A Test 1 Micro

1. a) PPC can be defined as a curve which shows the various possible combinations of two goods that the economy can produce given a limited amount of resources and a certain level of technology. Three assumptions:

i. the economy produces only two types of goods ii. The available resources are fully employed / utilized iii. Technology remains constant/unchanged

b)

The curve shows an increasing opportunity cost. c) The opportunity cost is 4000 tons of rice.

d)

2. a)

Definition- PPC shows the various possible combinations of goods and services produced within a given period with the available resources.

b) 5 units of clothing - Def. various possible combinations of 2 products that can be produced with a specific set of resources c)

As in diagram (a) above

F- attainable but wastage S- unattainable due to scarcity P – most efficient – varying choice d) Increasing opportunity cost Economic resources are not completely adaptable to alternative uses, as production increases less and less productive resources are used. e)

As in diagram

3. a)

A PPC shows the maximum combination of two outputs an economy can produce in a given time period using its available resources and technology.

b) Point A – indicate the economy has utilized all its resources to produce tractors. Point D – indicate a point that is unattainable due to scarcity of resources. Point E – indicate inefficient output level as the country has unemployed resources. c)

The shape is concave from the origin due to the law of increasing opportunity cost.

d) i)

ii)

3 a)

Opportunity cost column Combination A B C D E

Car (‘000) unit 0 20 40 60 80

Motorcycle (‘000) unit 200 150 100 50 0

Opportunity Cost of Motorcycle per unit 0.4 0.4 0.4 0.4 0.4

b) Sketch the production possibility curve.

c)

Opportunity cost of: i) ii)

Producing 200 000 units of motorcycle. Producing 80 000 units of car.

80 000 cars 200 000 motorcycles

d) Illustration : i)

Influx of foreign labour into the automobiles industry.

ii)

Mobilization of labour from motorcycle industries to car industries.

4. a)

b) c) d) e) f) g)

3000 tons of food Between D and E Between A and B Underutilization of resources Unattainable with given resources Any three

6. a)

b) 2 assumptions: i) An economy producing only two goods that are car and food ii) Resources are utilized efficiently c) i) forgo 3 units of food ii) forgo 4 units of food increasing opportunity cost. - Concave to the origin d)

Chapter 2 1) a)

(optional) P

Qs

Qd

1.00 1.20

23 30

65 59

1.40

35

52

1.60

45

45

1.80

50

38

2.00 2.20

58 65

31 25

b) Ed = Q1 – Q0 x P0 P1 – P0 Q0 = 38 – 45 x 1.60 1.80 – 1.60 45 = -7 x 1.60 0.2 45 = -1.24 (elastic) c)

Decrease the price of fertilizers

d) Shortage = Qd – Qs = 59 – 30 = 29 e) f) -

Price ceiling Any 2 factors of price elasticity of supply Time period or adjustment period Gestation period of production Substitutability of factor or input used Change in cost with respect to the change in supply

2. a)

Define Ped- refer to the notes Formula Ped for good M = 200 – 350 x 20 = -1.71 25 - 20 350 Both goods show an elastic demand.

b) The two goods are complementary. c)

Yed equal to +3.0 shows that: -

Good M is a normal good When Y increases Qd increases and when Y falls Qd falls (direct relationship)

3. a)

Formula Business travelers

Vacationers

Ed = 1900 – 2000 X 250 250 – 200 200 = -0.25

Ed = 550 - 800 X 200 250 – 200 800 = -1.25

Inelastic

elastic

b) Vacationers do not travel as often compared to business travelers since for them to travel means going off for holiday. Hence they can choose more easily a different mode of transportation. Traveling is necessary for business travelers as its part of their job therefore time is an their schedule is less adaptable.

important factor since

c) Yed

= 800 – 600 X 10,000 15,000 – 10,000 600 = +0.67

This good can be referred as normal good. 4. a)

y- axis – price, x – axis – quantity of sugar

(0.5m)

label DD & SS correctly.

(0.5m)

Pe = RM1.45, Qe = 70 kg

(1m)

b) i) Es = Qn – Qo Pn – Po

X Po Qo

= 110 – 90 1.55 – 1.50

X 1.50 90

= 6.67 ; elastic

ii) Any one factor with a brief explanantion

c)

SS shifts leftwards on the diagram Pn = RM1.55 ; Qn = 60 kg

d) Ceiling price (0.5m); shortage or any other reason e)

Xed = QnH – QoH PnS – PoS

X PoS QoH

= 65 – 80 X 1.40 – 1.35

1.35 80

= - 5.1 (1.5 m) ; complement (0.5m) 5. a)

P = 12

Q= 300

equilibrium points (1m), diagram (1m)

b)

Qty ss = 400 therefore Qs > Qd by 200 units.

c)

price ceiling Qd = 400

Qs = 200

d) Po = 20

Qo = 100

P1 = 12

Q1 = 300

Qd > Qs by 200 units

Price elasticity of demand = -5 Total revenue increases

e) Po = 16 P1 = 20

Qo = 400 Q1 = 500

Price elasticity of supply = 1

6. a)

Equilibrium price = RM 1.50 Equilibrium Qty. = 2 million litres

b)

Ori. P = 1.00 New P = 1.50

ori. Q = 3 New Q = 2

Ed petrol = New Q – Ori Q x Ori. P New P – Ori P Ori Q =2-3 x 1 1.50 – 1.00 3 = -0.67 Inelastic 5. a)

Pe = RM 13 (1m), Qe = 100 boxes

b) i) Diagram ii) P1 = RM 14 Q1 = 80 boxes c) Tax Revenue = (RM14 – RM12) x RM80 = RM160 d) Consumers = (RM14 – RM13) X RM80 = RM80 Sellers = (RM13 – RM12) X RM80 = RM80