TEST 1

ECO410/415
1 HOURS
PART A
Answer ALL questions
QUESTION 1

Rice price stays, says Mustapa

Agriculture and Agro-Based Industry Minister Datuk Mustapa Mohamed said the price of rice will
not be reduced despite a price drop in the world market as it is still lower than in several
eighbouring countries. "We had fixed a ceiling price of RM2.80 per kg for 5 percent broken grain
local rice and RM3.20 to RM3.30 per kg for imported rice of similar quality. "Although the global
price of rice has dropped, it is still two times higher than the price last year,"he told reporters at
his Aidilfitri open house here today. Mustapa said the government was paying high subsidy to
keep the rice price low and affordable to the people.

Since June, the government had been subsidizing imported rice of RM400 million each for the
Peninsula, Sabah and Sarawak. A price reduction will incur the government higher
subsidy."However, should the world price increase, the government will increase the subsidy to
ensure adequate supply," he added. On Padiberas Nasional Berhad (Bernas), he said its
position as the sole importer of rice since eight years ago would remain until its agreement
expires in three years. Mustapa said the Economic Planning Unit (EPU) would continue with its
study and that a decision whether to extend the monopoly by Bernas or not would only be made
after 2011.

Adapted from the New Straits Times, 17th Oct 2008


a) Why didn't the government reduce the price of rice despite a price drop in the world market?
(6 marks)

b) What is a ceiling price? Explain the purpose of imposing a ceiling price on a product.
(4 marks)

c) With the help of a diagram, explain the effect of subsidy on the production of rice.
(6 marks)

d) Which market structure does Bernas belong to? Why?
(2 marks)

e) Give two (2) ways on how to increase the production of rice in Malaysia.
(2 marks)
QUESTION 2

(a) The table below shows the quantities of corn demanded and supplied at various prices.

Price
per ton (RM)

Quantity supplied
(kg)

Quantity
demanded
(kg)
Surplus/
Shortage (ton)


80.00
90.00
100.00
110.00

600
800
1000
1200

1200
1100
1000
900


a) Complete the table above by specifying whether there will be a shortage or surplus and
determine each amount.
(4 marks)

b) On a graph paper, draw the demand and supply curves for the corn production.
(2 marks)

c) What is the equilibrium price and quantity of corn?
(1 mark)

d) The government gave farmers aids in the form of fertilizers and insecticide. As a result, the
com yield increased by 300 tons at every price level. Show on the same graph, the effects of
the aids on the market for corn.
(2 marks)

e) What is the new equilibrium price and quantity of corn?
(1 mark)

(b) (i) In one diagram, sketch TP, MP and AP curves.
(5 marks)

(ii) On the same diagram show and explain the three stages of production.
(10 marks)
(ii) Which stages is the most rational? Why?
(5 marks)





PART B
Answer ONLY one
QUESTION 1
(a) Explain fundamental economics problem.
(5 marks)
(b) Explain 5 (five) factor determinants of demand
(5 marks)

QUESTION 2

(a) Explain fundamental of economic concepts
(5 marks)

(b) Explain 2 (two) characteristics from mixed economy and capitalist economy
(5 marks)

GOOD LUCK