ECS1501/203/1/2012
Tutorial letter 203/2012
Economics 1
ECS1501
Department of Economics
1. Solutions to Assignment 03
2. Solutions to Assignment 04
, 2
CONTENTS
Page
1. General ......................... .................................................................................................3
2. Solutions to Assignment 03: first semester.................................................................... 3
3. Solutions to Assignment 04: first semester ................................................................. 13
4. Study guidelines .......................................................................................................... 25
Study unit 6 .................................................................................................................. 26
Study unit 7 .................................................................................................................. 28
Study unit 8 .................................................................................................................. 30
Study unit 9 .................................................................................................................. 31
Study unit 10 ................................................................................................................ 33
Study unit 11 ................................................................................................................ 34
, 3 ECS1501/203
Dear Student
1. GENERAL
The purpose of this tutorial letter is to provide you with the correct answers to Assignment 03
and 04 which formed part of Tutorial Letter 101/3/2012.
The aim of these assignments is to encourage students to work through the content of study
units 6 to 11 and identify problematic areas. Since these assignments have a higher
weighting, they also provide an opportunity to improve your semester mark.
The study units, from which Assignment 03 and 04 were compiled, will be included as
multiple-choice questions in the examination paper. We require from you to construct
graphs, to interpret the graphs, do calculations and answer purely theoretical questions.
Study units 6 to 11 also contribute approximately 67% towards the total of the
examination paper in May.
2. SOLUTIONS TO ASSIGNMENT 03, FIRST SEMESTER 2012 (UNIQUE NUMBER
355389)
The correct options for questions 3.1 to 3.20 are:
3.1 [4] 3.6 [3] 3.11 [3] 3.16 [1]
3.2 [1] 3.7 [1] 3.12 [3] 3.17 [1]
3.3 [2] 3.8 [4] 3.13 [2] 3.18 [1]
3.4 [2] 3.9 [1] 3.14 [2] 3.19 [4]
3.5 [3] 3.10 [3] 3.15 [4] 3.20 [1]
Explanations:
QUESTION 3.1 THE CORRECT OPTION IS [4].
Option 1 is incorrect. Curve G illustrates an elastic demand.
Option 2 is incorrect. Curve H illustrates a unit elastic demand.
, 4 ECS1501/203
Option 3 is incorrect. Demand is perfectly inelastic when a change in price results in
no change in quantity demanded. It is represented by a vertical
demand curve – in this question’s case, curve I.
Option 4 is correct. Demand is perfectly elastic when consumers are willing to buy
any (infinite) quantity at a certain price, but nothing if the price
increases even slightly. It is represented by the horizontal
demand curve J.
QUESTION 3.2 THE CORRECT OPTION IS [1].
Price elasticity of demand is defined as the responsiveness of the quantity demanded to a
change in price, measured by dividing the percentage change in the quantity demanded of
a product by the percentage change in the product’s price.
Since a R1 change in the price of a good does not give any information about the
percentage change in price, nothing about the price elasticity of demand is known based on
this information.
QUESTION 3.3 THE CORRECT OPTION IS [2].
If a consultant to a major ruby team owner suggests that ticket prices be reduced in order to
increase revenue, the consultant must believe that the price elasticity of demand for ruby
tickets is greater than 1.
In figure 1, for an elastic demand, suppose there is a 10% decrease in price, the quantity
demanded increases must be greater than 10%, let’s say, 15%. Total revenue is P X Q. The
decrease in total revenue due to the price cut is smaller than the increase in total revenue
due to the increase in quantity demanded. Hence the total revenue increases.
Figure 1
Tutorial letter 203/2012
Economics 1
ECS1501
Department of Economics
1. Solutions to Assignment 03
2. Solutions to Assignment 04
, 2
CONTENTS
Page
1. General ......................... .................................................................................................3
2. Solutions to Assignment 03: first semester.................................................................... 3
3. Solutions to Assignment 04: first semester ................................................................. 13
4. Study guidelines .......................................................................................................... 25
Study unit 6 .................................................................................................................. 26
Study unit 7 .................................................................................................................. 28
Study unit 8 .................................................................................................................. 30
Study unit 9 .................................................................................................................. 31
Study unit 10 ................................................................................................................ 33
Study unit 11 ................................................................................................................ 34
, 3 ECS1501/203
Dear Student
1. GENERAL
The purpose of this tutorial letter is to provide you with the correct answers to Assignment 03
and 04 which formed part of Tutorial Letter 101/3/2012.
The aim of these assignments is to encourage students to work through the content of study
units 6 to 11 and identify problematic areas. Since these assignments have a higher
weighting, they also provide an opportunity to improve your semester mark.
The study units, from which Assignment 03 and 04 were compiled, will be included as
multiple-choice questions in the examination paper. We require from you to construct
graphs, to interpret the graphs, do calculations and answer purely theoretical questions.
Study units 6 to 11 also contribute approximately 67% towards the total of the
examination paper in May.
2. SOLUTIONS TO ASSIGNMENT 03, FIRST SEMESTER 2012 (UNIQUE NUMBER
355389)
The correct options for questions 3.1 to 3.20 are:
3.1 [4] 3.6 [3] 3.11 [3] 3.16 [1]
3.2 [1] 3.7 [1] 3.12 [3] 3.17 [1]
3.3 [2] 3.8 [4] 3.13 [2] 3.18 [1]
3.4 [2] 3.9 [1] 3.14 [2] 3.19 [4]
3.5 [3] 3.10 [3] 3.15 [4] 3.20 [1]
Explanations:
QUESTION 3.1 THE CORRECT OPTION IS [4].
Option 1 is incorrect. Curve G illustrates an elastic demand.
Option 2 is incorrect. Curve H illustrates a unit elastic demand.
, 4 ECS1501/203
Option 3 is incorrect. Demand is perfectly inelastic when a change in price results in
no change in quantity demanded. It is represented by a vertical
demand curve – in this question’s case, curve I.
Option 4 is correct. Demand is perfectly elastic when consumers are willing to buy
any (infinite) quantity at a certain price, but nothing if the price
increases even slightly. It is represented by the horizontal
demand curve J.
QUESTION 3.2 THE CORRECT OPTION IS [1].
Price elasticity of demand is defined as the responsiveness of the quantity demanded to a
change in price, measured by dividing the percentage change in the quantity demanded of
a product by the percentage change in the product’s price.
Since a R1 change in the price of a good does not give any information about the
percentage change in price, nothing about the price elasticity of demand is known based on
this information.
QUESTION 3.3 THE CORRECT OPTION IS [2].
If a consultant to a major ruby team owner suggests that ticket prices be reduced in order to
increase revenue, the consultant must believe that the price elasticity of demand for ruby
tickets is greater than 1.
In figure 1, for an elastic demand, suppose there is a 10% decrease in price, the quantity
demanded increases must be greater than 10%, let’s say, 15%. Total revenue is P X Q. The
decrease in total revenue due to the price cut is smaller than the increase in total revenue
due to the increase in quantity demanded. Hence the total revenue increases.
Figure 1
