Question 1     

A>  Explain why scarcity forces individuals and society to incur opportunity costs. Give specific examples.( you can copy the diagram as well)

B>  Suppose a chocolate bar manufacturer promotes its products by advertising and opportunity to win a free car. Is this car free because the winner pays zero for it?

C>  Why is the production possibility frontier bowed outwards?

Question 2

a>    Suppose you own a coffee shop. List some of fixed inputs and variable inputs you would use in operating the shop.

b>    Baubles and beads manufacturing produces 100 hammers per day. The total fixed cost for the plant is RM4000 per day and the total variable cost is RM13,00per day. Calculate average fixed cost,average variable cost,average total cost and the total cost at the current output level.

c>    Explain conditions under which labour might be treated as a variable cost and conditions under which it would be treated as a fixed cost.

QUESTION 3

a>    Discuss the following statement.’ In the real world there is no industry which conforms precisely to the economist’s model of perfect competition. This means that the model is of little practical value’.

b>    Illustrate with a diagram and explain the short run perfectively competitive equilibrium for both the individual firm and the industry. (you can copy a diagram)

c>    Illustrate with a diagram and explain the long run perfectly competitive equilibrium for the firm.

Question 4

a>    Suppose the income elasticity of demand for pre recorded music compact disk is +7 and the income elasticity for a cabinet makers work is +0.7. compare the impact on pre -recorded music compact disk and the cabinet makers work of a recession that reduces consumer income by 10 per cent.

b>    How might you determine whether MP3 music player and the pre-recorded music compact discs are in competition with each other.

c>    Interpret the following income elasticity of demand(YED) values for the following and state if the good is normal or inferior.

YED = +0.85

YED = -2.4

d>   Interpret the following cross price elasticity of demand(XED) and explain the relation between goods.

XED = +0.85

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