NP P PS JNB. I lnmlbir UNIVERSITY EXAMINER(S) FACULTY OF MANAGEMENT SCIENCES QUALIFICATION: BACHELOR OF ECONOMICS QUALIFICATION CODE: 07BECO LEVEL: 7

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1 I lnmlbir UNIVERSITY OF SCIENCE Fll'lD TECHNOLOGY FACULTY OF MANAGEMENT SCIENCES DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE QUALIFICATION: BACHELOR OF ECONOMICS QUALIFICATION CODE: 07BECO LEVEL: 7 COURSE CODE: PMI511$ COURSE NAME: PRINCIPLES OF MICROECONOMICS SESSION: JUNE 2017 PAPER: THEORY DURATION: 2 HOURS MARKS: 100 FIRST OPPORTUNITY EXAMINATION QUESTION PAPER EXAMINER(S) Mr Eslon Ngeendepi Mr Eden Shipanga Dr Tafirenyika Sunde Miss Elina Mwatondange Mr Mekukuye Mbaha MODERATOR: Mr. Imanuel Nashivela INSTRUCTIONS Answer ALL the questions. NP P PS JNB Write clearly and neatly. Number the answers clearly. This question paper is made up of four (4) sections. Answer Section A and B on the attached answer sheet. Answer ALL the questions and in blue or black ink. Start each question on a new page in your answer booklet. THIS QUESTION PAPER CONSISTS OF 14 PAGES (Including this front page)

2 SECTION A 20 Marks Instructions: Answer all the questions All answers should be on the answer sheet provided on page 13. Tear the page off and place it inside your examination script. QUESTION Which of the following is not a microeconomic issue? the demand for economics textbook by NUST students the total supply of scientific calculators to Namibian universities the price of wine in Windhoek the total import of goods and services in Namibia. 1.2 Which one of the following is an example of a factor of production? shoprite money a taxi owner a DSTV Explora decoder. 1.3 Which one of the following statements is incorrect? rich people do not experience scarcity because resources are scarce, everyone has to make choices every time a choice is made, opportunity cost is incurred the opportunity cost of a particular choice is the value of the best opportunity forgone (sacrificed) as a result of the choice. Question 1.4, is based on the following production possibilities curve. Figure 1: Production Possibilities Curve

3 1.4 Assume an improvement in the technology (due to a new invention) with which good A is produced, ceteris paribus. The production possibility curve: will still remain a concave curve due to decreasing opportunity cost move upwards thus indicating an increase in both the vertical and horizontal-axis show a decrease in both intercepts will show an increase in the vertical-intercept, ceteris paribus. Use Table 1 below to answer question 1.5. Qua Table 1: Peters Total Ma O The table above list the marginal utility that Peter gets from the consumption of apples. At how many units of apples will Peter s total utility be maximized? 9 apples 8 apples 1 apples 4 apples. 1.6 lfthe current market price for a particular book is N$30 a unit and a price ceiling is imposed at N520 per book, then: there will be an increase in the quantity demanded of the book a shortage of the book will develop at the ceiling price a price of N$20 per book is legally allowed maximum price of the book all of these are correct. 1.7 An advance in technology increases supply: because buyers are willing to buy more of a product produced with the latest technology because labour s or capitals productivity increases and cost of production falls because new technology is so expensive all of the above.

4 1.8 Which of the following will not affect a firms supply decision? the price of the good the state of technology the prices ofjoint products the wealth of consumer. 1.9 Butter is a substitute for margarine and bread is a complement of both. If the price of margarine falls, one can expect that: the demand for butter will increase and the quantity of bread demanded will increase the demand for butter will decrease and the demand for the bread will increase the quantity of butter demanded will decrease and the demand for bread will increase the quantity of butter demanded will decrease and the quantity of bread demanded will increase A cut in train fares leaves the total revenue from train fares the same as before. This is an example of: perfectly elastic demand elastic demand unitary elasticity of demand inelastic demand In the weeks before the Rugby World Cup 2015 started, the South African Airways (SAA) Noticed that, when the price of flight tickets to London increased with 1%; the quantity of tickets demanded declined by 0.7%. Based on this, how would you classify South African rugby supporters demand for plane tickets? perfectly inelastic inelastic elastic perfectly elastic Given the above information in question (1.11), which price determination strategy would ensure that SAA s total revenue increases? increase prices lower prices keep prices unchanged have competition so people can win free tickets A period of time in which the quantity of at least one factor of production used by a firm is fixed is called the: Intermediate run market period short run long run 1.14 Accounting profits are typically: greater than economic profit because the former do not take explicit costs into account equal to economic profits because accounting costs include all opportunity costs smaller than economic profits because the former do not take implicit cost into account greater than economic profit because the former do not take implicit costs into account.

5 1.15 Natangwe is a freelance photographer who could work for The Namibian newspaper at a salary of N$ Instead, Natangwe works for himself for N$ Natangwe, faces business expenses of N$5000 for photographic equipment and NSGOOO for rent on his studio. Natangwe's accountant says that he had a profit of economist determines that he had a profit of N$12 000, N$ N$21 000, N$ N$33 000, N$ N$33 000, N last year. last year, while his 1.16 If individual firms in a perfectly competitive market suffer economic loss in the long run, firms will the market and equilibrium will be established where all firms are earning profits: enter; economic exit; economic enter; normal exit; normal 1.17 A local electricity-generating company has a monopoly that is protected by barrier to entry that takes the form of: network externalities control of a key raw material economies of scale none of the above Use figure 2, below that represents a monopolisticfirm in a short run equilibrium and answer questions 1.18 and Figure 2: Monopolist p PW ?

6 1.18 What area represents the firm's total revenue? OQ1 X 0P3 0Q2 X P4P1 0Q; x 0P2 OQ3 x 0P The monopolist s equilibrium price is: P1 P2 P3 P Price discrimination. cannot occur under monopolistic industry is based on cost difference between firms means selling at a lower price than consumers are willing and able to pay occurs when a firm charges different consumer s different prices for the same product.

7 SECTION B 20 Marks Instructions: Answer all the questions All answers should be on the answer sheet provided on page 14. Tear the page out and place it inside your answer book. QUESTION 1 [20 marks] 2.1 Goods are scarce because society s desire for them exceeds society s ability to produce them. lt/fl 2.2 A market system is likely to generate an uneven distribution of income among the people of a 2.3 country. A change in the demand for a good is caused by a change in the price of the good. lt/f] 2.4 Goods market are markets where, labour, capital, natural resources and entrepreneurship are traded. [T/Fl 2.5 Max has only enough money to purchase a television set or a digital camera. If he decides on the TV set, the opportunity cost of the TV set is the digital camera that he has to sacrifice. 2.6 Wages are income paid for labour while salaries are income paid for capital. 2.7 The price of red meat had increased from April 2017, which led to a decrease in the quantity demanded by consumers. This indicates a shift of the demand curve to the left. 2.8 Supply refers to the quantity of a good that is available in a shop on a particular day. 2.9 Excess demand for a good will put downward pressure on the price of the good A change in the price of apples will cause a movement along the supply curve for apples Fixing a minimum price for wheat above the equilibrium price (price floor) will result in an excess demand for wheat. WP]

8 2.12 Happiness is measured in utils in economics Surpluses of market supply drive market prices up; shortages of market demand drives them down Price ceilings are always above market price while price floor are always below market price. [T/Fl 2.15 A firm producing goods in the short run employs fixed inputs and variable inputs A firm that makes zero economic profit is said to earn a normal profit and it represents the minimum profit necessary to keep a firm in operation Economies of scale result from the law of diminishing returns Because a perfectly competitive firm supplies a negligible share of the market output, it has to take or accept the price that is determined by the market In the long run a firm experiences diseconomies of scale when it becomes too large to manage efficiently, with the result that average cost increases as production increases A monopoly differs from a perfectly competitive firm in that the monopoly s demand curve and marginal revenue curve are downward sloping rather than horizontal.

9 ' l SECTION C 40 Marks QUESTION 1 [10 marks] Figure 3: Production Possibility Curve { 34.} Microeconomics than: in Grades w - -a~- ' :10 i t c d -~i-j'- - l l 30 i"" l r t l s a l 20 l 2 t s N! _..._._--. L9!SUY ( our; perwee ) 1.1 Use the figure 3, above to calculate Eslon s opportunity cost of leisure when he changes his leisure time from: a) 6 to 10 hours a week. (2) b) 2 to 8 hours a week (2) c) 8 to 10 hours a week (2) 1.2 Each ofthe following descriptions describe a concept: Name the concept for each description as listed below: a) A graph indicating the combinations of any two goods or services that are produced when the community s resources are fully and efficiently employed. (1) b) Capital, labour, entrepreneurial ability and natural resources. (1) c) The quantities of a good or service that produces plan to sell at each possible price during a certain period. (1) d) A condition where all other things remain unchanged/equal. (1)

10 QUESTION 2 [10 marks] 2.1 lfthe quantity of dental services demanded increases by 11% when the price of dental services falls by 10%, is the demand for dental services inelastic, elastic or unit elastic? (2) 2.2 After the 2016 elections in the USA, iphone production moved from China to New York in the USA. This resulted in an increase in the price of input cost to manufacture the cell phone and consequently iphones become more expensive compared to the Samsung equivalent cellphone. Using two separate diagrams illustrate the interaction between the iphone and Samsung cellphone markets as a result of the increases in input cost by means of demand and supply curves. (8) QUESTION 3 [20 marks] 3.1 Alice loves eating out and wearing designer brands. The following table shows the utility that she derives from meals at La Petit-Paris restaurant and buying heels at Luella. A meal costs NSlOO and a pair of heels costs N$150. Table 2: Utility schedule Eating out Designer Heels Quantity TU MU MU/P TU MU MU/P 0 O a) Copy Table 1 into your answer book and complete the missing figures. (10) b) At which combination heels and eating out will Alice be in equilibrium if she spends her total income of NSBOO. (2) 10

11 3.2 The long run average cost curve forms a U shape because of economies and diseconomies of scale. With aid of a diagram explain economies and diseconomies of scales. (8) SECTION D 20 Marks QUESTION 1 [7 marks] Assume you own and manage your own fruit stand. The financial information for the stand is given below (all the values are month/y). Wholesale Fruit cost N$2000 Labour N$800 Fruit stand lease N$1000 Monthly revenue NSSOOO Answer the following questions based on information provided above. a) Calculate your accounting profit. (3) b) If your other employment opportunity is to earn N$1000 per month working at a t-shirt stand (and you are equally happy selling fruit or t-shirts), what is your economic profit? (4) ll

12 QUESTION 2 [13 marks] Julius Kavari, is a small business owner who has just been awarded a tender by the Okahandja municipality under their LED Warrior boost SME campaign to supply schools in the area with cleaning materials. As he has never worked on such a big project, he has requested you as an economist to assist him with all the costs he is going to incur. Copy table 3 into your answer book and complete the table. Table 3: Cost Structure Quantity Total Total Fixed Total Average Cost Average Average Marginal Cost Cost Variable Fixed Cost Variable Cost Cost Cost 0 3O TOTAL MARKS FOR PAPER:

13 Student number:... ANSWER SHEET FOR SECTION A Mark the correct answer with an X. A B C

14 Student number:... ANSWER SHEET FOR SECTION B Mark the correct answer with an X. True False