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ECN

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•
In the South African economy, the problem of “what to produce” is solved primarily by:
• The National Planning Commission.
• The pattern of consumers’ spending.
• The Producers or suppliers
• People advertising their wants.
• Direction by government
• Which one of the following statements is correct?
• South Africa has an unlimited supply of natural resources.
• Wealth and income are synonyms (have the same meaning).
• The N1 highway between Cape Town and Johannesburg is an example of a capital good.
• In the market system there is an agency that instructs the various participants in the economy
how to allocate their resources.
• South Africa has a pure market economy.
•
Read the following statements and then answer the question that follows.
Economics concerns itself with
• A systematic understanding of patterns of production, consumption and distribution of
goods and services
• A study of money, banking, capital formation and wealth.
• A study of how limited resources are used to satisfy unlimited human wants.
• A study of the application of scarce means to a multitude of human wants.
Which of the above statements can be associated with the broad subject matter studied in economics?
• All of them.
• None of them.
• Only statements i, ii and iii.
• Only statements i, iii and iv.
• All except statement iii.
•
•
For inferior goods, as the price rises:
•
The substitution effect encourages more consumption
•
The income effect encourages less consumption
•
The income effect encourages more consumption
•
The quantity demanded rises
•
Both A and B are correct
If a monopoly market were to be replaced with a perfectly competitive market for the same product
and with the same cost structure, we would expect:
•
Prices to increase, output to increase and efficiency to increase.
•
Prices to increase, output to decrease and efficiency to decrease.
•
Prices to decrease, output to increase and efficiency to increase.
•
Prices to decrease, output to decrease and efficiency to decrease.
•
Prices to remain unchanged, output to decrease and efficiency to increase
• Which one of the following is not an important difference between the labour market and the goods
market?
• Labour services are not transferable from one person to another.
• Labour is always rented rather than sold.
• Labour is embodied in people and is therefore homogeneous or standardised.
• Labour is not traded at the best price on a daily basis.
• The labour market is subject to a wide range of non-economic factors.
• The current labour legislation in South Africa is best described as:
• Employer-friendly, flexible labour market policies.
• Worker-friendly, stable labour market policies.
• Regulated flexibility.
• Perfectly competitive labour market policies.
• Monopolistic labour market policies
•
Use the following data to answer Questions 8 and 9
Quantity produced
1
Fixed costs
200
Variable costs
350
2
3
4
5
500
700
1200
2000
What is the average cost of producing 5 units?
• 400
• 300
• 440
• 350
• None of the above
•
What is the marginal cost of the fourth unit?
•
•
•
•
•
•
Suppose that there are 10 000 seats available at FNB stadium for the ABSA premiership clash
between Kaizer Chiefs and Orlando Pirates. The price per ticket is fixed by the organisers. The
supply of seats is thus:
•
•
•
•
•
•
completely elastic
elastic
unitary elastic
inelastic
completely inelastic
Which one of the following commodities will have the lowest price elasticity of demand?
•
•
•
•
•
•
500
300
800
700
1200
Castle Lite beer
Light beer
None of the above
Alcoholic drink (including beer)
Not sure of the correct answer
When the price of café lattes rises from R15 to R20, the quantity demanded decreases from 2000 to
1200 café lattes per day. Use this information to answer Questions 12 and 13.
What is the price elasticity of demand for café lattes (using the arc formula)?
•
•
•
•
•
(+) 1
(–) 1.75
(–) 0.5
(+ ) 0.29
(–) 1.25
•
•
How would you classify the demand for café lattes, as calculated above (refer to question 12) ?
•
Price inelastic
•
Unitary price elastic
•
Price elastic
•
•
Perfectly price elastic
Perfectly price inelastic
Sipho thinks that McDonald’s hamburgers are the best – much better than Steers’ – while Mary
cannot tell the difference:
•
Mary’s demand for McDonald’s hamburgers is likely to be more price elastic than Sipho’s.
•
•
•
Sipho’s demand for McDonald’s hamburgers is likely to be more price elastic than Mary’s.
Mary’s demand for all hamburgers is less price elastic than Sipho’s.
Sipho’s demand for all hamburgers is more price elastic than Mary’s.
• Which one of the following statements is correct?
• If the price elasticity of the demand for ice cream is greater than one, then the suppliers of ice
cream can increase their total revenue by raising the price of ice cream.
• The price elasticity of demand stays the same at each point along a linear demand curve.
• A horizontal demand curve has a price elasticity of one all along the curve. This is referred to as
unitary elasticity.
• If a 10 per cent increase in university fees results in a 5 per cent reduction in the quantity of
university education demanded, then the demand for university education is price elastic.
• If the price elasticity of the demand for bread is less than one, a decrease in the price of bread will
lower the total revenue of the suppliers of bread.
•
Which one of the following statements is correct?
•
•
•
•
•
A consumer is in equilibrium when his or her average utility is at a maximum.
A consumer is in equilibrium when his or her marginal utility is at a maximum.
A consumer is in equilibrium when his or her weighted marginal utility is at a maximum.
A consumer is in equilibrium when the marginal utilities per rand spent are equal for all goods
purchased.
It is possible to compare the utility derived by two individual consumers from the consumption
of a particular good (eg ice cream).
The table below shows a hypothetical total utility schedule for a consumer of traditional beer. Use
the table to answer Questions 17 to 19.
Traditional beer
Total
consumed
utility
0
0
1
90
2
190
3
270
4
350
5
420
6
420
7
400
The consumer begins to experience diminishing marginal utility when she consumes the:
•
•
First traditional beer.
•
Second traditional beer.
•
Third traditional beer.
•
Fourth traditional beer.
•
Seventh traditional beer.
Marginal utility becomes negative with the consumption of the:
A.
B.
C.
D.
E.
•
Based on the table above, you can conclude that the:
•
•
•
•
•
•
Marginal utility of the fourth traditional beer is 60 utils
Marginal utility of the second traditional beer is 270 utils.
Average utility of 3 traditional beers is 90 utils.
Average utility of 5 traditional beers is 80 utils.
Total utility of 7 traditional beers is 1020 utils.
If a consumer has spent all her income on two goods, A and B, and we find that MUA/MUB = PA/PB,
what can we say about the consumer?
•
•
•
•
•
•
Fourth traditional beer.
Fifth traditional beer.
Sixth traditional beer.
Seventh traditional beer.
Third traditional beer
The consumer should purchase more of A and less of B.
The consumer should purchase more of B and less of A.
The prices of goods A and B must be equal.
The consumer cannot increase her utility.
MUA must equal PA
If marginal utility is positive and constant with increasing consumption, then total utility will:
•
•
Rise at a constant rate.
•
Fall at a decreasing rate.
•
Rise at an increasing rate.
•
Fall at a constant rate.
•
Rise at a decreasing rate
Which one of the following is required for a consumer to experience diminishing marginal utility
when consuming a good?
•
The consumer must be wealthy.
•
Units of the good must be consumed over a specified period.
•
The good must be edible.
•
The first unit consumed must yield a very high marginal utility.
•
There are no specific requirements for the law to operate.
• Which one of the following statements is incorrect?
• John spends his income on two products, food and drink. His current position is as follows: the
marginal utility of food, which costs R20 per unit, is 80 and the marginal utility of drink, which
costs R10 per unit, is 50. To achieve equilibrium, John has to consume more food and less drink.
• Pitso has R50 available to spend on cooldrink and chips. Cooldrink costs R6 per unit and chips cost
R4 per unit. If Pitso buys 3 units of cooldrink and 8 units of chips, the marginal utility of
cooldrink is 12 (utils) and the marginal utility of chips is 8 (utils). He will therefore be in
equilibrium if he purchases this combination.
• If a marginal value is negative, the corresponding total value decreases.
• The law of diminishing marginal utility is sometimes called Gossen’s first law.
• Negative utility is called disutility.
•
Indifference curves are convex to the origin because of:
•
•
•
•
•
•
The transitivity of consumer preferences.
The law of substitution.
The assumption of non-satiation.
The assumption of completeness.
The assumption of consistency.
A consumer equilibrium position of a given bundle of goods is defined as the point of consumption
where the combination is affordable and:
•
the goods have equal ratios of marginal utility to price.
•
•
the goods generate the same total utility.
•
the goods are of the same price.
•
the goods have equal ratios of price tot total utility.
•
the goods have equal values of marginal utility times price.
Consider Thembikosi’s choice between fish and meat. To illustrate this graphically with the aid of
indifference curves, we need (choose the one which is not appropriate):
• The price of fish.
• The price of meat.
• A table indicating Thembikosi’s marginal utility, from the consumption of various quantities of meat
and fish.
• Thembikosi’s indifference map with regards to the consumption of fish and meat.
• The amount that Thembikosi has available to spend on fish and meat.
•
•
•
Consider a firm that manufactures surfboards. Presently the firm is hiring 5 workers at a wage rate
of R20/hour. The firm is able to produce 50 surfboards per hour. The firm decides to hire an
additional worker. The marginal product of that worker is 30 surfboards per hour. What is the
marginal cost of output associated with hiring the sixth worker?
• R20
• R1,50
• R0,67
• R2
• R30
The vertical distance between the average total cost curve and the average variable cost curve:
•
Increases as output increases.
•
Decreases as output increases.
•
Is equal to total variable cost per unit of labour.
•
Is equal to total variable cost.
•
Is negative
Suppose a firm produces 40 units of output per month and has a total variable cost of R6 000 per
month. If its average fixed costs are R800 per month, what are its total costs per month?
• R6 800
• R7 600
• R22 000
• R8 000
• R11 000
•
•
•
•
When the marginal product of labour is less than the average product of labour:
•
The average product of labour is decreasing.
•
Total product is increasing at an increasing rate.
•
The marginal product of labour is increasing.
•
The marginal product of labour curve is positively sloped.
•
The firm is experiencing increasing marginal returns.
Suppose that a shoe manufacturer that employs 6 workers is able to increase the average product of
labour from 5 pairs of shoes per hour to 6 pairs of shoes per hour by hiring a seventh worker. The
seventh worker’s hourly marginal product is:
•
1 pair of shoes.
•
7 pairs of shoes.
•
11 pairs of shoes.
•
12 pairs of shoes.
•
30 pairs of shoes.
When the marginal cost curve is above the average total cost curve:
•
The average fixed cost curve is rising.
•
The average fixed cost curve is horizontal.
•
The average total cost curve is rising
•
The marginal cost curve is falling.
•
The marginal cost curve reaches a minimum.The average total cost curve is rising
Which of the following cost curves does not have a shape that is explained by the law of diminishing
marginal returns?
•
Total variable costs
•
Total costs
•
Average total costs
•
Average fixed costs
•
Average variable costs
•
Suppose a firm produces 15 units of output per month and has a total variable cost of R5 000 per
month. If its average fixed costs are R350 per month, what are its total costs per month?
•
R350
•
R5 000
•
R10 250
•
R5 250
•
R5 350
• Complete the following table and use the data to answer the 35, 36, 37 and 38.
Output
Total cost
Marginal cost
(R)
(R)
(units)
0
1
2
3
4
5
100
110
130
166
220
300
The marginal cost of the fourth unit is:
•
10
•
20
•
36
•
54
•
80
• The average fixed cost of the fifth unit is:
•
10
•
20
•
25
•
50
•
100
• The average variable cost of the third unit is:
Average
fixed cost
(R)
Average
variable cost
(R)
Average
total cost
(R)
•
11
•
22
•
33
•
30
•
40
• The average total cost of the second unit is:
•
•
55
•
60
•
65
•
100
•
110
A small farmer is more likely to operate in a perfectly competitive market than a company like SAB
Miller because:
• A small business is more likely to keep close control on costs than a large firm.
• SAB Miller employs many people, whereas perfectly competitive firms are ownermanaged.
• The demand for beer is less elastic than the demand for food
• A small farmer supplies a small share of market supply
• Farming is more risky than beer production
•
•
In a perfectly competitive market, a short-run equilibrium cannot continue in the long run if:
•
The firms are earning zero economic profits.
•
The firms are earning normal profits.
•
The firms are making economic losses.
•
The firms are operating at minimum AC.
•
All of the above hold.
Which one of the following statements is true?
•
•
The demand curve for a perfectly competitive market is perfectly elastic.
If a perfectly competitive firm maximises total revenue, it maximises profit.
•
Perfectly competitive firms that make no economic profits should shut down.
•
Perfectly competitive firms can make economic profits in the long run.
•
None of the above statements is true.
•
•
A firm finds that by producing and selling the last unit of its product, the marginal revenue it earns is
R15 and the marginal cost it incurs is R14. In order to maximise profits, the firm should:
•
Decrease its output if it is a perfectly competitive firm, but not necessarily if it is a monopolistic
firm.
•
Decrease its output if it is a monopolistic firm, but not necessarily if it is a perfectly competitive
firm.
•
Increase its output irrespective of the type of firm it is.
•
Decrease its output irrespective of the type of firm it is.
•
Decrease its output if it is a perfectly competitive firm, but increase its output if it is a
monopolistic firm
Which of the following would we NOT associate with a natural monopoly?
•
Increasing average costs as the scale of operation increases.
•
Large fixed costs.
•
A large scale of operation.
•
The ability to influence market price.
•
The ability to control market output
• The garden services industry in Gauteng is best classified as a:
• Perfectly competitive industry.
• Monopoly.
• Monopolistically competitive industry.
• Oligopoly
• The international copper market is best described as a:
• Perfectly competitive market.
• Monopolistic market.
• Monopolistically competitive market.
• Oligopolistic market
•
Which of the following will NOT shift the market supply of labour?
•
•
A change in the size of the population due to a change in birth or death rates.
•
A change in the labour force participation rate (for example, of women).
•
A change in migration.
•
Trade union action.
•
A change in the wages of the workers
The acquisition of human capital:
•
Is an investment undertaken by an individual.
•
Imposes both direct costs and opportunity costs on the individual.
•
Would be expected to increase an individual’s productivity in employment.
•
Would be expected to increase an individual’s earnings.
•
All of the above statements are correct.
• Which one of the following statements is incorrect?
• The labour market is an important factor market in the economy.
• The cost of labour is determined solely by the wages and salaries paid to workers.
• Wages and salaries are also an important demand factor in the economy.
• Productivity is an important determinant of the cost of labour.
• There are significant differences between the labour market and the goods market.
•
Which of the following is an example of a capital resource?
• A hydroelectric dam
• A dentist’s drill
• A shovel
• All of the above
• None of the above
•
A production possibility frontier will shift outward if:
• There is a technological improvement
• There is an increase in the stock of capital
• There is an increase in the labour force
• All of the above
• Not sure of the answer
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