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CONFIDENTIAL BM/APR 2008/ECO162/161/169/104
UNIVERSITI TEKNOLOGI MARA
FINAL EXAMINATION
COURSE
COURSE CODE
EXAMINATION
TIME
: MICROECONOMICS
: ECO162/161/169/104
: APRIL 2008
: 3 HOURS
INSTRUCTIONS TO CANDIDATES
1. This question paper consists of three (3) parts : PART A (20 Questions)
PART B (4 Questions)
PART C (4 Questions)
2. Answer ALL questions from PART A and PART B and two (2) questions from PART C.
i) Answer PART A in the Objective Answer Sheet
ii) Answer PART B and PART C in the Answer Booklet. Start each answer on a new
page.
3. Do not bring any material into the examination room unless permission is given by the
invigilator.
4. Please check to make sure that this examination pack consists of:
i) the Question Paper
ii) an Answer Booklet - provided by the Faculty
iii) an Objective Answer Sheet - provided by the Faculty
iv) a graph paper - provided by the Faculty
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO
This examination paper consists of 11 printed pages
® Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

CONFIDENTIAL 2 BM/APR 2008/ECO162/161/169/104
PART A
1. The basic difference between microeconomics and macroeconomics is that
A. microeconomics studies the behavior of individual consumers whilst
macroeconomics studies the behavior of individual firms.
B. microeconomics studies the behavior of individual consumers and firms whilst
macroeconomics focuses more on the performance of the whole economy.
C. microeconomics looks at the aggregate economy whilst macroeconomics is
concerned with the behavior of individual markets.
D. Microeconomics explores the causes of economic growth whilst
macroeconomics studies the causes of unemployment and inflation.
2. Excessive unemployment of economic resources in a production possibilities curve is
indicated by
A a movement along the curve.
B. an inward shift of the curve.
C. an outward shift of the curve.
D. a point inside the curve.
3. The demand curve for good H is downward sloping, so an increase in its price will
cause
A. an upward movement along the demand curve.
B. a downward movement along the demand curve.
C. a rightward shift of the demand curve.
D. the demand curve to remain unchanged.
4. Which of the following will reduce total revenue?
A. Price increases when demand is elastic.
B. Price decreases when demand is elastic.
C. Price increase when demand is inelastic.
D. Price increases when demand is unitary elastic.
5. The larger the proportion of income spent on a good
A. the less elastic is the good's demand curve.
B. the more elastic is the good's demand curve.
C. the more inelastic is the good's demand curve.
D. no effect on the good's demand curve.
6. Assume the government has intervened in the market and imposed a floor price on
good F and a ceiling price on good G. What would be the effect on the market for
good F and good G?
A. Surplus in both markets.
B. Shortage in both markets.
C. A surplus in the good F market and an increase in the quantity of good G.
D. A surplus in the good F market and a shortage in good G market.
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

A family with an income of RM20.000 per annum purchases 100 units of a good per
month. The family's income rises to RM25.000 per annum and income elasticity of
demand is -2 for this good. What is the new quantity purchased each month?
A.
B.
C.
D.
50.
75.
125
200
8. Which of the following is not a feature of Islamic economics?
A. All economic decisions are based on the rules and regulations stated in the
Qur'an and hadiths.
B. It is religiously value loaded.
C. There is separation between Islamic economics and Islamic religion.
D. Islamic economic is man-centered and not wealth-centered.
9. The figure below shows a consumer's budget line and indifference curves.
Quantity
of
goodX
Quantity of good Z
Point D in figure above is
A. where a consumer achieves his/her equilibrium.
B. a point that does not use up all of the consumer's income.
C. unattainable given the consumer's current budget constraint.
D. attainable given the consumer's current budget constraint.
10. The coefficient of the price elasticity of supply for good H is estimated to be equal to
2.5. A two percent decrease in price would cause
A. a 5 percent increase in the quantity demanded for good H.
B. a 5 percent increase in the quantity supplied of good H.
C. a 5 percent decrease in the quantity demanded for good H.
D. a 5 percent decrease in the quantity supplied of good H.

11. One reason for economies of scale is
A. increased specialization as the firms builds larger factories.
B. problems in managing large operations.
C. total output increases.
D. the law of diminishing marginal returns.
12. In a perfectly competitive market
A. one firm produces the entire market supply.
B. there are a few sellers in the industry.
C. a firm cannot influence the price of its product.
D. the demand curve is downward sloping.
13. To maximize profit, a firm should adjust output until
A. marginal revenue equals marginal cost.
B. marginal revenue equals average cost.
C. price equals cost.
D. marginal revenue is greater than marginal cost.
14. If a firm's total cost is RM 50 when 10 units are produced and RM 55 when 11 units
are produced, the marginal cost of the 11th
unit is
A. RM5
B. RM1
C. RM0.50
D. RM605
15. The relationship between a series of short run average cost curves (SRACs) and the
long run average curve (LRAC) is such that
A. all of the SRACs are tangent to the LRAC and lie above it.
B. some of the SRACs are tangent to the LRAC and lie below it.
C. some of the SRACs are tangent to the LRAC and lie above it.
D. the SRACs and the LRAC intersect at every point.
16. When total product is at its maximum
A. the average product of labour is zero.
B. the marginal product of labour is zero.
C. the average product of labour is negative.
D. the average product of labour is declining.

17. Which of the following is not a characteristic of a monopolistic competitive market?
A. Product differentiation.
B. Mutual interdependence among firms.
C. A downward sloping demand curve.
D. A relatively large number of firms.
18. According to the marginal productivity theory, the price of a factor approximates very
closely to
A. the value of its marginal revenue product.
B. the value of the marginal product of the average firm.
C. the marginal productivity of the most efficient firm in the industry.
D. the cost of the factor.
19. Which of the followings are barriers to entry?
i. a natural monopoly.
ii. merging of small firms that enter the market.
iii. decentralisation of the firm.
A. i and ii
B. i, ii and iii
C. i and iii
D. ii and iii.
20. The economic rent will increase, ceteris paribus, whenever the
A. supply curve for land increases.
B. price of land increases.
C. demand for land increases.
D. cost of production increases.

PARTB
QUESTION 1
Farmers Dump 'Worthless' Choy Sum
By Chan Li Leen
Price hits all-time low of 30 sen a kilo
IPOH: It looks like farmers are dumping their harvest of choy sum with the price spiralling
further down to 30 sen a kilo.
Farmer K.S.Ho, who sells sweet potato leaves and lady's fingers is lucky in that he does not
plant any choy sum. "Harvesting choy sum needs a lot of manpower, which means it also
costs more to harvest," he said.
Since two weeks ago, the price of choy sum has plummeted from between RM1.50 and RM2
a kilo to about 50 sen on Wednesday. The prices of other greens are suffering a similar fate
due to several factors, including imports from China and a bountiful harvest due to good
weather.
Farmers have also complained about the increased price of fertilizer from RM75 to RM110
for a 50kg packet, thus adding to their burden.
Extract from The Star, Friday 11 January 2008
Answer the following questions.
a) List down two (2) reasons why the price of choy sum has decreased tremendously.
(2 marks)
b) With the aid of a diagram, show how the price of choy sum decreases based on the
reasons in part (a)above.
(3 marks)
c) Determine the suitable type of pricing policy the government agency will implement to
protect these farmers.
(1 mark)
d) Explain diagrammatically the pricing policy suggested in part (c) and give two (2)
disadvantages of such pricing.
(4 marks)

QUESTION 2
The table below shows the quantity demanded for Good L and Good M. Based on the table
answer the questions below
a)
b)
c)
Price of
Good M
(RM)
15
20
25
30
Qty. demanded for Good L
(units)
100
80
50
20
Qty. demanded for Good M
(units)
500
350
200
150
Define price elasticity of demand and calculate the price elasticity of demand for
Good M if the price increases from RM20 to RM25.
(3 marks)
Calculate the cross elasticity of demand for Goods L if price of Good M decreases
from RM25 to RM20. Determine the relationship between the two goods.
(2 marks)
Assume the income elasticity of demand for Good M is +3.0. What does it mean?
(1 mark)
The following table shows the costs of an accounting firm with a fixed cost of RM100.
Fill in the blanks.
Total
product
1
2
3
4
5
6
7
3
9
10
Total
variable
cost (RM)
90
170
240
300
370
450
540
650
780
930
Total
cost
(RM)
Average
cost (RM)
Marginal
cost (RM)
Average
variable cost
(RM)
(4 marks)

QUESTION 3
The table below shows the production possibility table for rice and tanks.
Production Alternatives
Tank (thousands)
Rice (thousands of tons)
A
0
44
B
2
40
C
4
32
D
6
20
E .
8
4
F
10
0
a)
b)
c)
d)
Define production possibility curve (PPC) and list down three (3) assumptions to
construct a PPC.
(3 marks)
Sketch the production possibilities curve (tanks on the x-axis and rice on the y-axis).
Determine the type of opportunity cost faced by the economy.
(4 marks)
What is the opportunity cost of producing the first two thousands of tanks?
(2 marks)
Sketch the effect on the PPC curve if the economy decides to transfer more of its
existing resources to produce more tanks.
(1 mark)

QUESTION 4
The diagram below shows a profit maximizing firm.
RM
13
16
14
—*
12
a)
b)
c)
d)
e)
f)
10
20 23 25
MR=AR
Quantity
In which market structure is this firm operating in? Why?
What is the profit maximizing level of output and price?
Is the firm experiencing profit or loss? State the value.
Would you consider this firm to be in the short or long run?
Should the firm shut down or continue production? Why?
(2 marks)
(2 marks)
(2 marks)
(1 mark)
(2 marks)
State two (2) reasons to be considered when a firm makes its decision whether to
shut down or continue production.
(1 mark)

PARTC
QUESTION 1
a) Explain briefly the basic economic problems faced by every country.
(9 marks)
b) Discuss three (3) features to distinguish between a free market economy and a
mixed economy.
(11 marks)
QUESTION 2
a) Market disequilibrium is a temporary condition in a free market. With the aid of a
diagram, discuss how a market could achieve equilibrium.
(10 marks)
b) Explain, using appropriate diagrams, the effects on the market for national cars in
each of the following cases:
i) an increase in consumers' income
(2.5 marks)
ii) an increase in the price of petrol
(2.5 marks)
iii) an increase in the cost of inputs used to make cars
(2.5 marks)
iv) an increase in the subsidy given to car manufacturers
(2.5 marks)
QUESTION 3
a) Differentiate between short run average cost and long run average cost curves.
(8 marks)
b) Using a diagram, explain the three (3) stages of production.
(12 marks)

QUESTION 4
Write short notes on any two (2) of the followings:
a) price discrimination
(10 marks)
b) comparing demand curve of perfect competition versus oligopoly
(10 marks)
c) demand for and supply of labour
(10 marks)
d) three principles of Islamic economic system
(10 marks)
END OF QUESTION PAPER

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