ASSIGNMENT 4: ECONOMICS 1A QUESTION 1 (20) In each of the following cases only o
ID: 1140949 • Letter: A
Question
ASSIGNMENT 4: ECONOMICS 1A QUESTION 1 (20) In each of the following cases only one answer is correct. Write the letter that represents the correct answer, next to each number. E.g. 1.11 a 1.1 Which one of the following statements is incorrect? a) Our wants are unlimited. b) Our needs are limited. c) A typical example of market demand is a demand (claim) by a trade union for increased wages. d) People demand only the things that they want. 1.2 The diagram below shows an economy’s production possibilities for two goods: aeroplanes and motor vehicles. Use this diagram to answer the question below. With reference to the above production possibilities frontier, we can say that: a) The opportunity cost of producing 0a motor vehicles is 0b aeroplanes. b) The opportunity cost of producing one more motor vehicle is higher at f than at g. c) The opportunity cost of producing one more aeroplane is higher at g than at f. d) The opportunity cost of producing 0a motor vehicles is cb aeroplanes. 1.3 In the market for public transport, which of the following variables would decrease demand, ceteris paribus? a) An increase in the price of private motor vehicles. b) A decrease in the price of private motor vehicles. c) An increase in price of private motor vehicle service plans. d) A decrease in the price of bus tyres. 1.4 Fresh cream is a substitute for ice-cream and waffles are a complement of both. If the price of ice-cream falls, one can expect that a) The demand for fresh cream will increase and the quantity of waffles demanded will increase. b) The demand for fresh cream will decrease and the demand for waffles will increase. c) The quantity of fresh cream demanded will decrease and the demand for waffles will increase. d) The quantity of fresh cream demanded will decrease and the quantity of waffles demanded will increase. 1.5 If the price and the quantity of screwdrivers exchanged falls, it is likely that a) Demand for screwdrivers has increased. b) Demand for screwdrivers has decreased. c) Supply of screwdrivers has decreased. d) Supply of screwdrivers has increased. 1.6 Overproduction of apples causes farmers’ incomes to fall. This is an example of: a) Perfectly elastic demand. b) Elastic demand. c) Unitary elasticity of demand. d) Inelastic demand. 1.7 Which one of the following statements is correct? a) If the price elasticity of the demand for ice cream is greater than one, then the suppliers of ice cream can increase their total revenue by raising the price of ice cream. b) The price elasticity of demand stays the same at each point along a linear demand curve. c) If a 10 per cent increase in university fees results in a 5 per cent reduction in the quantity of university education demanded, then the demand for university education is price elastic. d) If the price elasticity of the demand for bread is less than one, a decrease in the price of bread will lower the total revenue of the suppliers of bread. 1.8 Normal profit implies that: a) All factors employed are earning an amount equal to their opportunity costs. b) Firms are earning enough to cover all the costs of production. c) Price must be greater than average variable cost. d) All of the above. 1.9 A firm finds that by producing and selling the last unit of its product, the marginal revenue it earns is R40 and the marginal cost it incurs is R35. In order to maximise profits, the firm should: a) Decrease its output if it is a perfectly competitive firm, but not necessarily if it is a monopolistic firm. b) Decrease its output if it is a monopolistic firm, but not necessarily if it is a perfectly competitive firm. c) Increase its output irrespective of the type of firm it is. d) Decrease its output irrespective of the type of firm it is. Use the following diagram in which the monopoly depicted is maximising profit to answer the following question. 1.10 What is the total profit? a) R3 b) R4 c) R6 d) R9
Explanation / Answer
(1.1) (c)
Market demand is the horizontal summation of all individual demands, which indicate the sum of quantity demanded by all people at a price that they are willing and able to pay.
(1.2) Graph is missing.
(1.3) (b)
Private vehicles are substitutes to public transport, so decrease in price of private vehicles will decrease the demand for public transport.
(1.4) (b)
Decrease in price of a good decrease the demand for its substitute and increases the demand for its complement.
(1.5) (b)
A decrease in demand of a good shifts its demand curve leftward, leading to lower price and lower quantity.
NOTE: As per Answering Policy, 1st 4 questions are answered.