ECS1501/201/1/2018
Tutorial Letter 201/1/2018
Economics IA
ECS1501
Semester 1
Department of Economics
IMPORTANT INFORMATION:
This tutorial letter contains the solutions to
Assignments 01 to 04.
,Dear Student
The purpose of this tutorial letter is to provide you with the correct answers to Assignments 01 to 04.
However, before we get to the explanations allow me to say one or two things about multiple-choice
questions (MCQs).
The anatomy of a multiple-choice question
A multiple-choice question consists of a stem and alternatives, one of which is correct or the closest to
being correct (the answer). The incorrect alternatives are called distractors. The function of the distractors
is to mislead you.
How does one answer multiple-choice questions?
If you Google the topic you will find a whole range of suggestions on how to answer MCQs. While some
of the suggestions might be helpful, I would like to suggest the following approach:
Step 1: Be prepared. It goes without saying that you must work through all the relevant prescribed
material before you attempt the assignment.
Step 2: Read the stem of the question carefully (it usually contains the answer).
Step 3: Try to answer the question without looking at the alternatives (this is usually possible).
Step 4: Only now do you look at the alternatives. Select the one which matches/corresponds/is the
same as your answer in step 3.
Step 5: Proceed to the next question.
Please contact us at if you experience problems with these explanations.
We will gladly assist you. We wish you every success in your studies.
Regards
Your lecturers
2
, ECS1501/201
1 ANSWERS TO ASSIGNMENT 01
1.1 The correct option is [1].
Economics cannot be defined as the study of money. It is concerned with the economic choices and
decisions made by businesses, government and individuals. Economics is the study of how scarce
resources are allocated to satisfy wants. Because businesses, individuals and government have unlimited
wants, whereas resources are limited, we have to make choices on how to use the scarce resources to
satisfy unlimited wants.
1.2 The correct option is [3].
Opportunity cost refers to the value of the best alternative given up when a choice is made. Opportunity
cost allows us to measure the cost of the alternative we have chosen in terms of the alternative that we
have to sacrifice. For example, if the Wild Coast Community Farm has to choose between farming
potatoes and fishing, the opportunity cost of farming potatoes would be fishing, which they give up.
1.3 The correct option is [1].
At point H, the allocation of resources is inefficient and it is possible to produce more potatoes at point C
without reducing the production of fish. It is also possible to produce additional fish at point D without
reducing the production of potatoes.
1.4 The correct option is [2].
Point H is a possible and inefficient level of production because resources are not fully employed. Point D
is a possible and efficient level of production because available resources are sufficient and fully
employed, whereas point G is an impossible level of production because it lies beyond the PPC and the
resources are not sufficient to attain such a production level.
1.5 The correct option is [4].
An improved technique for both catching fish and farming potatoes will make it possible for the Wild
Coast Community to produce more fish and potatoes than before, with the same available resources. This
can be illustrated by an outward shift of the PPC.
1.6 The correct option is [2].
The opportunity cost is two baskets of fish (sacrificed) for 45 kg of potatoes. This is because as we move
along the production possibilities curve from point E to point C, the production of potatoes increases by
45 kg while the production of fish decreases by two baskets.
1.7 The correct option is [3].
The fluctuations in the price of petrol in South Africa are an example of a microeconomic issue because it
is focused on the price of a single product, in this case, petrol. In microeconomics we focus on individual
parts of the economy. Microeconomics studies the decisions of individual consumers and firms.
3
Tutorial Letter 201/1/2018
Economics IA
ECS1501
Semester 1
Department of Economics
IMPORTANT INFORMATION:
This tutorial letter contains the solutions to
Assignments 01 to 04.
,Dear Student
The purpose of this tutorial letter is to provide you with the correct answers to Assignments 01 to 04.
However, before we get to the explanations allow me to say one or two things about multiple-choice
questions (MCQs).
The anatomy of a multiple-choice question
A multiple-choice question consists of a stem and alternatives, one of which is correct or the closest to
being correct (the answer). The incorrect alternatives are called distractors. The function of the distractors
is to mislead you.
How does one answer multiple-choice questions?
If you Google the topic you will find a whole range of suggestions on how to answer MCQs. While some
of the suggestions might be helpful, I would like to suggest the following approach:
Step 1: Be prepared. It goes without saying that you must work through all the relevant prescribed
material before you attempt the assignment.
Step 2: Read the stem of the question carefully (it usually contains the answer).
Step 3: Try to answer the question without looking at the alternatives (this is usually possible).
Step 4: Only now do you look at the alternatives. Select the one which matches/corresponds/is the
same as your answer in step 3.
Step 5: Proceed to the next question.
Please contact us at if you experience problems with these explanations.
We will gladly assist you. We wish you every success in your studies.
Regards
Your lecturers
2
, ECS1501/201
1 ANSWERS TO ASSIGNMENT 01
1.1 The correct option is [1].
Economics cannot be defined as the study of money. It is concerned with the economic choices and
decisions made by businesses, government and individuals. Economics is the study of how scarce
resources are allocated to satisfy wants. Because businesses, individuals and government have unlimited
wants, whereas resources are limited, we have to make choices on how to use the scarce resources to
satisfy unlimited wants.
1.2 The correct option is [3].
Opportunity cost refers to the value of the best alternative given up when a choice is made. Opportunity
cost allows us to measure the cost of the alternative we have chosen in terms of the alternative that we
have to sacrifice. For example, if the Wild Coast Community Farm has to choose between farming
potatoes and fishing, the opportunity cost of farming potatoes would be fishing, which they give up.
1.3 The correct option is [1].
At point H, the allocation of resources is inefficient and it is possible to produce more potatoes at point C
without reducing the production of fish. It is also possible to produce additional fish at point D without
reducing the production of potatoes.
1.4 The correct option is [2].
Point H is a possible and inefficient level of production because resources are not fully employed. Point D
is a possible and efficient level of production because available resources are sufficient and fully
employed, whereas point G is an impossible level of production because it lies beyond the PPC and the
resources are not sufficient to attain such a production level.
1.5 The correct option is [4].
An improved technique for both catching fish and farming potatoes will make it possible for the Wild
Coast Community to produce more fish and potatoes than before, with the same available resources. This
can be illustrated by an outward shift of the PPC.
1.6 The correct option is [2].
The opportunity cost is two baskets of fish (sacrificed) for 45 kg of potatoes. This is because as we move
along the production possibilities curve from point E to point C, the production of potatoes increases by
45 kg while the production of fish decreases by two baskets.
1.7 The correct option is [3].
The fluctuations in the price of petrol in South Africa are an example of a microeconomic issue because it
is focused on the price of a single product, in this case, petrol. In microeconomics we focus on individual
parts of the economy. Microeconomics studies the decisions of individual consumers and firms.
3
