ECS2601 Assignment 1 (QUALITY ANSWERS) Semester 2 2026

This document provides detailed workings, clear explanations, and well-structured solutions for the ECS2601 Assignment 1 (QUALITY ANSWERS) Semester 2 2026 - Question 1: (10 marks) 1.1 In your own words, explain the idea of trade-offs in microeconomics. (2) 1.2 Differentiate between any two of the following concepts: (4) (a) Infinite elastic and completely inelastic demand (b) Income consumption curve versus Engel curve (c) Positive versus normative analysis (d) Real versus nominal prices 1.3 Suppose that John is indifferent between consuming bundle A, which consists of 4 apples and 1 peach, and bundle B, which consists of 4 peaches and 1 apple. If John were given the choice between bundle A and bundle C, which contained 3 peaches and 2 apples, which should he pick? (Hint: make sure to include a graph of an indifference curve or two in your answer) (4) Question 2: (10 marks) Mbepe spends all his income on two items, namely pizza and movies. His income is R2400 per month. Pizza costs R120 and movies cost R80. (a) Graph the budget constraint faced by Mbepe, with pizza on the vertical axis and movies on the horizontal axis. (2) (b) If he spends half his income on pizza and half his income on movies, how much of each can he afford? Plot a point that illustrates this scenario. (2) (c) Calculate and discuss the slope of his budget constraint. (2) (d) During December, Mbepe does extra work as a soccer coach to the neighborhood’s kids, which raises his monthly income by R1200. Indicate the new bundles of pizza and movies that are feasible to him, given the higher income. (4) Question 3: MCQ (5 x 3 = 15 marks) [Make sure to provide a short explanation for your selected option. If no explanation you will only receive 1 mark per question, IF the correct option is chosen] 3.1 You run a small business and would like to find out what the elasticity of your products are at different prices. Assume that the demand for good A is given by the equation Q=360 – 2P. Using the point elasticity method, and a price of R50, the demand for Good A is: (a) -0.18 (Demand is inelastic) (b) -0.38 (Demand is inelastic) (c) -1.00 (Unit elastic) (d) -1.38 (Demand is elastic) 3.2 Which of the following statements is FALSE? (e) Price elasticity of demand is negative for most products. (f) Cross elasticity of demand is positive between complements. (g) Income elasticity of demand is positive for normal goods. (h) Price elasticity of supply is positive for most products 3.3 If the supply equation is given as Q = -100 + 10P the price elasticity of supply between R15 and R25, calculated using the arc elasticity of supply, is (a) 1.0 (b) 1.5 (c) 2.0 (d) 2.5 3.4 Carmen is a writer who enjoys writing with both pencils and pens. Her utility function for pencils and pens is given by =+42,UXY where X is the number of pencils she buys and Y is the number of pens. Carmen currently has 2 pencils and 4 pens. What is the marginal utility of an additional pencil, MUX? (a) 2 (b) 3 (c) 4 (d) 5 3.5 When the price of good X decreases (holding money income constant), which of the following correctly distinguishes the substitution effect from the income effect? (a) The substitution effect occurs because the consumer’s real income increases, while the income effect occurs because the good becomes relatively cheaper (b) The substitution effect occurs because the good becomes relatively cheaper compared to other goods, while the income effect occurs because the consumer’s purchasing power change. (c) The substitution effect only applies to inferior goods, while the income effect only applies to normal goods. (d) The substitution effect shifts the budget constraint outward, while the income effect rotates the indifference curve. Question 4: (5 marks) 4.1 What is the marginal rate of technical substitution and how does it relate to the marginal product of inputs (2) 4.2 What does the curvature of an isoquant imply about the two inputs, capital and labor? (3)