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MODULE Economics 1A
INTAKE July 2021
DATE 03 December 2021
TOTAL MARKS 100
SECTION A [100 MARKS]

Answer ALL the questions in this section.

1. When the market mechanism is allowed to operate freely, prices will determine… (4 Marks)

a. Only the mix of output to be poduced and the resources to be used in the production process.
b. Only the resources to be used in the production process and for whom the output is produced.
c. The mix of output to be produced, the resources to be used in the production process, and for whom the output is
produced.
d. Only for whom the output is produced and the mix of output to be produced.

2. With regards to factors of production, which of the following statements are NOT true? (4 Marks)

a. Factors of production are also known as resources.

b. In order to produce any good or a service, it is necessary to have factors of production.
c. Factors of production include land, labour, capital, and entrepreneurship.
d. Only those resources that are privately owned are counted as factors of production.

3. The “guns versus butter” dilemma that all nations confront is that… (4 Marks)

a. Guns and butter can be produced using the same resources at the same time.
b. An increase in spending in national defence implies more sacrifices of civilian goods and services.
c. An increase in national defence is only possible if we produce more butter.
d. Butter can only be produced if we have guns.

4. Table 1.1: Production Possibilities for Brushes and Combs (4 Marks)

Referring to table 1.1, the opportunity cost of producing 10 brushes is…

a. 10 combs
b. 1 comb
c. 3.33 combs
d. 8.5 combs

5. Figure 1.1 is a hypothetical economy producing SUV’s and Cars. Economic growth is represented (4 Marks)
by…
 a. A movement from point B to F
b. A movement from point D to E
c. A movement from B to A
d. A movement from B to E

6. Figure 1.2 represents an economy producing brooms and mops. Which of the following would (4 Marks)
represent lockdown restrictions assuming that mops and brooms are non essential products?

Figure 1.2

a. A movement from C to A
b. A movement from D to C
c. A movement from F to C
d. A movement from E to D

7. Simple economies can be described in terms of three major economic flows. These are: (4 Marks)

a. income, spending and saving.

b. spending, production and saving.
c. income, saving and production.
d. income, spending and production.

8. In the simple circular flow of economic activity, goods, and services flow via: (4 Marks)
 a. factor markets to goods markets.
b. goods markets from households to firms.
c. factor markets from firms to households.
d. goods markets from firms to households.

9. Demand is the quantity of goods… (4 Marks)

a. desired by consumers.
b. ordered by consumers in a particular period.
c. consumers are willing and able to buy at particular prices in a certain period.
d. that consumers want to buy.

10. Which panel of Figure 1.3 represents the changes in the market for beef when the price of corn (4 Marks)
(cattle feed) rises and the people become more fearful of mad cow disease?

Figure 1.3

a. A
b. B
c. C
d. D

11. An increase in the price of petrol above the equilibrium will… (4 Marks)

a. Shift the petrol supply curve to the right.

b. Shift the petrol demand curve to the right.
c. Cause a surplus of petrol.
d. Cause a shortage of petrol.

12. When restaurants give away free salty peanuts while you wait for your food… (4 Marks)

a. They are encouraging you to buy more peanuts in the future.

 b. They are decreasing the price of complements of bevarages.
c. They are offering an improved quality of service.
d. They are increasing the price of substitutes.

13. If the price elasticity of demand is 1.0, and a firm raises its price by 10 percent, the total revenue (4 Marks)
will…

a. Not change.
b. Fall by 10 percent.
c. Rise by 10 percent.
d. Rise by 100 percent.

14. If the price elasticity of demand is 0.6, then a 10 percent increase in the price of the good will lead (4 Marks)
to a _______in the quantity demanded.

a. 6 percent increase.
b. 6 percent decrease.
c. 0.6 percent increase.
d. 0.6 percent decrease.

15. Which of the following statements is NOT true regarding the production function and the (4 Marks)
production possibilities curve?

a. Both the production fuunction and the production possibilities curve maximise the amount of output attainable.
b. The production function describes the capacity of a single firm, whereas the production possibilities summarises the
output capacity of the entire economy.
c. A production function tells us the maximum amount of output attainable from the use of all resources.
d. The production possibilities curve expresses the ability to produce various combinations of goods given the use of all
resources.

16. The marginal physical product of the third unit of labour in Figure 1.4 (4 Marks)

Figure 1.4

a. 40.0 units per day

b. 12.0 units per day
 c. 13.3 units per day
d. 4.0 units per day

17. Which of the following is always downward-sloping? (4 Marks)

a. The marginal cost curve when it is below the average total cost curve.
b. The marginal cost curve when it is above the average total cost curve.
c. The average total cost curve when it is below the marginal cost curve.
d. The average total cost curve when it is above the marginal cost curve.

18. Assuming that the apple farmer could earn $1, 000 as an employee elsewhere, then the total (4 Marks)
economic profit in Table 1.2 is…

Table 1.2

a. $925
b. -$75
c. -$1, 000
d. $0

19. If the market price for the perfectly competitive firm represented in Figure 1.5 is $15… (4 Marks)

Figure 1.5

a. The firm should produce 39 units.

b. The firm should shut down.
c. The firm will above-normal profits.
d. Economic profits will be zero.

20. It was reported that General Motors planned to essentially quit making cars and trucks in the (4 Marks)
United States for nine weeks from mid-May through July 2009 and Omaha Power planned to close
one of its nuclear plants permanently. Based on these particular news reports, what is the difference
between GM’s and Omaha Power’s decisions?

a. Omaha Power was trying to get rid of excess inventory, and GM was trying to become more efficient.
b. GM was trying to maximise profits while Omaha Power was trying to minimise losses.
c. GM’s decision to idle plants was a short-run shutdown decision. Omaha Power, by contrast, made a long-run decision to
exit a specific market.
d. There is no difference between GM’s and Omaha Power’s decisions; both were trying to get rid of excess inventory.

21. The monopolist represented in Table 1.3 will charge a price of… (4 Marks)

Table 1.3

a. $500
b. $450
c. $350
d. $300

22. In Figure 1.6, the total revenue is represented by the area… (4 Marks)

Figure 1.6

a. ABFE
b. CDFE
c. ABGHE
d. ABDC

23. The kinked oligopoly demand curve does NOT describe the demand curve for monopolistic (4 Marks)
competition because in monopolistically competitive markets…
 a. Firms are not as interdependant as oligopolistic firms.
b. Firms have no market power.
c. There is not as much product differentiation as in oligopoly.
d. There is no non-price competition.

24. Table 1.4 represents a monopolistically competitive firm selling balls. The firm will earn a profit (4 Marks)
equal to…

Table 1.4

a. $18.
b. $70.
c. $72.
d. -$12.

25. Figure 1.7 represents an oligopoly firm. The existing price and quantity are $10 and $2,000 units. (4 Marks)
If we assume that rival firms match price decreases but not price increases, the firm’s demand curve
will most likely be (from left to right)…

Figure 1.7

a. D1ED1
b. D2ED2
c. D1ED2
d. D2ED1