a). State two (2) advantages of the price control.
(3 marks)

d) Illustrate in a separate diagram, what happen to equilibrium price and quantity ice-cream
if a recent study claims, a key ingredient found ice-cream, is linked to an increased risk for
cancer.
(3 marks)

e) State two (2) factors that would increase the supply of ice-cream and two (2) factors that
would decrease the demand of ice-cream.
(4 marks)

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QUESTION 3
Given below is a cost schedule of an automobile company operating in Kota Kinabalu.

Total Total Fixed Total Variable Total Cost Average Cost

Product (TP) Cost (TFC) Cost (TVC) (TC) (AC)
Units RM RM RM RM
80 200 4.75
85 200 6
95 200 7.6
105 200 9.2
120 200 11
122 200 12.5
125 200 13.6

Based on the table above, answer the following questions.

a) Complete the table above.

(4 marks)

b) Calculate the average variable cost (AVC) of producing 120 units of output.
(2 marks)

c) Is the firm operating in the short run or long run? Justify your answer.
(2 marks)

d) State one (1) example of fixed input and one (1) example of variable input in this
production.
(2 marks)

e) Define fixed cost.

(1 mark)

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QUESTION 4
Consider the following diagram showing the cost and revenue conditions of a firm.

Price (RM)

(units)

a) Identify the market structure this firm is operating in. Label curve A, B and C.
(4 marks)

b) Determine the profit-maximizing price and quantity of the firm.

(3 marks)

c) Calculate the total profit at equilibrium. State the type of profit or loss the firm earned.
Justify your answer.
(4 marks)

d) Should this firm continue or shut down its operation? Why?

(3 marks)

e) State three (3) characteristics of this firm.

(3 marks)

f) What is the shutdown price for this firm?

(2 marks)

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