ARHOLIADAU EXAMINATIONS
Ionawr 2011 January 2011
EC30220 INTERMEDIATE MICROECONOMICS: CONSUMERS
AND PRODUCERS
Time Allowed: TWO hours
Answer THREE Questions
ONE from Section A and ONE from Section B and another ONE from either section.
Casio FX83ES/FX85ES calculators only may be used.
SECTION A
1. a) Outline the indifference curve approach to consumer theory. How can indifference
curve analysis be used to demonstrate the law of demand?
b) Draw a set of indifference curves relating two "bads" such as pollution and refuse.
What characteristics do these curves have?
2. Use indifference curves to show under what conditions an individual’s supply of labour
curve might be backward bending? Consider the implications of this, especially for the
overall supply of labour.
3. "Lancaster's characteristics approach to consumer choice is a useful theoretical model,
but has very limited scope for practical application." Discuss.
4. Discuss the view that it is impossible to accurately distinguish between changes in the
cost of living and changes in the standard of living.
SECTION B
5. How are significant economies of scale in an industry likely to affect the degree of
competition in that industry? In what ways might small firms compete under such
circumstances?
6. In what ways might oligopolists collude? Why might collusion in any form break down
after a period of time?
7. Explain why the use of rate of return regulation for a natural monopolist leads to
economic inefficiencies. Describe an alternative approach, and contrast its efficiency
properties with those of rate of return regulation.
8. What is meant by the term 'externalities'? Show how the existence of externalities causes
a less than optimal allocation of resources in the field of transport. To what extent is road
pricing the best solution to this problem of resource misallocation? END OF PAPER