Question

1.1 Which of the following is key to the way in which economists think?
a) Money.
b) Wealth.
c) Opportunity cost.
d) Poverty

1.2 Which one of the following statements is correct?
a) Wants, needs and demand are essentially simply different terms that have the same meaning.
b) Needs and demand amount to the same thing.
c) Wants and demand are essentially the same – people only demand things that they want.
d) Demand differs from wants and needs.

1.3 An economist decides to give up his job at a commercial bank, where he earns R800 000 per year. He is offered another full-time job for R850 000 per year or can work for himself from home as a private consultant. What is the opportunity cost of working from home?
a) R800 000.
b) R850 000.
c) R1 650 000.
d) R800 000 in addition to the cost of his monthly home loan repayments

1.4 Which one of the following may result in a decrease in the demand for frozen vegetables?
a) A rise in consumers’ incomes.
b) An increase in the price of frozen vegetables.
c) A decrease in the price of fresh vegetables.
d) A decrease in the price of frozen vegetables.

1.5 In the simple circular flow of economic activity, goods and services flow via:
a) Factor markets to goods markets.
b) Factor markets from households to firms.
c) Goods markets from households to firms.
d) Goods markets from firms to households.

1.6 Which one of the following statements is correct?
a) A rise in the price of a good will cause the supply curve of that good to shift to the right (i.e. the supply of the good will increase).
b) A fall in the price of a good will result in a rightward shift of the demand curve, ceteris paribus (i.e. the demand for the product will increase).
c) The quantity demanded of a good depends on the availability of the good.
d) A decrease in the prices of the factors of production used to produce a certain product will give rise to an increase in the supply of the product (illustrated by a rightward shift of the supply curve).


1.8 The vertical distance between the total cost and the total variable cost curves:
a) Decreases as output increases.
b) Increases as output increases.
c) Is equal to average fixed cost.
d) Is equal to total fixed cost
.
1.9 Which one of the following statements is correct? The demand for the product of a perfectly competitive firm:
a) Slopes downward from left to right.
b) Slopes upward from left to right.
c) Is perfectly elastic.
d) Is perfectly inelastic.

1.10 Which one of the following statements is correct?
a) Any firm maximises its profit (or minimises its losses) where marginal revenue (MR) = marginal cost (MC).
b) Monopolistically competitive firms produce homogenous (standardised) products.
c) There are a few examples of oligopoly in South Africa.
d) All monopolistic firms always earn economic profit.

Answer 1

1.1 Which of the following is key to the way in which economists think?
a) Money.
b) Wealth.
c) Opportunity cost.
d) Poverty

Well, in order to answer this let me tell you beforehand that the question is bit tricky. It is tricky in the sense that for economists, all the above are very important concerns. However the concern which dominates over all is "scarcity". Economies at all points of time face scarcity of resources, some face it more badly than the others. In order to reduce the scarcity, the economies and economists need money. Money serves as a dual purpose. It reduces the scarcity and hence fulfills human wants.

So, I can say, that of all the points mentioned above, money is the most crucial for economists at large. It's only if you have sufficient money can you solve the other issues at stake.

1.2 Which one of the following statements is correct?
a) Wants, needs and demand are essentially simply different terms that have the same meaning.
b) Needs and demand amount to the same thing.
c) Wants and demand are essentially the same – people only demand things that they want.
d) Demand differs from wants and needs.

Wants are nothing but desires. For example I might want a "Lamborghini", I might want to visit the moon. But are they feasible Of course not, given my state of the pocket and the ability to pay and other related factors.

Needs on the other hand maybe like, I need a particular medicine, if I get a particular disease. But right now am I suffering from that disease? No.

I might need an AC, because of the extreme hot temperature. But do I have the ability to purchase it given my limited income? No.

So you see, there is a concept of affordability and time associated to need.

Demand on the other hand is when you want something, need something and also have the money power to purchase or achieve that commodity at a particular point of time.

Hence I will say that demand has minute differences with the concepts of need or want.

I'll therefore say that, Demand differs from wants and needs.

1.4 Which one of the following may result in a decrease in the demand for frozen vegetables?
a) A rise in consumers’ incomes.
b) An increase in the price of frozen vegetables.
c) A decrease in the price of fresh vegetables.
d) A decrease in the price of frozen vegetables.

The demand for frozen vegetables may increase because of a large number of reasons. One such reason being a rise in the price of frozen vegetables. When the price of frozen vegetables rise, people find it more costly to buy that and decide to purchase less of it. This is actually a classic example of the law of demand, which states that as the price of a commodity increases, the quantity demanded of that commodity falls.

1.6 Which one of the following statements is correct?
a) A rise in the price of a good will cause the supply curve of that good to shift to the right (i.e. the supply of the good will increase).
b) A fall in the price of a good will result in a rightward shift of the demand curve, ceteris paribus (i.e. the demand for the product will increase).
c) The quantity demanded of a good depends on the availability of the good.
d) A decrease in the prices of the factors of production used to produce a certain product will give rise to an increase in the supply of the product (illustrated by a rightward shift of the supply curve).

When there is a change in the prices of a commodity, neither it's demand curve, nor it's supply curve shifts anywhere. A change in price is illustrated using a movement up or down of either the demand curve or the supply curve and not by a shift in any of the curves.

A shift can only happen when there is a change in any factor other than price of the commodity. Hence we can say that only the last option is correct. This is because, when the prices of factors of production fall, the producers find an incentive to produce more, since it is synonymous to reduction in costs of production. As a result of fall in price of factor of production, the supply curve shifts to the right.

1.8 The vertical distance between the total cost and the total variable cost curves:
a) Decreases as output increases.
b) Increases as output increases.
c) Is equal to average fixed cost.
d) Is equal to total fixed cost

Option d

Solutions at a glance

Question Number	Correct option
1.1	a
1.2	d
1.4	b
1.6	d
1.8	d