QUESTION 1 (20)

In each of the following cases only one answer is correct. Write the letter that represents the correct answer,
next to each number. E.g. 1.11 a
1.1 Which one of the following statements is false?
a) Choice is necessary because of limited wants.
b) The means available to satisfy wants are limited.
c) The wants of human beings are unlimited.
d) The opportunity cost of producing a given commodity is the value of the best forgone alternative which
could have been produced with the factors of production used in its production.
1.2 If we were to say that two variables are positively related, this means that:
a) The relationship between the two would graph as a line sloping downward.
b) The relationship between the two would graph as a horizontal line.
c) The relationship between the two would graph as a line sloping upward.
d) The relationship between the two cannot be depicted graphically in any simple way.
1.3 If there is an increase in the price of red meat, a substitute in production for milk, then:
a) The supply of milk will increase.
b) The demand for milk will decrease.
c) The supply of milk will decrease.
d) There will be a movement along the supply curve for milk.
1.4 In the market for air travel, which of the following variables would decrease demand, ceteris paribus?
a) An increase in rental rates for hired cars, a substitute.
b) A rise in income of tourists.
c) A rise in the price of air travel.
d) A rise in the price of hotel accommodation, a complement.
1.5 If the cross elasticity of demand between tablets and smart phones is 2,0, this implies that these goods
are:
a) Luxuries.
b) Complements.
c) Necessities.
d) Substitutes.
1.6 Nonjabulo thinks that McDonald’s hamburgers are the best – much better than Steers’ – while Anne
cannot tell the difference:
a) Anne’s demand for McDonald’s hamburgers is likely to be more price elastic than Nonjabulo’s.
b) Nonjabulo’s demand for McDonald’s hamburgers is likely to be more price elastic than Anne’s.
c) Anne’s demand for all hamburgers is less price elastic than Nonjabulo’s.
d) Nonjabulo’s demand for all hamburgers is more price elastic than Anne’s
1.7 The vertical distance between the total cost and the total variable cost curves:
a) Decreases as output increases.
b) Increases as output increases.
c) Is equal to average fixed cost.

d) Is equal to total fixed cost.

1.8 Which one of the following is NOT true of a monopolist?
a) A monopolist is protected from competition.
b) A monopolist can earn economic profits.
c) A monopolist is a price maker.
d) A monopolist can sell as much as he/she wants to at any price.
1.9 If a firm in a perfectly competitive industry raises its price above market price:
a) Sales will fall slightly.
b) Sales will stay the same.
c) Sales will drop to zero.
d) All other firms in the industry will follow.
Use the diagram below, which represents a monopolistically competitive firm in a short-run equilibrium to
answer the following question.

1.10 What is the price charged by the monopolistic competitor?
a) P1
b) P2
c) P3
d) P4