Q.1.1 An investigation into the motor industry indicates that the number of motor
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vehicles on the roads is increasing each year. The same irvestigation also reveals that a number of new suppliers have entered the motor vehicle tyre market. Which one of the following statements regarding the market for motor vehicle tyres is correct, ceteris paribus?
(a) The equilibrium quantity and price of tyres will increase.
(b) The equilibrium quantity of tyres will increase but the effect on price is uncertain.
(c) The equilibrium quantity and price of tyres will decrease.
(d) The effect on the equilibrium quantity is uncertain, but the price will definitely increase.
Q.1.2 A local supplier of washing machines has decided to drop the price of a particular
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brand of machine from R7000 to R6850. As a result, the firm discovers that the quantity demanded increases from 30 units per month to 33 units per month. Using the arc method, what can you conclude regarding the elasticity of demand for this product?
(a) Income elasticity of demand is 4.67 and this product is a luxury:
(b) Price elasticity of demand is 5 and the demand for this product is price elastic;
(c) Price elasticity of demand is 4.4 and the demand for this product is price elastic:
(d) Price elasticity of supply is 4.4 and the supply of this product is price elastic.
Q.1.3 If a consumer spends his income on rent and food, then the slope of his budget line
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(a) Shows that he is in equilibrium.
(b) Will reflect the ratio between the prices of rent and food.
(c) Will decrease as he moves downward along the budget line.
(d) All the above options are correct;
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Q.1.4 Which one of the following statements regarding utility and utility functions is
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INCORRECT?
(a) A utility function that allows for a ranking of market baskets is called an ordinal utility function.
(b) Marginal utility is the additional satisfaction a consumer obtains by consuming one more unit of a product;
(c) A utility function can be represented by a set of indifference curves.
(d) If a consumer moves! Tom a utinty curve showing \( U= \) suto a utility curve with
