Practical 1
EKN 110
February 2010
1 ) An economics lecturer decides to give up her job at the University of
South Africa, where she earns R70 000 per year. She is offered another
full-time job for R75 000 per year or can work for herself from home as a
private consultant. What is the opportunity cost of working from home?
a. Zero
b. R70 000
c. R75 000
d. R145 000
e. R70 000 in addition to the cost of her monthly home loan
repayments
2) Microeconomics is a branch of economics that studies
a. the determination of national income.
b. the behaviour of individual decision-making units in the
economy.
c. the impact of unemployment in South Africa.
d. the effects and consequences of the aggregate behaviour of
all decision-making units.
e. both b and d above
The diagram below shows an economy’s production possibilities for two
goods: submarines and hospitals. Use this diagram to answer Question
3.
Submarines
d f
b g
0 e a
Hospitals
3) With reference to the above production possibilities frontier, we can
say that
a. the opportunity cost of producing 0a hospitals is 0b
submarines.
b. the production of both submarines and hospitals appears to
require similar resources in similar proportions.
c. the opportunity cost of producing one more hospital is higher
at f than at g.
d. the opportunity cost of producing one more submarine is
higher at g than at f.
e. the opportunity cost of producing 0a hospitals is cb
submarines.
4) Which of the following statements is positive?
a. The new South Africa is better than the old South Africa.
b. Unemployment is a greater problem than inflation.
c. The South African government ought to introduce policies to
reduce the unemployment rate, not the inflation rate.
d. Poor countries have 58% of the world’s population, but receive
only 4% of the world income.
The world distribution of income is inequitable, because the poor
countries are denied their fair share of income and resources
The figures in the table below show maximum combinations of
houses and steel that can be produced per month from a given set
of resources in a particular economy. Use this information to
answer Question 13.
HOUSES (thousands) 100 50 0
STEEL (thousand 0 75 X
tons)
5) If the resultant production possibility frontier has its normal concave
shape, then X will be
a. less than 150 000 tons.
b. more than 150 000 tons.
c. 150 000 tons.
d. 50 000 tons.
e. impossible to estimate, even in these broad terms, from the
information given.
6) Consider a production possibility frontier showing maximum
combinations of guns and roses that could be produced from a given
set of resources. If this frontier has a conventional concave shape,
then the opportunity cost of producing one more ton of roses could be
zero only if
a. the maximum feasible output of roses is already being
produced.
b. the maximum feasible output of guns is already being
produced.
c. we are operating at a point inside the frontier.
d. we are operating at a point above and to the right of the
frontier.
e. we are producing equal quantities of guns and roses.
7) If all factors of production are equally suitable for the
production of different goods, then the production possibility
frontier (ppf) is likely to be ________ in shape, illustrating a
situation of ________ opportunity costs. However, if factors of
production are not equally suitable for the production of different
goods, then the ppf will be ________ in shape, reflecting a
situation of ________ opportunity costs.
a. linear; increasing; concave; constant
b. linear; constant; concave; increasing
c. concave; constant; linear; increasing
d. concave; increasing; linear; constant
e. linear; increasing; concave; increasing
Use the diagram below, which indicates maximum combinations of
good X and good Y that can be produced with available resources,
to answer Questions 8
Good Y
B
A ●D
●E
F
●
C Good X
8) On production possibility frontier AC
a. output combinations D and E represent full and efficient use of
resources, but A, C and F represent inefficient resource use.
b. output combination D represents the most efficient use of
resources.
c. output combinations A, D, E and C all represent full and efficient
resource use.
d. output combination A and C represents less efficient resource use
than either D or E.
e. the production of goods X and Y require similar factor inputs in
similar proportions.
9) In the context of the circular flow of economic activity, which of the
following would not be a traditional activity of the government?
a. Purchases of labour services from households
b. Purchases of capital goods from firms in goods markets
c. Provision of public goods and services
d. Transfers of tax revenues to low-income groups or regions
e. Sales of consumer goods to foreign buyers
10)In the circular flow of income and spending, i.e. the basic flow of
income and spending between households and firms supplemented
by the foreign, financial and government sectors
a. exports are leakages from the circular flow.
b. investment is a leakage from the circular flow.
c. savings are injections into the circular flow.
d. imports are injections into the circular flow.
e. taxes are leakages from the circular flow.
11. Which of the following is a leakage from the circular flow of income
and expenditure in South Africa?
a. Defence expenditure by the South Africa government, via
contracts with local military suppliers
b. Government purchases of textbooks for state-run schools
c. The sale of export fruit to the European Union
d. Investment by South African Breweries in a new brewery
e. A decision by a major supermarket chain to sell Danish beer
12. In a mixed economy, which of the following is not a legitimate area of
government intervention?
a. Expenditure on major infrastructure projects
b. Taxation of the profits of private companies
c. Taxation of the income of wage and salary earners
d. Control of prices that change in response to changes in demand
e. Transfers of tax revenues to poor communities
Applications
1) Calculate the percentage change in the economic growth rate if
the GDP of R11550 billion increase to R12250 billion.
Use method at end of Chapter 1
2) Draw a graph with each of the following equations
a. C = 20 + 0.25Y
b. D = 10 - 0.1P
Focus on intercepts and slope of the curves also explain how graphs are marked in the test.
3) Indicate graphically, four different forms of economic relationships.
See Figure 6.4
