Download Market Equilibrium - Principles of Microeconomics - Exam and more Exams Microeconomics in PDF only on Docsity!
Ollscoil na hÉireann, Gaillimh GX_____
National University of Ireland, Galway
Autumn Repeat Examinations 2010/
Exam Code(s) 1BF
Exam(s) 1
st
B.I.S.
Module Code(s) EC
Module(s) Principles of Microeconomics
Paper No. 1
Repeat Paper
External Examiner(s) 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 (60 marks). Please note that there is
no negative marking in Section A.
Duration 2 hours
No. of Pages 6
Discipline Economics
Course Co-ordinator(s) Gerard Turley, Terrence McDonough
Requirements :
MCQ Release to library : Yes
Handout
Statistical Tables
Graph Paper
Log Graph Paper
Other Material
SECTION A (20 marks) Answer all questions (no negative marking). Please write your answers in the Answer Book provided.
- Mainstream neoclassical economists view markets as a (a) co-ordination mechanism; (b) way of allocating resources; (c) way of determining prices; (d) way of dealing with the problem of scarcity; (e) all of the above.
- An increase in the price of margarine will (a) increase the price of butter and increase the quantity traded of butter; (b) increase the price of butter and decrease the quantity traded of butter; (c) decrease the price of butter and increase the quantity traded of butter; (d) decrease the price of butter and decrease the quantity traded of butter; (e) none of the above.
- When a market is in equilibrium, (a) no shortages exist; (b) quantity demanded equals quantity supplied; (c) a price is established that clears the market; (d) no surpluses exist; (e) all the above.
- If the price elasticity of the demand for a service is – 3, we can say that (a) a 3 percent rise is price will reduce quantity demanded by 1 percent; (b) the demand for the service is elastic; (c) the demand for the service is inelastic; (d) both (a) and (b) above; (e) none of the above.
- All inferior goods have income elasticities of demand (a) greater than one; (b) between zero and one; (c) between minus one and zero; (d) less than zero; (e) none of the above.
- If income is € 200 , the price of food is € 20 and the price of drink is €5, the slope of the budget line is (a) 0.25; (b) - 0.25; (c) - 2; (d) - 1; (e) 4.
- In the market, the consumer achieves an optimal consumption basket when the combinations of goods is chosen which (a) yields maximum utility to the consumer and just exhausts his income; (b) yields maximum utility and leaves some income for saving; (c) puts the consumer at some point below his budget constraint; (d) yields the highest level of utility without regard to the budget constraint; (e) none of the above. P.T.O.
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.
