nam I 8 I A U n IVERS ltv OF SCIEnCE AnD TECHnOLOGY

Size: px

Start display at page:

Download "nam I 8 I A U n IVERS ltv OF SCIEnCE AnD TECHnOLOGY"

Charlotte Welch
5 years ago
Views:

1 nam I 8 I A U n IVERS ltv OF SCIEnCE AnD TECHnOLOGY FACULTY OF MANAGEMEMNT SCIENCES DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE QUALIFICATION: BACHELOR OF ECONOMICS QUALIFICATION CODE: 07BECO LEVEL: 7 COURSE CODE: IMI611S COURSE NAME: INTERMEDIATE MICROECONOMICS SESSION: JUNE 2016 PAPER: THEORY DURATION: 3 HOURS MARKS: 100 FIRST OPPORTUNITY EXAMINATION QUESTION PAPER EXAMINER(S) MODERATOR: MR. PINEHAS NANGULA MR. EDEN TATE SHIPANGA MS KALILA MACKENZIE PROF. JOHANNES P.S. SHEEFENI (UNIVERSITY OF NAMIBIA) INSTRUCTIONS 1. Answer ALL the questions in section A and B, and two questions in section C. 2. Write clearly and neatly. 3. Number the answers clearly. PERMISSIBLE MATERIALS 1. Scientific calculator 2. Pen and Pencil 3. Ruler THIS QUESTION PAPER CONSISTS OF _5_ PAGES (Including this front page)

2 SECTION A MULTIPLE CHOICE QUESTIONS [20 MARKS] 1. The economic problem of scarcity describes the choices people make when they have: a) Unlimited resources to satisfy their limited wants. b) Unlimited resources to generate their unlimited wants. c) Limited resources to satisfy their limited wants. d) Unlimited resources to generate their limited wants. e) Limited resources to satisfy their unlimited wants. 2. The Opportunity Cost of a good is: a) The enjoyment you'd have had if you'd bought he next best alternative product instead b) The amount you would pay for it in a shop c) The amount you would pay for it at the factory d) The cost of the labour that went into it e) The cost of all the factors of production that went into it 3. Which of the following is a normative statement: a) An increase in government spending on policing will reduce crime b) An increase in the tax on beer will reduce consumption c) The VAT rate in Namibia is 14% d) Government should increase tax on cigarettes e) A tax cut will cause higher inflation 4. When you get more enjoyment from your first cupcake that you eat compared to the fourth cupcake that you eat, this illustrates: a) The opportunity cost of the cupcake b) Consumer preferences c) That the cupcake is an inferior good d) That the demand for cupcakes is inelastic e) Diminishing marginal utility 5. Which of the following will cause a fall in the quantity of coffee demanded? a) The price of milk (a complement) falls b) The price oftea (a substitute) rises c) The price of tea (a substitute) stays the same d) The price of coffee rises e) Household incomes rises 6. When consumers demand less of a good as its price increases (ceteris paribus) this violates: a) The law of supply b) Consumer preferences c) The elasticity of the good d) The law of demand e) The market equilibrium 2

3 7. Price Quantity Demanded of X... Quantity of X Refer to the graph above. This illustrates that the demand for Good X is: a) Perfectly elastic b) Elastic c) Inelastic d) Perfectly inelastic e) Cannotsay 8. The demand curve is downward sloping because: a) Demand decreases as supply increases b) Demand increases as supply increases c) Demand decreases as prices decrease d) Demand increases as prices decrease e) Demand determines the market equilibrium 9. If a consumer prefers A to B and B to C and her preferences are transitive, then she: a) Prefers C to A b) Prefers B to A c) Prefers A to C d) Prefers C to B e) We cannot say 10. If the price of Nik Naks rises by SOc and you stop buying Nik Naks, then your demand for Niks Naks is: a) Perfectly inelastic b) Elastic c) Perfectly elastic d) Inelastic e) Affected by the supply of Nik Naks 3

4 Section B [30 marks] The current world production of oil is 100 million barrels per day and the current world price of oil is $40 per barrel. The price elasticity of demand (E) is -0.5 and the elasticity of supply (11) is 0.4. Kati Investment is planning to enter the world oil market with a daily production of 0.9 million barrels of oil per day. For simplicity, assume that the supply and demand curves are linear a) Use a well labelled diagram to analyze the effect of Kati Investment production on the world price and quantity. b) Use the information provided above to determine the long-run demand and supply functions that are consistent with pre-kati Investment world output and price. [10 marks] c) Determine the post-kati Investment long-run linear supply function d) Use the demand function and the post-kati Investment supply function to calculate new equilibrium price and quantity. e) Explain why the equilibrium quantity increases with less than 0.9 million. Section C Answer only two questions from this section Question One [50 marks] [25 marks] a) People makes trade-offs because they can't have everything. State three trade-offs a society faces. b) The demand function for roses is Q = p, and the supply function is Q = p + O.St, where p is the price of roses and tis the average temperature in a month. Show how the equilibrium price varies with temperature. c) The demand function for processed pork is Q = 100-P + 5Pb + Pc + 8Y and supply function for processed pork is Q = 50 + P-6Ph where Pb is the price of beef, Pc is the price of chicken, Ph is the price of hog and Y is the consumer income. Initial values are Pb=N$2, Pc=N$5, Y=N$100 and Ph=N$3. Draw the demand and supply curve for processed pork. [8 mark] d) Use a well labelled diagram to analyse the effect of an increase in the price of chicken on the equilibrium price and quantity of pork assuming chicken and pork are substitute. [4 marks] e) Suppose that the inverse demand function for music show is P = Q and the supply function for music show is Q = 50+ P. Calculate elasticity of demand at 4

5 equilibrium for this music show. Question two a) Explain the following economics concepts: i. Economies of scale ii. Diseconomies of scale iii. Economies of scope iv. Production possibility frontier [25 marks) b) The production function for the automotive industry is Q(K, L) = 2K 0 4L 0 6, where K and L are inputs in the production. i. If you double the inputs, what will happen to the outputs? Show your works. [8 marks] ii. What kind of return to scale does this production exhibit? Explain your answer Question Three [25 marks] A grass manufacturing's production function is q = 10L 0 5K0 5. Its marginal product oflabour is 0.5q/L and its marginal of capital is 0.5q/K. Suppose that its wage is N$1 per hour and rental cost of capital is N$4 and the total cost is N$1 00 a) Derive the isocost equation and draw the isocost curve with labour on the horizontal axis. [7 marks] b) Calculate the slope of the isocost curve c) Calculate the marginal rate of technical substitution d) What is the optimal resource allocation? [8 marks] All the best 5

fiogggcgfihodfilgmmmmm

fiogggcgfihodfilgmmmmm / l'lfiltllblh UNIVERSITY OF SCIEI'ICE HHD TECHNOLOGY FACULTY OF MANAGEMEMNT SCIENCES DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE QUALIFICATION: BACHELOR OF ECONOMICS QUALIFICATION CODE: 07BECO COURSE