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MANGOSUTHU UNIVERSITY OF TECHNOLOGY

DEPARTMENT OF PUBLIC ADMINISTRATION AND ECONOMICS


ECONOMIICS TEST 1: SECTION A (20 X 4 MARKS) = 80 MARKS

INSTRUCTIONS:
*ANSWER ALL QUESTIONS FROM THIS SECTION.
* USE THE SPECIAL ANSWER SHEET PROVIDED
_____________________________________________________________________________________

1. Which one of the following statements is correct (or closest to correct)?


A. Economics is the study of money.
B. Economics teaches us how to avoid choices.
C. Economics is the study of profit and loss.
D. Economics can be described as the study of choice.
E. Economics teaches one how to become rich.

2. Microeconomics is a branch of economics that studies


A. the determination of national income.
B. the behaviour of individual decision-making units in the economy.
C. the impact of unemployment in South Africa.
D. the effects and consequences of the aggregate behaviour of all decision-making units.
E. both B and D above.
3. Macroeconomics is a branch of economics that studies
A. the determination of total economic activity.
B. the behaviour of individual decision-making units in the economy.
C. decisions by firms regarding the most efficient use of resources.
D. the effects and consequences of the aggregate behaviour of all decision-making units.
E. both A and D above

4. Which of the following is key to the way in which economists think?


A. Money
B. Wealth
C. Opportunity cost
D. Poverty
E. Balance sheet

5. Which one of the following statements is incorrect?


A. Rich people do not experience scarcity.
B. Because resources are scarce, everyone has to make choices.
C. Every time a choice is made, opportunity cost is incurred.
D. The opportunity cost of a particular choice is the value of the best opportunity
forgone (sacrificed) as a result of the choice.
E. The central elements of economics are scarcity and choice.

6. In a pure market economy, the “for whom” or distribution question is largely


answered:
A. by existing patterns of income and wealth.
B. by a democratic vote.
C. by the preferences of central planners.
D. according to the needs of individuals and groups in society.
E. by the extent to which government decides to redistribute purchasing power.
7. The basic questions of “what to produce” and “for whom” to produce are essentially
interdependent because:
A. a particular level of output may be produced by many different combinations of
inputs.
B. different patterns of factor use generate different patterns of income distribution.
C. income and wealth are concentrated in the hands of the economically powerful.
D. markets cannot be relied upon to allocate resources efficiently.
E. different patterns of distribution generate different patterns of demand and
therefore different patterns of resource allocation.

8. In a market system, which of the following is incorrect?

A. Prices allocate resources equally among competing industries and sectors in the
economy.
B. Prices indicate relative scarcities and costs of production.
C. Relative price changes are a determinant of firms’ profits and therefore encourage
or discourage production.
D. Prices are measures of consumers’ willingness to pay for goods and services.
E. Prices signal to consumers how much they must sacrifice to obtain a commodity.

9. South Africa has a:


A. pure market economy.
B. pure command economy.
C. traditional economy.
D. mixed economy.
E. classical economy.
10. Which one of the following does not represent the income of a factor of production?
A. Rent
B. Money
C. Wages
D. Profit
E. Interest

11. Complete the following statement. Households sell their ____________ in the
__________ market. They then use their income to buy __________ in the __________
market.

A. goods; goods; factors of production; factor

B. factors of production; factor; goods; goods

C. goods; factor; factors of production; goods

D. factors of production; goods; goods; factor

E. none of the above

12. Production possibility curve shows:

A. the maximum combination of inputs that can be used to produce output in a typical
economy.

B. the maximum revenue that can be generated from the sale of output produced by
limited resources in an economy.

C. the minimum quantities of commodities that can be produced from limited but fully-
employed resources in an economy.

D. the maximum quantities of commodities that can be produced from limited but fully-
employed resources in an economy.

E. the quantities of factors of production available to produce goods and services in an


economy.
The diagram below shows an economy’s production possibilities for two goods: submarines
and hospitals. Use this diagram to answer the question 13 below.

13. With reference to the above production possibilities curve, we can say that
A. the opportunity cost of producing 0a hospitals is 0b submarines.
B. the production of both submarines and hospitals appears to require similar resources
in similar proportions.
C. the opportunity cost of producing one more hospital is higher at f than at g.
D. the opportunity cost of producing one more submarine is higher at g than at f.
E. the opportunity cost of producing 0a hospitals is cb submarines.
A.
Use the diagram below, which shows production possibilities for cigars and cameras, to
answer the question 14 below.

14. The opportunity cost of producing an additional kilogram of cigars would be greatest at
A. A.
B. B.
C. C.
D. D.
E. The opportunity cost of producing an additional kilogram of cigars would be equal at
A, B, C and D.

15. If the production possibility curve for a two-good economy is a straight line, then
A. opportunity costs increase as production of one good rises.
B. opportunity costs fall as production of one good rises.
C. the goods must make use of inputs in similar proportions.
D. the economy must be producing at a point where there is inefficient use of resources.
E. the economy must be experiencing economic growth.
B.
To answer question 16 , refer to the production possibility curve below.

16. As the output of Good Y increases along the curve, which of the following changes
involves the largest opportunity cost?
A. 0 to 5 units.
B. 5 to 10 units.
C. 10 to 15 units.
D. 15 to 20 units.
E. The opportunity cost is the same in each case.

17. Which of the following statements about quantity demanded is not true? Quantity
demanded is:

A. a desired quantity, not necessarily the quantity exchanged.

B. effective demand, or the amount people are willing to buy at a particular price.

C. expressed as a certain amount per period of time.

D. the entire relation between price and quantity.

E. None of the above.


18. To say that the demand curve for movies is downward sloping to the right means that:

A. less will be demanded at lower prices.

B. more will be demanded as color TV sets become more expensive.

C. less will be demanded at higher prices.

D. less will be demanded if movies become poorer in quality.

E. None of the above

19. Which of the following will NOT, all else equal, cause demand for good A to change?

A. a change in the price of A.

B. a change in the price of B, a complement.

C. a change in the price of C, a substitute.

D. an increase in average income.

E. all of the above cause demand for good A to change.

***************************END OF SECTION A***********************************

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