lOMoAR cPSD| 11763056
ECS 1501 Test Bank
Economics IA (University of Venda)
, lOMoAR cPSD| 11763056
ECS1501 TEST BANK
Question 1
As an economic concept, scarcity applies to
[1] neither the poor nor the rich.
[2] the poor but not the rich.
[3] the rich but not the poor.
[4] both the poor and the rich. THE CORRECT OPTION IS 4
Explanation
Scarcity is an economic concept that applies to all individuals rich or poor and to all countries
regardless of level of development. Generally resources accessible to individuals and other economic
agents are limited and insufficient to meet the agents‟ unlimited desires. No individual has enough
resources to do everything that he/she desires and because of that we say resources are scarce.
Scarcity must not be confused with poverty; it affects everyone, rich or poor.
Question 2
Due to scarcity of resource,
[1] the government must decide how to allocate available resources.
[2] some members of the society must live in poverty.
[3] every society must choose among competing uses of available resources. THE
CORRECT OPTION IS 3.
[4] every society must undertake central planning.
Explanation
Due to scarcity of resources, economic agents or society must choose amongst competing uses of
available resources. Given that factors of production required to produce all goods and services
desired by the society are limited, society has to decide on the best way of allocating these limited
resources. It has to choose which goods and services should be produced and which needs or wants
should be left unsatisfied. The issue of making choices in the context of scarcity is something that is
done by everyone, not only the government. Allindividuals confronted with the problem of scarce
resources should make choices.
Question 3
Microeconomics focuses on all of the following EXCEPT the
[1] purchasing decisions made by an individual consumer.
[2] relationship between inflation and unemployment rates. THE CORRECT OPTION IS 2.
[3] employment decision made by a business.
[4] decision by a firm to expand its output due to an increase in demand.
Explanation
In microeconomics the focus is on individual parts of the economy i.e. the behaviour of consumers,
firms, etc. Microeconomics studies the price of an individual commodity, the number of people
employed in a particular firm or industry, the output produced by firms in a particular sector or
industry etc. Microeconomics deals with disaggregated data or individualcomponents of the economy.
Inflation and unemployment are macroeconomic issues because they relate to the economy as a
whole. Thus macroeconomics is the study of broadeconomic aggregates like inflation, employment,
GDP, etc.
Question 4
Macroeconomics focuses on all of the following EXCEPT
[1] the measurement of a nation‟s inflation rate.
1
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[2] how producers and consumers interact in individual markets. THE CORRECT OPTIONIS 2.
[3] how tax policies influence economic growth.
[4] the total output of the economy.
Explanation
Macroeconomics is concerned with the economy as a whole. It is a study of broad economic
aggregates like inflation, economic growth, government tax policies, total output etc. The interaction
of producers and consumers in individual markets relates to microeconomics. In this case we are
studying individual components of the economy, not the whole economy and that is why we only
look at individual markets.
Question 5
Which one of the following is a positive economic statement?
[1] Government should not redistribute income.
[2] Businesses ought to contribute more to charities.
[3] Households are the primary source of saving. THE CORRECT OPTION IS 3.
[4] The foreign sector should be more tightly controlled.
Explanation
A positive economic statement is an objective statement of fact that can also be proven by referring to
factual information. Positive statements are usually not characterised by phraseslike “should”, “ought
to” etc. Normative statements are value laden or subjective statements that reflect individual opinion
and cannot be verified by referring to facts. Thus the statementthat households are the primary source
of saving can be proven by looking at the savings pattern in the country. There are statistics gathered
by Statistics SA on the savings pattern of businesses, individuals and government in the country. We
can use these statistics to seewhether a large percentage of national savings is done by households
(individuals) or not.
Question 6
“Senior citizens deserve an income that will allow them to live in comfort for the remainingyears.”
This is
[1] neither a normative nor a positive statement.
[2] both a positive and a normative statement.
[3] a positive statement.
[4] a normative statement. THE CORRECT OPTION IS 4.
Explanation
“Senior citizens deserve an income that will allow them to live in comfort for their remaining years”
is a normative statement because it reflects an individual‟s opinion and it is difficult toprove the
validity of this statement. For example, it is difficult to explicitly and objectively define the meaning
of the word “comfort”. Being “comfortable” varies from individual to individual and therefore makes
this statement normative in nature.
2
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Question 7, 8 and 9 are based on the following production possibilities.
Table 1
Point Production of grain (tons) Production of LCD
televisions (units)
A 0 420
B 10 400
C 20 360
D 30 300
E 40 200
F 50 0
Question 7
Which of the following combinations is unattainable?
[1] 18 tons of grain and 360 LCD televisions
[2] 40 tons of grain and 200 LCD televisions
[3] 32 tons of grain and 300 LCD televisions THE CORRECT OPTION IS 3.
[4] 10 tons of grain and 390 LCD televisions
Explanation
A production possibility curve shows all the maximum combinations of two goods that can beproduced
by efficiently utilising all available resources.
Option 1 is attainable It is possible to produce 18 tonnes of grain and 360 LCDs, eventhough
production would be inefficient. If we are producing 360 LCDs, we need to also produce a maximum
of 20 tonnes of grain if resources are used efficiently.
Option 2 is attainable 40 tonnes of grain and 200 LCDs is an attainable combination, as it lies on
the production possibility curve, and is also an efficient point because resources are fully utilised in
this case.
Option 3 is unattainable The combination of 32 tonnes of maize (grain) and 300 LCDs is not
attainable. If we are producing 300 LCDs, we can only produce a maximum of 30 tonnesof grain.
Option [4] is attainable If we are producing 10 tonnes of grain, we can also produce a maximum
of 400 LCDs. Thus, producing 390 LCDs means we are not fully utilising our resources - this is
inefficient production and this point lies inside the production possibilitycurve.
Therefore only option 3 is correct.
Question 8
Production is inefficient if this economy produces
[1] 18 tons of grain and 360 LCD televisions. THE CORRECT OPTION IS 1.
[2] 40 tons of grain and 200 LCD televisions.
[3] 32 tons of grain and 300 LCD televisions.
[4] 10 tons of grain and 400 LCD televisions.
Explanation
Production is inefficient if this economy produces inside its production possibility curve or
boundary. Thus 18 tonnes of grain and 360 LCDs represents a point that lies inside the PPC. If the
economy is utilising its resources efficiently, the maximum amount of grain that
3
ECS 1501 Test Bank
Economics IA (University of Venda)
, lOMoAR cPSD| 11763056
ECS1501 TEST BANK
Question 1
As an economic concept, scarcity applies to
[1] neither the poor nor the rich.
[2] the poor but not the rich.
[3] the rich but not the poor.
[4] both the poor and the rich. THE CORRECT OPTION IS 4
Explanation
Scarcity is an economic concept that applies to all individuals rich or poor and to all countries
regardless of level of development. Generally resources accessible to individuals and other economic
agents are limited and insufficient to meet the agents‟ unlimited desires. No individual has enough
resources to do everything that he/she desires and because of that we say resources are scarce.
Scarcity must not be confused with poverty; it affects everyone, rich or poor.
Question 2
Due to scarcity of resource,
[1] the government must decide how to allocate available resources.
[2] some members of the society must live in poverty.
[3] every society must choose among competing uses of available resources. THE
CORRECT OPTION IS 3.
[4] every society must undertake central planning.
Explanation
Due to scarcity of resources, economic agents or society must choose amongst competing uses of
available resources. Given that factors of production required to produce all goods and services
desired by the society are limited, society has to decide on the best way of allocating these limited
resources. It has to choose which goods and services should be produced and which needs or wants
should be left unsatisfied. The issue of making choices in the context of scarcity is something that is
done by everyone, not only the government. Allindividuals confronted with the problem of scarce
resources should make choices.
Question 3
Microeconomics focuses on all of the following EXCEPT the
[1] purchasing decisions made by an individual consumer.
[2] relationship between inflation and unemployment rates. THE CORRECT OPTION IS 2.
[3] employment decision made by a business.
[4] decision by a firm to expand its output due to an increase in demand.
Explanation
In microeconomics the focus is on individual parts of the economy i.e. the behaviour of consumers,
firms, etc. Microeconomics studies the price of an individual commodity, the number of people
employed in a particular firm or industry, the output produced by firms in a particular sector or
industry etc. Microeconomics deals with disaggregated data or individualcomponents of the economy.
Inflation and unemployment are macroeconomic issues because they relate to the economy as a
whole. Thus macroeconomics is the study of broadeconomic aggregates like inflation, employment,
GDP, etc.
Question 4
Macroeconomics focuses on all of the following EXCEPT
[1] the measurement of a nation‟s inflation rate.
1
, lOMoAR cPSD| 11763056
[2] how producers and consumers interact in individual markets. THE CORRECT OPTIONIS 2.
[3] how tax policies influence economic growth.
[4] the total output of the economy.
Explanation
Macroeconomics is concerned with the economy as a whole. It is a study of broad economic
aggregates like inflation, economic growth, government tax policies, total output etc. The interaction
of producers and consumers in individual markets relates to microeconomics. In this case we are
studying individual components of the economy, not the whole economy and that is why we only
look at individual markets.
Question 5
Which one of the following is a positive economic statement?
[1] Government should not redistribute income.
[2] Businesses ought to contribute more to charities.
[3] Households are the primary source of saving. THE CORRECT OPTION IS 3.
[4] The foreign sector should be more tightly controlled.
Explanation
A positive economic statement is an objective statement of fact that can also be proven by referring to
factual information. Positive statements are usually not characterised by phraseslike “should”, “ought
to” etc. Normative statements are value laden or subjective statements that reflect individual opinion
and cannot be verified by referring to facts. Thus the statementthat households are the primary source
of saving can be proven by looking at the savings pattern in the country. There are statistics gathered
by Statistics SA on the savings pattern of businesses, individuals and government in the country. We
can use these statistics to seewhether a large percentage of national savings is done by households
(individuals) or not.
Question 6
“Senior citizens deserve an income that will allow them to live in comfort for the remainingyears.”
This is
[1] neither a normative nor a positive statement.
[2] both a positive and a normative statement.
[3] a positive statement.
[4] a normative statement. THE CORRECT OPTION IS 4.
Explanation
“Senior citizens deserve an income that will allow them to live in comfort for their remaining years”
is a normative statement because it reflects an individual‟s opinion and it is difficult toprove the
validity of this statement. For example, it is difficult to explicitly and objectively define the meaning
of the word “comfort”. Being “comfortable” varies from individual to individual and therefore makes
this statement normative in nature.
2
, lOMoAR cPSD| 11763056
Question 7, 8 and 9 are based on the following production possibilities.
Table 1
Point Production of grain (tons) Production of LCD
televisions (units)
A 0 420
B 10 400
C 20 360
D 30 300
E 40 200
F 50 0
Question 7
Which of the following combinations is unattainable?
[1] 18 tons of grain and 360 LCD televisions
[2] 40 tons of grain and 200 LCD televisions
[3] 32 tons of grain and 300 LCD televisions THE CORRECT OPTION IS 3.
[4] 10 tons of grain and 390 LCD televisions
Explanation
A production possibility curve shows all the maximum combinations of two goods that can beproduced
by efficiently utilising all available resources.
Option 1 is attainable It is possible to produce 18 tonnes of grain and 360 LCDs, eventhough
production would be inefficient. If we are producing 360 LCDs, we need to also produce a maximum
of 20 tonnes of grain if resources are used efficiently.
Option 2 is attainable 40 tonnes of grain and 200 LCDs is an attainable combination, as it lies on
the production possibility curve, and is also an efficient point because resources are fully utilised in
this case.
Option 3 is unattainable The combination of 32 tonnes of maize (grain) and 300 LCDs is not
attainable. If we are producing 300 LCDs, we can only produce a maximum of 30 tonnesof grain.
Option [4] is attainable If we are producing 10 tonnes of grain, we can also produce a maximum
of 400 LCDs. Thus, producing 390 LCDs means we are not fully utilising our resources - this is
inefficient production and this point lies inside the production possibilitycurve.
Therefore only option 3 is correct.
Question 8
Production is inefficient if this economy produces
[1] 18 tons of grain and 360 LCD televisions. THE CORRECT OPTION IS 1.
[2] 40 tons of grain and 200 LCD televisions.
[3] 32 tons of grain and 300 LCD televisions.
[4] 10 tons of grain and 400 LCD televisions.
Explanation
Production is inefficient if this economy produces inside its production possibility curve or
boundary. Thus 18 tonnes of grain and 360 LCDs represents a point that lies inside the PPC. If the
economy is utilising its resources efficiently, the maximum amount of grain that
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