UNIVERSITY OF THE WESTERN CAPE
SEMESTER BASED ASSESSMENT
MODULE TEST FRIDAY 24 AUGUST 2018
MODULE NAME: Microeconomics
DURATION: 1.5 hours
MODULE CODE: ECO 151
MARKS: 60
ALL QUESTIONS ARE COMPULSORY. ANSWER ALL QUESTIONS.
ROUND OFF ALL ANSWERS CORRECT TO 2 DECIMAL PLACES.
RETURN QUESTION PAPER TO INVIGILATOR AFTER TEST.
Multiple Choice Questions: (15 x 2 marks each = 30)
QUESTION 1
1. Which one of the following is a macroeconomic concept?
A. The price of petrol.
B. The demand for potatoes.
C. The consumer price index.
D. The supply of pumpkins.
E. The e-toll fee in Gauteng.
2. If households have a greater desire to purchase fresh pasta, more resources will ultimately
be allocated to the production of fresh pasta in a market economy because….
A. fresh pasta has a good nutritional content.
B. consumer groups will inform pasta manufacturers of the change in demand.
C. the price of fresh pasta will be driven up, thereby making fresh pasta production
more profitable.
D. economic planners will respond to the change in demand by raising the output quotas
of fresh pasta producers.
E. the prices paid for factors of production used in the fresh pasta industry will tend to
fall.
3. In the South African economy, the problem of “what to produce” is solved primarily by the
National Planning Commission to answer……
A. The South African Reserve Bank.
B. People advertising their wants.
C. The pattern of consumers’ spending.
D. Direction by government.
E. None of the above.
4. What is a capital good?
A. Good used for consumption.
B. Good from which others may be excluded.
C. Goods used in the production of other goods.
D. Goods that include everybody.
E. None of the above.
5. An auto worker is an example of ________ and earns ________.
A. labour; wages.
B. entrepreneurship; wages.
C. labour; rent.
D. capital; rent
E. land: profit
6. Which one of the following may result in a decrease in the demand for frozen vegetables?
A. A rise in consumers’ incomes.
B. An increase in the price of frozen vegetables.
C. A decrease in the price of freezers.
D. A decrease in the price of fresh vegetables.
E. A decrease in the price of frozen vegetables.
7. In the market for public transport, which of the following variables would decrease
demand, ceteris paribus?
A. An increase in the price of private motor vehicles.
B. A decrease in the price of private motor vehicles.
C. An increase in price of private motor vehicle service plans.
D. A decrease in the price of bus tyres.
E. An increase in the price of motorbikes, a substitute.
8. As the price of fresh grapes (a substitute in production for wine) decreases, ceteris paribus:
A. The supply of wine will decrease.
B. The supply of wine will increase.
C. The demand for wine will decrease.
D. The demand for wine will increase.
E. The supply of wine will be unaffected.
9. The producer surplus is:
A. Always greater than the consumer surplus.
B. The difference between producers’ revenue and their cost of production.
C. The difference between the price that producers receive and the lowest prices at
which they are willing to supply the different quantities.
D. What producers have left after all their expenses have been paid.
E. Simply another term for profit.
10. Consumer surplus indicates that:
A. More will be demanded at lower than at higher prices.
B. It is impossible to increase consumer wellbeing by changing the way in which
income is spent.
C. Consumers often get more value from a good than is represented by the price.
D. The allocation of resources is decided by the interaction of buyers and sellers.
E. Market equilibrium can always be attained.
11. Which of the following statements is true?
A. A price floor is a minimum price and must be set above the equilibrium price to be
effective.
B. A price floor that is effective results in excess demand.
C. A price ceiling is a maximum price that must be set above the equilibrium price to be
effective.
D. A price ceiling is a minimum price that must be set below the equilibrium price to be
effective.
E. A price ceiling is a minimum price that must be set equal the equilibrium price to be
effective.
Answer 12 to 15 based on this question. What effect will the following have on the supply of
car tyres?
12. Technological advancement in the method of producing tyres:
A. Increase in supply – shifting the supply curve to the right.
B. Increase in supply – moving along the supply curve.
C. Decrease in supply – shifting the supply curve to the right.
D. Decrease in supply – shifting the supply curve to the left.
E. Increase in supply – shifting the curve to the left.
13. Increase in the price of tyres……..
A. Increase in supply – shifting the supply curve to the right.
B. Increase in quantity supplied – moving along the supply curve.
C. Decrease in quantity supplied – moving along the supply curve.
D. Decrease in supply – shifting the supply curve to the left.
E. Decrease in supply – shifting the supply curve to the right.
14. Increase in the price of rubber used in the production of tyres…….
A. Decrease in supply – shifting the supply curve to the right.
B. Increase in quantity supplied – moving along the supply curve.
C. Decrease in supply – shifting the supply curve to the left.
D. Decrease in quantity supplied – shifting the supply curve to the left.
E. Increase in quantity supplied – shifting the supply curve to the right.
15. The granting of R50 subsidy per unit for each tyre produced……
A. Decrease in supply – shifting the supply curve to the right.
B. Increase in quantity supplied – moving along the supply curve.
C. Decrease in quantity supplied – moving along the supply curve.
D. Increase in supply – shifting the supply curve to the right.
E. Increase in supply – shifting the supply curve to the left.
Structured Questions: (3 questions x 10 marks = 30marks)
Question 2
2.1 What are the three central economic questions that have to be answered in each society?
(3)
2.2 Define a production possibilities curve and use such a curve to illustrate scarcity,
choice and opportunity cost.
(7)
Question 3
Suppose the market demand for diesel is given as: Qd = 200 – 2P.
The information about the linear supply function is given as follows:
• When the price is R8 per litre, 40 litres of diesel are supplied to the market.
• In addition, research has shown that when price decreases by R2 per litre, quantity
supplied decreases by 20 litres.
3.1 Use the information above to estimate the supply equation in the form, Qs = c + dP. (2.5)
3.2 Find the equilibrium price and quantity.
(3.5)
3.3 Calculate the value of the consumer surplus at equilibrium.
(2)
3.4 Assuming government set a maximum price of R15 per litre in the diesel market,
determine the impact this intervention will have on the diesel market.
(2)
Question 4
4.1 Hormone-free dairy milk has been found to be potentially more beneficial and healthy.
Consider the market for this product in South Africa. Explain and show graphically how
this market would be affected if South African consumers chose to be healthier.
(5)
4.2 Consider the market for soybeans. Use demand and supply curves to illustrate and
explain the impact of an increase in the cost of farm equipment used in the production of
soybeans on the equilibrium price and quantity of soybeans.
(5)