DIPLOMA Assignment

July – December BEC611 – Economics I

BOTSWANA
OPEN UNIVERSITY

Diploma in Business Management

Diploma in Human Resources Management

Economics I
BEC611

Assignment

Marks: 100

Instructions
1. The assignment consists of Four sections: A, B, C and D
2. Answer questions according to instructions given in each section
3. Write in grammatical English. Use Font size 12, Times New Roman, 1.5 spacing
justified.
4. This is an individual assignment. No duplication of work will be tolerated. Any
plagiarism or collusion may result in disciplinary action.
5. Your assignment will be assessed on the factual answer provided based on your reading
and analysis from various references related to this course. In addition, you should
demonstrate a sound knowledge of the topics covered and adhere to the APA
referencing style.

© BOU 2023 Page 1 of 6

DIPLOMA Assignment
July – December BEC611 – Economics I

SECTION - MULTIPLE CHOICE QUESTIONS [10 MARKS]

Answer ALL questions. Each question carries ONE (1) mark.

1. A variable measures _________________________.

A. something that always has the same value.
B. factors that occur with high degrees of uncertainty.
C. something that can take on different values.
D. the degree to which something varies over time.

2. The Latin phrase ceteris paribus means that when a relationship between two variables
is being studied __________________________.
A. both are treated as unpredictable
B. all other variables are held fixed.
C. neither of those two variables is allowed to change
D. we recognize that some factors are unknown.

3. To think at the margin means to consider _____________________.

A. how nothing remains constant over time
B. how people behave in their own self-interest
C. how a small change in one variable affects another variable
D. how people will decide what to purchase.

4. When economists assume that people are rational and respond to incentives, they mean
____________________________.
A. people act with kindness
B. people act in their own self-interest
C. people are altruistic
D. people are selfish

© BOU 2023 Page 2 of 6

DIPLOMA Assignment
July – December BEC611 – Economics I

5. According to the principle of diminishing returns, if all factors of production but one
are held constant and if that one factor is doubled, then eventually output will most
likely ____________________.
A. double too
B. more than double
C. less than double
D. remain unchanged.

6. For a competitive firm, the level of output that maximizes profits is where marginal
revenue ________ marginal cost, and for a monopolist it is where marginal revenue
________ marginal cost.
A. is equal to; is equal to
B. is equal to; is greater than
C. is equal to; is less than
D. is greater than; is equal to

7. From society's point of view, a monopolist produces too little because price
_____________.
A. is less than marginal cost
B. exceeds marginal cost
C. is less than average cost
D. exceeds average cost

8. Fiscal policy refers to _________________________.

A. changes in real GDP (Gross Domestic Product) due to changes in tax rates.
B. changes in the prime rate.
C. changes in government taxing and spending policy.
D. changes in investment decisions by firms.

© BOU 2023 Page 3 of 6

DIPLOMA Assignment
July – December BEC611 – Economics I

9. Other things being equal, an expansionary monetary policy would

___________________.
A. cause a contraction in fiscal policy
B. reduce the price level
C. shift the aggregate demand curve to the right
D. shift the aggregate demand curve to the left.

10. Botswana is an example of an economy that is _________________.

A. large and relatively closed
B. small and relatively open
C. market based
D. Both (B) and (C).

SECTION B – TRUE/FALSE QUESTIONS [10 MARKS]

Answer ALL questions. Each question carries ONE (1) mark.
State whether each of the following statements is TRUE or FALSE.

1. An increase in technology would cause the aggregate supply curves to shift to the left.
2. A monopolist produces a good at zero marginal cost. It finds that by reducing output
slightly from its current level that profits increase. It follows that it must be operating
on an inelastic portion of its demand curve.
3. At the current level of output, a perfectly competitive firm is setting marginal cost
equal to price. Marginal cost is increasing and average cost is falling. The firm is
making a loss.
4. A firm in perfect competition should shut down if price in the short run is below
minimum average variable cost.
5. To determine consumer equilibrium where the consumer is maximising her utility we
need to know the prices of goods being consumed and marginal utility.
6. Arabella consumes two goods and her marginal utility of each is equal to one divided
by the amount consumed of that good. It follows that if the prices of the two goods are
the same the goods will be consumed in the same amounts.

© BOU 2023 Page 4 of 6

DIPLOMA Assignment
July – December BEC611 – Economics I

7. The marginal rate of technical substitution is the amount of one good a consumer
must be given to compensate them for a one-unit reduction in the other good.
8. In a perfectly competitive, the long run supply curve of the industry is the horizontal
summation of the long-run marginal cost curves of individual firms.
9. A price ceiling is most likely to lead to a reduction in the volume of transactions as
we move down the supply curve, below the equilibrium price, to the price ceiling.
10. GDP measures the total expenditure on the economy’s output of goods and services.

SECTION C – SHORT ANSWER QUESTIONS [30 MARKS]

Answer ALL questions.

1. As the dollar prizes for professional golf tournaments have increased, professional
golfers have entered fewer tournaments per year. Is this type of behavior consistent
with utility maximization? Explain your answer. (3 marks)
2. You are running a small yard maintenance business for the summer. What do you
expect to happen to the number of yards you can maintain in a day as you add workers
if you don't purchase more capital equipment (like mowers and leaf blowers)?
(6 marks)
3. Khumo earns P500 per week. She spends her entire income on two goods: movies and
bottles of wine. The price of a movie is P10 and the price of a bottle of wine is P10.
Draw Khumo's budget line and shade in her budget set.
(6 marks)
4. List and briefly describe the four factors of production. (4 marks)
5. The price elasticity of demand for restaurant meals is 1.5 for type A consumers and
0.9 for type B consumers. If a restaurant decides to price discriminate, which group
will be charged a higher price? Explain your answer.
(5 marks)
6. Suppose the widget industry is perfectly competitive and faces constant returns to scale.
A monopoly purchases all widget producers in the market. List three ways in which the
market outcome under monopoly will differ from the market outcome under perfect
competition. (6 marks)

© BOU 2023 Page 5 of 6

DIPLOMA Assignment
July – December BEC611 – Economics I

SECTION D ESSAY AND STRUCTURED QUESTIONS [50 MARKS]

Answer ALL questions.

QUESTION 1 [25 marks]

a) For each of the following situations assume the economy is initially in long run
equilibrium (label this point A in your graph) then draw the short-run impact of the
described change and label the new short-run equilibrium as point B in your graph.
Finally draw the new long run equilibrium situation after full adjustment to the
described changes and label this long run equilibrium as point C in your graph. Your
graph for each situation should contain the initial LRAS, AD and AS curves as well as
the any new curves that occur in response to the described change. On the graph be sure
to mark the actual path the economy follows as it moves along the AS and AD curves.
Give a brief description in words of what happens in the short run and long run in each
scenario.
i. Government spending grows substantially. (5 marks)
ii. There is an enormous drought that affects crop yields throughout the country.
(5 marks)
iii. Consumer confidence falls dramatically. (5 marks)
iv. The price of oil plummets due to a trade agreement. (5 marks)
b) Critically evaluate this statement: “The trouble with economic theory is that it is not
practical. It is detached from the real world.” (5 marks)

QUESTION 2 [25 marks]

Most developing countries have been struggling to achieve economic growth and economic
development. As a policy maker explain what advice you would give to these countries to
achieve both economic growth and economic development. (25 marks)

END OF ASSIGNMENT

© BOU 2023 Page 6 of 6