MAASAI MARA UNIVERSITY
REGULAR UNIVERSITY EXAMINATIONS
2014/2015 ACADEMIC YEAR
THIRD YEAR FIRST SEMESTER
SCHOOL OF BUSINESS AND ECONOMICS
BACHELOR OF ARTS ECONOMICS
COURSE CODE: ECO 310
COURSE TITLE: INTERMEDIATE MICRO- ECONOMICS
DATE: 27TH AUGUST 2015 TIME: 11.00AM – 1.00PM
INSTRUCTIONS TO CANDIDATES
Answer question ONE and any other THREE questions
This paper consists of 2 printed pages. Please turn over.
QUESTION ONE
(a) Highlight the axioms of consumer preference. (3mks)
(b) Distinguish between a good and a bad. (2mks)
(c) Distinguish between the weak axiom of revealed preferences and strong axiom of revealed preference. (2mks)
(d) Given a Cobb-Douglas utilityfunction of U=x10.5X20.5.
Required: (i) Marshallian demand functions (6mks)
(ii) Indirect utility function (3mks)
(iii) Expenditure functions (2mks)
(iv) Hicksian demand curves (4mks)
(e) Illustrate the total change in demand for an inferior good. (3mks)
QUESTION TWO
(a) Given a Cobb-Douglas production function f(x)=xa.
Required:
(i) Explain the reason Cobb-Douglas production function is
preferred to other production functions. (2mks)
(ii) Input demand function. (4mks)
(iii) Output supply function. (2mks)
(iv) Profit function. (2mks)
(a) Discuss the properties of cost functions. (5mks)
QUESTION THREE
(a) (i) Discuss the concept of the Edgeworth box in depicting the
endowments and preferences of two individual consumers.
(6mks)
(ii) Describe a Pareto efficient allocation. (4mks)
(b) Distinguish between moral hazard and adverse selection. (5mks)
QUESTION FOUR
(a)Illustrate the upstream and downstream producer problem. (8mks)
(b) Discuss public goods and the free rider problem. (7mks)
QUESTION FIVE
Discuss externality and efficiency effects in the market. (15mks)
