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MODULE NAME: MODULE CODE:

ECONOMICS 1A PMIC5111/d
ECONOMICS 1A ECON231
ECONOMICS A (MICRO) ECMS5111/d
ECONOMICS A MICRO ECON211

ASSESSMENT TYPE: TEST (PAPER ONLY)

TOTAL MARK ALLOCATION: 60 MARKS
TOTAL HOURS: 1 HOUR (+5 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. For multiple‐choice questions, give only one (1) 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).
6. Give all final answers to two decimal places, unless stated otherwise.

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Question 1 (Marks: 10)

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

Q.1.1 A decrease in the cost of production is likely to result in a(n) _____________ in (2)
supply whilst demand _________________.
(1) Decrease; increases;
(2) Increase; decreases;
(3) Increase; remains unaffected;
(4) Decrease; decrease.

Q.1.2 The imposition of a price floor below the equilibrium price: (2)
(1) Is likely to result in excess demand;
(2) Is likely to result in excess supply;
(3) Will not affect equilibrium;
(4) Is likely to result in disequilibrium.

Q.1.3 The demand curve for a product that has a price elasticity of demand equal to 0: (2)
(1) Is horizontal;
(2) Is vertical;
(3) Is negatively sloping but relatively flat;
(4) Is negatively sloping but relatively steep.

Q.1.4 If the cross elasticity of demand between shampoo and conditioner is ‐4,0 this (2)
implies that these goods are:
(1) Luxuries;
(2) Necessities;
(3) Substitutes;
(4) Complements.

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Q.1.5 If the total utility (TU) from consuming the third and fourth units of a good is 63 and (2)
77 respectively, then the marginal utility (MU) of the fourth unit is as follows:
(1) 77;
(2) ‐14;
(3) 14;
(4) Not calculable from the information given.

Question 2 (Marks: 10)

True or False Questions: In your answer booklet, write down the number of the question, and
next to it, indicate whether the statement is true or false.

Q.2.1 If an individual’s income increases by 10% ceteris paribus, his/her quantity (2)
demanded for a luxury good will increase by less than 10%.

Q.2.2 Indifference curves may intersect each other. (2)

Q.2.3 If the price elasticity of demand for cheese is greater than 1, then producers can (2)
raise total revenue by increasing the price of cheese.

Q.2.4 When a marginal value is higher than the previous average value, the average (2)
value falls.

Q.2.5 All points on an indifference curve reflect the same level of consumer satisfaction. (2)

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Question 3 (Marks: 10)

When the price of chocolate drops from R12 to R10, the quantity demanded increases from 30 to
50 bars of chocolate.

Q.3.1 Use the arc method to calculate the price elasticity of demand for chocolate. (4)

Q.3.2 Based on your answer to Q.3.1, what category of price elasticity of demand does (2)
chocolate fall into? Justify your answer.

Q.3.3 Mention any four determinants of price elasticity of demand. (4)

Question 4 (Marks: 15)

Q.4.1 Explain, with the use of a graph, the welfare costs of fixing a minimum price above (10)
the equilibrium price.
(Note: Five marks for the graph and five marks for the explanation)

Q.4.2 Complete the following table which indicates the effect of simultaneous changes (5)
in demand and supply on the equilibrium price and quantity. You do not need to
redraw the table – just write the answer next to the correct number in your
answer book.

Change in Change in supply Effect on Effect on

demand equilibrium price equilibrium
quantity
Decrease Decrease Uncertain Q.4.2.1
Increase Increase Q.4.2.2 Q.4.2.3
Q.4.2.4 Q.4.2.5 Decrease Uncertain

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Question 5 (Marks: 15)

Q.5.1 Consider the information in the table below, which depicts the total and
marginal utility derived by Peter from the consumption of beer. Use the
information in the table to answer the questions that follow.

Number of beers Total utility Marginal utility

consumed
1 20 20
2 28 8
3 28 A
4 B ‐5

Q.5.1.1 Determine the value of A in the table. (2)

Q.5.1.2 Determine the value of B in the table. (2)
Q.5.1.3 What economic law is illustrated in the above table? Explain this law. (3)
Q.5.1.4 Explain what happens when Peter consumes the fourth beer. (2)

Q.5.2 Describe the three basic assumptions on which the indifference curve theory is (6)
based.

END OF PAPER

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