CONFIDENTIAL BA/FEB 2023/ECO162/104

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE MICROECONOMICS
COURSE CODE ECO162/104
EXAMINATION FEBRUARY 2023
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 from ALL two (2) parts:

i. Answer PART A in the Objective Answer Sheet.
ii. Answer PART B 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.

Please check to make sure that this examination pack consists of:
i. the Question Paper
ii. an Answer Booklet -provided by the Faculty
iii. an Objective Answer Sheet - provided by the Faculty

5. Answer ALL questions in English.

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

This examination paper consists of 11 printed pages

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PART A
Multiple-choice Questions

QUESTION 1

The most fundamental economic problem is

A security.
B the fact that Malaysia buys more goods from foreigners than we sell to foreigners.
C wealth.
D scarcity.
(2 marks)

QUESTION 2

Which of the following is the microeconomic issue?

A the reasons for a decline in average prices.
B the reasons why Ali buys pineapple juice.
C the cause of why total employment may decrease.
D the effect of the government budget deficit on inflation.
(2 marks)

QUESTION 3
When one decision is made, the next best alternative not selected is called
A economic resource.
B opportunity cost.
C scarcity.
D production.

(2 marks)

QUESTION 4

The law of demand shows a relation between the .

A quantity demanded and quantity supplied of a commodity.
B income and quantity demanded of the commodity.
C price and quantity demanded of a commodity.
D income and price of a commodity.

(2 marks)

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QUESTION 5
If the market supply curve for a product shift rightwards, what is the best possible
explanation for this shift?
A Increase in the price of raw materials.
B Introduction of a tax on that product by the government.
C Introduction of a new technique that makes the production of that commodity cheaper.
D An advertising campaign that is successful in promoting the product.

(2 marks)

QUESTION 6
Which of the following is not a determinant of the demand for good J?
A The income of consumers who buy good J.
B The cost of labour used to produce good J.
C The price of good Y, a complement to J.
D The number of buyers of good J.

(2 marks)

QUESTION 7

Assume that there are two commodities. A positive coefficient of cross-elasticity of demand
indicates that the two commodities are .
A essential goods.
B complementary goods.
C substitute goods.
D inferior goods.

(2 marks)

QUESTION 8

Price elasticity of demand is influenced by the following, except

A improvement in production method.
B time period.
C habit of the buyer.
D level of income.
(2 marks)

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QUESTION 9

If a 7% decrease in the price of Good W results in a decrease of 5% in the quantity supplied

of Good W, then it can be concluded that the supply is
A elastic.
B inelastic.
C unitary elastic.
D infinite.
(2 marks)

QUESTION 10

If the price elasticity of supply for a leather purse is 0.65 and the price increases by 3%, then
the quantity supplied for the leather purse will
A increase by 1.95%.
B decrease by 1.95%.
C increase by 0.217%.
D decrease by 0.217%.

(2 marks)

QUESTION 11

A sales tax on cigarettes imposed by the government will make the supply curve shift
and the price to .
A rightwards; increase.
B rightwards; decrease.
C leftwards; increase.
D leftwards; decrease.

(2 marks)

QUESTION 12

Suppose there is a shortage of football match tickets, we can predict that

A the price of football match tickets has dropped.
B the quantity of football match tickets sold and purchased are the same.
C the price of football match tickets will rise.
D the quantity demanded of football match tickets is less than the quantity supplied.

(2 marks)

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QUESTION 13
Assume that the equilibrium price for a good is RM5.00. If government set up RM10.00 as
the new price, then
A a shortage will happen and the price remains at RM5.00.
B a surplus will happen and the price remains at RM5.00.
C a shortage will happen and the price rises toward RM 10.00.
D a surplus will happen and the price rises toward RM10.00.

(2 marks)

QUESTION 14

Hoarding is an activity that tends to occur when

A price is set higher than the equilibrium price.
B the price ceiling is set by the government.
C the price floor is set by the government.
D no price regulation is set by the market.
(2 marks)

QUESTION 15

The short run is a time period in which

A all factors of production are fixed.
B the total output is fixed.
C at least one input is fixed.
D all factors of production are variable.
(2 marks)

QUESTION 16

Which of the following items is an implicit cost to a firm?

A Utility bills.
B The time during the weekend spent by the owner on his or her firm.
C Cost of hiring an external trainer.
D Total fixed cost.

(2 marks)

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QUESTION 17

Which of the following is a characteristic of perfect competition?

A Barrier to entry.
B Produces homogenous products.
C Price maker.
D One seller in the whole industry.
(2 marks)

QUESTION 18

Which of the following conditions is necessary for a monopolist to practice effective price
discrimination?
A Produce standardized products.
B May have different price elasticity of demand.
C Must be in perfect market.
D The demand curve should be horizontal.
(2 marks)

QUESTION 19

The demand curve of monopolistic competition is due to the existence of

A more elastic; product differentiation.

B more elastic; homogenous products.
C less elastic; complementary goods.
D less elastic; advertisement expenditure.
(2 marks)

QUESTION 20

According to the assumption of the kinked demand curve, when one oligopolistic firm
increases its price, other oligopolistic firms will
A increase their prices as well.
B not follow but maintain the same prices as before.
C increase advertising expenditures.
D exit from the industry.

(2 marks)

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PARTB
Short Answer Questions

QUESTION 1

The following diagram shows the production possibilities curve of a hypothetical country at a
given time.

20 7S 80 90 WO
Torts of steel

a) Based on the diagram above, answer the following questions:

i) Calculate the opportunity cost of producing the first 45 tons of wheat.

(2 marks)
ii) Describe what point G indicates.
(2 marks)
iii) What type of opportunity cost is the economy experiencing.
(1 mark)

b) The following table shows the market demand and supply schedules for chicken in town
A per month.

Price (RM/kg) Market Demand (kg) Market Supply (kg)

8.00 16000 2000
8.50 14000 4000
9.00 12000 7000
9.50 10000 10000
10.00 8000 13000
10.50 6000 15000

i) Calculate the price elasticity of demand when the price of chicken increases from
RM8.00 to RM9.50. State the degree of price elasticity of demand.
(2 marks)

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ii) Is the supply of chicken elastic or inelastic when price of chicken increases from RM8.50
to RM10.00. Show the calculation.
(2 marks)

iii) Explain three (3) factors that determine the price elasticity of supply for chicken.

(3 marks)

iv) The demand of good W increases from 100 to 200 when the price of chicken increase from
RM9.00 to RM10.00. Calculate the cross-elasticity of demand and state the relationship
between chicken and good W.
(2 marks)

v) Assume that the income elasticity of good H is -2.5. What does it mean?
(1 mark)

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QUESTION 2

The table below shows the market demand and supply schedules for avocado juice in
Indonesia.

Price (RM/unit) Quantity Demanded (Unit) Quantity Supplied (Unit)

10 5,000 500
20 4,200 1,000
30 3,100 1,600
40 2,000 2,000
50 1,500 3,200
60 500 4,400

a) Sketch the market equilibrium of avocado juice market. State the equilibrium price
and quantity of avocado juice.
(3 marks)

b) What will happen if the government fixed the price of avocado juice at RM30? State the
price control and determine how much its shortage or 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) disadvantages of the price control.
(3 marks)

d) In a separate diagram, show and explain the effects of an increase in technology on the
production of avocado juice.
(3 marks)

e) State two (2) factors that would increase the supply of avocado juice and two (2) factors
that would increase the demand of avocado juice.
(4 marks)

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QUESTION 3

The following is the production and cost schedule of a firm in the short run.

Labour Total Cost Average Marginal Average Total Marginal

Cost Cost Variable Product Product
(RM) (RM) (RM) Cost (RM) (unit) (unit)
0 100 - - - 0 -
1 170 6
2 220 13
3 260 22
4 310 29
5 370 34

a) Complete the above table production and cost schedule.

(4 marks)

b) In one diagram, show the relationship between average cost, average variable cost and
marginal cost.
(2 marks)

c) How much is the firm's average fixed cost (AFC) at 22 units output level?
(2 marks)

d) At what quantity of labour usage does the law of diminishing returns start to set in? Justify
your answer.
(2 marks)

e) State two (2) sources of economies of scale.

(1 mark)

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QUESTION 4
Table below shows the long run data for a company known as Dreamerz Bhd. The cost,
price and quantity of Good K produced by Dreamerz Bhd are given below.

Price Quantity Total Total Marginal Average Marginal

(RM) demanded Cost Revenue Revenue Cost Cost
(Units) (RM) (RM) (RM) (RM) (RM)
12 0 10
11 1 14
10 2 16
9 3 23
8 4 30
7 5 48
6 6 60
5 7 75

a) Calculate the firm's total revenue, marginal revenue, marginal cost and average cost.

(4 marks)
b) Determine the equilibrium price and quantity of the firm.
(3 marks)

c) At the equilibrium output, state the amount of profit made by the firm. Name the type of
profit the firm is making.
(4 marks)

d) In what type of market structure is the above firm operating? State two (2) characteristics
of this firm.
(3 marks)

e) Draw a diagram to show the firm's long run equilibrium. Label the output level, price level
and shade the area of profit earned.
(3 marks)

f) What is meant by mutual interdependence?

(2 marks)

END OF QUESTION PAPER

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