The Independent Institute of Education 2014

MODULE NAME: MODULE CODE:

ECONOMICS 1A ECON211
ECONOMICS 1A ECON211p

ASSESSMENT TYPE: EXAMINATION (PAPER ONLY)

TOTAL MARK ALLOCATION: 180 MARKS

TOTAL HOURS: 3 HOURS (+15 minutes reading time)

STUDENT NAME:
STUDENT NUMBER:
INSTRUCTIONS:
1. Please adhere to all instructions in the assessment booklet.
2. Independent work is required.
3. Five minutes per hour of the assessment to a maximum of 15 minutes is dedicated to reading
time before the start of the assessment. You may make notes on your question paper, but not
in your answer sheet. Calculators may not be used during reading time.
4. You may not leave the assessment venue during reading time, or during the first hour or
during the last 15 minutes of the assessment.
5. Ensure that your name is on all pieces of paper or books that you will be submitting. Submit all
the pages of this assessment’s question paper as well as your answer script.
6. Answer all the questions on the answer sheets or in answer booklets provided. The phrase
‘END OF PAPER’ will appear after the final set question of this assessment.
7. Remember to work at a steady pace so that you are able to complete the assessment within
the allocated time. Use the mark allocation as a guideline as to how much time to spend on
each section.

Additional instructions:
1. This is a closed book examination.
2. Calculators are allowed.
3. For multiple choice questions, give only one response per question. The marker will ignore any
question with more than one answer, unless otherwise stated. You should, therefore, be sure
of your answer before committing it to paper.
4. Answer all questions.
5. Show all calculations, where applicable (marks may be awarded for this).

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Section A (Marks: 40)

Question 1 (Marks: 30)

Multiple-choice questions: Select one (1) correct answer for each of the following. In your answer
booklet, write down only the number of the question and next to it, the letter of the correct answer.

Q.1.1 Micro-economics studies the: (2)

(a) Total value of goods and services demanded in South Africa;
(b) Consumer price index;
(c) Behaviour of individual households and firms in an economy;
(d) Total value of goods and services supplied in South Africa.

Q.1.2 The economic problem arises from the coexistence of: (2)
(a) Unlimited wants and limited money in circulation;
(b) Unlimited wants and unlimited needs;
(c) Limited wants and unlimited resources;
(d) Unlimited wants and limited resources.

Q.1.3 The three (3) major flows in the economy as a whole are: (2)
(a) Total production, total investment and total saving;
(b) Total income, total investment and total production;
(c) Total money supply, total investment and total spending;
(d) Total production, total income and total spending.

Q.1.4 Excess supply means that: (2)

(a) The quantity demanded is greater than the quantity supplied;
(b) The quantity demanded is smaller than the quantity supplied;
(c) Demand is greater than supply;
(d) Supply is greater than demand.

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Q.1.5 Select the incorrect statement. When government fixes a minimum price above the (2)
equilibrium price:
(a) It creates excess demand;
(b) The quantity supplied is greater than the quantity demanded;
(c) Inefficient producers are protected and manage to survive;
(d) It creates market shortages.

Q.1.6 If a change in price leads to a proportionately (or %) greater change in quantity (2)
demanded, total revenue will:
(a) Change in the opposite direction to the price change;
(b) Change in the same direction to the price change;
(c) Remains the same;

(d) Increase, reaches a maximum and then starts to decrease.

Q.1.7 The price elasticity of demand for a good will be smaller than one (1) if: (2)
(a) The product has good substitutes and is an essential product;
(b) The product has no close substitutes and is a luxury;
(c) The product has good substitutes and is habit forming;
(d) The product is an essential product and is habit forming.

Q.1.8 Which one (1) of the following statements is correct regarding a firm operating in a (2)
perfectly competitive industry?
(a) The firm will supply differentiated products;
(b) There are numerous barriers to entry;
(c) Only a few large firms operate in the market;
(d) The firm will be a price taker.

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Q.1.9 The graph below illustrates the position of a firm under perfect competition in the (2)
short run.

At a price of R60 the firm will incur an economic loss producing at point c (a point
above the shutdown point), but it will continue producing because:

(a) MC is above AVC;

(b) Point c lies on the MC curve that presents equilibrium in the long run because
P=MC;
(c) All costs are covered;
(d) AVC is covered and a part of AFC.

Q.1.10 Which one (1) of the following statements is incorrect with reference to a (2)
monopolistically competitive firm?
(a) The firm has some control over prices;
(b) Firms sell differentiated products;
(c) There is free entry into the market;
(d) Economic profits can be earned in the long run.

Q.1.11 Because of barriers to entry into a market, a monopoly is able to: (2)
(a) Charge any price it wants and sell any quantity of its product;
(b) Make an economic loss in the long run;
(c) Make an economic profit in the long run;
(d) Collude with other suppliers.

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Q.1.12 A significant similarity between an oligopolistic and a monopolistic competitor is (2)

that:
(a) Both market forms have some control over price;
(b) They both supply homogeneous goods;
(c) Both are able to earn an economic profit in the long run;
(d) Entry is restricted for both.

Q.1.13 In a perfectly competitive labour market, the wage rate is determined by: (2)
(a) Employers;
(b) Trade unions;
(c) Interaction between workers and employers;
(d) Government.

Q.1.14 The market demand for a particular type of labour will decrease, ceteris paribus if: (2)
(a) Wages increase;
(b) The number of firms increases;
(c) The price of the substitute factor of production increases;
(d) A new substitute for that type of labour becomes available.

Q.1.15 The population of a country is 30 million, the number of people who are working is (2)
16 million and the number of people who are unemployed is 5 million. Calculate the
unemployment rate for this country.
(a) 23.8%;
(b) 17%;
(c) 31.3%;
(d) 5%.

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Question 2 (Marks: 10)

Write down the correct term or word for each of the following questions.

Q.2.1 State the two (2) conditions which have to be met for demand to exist. (2)

Q.2.2 Give the term that means the same as “the quantity demanded is greater than the (1)
quantity supplied”.

Q.2.3 State the equilibrium condition (or maximum profit position) for the individual firms (2)
demand for labour.

Q.2.4 The price elasticity coefficient of a certain type of shampoo is calculated to be (2)
Ep = -1.5. What does this tell us about the elasticity of this product?

Q.2.5 State the equilibrium condition (or maximum profit position) of the firm under (1)
perfect competition in the short run.
Q.2.6 What would have to change for a move along the demand curve to take place? (1)
Q.2.7 Name one (1) type of strategy that can be applied to create jobs and reduce (1)
unemployment.

Section B (Marks: 90)

Question 1 (Marks: 20)

Q.1.1 List the three (3) main flows and four (4) main participants found in any economic (7)
circular flow.

Q.1.2 Use a diagram to illustrate and describe the effects on the market for beef if the (10)
government intervenes and sets a minimum price. (Hint: Use your own figures for
graphs to show supply and demand curves.)

Q.1.3 List any three (3) factors that can cause a leftward shift of the demand curve. (3)

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Question 2 (Marks: 15)

Steve owns a supermarket and sells 40 bottles of super cola a week at a price of R10.00 a bottle. Due
to upward pressure on inflation Steve is considering increasing the price of super cola to R12.00 if he
does this he will sell 30 bottles of super cola.

Q.2.1
Q.2.1.1 Calculate the Arc elasticity of demand. (Show your workings.) (6)
Q.2.1.2 Explain why Arc elasticity of demand is preferred to price elasticity of (2)
demand.

Q.2.2 Describe the difference between economic profit and accounting profit. (3)

Q.2.3 List four (4) assumptions of analysing production in the short run. (4)

Question 3 (Marks: 20)

Q.3.1 Draw a diagram showing that all five (5) categories of price elasticity of demand can (10)
be illustrated on one (1) demand curve or individual demand curves. Also give a
short description for each category.

Q.3.2 Describe each of the following:

Q.3.2.1 The Long run in economic theory. (2)
Q.3.2.2 Average variable cost. (2)
Q.3.2.3 Marginal revenue. (2)
Q.3.2.4 Marginal cost. (2)
Q.3.2.5 Average fixed cost. (2)

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Question 4 (Marks: 25)

Q.4.1 Use the information in the textbox below to answer the questions that follow:

Lion Africa is a small firm that operates in a highly competitive industry. The firm is
able to sell its services at R1 200 per hour. On average a single project involves 20
hours and is usually spread over two (2) days. The total average cost per hour is R600
of which R200 is a fixed cost and the rest is a variable cost.

Q.4.1.1 During any one (1) week, Lion Africa is able to manage three (3) projects. (4)
Calculate the profit this firm would be able to make in a week. (Show all
calculations.)
Q.4.1.2 Explain whether the profit earned is possible in the short run and long run. (2)

Q.4.2 Explain, without using diagrams, why a firm that operates in a perfectly competitive (5)
market is a price taker.

Q.4.3 Describe the main features of a monopoly market structure. (6)

Q.4.4 Explain whether or not a monopolistically competitive firm is able to make an (8)
economic profit in the short run and the long run. Draw a graph showing the firm
making an economic profit.

Question 5 (Marks: 10)

Q.5.1 List four of the issues which may be addressed in the process of collective (4)
bargaining.

Q.5.2 Describe three (3) factors that will lead to a decrease in the supply of labour for a (6)
particular industry.

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Section C (Marks: 50)

Question 1 (Marks: 50)

Answer all the questions.

Q.1.1 Explain, with the aid of two (2) diagrams, how an increase in the supply of goods A (15)
will affect the equilibrium price and quantity of good B if the two (2) goods are
substitutes. (Hint: Explain the effects it will have on price and quantity.)

Q.1.2 Explain, with the aid of a diagram, what is meant by a natural monopoly and give (10)
examples of natural monopoly in the South African economy show relevant cost
curves in the diagram.

Q.1.3 Illustrate and explain the backward bending supply curve for labour. In your answer (10)
indicate and differentiate between the concepts: substitution effect and income
effect.

Q.1.4 Clothing, food, motor vehicles and furniture are just some of the products that can (15)
be produced in an economy. Describe the different types of goods that consumers
might choose from.

END OF PAPER

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