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MODULE NAME: MODULE CODE:

ADVANCED MICROECONOMICS AMIE7311

ASSESSMENT TYPE: EXAMINATION (PAPER ONLY)

TOTAL MARK ALLOCATION: 120 MARKS
TOTAL HOURS: 2 HOURS (+10 minutes reading time)
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 assessment.
2. Calculators are allowed.
3. Answer All Questions.
4. Show all calculations, where applicable (marks may be awarded for this).

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Question 1 (Marks: 20)

Briefly explain the following concepts. Take note these are two-mark questions so writing half a
page is not necessary. A line or two will suffice, at most three.

Q.1.1 Coase theorem (2)

Q.1.2 Isocosts (2)

Q.1.3 Pure public goods (2)

Q.1.4 Marginal Rate of Technical Substitution (MRTS) (2)

Q.1.5 Pareto superior allocation (2)

Q.1.6 Price Consumption Curve (PCC) (2)

Q.1.7 Market demand (2)

Q.1.8 Monopsony (2)

Q.1.9 Oligopoly (2)

Q.1.10 Shut down rule (2)

Question 2 (Marks: 30)

Answer all questions. Show all calculations where applicable.

Q.2.1 Given that the demand curve for a particular firm takes a linear form and is
given by: QD = 20 – 0.25P
Q.2.1.1 Briefly explain why the coefficient of this demand function is (1)
negative.
Q.2.1.2 At a price of R50, what is the price elasticity of demand? (4)

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Q.2.1.3 At this price, is it advisable to increase the price to increase revenue. (2)
Why is this?

Q.2.2 “Because all points on a contract curve are efficient, they are all equally (3)
desirable from a social point of view.” Do you agree with this statement?
Explain.

Q.2.3 In addition to the moral argument Rawls has offered, explain two practical (5)
reasons for income redistribution.

Q.2.4 Illustrate, with the use of a diagram, an individual’s labour supply curve. (5)

Q.2.5 Explain, with the aid of a diagram and using the concept of elasticities, the (10)
difference between the short-run demand for labour and the long-run demand
for labour.

Question 3 (Marks: 30)

Q.3.1 Do you agree or disagree with each of the following statements? Support your
answer.
Q.3.1.1 If it is possible to exchange three pounds of cheese for two bottles of (3)
wine, then the price of cheese is 2/3 the price of wine.
Q.3.1.2 A country can only gain from trade if it can produce a good at a lower (3)
absolute cost than its trading partner.
Q.3.1.3 If there are constant marginal and average costs of production, then it (3)
is in a country’s best interest to specialise completely in the production
of some goods but to import others.
Q.3.1.4 Assuming that labour is the only input, if the opportunity cost of (3)
producing a yard of cloth is three bushels of wheat per yard, then
wheat must require three times as much labour per unit produced as
cloth.

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Q.3.2 A monopolist faces a demand curve of P = 100 − 2Q and a short-run total cost
curve of TC = 640 + 20Q. The associated marginal cost curve is MC = 20 and the
marginal revenue curve is MR = 100 – 4Q.
Q.3.2.1 What is the profit-maximizing quantity? (3)
Q.3.2.2 How much will the monopolist sell for? (3)
Q.3.2.3 How much economic profit will it earn at that price? (3)

Q.3.3 List any five characteristics of an Oligopoly market structure. (5)

Q.3.4 Explain why the demand curve for a firm in a perfectly competitive market is (4)
horizontal

Question 4 (Marks: 20)

Read the extracts below and answer the questions that follow.

A new report from Oxfam South Africa details the country’s deepening inequalities by showing the
income and lifestyle differences between white men and women, and Black men and women. In
2019, the World Bank recognized South Africa as the most unequal country in the world, meaning
that South Africa’s economy does not equally benefit all of its citizens. The World Bank
also reported that the richest 20% of people in South Africa control almost 70% of the resources.
Speaking to CNN, Mthandazo Ndlovu, Oxfam South Africa's democracy and governance manager,
explained that it is not just the income inequality that is worrying, but also unequal access to
opportunities and essential services. "One would have assumed that 25 years into democracy we
would have had better access to land, better access to health care, we would not have children
falling into pit latrines due to failures in the provision of ablution facilities," he said.

The report, titled “Reclaiming Power: Womxn’s Work and Income Inequality in South Africa” points
out Black women are the lowest earners, even though the work that most Black women do, such as
teaching, household work, and retail services, is essential to fuel the economy. (Inequality report,
2020)

Q.4.1 Based on the case study above, do you agree with the notion that there is a very (10)
high degree of income inequality in South Africa? Explain.

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Q.4.2 Explain at least two ways by which income can be redistributed in South Africa. (10)
Your analysis should be based on the theories you have learned in class.

Question 5 (Marks: 20)

In the South African labour markets, critics claim that many firms pay members of certain
groups—notably blacks and females—less than they pay white males with the same productivity.
Such charges pose a fundamental challenge to the very core of the microeconomic theory, for
they imply that firms are passing up opportunities to enhance their profits.

Discuss the reasons why people in different groups appear to earn different wages even though
they are doing the same job and seemingly have the same level of skill.

END OF PAPER

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