This multiple-choice examination paper consists of 23 pages plus instructions for the completion of a
mark-reading sheet.
The question paper consists of 70 multiple-choice questions that must all be answered on the markreading sheet, which is supplied. Carefully follow the instructions for the completion of the markreading sheet. Each question will be worth 1,4 marks; therefore, the paper carries a total of 100 marks.
NB! NB! NB!
Students registered for ECS1501 must use unique number 470431 on the mark-reading sheet.
Place the completed mark-reading sheet in your answer book. DO NOT STAPLE IT TO THE
ANSWER BOOK.
Please complete the attendance register on the back page, tear it off and hand it to the
invigilator.
All students must ensure that the page numbers of this examination paper (pages 1–23) follow each
other correctly. Please report to the invigilator if your paper has any blank pages or if pages are
printed unclearly.
This examination paper remains the property of the University of South Africa and may
not be removed from the examination room.
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Page 2 of 23
1.
2.
In microeconomics, we study ______.
i
ii
iii
iv
the production of a single product
the consumer price index
the decisions of individual firms or businesses
the combined outcome of all firms in South Africa
[1]
[2]
[3]
[4]
None of the above
Only (i) and (iii)
Only (ii) and (iv)
Only (i), (ii) and (iii)
What does normative economics involve and on what is it based?
[1]
[2]
[3]
[4]
3.
ECS1501
May/June 2012
Positive statements; facts
Recommendations; personal value judgments
Positive statements; values
Opinions; facts
Which of the following represent a flow variable(s)?
i
ii
iii
iv
The balance in a savings account
A firm’s monthly income
The gold reserves held by the South African Reserve Bank
Profit earned by the firm during the course of the year
[1]
[2]
[3]
[4]
Only (i) and (iii)
Only (ii) and (iv)
Only (i), (ii) and (iii)
All of the above
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Page 3 of 23
ECS1501
May/June 2012
4.
Which of the following statement(s) is/are correct?
A capitalist market economy is characterised by _____.
i
ii
iii
iv
[1]
[2]
[3]
[4]
5.
Only (i) and (ii)
Only (ii) and (iv)
Only (i), (ii) and (iii)
All of the above
The opportunity cost of a good is _____.
[1]
[2]
[3]
[4]
6.
private ownership of the factors of production
economic decisions are made predominantly through the market with limited government
intervention
decentralised decision making that rests with the owners of the factors of production
economic decisions that are made by individual households and firms, with a large
presence of the government in the economy
the time lost in finding it
the quantity of other goods sacrificed to obtain another unit of that good
the expenditure on the good
the lack of opportunity to buy a good
A household is _____.
[1]
[2]
[3]
[4]
the unit that employs factors of production to produce goods and services that are sold in
the goods market
the basic productive unit in the economy
the basic decision-making unit in the economy
primarily engaged in production
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Page 4 of 23
7.
ECS1501
May/June 2012
Which of the following statement(s) is/are correct?
i
ii
iii
[1]
[2]
[3]
[4]
The circular flow of income and spending is a monetary flow.
The circular flow of income and spending is in the same direction as the flow of goods and
services.
The circular flow of income and spending is in a opposite direction to the flow of goods and
services.
None of the above
Only (i) and (ii)
Only (i) and (iii)
All of the above
Use figure 1 to answer questions 8 and 9.
Figure 1
ORANGES
•D
•B
•A
•C
APPLES
8.
Point B on the production possibility frontier (PPF) correctly indicates the point of
[1]
[2]
[3]
[4]
inefficient allocation of resources.
scarcity.
attainable but inefficient resource allocation.
attainable and efficient resource allocation.
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Page 5 of 23
ECS1501
May/June 2012
9.
The movement from point B to point C on the PPF reflects
[1]
[2]
[3]
[4]
10.
A cost-reducing improvement in technology will result in a _____.
[1]
[2]
[3]
[4]
11.
the supply of CDs will increase
the demand for CDs will fall
the supply of CDs will decrease
there will be a movement along the supply curve for CDs
As the price of grape juice (a substitute in consumption of wine) decreases, ceteris paribus, then
_____.
[1]
[2]
[3]
[4]
13.
leftward shift of the demand curve and an increase in quantity supplied
rightward shift of the supply curve and an increase in quantity supplied
leftward shift of the supply curve and an increase in quantity supplied
rightward shift of the demand curve and an increase in quantity demanded
If the price of DVDs (which are a substitute in production for CDs) increases, ceteris paribus,
then _____.
[1]
[2]
[3]
[4]
12.
scarcity.
opportunity cost.
unlimited wants
correct resource allocation
the supply of wine will decrease
the supply of wine will increase
the demand for wine will decrease
the demand for wine will increase
An increase in the price of nutrients which is an input for dairy farming, ceteris paribus, will result
in _____.
[1]
[2]
[3]
[4]
a decrease in the demand for nutrients
an increase in the demand for nutrients
a decrease in the supply of dairy products
an increase in the supply for dairy products
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Page 6 of 23
14.
Which of the following will definitely result in the equilibrium price decreasing?
[1]
[2]
[3]
[4]
15.
an increase in the demand for the product
a shift to the right of the demand curve
an increase in the quantity demanded of the product
all of the above
Which of the following would probably cause an increase in the demand for donuts?
[1]
[2]
[3]
[4]
18.
A price increase in T-shirts, a complement product of cotton
An increase in the supply of cotton
An increase in the cost of harvesting cotton
A drop in the wage of labourers used in harvesting the cotton
According to the law of demand, a decrease in the selling price of a product will result in _____.
[1]
[2]
[3]
[4]
17.
An increase in both demand and supply
A decrease in both demand and supply
An increase in demand together with a decrease in supply
A decrease in demand together with an increase in supply
Assuming everything remains unchanged in the cotton market, what will lead to the equilibrium
price of cotton increasing?
[1]
[2]
[3]
[4]
16.
ECS1501
May/June 2012
An increase in the price of coffee
An increase in the price of donuts
An increase in the price of scones
All of the above
An increase in the price of good X will cause the demand curve for good Y to _____.
[1]
[2]
[3]
[4]
shift to the right
insufficient information to answer this question
shift to the left
shift vertically
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Page 7 of 23
ECS1501
May/June 2012
19.
Which of the following is an example of a movement along the supply curve?
[1]
[2]
[3]
[4]
The quantity of apples offered for sale increases as the price of apples increases.
An apple orchard burns down in an accidental fire, decreasing the number of suppliers in
the market.
The price of pears doubles, increasing the demand for apples.
The price of fertiliser increases, making it more expensive to produce apples.
Use figure 2 to answer question 20
Price of Cars (R000’s)
Figure 2
1
13
4
12
11
10
9
8
7
6
5
4
3
2
1
0
S
D
0
20.
22.
3
4 5 6 7 8
Quantity of Cars
9 10
If you pay R5 000 for a car, which of the following options is not an accurate description of the
situation?
[1]
[2]
[3]
[4]
21.
1 2
The market is in equilibrium.
A shortage exists.
Quantity demanded exceeds quantity supplied.
Fewer than five cars are available for sale.
Which of the following is most likely the result of the imposition of an effective price ceiling?
[1] A shortage
[2] A surplus
[3] An increase in the quantity supplied
[4] An decrease in the quantity demanded
An increase in the price of Pepsi Cola will probably result in _____.
[1]
an increase in the quantity demanded of Coca Cola
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Page 8 of 23
[2]
[3]
[4]
23.
equilibrium price decreases but the change in the equilibrium quantity is indeterminate
equilibrium quantity decreases but the change in the equilibrium price is indeterminate
equilibrium quantity increases but the change in the equilibrium price is indeterminate
equilibrium price increases but the change in the equilibrium quantity is indeterminate
If the demand and the supply of a product both increase, then the _____.
[1]
[2]
[3]
[4]
26.
increase and the equilibrium quantity will increase
increase and the equilibrium quantity will decrease
decrease and the equilibrium quantity will increase
decrease and the equilibrium quantity will decrease
If the demand for a product increases and the supply of that product decreases, then the _____.
[1]
[2]
[3]
[4]
25.
a shift to the right in the demand curve for Coca Cola
an increase in the demand for Coca Cola
Both options [2] and [3] are correct.
If the income of every citizen decreases, then the equilibrium price will _____.
[1]
[2]
[3]
[4]
24.
ECS1501
May/June 2012
equilibrium price decreases but the change in the equilibrium quantity is indeterminate
equilibrium quantity decreases but the change in the equilibrium price is indeterminate
equilibrium quantity increases but the change in the equilibrium price is indeterminate
equilibrium price increases but the change in the equilibrium quantity is indeterminate
For a linear demand curve, _____.
[1]
[2]
[3]
[4]
demand is elastic at high prices
every point on the curve will have a unit elastic value
demand is elastic at low prices
elasticity is constant along the curve
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Page 9 of 23
ECS1501
May/June 2012
27.
The demand for Cheerios cereal is more price elastic than the demand for cereals as a whole.
This is best explained by the fact that _____.
[1]
[2]
[3]
[4]
28.
The price elasticity of the demand for a textbook is estimated to be 1 irrespective of the price or
quantity demanded. In this case, _____.
[1]
[2]
[3]
[4]
29.
a 10% increase in price will result in a 10% increase in the quantity demanded
a 10% increase in price will result in a 10% decrease in the quantity demanded
an increase in price will increase the total revenue of sellers
a decrease in price will increase the total revenue of sellers
If the price elasticity of the demand for a product is equal to 0,5, then a 10% decrease in price
will _____.
[1]
[2]
[3]
[4]
30.
Cheerios is a luxury food item
cereals are a necessity
there are more substitutes for Cheerios than for cereals as a whole
the consumption of cereals as a whole is greater than the consumption of Cheerios
increase quantity demanded by 5%
increase quantity demanded by 0,5%
decrease quantity demanded by 5%
decrease quantity demanded by 0,5%
Suppose you are given the following data on the demand for a product. When the price
decreases from R9 to R7, the point price elasticity of demand is _____.
[1]
[2]
[3]
[4]
Price (R)
Quantity demanded
R10
30
R9
40
R8
50
R7
60
R6
70
0,63
1,16
2,25
1,60
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Page 10 of 23
31.
ECS1501
May/June 2012
The following table shows the demand schedule for a particular good:
Price (R)
Quantity demanded
R15
0
R12
5
R9
10
R6
15
R3
20
R0
25
Using arc elasticity or the midpoint method, what is the price elasticity of demand when the price
rises from R9 to R12?
[1]
[2]
[3]
[4]
32.
In economics, economic profit is defined as the difference between _____
[1]
[2]
[3]
[4]
33.
0,43
0,67
1,50
2,33
total revenue and total explicit costs
total revenue and total implicit costs
total revenue and total explicit and implicit costs
total revenue and total accounting costs
At what level of output are total costs equal to total fixed costs?
[1]
[2]
[3]
[4]
When total product is at its maximum value
When output is equal to zero
At any level of output
When output is equal to infinity
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Page 11 of 23
ECS1501
May/June 2012
34.
In the diagram below, point N represents a situation where _____.
Figure 3
Production
per unit of
Labour
A
P
N
0
N₁
Units of Labour
[1]
[2]
[3]
[4]
35.
MP
total product changes from increasing at an increasing rate to increasing at a decreasing
rate
total product has reached its maximum value
total product is equal to zero
the point of diminishing marginal productivity is reached
When a firm is increasing its output, why do the average variable costs and average total costs
values move closer and closer to each other?
[1]
[2]
[3]
[4]
It happens because average variable costs and average total costs are calculated in the
same way.
As output increases, average fixed costs continuously decline, moving them closer and
closer to zero.
It happens because marginal costs drop to zero as output increases.
When output increases, total fixed costs drop to zero.
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Page 12 of 23
36.
ECS1501
May/June 2012
The cost that Hewlett Packard (HP) incurs to produce a laptop is calculated as follows:
Quantity of laptops
Total costs (in rand)
0
2 000
1
5 000
2
7 000
3
9 000
4
11 000
5
13 000
What is the total fixed cost that HP incurs in producing laptops?
[1]
[2]
[3]
[4]
37.
0
R2 000
R3 000
R46 000
The following diagram shows the cost curves for some firms:
Figure 4
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Page 13 of 23
ECS1501
May/June 2012
What is the total cost of producing 10 units?
[1]
[2]
[3]
[4]
38.
R8
R4
R60
R80
Using the diagram in question 37, what is the value of the total fixed costs of producing 30 units?
[1]
[2]
[3]
[4]
R20
R40
R300
R360
Use the table below to answer questions 39 to 42.
Output (Q)
Total cost
0
40
1
Total
variable
cost
Average
fixed cost
Average
total cost
20
2
15
3
35
4
5
39.
Marginal
cost
35
140
What is the value of average fixed costs when four units are produced?
[1]
[2]
[3]
[4]
R10
R35
R40
R20
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Page 14 of 23
40.
What is the total cost of producing four units of output?
[1]
[2]
[3]
[4]
41.
R10
R26
R30
R40
If the price of this product were constant and equal to R30 per unit, what would be the profitmaximising level of output?
[1]
[2]
[3]
[4]
43.
R85
R105
R140
R240
What is the marginal cost of producing the 5th unit of output?
[1]
[2]
[3]
[4]
42.
ECS1501
May/June 2012
2
3
4
5
Which of the following statements meet the requirements for perfect competition?
i
ii
iii
iv
The demand curve for the firm’s product is downward sloping.
Long-run profits can be positive or negative, depending on the cost structure of the firm.
The demand curve for the firm’s product is perfectly inelastic.
In perfect competition, an individual firm has some control over the price of the product.
[1]
[2]
[3]
[4]
i and ii
ii and iii
ii and iv
All the statements are incorrect
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Page 15 of 23
ECS1501
May/June 2012
44.
In perfect competition, when _____.
[1]
[2]
[3]
[4]
45.
If firms in perfect competition are making economic losses today, then we know that in the long
run, firms will _____ the industry until all firms are earning _____..
[1]
[2]
[3]
[4]
46.
zero
equal to total variable costs
equal to total fixed costs
less than total variable cost
If average revenue is equal to average costs in perfect competition, this means that _____.
[1]
[2]
[3]
[4]
48.
enter; economic profit
exit; normal profit
exit; economic profit
enter; normal profit
If a firm shuts down operations in the short run and produces no output, it means that its total
costs are now _____.
[1]
[2]
[3]
[4]
47.
MR = MC, the firm should expand its output
MR > MC, the firm should reduce its output
MR < MC, the firm should reduce its output
MR > MC, the firm should maintain its output because profits are maximised
the firm is making normal profits
the firm is maximising its profits
the firm should shut down production
the average fixed costs are equal to average variable costs
Which characteristic of perfect competition ensures that profits will be zero in the long run?
[1]
[2]
[3]
[4]
The product is homogeneous.
The individual firm is a price taker.
There is freedom of entry and exit.
No collusion exists.
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Page 16 of 23
49.
Which of the following is not a long-run equilibrium condition for a perfectly competitive firm?
[1]
[2]
[3]
[4]
50.
P = MR = MC = ATC
P = MC = ATC
AR = MC = ATC
MR = MC = AFC
Which of the following options regarding the shutdown and breakeven point for a perfectly
competitive firm is/are correct?
[1]
[2]
[3]
[4]
51.
ECS1501
May/June 2012
"Breakeven" and "shutdown" are terms used for the same production point.
Shutdown is obtained at a point where price is equal to the minimum of average variable
cost and breakeven is obtained at the minimum point of average total costs.
Shutdown is at the minimum of average total costs while breakeven is at the minimum
point of average variable costs.
The shutdown point is obtained where price is equal to minimum average variable costs
and the breakeven point is obtained where price is equal to minimum average fixed costs.
Suppose a perfectly competitive firm produces 10 units of a product and faces the following
costs and revenues:
Average total costs = R2,00
Average variable costs = R1,20
Marginal cost = R1,80
Price of product = R1,80
This firm should _____.
[1]
[2]
[3]
[4]
continue operating and increase output to a level of greater than 10 units
continue operating and maintain output at the current level of 10 units
shut down production, as price is less than average total costs
continue operating but reduce output to below 10 units in order to maximise profits
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Page 17 of 23
ECS1501
May/June 2012
52.
The diagram below shows the cost and revenue curves for a perfectly competitive firm. What is
the amount of profit this firm will make per unit?
Figure 5
AT
C
Price, Cost,
Revenue
MC
AVC
8
A
6
5
3,5
0
[1]
[2]
[3]
[4]
53.
14
20
24
Quan
R2
R3
R4
R5
The relationship between the marginal cost and average total cost curves is such that ______.
[1]
the behaviour of one curve is inversely related to the other
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Page 18 of 23
[2]
[3]
[4]
ECS1501
May/June 2012
if AC exceeds MC, MC must be declining
if MC is declining, AC can be rising or falling
if MC is less than AC, then AC must be declining
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Page 19 of 23
ECS1501
May/June 2012
54.
In 2010, Nokia Ltd was able to produce 1 000 Nokia 360 cellular phones per day, incurring an
average variable cost of R100 and an average fixed cost of R250. In 2011, the production of
Nokia 360 cellular phones increased to 1 500 per day, resulting in total cost to increase from
R350 000 to R475 000. The average variable costs increases to R150. What was the average
fixed cost of producing a Nokia 360 cellphone in 2011?
[1]
[2]
[3]
[4]
55.
A market structure in which many firms sell products that are similar but not identical is known as
_____.
[1]
[2]
[3]
[4]
56.
monopolistic competition
a monopoly
perfect competition
an oligopoly
A monopolistic competitive market is characterised by the following, except for _____.
[1]
[2]
[3]
[4]
57.
R250
R350
R166,67
R150
free entry and exit
long-run economic profits
many sellers
differentiated products
Which one of the following correctly compares and contrasts a monopoly and monopolistic
competition?
[1]
[2]
[3]
[4]
A monopolist charges a price above the marginal cost while a monopolistic competitor
charges a price equal to the marginal cost.
A monopolist faces a downward sloping demand curve while the monopolistic competitor
faces an elastic demand curve.
In the long run, the monopolist makes economic profits while the monopolistic competitor
makes zero profits.
Both the monopolist and the monopolistic competitor make zero profits in the long run.
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Page 20 of 23
58.
Compared to a perfectly competitive firm, a monopoly normally generates _____.
[1]
[2]
[3]
[4]
59.
below the price
above the price
above the average total cost
equal to the price
The monopolist maximises profit by producing the quantity at which _____.
[1]
[2]
[3]
[4]
62.
the monopolist faces competition from other firms
there are no laws preventing competition for specified time periods
there are barriers to entry in the market
the monopolist is above the law
When a monopolist produces an additional unit, the marginal revenue generated by the extra
unit must be _____.
[1]
[2]
[3]
[4]
61.
higher prices and higher output
higher prices and lower output
lower prices and higher output
lower prices and lower output
A monopoly is able to generate economic profits in the long run because _____.
[1]
[2]
[3]
[4]
60.
ECS1501
May/June 2012
marginal revenue equals the marginal cost
marginal revenue equals the price
marginal cost equals the price
marginal cost equals the average revenue
Which of the following options is correct?
[1]
[2]
[3]
[4]
Homogeneity of labour is not a requirement for a perfectly competitive labour market.
The fact that there are many buyers and sellers implies that an individual firm faces a
perfectly elastic demand curve.
The assumption that there are many participants in a competitive labour market implies
that firms are price takers.
Entry into the market is barred in a perfectly competitive labour market.
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Page 21 of 23
ECS1501
May/June 2012
63.
An increase in the supply of labour _____.
[1]
[2]
[3]
[4]
64.
An increase in the price of bicycles shifts the demand for bicycle manufacturers to the _____.
[1]
[2]
[3]
[4]
65.
increases the marginal product of labour and decreases the wage rate
decreases the marginal product of labour and decreases the wage rate
decreases the marginal product of labour and increases the wage rate
increases the marginal product of labour and increases the wage rate
left and decreases the wage rate
right and decreases the wage rate
right and increases the wage rate
left and increases the wage rate
A perfectly competitive, profit-maximising firm should hire workers up to the point where _____.
[1]
[2]
[3]
[4]
the wage rate and the price of the product are equal
the marginal physical product of labour equals the price of the product
the marginal revenue product of labour equals the wage rate
the marginal physical product of labour exceeds the wage rate
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Page 22 of 23
ECS1501
May/June 2012
Use the following marginal revenue product (MRP) diagram to answer question 66:
Figure 6
MRP, Wage rate
600
400
MRP
20
0
1
66.
N (Number of workers)
four
one
zero
two
A/an _____ in the demand for sugar will lead to a/an _____ in the price of sugar. As a result, the
marginal revenue product will _____.
[1]
[2]
[3]
[4]
68.
4
In order to maximise profits, a perfectly competitive labour firm will employ _____ workers at a
wage rate of R600.
[1]
[2]
[3]
[4]
67.
2
increase; increase; increase
increase; decrease; decrease
decrease; increase; increase
decrease; increase; decrease
Assume that you are in the grape-picking industry. Which figure below shows the effect of an
increase in the wages paid in the apple-picking industry on the wages paid in the grape-picking
industry?
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Page 23 of 23
ECS1501
May/June 2012
Figure 1
Figure 2
W
W
S
S
S
W
W
W
W
D
0
N N
D
N
D
0
NN
N
Figure 4
Figure 3
W
S
W
W
D
0
NN
D
N
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Page 24 of 23
[1]
[2]
[3]
[4]
69.
Figure 1
Figure 2
Figure 3
Figure 4
The following are causes of imperfect labour markets, except for _____.
[1]
[2]
[3]
[4]
70.
ECS1501
May/June 2012
monopsony, government intervention, and heterogeneous labour
government intervention, many buyers and sellers, and perfect knowledge
imperfect knowledge, immobile labour, and trade unions
monopsony, imperfect knowledge, and government intervention
The introduction by the airlines of compulsory online travel booking, which is a substitute for
travel agents’ services, will result in _____.
[1]
[2]
[3]
[4]
a decrease in the demand for travel agents’ services
a decrease in the number of those travelling
an increase in the supply of travel agents’ services
an increase in the demand for travel agents’ services
TOTAL:
©
UNISA 2012
[70]
Page 25 of 23
ECS1501
May/June 2012
EEEEEECONOMICS 1 – MICROECONOMICS
ECS1501
ECONOMICS 1 – MICROECONOMICS
ECS101-6
MEMORANDUM
- May/June 2012
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Page 26 of 23
1. 2
2. 2
3. 4
4. 1
5. 2
6. 3
7. 3
8. 4
9. 2
10. 2
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
3
3
3
4
3
3
3
2
1
1
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
1
4
4
4
3
1
3
2
1
3
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
4
3
2
2
2
2
4
2
1
3
ECS1501
May/June 2012
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
4
2
4
3
2
3
1
3
4
2
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
2
1
4
3
1
2
3
2
3
1
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
1
3
2
3
3
2
1
3
2
1
[TURN OVER]