The Hong Kong Management Association Lingnan University Joint Diploma in Management Studies

Transcription

1 The Hong Kong Management Association Lingnan University Joint Diploma in Management Studies THE ECONOMIC ENVIRONMENT INSTRUCTIONS: 1. This examination paper consists of 5 pages (including this cover page). 2. Time allowed is 2 hours. 3. Section A -- Choose 2 questions from Section A: 2 from A1, A2 and A3. 4. Section B -- Choose 2 questions from Section B: 2 from B4, B5 and B6. 5. All answers must be in your answer books only. Begin each question on a new answer book. 6. Return the question sheet with your answer books. 1

2 Section A: Choose TWO questions from A1, A2 and A3. Question A1 (a) What is opportunity cost? (3 marks) (b) Your friend is preparing for this exam and in your practice session makes the following statement: "Instead of attending microeconomics class for two hours, Kiki could have played tennis or watched a movie. Therefore, the opportunity cost of attending class is the tennis and the movie she had to give up. "Is your friend's analysis correct or not? Explain your answer. (4 marks) (c) The figure above shows the market for ink-jet printers. (i) What are the equilibrium price and equilibrium quantity of printers? (ii) Calculate the total amount consumers paid for printers bought. (iii) Calculate the consumer surplus. (iv) Calculate the producer surplus. (d) Using supply-and-demand diagrams, show and explain the effects of the following events on the price of CD (compact disc)and the quantity of CD sold. For each event, identify which of the determinants of demand or supply is affected, how it influences demand or supply, and what happens to the equilibrium price and quantity. (i) Producers introduce new cost-saving technologies in their CD production plants. (5 marks) (ii) Consumers' incomes increase and CD are a normal good. (5 marks) 2

3 Question A2 (a) What are the difference between a firm s short run and long run production period? (4 marks) (b) What are diseconomies of scale and why might they occur? (5 marks) (c) Ayanna grows herbs. Last year she grew 2,000 pounds of herbs in a year while using 250 square feet of land and 1 worker. This year she doubled her land to 500 square feet, doubled her workers to 2, and grew 4,500 pounds of herbs. She sells her rare, organic herbs for $50 a pound. She pays her workers $25,000 a year and rents her land for $100 per square foot for a year. These are her only costs. (i) What was Ayanna's total cost last year and this year? (4 marks) (ii) What was Ayanna's average total cost last year and this year? (iii) Did Ayanna experience economies or diseconomies of scale? (d) The above figure represents the average total cost curves of a wheat farmer. (i) Which average total cost curve has the lowest possible average cost of production? (ii) Over what range of output is the farmer experiencing economies of scale? (iii) Over what range of output is the farmer experiencing diseconomies of scale? (iv) Which average total cost curve represents the largest plant? 3

4 Question A3 (a) Describe the meaning of Price takers. Why perfect competitors are price takers? Explain. (6 marks) (b) List two production decisions have to be made by a firm in both Short Run and Long Run. (4 marks) (c) What is the meaning of the Shut Down point of a firm? Explain by using a Cost Curves Diagram. (7 marks) (d) Why a Perfectly Competitive Market is efficient? your answer. (8 marks) Use a suitable diagram to illustrate Section B: Choose TWO questions from B4, B5 and B6. Question B4 The following is the information of Hong Kong economy in 2008: GDP by Expenditure Component Private consumption expenditure Government consumption expenditure Gross domestic fixed capital formation Changes in inventories Exports of goods (f.o.b.) Exports of services Less : Imports of goods (f.o.b.) Less : Imports of services $ Billion 1, , , (a) Give the definition of GDP. (b) What is intermediate good? (c) Calculate the GDP (at market price) of Hong Kong in (4 marks) (3 marks) (5 marks) (d) Suppose the GDP deflators in 2007 and 2008 are 100 and respectively. Calculate the real GDP (at constant 2007 s price) in (5 marks) (e) Real GDP can be used to compare the living standard of different countries. Explain FOUR factors that may make the comparison not accurate. (8 marks) 4

5 Question B5 (a) What factors contribute to the shape of aggregate demand curve? Are they the same as the reason for the demand curve of a single good (e.g., apple)? (8 marks) (b) What are the factors affecting the buying plans of people, business, government and foreigners other than the price level? (6 marks) (c) Use an AS-AD graph to analyse the effect of an expectation of improving performance of economy. (5 marks) (d) Suppose the event in (c) had created an inflationary gap. (i) Draw an AS-AD graph of an economy with an inflationary gap. (3 marks) (ii) What will happen in the long run in the labour market? (3 marks) Question B6 (a) What are the official measures of money supply in the United States? (b) Credit cards are not Money. Please explain. (3 marks) (c) What are the three policy tools that Fed normally use in monetary policy? (6 marks) (d) What are the three factors that limit the quantity of money the banking system can create? (6 marks) (e) What are the four factors that influence the quantity of money that people plan to hold? (8 marks) - End of Paper - 5