ECS1501 May/Jun 2017 exam paper — questions

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  1. Question 1.1 · Demand, supply and market equilibrium · 5 marks

    This question concerns the market for milk, where two simultaneous shocks occur: government subsidies to dairy farmers rise, causing an increase in the number of dairy farmers, while at the same time unfavourable economic growth causes average household income to fall. The effect of the increased subsidies on the market is larger in magnitude than the effect of the decreased household income. Using a demand-and-supply diagram for the milk market, illustrate both changes described above (the increase in dairy farmers due to higher subsidies, and the decrease in household income) occurring at the same time, given that the subsidy effect outweighs the income effect. Show all the resulting shifts and the new equilibrium clearly on the graph provided.Show the full question

  2. Question 1.2 · Demand, supply and market equilibrium · 5 marks

    This question concerns the market for milk, where two simultaneous shocks occur: government subsidies to dairy farmers rise, causing an increase in the number of dairy farmers, while at the same time unfavourable economic growth causes average household income to fall. The effect of the increased subsidies on the market is larger in magnitude than the effect of the decreased household income. Provide a critical discussion of the diagram you drew for the milk market in question 1.1, explaining which curve(s) shifted, in which direction, and why, and relating your explanation to the combined effect of the increased number of dairy farmers (due to subsidies) and the decreased household income on the equilibrium price and quantity of milk.Show the full question

  3. Question 2 · Demand, supply and market equilibrium · 3 marks

    For the market described, the quantity demanded is given by the equation QQdd = 1800 + 0,6PP, while the quantity supplied is given by QQss = 7200 − 0,2PP. Using these two equations, determine the equilibrium quantity and the equilibrium price for this market.Show the full question

  4. Question 3.1 · Price and income elasticity · 3 marks

    A local shop called Burger Boet sells hamburgers, and the scenario examines how a price change affects demand and revenue. Burger Boet reduces the price of its hamburgers from R40 to R35, and as a result the quantity of hamburgers demanded rises from 800 to 1 150 units. Determine the price elasticity of demand for a burger at Burger Boet.Show the full question

  5. Question 3.2 · Price and income elasticity · 3 marks

    A local shop called Burger Boet sells hamburgers, and the scenario examines how a price change affects demand and revenue. Using the price elasticity of demand value calculated for hamburgers at Burger Boet, explain how the shop could increase its total revenue earned from hamburger sales.Show the full question

  6. Question 4.1 · Price and income elasticity · 3 marks

    This question relates to Sophie, a car owner whose monthly income and petrol consumption change. Sophie's monthly income rises from R12 000 to R16 000, and as a result the amount of petrol she buys for her car each month rises from 40 litres to 45 litres. Using this information, work out Sophie's income elasticity of demand for petrol.Show the full question

  7. Question 4.2 · Price and income elasticity · 3 marks

    This question relates to Sophie, a car owner whose monthly income and petrol consumption change. Using the income elasticity of demand value you calculated for Sophie's petrol consumption in the previous part, explain what type of good petrol is (e.g. normal, inferior, luxury, necessity) based on that elasticity figure.Show the full question

  8. Question 5 · Production and the costs of the firm · 5 marks

    A firm's cost data are given for output levels of 0 to 5 units, with several values left blank for you to calculate (labelled A to E). At 0 units produced, total cost is R1 500, while average fixed cost, average variable cost, average cost and marginal cost are all not applicable (shown as dashes). At 1 unit produced, all cost columns (total fixed cost, total variable cost, total cost, average fixed cost, average variable cost, average cost and marginal cost) are left blank. At 2 units produced, total variable cost is labelled A, total cost is R1 568, and average variable cost is R34. At 3 units produced, total cost is R1 590, average cost is labelled B, and marginal cost is labelled C. At 4 units produced, total fixed cost is labelled D, total cost is labelled E, and marginal cost is R18. At 5 units produced, total variable cost is R123. Using this information, calculate the missing values for A, B, C, D and E.Show the full question

  9. Question B1 · What economics is about: scarcity, choice and the economic problem · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Which of the following statements best defines what economics is?Show the full question

  10. Question B2 · What economics is about: scarcity, choice and the economic problem · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Narnia produces only two goods, swords and ships, and its production possibilities are shown on a bowed-out production possibility curve (PPC) running from point A (0 swords, 12 ships) through point E (6 000 swords, 8 ships) to point C (10 000 swords, 0 ships). Point B (10 000 swords, 12 ships) lies above and outside this curve, while point D (3 000 swords, 4 ships) lies inside it. Fill in the blanks: 'Point ___ shows an efficient use of resources, while point ___ is unattainable.'Show the full question

  11. Question B3 · What economics is about: scarcity, choice and the economic problem · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Using Narnia's PPC for swords and ships (the curve runs from point A at 0 swords/12 ships, through point E at 6 000 swords/8 ships, to point C at 10 000 swords/0 ships), Narnia is currently producing at point E with eight ships, but decides to increase ship production to 12 ships (moving to point A, with 0 swords). What is the opportunity cost, measured in swords, of this decision?Show the full question

  12. Question B4 · What economics is about: scarcity, choice and the economic problem · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Considering Narnia's PPC for swords and ships (with points A, B, C, D and E as previously described, the curve bowing outward from A at 0 swords/12 ships to C at 10 000 swords/0 ships), what is most likely to happen to this production possibility curve when there is an influx of workers into Narnia?Show the full question

  13. Question B5 · What economics is about: scarcity, choice and the economic problem · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Which one of the following statements is a positive (rather than normative) economic statement?Show the full question

  14. Question B6 · What economics is about: scarcity, choice and the economic problem · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Which of the following is NOT one of the central economic questions that every economic system must answer?Show the full question

  15. Question B7 · What economics is about: scarcity, choice and the economic problem · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). What type of economic system is the South African economy classified as?Show the full question

  16. Question B8 · Participants and the circular flow of income · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Which of the following statements about the relationship between production, income and spending is true?Show the full question

  17. Question B9 · Participants and the circular flow of income · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). If you sell your natural resources (such as land) on the factor market, what type of remuneration would you receive in payment?Show the full question

  18. Question B10 · Participants and the circular flow of income · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). A circular flow diagram links four blocks - Firms, Households, a Factor market and a Goods market - with arrows. One arrow, labelled 'a', originates outside the diagram and flows down into the Factor market and then across into Firms, representing something that passes from households, via the factor market, to firms. Which of the following could realistically be represented by the arrow labelled 'a'?Show the full question

  19. Question B11 · Participants and the circular flow of income · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). In the same circular flow diagram linking Firms, Households, the Factor market and the Goods market, a second arrow, labelled 'b', flows from the Goods market into a small box and then down into Households, representing something that passes from firms, via the goods market, to households. Which of the following could realistically be represented by the arrow labelled 'b'?Show the full question

  20. Question B12 · Demand, supply and market equilibrium · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Which of the following scenarios best illustrates the law of demand?Show the full question

  21. Question B13 · Demand, supply and market equilibrium · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Which of the following is most likely to occur in the market for vegetables during a drought?Show the full question

  22. Question B14 · Demand, supply and market equilibrium · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). On a standard demand-and-supply diagram with price on the vertical axis and quantity on the horizontal axis, the demand curve D and supply curve S intersect at equilibrium point E, giving equilibrium price P_M and equilibrium quantity Q_M. The price axis also shows a higher price P1 (where the supply curve would reach if extended) and the quantity axis shows Q1 (where the demand curve reaches at price 0). Which area on this diagram represents the producer surplus?Show the full question

  23. Question B15 · Demand, supply and market equilibrium · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Socks and shoes are complements in consumption. What will happen in the market for socks if the supply of shoes decreases?Show the full question

  24. Question B16 · Price and income elasticity · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Given that socks and shoes are complements in consumption, which of the following values could represent the cross-price elasticity of demand between socks and shoes?Show the full question

  25. Question B17 · Consumer behaviour and utility · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). What is the difference between cardinal utility and ordinal utility?Show the full question

  26. Question B18 · Consumer behaviour and utility · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Moses enjoys steak and beer, and a table records the utility he gets from consuming up to 5 units of each. For steak, total utility at 0 to 5 units is 0, 100, 170, 200, 195, 175, giving marginal utilities of 100, 70, 30, -5 and -20 for units 1 to 5 (with weighted marginal utilities of 2, 1.4, 0.6, -0.1 and -0.4). For beer, total utility at 0 to 5 units is 0, 105, 195, 240, 261, 261, giving marginal utilities of 105, 90, 45, 21 and 0 for units 1 to 5 (with weighted marginal utilities of 7, 6, 3, 1.4 and 0). At which beer does the law of diminishing marginal utility for beers set in?Show the full question

  27. Question B19 · Consumer behaviour and utility · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Using Moses's steak and beer utility table (steak total utility 0,100,170,200,195,175 for 0-5 units with marginal utilities 100,70,30,-5,-20 and weighted marginal utilities 2,1.4,0.6,-0.1,-0.4; beer total utility 0,105,195,240,261,261 for 0-5 units with marginal utilities 105,90,45,21,0 and weighted marginal utilities 7,6,3,1.4,0), what must the price of a beer and the price of a steak be, respectively, for Moses to be maximising his utility according to the weighted marginal utility figures given?Show the full question

  28. Question B20 · Consumer behaviour and utility · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Using the same steak and beer utility table for Moses, which combination of steak and beer would maximise his total utility if he has a budget of R160 to spend on beer and steak?Show the full question

  29. Question B21 · Production and the costs of the firm · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Jonathan is a plumber who employs two workers and owns some capital, namely a van, tools and other plumbing equipment. What is best defined as the 'long run' for Jonathan's business?Show the full question

  30. Question B22 · Production and the costs of the firm · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Hannah decides to quit her job, which paid a monthly salary of R22 000, in order to open her own shop. In the first month of trading, Hannah earns a total revenue of R75 000 and incurs a total cost of R52 000. What type of profit or loss did Hannah make in this first month?Show the full question

  31. Question B23 · Production and the costs of the firm · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Making a particular product requires ten steps. If a firm begins employing labourers to carry out these steps, at which labourer will the law of diminishing returns set in?Show the full question

  32. Question B24 · Production and the costs of the firm · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Which one of the following cost curves does NOT have a shape that is explained by the law of diminishing marginal returns?Show the full question

  33. Question B25 · Market structures: perfect competition to monopoly · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Fill in the blanks: 'In a perfect competition there are ____ buyers and sellers, so that all sellers and buyers are ____, while in a monopolistic market there are ____, making sellers ____.'Show the full question

  34. Question B26 · Market structures: perfect competition to monopoly · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). A firm operating in a perfectly competitive market sells its goods for R10 per unit. If its average fixed cost is R5 and its average variable cost is R7, which one of the following statements is correct?Show the full question

  35. Question B27 · Market structures: perfect competition to monopoly · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). A table shows the total cost of production for a firm in a perfectly competitive market: at 100 units the total cost is R10 000, at 101 units it is R10 200, at 102 units it is R10 320, and at 103 units it is R10 400. If the market price of the good is R200, how many units should the firm produce in order to maximise its profits?Show the full question

  36. Question B28 · Market structures: perfect competition to monopoly · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). A diagram shows the short-run conditions of a firm in a perfectly competitive market, with unit revenue and cost on the vertical axis and quantity on the horizontal axis. The horizontal price line AR = MR sits at 145, and the marginal cost (MC) curve crosses it at equilibrium point E1, corresponding to a quantity of 725 units. The average cost (AC) curve reaches its minimum value of 115 at point M, which lies directly below E1 on the AC curve. Based on this diagram, this firm is making:Show the full question

  37. Question B29 · Market structures: perfect competition to monopoly · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Continuing from the same short-run diagram of a perfectly competitive firm (price line AR=MR at 145, equilibrium E1 at 725 units, minimum AC of 115 at point M), fill in the blanks: 'In the long run ______ will ____ the industry so that the market supply curve shifts to the ____, until prices ______ sufficiently so that all firms make a normal profit only.'Show the full question

  38. Question B30 · The labour market and wages · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Which one of the following statements about the goods market and the labour market is correct?Show the full question

  39. Question B31 · The labour market and wages · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Joan received an increase of 5% in her daily wage. If prices in general increase by 7% over the same period, which one of the following statements is true?Show the full question

  40. Question B32 · The labour market and wages · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Which of the following would cause an increase in the supply of labour?Show the full question

  41. Question B33 · The labour market and wages · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). A diagram shows a labour market with wage (W) on the vertical axis and number of workers (N) on the horizontal axis, with an upward-sloping labour supply curve SL, a downward-sloping labour demand curve DL, and a minimum wage Wm set above the market equilibrium wage where SL and DL intersect. In the context of a perfectly competitive labour market, what is NOT a characteristic of such a market?Show the full question

  42. Question B34 · The labour market and wages · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Referring to the same labour market diagram (wage W on the vertical axis, number of workers N on the horizontal axis, upward-sloping supply SL, downward-sloping demand DL, and a minimum wage Wm set above the equilibrium wage, creating a gap between the quantities supplied and demanded at Wm), which one of the following statements about the diagram is FALSE?Show the full question

  43. Question B35 · The labour market and wages · 2 marks

    This is Section B, the compulsory multiple-choice component of the ECS1501 May/June 2017 exam, consisting of 35 items worth 70 marks in total (2 marks each, since the paper does not print individual marks per item but states the section is compulsory). Under what circumstances are workers likely to have more bargaining power to negotiate higher wages with employers?Show the full question

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