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Market Equilibrium, Imperfect Competition, Equilibrium Output, Decision of Monopolist, Diminishing Marginal Returns, Levels of Labour, Marginal Rate of Substitution. Above points are representatives for questions of Principles of Microeconomics given in this past exam paper.
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SECTION A (20 marks) Answer all questions (no negative marking). Please write your answers in the Answer Book provided.
SECTION C (60 marks) Answer any three (and only 3) questions
1. (a) (10 marks of which) Consider the following equations: Qd = 49 – 2 P Qs = 5 + 9P i. Find the equilibrium price and quantity using simultaneous equations. (2) ii. On a diagram, sketch the demand curve and the supply curve. (2) iii. Suppose P = 3. Calculate the excess. Is it a shortage or surplus? (3) iv. Suppose P = 7. Calculate the excess. Is it a shortage or surplus? (3) (b) (10 marks of which) Use appropriate demand and supply diagrams to show the impact of each of the following changes; i. a decrease in supply; (3) ii. a reduction in demand; (3) iii. a simultaneous decrease (of equal magnitude) in demand and supply (4) on market-clearing prices and quantities. Use separate diagrams in each of the three cases. 2. (a) (5 marks) Define price elasticity of demand. What factors determine price elasticity of demand? (b) (7 marks) Explain the difference between the terms elastic, inelastic and unit elastic. What types of goods or services would you imagine might have an i. elastic ii. inelastic demand? (c) (8 marks) Calculate the two price elasticities of demand for the following two points on a demand curve. Price Quantity 1.8 65 1.6 70 P.T.O.
3. (a) (10 marks) Define the following terms as they relate to consumer choice theory i. consumer surplus; ii. marginal utility; iii. budget line; iv. marginal rate of substitution; v. income effect. (b) (10 marks, of which) Table 1 summarises part of Jack’s preferences for Food (F) and Drink (D) by showing various combinations of the two goods between which he is indifferent. Each of the three sets of bundles represents a different utility level. Table 1 Utility Set 1: IC1 Utility Set 2: IC2 Utility Set 3: IC D F D F D F 2 40 10 40 12 45 4 34 12 35 14 39 8 26 14 30 16 34 12 21 17 25 18 30 17 16 20 20 21 25 22 12 25 16 27 20 30 8 30 13 37 15 40 5 38 10 44 13 50 4 50 8 50 12 i. Use the information from the table to sketch the three indifference curves, plotting drink on the vertical axis and food on the horizontal axis. (3) ii. Which of the three indifference curves represents the highest level of utility? (2) iii. Which of the three indifference curves represents the lowest level of utility? (2) iv. Consider the following bundles of goods A 50D, 8F B 40D, 5F C 12D, 45F D 25D, 16F E 21D, 11F Rank the five bundles in ascending order of satisfaction. (3) P.T.O.