wsv I'IRITIIBIR UNIVERSITY EXAMINER(S) clearly. QUALIFICATION CODE: 07BEC O QUALIFICATION: BACHELOR OF ECONOMICS OF SCIENCE HUD TECHNOLOGY

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1 Answer. Number I'IRITIIBIR UNIVERSITY OF SCIENCE HUD TECHNOLOGY FACULTY OF MANANGEMENT SCIENCES DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE QUALIFICATION: BACHELOR OF ECONOMICS QUALIFICATION CODE: 07BEC O LEVEL: 7 COURSE CODE: IMI61 IS COURSE NAME: INTERMEDIATE MICROECONOMICS SESSION: AUGUST 2017 PAPER: THEORY DURATION: 3 HOURS MARKS: 100 SUPPLEMENTARY / SECOND OPPORTUNITY EXAMINATION QUESTION PAPER EXAMINER(S) MR. PINEHAS NANGULA MR. EDEN TATE SHIPANGA MS. KALILA MACKENZIE MS KASNATH KAVEZERI MODERATOR: ESlOfl Ngeendepi pd. wsv INSTRUCTIONS ALL the questions Write clearly and neatly. the answers clearly. in section A and B. PERMISSIBLE MATERIALS 1. Scientific calculator 2. Pen and Pencil Ruler THIS QUESTION PAPER CONSISTS OF 5_ PAGES (Including this front page)

2 Pg/Pf Pf SECTION A MULTIPLE CHOICE QUESTIONS [20 MARKS] 1. Which of the following is a correct representation of the budget constraint in a world with only food and shelter, where M income, = Pf: price of food, P5 = shelter price, S = the quantity of shelter, and F = the quantity of food. M = PS (S) + Pf (F) F = M/Pf c) S = M/Ps - (S) /PS(F) d) F = M(PS ) + PS /Pf (S) All points on or below a budget constraint are attainable with the given income. are equally desirable. 0) represent market basket combinations that exhaust the income available. d) are described, in part, by a, b, and 0 above. If a man prefers Budweiser to Schlitz and Schlitz to Pabst, and if he is indifferent between Budweiser and Miller, he must prefer prefer Miller to Pabst. Schlitz to Miller. c) be indifferent between Schlitz and Miller. d) be indifferent between Budweiser and Pabst. An indifference curve is collection of market baskets that are equally desirable to the consumer. collection of market baskets that the consumer can buy. c) a curve whose elasticity is constant for every price. d) a curve which passes through the origin consumer regards as being equivalent. As long as all prices remain constant, an increase in money an increase in the slope of the budget line. a decrease in the slope of the budget line. c) an increase in the intercept of the budget line. 2 and includes all of the market baskets that the income results in

3 d) a decrease in the intercept of the budget line. 6. If the prices of both goods increase by the same percent, the budget shift parallel to the left. shift parallel to the right. c) pivot about the x axis. (1) pivot about the y axis. 7. A normal good can be defined as one which consumers purchase prices fall. incomes fall. 0) incomes increase. (1) the prices of other products increase 8. A price decrease and an increase in income are similar in that both force the consumer to achieve a lower level of well-being. line will more of as both force the consumer to reach a lower indifference curve. 0) both move the budget d) They are not similar at all. line outward. 9. Suppose that the price elasticity of demand for maple syrup has been estimated at - 2. If quantity demanded increased by 10 percent, price must have changed by 5 percent lower. 5 percent higher. 0) 10 percent lower. d) 10 percent higher. 10. If the income elasticity of demand is +4 the good is an inferior good. the good is an inelastic normal good. 0) the good is an elastic normal good. (1) the good is an elastic inferior good

4 SECTION B [80 marks] ANSWER ALL QUESTIONS IN THIS SECTION Question One [30 marks] A 10 percent increase in the price of automobiles reduces the quantity of automobiles demanded by 8 percent. What is the price elasticity of demand for automobiles?[4 marks] How will a change in income affect the location of the budget line? [3 marks] C) d) How will an increase in the price of one of the goods purchased by location of the budget line? a consumer affect the [3 marks] Explain why for some goods, the long-run price elasticity of demand is greater than the short-run price elasticity of demand. Give examples of goods that may display this characteristic. Sarah consumes apples and oranges (these are the only fruits she eats). She has decided that her monthly budget for fruit will be N$50. Suppose that one apple costs N$0.25, costs N$0.50. while one orange i. What is the expression for Sarah s budget constraint? ii. Draw a graph of Sarah s budget line. iii. iv. Show graphically how Sarah s budget line changes if the price of apples increases to N$O.50. Show graphically how Sarah s budget line changes if the price of oranges decreases to N$0.25. v. Suppose Sarah decides to cut her monthly budget for fruit in half. Coincidentally, the next time she goes to the grocery store, she learns that oranges and apples are on sale for half price, and will remain so for the next month; that is, the price of apples falls from N$0.25 per apple to N$0.125 per apple, and the price of oranges falls from N$O.50 per orange to N$0.25 per orange. What happens to the graph of Sarah s budget line? Question two [30 marks] The current world production of oil is 250 million barrels per day and the current world price of oil is N$ per barrel. The price elasticity of demand (8) is -0.2 and the elasticity of supply (11) is 0.3. Shiwa Investment is planning to enter the world oil market with a daily production of 11 million barrels of oil per day. For simplicity, assume that the supply and demand curves are linear Use a well labelled diagram to analyse the effect of Shiwa Investment production on the world price and quantity. [5 marks] Use the information provided above to determine the long-run demand and supply 4

5 functions that are consistent with pre-shiwa Investment world output and price. 0) Determine the post-shiwa Investment longrun linear supply function [5 marks] d) Use the demand function and the post-shiwa Investment supply equilibrium price and quantity. function to calculate new [5 marks] 6) Explain why the equilibrium quantity increases with less than 11 million. [5 marks] Question four [20 marks] For the following pairs of goods, would you expect the cross-price elasticity of demand to be positive, negative, or zero? Briefly explain your answer. i. Red umbrellas and black umbrellas ii. Coca-Cola and Pepsi iii. Grape jelly and peanut butter iv. Chocolate chip cookies and milk v. Computers and software Suppose that the market for air travel between Chicago and Dallas is served by just two airlines, United and American. An economist has studied this market and has estimated that the demand curves for round-trip tickets for each airline are as follows: 03 = PU ;} = PA where PU is the price charged by United, and PA is the price charged by American. Suppose that both American and United charge a price of N$300 each for a round-trip ticket between Chicago and Dallas. What is the price elasticity of demand for united flights between Chicago and Dallas and interpret your answer? All the best