Principles of Microeconomics (ECNC2101)
Higher Institute of Commerce and Management (HICM)
Semester: First Semester
Level: 200
Year: 2019
THE UNIVERSITY OF BAMENDA
Higher Institute of Commerce and Management (HICM)
RESIT Examination 2019
Principles of Microeconomics, Time Allowed: 2 hours
Instructions: answer ALL the questions in the sequence they appear
Question 1: (10 Marks)
Write TRUE for the correct statement and FALSE for the wrong one. Do not copy the statements.
A.
Economics is an unfinished science because its scope is expanding and embracing other disciplines
like transportation, agriculture, geography etc.
B.
Product pricing, factor pricing and theory of economic welfare are the scope of microeconomics.
C.
The government implements a maximum price policy above the market clearing price.
D.
When a firm does not produce anything, its total cost is made up of variable costs.
E.
Ridge lines are loci of points on isoquants where the marginal product of the factor is greater than
zero.
F.
If MUA/PA is < than MUB/PB then we need to reduce the consumption of A in order to get to
equilibrium.
G.
Lower isoquants yield lower levels of output to the producer because the’,' represent a lower
combination of one or both factors.
H.
The demand curve for a good shows the same information as the demand schedule.
I.
If a good is inferior and its price rises, the income effect will encourage greater expenditures, at
the same time as the substitution effect pushes towards lower expenditures.
J.
When an economic problem displays the characteristic of nonconvexity, marginal thinking is
sufficient to maximize net benefits.
Question 2: (20 marks)
A consumer in Bambili likes to eat both Rice and Beans. In a local restaurant, a plate of rice cost 500
frs and beans cost 300 frs. His utility function for rice (X) and beans (Y) Is given by U(X,Y) = 40 XY,
where MUx = 40Y and MUy = 40X. Suppose he has 1500frs to spend on rice and beans,
i)
State four assumptions of the utility theory (4 marks)
ii)
How many of each should he buy to maximize his satisfaction? (10 marks)
iii)
Why does MU diminish as one consumes additional units of a normal good? (3 marks)
iv)
State the Gossen's First and second law of cardinal utility analysis (3 marks)
Question 3: (20 marks)
Why will sellers generally offer a greater quantity in the market at the higher price? Is there any
exception to this generalization?
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EXERCISE THREE (10 marks)
Consider an economy with government spending given as 150 billion FCFA, Planned investment of 100
billion FCFA, Net export of 25 billion FCFA, Autonomous taxes are 125 billion. Given that income tax is
rated at 0.05 of income, and finally Marginal propensity save of 0.25
Given that Consumption (C) is 300 billion FCFA, when income (Y) is equal to 2000 billion, and Yf is
2500 billion FCFA.
Solve for autonomous consumption and induced consumption.
Solve for the equilibrium level of output in the following two scenarios:
there is an income tax t=0.1
there is no income tax in the economy. Denote these two variables by Y*w and Y*w
o
respectively.
In the economy with an income tax of 10%, what is the budget balance of the government?
Solve for the change in net exports that would bring the equilibrium output level in the economy with
the income tax to the level of Y*that you found in part b. Specify both the magnitude of the change and
whether it is an increase or a decrease. What would be the new level of net exports after this change?
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