Question

 

1.1 When there are not enough resources to produce the desired goods and services, we say that there is.…

a) Unemployment. b) A shortage c) Scarcity d) All of the above

1.2 Thomas has the following options in order of preference i. Go to campus ii. Go to the beach iii. Stay home and play video games. If he chooses to go to campus, then his opportunity cost of doing so is represented by… a) i only b) ii only c) i and ii d) i, ii and iii

1.3 Efficiency is illustrated by… a) Points beyond the PPF curve b) Points along the PPF curve c) Points within the PPF curve d) None of the above

1.4 South African companies are shifting towards, capital intensive production processes. The reason for such a shift can be explained by considering… a) The labour laws of the country b) The quality of the labour available c) The prices of the resources available d) All of the above

1.5 In a hypothetical economy that produces two goods, there is an improvement in the production of one of the goods. This will be illustrated by… a) A point on the PPF diagram b) An outward swivel of the PPF diagram c) An outward shift of the PPF diagram d) An inward shift of the PPF diagram

1.6 In the goods market, firms receive _____________ for their activities. a) Profit b) Sales revenue c) Rent d) Interest

2 1.7 In an economy, the government… a) Produces public goods and services b) Purchases factors of production in the factor market c) Purchases goods in the goods market d) All of the above

1.8 Which of the following will not change the demand for good X? a) The price of the good X b) The income of the consumers of good X c) The expected price of good X d) The price of good Y, a substitute of good X

1.9 All of the following will result in a change in the supply of good X except… a) The price of production substitutes of good X b) The expected future prices of good X c) The state of technology available to produce good X d) The price of good X

1.10 Prices will increase in a market if… a) The price is above equilibrium price b) Quantity is above equilibrium quantity c) Quantity is below equilibrium quantity d) None of the above

1.11 The following will result in a definite increase in equilibrium price and equilibrium quantity… a) An increase in demand and in supply b) A decrease in demand and in supply c) An increase in demand and a decrease in supply d) None of the above

1.12 Which of the following is not a form of government intervention? a) Minimum prices b) Subsidies c) Taxation of products d) None of the above

1.13 In order for a price ceiling to be effective… a) It must be fixed above the equilibrium price b) It must be fixed below the equilibrium price c) It must be fixed equal to the equilibrium price d) None of the above

1.14 When the price is equal to zero…. a) Price elasticity of demand equals infinity b) Price elasticity of demand equals zero c) Price elasticity of demand equals one d) Price elasticity of demand lies between zero and one 3

1.15 If total revenue increases as the price is increased, price elasticity of demand is… a) Perfectly elastic b) Unitary elastic c) Inelastic d) Elastic

1.16 Accounting profit is equal to… a) Total revenue less total explicit costs b) Normal profit plus economic profit c) All of the above d) None of the above

1.17 When average product is decreasing… a) Marginal product is decreasing b) Marginal product is increasing c) Marginal product equals zero d) Average product is increasing

1.18 Figure 1 diagram shows a situation of… a) Economic profit under perfect competition b) Normal profit under perfect competition c) Economic profit under monopolistic competition d) Normal profit under monopolistic competition

1.19 Which of the following firms do not earn normal profits in the long run? a) Monopolistic competition b) Monopoly c) Perfectly competitive firms d) None of the above

1.20 For a firm in an oligopoly market structure with a kinked demand curve, equilibrium is determined by… a) Marginal revenue equals marginal cost b) Price equals marginal cost c) All of the above d) None of the above

Answer 1

1.1 When there are not enough resources to produce the desired goods and services, we say that there is scarcity of resources.

Hence answer is c) scarcity

1.2 The opportunity cost is the benefit from highest valued alternative use of the resource that is foregone.

Hence when Thomas chooses to go to camp ,his next highest valued alternative in terms of prefernce was to go to the beach that is foregone.

Therefore answer is b) ii only

1.3 efficiency is illustrated by any point along the PPF curve where resources are used to their full potential and maximum goods and services are produced.

Hence answer is b) Points along the PPF curve

1.4 There can be various reasons for South African companies for shifting towards capital intensive processes such as rigid labour laws,scarcity of skilled labour,high wages,etc

Hence answer is d) all of the above

1.5 Points on PPF shows various combination of mix of goods that a country can produce given its resources.IT shows trade off between the two goods. if production of one goods increases ,the production of other decreases and vice versa. HenceiIn a hypothetical economy that produces two goods, there is an improvement in the production of one of the goods. is illustrated by a point on the PPF diagram

Hence answer is a) A point on the PPF diagram

1.6 In a goods market,firms receive profit for their activities. Firms receive profit for all the risk tken by them and capital invested to produce goods and services.

Hence answer is a)profit

1.7 In an economy,government purchases factors of production from open market in order to produce goods and services that cannot be produced by private enterprise.

Hence answer is b) Purchases factors of production in the factor market

1.8 Demand of good X is a determinant of its price,income of the consumers,price of its substitute good Y. Thereofre expected future prices will not primarily change demand of good X

Hence answer is c) The expected price of good X

1.9 The supply of good X depend son its price as atated by law of supply.Other determinants of changes in supply of good X is change in technology and also the if the price of production substitute of good X,increases it will be more profitable than production of good X and hence it will change the supply of good X.

Hence answer is b) The expected future prices of good X

1.10 Equilibrium is a point where demand equals its supply. If supply is less than demand,prices increases while supply is more than demand prices decreases.

Hence answer is  c) Quantity is below equilibrium quantity

1.11 Equilibrium is a point where demand equals its supply. There will be  increase in equilibrium price and quanity when both demand and supply increases.

Hence answer is  a) An increase in demand and in supply

1.12 Minimum prices are set by the market. They are not imposed by the government.

Hence answer is a) Minimum prices

1.15 If total revenue increases as the price is increases,this means demand of the goods responses less to the change in prices. Price elasticity of demand is said to be inelastic

Hence answer is c)inelastic

1.16 accounting profit is Total revenue less explicit costs

Hence answer is a) Total revenue less total explicit costs

1.17 When marginal product is less than average product,average product also decreases.

Hence answer is a) Marginal product is decreasing

1.18 Figure missing

1.19 In long run,the demand curve of a  monopolistic firm is tangent to its total average cost curve which will make it impossible for monopolistic firm to earn normal profits in the long run.

Hence answer is a) Monopolistic competition

Answer 2

1.1 When there are limited resources available to produce goods or services it is called scarcity

Hence answer is c) Scarcity

1.2 Opportunity cost of any alternative is said to be the benefit available from the next highest valued alternative use of the resources that is foregone. For Thomas, If he chooses to go to the camp,his next high valued alternative for Thomas in terms of preference is going to the beach that is foregone. Therefore the opportunity cost of going to the camp is going to the beach

Hence b) ii only

1.3 The points on the PPF curve shows maximum productive efficiency. PPF curve shows that all economic resources are used at the fullest and maximum goods and services is produced.Points inside PPF curve are productively inefficient and points outside the curve are impossible to produce with given resources.

Hence anser is c) Points within the PPF curve

1.4 There are various reasons for the South African companies for shifting to capital intensive processes such as rigid labour laws,high wages,scarcity of skilled workers,etc

Hence answer is d) all of the above

1.5 If there is improvement in the production of one good at given resources,the output will increase and this will shift the PPF curve outwards.

Hence answer is c) An outward shift of the PPF diagram

1.6 The firms in the markets does all the activities right from producing goods tom its sales in order to receive economic profis. The main and the basic intention of any firm is to recieve reward which is the profit recieved from the sales of the goods and services produced.

Hence answer is a) Profit

1.7 The government in an economy purchases factors of production such as land ,labour so as to produce goods and services which are reserved for goverment.

Hence answer is b) Purchases factors of production in the factor market

1.8 Demand of good X depend upon various factors such as price as stated by the law of demand ,other is income of consumer;demand is directly related to income, demand of the product good x is inversely related to price of its substitute good Y while demand of good X also depend upon the future expected prices ;it future prices are expected to increase,current demand increases and vice versa.

Hence answer is e)none of the above

1.9 Supply of a good is a determinant of various factors . If the prices of production substitute good increases its production will be more profitable and so factors of producion will be diverted to its production and hence suppy of good X will reduce and vice versa. Expection of future prices of good x also determine its suppy. if they expect the price to increase in future current supply of good x decreases and vice versa. Improvementy in technology also affectd the supply. Main determinant of supply is its price.

Hence answer is e) none of the above

1.10 Equilibrium price is one where demand of a good equals its supply. If supply is less than the equilibrium quanity price increases and vice versa.

Hence answer is  c) Quantity is below equilibrium quantity

1.11 Equilibrium point is the one where demand of a good equals the supply of that good. If one increases,other needs to increases so as to increase equilibrium price and quantity .If supply is greater than equilibrium quanity,the prices decreases while if supply is less than equilibrium quanity,prices hence to increase equilibrium price and quanity both needs to increase.

Hence answer is a) An increase in demand and in supply

1.12 Minimu price of a good or service is set by the market not by the government.

Hence answer is a) minimum price

1.13 For a price celing to be effective ,it must be set below equilibrium.When the price celing is set at below equilibrium demand is more than supply. Hence marginal benefits exceeds marginal cost which creates inefficiency and it is equal too dead wieght welfare loss

Hence answer is b) It must be fixed below the equilibrium price

1.15 price elasticity of demand is said to be inelastic when proportionate change in demand is less than propotionate change in price.Hence when prices of goods with inelastic demand increases,total revenue also increases

Hence answer is c) Inelastic

1.16 Accounting profit is equal to Total revenue minus total explicit costs.

Hence answer is a) Total revenue less total explicit costs

1.17 When the marginal product is less than average product,average product decreases.

Hence answer is a) Marginal product is decreasing

1.18 Figure missing

1.19 Due to free entry nd exit in a monopolistic competition,when firms make profits in the short run new firms enter the market which eliminates profit in the long run while if firms make economic losses in short run more firms exit the market which eliminates loss till it becomes zero.3

Hence answer is a) Marginal product is decreasing

1.20