ANSWER ALL QUESTION (2 MARKS FOR EACH CORRECT ANSWER.

A
TOTAL OF 20 MARKS

1. Which is the most accurate definition of the study of economics? Economics is the study
of
A. The distribution of surplus goods to those in need.

B. Affluence in a morally bankrupt world.

C. Ways to reduce wants to eliminate the problem of scarcity.

D. The choices we make because of scarcity.

2. In broad terms the difference between microeconomics and macroeconomics is that:

A. Microeconomics studies the effects of government taxes on the national

unemployment rate.

B. Macroeconomics studies the effects of government regulation and taxes on the price
of individual goods and services whereas microeconomics does not.

C. They use different sets of tools and ideas.

D. Microeconomics studies decisions of individual people and firms and

macroeconomics studies the entire national economy.

3. Consider the Production Possibility Curve below.

What is the opportunity cost of moving from B to A?

A. 5 coconuts.
 B. 10 fish.

C. 5/10 fish

D. 10/5 coconuts.

4. If this economy is operating at point C, which of the following statements is TRUE?

I.  The opportunity cost of producing more Coconuts is zero.

II. The opportunity cost of producing more Fish is zero.
III. Point A is inefficient.

A. III only.
B. I and II only.
C. I and III only.
D. I, II, and III.

5. Which of the factors given below will make point D to be attainable?

I. Investment in Capital (Capital Formation ): Plant, Machinery and

Technology
II. Inward migration of younger skilled workers
III. Improved Education, Training and Healthcare

A. I and II only
B. II and III only
C. I and III only
D. I, II and III

6. Consider the demand curve for Honda Fit Cars in Botswana. For simplicity,
assume that all Honda Fit Cars are identical and sell for the same price. Also,
assume that:

The current market price of Honda Fit is P30,000.00.

Average Household income is P60,000.00 per year
Price of a litre of fuel is P7.80 per litre
Price of a taxi ride is P6.00

Suppose the price of Honda Fit decreases from P30,000.00 to P25,000.00. This
would cause a ________________ the demand curve.

If an increase in average income causes a rightward shift of the demand curve, then
you may conclude that Honda Fit are a _____________ good.

Suppose that the price of a litre of fuel rises from P7.80 to P8.50. Because Honda
Fit and fuel are _____________, an increase in the price of a litre of fuel shifts the
demand curve for Honda Fit cars shifts to the ____________.

The correct order of filling in the spaces is

 A. Rightward shift in; normal; complements and left
B. movement along, inferior, substitute and right
C. movement along; normal; complement and left
D. Leftward shift; inferior; substitute and right

7. If the decrease in the price of cars from P35,000.00 to P25,000.00 leads to an

increase in the quantity demanded of Honda Fit cars from 10000 to 16000, the
price elasticity of demand is _______. Therefore, Honda Fit cars are
price________

A. 2.1; elastic

B. 2.1; inelastic

C. 0.71; inelastic

D. 0.71; elastic

8. Suppose the quantity demanded of Samsung phones in Botswana is given by the

following equation
Q d =500−4 P−−−−−−−−−−−−−−−−−(i)

While the market supply curve of Samsung phones is given by:

Qs =−100+2 P−−−−−−−−−−−−−−−−( ii)

The equilibrium price and quantity are respectively

A. P100 and 100 phones

B. P100 and 500 phones

C. P500 and 100 phones

D. P600 and 100 phones

9. What is wrong with the statement: Demand refers to the willingness of buyers
to purchase different quantities of a good at different prices during a specific
time period:

A. Instead of “demand”, it should be “quantity demanded”.

B. Instead of “willingness”, it should be “ability”.

C. Demand refers to the willingness and ability of buyers, not just
willingness.

D. There is nothing wrong with the statement.

10. Consider the market for pizza in Botswana, where there are over fifty pizza
sale outlets at any given moment. Suppose an innovation in meat processing
technology makes it possible to produce more pizza at a lower cost than ever
before.

Holding all else constant, this will lead to a:

A. Change in Demand

B. Change in Supply

C. Change in both Demand and Supply

D. No change in Demand and Supply

SECTION B: SHORT ANSWER QUESTIONS

ANSWER ALL QUESTIONS (40 MARKS)
1. During the COVID19 Lockdown the Government of Botswana pegged the per-litre
price of fuel to P7.80. This was below the market clearing price of P9.12. With the
use of an appropriate graph explain the impact of this on demand, supply and
equilibrium price and quantity. (10 marks)

Price

Supply

P9.12

P7.80 Demand

Qs Q* Qd Quantity

As presented in the above graph, the initial equilibrium price is P9.12 and
Quantity is Q*. If the government sets a regulated fuel price below at P7.80,
which is below P9.12*, the quantity supplied will fall from Q* to Qs and the
quantity demanded will increase from Q* to Qd. Hence, there will be a supply
shortage of Qd-Qs. For equilibrium to be restored market price will increase
from P7.80 to P9.12 because the supply shortage of fuel. (5 marks for the graph
and 5 marks for explanation)
 2. Given each of the following changes, identify whether the demand curve will shift
leftward, rightward or remain unchanged (Graphically illustrate).

i. An increase in income (the good under consideration is an inferior good)

Income
I2

I1

Quantity
Q*
From the above graph, when the Income is I 1 quantity purchased is Q*.. When
income increases to I2 the quantity purchased will still Q*. No matter the level
of income, quantity demanded will not change.

ii. A rise in the price of a complementary good

Complementary Goods are goods that are consumed together. An
increase in the price of the complement will lead to a decrease in its
consumption and will lead to a decrease in the demand for the good.

iii. A fall in the price of a substitute good

Price

D1

D2 Quantity

When the price of the substitute falls, the quantity demanded of the substitute increases,
this decreases the demand for the good from D1 to D2

iv. A rise in the number of buyers

Price

D2

D1 Quantity

When the number of buyers increase, the demand for the good also increases. This leads
to an outward shift in the demand curve from D1 to D2.

(Note: 5 marks for each correct answer. Total of 20 marks)

3. With practical examples explain the following concepts:
i. Scarcity and Choice (5 marks)
All economic goods are scarce relative to the demand for them. This implies that
resources are never enough to satisfy the demand for those recourses. For
example, there is never enough time, finance etc to satisfy all the wants.
Secondly, resources have alternative uses. Time spent studying could also be
used for be used for recreational activities. Therefore, individuals, firms,
societies and governments make choices among the alternative uses of scarce
resources.
ii. Opportunity cost (5 marks)
Every choice that we make has a cost. The choice of attending lectures makes
you forgo watching a movie. When alternatives are placed in preferential order
and the highest priority is chosen, the opportunity cost is the second priority that
forgone.

SECTION C: PROBLEMS
ANSWER ALL QUESTIONS (40 MARKS)

1. Consider a competitive market for maize meal in Botswana, for which quantities
demanded and supplied per year are given as follows:

Price (Pula) Demand (000,000) Supply (000,000)

60 22 14
 80 20 16
100 18 18
120 16 20

i. Calculate the price elasticity of demand for maize meal when the price
increases from P80.00 to P100.00 and interpret it. (5 Marks)
Price elasticity of demand for maize is;
% Change in Quantity Demanded divided by the percentage change in
price
(Q2-Q1/P2-P1) x P1/Q1
From the table
P1=80.00
P2 = 100
Q1 = 20
Q2 =18

Elasticity = (18-20/100-80) x 80/20 = 0.4

This implies that the demand for maize meal is price inelastic

ii. Calculate the price elasticity of supply for maize meal when the price
increases from P80.00 to P100.00 and interpret it. (5 Marks)
P1 =80
P2 =100
Q1=16
Q2 =18
Elasticity = (18-16)/(100-80)x80/20 = 0.5.
The implies that the supply of maize is supply inelastic

iii. Suppose that you are the supplier of maize meal in Botswana and your aim is
to increase revenue, briefly explain the pricing policy you will adopt. (5
Marks)
As the supplier of maize with the objective of increasing revenue, one has
the increase the price, because this those not affect the quantity
demanded proportionately.

iv. Suppose the Government of Botswana sets a price ceiling of P80.00 explain
whether there will be a shortage or a surplus in the maize market and how the
market will clear the said surplus of shortage. (5 Marks)

If the government sets the price of maize below the market clearing point,
This will lead to supply shortage because the quantity demanded of maize
increases, while the quantity supplied of maize decreases. To clear this
shortage the price has to increase.

2. An engineering firm can produce two types of output (Manufactured and

Construction). The Table below shows the various combinations that can be achieved
from the use of the resources the firm has.
 1 2 3 4 5 6 7 8 9 10
Manufacturin 0 2 6 10 14 18 22 26 28 30
g
Construction 30 28 26 24 18 14 10 6 2 0

a. Draw and label each axis and each point with Manufactured Goods on the Y-Axis and
Construction Goods X-Axis (5 Marks)

Production Possibilities Curve

35

30

25
Manufacturing

20

15

10

0
0 5 10 15 20 25 30 35
Construction

b. Indicate on the graph point K where production is unattainable (2 Marks)

‘K’ should be inserted anywhere above the PPC. Given the current level of
resources, ‘K’ is not attainable.

c. What is the opportunity of cost of Manufacturing in terms of Construction Goods

when production moves from point 7 to point 8? (4 Marks)

The opportunity cost is 4 units of constructions. This implies that 4 units of

construction must be given up to gain 2 units of manufacturing.

d. What is the economic interpretation of the opportunity cost derived in c? (5 Marks)

The economic interpretation is that an extra two units of manufacturing cost 4
units of construction.

e. Explain why the opportunity cost depicted by this graph increases or decreases (4
Marks) The Opportunity Cost decreases as more manufacturing us done at the
expense of construction. This implies that more manufacturing is done an extra
unit of construction costs more and more.

END OF TEST