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University of Cape TownSchool of Economics
ECO1010/1110F
Microeconomics I
Class Test 1
March 2019
Do not turn the page until you have been instructed to do so by the
chief invigilator.
Detailed instructions:
This test consists of 30 multiple choice questions (MCQs) and two short answer
questions
There are 15 pages (including the cover page)
You may only use PENCIL when filling in the MCQ answer sheet and PEN when
filling in the short answer book
Fill in all answers on the MCQ answer sheet provided and use the booklets
provided to answer the short answer questions
Time available: 1.5 hours (90 minutes)
Multiple Choice Questions: 30
Total MCQ marks available: 120
MCQ Mark allocation: Correct answer +4
Incorrect answer -1
Blank 0
Short Answer Questions: 2
Total Short Answer marks available: 60
Total Marks for Test 180
1
, Section 1: Multiple Choice Questions
Answer All Questions
CHOOSE THE ANSWER YOU THINK IS MOST CORRECT
Each question has five options A – E
1. What is economics?
a) It is how people interact with each other to produce goods and services.
b) It is a social science which deals with scarcity and choice.
c) It is the study of how people interact with each other and their natural surroundings in
producing their livelihoods, and how this changes over time.
d) Economics is the study of how individuals, firms and markets interact with each other in
different types of economic systems (e.g. capitalism).
e) It the study of firms and households and their interaction which uses inputs to produce
outputs.
2. An economic system is defined as:
a) A system of producers and consumers that interact in markets.
b) The way in which the state allocates private property to individuals and companies.
c) A way of organizing the production and distribution of goods and services in an entire
economy.
d) A capitalist, socialist or communist government.
e) A method of planning how much production and consumption must take place in an entire
economy.
3. Disposable income is defined as:
a) The salaries and wages received by an individual for a given period.
b) The wages, salaries, profit, rent, interest and transfer payments from the government or
from others received over a given period.
c) The wages, salaries, profit, rent, interest and transfer payments from the government or
from others received over a given period, minus any transfers the individual made to others.
d) The difference between transfers received from government only and taxes paid to the
government for a given period.
e) None of the above.
4. What are the two major changes associated with the emergence of capitalism that led to an
increase in the productivity of workers?
a) Government and markets.
b) Markets and technology.
c) Technology and specialization.
d) Specialization and trade.
e) Comparative and competitive advantage.
2
,5. Economica is a two good economy that produces two good: grapes and soccer balls. In 2016 the
price of grapes and soccer balls were R50 and R180 respectively. In 2017, the prices increased to
R65 and R210. The quantities produced of the two goods were 220 and 320 in 2016 and 375 and
520 in 2017, respectively. From this information we can conclude that:
a) Nominal GDP in 2017 is R94 300.
b) Real GDP in 2017 is R133 575.
c) Nominal growth rate in GDP between 2016 and 2017 is 85%.
d) Real GDP increased by 63% between 2016 and 2017.
e) Real GDP increased by 95%.
Use the table below to answer question 6 & 7:
South Africa 1994 (Dollars $) 2014 (Dollars $)
Decile 1 118 253
Decile 2 243 401
Decile 3 387 584
Decile 4 565 817
Decile 5 792 1124
Decile 6 1098 1547
Decile 7 1539 2169
Decile 8 2252 3188
Decile 9 3683 5253
Decile 10 13287 18421
Mean income 2396 3376
Population 38 283 223 54 001 953
6. From the data in the table above, the GDP of South Africa in 1994 and 2014 is:
a) $15,977.97 and $15,995.84
b) $23,964.00 and $33,757.00
c) $57,417,744.00 and $113,963,632.00
d) $91,726,602,308.00 and $182,310,593,328.00
e) None of the above
7. From the table above, which of the following statements are correct?
i. The 90/10 ratio compares the income of decile 9 to decile 1 to show the income
inequality.
ii. In 2014 the richest 10% of the population earned 73 times more than the poorest
10% of the population.
iii. The 90/50 ratio shows the average income of half of the population.
iv. The income earned by the poorest 10% increased by 114% between 1994 and 2014
while the income earned by the richest 10% only increased by 39%.
v. In 1994 the 90/10 ratio is 113.
a) All of the above are correct. d) ii, iv and v.
b) i, ii, iv and v. e) i and iii.
c) ii and v.
3
, The table below shows the combinations of apples and wheat that Greta and Carlos could produce if
they spent all of their time on one good. Use this information to answer Question 8.
Production if 100% of time is spent on one good
Greta 1550 apples or 250 tonnes of wheat
Carlos 1250 apples or 100 tonnes of wheat
8. Which of the following statements are correct
a) Greta has the absolute advantage and the comparative advantage in apples and wheat.
b) Greta has the comparative advantage in apples because her opportunity cost is 0.16 wheat
in order to produce one additional apple.
c) Greta has the comparative advantage in wheat because her opportunity cost is 6.2 apples in
order to produce one additional unit of wheat.
d) Carlos has the comparative advantage in apples because his opportunity cost is 12.5 apples
in order to produce one additional apple.
e) Carlos has the comparative advantage in wheat because his opportunity cost is 12.5 apples
in order to produce one additional unit of wheat.
9. Suppose that, in one day, Justin can either make 300 scarves or 2 hats. Fatima can either make
200 scarves or 1 hat. Then which of the following statements are true:
i. Fatima has a comparative advantage in scarves.
ii. Justin has an absolute advantage in hats and in scarves.
iii. Fatima will specialise in making scarves and Justin will specialise in making hats.
iv. Justin and Fatima will not trade with each other.
v. If Justin and Fatima trade with each other, only Fatima will benefit.
a) i, ii, iii c) ii, iv, v e) None of the above
b) iv and v d) i, ii, iii, v
10. Samkele owns a small business that packages food products for sale. He has recently invested
some of his personal funds in the business to be used for researching a more eco-friendly
alternative to the plastic he has been using for years. He hopes to start phasing plastic out next
month. Given this, which of the following would be considered “capital” in Samkele’s business?
i. The packaged food currently ready for sale
ii. The personal funds that Samkele has invested in the business
iii. The plastic bags in the factory to be used for packaging this month
iv. The research being conducted on eco-friendly alternatives
a) i and iii. c) iv only e) ii only
b) i, ii, and iii d) iii only
11. Which of the following does NOT explain why specialized production is more productive:
a) Learning by doing.
b) Longer working hours.
c) Difference in abilities.
d) Economies of scale.
e) Difference in resources.
4
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