JULY 2018 SUPPLEMENTARY/AEGROTAT EXAMINATION

MODULE:
ECONOMICS

PROGRAMME:
POSTGRADUATE DIPLOMA IN MANAGEMENT

DATE: 17 July 2018 TIME: 09h00-12h00

DURATION: 3 hours MARKS: 100
EXAMINER: D Dawkinun MODERATOR: S Meherjina

INSTRUCTIONS TO CANDIDATES:
1. Candidates are required to answer ALL questions.
2. This is a closed book examination.
3. No written material may be brought into the examination room.
4. Write legibly and neatly.
5. Do not turn over this page until permitted by the Invigilator.

This question paper consists of two (2) typed pages excluding the cover page
QUESTION ONE [30]
1.1 For each of the following events, ceteris paribus, explain whether the production
possibility frontier shifts inward, shifts outward or remains unchanged. Use a single
diagram to motivate your answer.
1.1.1 The discovery of coal. (3)
1.1.2 Training for workers that increases the amount of a good that can be produced
per worker. (3)
1.1.3 A shift in preference for one good compared to the other good. (3)
1.1.4 Invention of a new process of production that reduces the resources necessary to
produce a good. (3)

1.2 “Market structure refers to the nature and degree of competition in the market for goods
and services. There are a number of determinants of market structures for a particular good.”
In terms of the statement above, discuss the following determinants for the four main types of
market structures.
1.2.1 Nature of product (6)
1.2.2 Entry and exit conditions (6)
1.2.3 Economies of scale (6)

QUESTION TWO [35]

2.1 “Firms must have some knowledge about the elasticity of their products to set pricing
strategies. If firms know that the demand for their products is inelastic, they can raise
prices without fear of losing sales. On the other hand, if demand for their products is
highly elastic, then raising prices could be risky. “
In terms of the above statement, explain the impact of an increase in prices on the following
goods:
2.1.1 Motor vehicles (6)
2.1.2 Insulin (6)

2.2 Explain why a consumption good such as petrol is price inelastic in the short-term but price
elastic in the long-term. (6)

2.3 Discuss why the long-run average cost curve initially declines over an increasing range of
output. (7)

2.4 Explain, with the aid of a diagram, the relationship between average product and marginal
product. (10)

1
QUESTION THREE [25]
3.1 Fully discuss the type of unemployment that is linked to the business cycle of an economy.
(10)
3.2 Explain how monetary policy can be implemented to meet the key macroeconomic
objective of stable prices. (15)

QUESTION FOUR [10]

Discuss two (2) demand side policies to reduce unemployment.

END OF QUESTION PAPER