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Ollscoil na hÉireann, Gaillimh _GX______ National University of Ireland, Galway Semester I Examinations, 2007/ Exam Code(s) 1BA1, 1BA6, 1BA7, 1OA1, 1EM Exam(s) 1 st^ Arts, 1st^ Arts (PSP), 1st^ Arts (Psychol.), Occasional, Eramus Module Code(s) EC Module(s) Principles of Microeconomics Paper No. 1 Repeat Paper External Examiner(s) Professor Robert Wright Internal Examiner(s) Mr. Brendan Kennelly Dr. Gerard Turley Instructions: Students are required to answer all questions in Section A (20 marks) on the MCQ answer sheet provided, any FIVE questions in Section B ( marks) and any THREE questions in Section C (45 marks). Please note that there is no negative marking in Section A. Duration 2 hrs. No. of Answer books MCQ + minimum of one answer book Requirements : Handout MCQ Statistical Tables Graph Paper Log Graph Paper Other Material No. of Pages 7 Department(s) Economics
Section A (20 marks) Answer all questions (no negative marking) Please use the MCQ answer sheet
- The idea in economics that decisions are made that best serve the objective of the decision-maker is known as the principle of (a) opportunity cost; (b) specialisation; (c) marginal decision making; (d) rational self-interested behaviour; (e) comparative advantage.
- Apples and pears are substitutes. This means that (a) as the price of apples increases, the demand for pears decreases; (b) as the price of apples increases, the demand for pears increases; (c) as the price of apples decreases, the demand for pears decreases; (d) as the price of apples decreases, the demand for pears increases; (e) both statements (b) and (c) are true.
- Qs = f (P). We know that (a) quantity supplied is the explanatory variable; (b) quantity supplied determines price; (c) price is the dependent variable; (d) quantity supplied is the dependent variable; (e) both (b) and (d) above.
- Suppose that the quantity demanded of salmon increases from 1200 kgs to 1440 kgs when the price falls by 8 percent. The elasticity of demand is minus (a) 3.7; (b) 1.5; (c) 4.6; (d) 2.1; (e) 2.5.
- An increase in total consumer spending that results from an increase in the price of cereals suggests that the demand for cereals is (a) elastic; (b) inelastic; (c) unitary elastic; (d) perfectly elastic; (e) (a) and (d) above.
- Which of the following is not a property of the household’s budget line? (a) The budget line is usually convex to the origin; (b) It reflects the income and price constraints; (c) The slope of the budget line is the marginal rate of substitution; (d) Budget lines usually slope downward from left to right; (e) The position of the budget line is given by household income.
- When the firm Galway Co. is operating at the minimum point on its ATC curve, then all of the following are correct except (a) AFC is also at its minimum; (b) AVC is rising; (c) MC is rising; (d) MC and ATC are equal; (e) both (c) and (d) above.
Section B (15 marks) Answer any five (and only 5 ) questions Each question carries equal marks
- Explain what is the co-ordination mechanism principle in economics.
- Name and explain the two types of price controls.
- List three factors that might determine price elasticity of demand.
- What are the assumptions of consumers’ preferences in neoclassical economics?
- Define marginal revenue and marginal cost.
- List four types of market structures.
- Explain the term ‘externality’.
**Section C (45 marks) Answer any three (and only 3) questions
- (a) (6 marks)** Use appropriate demand and supply diagrams to explain the impact of each of the following; i. an increase in supply; (2) ii. a reduction in demand; (2) iii. a simultaneous decrease (of equal magnitude) in demand and supply (2) on market-clearing prices and quantities. Use separate diagrams in each of the three cases. (b) (7 marks) Consider the following equations: Qd = 71 – 3P Qs = P - 1 i. Find the equilibrium using simultaneous equations. (3) ii. On a diagram, sketch the demand curve and the supply curve. (1) iii. Suppose P = 20. Calculate the shortage or surplus. (1.5) iv. Suppose P = 15. Calculate the shortage or surplus. (1.5) (c) ( 2 marks) In the context of the recent boom (i.e. 1995 – 2005) in the Irish housing market, what are the factors that have affected the demand for and supply of housing? In your answer please identify factors as either demand-side or supply-side.
2. (a) (4 marks) What do economists mean by elasticity of demand? List and explain the three types of elasticity of demand. (b) (6 marks) Suppose that the price of a computer is €750 and the corresponding number of quantities demanded is 400,000. One year later, the price of the same computer is €1,000; quantities demanded are numbered at 200,000. Estimate both the point and arc elasticity measures. What is the difference between these two measures of price elasticity? (c) (5 marks) Explain the relationship between price elasticity of demand and total revenue. 3. (a) (3 marks) Define consumer surplus. On a demand curve diagram, sketch the area representing consumer surplus. (b) (6 marks) Kevin’s weekend income is € 6 0. A pint (of Guinness) costs € 5 and a coffee costs €2.
5. (a) ( 3 marks) What are the assumptions underlying the perfectly competitive market? How do these assumptions differ from the "real world"? (b) (8 marks) In a competitive market, the short-run supply curve for a firm is its short-run marginal cost curve above the shutdown price. Explain. Use appropriate diagrams where necessary. OR Outline, with the aid of suitable diagrams, the long-run equilibrium position for perfect competition. (c) (4 marks) Using a diagram, outline the short-run equilibrium position of the monopolist.
