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University Exam Question Paper
University Exam
Course:Principles Of Micro Economics
Institution: Laikipia University question papers
Exam Year:2012
Instructions:
Answer question one (compulsory) and any other two.
Show your working clearly.
Question one
(a). Why would a study of commercial banks in Kenya be considered microeconomics. (3 marks)
(b).State three main types of economic resources. (3 marks)
(c).Why might resource scarcity be considered the rasion d??tre for economics. (3 marks)
(d).Mixed economic system is superior to other systems of resource allocation. Discuss. (3 marks)
(e).What do you understand by:
i. Ceteris paribus
ii. Opportunity cost
iii. Equilibrium (3 marks)
(f) i. Copy the table and fill gaps a-I with the missing data.
UnitsofXconsumed Total utility Derived
0 a 1 25 2 35 3 43 4 50 5 54 6 54 7 b 8 37 9 c 10 28
ii. From the table draw a graph showing how marginal utility of X varies as quality of X consumed varies. (Hint: show marginally utility on the vertical axis). (5 marks)
iii.State the economic law that summarizes the pattern your graph in ii. Shows. (5 marks)
(g) Construct one normative economics statement and one positive economics statement. (2 marks)
Question two (20 marks)
Demand for rented "Prado''s" at Nyahururu car hire firm is described as Qd=5000-50P where Qd is the quantity of prados demanded (i.e., Prado hours) and P is the average price per hour to rent a Prado. If this relationship hold true in the future:
a. How many Prados will be demanded at a rental price of $10,$20 and $30 per hour? (5 marks)
b. What is arc price elasticity of demand between $10 and $20? (5 marks)
c. What is the point of elasticity of demand at $30? (5marks)
d. If the number Prado rental hour was 4250 in 2010 what would you expect the average rental rate per hour to have been? (5 marks)
Question three (20 marks)
(a). Show in two different diagrams, change in supply and change in quality supplies.(6 marks)
(b).state the principle of diminishing returns. (5 marks)
(c). several economics lecturers were standing in a line in the student union canteen for lunch. One of the lectures was heard saying, "I surely wishj the union to raise their good prices."The other lecturers agreed .What in the world would motivate such a wish?
(d). Own price elasticity of demand for a commodity is given as -2.From this information answer the following questions:
i. If the price increases by 10%, find the percentage change in quality demanded.(2 marks)
ii. If the price decreases by 10%, find the percentage change in quality demanded. (2 marks)
iii. Why might it be advisable for the producer of this commodity to reduce the price? (3 marks)
Question four (20 marks)
Consider the simplified demand and supply functions: D=200-2P and S=20+4p
a) Define and determine the equilibrium price and quantity. (2 marks)
b) Graph the two functions in a well labeled diagram and showing equilibrium price and quantity. (2 marks)
c) If a price floor is fixed at P=40, how much excess demand or excess supply would be there? (4 marks)
d) If a consumer buys 100 units of a commodity, how much would the consumer surplus be? (4 marks)
e) If a producer sells 100 units of the commodity, how much would the producer surplus be? (4 marks)
f) Find (algebraically), the change in equilibrium price and quantity if demand shifts to D=260-2P while supply remains as S=20+4P.
Question five (20 marks)
The table below shows output and cost schedules for a competitive firm.
(a). What is a competitive firm? (2 marks)
(b).Complete and show formulas you used to get the missing data. (10 marks)
Output 0 1 2 3 4 5 6 7 8
Total cost9 20 30 39 47 54 60 67 77
Fixed cost
Variable cost
Average total cost
Marginal cost
(c)In the same diagram, draw the typical short run total, average and marginal product curves. Assume labour (L) is the variable input. (8 marks)
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