EXAMINATION PAPER

MAY/JUNE 2023

MODULE ECONOMICS IIA DATE 7 JUNE 2023

MODULE CODE ECO20A DURATION THREE (3) HOURS

Assessor Ms P Ndlovu TIME: 09:00-12:00

Moderator Dr C Harmse

MODULE-SPECIFIC INSTRUCTIONS
1. Answer all the questions unless otherwise instructed.
2. Read the questions carefully before attempting their answers.
3. You may answer questions in any sequence.
4. Always number the answers and any sub-question answers using the same numbers as the
question numbers in the examination paper.
5. Draw a line after each completed question. Draw a line through an answer or part of an answer
you do not want to have assessed.
6. Rough work – Do this in your examination answer book and indicate that it is not part of your
answer by drawing a line through the rough work after answering the question.

GENERAL INSTRUCTIONS
1. Notes, files, textbooks or any other such aids are not allowed in the examination room.
2. Mobile phones (cell phones), computers, tablets or similar devices are not allowed.
3. Calculators are allowed.
4. Please remember to write your name, surname and student number on the examination script
(answer book).
5. Use only a black or a blue pen. Do not use a pencil to answer questions.
6. You agree to abide by STADIO Rules and Regulations, including those governing examinations,
by accepting this examination script.
7. This exam paper and its contents remain the property of STADIO and no part of it may be
copied, reproduced, distributed, altered or sold.

DO NOT TURN THIS PAGE UNTIL INSTRUCTED TO DO SO!

ECO20A
THIS EXAMINATION PAPER CONSISTS OF FIVE PAGES ECONOMICS IIA
INCLUDING THIS COVER PAGE (THIS IS PAGE 1 OF 5).
ECO20A – ECONOMICS IIA
EXAMINATION PAPER – MAY/JUNE 2023

Question 1 [10]
MULTIPLE-CHOICE QUESTIONS
Each of the following sub-questions contains one statement but with multiple possible
answers. Only one of the answers is correct. Read each statement very carefully and
then decide which one of the options is the correct one. In your examination script
(answer book), write down only the sub-question number and next to it the letter that
represents the answer you have selected.
Example: If you believe that for sub-question 1.11 option C is correct, then write down:
1.11 C.
1.1 An increase in the price of margarine leads to a/an ______
A. downward movement along the demand curve.
B. rightward shift of the demand curve.
C. leftward shift of the demand curve.
D. upward movement along the demand curve.

1.2 Identify the option that leads to an increase in the demand for computer
software.
A. Decrease in the price of computer software.
B. Increase in the price of computer software.
C. Decrease in the price of computers.
D. Decrease in the number of computer manufacturers.

1.3 When the price of a commodity A is increased by 15%, household spending on

A falls by 10%. This is an example of a/an ______
A. inelastic demand.
B. perfectly elastic demand.
C. unitary elastic demand.
D. perfectly inelastic demand.

1.4 When the cross-price elasticity of two goods is positive, the two goods are said
to be ______
A. substitutes.
B. complements.
C. normal.
D. inferior.

1.5 When someone consumes two goods X and Y, that person’s utility is maximised
when the budget is allocated so that ______
A. the total utility of X to the price of Y equals the ratio of the marginal utility of
Y to the price of X.
B. the marginal utility of X equals the marginal utility of Y.
C. the weighted marginal utility of X equals the weighted marginal utility of Y.
D. the ratio of total utility of X to the price of X equals the ratio of the marginal
utility of Y to the price of Y.

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EXAMINATION PAPER – MAY/JUNE 2023

1.6 According to the law of diminishing marginal returns, when one or more inputs
are fixed, a variable input (usually labour) is likely to have a/an ______ that
eventually diminishes as the level of input increases.
A. average revenue
B. marginal product
C. average product
D. total product

1.7 The cost associated with opportunities foregone when a firm’s resources are not
put to their best alternative use is called ______.
A. marginal cost
B. average cost
C. opportunity cost
D. average variable cost

1.8 This is a market structure in which there are high barriers to entry and exit and
the good is unique with no close substitutes.
A. Monopoly
B. Oligopoly
C. Monopolistic competition
D. Perfect competition

1.9 Which statement is incorrect?

A. The quantity that the monopolist produces for sales on the market is
substantially less than that supplied by a perfectly competitive industry.
B. Monopolists make excess profits in the long run.
C. The price fixed by a monopolist is lower than the price of perfect
competition.
D. Under monopolistic competition, economic profits can be earned in the
short run.

1.10 A situation in which each firm selects its best action given what its rivals are
doing, is referred to as the ______
A. Nash equilibrium.
B. Stackelberg equilibrium.
C. cooperative equilibrium.
D. zero-sum game.

Question 2 [5]
TRUE/FALSE QUESTIONS
Consider the following list of statements. Each statement is either true or false. You
must read each statement carefully and then select the option that you believe is
correct as your answer. In your answer book, write down only the question number and
either “True” or “False” next to the number.
Example: If you believe sub-question 2.6 is true, then write down: 2.6 True.

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EXAMINATION PAPER – MAY/JUNE 2023

2.1 Microeconomics deals with aggregate economic variables, such as the level
and growth rate of national output, interest rates, unemployment, and inflation.
2.2 The difference between what a consumer is willing to pay for a good and the
amount actually paid is called the consumer surplus.
2.3 Second-degree price discrimination relates to the practice of charging each
customer her reservation price.
2.4 A firm may lose money in the short run and still be better off than it would be if it
were to shut down operations, as long as its losses are less than its fixed costs.
2.5 An expansion path is a curve passing through points of tangency between a
firm’s isocost lines and its isoquants.

Question 3 [26]
Suppose that the demand function for corn is Qd = 10 – 2P and the supply function is
Qs = 3P – 5. The government is concerned that the market equilibrium price of corn is
too low and would like to implement a price support policy to protect the farmers. By
implementing the price support policy, the government sets a support price and
purchases the extra supply at the support price. In this case, the government sets the
support price at Ps = 4.

3.1 Calculate the original market equilibrium price and quantity in the absence of
the price support policy. (5)
3.2 Draw a diagram to show the change in the consumer surplus due to the
implementation of the price support policy. Calculate the change in the
consumer surplus. (5)
3.3 Explain the difference between a movement along the demand curve and a shift
of the demand curve. (4)
3.4 With reference to price elasticity of demand, answer the following questions:
3.4.1 Indicate what the two (2) main determinants are that price elasticity of
demand depends on. (2)
3.4.2 Calculate the arc (midpoint) elasticity value (coefficient) for an increase
in price from R8 to R10 when quantity demanded falls from 30 to 25. (4)
3.5 With the aid of two diagrams, illustrate the difference between a perfectly elastic
and a perfectly inelastic demand curve. (6)

Question 4 [18]
4.1 Explain how an increase in a person’s income can lead to lower consumption of
an inferior good such as hamburgers and higher consumption of, say, steak.
Use a graph to illustrate your explanation. (8)
4.2 Describe the equal marginal principle. Explain why this principle may not hold if
increasing marginal utility is associated with the consumption of one or both
goods. (5)
4.3 Define the following:
4.3.1 Ordinal utility function (1)
4.3.2 Cardinal utility function (1)
4.3.3 Marginal rate of substitution (1)

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EXAMINATION PAPER – MAY/JUNE 2023

4.3.4 Indifference curve (1)

4.3.5 Budget line (1)

Question 5 [20]
A firm’s total cost function is given by the equation: TC = 4 000 + 12Q + 10Q2.
5.1 Write an expression for each of the following cost concepts:
5.1.1 Total fixed cost (2)
5.1.2 Total variable cost (2)
5.1.3 Average variable cost (2)
5.1.4 Average total cost (2)
5.1.5 Marginal cost (2)
5.2 Determine the quantity that minimises average total cost. (4)
5.3 Explain the relationship between marginal and average cost. (6)

Question 6 [21]
6.1 Make use of two graphs to describe the transition from short-run to long-run
equilibrium in a monopolistically competitive industry. (12)
6.2 Describe the following in detail.
6.2.1 Cournot model (3)
6.2.2 Stackelberg model (3)
6.2.3 Bertrand model (3)

EXAMINATION TOTAL: 100

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