INSTRUCTIONS TO THE CANDIDATE

Transcription

1 ; FINAL EXAMINATION PROGRAMME Bachelor of Business Administration; Bachelor of Commerce in Marketing Management; Bachelor of Commerce in Human Resource Management; Bachelor of Commerce in Information and Technology Management; Bachelor of Commerce in Supply Chain Management; Bachelor of Public Administration MODULE Economics 1A YEAR One (1) INTAKE July 2014 DATE 14 November 2014 TIME DURATION 09h00 12h00 3 hours TOTAL MARKS 100 EXAMINER MODERATOR Mr N Homman Mr H Matsongoni INSTRUCTIONS TO THE CANDIDATE 1. Questions must be attempted in the answer book provided. 2. All queries should be directed to the invigilator; do not communicate or attempt to communicate with any other candidate. 3. You have THREE HOURS to complete this paper. You are not allowed to leave the examination room within the first hour and in the last 15 minutes of this examination. 4. This is a CLOSED BOOK examination. 5. Read ALL instructions carefully.

2 SECTION A Answer ALL questions in this section. QUESTION ONE [40 MARKS] Choose the correct answer. Write down the question number and the correct letter next to it. E.g A 1.1 Which one of the following statements is correct (or closest to correct)? a) Economics is the study of money. b) Economics teaches us how to avoid choices. c) Economics is the study of profit and loss. d) Economics can be described as the study of choice. e) Economics teaches one how to become rich Which one of the following statements is incorrect? a) Rich people do not experience scarcity. b) Because resources are scarce, everyone has to make choices. c) Every time a choice is made, opportunity cost is incurred. d) The opportunity cost of a particular choice is the value of the best opportunity forgone (sacrificed) as a result of the choice. e) The central elements of economics are scarcity and choice Which one of the following is a microeconomic issue? a) The rate of economic growth in South Africa. b) The inflation rate in Malawi. c) The price of bread in Lesotho. d) The employment rate in Botswana. e) The total production of goods and services in Swaziland Which one of the following statements is incorrect? a) An entrepreneur is a person who combines the other factors of production and is the driving force behind production. b) The quality of labour is usually described by the term human capital. c) Capital as a factor of production refers to the finance that is required to make production possible. d) The quality of labour in South Africa is a serious concern. e) Even capital goods do not have an unlimited life. 1.5 Adam Smith s concept of the invisible hand suggests that: a) the selfish actions of rational individuals will generate an efficient allocation of scarce resources. b) the public-spirited actions of individuals will generate an efficient allocation of scarce resources. c) the systematic but largely invisible intervention of government in the operation of markets will generate an efficient allocation of scarce resources. d) market failure cannot arise, and there is therefore no economic role for the state. e) no overall efficient allocation of scarce resources is likely without coordinated economic planning. 1

3 1.6 An increase in supply: a) indicates that more is supplied at higher prices. b) indicates that more is supplied at lower prices. c) indicates that more is supplied at all prices. d) is illustrated by an upward shift of the supply curve. e) is illustrated by a leftward shift of the supply curve. 1.7 There is an increase in the number of adverts highlighting the dangers of consuming sugar. Which of the following is likely to occur in the market for sugarless sweets, as a result of this? a) An increase in both price and equilibrium quantity traded. b) A decrease in price and an increase in equilibrium quantity traded. c) A decrease in both price and equilibrium quantity traded. d) An increase in price and a fall in equilibrium quantity traded. e) An increase in price and equilibrium quantity remains constant. 1.8 A cut in train fares leaves the total revenue from train fares the same as before. This is an example of: a) perfectly elastic demand. b) elastic demand. c) unitary elasticity of demand. d) inelastic demand. e) perfectly inelastic demand. 1.9 Which one of the following is NOT a requirement for perfect competition to exist? a) No individual buyer must be able to influence the price. b) All sellers must have similar costs of production. c) No individual seller must be able to influence the price. d) The product must be standardised (homogeneous). e) Every market participant must have perfect knowledge about market conditions. 2

4 Consider the following diagram and answer Question The monopolist shown above is: a) making a profit of AB X 0C. b) making zero economic profit. c) making a loss of EF X 0D. d) making a loss of 0B X 0C. e) making a loss of AB X 0C. 3

5 QUESTION TWO Match the economic concepts given in COLUMN A with its description in COLUMN B. Write down the question number and the correct letter next to it. E.g A COLUMN A COLUMN B 2.1 Price floor A These goods are exactly the same. 2.2 Homogeneous goods B Refers to a situation where quantity supplied equals quantity demanded. (double coincidence of sellers and buyers plans) 2.3 Normal goods C Shows a combination of two different products that could be produced to their maximum if resources are being fully utilised. 2.4 Economies of scope D This is when the quantity demanded is not equal to the quantity supplied at the actual price. 2.5 Microeconomics E This is the continuous and considerable increase in the general level of prices. 2.6 Increasing returns to scale F Occur when the marginal product of an additional worker exceeds the marginal product of the previous worker. 2.7 Disequilibrium G This is when a given percentage increase in inputs will lead to a larger increase in output. 2.8 Economic costs H Focuses on the economic decision-making of individuals and firms. 2.9 Law of supply I A situation where costs per unit of output falls as the scale of productions increases 2.10 Production Possibility Curve (PPC) J As income increases, the quantity demanded for these goods increases. K This is when average cost falls as output increases. L M N O P Q R These goods are highly differentiated The cost savings achieved by producing related goods in one firm rather than in two separate firms. A legally mandated minimum price designed to maintain the price above the equilibrium level. This branch of economics focuses on the whole economy as opposed to individual parts. Other things being equal, the higher the price of a good, the higher is the quantity supplied. This is a combination of implicit and explicit costs. Measures the responsiveness of quantity supplied and demanded given a change in consumer income. 4

6 SECTION B Answer ANY THREE (3) questions in this section. QUESTION THREE [60 MARKS] The table below represents the demand and supply schedules for Cheap1 Airlines, a low cost domestic airline. Table 3.1: Daily demand and supply schedule of Cheap1 Airlines for the Durban to Johannesburg route. Price of air tickets (Rands) Quantity demanded (tickets/day) Quantity supplied (tickets/day) Plot the supply and demand curves on the same set of axes. Explain what is unusual about the supply curve and why might this be true. (12 marks) 3.2 What is the equilibrium price and quantity of the air tickets? (4 marks) 3.3 Suppose there is a decrease in the number of tourists going from Johannesburg to Durban. The relevant curve changes by 25 units at each prevailing price Plot the effect of this decrease on your existing diagram in 3.1, clearly showing the new equilibrium price and quantity of air tickets. (4 marks) QUESTION FOUR 4.1 Define the term price elasticity of demand and briefly explain how it is measured. (5 marks) 4.2 Using diagrams and examples explain ANY THREE (3) categories of price elasticity of demand. (9 marks) 4.3 List and explain ANY THREE (3) determinants of the price elasticity of demand. (6 marks) QUESTION FIVE 5.1 With the aid of diagrams differentiate between a price ceiling and a price floor as government intervention measures to market failure. (12 marks) 5.2 Explain which one of the above market control measures is applicable in the labour market and justify why it is important. (8 marks) 5

7 QUESTION SIX 6.1 State ANY SIX (6) features of a monopolistic competitive market. (6 marks) 6.2 With the aid of fully labelled diagrams, explain the difference between the long-run profits of a perfectly competitive firm and a monopolistic firm. (14 marks) END OF PAPER 6