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Hbc 2107: Introduction To Micro Economics Question Paper
Hbc 2107: Introduction To Micro Economics
Course:Bachelor Of Commerce
Institution: Dedan Kimathi University Of Technology question papers
Exam Year:2011
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KIMATHI UNIVERSITY COLLEGE OF TECHNOLOGY
UNIVERSITY EXAMINATIONS 2010/2011
FIRST YEAR SPECIAL/SUPPLEMENTARY EXAMINATIONS FOR THE DEGREE OF
BACHELOR OF COMMERCE
HBC 2107:- INTRODUCTION TO MICROECONOMICS
DATE: 24th MARCH 2011 TIME: 8.30 am – 10.30
Instructions
Answer question ONE and any other TWO questions.
QUESTION ONE
a) Using specific examples, explain “ ceretis paribus” as used in economics (3 marks)
b) Distinguish between the following terms:-
i) Scarcity and choice (4 marks)
ii) Positive and normative economics (4 marks)
iii) Microeconomics and macroeconomics (4 marks)
c) The demand for a commodity is twenty units when the prevailing market price equals eighty
shillings per unit. However, when the price per unit rises to one hundred shillings, the
quantity demanded rises to thirty units. Calculate both arc and point elasticities of the
commodity. (5 marks)
d) Define the term cross price elasticity of demand and clearly explain its value for substitutes
and complementary commodities. (4 marks)
e) What do you understand by the term “ Economic System”. Outline the merits of a market
system in an economy (6 marks)
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QUESTION TWO
a) Explain the ways in which the goals of the producing firm affects the quantity of goods and
services supplied in the market (5 marks)
b) The table below shows the demand and supply schedules for a product.
Price (£ per unit) Demand (Per week „000s) Supply (per week „000s)
10
20
30
40
50
60
100
85
75
50
25
15
10
20
35
80
95
110
i) Plot the demand and supply curves and determine the equilibrium price and quantity.
(5 marks)
ii) Suppose a sales tax of £5 per unit sold is imposed and collected from the suppliers.
Indicate the effect of such a sales tax on the same demand and supply curves in (i)
above and explain them exhaustively. (10 marks)
QUESTION THREE
The managing director of Kori-Lima Movie Theatre ltd has hired you as a consultant to advice
on the ticket pricing strategy. As a basis for your recommendations you consider historical ticket
sales data which seems to suggest the following ticket-sales elasticities;
Own-price elasticity = -0.05
Refreshment price elasticity = -0.12
Nairobi population elasticity = +0.65
Advertising elasticity = +0.70
a) The Managing director is contemplating a moderate increase in ticket prices and advertising
budget in order to increase revenue. Explain whether this is a good idea or not (10 marks)
b) How would you characterize the relationship between tickets and refreshments (5 marks)
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c) If the population of Nairobi increased from 120,000 to 122,400 people in the next year, what
would be the resulting impact on ticket demand? Assume all other factors are held constant
(5 marks)
QUESTION FOUR
a) Explain various merits of a controlled economy. (8 marks)
b) Using the data in the following table, which shows the variations in the output of good X as
the labor force is increased, calculate the average and marginal products of labor. Give
analysis of average and marginal products of labor illustrating the law of diminishing returns.
(12 marks)
Units of labor :- 1 2 3 4 5 6 7 8 9 10
Total product:- 5 13 21 28 30 30 26 21 14 5
E-------N---------D
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