SCHOOL OF ADULT AND DISTANCE EDUCATION
MID-SEMESTER EXAMS.
WORK ON THESE QUESTIONS INDIVIDUALLY AND SUBMIT ON THE DAY
OF EXAMS (Note that no two individuals should submit “same” answers as it
will attract serious sanctions).
QUESTION ONE
The scores below are for Naa, a student who reads only two courses (English and
Maths). This student spends up to 12 hours a day studying the only study material
available to her, which are her course textbooks. The accompanying table shows
the best combinations of scores for the two courses.
Maximum Score
Options
A
Scores for
English
100
Scores for
Mathematics
0
B
80
30
C
60
50
D
40
60
E
20
65
F
0
67.5
Opportunity Cost of
Mathematics
Required:
i. Explain the concept described above. (3 Marks)
ii. Copy and complete the Table.
(3 Marks)
iii. Produce a relevant sketch for the Table with Mathematics on the x-axis and
English on the y-axis illustrating these options, showing points A-F. (3
Marks)
iv.
v.
Can Naa score 80% in mathematics and 60% in English? Explain. Where
would this point lie relative the figure drawn in (i) above? (2 Marks)
What is the opportunity cost of increasing the scores from 30% to 50%? (1
Mark)
vi.
What is the opportunity cost of increasing the scores from 65% to 67.5%?
(1 Mark)
vii.
viii.
ix.
Can you explain why the answers to parts (v) and (vi) are not the same?
What does this imply about the slope of the curve? (3 Marks)
Under what three circumstances can Naa score 60% in English and 80% in
mathematics? (3 Marks)
What would it mean if Naa scores 50% in mathematics and 50% in English?
Indicate this point as M on your sketch. (1 mark)
QUESTION TWO
B. Empirical estimates suggest the following price elasticity of demand: 0.6 for
Coca Cola; 4.0 for foreign vacation travel; and 0.2 for food. Using the
determinants of price elasticity of demand, explain why each of these
commodities would have these coefficients elasticity.
C.
JaneK Ghana Ltd., is the main sales agent of Infinix phones in Ghana. The
economist of this enterprise has estimated the demand function for the firm's
products per week to be of the form:
QI = 445 – 2.5PI – 8I + 2.5PC
where; QI is the quantity demanded of Infinix phones, PI is its own-price, PT is
the price of a related good (Tecno Phones) and I is income.
Given that PI = 10, PT = 5 and I = 40, use the above information to:
i. Determine the quantity demanded of Infinix phones per week and
compute the own-price elasticity of demand for Infinix phones and
interpret your results.
ii. Based on your answer in (i), what pricing policy would you recommend
for the firm in order to maximize its total revenue?
iii. Calculate the cross-price elasticity of demand between Infinix and Tecno
phones, interpret your results and determine the kind of relationship that
exists between the two.
iv. Compute the income elasticity of demand and determine if Infinix phones
are normal goods or not. Explain your results.
QUESTION THREE
A. Indicate whether the following statements are true, not or uncertain and in
each case explain your answer briefly. Note that a correct true, false or
uncertain answer with a wrong explanation will not be rewarded.
i. The price of a good rises, causing the demand for another good to rise;
therefore, the two goods are complements. (2 marks)
ii. A shift in demand causes the price of a good to fall; therefore, the shift must
have been a decrease in demand. (2 marks)
iii. For a given upward sloping supply curve, the more elastic the demand
curve the higher the proportion of tax borne by the producer. (2 marks)
iv. If the consumer prefers fufu to kenkey and kenkey to gari, then he must
prefer gari to fufu. (2 marks)
v. An indifference curve slopes downwards to the right because of the law of
diminishing marginal utility. (2 marks)
vi. Marginal utility increases up to a maximum point and thereafter decreases
with increases in consumption. (2 marks)
B. The management of Valley View University is contemplating increasing tuition
fees for the 2020/2021 academic year. As the Chief Economist of the University
you are presented with the following to advice management. In the first
semester of the 2019/2020 academic year, fees were pegged at ¢2500 and
enrolment was 3150. In the second semester the fees went up to ¢2700 and the
enrolment dropped to 2950. You further observed that in the 2019/2020
academic year, Central University increased their fees from ¢2600 to ¢2900
and the enrolment at VVU went up from 2150 to 3005.
i. Calculate the arc price elasticity of demand, interpret your results and
advice management of VVU on pricing. [3 Marks]
ii. What explains this elasticity coefficient obtained in (i)? [2 Marks]
iii. Calculate the arc cross-price elasticity of demand, interpret your results
and determine the relationship between Central University and Valley
View University. [3 Marks]