EXAMINATION PAPER:
Semester 2 2024
Module name Economics I
Module code ECO162
NQF level 6
Date 5 November 2024
Duration 3 hours
Exam type Closed book
Marks 100
General instructions
1. Complete your personal information on the front cover of the STADIO Examination
Answer Booklet.
2. Ensure you number the answer booklets correctly, in the case where more than one
answer booklet is used, i.e. Book 1 of 2, etc.
3. Use only black or blue pen. Do not use a pencil to answer questions. Pencilled answers
will not be marked.
4. Answer all the questions unless otherwise instructed.
5. Read all questions carefully before attempting to answer.
6. Always number the answers and any sub-question answers the same as the question
numbers in the examination paper.
7. Rough work may be done at the back of the examination book only. All rough work must
be labelled as such.
8. By accepting this examination script, you agree to abide by the STADIO Examination Rules
and Regulations.
9. Round off all answers to two decimal places.
ECO162
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Equipment (Closed book)
1. No documents, notes, files, study guides, textbooks, or other materials will be allowed
into the examination.
2. Calculators are permitted.
3. No mobile devices or electronic equipment including smart watches, laptops, iPads,
Kindles, etc. will be allowed on your person or at your desk during the examination.
4. No borrowing or lending of any examination material and/or stationery will be
permitted.
5. No formula sheet is included at the end of the paper.
6. Additional blank paper will be provided for calculations.
DO NOT TURN THIS PAGE UNTIL INSTRUCTED TO DO SO.
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SECTION A
Question 1 (25 marks)
Multiple Choice Questions
Select the correct answer and write down only the sub-question number and next to it the letter
that represents the answer you have selected. For example: 1.26 E.
1.1 After being caught allegedly smoking in his hotel room in, Sthe receives a fine of R10 000
and a three-match suspension from international cricket. For each match, Sthe receives a
match fee of R25 000 and a further R50 000 per match from his sponsors. He also pays
R5 000 per match for insurance against injury. In opportunity cost terms, what is the cost
of this incident to Sthe?
A. R10 000
B. R35 000
C. R85 000
D. R220 000
1.2 Suppose a student spends R6000 on a new carpet. What is the opportunity cost to her
of the carpet?
A. R6 000
B. The land, labour and capital used in manufacturing the carpet.
C. The other things he could have bought with the R6 000.
D. The reduction in his bank balance due to purchasing the carpet.
1.3 If the principal concern of economics is the question of how best to use society’s
resources, then economics would be irrelevant if which of the following statements is
true?
A. Resources were available in unlimited quantities.
B. Economies were organised around command rather than market principles.
C. Consumers in South Africa had unlimited wants.
D. Economies were organised around market rather than command principles.
1.4 Which one of the following is the best definition of opportunity cost?
A. The out-of-pocket money costs incurred when a decision is made.
B. The value of the best alternative sacrificed when a choice is made.
C. The value of all the alternatives given up when a choice is made.
D. The value of time lost when a choice is made.
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1.5 How do you best describe the relationship between two variables that move in opposite
directions?
A. Positive sloped
B. Relatively steep
C. Relatively flat
D. Negative sloped
1.6 Use the diagram below, which shows production possibilities for coffee mugs and
calculators, to answer the question below.
The opportunity cost of producing an additional coffee mug would be lowest at which of
the following points?
A. A
B. B
C. C
D. D
1.7 Which one of the following is a macroeconomic concept?
A. The price of petrol.
B. The demand for potatoes.
C. The consumer price index.
D. The supply of pumpkins.
1.8 Which of the following best describes the production possibility frontier?
A. The maximum combination of inputs that can be used to produce output in a typical
economy.
B. The maximum quantities of commodities that can be produced from limited but
fully-employed resources in an economy.
C. The quantities of factors of production available to produce goods and services in
an economy.
D. The minimum quantities of commodities that can be produced from limited but
fully-employed resources in an economy.
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1.9 Use the following production possibility curve (PPC) of Rome to answer the question.
Rome can only produce pizzas or bowls of pasta a day. Which of the following
combinations are attainable and efficient points?
A. Points D, A and F.
B. Points C, E and F.
C. Points A, B, D and E.
D. Points A, B , C, and D.
1.10 Which of the following is a characteristic of the traditional system?
A. It is often called a capitalist system.
B. It works like an invisible hand.
C. Participants are instructed what to produce by a central authority.
D. The same goods are produced and distributed in the same way by each successive
generation.
1.11 How is resource allocation brought about in a command economy?
A. Price signals driven by relative price changes.
B. The collective preferences of central planners.
C. The behaviour of self-interested individuals striving to maximise their own well-
being.
D. The principle of consumer sovereignty.
1.12 Which one of the following best describes the goods produced by a perfect market?
A. Heterogeneous goods
B. Homogeneous goods
C. Durable goods
D. Public goods
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1.13 Which one of the following goods are private goods?
A. The roads
B. The streetlights
C. The public schools
D. The diamond ring
1.14 Simple economies can be described in terms of three major economic flows. Which one
of the following is the best description of these economic flows?
A. Income, spending and saving.
B. Spending, production and saving.
C. Income, saving and investment.
D. Income, spending and production.
1.15 Which of the following is the correct statement?
A. Microeconomics studies the determination of the gross domestic product.
B. Microeconomics studies the behaviour of individual decision-making units in the
economy.
C. Microeconomics studies the impact of inflation in South Africa.
D. Microeconomics studies the effects and consequences of the aggregate behaviour
of all decision-making units.
1.16 South Africa’s economy can be classified as what kind of economy?
A. Traditional
B. Market
C. Mixed
D. Command
1.17 In the market for public transport, which of the following variables would decrease
demand, ceteris paribus?
A. A decrease in the price of private motor vehicles.
B. An increase in the price of private motor vehicles.
C. A decrease in the price of bus tyres.
D. An increase in the price of motorbikes, a substitute.
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1.18 Which one of the following statements is correct?
A. Households sell their goods in the goods market. They then use their income to buy
factors of production in the factor market.
B. Households sell their factors of production in the factor market. They then use their
income to buy goods in the goods market.
C. Households sell their goods in the factor market. They then use their income to buy
factors of production in the goods market.
D. Households sell their factors of production in the goods market. They then use their
income to buy goods in the factor market.
1.19 If a household receives rent, what type of factor of production is the household selling on
the factor market?
A. Natural resources
B. Labour
C. Capital
D. Entrepreneurship
1.20 Which one of the following statements is correct?
A. Demand is the quantity of goods desired by consumers.
B. Demand is the quantity of goods ordered by consumers in a particular period.
C. Demand is the quantity of goods consumers are willing and able to buy at particular
prices in a certain period.
D. Demand is the quantity of goods that consumers require in order to survive.
1.21 When an individual’s income rises, ceteris paribus, what is the effect on his/her demand
for an inferior good, e.g., half a loaf of bread?
A. Demand rises.
B. Demand falls.
C. Demand remains unchanged.
D. Demand becomes more positive.
1.22 Which one of the following is necessary for the existence of a market?
A. A particular building or marketplace.
B. A fixed price for the product that is traded.
C. Contact between prospective buyers and sellers.
D. Telephone or cell phone links.
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1.23 What could have caused the demand for ice cream at a local café to shift from DD to D1D1,
as shown in the graph below?
A. A decrease in the price of ice cream.
B. An increase in weather temperature.
C. A decrease in the number of people visiting the café.
D. A decrease in the price of frozen yoghurt, a substitute for ice cream.
1.24 What can you expect if the government redistributes money from the rich to the poor?
A. An increase in quantity demanded of basic foodstuffs like bread.
B. An increase in the demand of luxury goods like jewellery and watches.
C. A decrease in the supply of luxury goods like single malt whiskey.
D. An increase in the demand for basic foodstuffs like bread.
1.25 Which one of the following statements is correct?
A. The difference between capital goods and consumer goods is that the former
maintain their full value over time.
B. The total income in the economy is equal to the total remuneration of the factors
of production.
C. The quality of the factors of production is insignificant; it is only the quantity that
matters.
D. Capital as a factor of production refers to the amount of money required to produce
a good or service.
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SECTION B
Question 1 (33 marks)
1.1 Explain, with the aid of a figure, the impact of an improvement of the technological
advancement resulting from the economic prosperity in the country, on the equilibrium
price and quantity in the market for bread in South Africa. (5)
1.2 Explain, with the aid of a figure, the impact of a decrease in the number of suppliers
resulting from the three-month drought on the equilibrium price and quantity in the
market for potatoes. (5)
1.3 The following table shows Cindy’s marginal and total utilities from the consumption of
Steers beef burgers (good X) and Coke Zero (good Y). The per-unit price of a beef burger
is R20 while the per-can price of Coke Zero is R8. Cindy has R84 to spend on the two food
items each week.
Calculate the values A- H (8)
Units TUX MUX MUX / PX TUY MUY MUY / PY
consumed
1 140 140 A 112 112 D
2 260 120 184 72 E
3 340 80 B 216 32 F
4 390 50 240 24 G
5 420 30 C 248 8 H
1.4 The following table shows the ABC company’s goods being sold at different prices.
Complete the MR table.
Calculate the values A- F. (6)
Units Price TR AR MR
Consumed
1 40 A
2 38 B
3 36 C
4 34 D
5 32 E
6 30 F
1.5 Explain, with the aid of a diagram, what is a PPC and clearly indicate what each point
represent. (9)
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Question 2 (18 marks)
Gomez runs a small pottery firm. He hires one helper at R12 000 per year, pays annual rent
of R5 000 for his shop, and materials cost R20 000 per year. Gomez has R40 000 of his own
funds invested in equipment (pottery wheels, kilns, and so forth) that could earn him R4 000
per year if alternatively invested. Gomez has been offered R15 000 per year to work as a
potter for a competitor. He estimates his entrepreneurial talents are worth R3 000 per year.
Total annual revenue from pottery sales is R72 000.
2.1 Calculate the total explicit costs and total implicit costs. Show all your calculations. (6)
2.2 Calculate the economic profit. (4)
2.3 Calculate the accounting profit. (4)
2.4 Explain using examples the difference between stocks and a flow in the economy. (4)
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SECTION C
Question 1 (24 marks)
Read the following article and answer the questions that follow.
Food Inflation has been Topical over the Past Few Months and South Africa Saw
Double-Digit Levels from Mid-2022 to Mid-2023.
(Waldo Swiegers/Getty Images)
South Africa’s annual inflation rate eased considerably in May, because of lower food and
fuel prices. According to data released by Statistics South Africa on Wednesday, headline
inflation dropped to 6.3% year-on-year, down from 6.8% in April — marking the lowest level
in more than a year. Economists were expecting inflation to ease again, given the slowdown
in food and petrol prices.
The StatsSA data shows that the annual rate for food and non-alcoholic beverages was 11.8%
in May, down from the 13.9% recorded in April. The price index for this category increased
by 0.3% from April to May, the lowest monthly reading since November 2021.
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Food Inflation has been Topical over the Past Few Months and South Africa Saw
Double-Digit Levels from Mid-2022 to Mid-2023.
But prices remain uncomfortably high. The inflation rate has held above the ceiling of the
South African Reserve Bank’s 3% and 6% target range for 12 consecutive months. And despite
having peaked in July last year, prices have proven sticky — probably a result of local factors
such as load-shedding and the rand’s weakness.
Still sticky inflation prompted the Reserve Bank to raise the country’s borrowing rate by 50
basis points for two monetary policy committee (MPC) meetings in a row. This was in the face
of meagre economic growth in the first quarter of the year as well as a slight uptick in the
country’s already high unemployment rate. The latest hike in May officially landed South
Africa’s monetary policy in restrictive territory.
Since the central bank’s last MPC decision — which saw the rand dip even lower as the market
responded to the unanimous 50 basis-point rate increase — the local currency has regained
ground, boosted by a weaker United States dollar and the easing of concerns about rolling
power cuts.
The US dollar index has fallen about 1.7% since the start of June, according to investment
banking company UBS. This is amid renewed hopes that the US Federal Reserve is nearing
the end of its hiking cycle.
Last week, the Fed left its policy rate unchanged, breaking a streak of 10 consecutive hikes,
but left open the prospect of further hikes.
In its statement, the federal open market committee said, “Holding the target range steady
allows the committee to assess additional information and its implications for monetary
policy…In assessing the appropriate stance of monetary policy, the committee will continue
to monitor the implications of incoming information for the economic outlook.”
The local MPC meets again in July, when it will decide whether to inflict further aggressive
repo rate hikes or to slow down its hiking cycle. In the wake of its May decision, economists
did not rule out further hikes, but said this would depend on the course of load-shedding and
the rand’s behaviour. With large parts of the economy already in recession, coupled with
worsening debt levels and the threat of credit-rating downgrades, it looks like the economy
will contract. The weak rand will also see the cost of imported goods for consumers rise. In
addition, while the rest of the world benefits from record low oil prices, the country’s weaker
currency means it will not be able to take full advantage of this and may face higher fuel
prices in the near future.”
President of the ATM, Vuyo Zungela has said, “We can’t let this currency manipulation slide.
The banking industry must be fully investigated for any and every unethical practice they are
involved in. People lost homes, cars got repossessed, millions of people are in an endless
cycle of debt because of these greedy banks.” Zungela has written to the speaker of
Parliament requesting an urgent parliamentary debate regarding the manipulation and
banking misconduct.
Source: This article was written exclusively for The African. To republish, see terms and conditions.
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1.1 Using the article above, explain what inflation is. (2)
1.2 What was the headline inflation rate in South Africa for May, and how does it compare to
April? (2)
1.3 What were the main contributors to the decrease in South Africa's inflation rate in May,
according to Statistics South Africa's data? (2)
1.4 How long has South Africa's inflation rate remained above the South African Reserve
Bank's target range of 3% to 6%, and what are some factors contributing to this
persistence? (3)
1.5 What actions has the South African Reserve Bank taken in response to persistent
inflationary pressures and what impact have these actions had on the country's monetary
policy stance? (3)
1.6 What are some potential implications of South Africa's weak currency and persistent
inflation for the economy and consumers? (1 x 4)
1.7 How has the recent easing of South Africa's annual inflation rate impacted consumers'
purchasing power and spending behaviour? (3)
1.8 Discuss what is inflation targeting and provide two (2) reasons of having the scale in South
Africa. (3)
1.9 Explain any other two (2) main functions of the South African Reserve Bank (2)
EXAMINATION TOTAL: 100 MARKS
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