INSTITUTE OF BUSINESS MANAGEMENT
1st Hourly Examinations – Fall 2019
Course Title: Business Economics
Faculty: Muhammad Sajid Salim
Day / Date: Saturday 19 October, 2019
Student’s Name ______________________
Student ID: ______________________
Note: Please attempt all questions.
Course Code: Eco 409
Section: X
Timings: 5:15 – 6:15
Total Marks: 15
Section A (Multiple Choice Questions)
(Best 10 will be awarded)
1 A government spends $300 million on employing extra teachers instead of extra police.
What will be the opportunity cost of this?
a. $300 million
b. The cost of training the new teachers
c. The additional police
d. A reduction in unemployment among people with teaching qualifications
2 Which of the following would an economist classify as part of the factor of production land?
a. A car park
b. A fish farm
c. A housing development
d. A hardwood forest
3 Which of the following is most likely to cause a shift in the supply curve for oil?
a. An increase in demand for cars
b. An increase in disposable incomes
c. An increase in the price of oil
d. The discovery of new oil deposits
4 A consumer’s demand curve for a product shows how quantity demanded varies with:
a. The price of substitute
b. The product price
c. The consumer’s tastes
d. The price of complements
5 What is most likely to cause an increase in the demand for fish?
a. A decrease in the supply of fish
b. A health scare about eating fish
c. An increase in the price of a complement
d. An increase in the price of a substitute
6 After cutting its prices a company producing computer games increased its revenue by 30%.
What does this suggest about the demand for computer games?
a. It is perfectly price elastic
b. It is perfectly price inelastic
c. It is price elastic
d. It is price inelastic
7 Which combination is most likely to result in the demand for a product being highly price elastic?
8 In recent years the price of crude oil on the world market has fallen dramatically. One cause has
been the increase in oil obtained by the new extraction process of fracking.
How is this shown on a demand and supply diagram of the market for crude oil?
a. a shift in the demand curve to the left
b. a shift in the demand curve to the right
c. a shift in the supply curve to the left
d. a shift in the supply curve to the right
9 Which is not a factor of production?
a. a farm
b. a farmer
c. a farmer’s bank account
d. a second-hand tractor
10 A farmer reduces the land used to grow wheat from 80 hectares to 60 hectares and increases the
use of the land for growing potatoes from 80 to 100 hectares.
What is the opportunity cost of this change?
a. The output from 20 hectares used for growing potatoes.
b. The output from 20 hectares used for growing wheat.
c. The output from 60 hectares used for growing wheat.
d. The output from 80 hectares used for growing potatoes.
11 What is meant by the equilibrium price in the market for a good?
a. the average price paid by consumers
b. the price at which maximum profit is made
c. the price at which the producer breaks even
d. the price at which the supply and demand curves intersect
12 A university rejects 2000 qualified applicants who wish to study there. What factor of production
could have caused the university to make this decision?
a. infinite quantity of capital
b. scarcity of labour
c. surplus of land
d. unlimited supply of enterprise
Section B
(Structured Questions)
Question 1
Botswana has a number of conservation projects. These are thought to provide a social benefit to local
communities. Botswana has a mixed economic system with tax revenue as a percentage of GDP at 27%
in 2017. Some Botswanan economists suggest that the country should move towards a market
economic system, taking care to avoid market failure.
(a) What is meant by ‘market economic system’. [1]
(b) Draw a demand and supply diagram to show how the market for oil would be affected when the
demand for oil increases by more than the supply of oil. [2]
Question 2
Market research has revealed the following information about the market for chocolate bars: the
demand schedule can be represented by the equation QD = 1600 – 300P, where QD is the quantity
demanded and P is the price. The supply schedule can be represented by the equation QS =1400 +
700P, where QS is the quantity supplied. Calculate the equilibrium price and quantity in the market for
chocolate bars. [2]
Question 3
When the price of shirts rises from $8 to $10, the demand for shirts falls from 1000 to 500.
a) Calculate the price elasticity of demand for shirts? [1]
b) Interpret your result. [1]
c) Analyse the relationship between the price elasticity of demand of a product and the revenue
earned by the producer. [3]