Download Cork Institute of Technology Bachelor of Business in Management

Cork Institute of Technology
(Institiuid Teicneolaiochta Chorcai)
Bachelor of Business in Management (ACCS) – Stage 1
(BMNGT_7_Y1)
Summer 2008
EC1010 – Introduction to Micro Economics
(Time: 2 Hours)
External Examiner: Dr. C. Gubbins.
Name:
____________________________
College ID Number: __________________
Internal Examiner:
Ms. A Conway
Module: ________________
Lecturer: ___________________
Instructions – Please read carefully
Sections
A
B
C
Numbers of Questions to be
attempted
20
3
1
Percentage of Total Marks
Available
20
60
20
Section A:
For each question in this section, you should circle the letter opposite the answer that
you consider to be correct. In the event of there appearing to be more than one correct
answer; you should circle the letter opposite the particular answer that you consider to
be most correct. There is no negative marking for incorrect answers in this
section.
Section B:
The answer to each question in this section must be answered in a separate answer
book.
Section C:
This question must be answered in a separate answer book.
Red Ink:
You may not use red ink.
Non-compliance with the above instructions will result in some of your answers not being graded.
Section A
A1.
When the Government chooses to use resources to build a prison, those resources are no
longer available to build a motorway. This illustrates the concept of:
(a)
(b)
(c)
(d)
A2.
Which of the following events will cause the PPF to expand (i.e. move outwards)?
(a)
(b)
(c)
(d)
A3.
An improvement in human capital through education and training;
A discovery of new gas fields off the west coast of Ireland;
New work practices that make labour more efficient;
All of the above.
The Production Possibility frontier tells us:
(a)
(b)
(c)
(d)
A4.
The market mechanism;
Opportunity cost;
Co-operation;
Factor substitution.
The maximum combinations of two products possible given limited
resources;
The desired combination of two products given limited resources;
The maximum amount of a second product possible given the amount of
the first product;
Both (a) and (c) are correct.
Which of the following economic systems is applicable to Ireland?
(a)
(b)
(c)
(d)
Centrally Planned Economy;
Free Enterprise or Capitalist Economy;
Market Economy;
Mixed Economy.
2
A5.
If at the same time as input prices fall the government raises the rate of VAT charged on
a product then:
(a)
(b)
(c)
(d)
A6.
House prices are determined by the inter-action of supply and demand. Any significant
decrease in input costs for this product will, all other things remaining the same:
(a)
(b)
(c)
(d)
A7.
Shift the supply curve to the right;
Decrease the equilibrium price;
Shift the demand curve for houses to the left;
Cause both (a) and (b) above.
The government introduces a new law prohibiting landlords from charging more than
€50 rent per week. This is an example of:
(a)
(b)
(c)
(d)
A8.
Supply will tend to decrease;
Supply will tend to increase;
There will be no affect on the supply as one will cancel out the other;
The supply could either rise or fall depending on which is the greater change.
A price floor;
A price ceiling;
An externality;
None of the above.
Which one of the following will not result in an increase in the demand for A?
(a)
(b)
(c)
(d)
An increase in the price of substitutes;
An increase in income if A is an inferior product;
A increase in income if A is a normal good;
A decrease in the prices of complementary goods.
3
A9.
The price of beef is determined by supply and demand. Any increase in the prices of the
inputs used to make beef, other things being the same, may:
(a)
(b)
(c)
(d)
A10.
Economists define inferior products as:
(a)
(b)
(c)
(d)
A11.
Their respective PEDs are both greater than one;
Their respective YEDs are both equal;
Their respective PEDs and YEDs are negative;
Their CED is negative.
A company knows that its product is demanded in-elastically. To maximize
revenue it should;
(a)
(b)
(c)
(d)
A13.
Goods that are defective;
Goods with a positive income effect;
Goods with a negative income effect;
Goods for which PED is greater than one.
Two goods are defined as being complementary products if:
(a)
(b)
(c)
(d)
A12.
Shift the supply curve for beef to the left;
Increase the equilibrium price;
Shift the demand curve for beef to the left;
Cause both (a) and (b) above.
Increase price;
Aggressively cut price to attract more customers;
Leave the price unchanged as it is impossible to affect total revenue;
None of the above.
The price elasticity of supply is defined as:
(a)
(b)
(c)
(d)
% change in quantity supplied divided by the % change in price;
% change in price divided by the % change in quantity supplied;
% change in quantity supplied divided by the % change in income;
% change in income divided by the % change in quantity supplied.
4
A14.
Economists use the term Marginal Utility (MU) to mean the:
(a)
(b)
(c)
(d)
A15.
When Marginal Cost (MC) is lower then Average Cost (AC) then:
(a)
(b)
(c)
(d)
A16.
AC must be rising;
AC must be falling;
AC is constant;
None of the above as MC and AC are un-connected.
In the short run:
(a)
(b)
(c)
(d)
A17.
Additional satisfaction gained divided by the additional cost of the last unit;
Total satisfaction gained when consuming a given number of units;
The process of comparing marginal units of all goods, which could be purchased.
Additional satisfaction obtained by consuming one extra unit of a good.
A firm’s output is fixed;
A firm’s profit is fixed;
At least one of the firm’s inputs is fixed;
A firm charges a fixed price.
A firm increases output from 2 to 4 units per week. As it does its total costs rise from
€1200 to €1500, while it’s fixed costs remain constant at €800. The firms Marginal Cost
is:
(a)
(b)
(c)
(d)
€100;
€150;
€300;
Zero.
5
A18.
If a country has a comparative advantage in producing wheat, which one of the
following is true?
(a)
(b)
(c)
(d)
A19.
Which one of the following best defines an appreciation in the Euro (€) currency?
(a)
(b)
(c)
(d)
A20.
The country produces wheat more efficiently (using less resources) than other
countries.
The country produces wheat at a lower opportunity cost than other countries.
The country produces wheat more efficiently (using more resources) than other
countries.
The country produces wheat at a higher opportunity cost than other countries.
When €1 buys less foreign currency.
When €1 buys more foreign currency.
When Euro interest rates increase
None of the above.
If in January 2007 €1 = £0.688 St. a good costing £54 St would cost:
(a)
(b)
(c)
(d)
€ 37.15;
€ 83.23;
€ 78.49;
€ 108.00.
6
Section B
B1.
The following equations describe the supply and demand conditions for CIT
Canteen specials:
Qs = 4p – 20
Qd = 160 – 4p
(a)
Complete the following Supply and Demand table.
Price (p) Euro
Qs
Qd
5
10
15
20
25
(5 Marks)
30
35
(b)
Sketch the supply and demand curves for the above.
(6 Marks)
(c)
Determine the equilibrium price and quantity.
(4 Marks)
(d)
Why do Demand curves have a negative downward slope and Supply curves have a
positive upward slope?
(5 Marks)
(Total 20 Marks)
B2.
(a)
Define Price Elasticity of Demand (PED) and outline its formula.
(4 Marks)
(b)
Discuss the relationship between elasticity and total revenue.
(6 Marks)
(c)
Calculate the Cross price elasticity of demand for Pepsi Cola when the price of Coca
Cola increases from €0.80 to €1.00 and the quantity demanded for Pepsi Cola
increases from 80 bottles per week to 100 bottles. Characterise this good. (6 marks)
(d)
If price increases by 5% and the quantity demanded reacts by falling
10%, the demand for that product should be classified into which category of PED?
(4 Marks)
(Total 20 Marks)
7
B3.
The table below sets out the levels of total utility (TU) for each of three products depending
on the quantity purchased and consumed. The table also gives the prices for the 3 products.
The consumer has a budget of €38 to spend and wishes to maximize utility. There is no utility
to be derived by saving any of the budget.
Good A
Quantity
0
1
2
3
4
5
6
7
(a)
Good B
Price = €8
Good C
Price = €4
Price = €2
TU
MU
MU/P
TU
MU
MU/P
TU
MU
MU/P
0
36
68
92
102
108
112
114
-
-
0
30
52
68
80
90
94
96
-
-
0
32
60
80
94
102
108
112
-
-
Complete the table by filling in the values for MU and MU/P for each good;
(12 Marks)
(b)
B4.
Identify from the table, the combination of the 3 products that yield the maximum
level of total utility (TU), calculating as part of your answer the level of maximum TU
(8 Marks)
and the cost of achieving this level of TU;
(Total 20 Marks)
The following table shows values for total cost (TC), variable cost (VC) and
average revenue (AR=P), corresponding to various levels of output:
Output
Total Cost
Variable Cost
Average Revenue
Marginal Cost
ATC
AVC
Total Revenue
Marginal Revenue
0
10
0
-
1
20
10
20
2
35
25
18
3
45
35
17
4
50
40
15
5
51
41
13
6
55
45
12
7
65
55
10
(a)
Complete the table above.
(b)
Determine the profit maximising level of output and the amount of
profit at this level of output.
8
85
75
8
(15 Marks)
(5 Marks)
(Total 20 Marks)
8
Section C
C1.
(a)
Differentiate between Absolute Advantage and Comparative Advantage.
(8 Marks)
C2.
(b)
Explain Comparative Advantage with the aid of an example.
(12 Marks)
(Total 20 Marks)
(a)
Differentiate between a fixed exchange rate system and a flexible exchange rate
system
(8 Marks)
(b)
If at the same time that the Euro is re-valued against the Dollar by 10%, the price of a
good rises by 5% in Euro terms, what does this tell you about the Dollar price for that
good?
(12 Marks)
(Total 20 marks)
C3.
Explain each of the following:
(a)
The difference between Marginal Utility (MU) and Marginal Product (MP). (8 Marks)
(b)
Increasing and Decreasing returns to scale.
(8 Marks)
(c)
List the four factors of production
(4 Marks)
(Total 20 Marks)
9