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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.
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Ionawr 2012 January 2012
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)
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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)
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)
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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