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Neoclassical Economic Orthodoxy, Factors of Production, Production Function, Marginal Product, Average Product, Diseconomies of Scale, Assumptions of Consumer Preferences. Above points are representatives for questions of Principles of Microeconomics given in this past exam paper.
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Ollscoil na hÉireann, Gaillimh
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1 (a) (3 marks) List and explain any three key concepts in mainstream economics. (b) (8 marks) The market for wine in New Zealand is in equilibrium. Beer is a close substitute for wine; cheese and wine are complements. Use demand and supply diagrams to analyse the effect of each of the following (separate) events on the equilibrium price and quantity traded in the New Zealand wine market. Assume that all of the ceteris paribus assumptions hold except for the event listed. i. The income of consumers falls (wine is a normal good); ii. Early frost destroys a large part of the world grape crop; iii. A new churning invention reduces the cost of producing cheese; iv. Costs of producing beer and wine increase dramatically. NB: Use four separate diagrams. (c) (4 marks) Using the demand and supply model, explain one of the following: the (2006-2008) fall in house prices in Ireland OR the 2007/2008 global rise in oil prices In your answer please identify factors as either demand-side or supply-side.
2. (a) (2 marks) Explain the concept ‘price elasticity of demand’. What are the factors that determine the price elasticity of demand? (b) (7 marks) What sign (positive or negative) would you expect the coefficient of elasticity to be for the following? i. income elasticity for a normal good ii. cross-price elasticity for two substitutes iii. price elasticity for a Giffen good iv. income elasticity for a luxury good v. price elasticity for an inferior good vi. cross-price elasticity for two complements vii. income elasticity for a necessity (c) (6 marks) Table 1 below reports elasticities of demand. Interpret the results in terms of the values for the price and cross-price elasticities. Table 1 : Elasticities % Change in quantity Caused by a one % price change in demanded of Food Clothing Travel Food - 0.4 0 0. Clothing 0.1 - 0.5 - 0. Travel 0.3 - 0.1 - 0.
3. (a) (3 marks) What are the assumptions of consumer preferences? (b) (6 marks) Kieran’s income is €50. A pint (of Carlsberg) costs €5 and a coffee costs €2. i. Draw the budget line. (1) ii. On the same graph, draw an indifference curve so that the best affordable point corresponds to six pints of Carlsberg and ten coffees. (1) iii. If the price of Carlsberg falls to €4, draw the new budget line. (2) iv. If the price of coffee increases to €2.50, draw the new budget line. (2) (c) (6 marks) Using the substitution effect and income effect analysis, explain why the demand curve for a normal good slopes downward. 4. (a) (6 marks) Explain the following production terms i. factors of production ii. production function iii. marginal product iv. law of diminishing returns v. average product vi. diseconomies of scale (b) (9 marks) Please copy Table 2 into your Answer book and answer the questions that follow. Assume that capital (machinery) and labour (workers) cost €25 per unit, per day. Table 2: A Firm’s Costs Units Total Cost Average Cost Capital Labour Qutput TFC TVC TC AFC AVC ATC MC 1 0 0 1 1 4 1 2 10 1 3 13 1 4 15 1 5 16 i. Complete the table. (7) ii. Is this in the short-run or long-run? Explain your answer. (2) 5. (a) (8 marks) In a competitive market, the short-run supply curve for a firm is its short-run marginal cost curve above the shutdown price. Explain. Use appropriate diagrams where necessary. (b) (7 marks) Explain and illustrate, using an appropriate diagram, the short-run equilibrium position for the monopolist.