----)

Universiti

kop Malaysia
PAHANG
Engineering • Technology • Creativity

FACULTY OF INDUSTRIAL MANAGEMENT

FINAL EXAMINATION

COURSE PRINCIPLES OF ECONOMICS

COURSE CODE BPC1123

LECTURER DR LIU YAO

DATE 12 JUNE 2018

DURATION 3 HOURS

SESSION/SEMESTER SESSION 2017/2018 SEMESTER H

PROGRAMME CODE BPP/BPT

INSTRUCTIONS TO CANDIDATES:

1. This question paper consists ofTHREE (3)SECTIONS,A,B & C.

2. Answer ALL questions from Section A and B.
3. Answer any TWO(2) questions from Section C.
4. All answers to a new question should start on a new page. The question should be
answered in English.
5. Candidates are not allowed to bring any material other than those allowed by the
invigilator into the examination room.

EXAMINATION REOUIREMENTS:

1. Graph Paper

APPENDIX:

1. Nil.

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

This examination paper consists of THIRTEEN (13) printed pages including front page.
CONFIDENTIAL BPP/BPT/1718IUBPC1123

SECTION A [15 MARKS]

Answer ALL questions from this section.

1. Which ofthe following is a subject that economists study?

A. The growth in average income
B. The fraction ofthe population that cannot find work
C. The rate at which prices are rising
D. All ofthe above are correct

2. These are all conventional macroeconomic objectives, except

A. to achieve price stability.
B. to achieve social justice.
C. to achieve economic growth.
D. to achieve a healthy balance of payment.

3. Which of the following is not subject to scarcity?

A. Water
B. Sunshine
C. Diamonds
D. None ofthe above

Shoes Socks
800 0
600 400
400 700
200 900
0 1000
Table 1: Production Possibilities for Footville

4. Refer to Table 1. What is the opportunity cost to Footville of increasing the production of
shoes from 400 to 600?
A.400 socks
B. 300 socks
C. 200 socks
D. 100 socks

5. Refer to Table 1. Which ofthe following statements is correct?

A. The opportunity cost of an additional 200 shoes is constant at 200 socks.
B. The opportunity cost of an additional 200 shoes is constant at 300 socks.
C. Footville's production possibilities frontier is a straight, downward-sloping line.
D. The opportunity cost of an additional 200 shoes increases as more socks are
produced.

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^bia.003

360
320
280 —
240 —
200
160 —
120
80 —
40

30 60 90 120 150 180 210 240 270 300 330 Piam

Figure 1: Production Possibility Curve for Blankets and Pillows

6. Refer to Figure 1. Ifthis economy devotes all ofits resources to the production ofblankets,
then it will produce
A.0 blankets and 360 pillows.
B. 200 blankets and 240 pillows.
C. 320 blankets and 120 pillows.
D. 360 blankets and 0 pillows.

7. Refer to Figure 1. If this economy devotes one-half of its available resources to the
production of blankets and the other half to the production of pillows, it could produce
A. 120 pillows and 320 blankets.
B. 180 pillows and 180 blankets.
C. 240 pillows and 200 blankets.
D. We would have to know the details of this economy's technology in order to
determine this.

8. Refer to Figure 1. A movement from point H to point K could be caused by

A. unemployment.
B. a decrease in society's preference for pillows.
C. fewer resources available for production of pillows.
D. All ofthe above are correct.

9. Refer to Figure 1. If this economy moves from point F to point G, then which of the
following statements is correct?
A. This economy has moved from a point of inefficient production to a point of
efficient production.
B. This economy has experienced economic growth.
C. This economy has experienced an increase in employment.
D.None ofthe above is correct.

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10. Refer to Figure 1. The opportunity cost of this economy moving from point Ito point H
is
A. 120 pillows.
B. 120 blankets.
C. 120 blankets and 120 pillows.
D. 200 blankets.

1 1. Refer to Figure 1. The opportunity cost ofthis economy moving from point Ito point F is
A. zero.
B. 40 blankets.
C. 120 pillows.
D. 360 blankets.

12. Refer to Figure 1. The opportunity cost of this economy moving from point K to point H
is
A.zero.
B. 50 blankets.
C. 60 pillows.
D. 50 blankets and 60 pillows.

13. In a competitive market,each seller has limited control over the price ofhis product because
A. other sellers are offering similar products.
B. buyers exert more control over the price than do sellers.
C. these markets are highly regulated by the government.
D. sellers usually agree to set a common price that will allow each seller to earn a
comfortable profit.

14. Which ofthe following would most likely serve as an example of a monopoly?
A. A bakery in a large city
B. A bank in a large city
C. A local cable television company
D. A small group ofcorn farmers

15. The particular price that results in quantity supplied being equal to quantity demanded is
the best price because it
A. maximizes costs ofthe seller.
B. maximizes tax revenue for the government.
C. maximizes the combined welfare of buyers and sellers.
D. minimizes the expenditure of buyers.

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Price of Case of , William's

Ali s Family Jenny's Family Siva's Family
100Plus Family
$7 9 15 12 14
$8 8 12 10 10
$9 7 9 8 6
$10 6 6 6 2
Table 2: The Quantities Demanded of Cases of 100Plus Per Month by Four Families at
Various Prices

16. Refer to Table 2. Suppose the four families listed in the table are the only demanders of
100Plus in the market. Ifthe price of a case of 100Plus decreases by $1,
A. the market quantity demanded decreases by 10.
B. the market quantity demanded increases by 10.
C. Ali's family increases its quantity demanded by more than the Siva's family.
D. Jenny's family increases its quantity demanded by more than the William's family.

17. Refer to Table 2. Ifthe four families listed in the table are the only demanders of 100Plus
in the market, which of the following is a correct graph ofthe market demand?

Pnce
12
10
8
6
A. 4
B.
2

10 20 30 40 50 OhvitilY 10 20 30 40 50 &QV*

Price Price
12
10
8

C. D.

10 20 30 40 50 Bawd* 10 20 30 40 50 60 70 !AWRY

18. Refer to Table 2. Which of the following could cause all four families to demand more
100Plus at all prices?
A. The price of sugar decreases.
B. All four family incomes increase, and 100Plus is a normal good.
C. A major university study reveals that drinking 100Plus can cause diabetes.
D. The technology for bottling carbonated beverages improves.

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19. Suppose an increase in the price of rubber coincides with an advance in the technology of
tire production. As a result of these two events, the demand for tires
A. decreases, and the supply of tires increases.
B. is unaffected, and the supply of tires decreases.
C. is unaffected, and the supply of tires increases.
D. None ofthe above is necessarily correct.

20. Which of the following might cause the supply curve for an inferior good to shift to the
right?
A. An increase in input prices
B. A decrease in consumer income
C. An improvement in production technology that makes production ofthe good more
profitable
D. A decrease in the number of sellers in the market

5 10 15 20 25 30 35 40 45 50

Figure 2: Supply and Demand

21. Refer to Figure 2. Which of the following best describes the movement from El to E2?
A. A decrease in supply
B. An increase in supply
C. A movement along the supply curve
D. A decrease in demand

22. Refer to Figure 2. Which ofthe following would explain a movement from El to E2?
A. There is an improvement in the technology used to produce this good.
B. The cost of an input to the production ofthis good increases.
C. This good becomes very popular.
D. The price of a substitute good decreases.

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Scenario 1
Milk has an inelastic demand, and beefhas an elastic demand. Suppose the population of dairy
cows and the population of beef cattle decreases by 50 percent due to problems of infertility.

23. Refer to Scenario 1. The change in equilibrium price will be

A. greater in the milk market than in the beef market.
B. greater in the beef market than in the milk market.
C. the same in the milk and beef markets.
D. Any ofthe above could be correct.

24. Refer to Scenario 1. The change in equilibrium quantity will be

A. greater in the milk market than in the beef market.
B. greater in the beef market than in the milk market.
C. the same in the milk and beef markets.
D. Any ofthe above could be correct.

qmaxt*

Figure 3: The Demand for Turkey in the United States

25. Refer to Figure 3. All else equal, an increase in the income of buyers who consider turkey
to be an inferior good would cause a move from
A. DA to DB.
B. DB tO DA.
C. X to y.
D. y to x.

26. Refer to Figure 3. All else equal, a sale on chicken would cause a move from
A.DA to DB.
B. DB to DA.
C. x to y.
D. y to x.

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27. Inflation rate is measured using

A. interest rate.
B. unemployment rate.
C. cost of production.
D. consumer price index (CPI).

28. GDP may be defined as the market value of

A. national income distributed to producers, consumers and investors.
B. all final and intermediate goods and services produced in a given year.
C. all final goods and services produced in an economy in a given year.
D. economic resources used in the production of annual output in an economy.

29. The demand curve of monopoly is than monopolistic competition, due to the
existence of .
A. more elastic; product differentiation
B. less elastic; homogeneous products
C. more elastic; complementary products
D. less elastic; unique products

30. Which ofthe following policies is used by the government to counteract recession?
A. Increasing the discount rate
B. Decreasing the government deficit
C. Carrying out an expansionary fiscal policy
D. Decreasing the money supply

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SECTION B [25 MARKS]

Answer ALL questions from this section.

QUESTION 1 [5 MARKS]
State the effect that each ofthe following events may have on the supply of product X.

a) A technological advance in the methods of producing X.

(1 Mark)
b) A decline in the number of firms in industry X.
(1 Mark)
c) An increase in the price of resources required in the production of X.
(1 Mark)
d) A decline in the price ofZ,a good whose production requires substantially the same factors
of production as X.
(1 Mark)
e) The granting of a 30% per unit subsidy for each unit of X produced.
(1 Mark)

QUESTION 2[5 MARKS]

State the effect that each ofthe following events may have on the demand for product Y.

a) Product Y becomes more preferable.

(1 Mark)
b) The price of substitute goods for Y falls.
(1 Mark)
c) Income declines and product Y is a superior good.
(1 Mark)
d) The price for complementary goods for Y falls.
(1 Mark)
e) The economy is in recession and people are uncertain about their future.
(1 Mark)

QUESTION 3[5 MARKS]

Butter and margarine are substitute goods that serve the same purpose. When the price ofbutter
rises, state the short-term effect to:

a) supply of margarine.
(1 Mark)
b) demand for margarine.
(1 Mark)
c) quantity supplied of margarine
(1 Mark)
d) quantity demanded for margarine.
(1 Mark)
e) price of margarine.
(1 Mark)

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QUESTION 4[5 MARKS]

Compare the distinct features of a monopoly and a monopolistic competition in terms of:

a) number of sellers
(1 Mark)
b) types of product
(1 Mark)
c) Control over price
(1 Mark)
d) Condition of entry
(1 Mark)
e) Non-price competition
(1 Mark)

QUESTION 5[5 MARKS]

Year Total Labour Force(000) Employed(000) Unemployed (000)

2015 7,500 ---- 820
2016 ---- 8,900 1,520

Table 3: Total Labour force, Number of Employed and Unemployed in Country S for
Year 2015 and 2016.

Refer to Table 3,

a)Calculate the number ofemployed for 2015.

(1 Mark)
b)Calculate the number oftotal labour force for 2016
(1 Mark)
c)Calculate the unemployment rate for 2015 and 2016
(2 Marks)
d)Suggest one policy to curb unemployment
(1 Mark)

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SECTION C [40 MARKS]

Answer any TWO(2) questions from this section.

QUESTION 1 [20 MARKS]

Marina has two options for meals: option A and option B. The price of A is $6 and the price of
B is $3. Assume her weekly food budget is $51. Table 4 shows the marginal utility for option
A and option B.

Option A Option B
Quantity TUA MUA MUA/P Quantity TUB MUB MUB/P
0 0 0 0
1 22 1 16
2 41 2 30
3 59 3 40
4 71 4 48
5 81 5 55
6 89 6 61
7 95 7 66

Table 4: Utility for Option A and Option B

a) Calculate the marginal utility of option A(MUA)and option B (MUB).

(8 Marks)

b) Calculate the marginal utility per US dollar of option A(MUA/P)and option B (MUB/P).
(8 Marks)

c) Calculate the units of option A and the units of option B that maximize her utility.
(4 Marks)

QUESTION 2[20 MARKS]

Table 5 contains a random selection of items from the national account of a country in year
2016.

Items USD (million)

Finance, insurance, real estate and business services 4,750
Government expenditure 6,000
Agriculture 11,400
Mining and quarrying 4,000
Transport, storage and communication 3,700

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Wholesale and retail trade, accommodation and restaurants 6,300

Manufacturing 12,500
Capital consumption allowances 1,000
Corporate income taxes 6,250
Taxes on expenditure 7,500
Net factor income received from abroad 3,450

Profit 23,100

Subsidies 445

Personal income taxes 125

Social contribution 50
Employee Provident Fund 170
Transfer payment 700

Table 5: National Account Statistics

Calculate:

a) Gross domestic product at factor cost

(3.5 Marks)

b) Gross domestic product at market price

(3.5 Marks)

c) Gross national product at factor cost

(3.5 Marks)

d) National income
(3.5 Marks)

e) Personal income
(3 Marks)

1) Disposable income
(3 Marks)

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QUESTION 3[20 MARKS]

Table 6 shows the cost schedule for Bellshalling Enterprise.

Output Total Total Total Average Average Average Marginal

(unit) Fixed Variable Cost Fixed Variable Total Cost($)
Cost($) Cost($) ($) Cost($) Cost($) Cost($)

0 20
1 50
2 70
3 86
4 110
5 150
6 206
7 270

Table 6: Cost Schedule for Bellshalling Enterprise

a) Complete the cost schedule above by calculating the company's total fixed cost, total
variable cost, average fixed cost, average variable cost, average total cost, and marginal
cost at each level of output.
(10 Marks)

b) Sketch the average variable cost, average total cost, and marginal cost in a diagram.

(5 Marks)

c) If you are the acting manager of this enterprise, suggest the best quantity of production to
reach the maximum profit. If the price ofthe output is $50 per unit, calculate the profit of
the enterprise.
(5 Marks)

END OF QUESTION PAPER

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