DIPLOMA IN ACCOUNTANCY

DIPLOMA IN BUSINESS ADMINISTRATION

DIPLOMA IN MARKETING


INSTRUCTIONS TO CANDIDATE:

1. There are THREE (3) SECTIONS in this paper.
2. Answer all TWENTY (20) multiple choice questions from SECTION A.
3. Answer only TWO (2) out of THREE (3) data response / stimulus
questions from SECTION B.
4. Answer any TWO (2) out of THREE (3) questions from SECTION C.



SECTION A (20 marks)
(Answer all multiple-choice questions)

Question 1

A1) In economics, when we speak of scarcity, we are referring to

(A) the ability of society to employ all of its resources.
(B) the inability of society to consume all that it produces.
(C) the ability of society to produce more than needed.
(D) the ability of society to continuously make technological breakthroughs.
(E) the inability of society to satisfy all human wants because of limited resources.


A2) Which one of the following will NOT produce an outward shift of the production possibilities
curve?

(A) An upgrading of the quality of nation's human resources.
(B) The reduction of employment.
(C) An increase in quantity of a society's labor force.
(D) The improvement of a society's technological knowledge.
(E) An increase in number of capital goods.


A3) Which of the following is expected to shift the demand curve for laser printers rightward?

(A) A fall in the cost of producing laser printers.
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(B) A fall in the price of personal computers.
(C) A fall in the price of laser printers.
(D) A fall in the price of bubble jet printers.
(E) All of the above.


A4) Assuming that the demand curve is given, an increase in supply will cause

(A) a shift of the demand curve.
(B) an increase in equilibrium price.
(C) a decrease in quantity demanded.
(D) an increase in the quantity exchanged.
(E) a shortage.







A5) Income elasticity of demand for an inferior good is

(A) negative.
(B) positive.
(C) unpredictable.
(D) zero.
(E) equals 1.


A6) A fall in the price of commodity X leads to an increase in the demand for commodity Y
and a fall in the demand for commodity Z. What is the relationship of X, Y and Z?

(A) X is a complement for both Y and Z.
(B) X is a substitute for both Y and Z.
(C) X is a complement for Y and a substitute for Z.
(D) X is a substitute for Y and a complement for Z.
(E) X is a substitute for Y but not related to Z.


A7) A perfectly elastic demand implies that

(A) buyers will not respond to any change in price.
(B) any rise in price above that represented by the demand curve will result in no
output demanded.
(C) price and quantity demanded respond proportionally.
(D) price will rise by an infinite amount when there is a change in quantity demanded
(E) the demand curve will be a straight line.
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A8) The law of diminishing marginal utility states that

(A) total utility is maximized when consumers obtain the same amount of utility
per unit of each product consumed.
(B) Beyond some point additional units of a product will yield less and less extra
satisfaction to a consumer.
(C ) price must be lowered to induce firms to supply more of a product
(D) it will take larger and larger amounts of resources beyond some point to produce
successive units of a product.
(E) beyond some point additional units of a product, the extra satisfaction gained will
get larger.








A9) Which of the following statements is TRUE?

(A) Both marginal utility and total utility come only from the last unit consumed.
(B) Total utility comes only from the last unit consumed and marginal utility comes
from all units consumed.
(C ) Marginal utility comes only from the last unit consumed and total utility comes
from all units consumed.
(D) Marginal utility is the ratio of total utility to the number of units of the good
consumed.
(E) None of the above.


A10) Which one of these does reflect consumer behavior theory?

(A) Every consumer behave irrationally in that they seek to maximize their
satisfaction.
(B) The consumer has unlimited income.
(C ) The consumer does not know how much marginal utility they obtain from
successive units of various products.
(D) All of the above reflect consumer behavior theory.
(E) None of the above.


A11) The profit maximizing output level for a perfect competition firm is when

(A) marginal cost equals marginal revenue.
(B) marginal costs equals average total cost.
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(C) marginal revenue equals average variable cost.
(D) average variable cost is lower than average total cost.
(E) marginal cost is higher than average total costs.


A12)


















To earn maximum profit, the firm should produce ______ units when the price is MC3.

(A) Q1
(B) Q2

(C) Q3
(D) Q4
(E) None of the above is correct.


A13)) When total product is decreasing

(A) the average product is decreasing.
(B) the marginal product is decreasing.
(C) the average product is rising.
(D) Both (a) and (b).
(E) None of the above.


A14) Which of the following costs do vary with the amount of output a firm produces?

(A) Marginal cost.
(B) Average fixed cost.
(C) Variable cost.
(D) Average variable cost.
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(E) All of the above.


A15) When the marginal product is increasing

(A) total product is increasing at an increasing rate.
(B) total product is increasing at a decreasing rate.
(C) total product is equal to zero.
(D) total product is at maximum.
(E) total product is decreasing.


A16) A monopoly firms demand curve is

(A) the same as the marginal revenue curve.
(B) the same as average revenue curve.
(C) a horizontal line draw at the market price.
(D) downward sloping.
(E) both (b) and (d).


The table below shows the total cost for different levels of output. Use the table to answer
question A17 to A19.

Output 0 1 2 4 5
Total Cost 20 50 65 90 120

A17) What is the average fixed cost of producing 5 units of output?

(A) 2
(B) 3
(C) 4
(D) 5
(E) 6


A18) What is the average variable cost of producing 4 units of output?

(A) 17.5
(B) 13.0
(C) 14.0
(D) 15.0
(E) 16.0


A19) Which of the following is WRONG?
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(A) TC = AC + AVC
(B) TFC = TC - TVC
(C) AVC = TVC / Q
(D) TFC = AFC Q
(E) TC = TFC + TVC


A20) The income elasticity of demand for the BMW Z3 is found to be 0.9. This means the
BMW Z3

(A) is a normal good.
(B) has inelastic demand.
(C) is a superior good.
(D) has elastic demand.
(E) is a luxury good.





SECTION B
(Answer any TWO (2) out of THREE (3) questions only)
Question 2
(a) Explain the utility maximizing rule for two products in words and using algebra.
(4 marks)

(b) A consumer finds only three products X, Y and Z are for sale. The amount of utility
Which their consumption will yield are as shown in the table below. Assume that the
prices of X, Y and Z are $10, $2 and $8, respectively, and that the consumer has an
income of $74 to spend.

Product X

Product Y

Product Z

Quantity MU MU/PX Quantity MU MU/PY Quantity MU MU/PZ

1

42



1

14



1

32



2

82



2

26



2

60



3

118



3

36



3

84



4

148



4

44



4

100



5

170



5

50



5

110


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6

182



6

54



6

116



7

182

7

56.4

7

120


(i) Complete the table by computing the marginal utility per dollar for successive
units of X, Y and Z to one or two decimal places.
(6
marks)

(ii) How many units of X, Y and Z will the consumer buy when maximizing
utility and spending all income?

(4
marks)

(iii) Why would the consumer NOT be maximizing utility by purchasing 2 units
of X, 4 units of Y, and 1 unit of Z?
(4 marks)
(c) Can marginal utility be negative? Briefly explain with an example.
(2
marks)

(Total 20 marks)

Question 3

(a) Explain the law of demand. (6
marks)

(b) Using the schedules given, plot the demand and supply curve on the graph paper.
Label the axes and indicates for each axis the units being used to measure price and
quantity, then answer the questions.


Price (RM) Quantity demanded
(bushels of oats)
Price (RM) Quantity supplied
(bushels of oats)
1.50 10,000 1.50 40,000
1.40 15,000 1.40 35,000
1.30 20,000 1.30 30,000
1.20 25,000 1.20 25,000
1.10 30,000 1.10 20,000
1.00 35,000 1.00 15,000


(i) Using the algebra analysis, find the equilibrium price and quantity.
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(6 marks)

(ii) Indicate the equilibrium price and quantity on the graph by drawing lines from
the intersection of the supply and demand curves to the price and quantity
axis.
(5 marks)

(iii) If the Federal Government decided to support the price of oats at $1.40 per
bushel, tell whether there would be a surplus or shortage and how much it
would be. (2
marks)

(iv) Demonstrate your answer in part (iii) on your graph being sure to label the
quantity you designated as the shortage or surplus
(1 mark)

(Total 20 marks)













Question 4

(a) Using the information in the table below to calculate the coefficient and identify the
income elasticity type of each of the following products A to D.
( show the calculation)



Product

Percentage change in
income


Percentage change in
quantity demanded
A 9 12
B -6 6
C 3 3
D 6 -3

(12 marks)
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(b) For the following three cases, use a midpoints formula to calculate the coefficient for
the cross elasticity of demand and identify the type of relationship between the two
products.

(i) The quantity demanded for products A increases from 30 to 40 as the price of
product B increases from $0.10 to $0.20.

Coefficient: _____________________ Relationship: _________________

(2 marks)

(ii) The quantity demanded for product A decreases from 3000 to 1500 as the
price of good B increases from $5 to $10.

Coefficient: _____________________ Relationship: _________________

(2 marks)

(iii) The quantity demanded for product A remains 400 units as the price of
product B increases from $25 to $30.

Coefficient: _____________________ Relationship: _________________

(2 marks)

(c) Define price elasticity of demand.
(2 marks)

(Total 20 marks)


SECTION C
(Answer any TWO (2) questions out of THREE (3) questions)

Question 5

(a) Identify the FOUR (4) types of factors of production? Explain, with TWO examples
for each factor.
(11 marks)

(b) Using the production possibilities curve, illustrate and briefly explain the effects of
the following on a countrys PPC.

(i) An increase in the productivity of workers entering the workforce.
(3 marks)

(ii) An improvement in the productivity of workers in the motorcycle industry, but
not in the car industry.
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(3 marks)
(iii) A war breaks out in the country, destroying major communication lines.
(3 marks)

(Total 20 marks)


Question 6

(a) Using MR = MC rule, show graphically how a firm under pure competition earns:

(i) Normal Profit

(ii) Supernormal profit (14 marks)

(b) Explain the THREE (3) basic economic questions
(6 marks)

(Total 20 marks)












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Question 7

Price Price



A change in A change in demand
Quantity demanded





DD DD DD

Quantity Quantity


(a) Explain the difference between the two diagrams shown above. (6 marks)

(b) Describe any FIVE (5) factors that can cause a shift in the demand curve.
(10 marks)
(c) Explain how a monopoly firm is different from a pure competitive firm.
(4
marks)

(Total 20 marks)








END OF EXAMINATION QUESTION PAPER