CONFIDENTIAL BM/OCT2006/ECO415

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : ECONOMICS
COURSE CODE : ECO415
EXAMINATION : OCTOBER 2006
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of two (2) parts : PART A (2 Questions)

PART B (4 Questions)

2. Answer ALL questions in PART A and only three (3) questions from PART B in the Answer
Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of:

i) the Question Paper

ii) an Answer Booklet - provided by the Faculty

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 5 printed pages
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PART A

QUESTION 1

SUGAR PRICE NOT IN TUNE WITH GLOBAL MARKET

The price of Malaysian sugar needs to be aligned with global prices to reflect market
demand and supply as well as to help overcome the shortage in some states. According
to an economist "a shortage of sugar is a signal that market forces are not functioning
properly. Consumers will have to gradually adjust to the world price to reflect market
demand and supply". Global sugar prices have risen by 70% over the past one year. The
economist stressed that if the price of sugar were to be maintained at a ceiling of
RM1.40 per kg, the government would need to double enforcement to close loopholes
that encouraged smuggling and hoarding.

However, the Domestic Trade and Consumer Affairs Deputy Minister said that "any
increase in the price of sugar, a price-controlled item, would only be made after 2008".
According to another economist, any increase in the price of sugar would cause another
round of inflationary pressure on consumers, who were still struggling after the recent
hikes in petrol price and electricity tariff. 'This could slow down the economy as the
government will need to balance between a shortage of sugar and a rise in sugar price."

As part of efforts to reduce the shortage, the ministry has banned industries that export
sugar-based products from buying sugar from the local market. Another new move is to
require manufacturers to purchase more raw sugar from the open market if they use up
their quota. The Government is also considering sourcing raw sugar from China to help
overcome the shortage of sugar in the country. If the purchase price is lower than the
open market price, we will be prepared to consider importing raw sugar from China".
Another economist with a local research house feels that the current sugar shortage is
an artificial one as there is currently no festive season.

Adapted from Star online 6 July 2006 & 12 July 2006.

a) What is market equilibrium? With the aid of a diagram, explain how it is determined.

(4 marks)
b) What is "price ceiling"? Why is it used by the government?
(4 marks)

c) According to the article, one of the factors which may have caused a shortage of
sugar is the festive season. Give two other possible reasons which may have
caused the present sugar shortage in the country.
(4 marks)
d) Why is the government controlling the price of sugar in Malaysia now?
(4 marks)

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e) It is stated in the article that".... the ministry has banned industries that export sugar-
based products from buying sugar from the local market1. Why was this measure
taken? What are the other measures being taken by the government to reduce the
sugar shortage in the country?
(4 marks)

QUESTION 2

Bank Negara Report On GDP Growth

Malaysia's Gross Domestic Product increased by 5.3% in the preceding fourth quarter
(Q4) last year, Bank Negara Malaysia announced yesterday. BNM governor said "The
economy maintained it's growth momentum." The rate of economic growth for the rest of
the year is expected to be higher than the first quarter's (Q1) 5.3%, a seasonally low
period, she told newsmen. Hence, BNM expects the gross domestic product (GDP) growth
rate to average 6% this year.

The governor said there was strong growth of 16.7% in the electronics and electrical
products industry compared with 10.5% in the fourth quarter last year. 'The computer
segment, in particular, benefited from strong buying interest as a result of lower prices as
well as increased demand for laptops due to the increasing popularity of wireless
systems." she added. The manufacturing sector as a whole expanded 8% in Q1, about the
same level as the 7.9% in Q4 last year, but significantly higher than 5.7% in Q1 last year.

The services sector expanded by 5.2% in Q1 this year, supported by trade, consumption
and tourism related activities. This is, however, lower than the growth of 5.9% in Q4 and
6.8% in Q1 last year. Growth in the agricultural sector increased by 7.3%, a surprisingly
sharp swing from the negative growth of 1.5% in the preceding quarter. The governor said
the growth was not due to the oil palm sub-sector, which saw lower activity, but it was
underpinned by a higher output of rubber, cocoa, fish, paddy, fruits and vegetables.

Adapted From The Star 2nd June 2006

a) Define Gross Domestic Product. How is it related to economic growth?

(4 marks)

b) Explain the output approach used to calculate the National Income.

(6 marks)

c) Which sector showed the highest growth compared to the previous quarter? What led
to the increase in growth in this sector?
(4 marks)

d) Explain three (3) problems which may be encountered when calculating the GDP of a
nation.
(6 marks)

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PARTB

QUESTION 1

a) Distinguish between microeconomics and macroeconomics.

(2 marks)

b) Explain how the concepts of scarcity, choice and opportunity cost are related.

(6 marks)

c) i) Elaborate on any three (3) factors that could affect the demand for walkman
in Malaysia.
(6 marks)

ii) Is the demand for walkman elastic? Explain why. (6 marks)

QUESTION 2

a) Briefly explain the different types of costs in the short-run. Illustrate your answer with
diagrams.
(10 marks)

b) Differentiate between a perfectly competitive firm and a monopoly in terms of their

characteristics.
(10 marks)

QUESTION 3

a) Discuss how the monetary policy can be used by the central bank to control inflation.

(10 marks)

b) In your opinion, what are the main types of unemployment in Malaysia currently.
Explain the suitable measures taken by the government to reduce the unemployment
level in Malaysia.

(10 marks)

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QUESTION 4

a) What is international trade? Elaborate on the benefits derived from international

trade.
(8 marks)

b) Describe the structure of the balance of payments accounts and discuss three (3)
ways for correcting the deficit in the balance of payments
(8 marks)

c) Explain any two (2) tools used for protecting the local industries.
(4 marks)

END OF QUESTION PAPER

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