ATTENDANCE FORM

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GENERAL INSTRUCTIONS

1. Do not remove the staple – hand this paper in as a whole.

2. Remove only the top page (this page). It will be collected from you by the
invigilators.

3. Make sure that your paper has 19 numbered pages.

June 2023

Page 1 of 19
Full Name: ______________________________________
Student Number: ___________________
 ECONOMICS 1A
FINAL ASSESSMENT
SCHOOL OF ECONOMICS

Date: June 2023

Marks: 110
Time: 2 hours
Assessors: Prof Baur, T Zwane, F Kirsten, T Kekaye,
Z Mkhize, P Nkosi, N Phiri
Moderator: Dr Maleka

1. The paper consists of four questions (including sub-sections).

2. Noiseless calculators may be used.
3. Answer all the questions.

Surname

Initials

Student number

Marks Total Marks Total Marks Total

Q.1.1 [2] Q.3.2 [2] Q.4.6 [3]

Q.1.2 [2] Q.3.3 [3]
Q.1.3 [3] Q.3.4 [3] Q.5.1 [3]
Q.1.4 [4] Q.3.5 [3] Q.5.2 [7]
Q.1.5 [7] Q.3.6 [5] Q.5.3 [7]
Q.3.7 [3] Q.5.4 [4]
Q.2.1 [3] Q.3.8 [4]
Q.2.2 [4]
Q.2.3 [6] Q.4.1 [6]
Q.2.4 [2] Q.4.2 [6]
Q.2.5 [6] Q.4.3 [4]
Q.4.4 [2]
Q.3.1 [2] Q.4.5 [4]

TOTAL (110)

Page 2 of 19
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Student Number: ___________________
Question 1: Economic concepts & understanding changes in the economy [18]

1.1 Assume the following production values for a society’s production also assume technology and resources
are fixed. Answer the specific questions below using the table below. (2)

Military goods Consumer goods

100 units 25 units
75 units 40 units
50 units 60 units

Question Answer
What is the trade-off from increasing the production
of consumer goods?

What is the opportunity cost from increasing the

production of consumer goods from 40 units to 60
units?

1.2 Use the graph below to answer the following questions (2)

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 Question Answer

What is the opportunity cost of

increasing the production of boats
from 4 000 to 9 000

If the production of boats

increases its production of trucks
must decrease. Briefly explain
why is that and what can be done
to prevent this situation

1.3 Link the applicable factor of production and corresponding remuneration to the following descriptions.
(3)

Statements Factor of production Remuneration

A Chinese firm manufacturing Toyota cars in Durban

“The N2 Nodal Development is a strategic economic and

housing provision intervention programme in Gqeberha, and
the node is identified and approved as a strategic
development area for social and economic upliftment of the
region and its communities” Bussinestech 2022

“Mr Thando Makhubu from Soweto received the R350 grant

for 7 months last year, and saved it to open an ice-cream store
that now employs four people” President Ramaphosa

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1.4 Provide four reasons why the free market system will not always work in a society aiming for economic
development? (4)

Reasons

1.5 This question deals with the role of government in a mixed economy. (7)

Description Answer
What kind of taxation are we dealing with if high-income
earners are paying a 45% marginal tax rate?
(Progressive taxation, regressive taxation, or proportional
taxation).

Assume that Susan paid a total of R4000 VAT per month

on her total spending for both January and February. Her
salary for January was R30 000, but she is going to receive
an increase of R3000 from February onwards. Her
intention is to keep her total VAT payments at the same
level. What kind of taxation are we dealing with?
(Progressive taxation, regressive taxation, or proportional
taxation).

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Student Number: ___________________
 What is the term to describe a situation where a
government cannot even pay its interest on government
debt?

Assume that the government takes action specifically to

stimulate the motor vehicle industry. Are we dealing with
a microeconomic or macroeconomic action from the
government?

The South African Reserve Bank decreases the repo

interest rate. Is this action an expansionary monetary
policy action, a restrictive fiscal policy action, an
expansionary fiscal policy action, or a restrictive monetary
policy action?

The government decides to lower the marginal tax rate to

43%. Is this action an expansionary monetary policy
action, a restrictive fiscal policy action, an expansionary
fiscal policy action, or a restrictive monetary policy
action?

What kind of an asset is a building?

Page 6 of 19
Full Name: ______________________________________
Student Number: ___________________
Question 2: Understanding changes in the economy. [21]

2.1 There are 3 methods used to calculate GDP, name the methods, and provide their formulas (3)

Method Formula

2.2 List 4 different types of inflation (4)

1.

2.

3.

4.

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Student Number: ___________________
2.3 Assume the following CPI index. (6)

Year CPI index

20X1 100

20X2 105.8

• Calculate the 20X3 110.5 inflation rate for 20X2 and

20X3.

Year CPI Inflation rate

20X1 100

20X2 105.8

20X3 110.5

• Calculate the following. (Show all your calculations)

Description Answer

You bought some financial stock

for R30 000 in the beginning of
20X1. What is the real value of
the financial stock at the end of
20X2?

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Student Number: ___________________
 Assume that your nominal salary
at the beginning of 20X1 was
R600 000 per annum. What was
your real salary at the end of
20X2?

2.4 Assume the following table that contains information on the real GDP and the CPI for a particular country.
Calculate the real GDP (actual output), real GDP (constant prices) and the economic growth rate. (2)

Year Nominal GDP Average Real GDP CPI Real GDP Economic
price growth rate
(actual output) (constant prices)
in Rbn in Rbn (%)

20X1 R15bn 5 100

20X2 R20bn 10 106

2.5 “Analysts point out that the country’s GDP growth is still far too low to stave off unemployment and possibly
another bout of social upheaval. It is likely that, after enduring more than 10 years of anemic economic growth,
South Africa may be staring down the barrel of another lost decade.” Mail and Guardian 2022. The following
table is sourced from the 2021 Quarterly labour force survey of South Africa: (6)

Labour market indicator 2021 (Jul to Sep)

Population (15 -64 years) 39 745

Labour force 21 925

Employed 14 282

Not economically active 17 820

Page 9 of 19
Full Name: ______________________________________
Student Number: ___________________
Determine the following:

Task Answers

SA People of working age

SA Unemployed population

SA Unemployment rate.

SA Labour force participation rate.

Question 3: The business environment of the firm (Demand) [25]

3.1 Assume a demand curve P = 55 – 0.8Q (2)

Indicate/derive the following:

Task Answer
The quantity-intercept if the price-intercept
increases by 15%.

Assume the original demand curve. At what price

will total revenue be maximised?

3.2 Indicate whether you agree or disagree with the following statements. (Use an X) (2)

Descriptions Agree Disagree

The demand for a product can increase if there are expectations that the price of
the product will decrease in the near future.

Consumer surplus is defined as the difference between what the consumer is

willing to pay and what he or she is actually paying.

Page 10 of 19
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Student Number: ___________________
3.3 Assume that the price of peanuts increase. The result is a 20% decrease in the sales of potato crisps, but an
increase of 15% in the demand for dips. (3)

Descriptions Answer

What is the relationship between peanuts

and potato crisps?
What is the relationship between peanuts
and dips?
Indicate the movement of the demand
curve for dips.

3.4 Assume the following descriptions and indicate the price elasticity or income elasticity or cross-price elasticity
characteristics thereof. (3)

• The income of a consumer increases by 10% resulting in a 12% increase in the demand for a particular
product.

Indicate whether the product is a luxury product, a necessity or an inferior product

• The price of product A increases by 8% resulting in an increase in the demand for product B of 9%.

Indicate the relationship between the products and the strength of this relationship e.g. weak
substitute

• The price of a product increases by 12% and the resulting decrease in the quantity demanded of the
product is 10%.

Indicate whether the demand curve is elastic or inelastic

3.5 Assume a demand curve P = 140 – 0.2Q. Indicate what will happen to total revenue for the following price
changes. (3)

Price change Impact on total revenue

(increase or decrease)

The price increases from R72 to R75.

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Student Number: ___________________
 The price decreases from R68 to R65.

The price increases from R55 to R60.

3.6 Answer the following questions. (5)

Question Answer

Assume that a ½% increase in the price of the product

results in total loss of demand. Would you regard the
product as relatively elastic, relative inelastic, perfect
elastic or perfect inelastic?
Assume that a 3% decrease in price resulted in a 2%
increase in demand. Would you regard the product as
relatively elastic, relative inelastic, perfect elastic or
perfect inelastic?
At what marginal revenue value will total revenue be
maximised?

Assume a price sensitive range. Will a 6% increase in

price result in a more or less than 6% decrease in
quantity demanded?

Assume a price insensitive range on a demand curve.

Will the % change in price be greater or smaller than
the % change in quantity demanded

3.7 Assume the following cross-price elasticity coefficients for products D, E, F and G. (3)

ECROSS D&E -1.8

ECROSS F&G +0.45

ECROSS E&F +1.48

Question Answer

What is the strength and relationship between products D and E?

What is the strength and relationship between products F and G?

What is the strength and relationship between products E and F?

Page 12 of 19
Full Name: ______________________________________
Student Number: ___________________
3.8 Answer the following questions on the indifference curve technique. (4)

Descriptions Answer

Assume the concept of rational consumer behaviour. If

MUA/PA > MUB/PB will a rational consumer will tend to spend
less or more of his or her income on product A.

Assume that product A is measured on the vertical axis and

product B is measured on the horizontal axis. Is the marginal
rate of substitution (MRS) calculated as the change in the
quantity consumed of product A divided by the change in
the quantity consumed of product B or as the change in
the quantity consumed of product B divided by the
change in the quantity consumed of product A.

Assume that product A is measured on the vertical axis and

product B is measured on the horizontal axis. Is the MRS =
MUA/MUB or = MUB/MUA?

Assume that product A is measured on the vertical axis and

product B is measured on the horizontal axis. Assume a
decrease in the price of product B, ceteris paribus. Will the
intercept on the B-axis increase or decrease?

Question 4: Supply & cost [25]

4.1 Answer the following questions. (Show all your calculations). (6)

Question Answer
Assume a demand curve P = 80 – 0.4Q and
a supply curve
P = 97 + 0.7Q. Calculate the market-
clearing price.

Page 13 of 19
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Student Number: ___________________
 Assume that the demand increases, and
supply decreases simultaneously in the
market. What will happen to the equilibrium
price?

Assume that both demand and supply

increases simultaneously in the market.
What will happen to equilibrium price?

Will a maximum price be set lower higher

than the market-clearing price?

Assume that the government introduces a

minimum wage for garden workers. What
will happen to the demand for garden
workers?

4.2 Indicate whether you agree or disagree with the following statements. (Use an X) (6)

Descriptions Agree Disagree

Marginal output is simply the slope of a ray to any point on the total output curve.

A marginal output value will only be equal to an average output value when the
slope of a tangent and the slope of a ray to the same total output curve are equal.

The shape of the marginal output curve is due to the law of increasing marginal
output.

Returns to scale refer to the efficiency of the input base.

A leftward shift of the production function clearly indicates the inefficient utilisation
of inputs.

A relative doubling in output that requires a less than relative doubling of inputs is a
clear indication of decreasing returns to scale.

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Student Number: ___________________
4.3 Prove that the marginal cost curve is a true reflection of the marginal output curve. (Do not draw a figure but
only use the equation MC = Pn ÷ MO to explain the relationship between marginal cost and marginal output). (4)

4.4 Answer the following. (2)

Question Answer

Assume that the credit interest rate is 12% per

annum, the rate of depreciation is 8% per
annum, the purchasing price of the real capital
stock is R250 000 and the leasing-rate is
R20 000 per annum. Should the firm buy or rent
the real capital stock?

You are applying the net present value (NPV)

approach to determine the viability of investing
in capital stock. Assume that the discount rate is
12% and the net present value is R10 000. Will
you invest in the capital stock?

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Student Number: ___________________
4.5 Assume that labour units increased by 8% and the real capital stock decreased by 12% (due to a 6%
decrease in the marginal efficiency of capital and a 4% increase in the marginal efficiency of labour). Determine
the following. (Show all your calculations). (4)

Question Answer

The % capital/labour ratio change. (%)

The marginal efficiency ratio change.

(%)

The elasticity of substitution.

4.6 Indicate whether you agree or disagree with the following statements. (Use an X) (3)

Descriptions Agree Disagree

The average constant cost curve has a positive slope.

The TCC curve is negative-sloping.

The decreasing part of the LAC curve is indicative of economies of scale.

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Full Name: ______________________________________
Student Number: ___________________
Question 5: Market structures [21]

5.1 Assume that Lerato is currently earning a salary of R320 000 per annum. She has a R120 000 fixed deposit at
Nedbank on which she earns an interest of 8.5% per annum. To start her own business, she needs to withdraw
the fixed deposit and use it as start-up capital. The projected present values of the operating annual costs are:
R90 000 for material and R134 000 for operating costs. Lerato is expecting a present value annual sales revenue
of R800 000. Calculate/determine the following. (3)

Question Answer

Economic profit/loss.

Should Lerato start her

own business?

5.2 Assume a perfect competitive business environment. Answer the following questions. (7)

Question/Task Answer

How would you describe the elasticity of a

demand curve for a perfect competitive
firm?

Is it possible for a perfect competitive firm

to make economic profits in the short and
in the long run?

What are the equilibrium conditions for a

firm to maximise economic profits in the
short run?

Which curve represents the short-run

supply curve of a perfect competitive firm?

Page 17 of 19
Full Name: ______________________________________
Student Number: ___________________
 Indicate the sign of the slope of the long-
run supply curve when increasing returns
to scale is assumed.

Assume the derivation of a long-run supply

curve when decreasing returns to scale is
assumed. Are we dealing with an
increasing cost industry or a decreasing
cost industry?
Assume decreasing returns to scale. Is the
% increase in market demand greater or
smaller than the % increase in market
supply?

5.3 Assume monopoly formation. With which of the following descriptions do you agree or disagree with?
(Indicate you answer with an X). (7)

Descriptions Agree Disagree

Monopoly is a market structure in which there is only one buyer and one seller.

The monopolist faces a perfect elastic demand curve.

A monopoly can realise economic profit in both the short and long run.

The equilibrium condition for the monopolist is such that P = MC.

When compared to a perfect competitive industry a monopolist produces the smaller

output.

When compared to a perfect competitive industry a monopolist charges the lower

price.

When the monopolist applies the practise of price-discrimination it would charge a

higher price to the relative elastic market segment.

Page 18 of 19
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Student Number: ___________________
5.4 Assume there are 3 cement producers in a market. One firm is the dominant firm in the market Zepco. The
firms Lepco and Repco follow the dominant firm. Using the graph below answer the questions on the table that
follows (4)

Questions Answer
What price level will Zepco produce

What quantity level will Repco

produce

What quantity level will Zepco

produce

Which firm or firms can make an

economic profit in the short run

END

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