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BM/APR 2009/ECO120/108

UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION

COURSE COURSE CODE EXAMINATION TIME

PRINCIPLES OF ECONOMICS ECO120/108 APRIL 2009 3 HOURS

INSTRUCTIONS TO CANDIDATES 1. This question paper consists of three (3) parts : PART A (20 Questions) PART B (5 Questions) PART C (4 Questions) Answer ALL questions from 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.

2.

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) 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

4.

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

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PART A

1.

Which of the following decisions must be made by all economies? i) ii) iii) iv) v) vi) A. B. C. D. How much to produce? When to produce? What to produce? Who will produce? For whom to produce? How to produce? i, ii, iii and iv. ii, iii, iv and v. i, iii, iv and vi. i, iii, v and vi.

2.

Education and training that improve the skill of the labor force are represented on the production possibilities curve by a (an) A. B. C. D. movement along the curve. inward shift of the curve. outward shift of the curve. movement toward the curve from an exterior point.

3.

Private ownership of resources and the use of price mechanism to solve the basic economic problem are the characteristics of A. B. C. D. capitalism. the Command Economy. mixed Economy. socialism.

4.

Suppose you like having strawberries with vanilla ice-cream. Assuming other things are constant, you notice that the price of strawberries is higher. How would your demand for vanilla ice-cream be affected? A. B. C. D. It would decrease. It would increase. It would be unaffected. There is insufficient information given to answer the question.

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5.

If demand is unitary elastic, we would expect quantity demanded to fall by , if there is 25 % increase in the price. A. B. C. 30 % 25 % 20 %

D.
6.

15%

If there are a lot of substitutes available for a product, demand for that product is likely to be A. B. C. D. fairly inelastic. very elastic. perfectly elastic. unit elastic.

7.

Competitive firms are assumed to A. B. C. D. have demand curves that are perfectly inelastic. attain its equilibrium where marginal cost is minimized. advertise in order to increase their market shares. be price takers.

8.

Firms which sell differentiated products are A. B. C. D. monopolist. monopsonist. in perfect competition. in monopolistic competition.

9.

Marginal cost means A. B. C. D. the the the the marginal increment to profitability when price is constant. value of all resources used in a production process. amount of total cost rises when output rises by one unit. amount of fixed cost rises when output rises by one unit.

10.

When a factory is operating in the short run, A. B. C. D. total cost and variable cost are usually the same. average fixed cost rises as output increases. it cannot adjust the quantity of fixed inputs. it cannot alter variable costs.

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11.

Which of the following is a leakage? A. B. C. D. Expenditure by a government entity. Imports of machineries. Investment outside the country. Rental expenditure by a company.

12.

Final goods and services are A. B. C. D. goods and services purchased by the ultimate users. the total value of goods and services produced in an election year. cars produced by Volvo and General Motors. any input and output.

13.

Which classification of money supply can be used as a medium of exchange directly? A. B. C. D. M1 M2 M3 M1 and M2

14.

M2 is defined as A. B. C. D. the the the the sum sum sum sum of of of of M1 and saving accounts. M1 and all types of deposits. M1 and narrow quasi money. M1 and broad quasi money.

15.

Which of the following would not lead to demand-pull inflation? A. B. C. D. Increase Increase Increase Increase in government spending. in investment. in money supply. in the price of raw materials.

16.

Cost-push inflation occurs when the A. B. C. D. aggregate fixed. aggregate fixed. aggregate is fixed. aggregate demand curve shifts to the left while the aggregate supply curve is supply curve shifts to the left while aggregate demand curve is demand curve shifts to the right while the aggregate supply curve supply curve shifts to the right. CONFIDENTIAL

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17.

Borrowers benefit during periods of unexpected inflation because A. B. C. D. inflation rate exceeds the increase in the wage rate. the purchasing power of money borrowed is less than the purchasing power of money repaid to lenders. interest rates fall. the purchasing power of money borrowed is greater than the purchasing power of money repaid to lenders.

18.

The main function of Bank Negara Malaysia is to A. B. C. D. control the rate of growth of the money supply. manage the national debt. provide low-interest loans to all financial institutions. None of the above.

19.

A tariff on a product A. B. C. D. makes makes makes makes domestic domestic domestic domestic sellers better off and domestic buyers worse off. sellers and domestic buyers worse off. sellers and domestic buyers better off. sellers worse off and domestic buyers better off.

20.

The basic difference between the economic effects of a tariff and a quota is that a A. B. C. D. quota generates revenue for the government. tariff generates revenue for the government. tariff and quota raise product prices. quota raises product prices, but a tariff does not raise product prices.

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PARTB

QUESTION 1 The table below gives the demand and supply schedules for mango jelly. Price (RM per case) 8 7 6 5 4 Quantity demanded (cases per week) 30 70 110 150 190 Quantity supplied (cases per week) 150 130 110 90 70

a)

Using a graph paper, draw the demand and supply curves. Label the curves as D0 and S0 respectively. (3 marks) State the equilibrium price and quantity. (1 mark) Is there a surplus or shortage at the price of RM5? By how much? (2 marks)

b) c)

d)

Suppose income increases sufficiently so that the demand for mango jelly increases by 60 cases per week at every price level, draw the new demand curve in diagram (a) and label it as Di. (2 marks)

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QUESTION 2 The following diagram shows the production possibilities curve for a country.

Palm Oil *Y

* Potatoes

a)

State the implication of points W, X and Y as shown in the diagram. (3 marks)

b) c)

Identify a factor whereby the country can produce at point Y. (1 mark) Give two (2) problems that arise if the country chooses to produce at point X. (2 marks)

d) e)

Determine the type of opportunity cost faced by the country. (1 mark) List two (2) assumptions needed to construct the production possibility curve. (1 mark)

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QUESTION 3 Given the total fixed cost (TFC) of a firm is RM400. The variable cost at every level of output is as shown in the table below.

Output (unit) 1 2 3 4 5

Total Variable Cost (TVC) (RM) 160 280 430 550 700

a)

Calculate the average fixed cost (AFC) and average variable cost (AVC), if 3 units of output are produced. (2 marks) If the marginal cost (MC) to produce the 6th unit is RM200, how much is the TVC? (3 marks)

b)

c)

Calculate the average cost (AC) at 6 units of output. (1 mark)

d)

Sketch the TFC and TVC curves in a diagram. (2 marks)

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QUESTION 4 Diagram below represents the short run cost and revenue curves of a firm, Bumi Merdeka Bhd.

Cost and revenue (RM)

MC

AC

16 15 12 10

, AVC
r\r\

X^

Jy
r

90 150

>Quantity

w.

a)

Identify the market structure of the firm. Give a reason to your answer. (2 marks)

b)

Find the profit-maximizing price and output. (1 mark)

c)

Calculate the amount of profit at equilibrium. State the type of profit. (3 marks)

d)

Should the firm continue or shut down its operation? Why? (2 marks)

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QUESTION 5 The table below shows the national income data for a country in year 2007, with a total population of 80 million.

Items Consumption expenditures: Public Private Investment expenditures: Public Private Changes in stock Exports of goods & services Imports of goods & services Income paid to abroad Capital consumption Income received from abroad Indirect taxes Subsidies

RM million 361 1432 393 404 75 4196 3567 1500 129 1242 150 181

a)

Based on the above information, calculate: i) ii) iii) iv) Gross domestic product (GDP) at market price. (2 marks) Gross national product (GNP) at factor cost. (2 marks) National income. (1 mark) National income per capita. (1 mark)

b)

Based on your answer in (a) (ii), calculate the real GNP for the country if the consumer price index (CPI) for 2007 is 113. (2 marks)

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PARTC

QUESTION 1 a) What is meant by socialism? Explain four (4) characteristics of socialism. (10 marks) b) With the help of a diagram, explain change in supply. Discuss three (3) determinants that would influence the change in supply. (10 marks)

QUESTION 2 a) b) Discuss four (4) uses of national income statistic. (10 marks) Differentiate between elastic and inelastic demand. Draw diagrams to illustrate the difference. (10 marks)

QUESTION 3 a) Explain two (2) assumptions in oligopoly model. With the help of a diagram, explain why the price in Sweezy's Model of oligopoly is stable and rigid? (10 marks) Discuss four (4) functions of money. (10 marks)

b)

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QUESTION 4 a) Briefly explain each of the protectionism tools below: i) ii) Ad-valorem tax (2.5 marks) Quota (2.5 marks) iii) Embargo (2.5 marks) iv) b) Exchange control (2.5 marks) Explain four (4) reasons why government imposed protectionism policy. (10 marks)

END OF QUESTION PAPER

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