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Semester 1 Examinations 2010/
Exam Code(s) 2BA5, 2BSY2, 2BSY Exam(s) 2 nd^ Year BA (Economic & Social Studies) 2 nd^ Year BA (Environment and Society) 2 nd^ Year BA (Youth and Family Studies)
Module Code(s) EC Module(s) Microeconomics
Paper No. Repeat Paper
External Examiner(s) Dr Pat McGregor Internal Examiner(s) Prof John McHale Ms Breda Lally*
Instructions: Total Marks: 200
Section A: 80 Marks Answer ALL questions in this section
Section B: 120 Marks Answer THREE questions in this section. Each question is worth 40 marks Duration 2 hours No. of Pages 9 (including cover page) Discipline(s) Economics Course Co-ordinator(s) Breda Lally
Requirements : MCQ Release to Library: Yes No Handout Statistical/ Log Tables Cambridge Tables Graph Paper Log Graph Paper Other Materials
Section A: Multiple Choice Questions (80 Marks)
Answer ALL Multiple Choice questions in this section.
Each question is worth 4 marks. Negative marking does not apply.
Please write the answers to the questions on the first page of your answer book using CAPITAL letters only. Number each question clearly and correctly.
- What is the point elasticity (in absolute terms) for the demand curve P = 100 – 4Q at the price of 40? A. 1. B. 0. C. 1 D. 2.
- Jane prefers A to B and B to C. The law of transitivity implies that Jane A. prefers C to A B. equally prefers A and C C. prefers A to C D. is indifferent between A, B and C
- If the vertical axis measures DVDs which cost €20 per unit and the horizontal axis measures cinema tickets which cost €5 a unit, the slope of the budget line is A. – 4 B. - C. -0. D. -0.
- Jane’s budget constraint is given by 10X + 15Y = 300. If Jane purchases 6 units of Y, how many units of X can Jane purchase? A. 16 B. 8 C. 21 D. 24
- In the consumer choice model a consumer is maximising utility when A. MRS = Px/Py B. the highest attainable indifference curve is tangent to the budget constraint C. the slope of the budget constraint is greater than the slope of the indifference curve D. (a) and (b)
- Negatively-sloped, straight-line indifference curves imply A. that one of the goods has no effect on utility B. that the goods are perfect complements C. that the goods are perfect substitutes D. that one of the goods is an economic “bad”
- A duopoly is a market structure in which A. firms are price takers B. there exist numerous firms, each producing a product that is a close, but imperfect, substitute for the products of other firms C. there are only two sellers D. there is only one seller
- A Prisoner’s dilemma game is one in which A. only one of two prisoners has a dominant strategy B. altruistic motives by each player leads to an outcome where all players are worse off than if they cooperate C. self-interest by each player leads to an outcome where all players are worse off than if they cooperate D. self-interest by each player leads to an outcome where all players are better off than if they cooperate
- A farmer is growing corn on an acre of land. Output will be 200 bushels if one worker is hired, 500 if two, 700 if three, 850 if four, and 900 if five. The marginal product of the fourth worker is A. 850 bushels B. 150 bushels C. 212.5 bushels D. 50 bushels
- The local zoo has a pricing policy in which senior citizens pay a lower price than do young adults. This policy is A. is a form of perfect price discrimination B. is a form of third degree price discrimination C. is certain to lead to a loss of total revenue for the zoo D. will reduce the number of visitors but will increase total revenue
- The monopolistically competitive firm is in many ways like the competitive firm. However, it is unlike the competitive firm in that A. it might make a profit in the short-run, but not in the long-run B. it might make a profit in the long-run and the short-run C. entry into the industry is unrestricted D. it sells a differentiated product, whereas the competitive firm does not
- The rate at which one input can be exchanged for another without altering the level of output is A. the marginal product curve B. the marginal rate of technical substitution C. the marginal rate of substitution D. decreasing returns to scale
- If the production function is Q = K^2 L^2 and the level of capital is fixed at 2 units, then the average product of labour when L = 10 is A. 40 B. 4 C. 44 D. 400
- The short-run total cost of zero output is equal to A. variable cost B. fixed cost C. zero D. fixed cost plus variable cost
Section B: Long Questions (120 Marks)
Answer THREE questions in this section.
Each question is worth 40 marks.
Number each question clearly and correctly.
Question 1 (40 Marks)
(a) 10 marks (i) 2 marks Explain what an indifference curve is. (ii) 2 marks What does the slope of an indifference curve represent and what determines its slope? (iii) 6 marks Indifference curves can be convex, linear or L-shaped. Illustrate each type and comment on its slope. What type of goods does each of the indifference curves represent?
(b) 10 marks Consumer theory is based on four assumptions as to consumer preferences. List and explain each of these assumptions.
(c) 12 marks Illustrate and explain why (in consumer theory) the optimal consumption bundle occurs at the point of tangency between the budget constraint and the highest attainable indifference curve.
(d) 8 marks Illustrate and clearly explain why indifference curves cannot intersect.
Question 3 (40 Marks)
(a) 12 marks Analyse fully the income and substitution effects of an increase in the price of a normal good. Show the effect diagrammatically using the tools of indifference curves and budget constraints.
(b) 8 marks (i) 4 marks What are the income and substitution effects of a price increase for
- an inferior
- a giffen good? (ii) 4 marks Draw the demand curve of an inferior good and a giffen good.
(c) 4 marks What is a two-part pricing strategy?
(d) 8 marks The only video rental club available to you charges €4 per movie per day. Your demand curve for movie rentals is given by P = 20 – 2Q, where P is the rental price (€/day) and Q is the quantity demanded (movies per day). What is the maximum annual membership fee you would be willing to pay to join this video rental club?
(e) 5 marks With his weekly allowance Jack consumes only two goods, Dairy Milk chocolate and Coca Cola. The marginal utility of the last euro he spends on Coca Cola is 6, and the marginal utility of the last euro he spends on Dairy Milk chocolate is 5. The price of chocolate bars is €1 each and the price of 2 litre bottles of Coca Cola is €3 each. Is Jack maximizing his utility? Explain. If not, what should he do?
(f) 3 marks What is an ‘intertemporal budget constraint’?
Question 4 (40 Marks)
(a) 8 marks Explain each of the following (using diagrams where appropriate) (i) an isoquant (ii) an isocost line (iii)the marginal rate of technical substitution (iv) increasing returns to scale
(b) 9 marks On one diagram draw an isoquant map illustrating increasing, constant and decreasing returns to scale.
(c) 6 marks A firm purchases capital for €6 per unit and hires labour for €8 per unit. R is the price of capital and W is the price of labour. With the firm’s current input mix, the marginal product of capital is 10 and the marginal product of labour is 6. Is this firm minimizing its costs? If so, explain how you know. If the firm is not minimizing costs, explain what it ought to do.
(d) 6 marks On two separate diagrams draw isoquants for (i) perfect complements and (ii) perfect substitutes.
(e) 8 marks Explain each of the following types of price discrimination (i) first-degree price discrimination (ii) second-degree price discrimination (iii) third-degree price discrimination (iv) the hurdle model of price discrimination
(f) 3 marks List the three conditions necessary for price discrimination.
