Topics: Economics, Inflation, Supply and demand Pages: 7 (1134 words) Published: May 8, 2014



Wednesday 13, October, 2010

Reading Commences:

Writing Commences:


3 hours


Off Campus Partner Providers

Course Coordinator:

Paul McPhee

Total marks:


Instructions to candidates:
1. Print your name and student number on the Examination Paper and Answer Book. At the conclusion of the examination you must hand in both the examination question paper and your answer booklet.

2. Attempt any three (3) questions from Part A, Microeconomics;

3. Attempt any three (3) questions from Part B, Macroeconomics;

4. All questions, except questions 4 and 14, are to be answered in the answer booklet provided;

5. Answer questions 4 and 14 on the Examination Question Paper;

6. Do not detach any portion of the examination paper.

7. Begin writing, as indicated, after the reading time has ended.

Materials allowed: Students are NOT permitted to bring any written materials or books into the examination except a hard standard bilingual language dictionary. Calculators without significant text storage capacity are permitted.


Student Name:

Student ID:

Part A – Microeconomics:
Answer any three (3) of the following questions. Each question is worth 10 marks.

Question 1:
Indicate whether each of the following changes in price cause total revenue to increase, decrease or remain unchanged? Explain why. (2 marks each) a Price falls and demand is elastic;

b Price rises and demand is elastic;

c Price falls and demand is unitary elastic;

d Price rises and demand is unitary elastic;

e Price falls and demand is inelastic.

Question 2:
a Define, describe and illustrate with a diagram, one opportunity cost for a person starting up their own business (2 marks)

b Explain the difference between implicit and explicit costs (2 marks)

c Explain the difference between accounting profit and economic profit (2 marks)

d How do opportunity cost, explicit cost, implicit cost, accounting profit and economic profit relate to each other? (4 marks)

Question 3:
a Why would consumers prefer that the government tax products with elastic, rather than inelastic demand? (5 marks)

b Opponents of increasing the tax on manufacturers of cigarettes argue that the big tobacco companies just pass the tax on to the consumers. Do you agree or disagree? Explain your answer with the assistance of a diagram. (5 marks)

Question 4:
Important Note: Answer this question on the Examination Question paper. The diagram on the left below illustrate an industry under oligopoly consisting of 10 equal-sized firms whilst the diagram on the right below indicates the price and quantity combination of one particular firm within the industry. Each of the firms produces an identical product.

(a) Assuming that the firms form a cartel, what price will the cartel choose if it wishes to maximise overall profits for the cartel?

(b) What total output must the cartel produce in order to maintain this price?

(c) To what output will an individual firm be restricted if this price is to be maintained (assume all firms are permitted to produce the same level of output)?

(d) If the other firms stick to this output, how much would an individual firm be tempted to produce if it wished to maximise its own profit at the agreed price?...............................

(e) If it undercut the cartel price, what price and output would maximise its profit (assuming that the other members did not retaliate?
(2 marks each)

Question 5:

(a) Explain and illustrate with a diagram the impact of external costs on resource allocation (2 marks for diagram plus 2 marks for explanation);

(b) Explain and illustrate with a diagram the impact of external...
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