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EC131_APR_2023

This document outlines the sessional examinations for Economic Principles 1 (Microeconomics 1) at Midlands State University, including instructions for candidates and a series of questions divided into two sections. Section A consists of multiple-choice questions covering various microeconomic concepts, while Section B requires candidates to answer two questions related to production possibilities, profit maximization, consumer budget lines, and supply factors. The exam duration is three hours, and there are no specific requirements for candidates.

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5 views

EC131_APR_2023

This document outlines the sessional examinations for Economic Principles 1 (Microeconomics 1) at Midlands State University, including instructions for candidates and a series of questions divided into two sections. Section A consists of multiple-choice questions covering various microeconomic concepts, while Section B requires candidates to answer two questions related to production possibilities, profit maximization, consumer budget lines, and supply factors. The exam duration is three hours, and there are no specific requirements for candidates.

Uploaded by

Tstorm
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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MIDLANDS STATE UNIVERSITY

FACULTY OF BUSINESS SCIENCES

DEPARTMENT OF ECONOMIC SCIENCES

ECONOMIC PRINCIPLES 1: EC131

(MICROECONOMICS 1: EC101)

SESSIONAL EXAMINATIONS

APRIL/ MAY 2023

DURATION: 3 HOURS

R EQUIREMENTS

None

INSTRUCTIONS TO CANDIDATES

Answer all questions in section A and any two (2) questions


from section B

Write legibly.

Page 1 of 6
SECTION A (ANSWER ALL QUESTIONS: 50 MARKS)
MU MU),
1. Veblen consumes two goods, apples (A) and bananas (B), such that < . In
PI 13

order to maximize utility, Veblen should:


A. Raise consumption of apples
13. Raise consumption of bananas
C. Reduce consumption of bananas
D. Leave consumption unchanged

2. Following a wage adjustment from $80 to $100. a consumer purchases 5% more of a


product. The demand for the product is and the commodity is a
good.
A. Income elastic; inferior
13. Income inelastic, luxury
C. Price inelastic, necessity
D. Income inelastic; necessity

3. The law of diminishing returns explains the shape of the:

A. Long run average cost curve.


13. Indifference curve.
C. Long run marginal cost curve.
D. Average variable cost curve.

4. Given a concave opportunity cost curve, we can deduce that:

A. The opportunity cost of producing product X is increasing.


B. The opportunity cost of producing product Y is decreasing.
C. The marginal rate of product transformation is constant.
D. Factors of production are perfectly adaptable.

5. Combinations of output inside the Production Possibilities Curve are:

A. Unattainable
B. Inefficient
C. Efficient
D. None of the above

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6. Based on the following information, find the total cost of producing 3 units.

Quantity ATC AVC MC

2 11

3 2 5

A. 16
B. 6
C. 21
D. 27
7. Using the information from the previous question. If we know that for this firm marginal
productivity is decreasing, what can we say about the Marginal Cost of the 4th unit?

A. It is increasing.
B. It is decreasing.
C. It is constant.
D. None of the above.

8. Which of the following statements are true?


1. The best way for a firm to maximize profits is to maximize revenue.
II. The best way for a firm to maximize profits is to produce at the minimum of the Aver
age Total Cost curve.
A. Only I
B. Only II
C. Both I and II.
D. Neither I nor 11.

9. Which of the following is NOT a characteristic of perfectly competitive markets?

A. Numerous small firms and consumers


B. Heterogeneity of goods
C. Free entry and exit
D. Perfect information

10. In the long run perfect competitive equilibrium, which of the followinv, does NOT hold?

A. Marginal Revenue = Price


B. Marginal Cost =Marginal Revenue
C. Average Fixed Cost + Marginal Cost—Average Total Cost
D. Average Revenue—Average Cost

11. Which of the following is a feature of a command economy?

A. There is a more equitable distribution of income.

Page 3 of 6
B. The price mechanism allocates resources.
C. The three economic questions are answered by market forces.
D. There is a wider gap between the rich and the poor.

12. If demand is perfectly elastic the burden of Value Added Tax (VAT)
A. Will mostly fall on the consumer.
B. Will mostly fall on the producer.
C. Will entirely fall on the producer.
D. Will entirely fall on the consumer.
Ans
13. A monopoly will not only charge a higher price, it will also produce output than a
competitive market would produce.

A. more.
B. less.
C. better.
D. the same.

14. Zimbabwe's telecommunications industry is a good example of:

A. a monopoly.
B. a competitive market.
C. an oligopoly.
D. an unconcentrated industry.

15. A monopolistically competitive firm:

A. charges lower prices than competitive firms, all other things equal.
B. produces more output than competitive markets. all other things equal.
C. is one of several firms in the market.
D. all of the above.

16. A fall in the price of raw milk, used in the production of ice cream, will:

A. decrease the supply of ice cream.


B. increase the supply of ice cream.
C. have no effect on the supply of ice cream.
D. none of the above.

17. What do patents, economies of scale, and exclusive franchises have in common'?

A. they are all barriers to entry.


11. they are all granted by the government to monopoly firms.
C. they guarantee that a market will be competitive.
D. all of the above.

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18. If, shortly after Econet Company has announced a tariff increase, the other
telecommunication firms announce identical price increases on their products, this is likely to
be:
A. the essence of competition.
B. a cartel.
C. price leadership.
D. a coincidence.

19. What is the only cause of a movement along a supply curve?


A. technological advancement
B. a change in production costs
C. exit of firms from an industry
D. a change in the price of the good

20. If the cross-price elasticity of demand for two goods is 0.6 it follows that the goods are:
A. Independent
B. Complements
C. Inferior
D. Substitutes

21. The demand for ice cream is given by Qd = I2-3P whilst its supply is given by 2+2P. It
follows that the equilibrium quantity is while the equilibrium price is
A. 6; 2
B. 4; 1
C. 1; 4
D. 10; 1.5

22. Price discrimination is:


A. charging different prices to different customers because it costs the firm more to serve
some customers than others.
B. changing the firm's price frequently to respond to market conditions.
C. charging different prices to different customers when the price differences are not based
on cost differences.
D. charging different prices to different customers based on their race or ethnicity.

23. Economies of scale over a wide range of output:


A. are a barrier to entry.
B. mean that cost per unit of output is lower at high levels of output.
C. mean that cost per unit of output is higher at low levels of output.
D. all of the above.

24. The demand curve for a normal good shifts leftwards if:
A. The price of the good rises.
B. The price of the good falls.
C. Consumer income decreases.

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D. Consumer income increases.

25. The income elasticity of demand is less than zero for:

A. Inferior goods.
B. Necessities.
C. Luxuries.
D. Complements.

SECTION B (ANSWER ANY TWO QUESTIONS: 50 MARKS)

Question 1

Assess the influence of the various factors that may shift the production possibilities frontier
for your country. [25 marks]

Question 2

Using graphical illustrations, explore the long-run profit maximisation behaviour of a firm
under perfect competition. [25 marks'

Question 3

Suppose there are two commodities X and Y, whose prices at the initial conditions are $10
and $8, respectively. The income of the consumer is $400.

a) Sketch the relevant budget line of the consumer. [5 marks]


b) Determine the new budget line if income rises to $960, ceteris paribus. [5 marks]
c) Demonstrate what happens to the budget line if the price of good X increases to $20,
holding income constant at $400, and price of Y constant as well. [5 marks]
d) If income and prices are doubled from the initial conditions, what effect will be
reflected on the budget line? [5 marks]
e) Explain how in general, the consumer equilibrium is uniquely established only at the
point of tangency of the budget line and the indifference curve and not elsewhere.
[5 marks]

Question 4
Examine the factors that affect the supply of a commodity, clearly outlining those that
lead to a change in supply and those that lead to a change in quantity supplied. Invoke
illustrative diagrams in your discussion. [25 marks]

END

Page 6 of 6

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