Copyright reserved
Faculty of Economic and Management Sciences
Department of Economics
Examina on period: 1st semester
EKN 110
Dura on: 120 minutes
Date: 03 June 2019
Total: 75 marks
MEMORANDUM
Sec on A: Mul ple Choice Ques ons (35)
1. C
2. D
3. C
4. C
5. D
6. D
7. D
8. D
9. A
10. B
11. B
12. C
13. D
14. C
15. A
16. A
17. B
18. C
19. D
20. D
21. C
22. B
23. B
24. B
25. B
26. C
27. C
28. C
29. D
30. C
31. B
32. B
33. C
34. B
35. C
1
ti
ti
ti
ti
ti
Sec on B: Wri en Ques ons [40]
Ques on 1: (4)
Explain how (if at all) each of the following events a ects the loca ons of a country’s produc on possibility
curve:
a) The quality of educa on increases.
b) The number of unemployed workers increases.
c) A new technique in the mining industry improves e ciency.
d) A devasta ng earthquake destroys numerous produc on facili es.
a) Increase produc vity - outward shi to the right
b) Curve no e ect - produc on move inwards
c) Curve shi outward to the right
d) Curve shi inward to the le .
1 mark each
Ques on 2: (4)
Dis nguish between how a market system will solve the scarcity problem compared to a command system.
A market system allows for the private ownership of resources and coordinates economic ac vity
through market prices. Par cipants act in their own self-interest and seek to maximize
sa sfac on or pro t through their own decisions regarding consump on or produc on. Goods
and services are produced and resources are supplied by whoever is willing to do so. The result is
compe on and widely dispersed economic power.
The command economy is characterized by public ownership of nearly all property resources and
economic decisions are made through central planning. The planning board, appointed by the
government determines produc on goals for each enterprise. The division of output between
capital and consumer goods is centrally decided based on the board’s long-term priori es
2 marks for men oning any two of the underlined remarks in rst paragraph
2 marks for men oning public ownership and central planning
Ques on 3: (6)
How will each of the following scenarios changes in demand and or supply a ect equilibrium price and
quan ty in a compe ve market; do price and or quan ty rise, fall, or remain unchanged or is the answer
indeterminate?
a) Tastes of consumers decrease for par culate product
b) Manufacturers are subsidised by government in the produc on process
c) Producers experience increases in produc on costs while Consumers income increase.
a) EQ P and Q decrease (1 mark each)
b) EQ P decrease Q increase (1 mark each)
c) EQ P increase Q indeterminate (1 mark each)
Ques on 4: (2)
List four determinants that will in uence the price elas city of demand.
Subs tutability (Number of subs tutes)
Propor on of Income spend
Type of product (Luxuries vs Necessi es)
Time
1/2 mark each
2
ti
ti
ti
ti
ti
ti
ti
ti
ti
ti
ti
ti
ti
ft
ft
ff
tt
ti
ti
ti
fi
ti
ti
ti
ti
ti
ti
ft
ti
ti
ti
fl
ft
ti
ti
ff
ti
ti
ti
ffi
fi
ti
ti
ti
ti
ti
ff
ti
ti
ti
ti
Ques on 5: (4)
Dis nguish between the Cardinal and Ordinal approach of consumer theory by way of a formula indica ng
consumers equilibrium condi on in each where they would maximise u lity.
Cardinal - MUx/Px = MUy/Py or they can say the WMUx = WMUy
Ordinal - MRS (Change in / Change in X) = Price ra o (Px/PY)
2 marks each
Ques on 6: (2)
Illustrate how an increase in income will change the consumer equilibrium combina on of products A and B
that will be consumed. (Make use of indi erence curve theory).
1 Mark for right shi of Budget Line
1 Mark for indica ng change from Y to X
Ques on 7: (7)
Explain and illustrate graphically how a perfectly compe ve rm’s MC, ATC, AVC and MR curves can be
used to derive the short-run supply curve for the rm. Use symbols a, b and c to speci cally indicate the
following points on the graph: a – (P1, Q1) – shut-down point; b – (P2, Q2) – break-even (normal pro t)
point; and c – (P3, Q3) – economic (abnormal) pro ts.
7 = Marks if Graph is correct and Break-
even point and Shutdown point are
correctly indicated
6 = if one of the above three is Missing
5 = if two of the above three is Missing
4 = If nothing of the above three is
indicated but graph is correct with MR and
Cost curves give 3 marks
3 = If just cost curves are correct
2 = If one of the cost curves is missing
1 = If one of the cost curves is missing
0 = If nothing is correct (a bit obvious )
3
ti
ti
ti
ti
ti
ft
ti
ff
fi
ti
fi
ti
ti
fi
ti
ti
fi
fi
ti
Ques on 8: (5)
Use the following cost informa on for the Kick Sport Shop to calculate the costs as indicated in a) – e):
Entrepreneur's poten al earnings as a salaried worker = R175, 000
Annual lease on building = R160, 000 Annual revenue from opera ons = R1550, 000
Payments to workers = R980, 000 U li es (electricity, water, disposal) costs = R200, 000
Entrepreneur's poten al economic pro t from the next best entrepreneurial ac vity = R500,000
Entrepreneur's forgone interest on personal funds used to nance the business = R200, 000
a. Kick's explicit costs are:
b. Kick's implicit costs, including a normal pro t are:
c. Kick's total economic costs:
d. Kick's accoun ng pro t is:
e. Kick's economic pro t is:
a) R160 000 + R980 000 + R200 000 = R1 340 000
b) R175 000 + R500 000 + R200 000 = R875 000
c) a + b = R2 215 000
d) R1 550 000 - R 1 340 000 = R210 000
e) R 1 550 000 - R2 215 000 = - R665 000 (Loss)
1 mark each
Ques on 9: (6)
List the tools of monetary policy and indicate how each one of them can be used to implement expansionary
monetary policy.
Open market opera ons ( Buy government bonds)
Repo rate ( Decrease repo rate)
Reserve requirement (Decrease reserve requirement)
1 mark for the tool one for the ac on on each
4
ti
ti
ti
ti
fi
fi
ti
ti
ti
ti
fi
fi
ti
ti
fi
ti
ti
