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Econ 110: Introduction To Microeconomics Y1s1 Question Paper

Econ 110: Introduction To Microeconomics Y1s1

Course:Bachelor Of Commerce

Institution: Kabarak University question papers

Exam Year:2008

COURSE CODE: ECON 110
COURSE TITLE: INTRODUCTION TO
MICROECONOMICS
STREAM: Y1S1

INSTRUCTIONS:
1. Attempt question ONE and any other two questions
2. Clearly labeled diagrams may be used where they serve to
illustrate an answer.
QUESTION 1
(a) You are given the following simplified demand and supply functions:
Qd = 30 – 2P
Qs = -15 + 3P
(i) Find the equilibrium price and quantity (3mks)
(ii) Suppose the functions in 1 (a) above represent demand and supply of
butter, what would happen to the equilibrium quantity calculated in 1 (a)
(i) if the price of Blue band margarine increased? Explain
(2mks)
(iii) Suppose further that household’s income went up and price of butter fell
simultaneously. Explain what would happen to the equilibrium value
calculated in 1 (a) (i) above (2mks)
(b) (i) What is cross price elasticity of demand? (1mks)
(ii) Explain the circumstances under which this elasticity will be
Positive and (1½mks)
Negative (1½mks)
(c) Explain clearly the following economic concepts:
(i) Equilibrium (1½mks)
(ii) Scarcity (1½mks)
(iii) Opportunity cost (1½mks)
(iv) Demand Schedule (1½mks)
(d) With the help of well-labeled diagram(s) differentiate between change in quantity
demanded and change in demand. (3mks)
(e) (i) Distinguish between a price floor and price ceiling (3mks)
(ii) Using appropriate diagram, show the conditions under which a price
ceiling intervention is effective. (3mks)
(iii) What is the effect on the equilibrium price and quantity of price floor?
(2mks)
QUESTION 2
(a) (i) What is the product differentiation? (1mk)
(ii) How do firms differentiate their products? (4½mks)
(b) (i) What is a budget line? (1mk)
(ii) Give the economic interpretation of the slope of a budget line.
(2mks)
(iii) Using appropriate diagram, explain the impact on the budget line of a
proportionate decrease in relative prices (3mks)
(c) (i) Producers from cartels to maximize their joint profits. Explain the profit
maximization by cartel. (3½mks)
(ii) Explain the obstacles to collusion (6mks)
QUESTION 3
(a) (i) Explain the short-run and long-run production periods
(3mks)
(ii) What is the meaning of an indifference cure (1mks)
(b) (i) Explain four assumptions of perfectly competitive markets
(6mks)
(ii) Explain the profit maximizing point for a firm in such a market in 3(b) (i)
in the short run. (5mks)
(c) (i) Explain cardinal utility theory. (3mks)
(ii) What are the main limitations of the theory in 3 (c) (i) (3 mks)
QUESTION 4
(a) Using relevant diagrams, distinguish between:
(i) An isoquant and indifference (3mks)
(ii) A budget line and isocost line (3mks)
(b) Using appropriate diagram(s) illustrate the profit maximizing point for a
monopolist in the long-run. (4mks)
(c) Explain three properties of indifference cures (4½mks)
(d) Using appropriate diagram(s) illustrate consumer equilibrium (3½mks)
(e) Explain two axioms of consumer preferences (3mks)

Econ 110: Introduction To Microeconomics Y1s1 Question Paper

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