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MODULE NAME: MODULE CODE:

ECONOMICS 1A PMIC5111/d/p/w
ECONOMICS A (MICRO) ECMS5111/d
ECONOMICS A MICRO ECON211

ASSESSMENT TYPE: EXAMINATION (PAPER ONLY)

TOTAL MARK ALLOCATION: 120 MARKS
TOTAL HOURS: 2 HOURS (+10 minutes reading time)
INSTRUCTIONS:
1. Please adhere to all instructions in the assessment booklet.
2. Independent work is required.
3. Ten minutes is dedicated to reading time before the start of the assessment. You may make
notes on your question paper, but not in your answer sheet. Calculators may not be used
during reading time.
4. You may not leave the assessment venue during reading time, or during the first hour or during
the last 15 minutes of the assessment.
5. Ensure that your name is on all pieces of paper or books that you will be submitting. Submit all
the pages of this assessment’s question paper as well as your answer script.
6. Answer all the questions on the answer sheets or in answer booklets provided. The phrase
‘END OF PAPER’ will appear after the final set question of this assessment.
7. Remember to work at a steady pace so that you are able to complete the assessment within
the allocated time. Use the mark allocation as a guideline as to how much time to spend on
each section.
Additional instructions:
1. This is a CLOSED BOOK assessment.
2. Calculators are allowed.
3. For multiple-choice questions, give only one (1) response per question. The marker will ignore
any question with more than one answer, unless otherwise stated. You should, therefore, be
sure of your answer before committing it to paper.
4. This assessment has Three Sections. You are required to answer All of these sections.
5. Show all calculations, where applicable (marks may be awarded for this). A formulae sheet is
attached to this paper.

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SECTION A 40 Marks
Question 1 (Marks: 40)
Multi-choice questions: Select one correct answer for each of the following. In your answer booklet,
write down only the number of the question and next to it, the letter of the correct answer.

Q.1.1 Microeconomics studies the: (2)

(a) Total value of goods and services demanded in South Africa.
(b) Consumer price index.
(c) Behaviour of individual households and firms in an economy.
(d) Total value of goods and services supplied in South Africa.

Q.1.2 The economic problem arises from the coexistence of: (2)
(a) Unlimited wants and limited money in circulation.
(b) Unlimited wants and unlimited needs.
(c) Limited wants and unlimited resources.
(d) Unlimited wants and limited resources.

Q.1.3 Inefficiency is best illustrated by which of the following? (2)

(a) Producing outside the production possibilities curve.
(b) Producing on the production possibilities curve.
(c) Producing inside the production possibilities curve.
(d) Having high levels of employment of labour and other resources, which are
being productively employed.

Q.1.4 Economic profit is equal to… (2)

(a) Total revenue minus total explicit costs.
(b) Total revenue minus total implicit costs.
(c) Total revenue minus total implicit and explicit costs.
(d) Total profit plus accounting profit.

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Q.1.5 Which of the following will not cause a shift in the demand curve for margarine? (2)
(a) A decrease in the price of bread, a complement.
(b) An increase in the price of margarine.
(c) An increase in the price of peanut butter, a substitute.
(d) An increase in the number of people using margarine.

Q.1.6 If milk is a normal good, then a decrease in consumers’ income will cause… (2)
(a) a decrease in the demand for milk.
(b) an increase in the demand for milk.
(c) an increase in the supply of milk.
(d) a decrease in the supply of milk.

Q.1.7 Utility from consuming a good is understood by economists to mean: (2)

(a) How often we consume the good.
(b) How much satisfaction or benefit we get from consuming the good.
(c) How we best use the good.
(d) None of the above.

Q.1.8 Normally, as more quantities of a particular good are consumed, marginal utility… (2)
(a) Decreases and total utility increases.
(b) Decreases and total utility decreases.
(c) Increases and total utility increases.
(d) Increases and total utility decreases.

Q.1.9 If a change in price leads to a proportionately greater change in quantity (2)

demanded, total revenue will:
(a) Change in the opposite direction to the price change.
(b) Change in the same direction to the price change.
(c) Remains the same.
(d) Increase, reach a maximum and then start to decrease.

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Q.1.10 In which one of the following cases will total revenue increase? (2)
(a) Price falls and demand is inelastic.
(b) Price falls and supply is elastic.
(c) Price rises and demand is inelastic.
(d) Price rises and demand is elastic.

Q.1.11 Which one of the following is not a basic economic system? (2)
(a) Market system.
(b) Mixed system.
(c) Monetary system.
(d) Command system.

Q.1.12 Which of the following cost curves does not have a shape that is explained by the (2)
law of diminishing marginal returns?
(a) Average total cost.
(b) Average fixed cost.
(c) Average variable cost.
(d) Total cost.

Q.1.13 The average total cost of producing cell phones in a factory is R300 at the current (2)
output level of 100 per week. If total fixed cost is R20 000 per week, then the:
(a) average variable cost is R100.
(b) average fixed cost is R400.
(c) total cost is R10 000.
(d) Total variable cost is R30 000.

Q.1.14 In a perfectly competitive labour market, the wage rate is determined by: (2)
(a) Employers.
(b) Trade unions.
(c) Interaction between supply of and demand for labour.
(d) Government.

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Q.1.15 The demand for labour curve slopes downwards because of: (2)
(a) Inverse relationship between wages rates and the quantity of labour
demanded.
(b) Increasing marginal returns to labour.
(c) More people to demand employment
(d) The supply of output.

Q.1.16 Which one of the following statements is correct? (2)

(a) Any firm maximises its profit (or minimises its losses) when marginal revenue
(MR) = marginal cost (MC).
(b) Monopolistically competitive firms produce homogenous (standardised)
products.
(c) All monopolistic firms always earn economic profit.
(d) Firms operating under conditions of imperfect competition face horizontal
demand curves for their products.

Q.1.17 A perfectly competitive firm is in equilibrium where MC is equal to MR because: (2)

(a) This is where the optimum factor combination occurs.
(b) It is not possible to expand production in the short run.
(c) At this point average cost is always at its highest.
(d) No other quantity yields higher profits.

Q.1.18 The basic difference between the short run and the long run is that: (2)
(a) All costs are fixed in the short run, but all costs are variable in the long run.
(b) The law of diminishing returns applies in the long run, but not in the short
run.
(c) At least one resource is fixed in the short run, while all resources are variable
in the long run.
(d) Economies of scale may be present in the short run, but not in the long run.

Q.1.19 Complete the following statement. Households sell their ___ in the ____ market. (2)
They then use their income to buy ______ in the_____ market.
(a) goods; goods; factors of production; factor.
(b) factors of production; factor; goods; goods.

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(c) goods; factor; factors of production; goods.

(d) factors of production; goods; goods; factor.

Q.1.20 Which of the following is not true about a profit maximising monopolist? (2)
(a) The monopolist chooses output where MR is equal to MC.
(b) The monopolist faces the downward-sloping market demand curve.
(c) Both (a) and (b)
(d) The monopolist can set any price without impacting the market demand.

SECTION B 40 Marks

Question 1 (Marks: 20)

Q.1.1 For each of the following statements, state how either supply or demand curve will
be impacted, based on the scenario. See an example below on how to answer:
Statement: The price of a complement product (in consumption) increases.
Answer: The demand curve will shift to the left

Q.1.1.1 The price of a substitute product (in consumption) increases. (2)

Q.1.1.2 New technological machines have been installed in the firm. (2)
Q.1.1.3 The prices of the factors of production increases. (2)
Q.1.1.4 Consumers expect the price of the product to increase soon. (2)
Q.1.1.5 Consumers prefer more of a particular product. (2)

Q.1.2 The table below shows Thulani’s utility from a weekly consumption of Meat (m) and (10)
Bread (b). In your answer booklet, write just the letter, followed by your answer.
Goods
Meat (Pm=R1.00) Bread (Pb=R3.00)
Units MUm TUm MUb TUb
1 A 30 39 D
2 20 B 30 69
3 14 64 E 93
4 C 74 18 111

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Question 2____________________________________________________________ (Marks: 20)

Q.2.1 Explain, with an aid of a graph, the impact of a rise in the price of trucks on the (8)
equilibrium wage rate and employment level in the market for truck drivers.
(Note: 4 marks will be awarded for the graph and 4 marks for the explanation).

Q.2.2 Distinguish between the two broad categories of trade unions. Also provide an (6)
example for each category of trade unions to support your answer.

Q.2.3 Briefly describe any three reasons why labour markets may be imperfectly (6)
competitive.

SECTION C 40 Marks

Question 1 (Marks: 20)

Consider a firm is operating in a market where perfect competition exists facing the following
demand and cost curves. Use it to answer Q.1.1 to Q.1.3

Q.1.1 Is the firm making an economic profit, economic loss or normal profit only? Explain. (3)

Q.1.2 Explain, using diagrams, the process by which a movement towards long run (12)
equilibrium would take place. Clearly show the impacts on the individual firm and
on the industry.
(Note: 4 marks will be awarded for each graph and 4 marks for the explanation)

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Q.1.3 Explain the difference between a firm making a normal profit and a firm making an (5)
economic profit. Do not use any diagrams.

Question 2 (Marks: 20)

Q.2.1 Make use of a diagram to illustrate and explain the backward bending individual (10)
supply curve of labour, and clearly explain the substitution effect and income effect.
(Note: 3 marks will be awarded for each graph and 7 marks for the explanation)

Q.2.2 Explain, with the aid of a diagram (market for beef), how a decrease in the price of (10)
pork (a substitute in consumption for beef) will affect the equilibrium price and
quantity of beef.
(Note: 4 marks will be awarded for each graph and 6 marks for the explanation)

END OF PAPER

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