FACULTY
Economic and Management Sciences
DEPARTMENT
Economics
SUBJECT
Basic Microeconomics
SUBJECT CODE
EMr3571 lEML257L
DATE
July 2015
DURATION
3 hours
100
MARKS
SPECIAL EXAMINATION
Examiner: Mr. Festus Tangeni KANDENGE (UNAM/ Main Campus)
Examiner: Mr. Sakaria Kalumbu (UNAM/ Main Campus)
Examiner: Mr. Elifas Iyambula (UNAM/ Main Campus)
Examiner: Mrs. Shinkeva, Annastasia (UNAM/Rundu Campus)
Examiner: Mr. Denk, Steven (UNA/Keetmanshoop Campus)
Moderator: Dr. Omu Kakujaha - Matundu (UNAM/ Main Campus)
This question paper consists of 8 pages including this cover
page
Instructions
.
Read all instructions carefully before you start
writing.
o This paper consists of 4 questions.
o Attempt all questions.
UNIVERSITY OF NAMIBIA EXAMINATIONS
Page 1 of 8
Ouestion One [20 Marks/ 1 mark each questionl
Choose the correct answer
1,1) Economics may be defined as:
a) the interaction between micro- and macro considerations.
b) the social science concerned with the efficient use of scarce resources to achieve
maximum satisfaction of economic wants
c) the empirical testing of value judgments
d) the use of policy to refute facts and hypotheses.
1,2) A positive statement is one which is:
a) derived by induction
b) derived by deduction
c) subjective and is based on a value judgement
d) objective and is based on facts.
1.3, Productive efficiency refers to:
a) the use of the least-cost method of production
b) the production of the product-mix most wanted by society
c) the full employment of all available resources
d)
production at a point inside the production possibilities curve (ppc).
1.4) A normative statement is one which:
a) is based on the law of averages
b) peftains only to microeconomics
c) pertains only to macroeconomics
d) is based on value judgements.
1.5) The chief characteristic of the market economic system is:
a) producer sovereignty
b) barter
c) centralised decision-making
d) consumer sovereignty.
1.6) rn
a command-based economy, Iabour is governed by:
a) unrons
b) private employers
Page 2 ol 8
c) government
d) labour legislation.
L.7) Aslide along
a demand curve can be caused by a change in:
a) income
b) tastes
c) population
d) the price of the product.
1.8) An increase in the supply of oranges, ceteris paribus, results in:
a) a slide down the demand curve for oranges.
b) a decrease in the equilibrium quantity exchanged
c) an increase in the demand for oranges
d) a decrease in the quantity of oranges supplied at each and every price.
1.9) The elasticity formula is always given as follows:
a) o/o change in the dependent variable) lo/o change in the independent variable
b) o/o change in the independent variable lo/o change in price
c) o/o change in price/o/o change in income
d) o/o change in the dependent variable/o/o change in the dependent variable
1.10) If the price elasticity of demand is 116, what action should be taken
regarding the price of the product in order to maximise total revenue?
a)
The price will have to decrease.
b) Producers will have to cut back on production.
c) The price should remain unchanged.
d) The price should be increased.
1.11) Which of the following is an example of a good that is pefectly price
inelastic?
a) The drug insulin for a patient that is diabetic.
b) cigarettes
c) apples at your local supermarket
d)
black and white television sets.
1.12) If the income elasticity of demand is -1,5, this indicates that the good
is:
a) an inferior good
Page 3 of 8
b) a superior good
c) a good that is in high demand
d) a substitute for other goods.
1.13) A pefectly competitive firm sells its product at N$5 per unit, and sells
15 units. The marginal cost (Mc) of the 50th unit of output is N$5,50, while
the average variable cost (AVc) of 15 units is N$4r50. To maximise profits (or
minimise losses), the firm should:
a) produce 15 units
b) produce fewer than 15 units
c) produce more than 15 units
d) shut down.
1.14) If a firm decides to produce no output in the shoft run, its costs will be
equal to:
a) marginal costs
b) fixed costs plus variable
c) fixed costs
d) zero
costs
1.15) In the peffectly competitive market for factors of production:
a) only employers are price-takers
b) only employees are price-takers
c) employers and employees are price-takers
d) neither employers nor employees are price-takers.
1.16) Imagine that we operate in a pefectly competitive market for factors
of production, and that we are producing cars. If the demand for cars
increases:
a) the wage level in the industry will increase
b) the wage level in the industry will decrease
c) the wage level in the industry will remain the same
d) it is impossible to know what will happen to the wage level.
!.17) The government introduces a minimum wage. This:
a) wage must be above the market-determined wage
b) wage must be lower then the market- determined wage
c) wage must be equal to the market-determined wage
d) is the same as a price ceiling
Page 4 of 8
1.18) The following is not a benefit of being able to trade:
a) We do not have to produce more than we can consume.
b) The economy can consume more.
c) There is an increase in productive efficiency owing to specialisation.
d) The economy can focus on producing goods and services that are the cheapest and
most cost effective.
1.19) Which of the following statements are incorrect? (Assume there is a
market for only two goods.)
a) If a country has not got an absolute
advantage in either product X or product Y, it
have
a
competitive
advantage.
cannot
b) Countries always have a competitive advantage.
c) If a country has an absolute advantage, it can have a competitive advantage.
d) If trade is occurring between two countries, each will have a competitive advantage
in a different product.
1.20) The following is not a direct benefit of trade:
a) economies of scale
b) increased production levels
c) industrial growth and development
d) an increased level of education.
Ouestion Two [20 Marks/ 1 mark each questionl
Choose whether the statement is true or false
No.
Statement
2.L.
Ceteris paribus means all other things are assumed not to
True
False
chanoe.
2.2.
2.3,
2.4.
2.5.
2.6.
The comment that "social security taxes must be reduced
if there are to be adequate incentives to work" is an
example of a normative economic statement.
The economizing problem for individuals arises from the
conflict between having relatively unlimited income and
relatively limited wants.
The economy of Namibia can best be described as pure
capitalism.
More specialization in a market economy generally leads to
the more efficient use of its resources.
An increase in quantiU supplied miqht be caused bv an
Page 5 of 8
2.7.
2.8.
2.9.
2.10.
2.t1..
2.12.
2.13.
2.t4.
2.1s.
2.16.
2.L7,
increase in production costs.
An increase in demand accompanied by an increase in
supply will increase the equilibrium quantity but the effect
on equilibrium orice will be indeterminate,
A qovernment tax oer unit of outout reduces supplv.
If market demand increases and market supply decreases,
the change in equilibrium price is unpredictable without
first knowing the exact magnitudes of the demand and
suoolv chanoes.
The law of demand states that as price increases, other
things being equal, and the quantity of the product
demanded decreases.
An increase in consumer incomes will cause a decrease in
the demand for an inferior qood.
A price fixed above the equilibrium price of a product will
cause a shortaqe of that product.
Cross elasticity of demand measures the effect of a
change in the price of one product on the quantity
demanded of another oroduct.
Income elasticity measures the effect of a change in
income on the purchases of some qood or service.
A cross elasticity of demand coefficient of +2,5 indicates
that the two products are substitutes.
An income elasticity coefficient of -1.8 means the product
is a normal qood.
A good with a price elasticity of demand equal to .75
is
described as price-inelastic.
2.18.
The real opportunity cost of producing product X is the
amounts of products Y, Z, and so forth, that might have
been produced if resources had not been used to produce
X.
2.19.
2.20.
Diseconomies of scale stem primarily from the difficulties
in managing and coordinating a large-scale business
enterprise.
Economic profit is found by subtracting accounting costs
from total revenue.
Page 6 of 8
Ouestion Three [30 Marksl
The table below gives the possible bundles of
output of capital and consumer
goods for an economy with a fixed supply of resources.
Capital qoods
0
20
38
53
67
88
Bundle of Outout
A
B
c
D
E
F
Consumer qoods
78
68
56
34
22
0
3.1 Draw a diagram of the production possibilities curve. Put consumer goods on the
veftical (y) axis and capital goods on the horizontal (x) axis. [5 Marks]
3.2 What is the opportunity cost of only producing capital goods? [5 Marks]
3.3 What is the opportunity cost of only producing consumer goods? [5 Marks]
3.4 What is the opportunity cost of increasing the output of capital goods from 20 to 38
units? [5 Marks]
3.5 What is the opportunity cost of increasing the output of consumer goods from 22
units to 56 units? [5 Marks]
3,6 What is the opportunity cost of producing the 68 unit of consumer goods? [5
Marksl
Ouestion Four [30 Marksl
The following table summarizes the shoft-run relationship between a firm's
total labor input and its total output.
Labour [nout
Total Product
0
0
30
56
85
LO2
130
L27
120
1
2
3
4
5
6
7
8
Marqinal Product
Averaqe Product
116
Page 7 of 8
4.1) Fill in the
columns labelled "Marginal Product" and "Average Product." 124
Marksl
4.2) Over what range of labour input does the firm experience;
4.2(a) Increasing marginal returns? [2 Marks]
4.2(b) Diminishing marginal returns? [2 Marks]
4.2(c) Negative marginal returns? [2 Marks]
Page 8 of 8