SOLUTION SAMPLE ECON6001 EXAM (1).docx - SOLUTION – SAMPLE ECON6001 EXAM Subject Assessed Topics ECON6001-Economic Principles Question Question 1

SOLUTION SAMPLE ECON6001 EXAM (1).docx - SOLUTION –...

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SOLUTION – SAMPLE ECON6001 EXAM Subject Assessed Topics Question Topic Marks Possible Marks Awarded Question 1 Elasticity 10 Question 2 Price Controls 15 Question 3 Inflation 10 Question 4 Unemployment 15 Question 5 Externalities 10 Question 6 Fiscal and Monetary Policy 20 Question 7 Gross Domestic Product 20 Total 100 321Exam Type Materials Supplied Question Booklet Answer Booklet Materials Permitted (Please delete or add more if needed) Non-Programmable Calculator Writing instruments i.e. pens Instructions: ALL MATERIALS (that is, this examination paper and examination booklets) MUST be handed to the examiners prior to leaving the examination room with your name and ID given below. Answers must be written clearly using blue or black pen. No Mobile phones or other electronic devices are to be used or in possession during the exam. Writing Time Reading Time Weighting 40% Total Marks 100 Name Student ID Signature You must answer all questions in the answer booklet provided. SOLUTION SAMPLE ECON6001 EXAM Page 1 of 11
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Question 1 A study of the price elasticities of products sold in supermarkets contained the following data. PRODUCT PRICE ELASTICITY OF DEMAND Soft Drinks 4.76 Canned soup 1.68 Cheese 0.77 Toothpaste 0.42 (a) What is the meaning of the concept price elasticity of demand? Applying this to the products in the table above, categorise the products into those with elastic and inelastic demand. (2 marks) Price elasticity of demand (PED) is the percentage change in the quantity demanded of a good or services as a result of a 1% change in the price of the good or service. If PED Is greater than 1 demand is elastic, if PED is less than 1 but greater than zero then demand is inelastic. If PED is equal to zero demand is perfectly inelastic and if PED is infinity then demand is perfectly elastic. (1 mark for the above definition and magnitudes of PED as they facilitate categorisation) (1 mark for the categorisation of the goods) (b) Discuss why the demand of each product is elastic or inelastic. (5 marks) Product Nature of Elasticity Reason Soft Drinks Elastic Many substitutes (1 mark) Canned soup Elastic Many substitutes (1 mark) Cheese Inelastic Few substitutes (1 mark) Toothpaste Inelastic Necessity Few substitutes (2 marks) (c) Critically evaluate the following statement: “Increasing the price of soft drinks and toothpaste would result in total revenue earned from each of the products. (3 marks) Increase in price does not necessarily transalte to an inctease in total revenue as this depends how price elastic are the products. For price elstaic products an increase in price reulsts in a decraese in quantity that cuaes total revenue to decreae. For price inelastic product, an increase in price would result in an increase in revenue due to the fact that there woild be a slight derease in quantity sold, not enough to cause revenue to fall. Applying the above it means the incerase in price would cause totral revenue from soft drimks to decrease while that of toothpaste to increase.
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