UNIVERSITY OF GHANA
(All rights reserved)
B.A FIRST SEMESTER EXAMINATIONS: 2015/2016
ECON 111 : INTRODUCTION TO ECONOMICS I (3 Credits)
INSTRUCTIONS: ANSWER ALL QUESTIONS
TIME ALLOWED : TWO HO URS
Question one
a. You were planning to spend Sunday working at your part-time job, but a
friend asks you to go for a trip to Aburi with him. What is the true cost of the
Aburi trip? Now, suppose you had planned to spend the day at your public
library studying your Economics notes. What is the cost of the Aburi trip in
this case? Explain. (5 marks)
b. Draw the Supply and Demand diagrams for market A for each of the
following. Then use your diagrams to illustrate the impact of the following
events. In each case, determine what happens to price and quantity in each
market.(15 marks)
I. A and B are substitutes, and the price of good B rises
ii. A and B satisfy the same kind of desires, and there is a shift in tastes
away from A and towards B
iii. A is a normal good, and incomes in the community increase
IV. There is a technological advance in the production of good A
v. B is an input used to produce good A, and the price of B rises.
c. Suppose that an economy's PPF is a straight line, rather than a bowed out,
concave curve. What would this say about the nature of the opportunity cost as
production is shifted from one good to the other?(5 marks)
Question two
The table below provides the demand schedule for motel rooms at Small Town Motel.
Use the information provided to complete the table and answer the questions that
follow . (8 marks)
Examine rs : Dr. (Mrs) N. S. OWOQ, Dr. (Mrs) M. Lambon -Quay efio, Dr. W. Bekoe
Page 1
Price($)
20
Quantity
Demanded
24
40
20
60
16
80
12
100
8
120
4
% Change
in Price
Total
Revenue
% Change
in Quantity
Price
Elasticity
a. Over what range of prices is demand for motel rooms elastic? (2 marks)
b. To maximize total revenue, should Small Town Motel raise or lower the price within
the price range in (a) above? (2 marks)
c. Over what range of prices is demand for the motel rooms inelastic? (2 marks)
d. To maximize total revenue, should Small Town Motel raise or lower the price within
the pric~ range in (c) above? (2 marks)
e. Over what range of prices is demand for motel rooms unit elastic? (2 marks)
f. To maximize total revenue, should Small Town Motel raise or lower the price within
the price range in (e) above? (2 marks)
g. Suppose that at a price of $2.00 per bushet the quantity supplied of corn is 25 million
metric tonnes. At a price of $3 .O(} per bushel, the quantity supplied is 30 million
metric tonnes . What is the elasticity of supply for corn? Is supply elastic or inelastic?
(5 marks)
Question Three
Albert ' s Juice Bar has the following cost schedules
Quantity
0
1
2
3
4
5
Variable cost (GJ-IC)
0
10
25
45
70
100
6
135
Total Cost (GJ-IC)
30
40
55
75
100
130
165
Exa miners : Dr. (Mrs) N. S. Owoo, Dr. (Mrs) M. Lambon -Quayefio, Dr. W. Bekoe
Page 2
a. Calculate average variable cost,
avera;t~
cost, and marginal cost for each
quantity. (15 marks)
b. i. Graph all the curves. (4 marks)
ii. What is the relationship between the marginal cost and the average total cost?
(3 marks)
iii. What is the relationship between the marginal cost curve and the average variable
cost curve? Explain . (3 marks)
Question four
With the aid of appropriate illustrations discuss the relationship between monopoly and
perfect competition. (25 marks)
Examiners: Dr. (Mrs) N. S. Owoo, Dr. (Mrs) M. Lambon-Quayefio, Dr. W. Bekoe
Page 3