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Economic Principles and Skills Examination, January 2012, Exams of Economics

A past exam paper for the ec10120 economics principles and skills course. It includes questions on topics such as long-run equilibrium for monopolies and perfectly competitive firms, economic profit vs normal profit, scarcity, choice, opportunity cost, market failures, international trade intervention, consumer behavior, market intervention effects, and labor market. Students are required to answer questions using diagrams and clear explanations.

Typology: Exams

2011/2012

Uploaded on 12/06/2012

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ARHOLIADAU EXAMINATIONS
Ionawr 2012 January 2012
EC10120 ECONOMIC PRINCIPLES AND SKILLS 1
Time allowed: TWO hours
Answer QUESTION ONE, and TWO questions from Section B
Casio FX83ES/GT and FX85ES/GT calculators only may be used.
SECTION A
1. a) Using clearly labelled diagrams, explain the long-run equilibrium position for (i) a
monopoly firm and (ii) a perfectly competitive firm, in terms of price and output. (18 marks)
b) Distinguish between economic profit and normal profit. Explain how excess profits can only
persist in the long run in a monopoly. (15 marks)
(Total 33 marks)
SECTION B
2. 'Economics is about scarcity, choice and opportunity cost.' Explain what this means and give
examples to illustrate your answer. How can the principles of choice based on opportunity cost
be related to the decisions of parents with small children about whether or not to seek paid
employment? (33 marks)
3. Why do markets fail? Briefly explain how these failures might be dealt with. Relate your answer
to ONE of the following areas: higher education, transport, or health. (33 marks)
4. Explain how governments might intervene in international trade to protect infant industries and
to help domestic firms either to gain first-mover advantages or to overcome entry barriers
created by foreign firms in global industries where economies of scale are important. What are
the costs and benefits to the economy of such intervention? (33 marks)
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ARHOLIADAU EXAMINATIONS

Ionawr 2012 January 2012

EC10120 ECONOMIC PRINCIPLES AND SKILLS 1

Time allowed: TWO hours

Answer QUESTION ONE, and TWO questions from Section B

Casio FX83ES/GT and FX85ES/GT calculators only may be used.

SECTION A

  1. a) Using clearly labelled diagrams, explain the long-run equilibrium position for (i) a

monopoly firm and (ii) a perfectly competitive firm, in terms of price and output. (18 marks)

b) Distinguish between economic profit and normal profit. Explain how excess profits can only persist in the long run in a monopoly. (15 marks) (Total 33 marks)

SECTION B

  1. 'Economics is about scarcity, choice and opportunity cost.' Explain what this means and give examples to illustrate your answer. How can the principles of choice based on opportunity cost be related to the decisions of parents with small children about whether or not to seek paid employment? (33 marks)
  2. Why do markets fail? Briefly explain how these failures might be dealt with. Relate your answer to ONE of the following areas: higher education, transport, or health. (33 marks)
  3. Explain how governments might intervene in international trade to protect infant industries and to help domestic firms either to gain first-mover advantages or to overcome entry barriers created by foreign firms in global industries where economies of scale are important. What are the costs and benefits to the economy of such intervention? (33 marks)

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  1. a) Explain, in detail, what factors influence the quantity of a good that a consumer will choose to buy. (6 marks)

b) Show, using diagrams, how to derive the market demand curve for a product from the demand curves of individual consumers. (5 marks)

c) Explain how economists measure the responsiveness of demand to changes in a product’s own price. What influences this elasticity of demand? (10 marks)

d) The shape of the demand curve reflects the price-elasticity of demand. Demonstrate, using a diagram or diagrams, the relationship between the shape of the demand curve, elasticity, and changes in total revenue. (12 marks) (Total 33 marks)

  1. Draw, label and use diagrams to answer the following:

a) What would be the effects in the markets for appropriate goods or services of introducing the following: i) Maximum price controls (7 marks) ii) Subsidies to sellers (7 marks) iii) A tax on the product (7 marks)

b) Consider the arguments as to why all such intervention in markets should be avoided? (10 marks) (Total 33 marks)

  1. Suppose a household has a budget of £100 per month for food and can choose between different combinations of two goods, cakes and sandwiches. Sandwiches cost £2, cakes cost £4.

a) Using an appropriate diagram, describe and explain the consumer’s optimum consumption choice. Explain why the marginal rate of substitution at the optimum is equal to (minus) the ratio of relative price of the two goods. (8 marks)

b) Illustrate the effect on the consumer’s choice of a doubling in the price of sandwiches to £4. Describe and explain the income and substitution effects of this change. (8 marks)

c) Now suppose that the consumer’s budget increases to £150 per month. Illustrate and explain the change that this causes in the case where i) both goods are normal (5 marks) ii) sandwiches are inferior (5 marks)

d) Briefly describe and explain the assumptions that you have made in your analysis about the behaviour of the consumer’s preferences. (7 marks) (Total 33 marks)

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