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ANSWER 5 OUT OF 7 QUESTIONS. ( 20 MARKS EACH )

1.

a.

List and describe the three economic agents. ( 6 marks )

b.

List and describe the four factors of production. Give any two examples of factors of productions for the Singapore Flyer. ( 10 marks )

c.

Define scarcity and opportunity cost. ( 4 marks )

2.

a.

With the aid of a diagram, illustrate and state the law of demand. ( 4 marks )

b.

With the aid of a diagram, illustrate and state the law of supply. ( 4 marks )

c.

i.

With the aid of a diagram, illustrate and explain market equilibrium. ( 4 marks )

CBA Elements of Economics Paper Set 2

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Price ($) 2 3 4 5 6 7 8 9 10 Table 2.1 Quantity supplied 1 2 4 6 8 10 12 15 17 Quantity demanded 15 14 13 12 11 10 8 7 6

ii.

Referring to Table 2.1, determine the market equilibrium price and quantity. ( 4 marks )

iii.

What is the new equilibrium price and quantity if an increase in price of substitutes increases the demand by 4 units at all price level? ( 4 marks )

3.

a.

Define price elasticity of demand and explain why price elasticity of demand is negative. ( 4 marks )

b.

Define price elasticity of supply and explain why price elasticity of supply is positive. ( 4 marks )

c.

If the price elasticity of demand for your business is -2.0, would you want to increase the selling price of your products? Explain why. ( 4 marks )

CBA Elements of Economics Paper Set 2

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d. If the income elasticity of your product is -2.0, what type of goods are these? How would recession affect your business? ( 4 marks )

e.

If your product has a cross elasticity of +2.0 with respect to Goods A, what is the relationship between the 2 goods? What will happen to the demand of your product if price of Goods A increases? ( 4 marks )

4.

a.

Table 4.1 shows Johns utility for tea and rice. Each cup of tea costs John $0.50 while each bowl of rice costs him $1.00. Re-produce and complete Table 4.1 in your answer booklet. ( 10 marks ) Tea Total Marginal MU/P No. of Utility Utility for tea bowls Rice Total Margin Utility al Utility 0 30 40 44 40 30 -

No. of cup s 0 1 2 3 4 5 Table 4.1 b.

MU/P for rice

0 15 22 24 25 22

0 1 2 3 4 5

Define marginal utility. Explain the trend of the marginal utility for Tea and Rice. ( 2 marks )

c.

If there is no income constraint, how many cups of tea and bowls of rice would John consume? Explain why. ( 3 marks )

d.

If John has an income of $1.50, how many cups of tea and bowls of rice would John consume? Explain why. ( 5 marks )

CBA Elements of Economics Paper Set 2

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5. Table 5.1 shows the short-run costs of a food production firm. Re-produce and complete Table 5.1 in your answer booklet. ( 20 marks ) Output TFC 0.0 15.0 20.0 30.0 Table 5.1 TVC TC 100.0 120.0 130.0 170.0 MC AFC AVC ATC -

TFC : Total Fixed Cost TVC : Total Variable Cost TC : Total Cost MC : Marginal Cost

AFC : Average Fixed Cost AVC : Average Variable Cost ATC : Average Total Cost

6.

a.

Peter quitted his job as a chef to start a restaurant. He withdrew $20,000 from his bank account to pay for the renovation of the restaurant. On top of this, he paid a monthly rental and utility of $4,000, and monthly payroll expenses of $4,000. Peter earned $200,000 of revenue for his first year. The raw material cost is 20% of total revenue. Peter used to earn $5,000 a month as a chef and earn a 1% interest on his bank account. i. Define implicit costs and explicit costs. ( 4 marks )

ii.

State the formula and calculate Peters accounting profit for the first year. ( 3 marks )

iii.

State the formula and calculate Peters economic profit for the first year. ( 3 marks )

iv.

Given your answers from Q6.a. (ii) and (iii), should Peter quit his job as a chef? ( 3 marks )

CBA Elements of Economics Paper Set 2

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b. Define fixed inputs and variable inputs. ( 4 marks )

c.

Re-write the following statement in your answer booklet. Fill in the blanks accordingly. ( 3 marks ) The law of diminishing marginal returns states that when more and more ____________ input (such as labour) is added to ____________ input (such as a capital), the output of each additional variable input ______________.

7.

a.

List the three characteristics of a monopoly. ( 3 marks )

b.

Re-produce and complete Table 7.1 in your answer booklet. ( 14 marks ) Price ($ per unit) $20 $18 $16 $14 $12 $10 $8 Table 7.1 Output (unit) Total Revenue ($) Margina l Revenue ($) Marginal Cost ($) 2 4 6 10 16 24 Total Cost ($) 1000 1040 1120 1240 1440 1760 2240

100 120 140 160 180 200 220

c.

Given your answers from Table 7.1, determine the profit maximizing equilibrium price and quantity. ( 3 marks )

END OF PAPER
CBA Elements of Economics Paper Set 2