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Ollscoil na hÉireann, Gaillimh GX_____
National University of Ireland, Galway
Resit Semester I Examinations 2011/
Exam Code(s) 1BA1, 1BA6, 1BA7, 1BA11, 1BCS1, 1BCW1, 1BFS
1BGL1, 1BHR1, 1BIS1, 1BLS1, 1BTP1, 1BWM
Exam(s) 1
st
B.A., 1
st
B.A. (PSP), 1
st
B.A. (Psychology), 1
st
B.A.
(History), BA Connect.
Module Code(s) EC
Module(s) Principles of Microeconomics
Paper No.
Repeat Paper Repeat Paper
External Examiner(s) Professor Liam Delaney
Dr. Pat McGregor
Internal Examiner(s) Professor John McHale
Dr. Gerard Turley
Instructions: There are three sections to be answered. Students are required to
answer all questions in Section A (20 marks), any five questions in
Section B (20 marks) and any three questions in Section C (
marks). Please note that there is no negative marking in Section A.
Duration 2 hours
No. of Pages 5
Discipline Economics
Course Co-ordinator(s) Gerard Turley, Terrence McDonough
Requirements :
MCQ
Handout
Statistical Tables
Graph Paper
Log Graph Paper
Other Material
Section A (20 marks) Answer all questions (no negative marking). Please record your answers in your Answer Book provided.
- In the market economy (a) prices are administratively set; (b) the market is the mechanism that allocates scarce resources; (c) shortages are a common feature; (d) an excess supply or surplus results in an upward adjust in prices; (e) both (b) and (d) above.
- In the market for iPads, an improvement in technology will (a) shift the supply curve to the right, resulting in a price fall; (b) shift the demand curve to the right, resulting in a price rise; (c) shift the demand curve to the left, resulting in a price fall; (d) shift the supply curve to the left, resulting in a price rise; (e) both (a) and (c) above.
- If the quantity demanded of a good increases from 8 to 9 units when price falls from €9 to €8 per unit, demand is (a) inelastic; (b) elastic; (c) unit elastic; (d) cannot be determined from the information provided; (e) perfectly inelastic.
- The difference between the price consumers pay for the good and the price they are willing to pay for the good is called the (a) substitution effect; (b) marginal rate of substitution; (c) opportunity cost; (d) consumer surplus; (e) marginal utility.
- If income is 300 euro, the price of food is 10 euro and the price of entertainment is 20 euro, the slope of the budget line is (a) 0.5; (b) - 2 ; (c) 2 ; (d) - 1; (e) - 0.25.
- The two conditions for a profit-maximising firm are (a) the average condition and the marginal condition; (b) the revenue condition and the cost condition; (c) the profit condition and the loss condition; (d) the total condition and the average condition; (e) none of the above.
Section C (60 marks) Answer any three (and only 3) questions 1.(20 marks) What are the main features of a market economy? For a typical (i.e. not a Giffen or snob) good in a market economy, draw, on one diagram, the demand curve and the supply curve. Explain how market price and quantity traded are determined in the market. Explain, and show, how a change in demand or supply conditions affects the equilibrium price and quantity.
2. (a) (10 marks) The demand for Crystal Springs, a popular mineral water is shown in Table 1. Table 1: Demand for Crystal Springs Price Quantity (€) (thousands per year) 1.80 20 1.50 30 1.20 40 0.90 50 0.60 60 Sketch the demand curve for Crystal Springs. Estimate a measure of price elasticity at the point where i. price is €1.20; and ii. price is 60c. At which price is total revenue maximised? Why? (b) (10 marks) Table 2 presents the total spending and income of a household over two months. Table 2 1 2 3 4 5 6 Income Month 1 € 1000 Income Month 2 €1, 500 Income elasticity of demand Normal or Inferior Luxury or Necessity Good 1 30 50 Good 2 30 70 Good 2 25 20 Good 4 15 20 Fill in columns 4- 6 , by calculating the income elasticity of demand (Column 4), and by classifying each good as normal or inferior (Column 5) and, where appropriate, luxury or necessity (Column 6 ). [Note: Please transcribe the table into your Answer Book, and fill in]. 3. (a) (5 marks) The theory of demand is about consumer choice. One model of consumer choice is the indifference/preference approach. Explain this approach. (b) (5 marks) In the context of (a) above, explain the purpose of indifference curves and budget lines. Using a diagram, show how the indifference curve and the budget line can be used to find the optimal consumption bundle. P.T.O.
(c) (10 marks) Ronan’s weekly income is €80. A pint (of Guinness) costs €5 and a coffee costs €2. i. Draw the budget line. (3) ii. On the same graph, draw an indifference curve so that the best affordable point corresponds to eight pints of Guinness and twenty coffees. (3) iii. If the price of Guinness falls to €4, draw the new budget line. (2) iv. If the price of coffee increases to €2.5 0 (holding the price of a pint at €5), draw the new budget line. (2)
4. (a) (4 marks) In the theory of production and costs, explain the difference between the short run and the long run. (b) (6 marks) Using the distinction between the short run and the long run, draw the average and marginal cost curves for either the short run OR long run. (c) (10 marks)
A firm has selected the output level at which it wishes to produce. Having checked the
marginal condition, the firm is now considering the average condition as it applies to the
short run and the long run. Cost conditions are such that LAC is €24; SATC is €34 (made
up of SAVC €22 and SAFC €12). In Table 3, tick the appropriate short run and long run
decisions for the firm at each stated market price. [Please transcribe the table into your
Answer Book, and fill in. One is already done for you!]
Table 3
Short-run decision Long-run decision
Price, € Produce
at a profit
Produce
at a loss
Shut
down
Produce
at a profit
Produce
at a loss
Exit the
industry
5. (a) (7 marks) In the context of different market structures, what is perfect competition? Explain the features and give two examples of a perfectly competitive market. How does it different from the ‘real world’? (b) (5 marks) Draw a diagram showing the equilibrium position in the long run for a perfectly competitive market. (c) (8 marks) Define ‘monopoly’. Explain, with the aid of a diagram, the short-run equilibrium position for the monopolist.
