Download 2014 10 Microeconomics Examination

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SOUTH AFRICAN INSTITUTE OF MANAGEMENT
Microeconomics-A
Time: 09h00 – 12h00
Mark Allocation: 100 Marks
Date: 23 October 2014
Number of Pages: 9
Examiner’s Instructions:
1. Answer ALL questions in Sections A and B in the Answer Booklet provided.
2. Lay your work out clearly, using headings, sub-headings and paragraph
numbers.
3. The examination should be conducted in strict silence.
4. This is a closed book exam. No books or notes may be consulted during the
exam by a student, except a simple dual language translation dictionary e.g.
English/Xhosa, English/Afrikaans etc.
5. Ensure that your SAIM Number, your ID Number and the Exam Centre
Name/Number are all indicated on your examination book. No names should
be recorded anywhere on the Answer Booklet.
6. Failure to observe the rules and regulations set down by the SAIM will be
considered cheating and you will be disqualified from this examination and
any future SAIM examinations.
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SECTION A: 50 MARKS
Part 1: Multiple Choice Questions: 15 Marks
1. In the study of economics, ‘opportunity costs’ refers to:
a) Explicit costs.
b) Implicit costs.
c) The cost of the best alternative forfeited.
d) Monetary payments.
e) All of the above.
2. Which of the following statements describe a demand curve?
a) It slopes downwards from left to right.
b) It shows the relationship between price and quantity.
c) The slope of the line shows how sensitive the product is towards price increases.
d) It shows the quantity of a product demanded at each price.
e) All of the above.
3. If a 10% increase in price results in a 5% drop in the quantity consumed, this will be
regarded as an example of a ____________ product.
a) Perfectly elastic.
b) Elastic.
c) Inelastic.
d) Perfectly inelastic.
e) Unit elastic.
4. Which of the following costs can be described as fixed costs?
a) The salary of the MD of a company.
b) The cost of cans to the bottlers of Coca Cola.
c) The monthly rental of the factory.
d) The fuel for the delivery trucks.
e) a and c
5) “Consumer equilibrium” is an indication of the following:
a) The point where consumers stop spending because they have run out of money.
b) The maximum satisfaction that the consumer can obtain with the amount that
he/she spends.
c) The point where the slope of budget line is equal to the slope of the indifference
curve.
d) The satisfaction that a consumer derive from consuming a particular good.
e) b and c
6) Which of the following statements is not true? The production possibility curve……
a) Is also known of the production frontier.
b) Illustrates the choice that the firm has to make between two products.
c) Reflects that all resources are not fully employed.
d) Assumes that there is a limiting factor in terms of production.
e) All of the above.
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7) Which of the following are examples of anti-competitive behaviour?
a) Bid-rigging, where parties cooperate to ensure the highest bid prices.
b) Suppliers who independently set their prices
c) Collusion between major market players.
d) a and c.
e) a and b.
8) Roads and streetlights are examples of ……?
a) Capital goods.
b) Public goods.
c) Private goods.
d) Semi-durable goods.
e) Consumer goods.
9) Which of the following scenarios will result in a rightward movement of the demand curve
of red meat …?
a) There is a huge drought in South Africa and the cattle farmers had to reduce their
stock levels by bringing more cattle to the market.
b) Tim Noakes has published a book that recommends a diet which is high in protein
and fat for people with high cholesterol.
c) The price of chicken has dropped from R60/kg to R45/kg.
d) The summer holidays has arrived and, as usual, thousands of South Africans will
spend their holidays camping.
e) b and d.
10) When the price of brown bread increases from R6.00/loaf to R6.80/loaf as a result of
rising input costs this can best be illustrated by?
a) A rightward shift of the demand curve.
b) A leftward shift of the supply curve.
c) A movement on the demand curve.
d) A leftward shift of the demand curve.
e) A rightward shift of the supply curve.
11) Which of the following costs would be described as ‘variable cost’ over a period of a
month?
a) The ovens which are used by Dunes Bakery to bake their bread.
b) The bread flour that will be used to bake the bread.
c) The salaries of the permanent staff who work at the bakery.
d) The electricity which is consumed by the bakery.
e) a and d.
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12) If a South African olive farmer were to win an international award for the purest olive oil
in its class, we would expect that to have an influence on the demand for the product. Which
of the following scenarios is the most likely to reflect the expected impact?
a)
b)
c)
d)
e)
An increase in quantity of the product followed by a reduction in the price.
An increase in price and a reduction in the quantity of the product consumed.
A decrease in price and an increase in the quantity of the product.
A decrease in price and a decrease in the quantity of the product.
An increase in price and quantity of the product.
13) If South African retailers start sourcing/importing chicken from Brazil because they can
get it at competitive prices, which of the following scenarios can be expected in the chicken
market?
a) An increase in price and quantity of the product.
b) A decrease in price and a decrease in the quantity of the product.
c) A decrease in price and an increase in the quantity of the product.
d) An increase in price and a reduction in the quantity of the product consumed.
e) An increase in price and quantity of the product followed by a further increase in
the quantity and a reduction in the price.
14) Assuming that the world economy remains on an even keel, what would happen to the
price and consumption of platinum if the South African platinum mines (which produce ⅓ of
the world’s platinum) are closed due to a prolonged strike?
a)
b)
c)
d)
e)
An increase in price and quantity of the product.
A decrease in price and a decrease in the quantity of the product.
A decrease in price and an increase in the quantity of the product.
An increase in price and a reduction in the quantity of the product consumed.
No material impact on either price or quantity.
15) A product sells for R10/unit and the company currently sells 1 000 units of the product
per month. The company’s management has now decided to increase the price to R12
rand/unit. Research has indicated that the product is elastic (price elasticity of demand is
˃1). What do we expect to happen to the total revenue?
a) Total revenue would remain the same.
b) Total revenue would increase marginally.
c) Total revenue would increase substantially.
d) Total revenue would decrease.
e) None of the above.
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Part 2: True or False questions: 10 Marks
Write down the number of each question in you answer book and indicate whether the
statement is true or false.
2.1 The study of the economy focuses on how consumers and producers have to make
choices as to how to utilise the abundant resources of society.
2.2 A natural monopoly develops where consumers choose to only purchase products from
one producer rather than any other.
2.3 When diseconomies of scale are experienced, it is expected that the long run cost of
production will continue to fall as production is expanded.
2.4 Utility is a theoretical concept which is based on the assumption that a consumer can
assess the relative satisfaction that they will derive from consuming two different products.
2.5 Total utility will remain the same as a person moves from one point to another on the
indifference curve.
2.6 The reason why suppliers in a competitive market are expected to only have normal
profit is based on the fact that there will always be a competitor who will offer the same
product at a lower price.
2.7 When the supply of a product is increased, it is expected that the price of the product, as
well as the quantity of the product that is consumed, will increase.
2.8 Beef is an example of an inelastic product, as it will usually be rather insensitive to
increases in price.
2.9 Economic profit can be calculated by deducting all explicit costs from the revenue or
income.
2.10 In a mixed economy we do not expect to see any planning/intervention by the central
government as the market is sufficiently developed to regulate itself.
Part 3: Label and Describe the Following Graph: 15 Marks
Carefully study the following graph. It reflects the relationship between the number of
students enrolled and the cost of tuition (course fee) for studying a Diploma in Marketing.
Then answer the questions that follow, taking due regard of the marks allocated to each
question.
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????
Product B
in R
1
2
3.1 Provide a suitable heading/title for the graph above.
3.2 Provide the more appropriate description for line 1 and line 2.
1 Mark
2 Marks
3.3 At an average tuition fee of R10 000 per annum, what will the student numbers be?
1 Mark
3.4 Use the graph to determine what will happen if the tuition fee should increase to R20
000/annum?
1 Mark
3.5 When thinking of elasticity, what is a product called if its price increases by 100% and
the demand for the product reduces by only 15%?
1 Mark
3.6 If, through government subsidies, the university can reduce the tuition fees from R15
000/annum to R5000/annum, what do we expect to happen to the student numbers?
1 Mark
3.7 Name five (5) factors, other than price, which will usually affect the demand for a
product.
5 Marks
3.8 What would we expect to happen if a second university opens in the city and they
advertise their marketing program/diploma at a lower price?
2 Marks
3.9 If the price demand elastic of the Marketing Diploma = 1, what would we expect to
happen to the student numbers if the price of the program increases by 20%?
1 Mark
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Part 4: 10 Marks
Study the following table, which can be used to compare the characteristics of the different
market structures. Provide a brief description of the characteristics typically found in each of
the scenarios for each numbered
.
Feature/criteria
A Perfectly
A Monopoly
Competitive Market
Number of Firms
4.1
4.2
Nature of the Product
4.3
4.4
Firm’s Control Over Price
4.5
4.6
Demand Curve for the Firm’s
Product
4.7
4.8
Long-run Economic Profit
4.9
4.10
SECTION B: 50 Marks
Answer ALL the questions as directed
Question 1: 20 MARKS
Answer TWO of the three questions for 10 marks each.
a) Explain what is meant by the term ‘elasticity’ and describe the various categories of
price elasticity of demand, each with an example of a product that we will find in this
category.
OR
b) Lynette has R24 in her purse. She is thirsty and hungry. In the college canteen, they
sell soft drinks at R12 each and chips at R6 per packet. Draft a graph that will show
the budget line and which illustrates the various options available to her. Also explain
her options in writing.
OR
c) Describe the concept of ‘price discrimination’ and explain under what conditions it
can be used. Also comment on the three main varieties of price discrimination.
Question 2: 10 Marks
Discuss, with graphs and in your own words, the impact on the equilibrium price and quantity
of the product to be sold. Note that, for each scenario, you have to decide whether it is the
demand or supply curve that will be impacted. You have to answer in relation to ONE of the
following scenarios:
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a) As South Africans are very fond of beer, an international brewer called Budweiser
decided to build a new brewery in Gauteng that can produce up to 30 hectolitres of
beer per annum.
OR
b) The Federation of Rooibos Tea Farmers has commissioned a study to determine the
health benefits of drinking rooibos. The results were recently released and it indicates
that rooibos has a positive impact on a number of health conditions, such as
diabetes, high blood pressure etc.
Question 3: 10 Marks
Answer any TWO of the following questions for 5 marks each:
a) Discuss the conditions that are required for a perfectly competitive market to exist.
b) Explain why a natural monopoly creates a dilemma for government and how
governments would usually deal with the situation.
c) Why is it that a monopoly can be seen as an inefficient market structure?
Question 4: 10 Marks
Discuss ONE of the following questions. You must also provide the equations that
can be used to calculate the various elements.
a) Describe the difference between total cost (TC), average cost (AC) and marginal cost
(MC) and indicate how each of these can be calculated. Which of these costs factors
are the most critical to monitor in order to ensure profitability?
10 Marks
OR
Describe the difference between total revenue (TR), average revenue (AR) and marginal
revenue (MR) and indicate how each of these can be calculated. Which of these income
factors are the most critical to monitor in order to ensure profitability?
10 Marks
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SOUTH AFRICAN INSTITUTE OF MANAGEMENT
MULTIPLE CHOICE ANSWER SHEET
Micro Economics-A October 2014
SAIM NO:_________________
ID no: ____________________
Examination Venue:___________________
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B
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TOTAL FOR EXAMINATION: 100 MARKS