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BM/OCT2007/ECO415

UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION

COURSE COURSE CODE EXAMINATION TIME

: : : :

ECONOMICS ECO415 OCTOBER 2007 3 HOURS

INSTRUCTIONS TO CANDIDATES

1.
2.

This question paper consists of two (2) parts :

PART A (2 Questions) PART B (4 Questions)

Answer ALL questions from PART A and any three (3) questions from PART B in the Answer Booklet. Start each answer on a new page. Do not bring any material into the examination room unless permission is given by the invigilator. Please check to make sure that this examination pack consists of: i) ii) the Question Paper an Answer Booklet - provided by the Faculty

3.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 5 printed pages
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PART A

QUESTION 1

NESTLE TO RAISE PRICES, CUT LINES AS COSTS SOAR Nestle, the world's largest food company, will raise prices, select unprofitable products and speed up production rationalization to prepare for a lasting rise in commodity and energy prices. Jose Lopez, management board member at the Swiss-based firm, said the group's focus on name-brands, health food, and medical nutrition puts it at a competitive advantage as prices for energy, grain and milk rise on surging demand. Rising input prices globally will increase inflation, which will enable Nestle - maker of KitKat chocolates and Nespresso coffee - to pass those costs on to consumers. "It could provoke moderate inflation and moderate inflation is not bad for business," Lopez said. Lopez said the group would work to cut some product lines that appear less profitable in the light of higher commodity prices. Adapted from NST, July 13, 2007

a)

Using market equilibrium, illustrate and explain how the price of Nestle product is determined. (4 marks) With the aid of a diagram, show the effect of an increase in input prices on the market for Nestle products. (4 marks) Explain three (3) factors that may influence the demand for Nestle products. (6 marks)

b)

c)

d)

Explain what is meant by the statement "to pass those costs on to consumers," in the third paragraph. Assuming that the demand for Kit Kat chocolates is elastic while that for Nespresso coffee is inelastic, how much can Nestle pass these high costs to the consumers for each of these products? Illustrate your answer. (6 marks)

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BM/OCT 2007/ECO415

QUESTION 2

KHIND HOLDINGS BHD CONFIDENT OF DOUBLE-DIGIT EXPORT GROWTH Khind Holdings Bhd., currently exports its electrical home consumer appliances marketed under the Khind and Mistral brand names to over 50 countries around the globe. The Middle East region, which is the the company's largest export market, contributed more than 50 per cent to the group's total export sales. Khind Group registered a 25.3 per cent increase in export sales to RM43.6 million for the year ended December 31, 2006. In the statement, Khind Group chief executive officer Cheng Ping Keat said the company's longer term ambition is to drive its international trade division towards achieving a 50 per cent contribution to total annual turn over from the present 25-30 per cent. Currently about 60 per cent of the company's production is outsourced. "By adopting such a strategy, it provides more open market opportunities for the company to grow its export revenue and penetrate new markets that are not efficiently served by multinational brands," he said. Adapted from NST, July 21, 2007.

a)

Based on the theory of international trade explain two (2) reasons why Khind Holdings Bhd exports its products. (4 marks) Referring to paragraph 3, explain how the increase in export sales contribute to national income. (4 marks) Discuss three (3) actions that can be taken by the government to reduce the balance of payment deficit in the economy. (6 marks) Explain three (3) tools of protectionism imposed by the home country against foreign competition. (6 marks)

b)

c)

d)

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PARTB

QUESTION 1 a) Explain the basic economic concepts. (8 marks) b) c) Explain three (3) non-price determinants of demand. (6 marks) Differentiate between perfectly elastic, unitary elastic, and perfectly inelastic supply. Use suitable diagrams to illustrate your answers. (6 marks)

QUESTION 2 a) With the aid of appropriate diagrams, explain the floor price and ceiling price. (8 marks) b) Briefly explain three (3) disadvantages of floor price. (6 marks)

c)

Compare any three (3) characteristics of monopolistic competition and perfect competition. (6 marks)

QUESTION 3 a) Discuss four (4) macroeconomic objectives. (10 marks) b) Discuss four (4) uses of national income data. (10 marks)

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QUESTION 4 a) b) Explain the types of government budgets. (6 marks) Define unemployment unemployment. and briefly explain how the government controls (8 marks) c) With the help of appropriate diagram, explain demand-pull inflation. (6 marks)

END OF QUESTION PAPER

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