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BM/SEP 2011/ECO120/108/113/107

UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION

COURSE COURSE CODE EXAMINATION TIME

PRINCIPLES OF ECONOMICS EC0120/108/113/107 SEPTEMBER 2011 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) 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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BM/SEP 2011/EC0120/108/113/107

PART A

The opportunity cost is best defined as: A. B. C. D. the monetary price of any productive resources. the amount of labour that must be used to produce one unit of any product. the ratio of the prices of imported goods to the prices of exported goods. the amount of one product that must be given up to produce one more unit of another product.

2.

The economic problem of scarcity refers to A. B. C. D. unlimited wants and unlimited resources. limited resources and unlimited wants. limited wants and limited resources. unlimited resources and limited wants.

3.

The increase in demand of a new launched PROTON car can be caused by A. B. C. D. an increase in income. a change in climate. a lower cost of production. an increase in the price of petrol.

The demand curve for rice represents the relationship between the quantity demanded and the A. B. C. D. prices of factors of production. general price level. price of rice. supply of rice.

Market equilibrium is achieved when A. B. C. D. the number of buyers is equal to the number of sellers. the quantity demanded is equal to the quantity supplied. the price is equal to the quantity. the quantity demanded is equal to the number of buyers.

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6.

If the value of cross elasticity of demand between good X and good Y is negative, good X and good Y are A. B. C. D. substitute goods. complementary goods. essential goods. inferior goods.

7.

If the elasticity of supply is 0.4, it indicates that supply is A. B. C. D. unitary elastic. elastic. perfectly elastic. inelastic.

8.

Demand for agricultural products is generally A. B. C. D. elastic. unitary elastic. inelastic. perfectly elastic.

9.

Which of the following is not considered to be a fixed input? A. B. C. D. Factory buildings. Offices. Raw materials. Motor vehicles.

10.

The shape of the demand curve for a perfectly competitive firm is A. B. C. D. sloped downwards from left to right. sloped upwards from left to right. perfectly inelastic. perfectly elastic.

11.

These are all macroeconomic objectives except A. B. C. D. to to to to achieve achieve achieve achieve price stability. universal education. economic growth. a healthy balance of payment.

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12.

An equitable distribution of income between the rich and the poor can be done through A. B. C. D. a balance of payment. an increase in money supply in the economy. an imposition of tax and subsidy. a decrease in national income.

13.

The total value of goods and services produced by factors of production owned by a country's citizens within the country and abroad is known as A. B. C. D. gross domestic product. disposable income. gross national product. national income.

14.

The main factor that differentiates gross national product from net national product is A. B. C. D. net investment. gross investment. depreciation. net factor income from abroad.

15.

Which of the following steps in a monetary policy can decrease the problem of inflation in an economy? A. B. C. D. Purchase of government securities, decrease reserve ratio and increase interest rate. Sale of government securities, increase reserve ratio and increase interest rate. Sale of government securities, decrease reserve ratio and increase interest rate. Purchase of government securities, increase reserve ratio and increase interest rate.

16.

Contractionary fiscal policy is imposed by the government to A. B. C. D. reduce problems of inflation. reduce problems of unemployment. increase aggregate demand. increase the money supply in the economy.

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17.

An increase in the price of raw materials causes A. B. C. D. an import-push inflation. a profit-push inflation. a cost-push inflation. a demand-pull inflation.

18.

The unemployment rate is the A. B. C. D. percentage of the labour force which is out of work. ratio of unemployed to employed worker. percentage of the total population which is out of work. some workers lack marketable job skills.

19.

Which of the following is a reason for protectionism? A. B. C. D. Reducing structural unemployment. Reducing inflation problems. Controlling the money supply in the economy. Protecting infant and local industries.

20.

Which of the following would be an indication that a nation has a balance of payment deficit? A. B. C. D. Buying gold abroad. Borrowing abroad to finance capital investments. Imports exceed exports. Holding of foreign reserve is increasing.

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PARTB

QUESTION 1 Imagine that a country can produce just two things: goods and services. Assume that over a given time period it could produce any of the following combinations in the table below. Unit of goods Units of services 79 19 0 80 90 100

10

20

30

40

50

60

70

80

77

74

70

65

58

48

35

a)

Sketch the country's production possibility curve (PPC). (2 marks)

b)

What does the shape of the production possibility curve (PPC) above indicate? (1 mark) Assume that the country is currently producing 40 units of goods and 70 units of services, what is the opportunity cost of producing another 10 units of goods? (1 mark)

c)

d)

Now assume that technical progress leads to an increase in the output of goods for any given amount of resources. Show this effect on the production possibility curve in a diagram. (2 marks) List four (4) assumptions of production possibility curve. (4 marks)

e)

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QUESTION 2 The table below shows the weekly market demand and supply of tomatoes in a free market.

Price per kg (RM) 4.00 3.50 3.00 2.50 2.00 1.50 1.00

Quantity demanded (.000 kg) 30 35 40 45 50 55 60

Quantity supplied (,000 kg) 80 68 62 55 50 45 38

a)

Using a graph paper, plot the demand and supply curves for tomatoes based on the data above. (3 marks) Define market equilibrium price. Determine the market equilibrium price and quantity. (3 marks)

b)

c)

Calculate the elasticity of supply when price of tomatoes increase from RM2.50 to RM3.50 per kg. (2 marks) The producers' incomes have increased from RM3000 to RM4000 per month and quantity demanded of tomatoes from 45,000 kg to 55,000 kg. Calculate the income elasticity of demand. (2 marks)

d)

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QUESTION 3 The table below shows the cost and revenue for a perfectly competitive firm. The Average Revenue (AR) is fixed at RM12 per unit. Quantity (unit) 0 1 2 3 4 5 6 Total Variable Cost (TVC) Total Cost (TC) 12 22 28 33 40 52 72 Marginal Cost (MC) Total Revenue (TR) Marginal Revenue (MR)

a)

Complete the table above. (4 marks)

b)

Determine the profit maximizing output. (1 mark)

c)

Calculate the amount of profit the firm is earning at equilibrium. State the type of profit. (2 marks) How much is the total fixed cost for the above firm? (1 mark)

d)

e)

At equilibrium, calculate: i) ii) the Average Cost (AC). the Average Variable Cost (AVC). (2 marks)

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QUESTION 4 The data below show components of national income for country ABC in the year 2010. Items Agriculture and mining Construction Net factor income from abroad Manufacturing Gas and electricity Banking and finance Government services Wholesales and retails Depreciation Subsidies Indirect taxes a) Calculate: i) ii) iii) b) Gross domestic product at market price. (3 marks) Gross domestic product at factor price. (2 marks) Net national product at factor cost. (3 marks) State whether the following items would be included in the calculation of personal income or national income. i) ii) iii) iv) Social contribution Corporate dividends Contribution to EPF Rental income : : : : . . . . (2 marks)
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RM million 10 45 20 50 20 80 30 60 5 10 5

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PARTC

QUESTION 1 a) Explain the difference between change in supply and change in quantity supplied using diagrams. (8 marks) Briefly explain four (4) determinants of price elasticity of demand. (12 marks)

b)

QUESTION 2 a) Using appropriate diagram, elaborate on the three (3) stages of production. (10 marks) b) With the aid of diagrams, briefly explain the followings: i) ii) maximum price. minimum price. (10 marks) QUESTION 3 a) Using diagrams, explain the types of profit a monopolistic firm can earn in the short run. (12 marks) Briefly describe four (4) differences between the characteristics of a monopoly firm and a perfectly competitive firm. (8 marks)

b)

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BM/SEP 2011/EC0120/108/113/107

QUESTION 4 a) With appropriate examples, briefly explain the following types of unemployment, i) ii) iii) iv) b) Frictional unemployment. Structural unemployment. Cyclical unemployment. Seasonal unemployment. (12 marks) Define national income. Discuss briefly any two (2) uses of national income statistics. (8 marks)

END OF QUESTION PAPER

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