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IMI611S-INTERMEDIATE MICROECONOMICS-2ND OPP-JULY 2024 |
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nAmlBIA unlVERSITY
OF SCIEnCE AnD TECHnOLOGY
FACULTYOF COMMERCE, HUMAN SCIENCESAND EDUCAITON
DEPARTMENT OF ECONOMICS, ACCOUNTING AND FINANCE
QUALIFICATION : BACHELOR OF ECONOMICS, BACHELOR OF ACCOUNTING AND BACHELOR
OF ACCOUNTING (CHARTERED)
QUALIFICATION CODE: O7BEC0
LEVEL: 7
COURSE CODE: IMl611S
COURSE NAME: INTERMEDIATE MICROECONOMICS
SESSION: JULY 2024
DURATION: 3 HOURS
PAPER: THEORY
MARKS: 100
SECONDOPPORTUNITYEXAMINATION QUESTION PAPER
EXAMINER(S) Mr Eslon Ngeendepi
MODERATOR: Miss Ndeshi Shitenga
INSTRUCTIONS
1. Answer ALL the questions.
2. Write clearly and neatly.
3. Number the answers clearly.
PERMISSIBLEMATERIALS
1. Pens/pencils/erasers
2. Calculator
3. Ruler
THIS QUESTION PAPER CONSISTS OF 5 PAGES (Including this front page}
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SECTION A
20 Marks
QUESTION 1
1. Explain the relationship between ordinal and cardinal utility and the indifference
approach and utility approach.
(4)
2. Carmen consumes two products: breakfast cereal and coffee. The following table shows
four combinations of cereal and coffee that will give Carmen the same amount of
satisfaction. Use the information given in this table and draw Carmen's indifference curve.
(Put cereal on the vertical axes).
(5)
Combination
1
2
3
4
Cereal
6
12
18
24
Coffee
12
6
4
2
3. Explain the law of diminishing marginal rate of substitution.
(3)
4. Explain, with the aid of a diagram, what happens in the market for electricity if the
government fixes a maximum price below the equilibrium price.
(8)
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QUESTION 1
SECTION B
30 Marks
a) Use demand and supply curves to illustrate and explain why a rare item such as a
painting by Rembrandt, Rubens, Van Gogh, Picasso or Munch is sold at such a high
price.
(5)
QUESTION f ;)
a) The linear supply function is Q = g + hp. Derive a formula for the elasticity of supply in
terms of p (and not Q). Now write a formula entirely in terms of Q.
(5)
b) Do you care whether a 15C tax per gallon of milk is collected from milk producers or
from consumers at the store? Why?
(5)
c) Andy purchases only two goods, apples (a) and kumquats (k). He has an income of $40
and can buy apples at $2 per pound and kumquats at $4 per pound. His utility function
is U(a, k) = 3a + 5k. That is, his (constant) marginal utility for apples is 3 and his
marginal utility for kumquats is 5. What bundle of apples and kumquats should he
purchase to maximize his utility? Why?
(12)
d) Why would a consumer's demand for a supermarket product change when the
product price is quoted inclusive of taxes rather than before tax?
(3)
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SECTION C
50 Marks
QUESTION 1
a) Don spends his money on food and on operas. Food is an inferior good for Don. Does
he view an opera performance as an inferior or a normal good? Why? In a diagram,
show a possible income-consumption curve for Don.has decreased.
(8)
b) Alix views coffee and cream as perfect complements. In the first period, Alix picks an
optimal bundle of coffee and cream, el. In the second period, inflation occurs, the
prices of coffee and cream change by different amounts, and Alix receives a cost-of-
living adjustment (COLA) based on the Consumer Price Index (CPI) for these two
goods. After the price changes and she receives the COLA, her new optimal bundle is
e2. Show the two equilibria in a figure. Is she better off, worse off, or equally well off
at e2 compared to el? Explain why. By how much will a CPI for these two goods differ
from the true cost-of-living index?
(5)
QUESTION 2
= = a) To produce a recorded CD, q 1, a firm uses one blank disk, D l, and the services of
a recording machine, M = 1, for one hour. Draw an isoquant for this production
process. Explain the reason for its shape.
(5)
b) A firm is considering selling a new good at an introductory price that is less than the
monopoly price. By doing so, it hopes to create a critical mass of users and benefit
from an increased future demand generated by a positive network externality for the
product. The marginal cost of production is constant at MC = 4 and equal to the
average cost. The inverse demand curve for the product is p = 20 - 4Q.
I. If the firm were to charge the monopoly price, what would its total profits be over
two periods?
(10)
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II. If the firm tried to take advantage of the positive network externality by instead
charging the competitive price in the first period and the monopoly price in the
second period, by how much would the demand curve have to rotate outward (that
is, its slope has to change) before the firm's total profits over the two periods
exceeded your answer to part a?
(15)
QUESTION 3
a) Whenever Aliza buys a flashlight, she also always buys exactly two batteries along with
it. Any more than two batteries will serve no purpose, because she will not be able to
use them in the flashlight. Any more flashlights will not be useful either, because there
will not be enough batteries for her to make use of them. Show her preference map.
What is her utility function?
(7)
TOTAL= 100 MARKS
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