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Question 1

Effect of government setting a minimum price above equilibrium price

Answer 1

When a price floor is set above the equilibrium price, quantity supplied will exceed quantity demanded, and excess supply or surpluses will result. When government laws regulate prices instead of letting market forces determine prices, it is known as price control.

Question 2

The equilibrium in a goods market

Answer 2

Definition equilibrium
Central role in economics
Situation in which none of the participants has any incentive to change behaviour - everyone is content

Increase in supply will result in a fall in price. Demand remains the same. Prices fall. Firms compete. Quantity demands increase.

Question 3

What illustrates the concept of unemployment on a production possibility curve?

Answer 3

Unemployment means resources that could be used for production are not being used. And when some resources are not being used for production, the economy does not reach the production possibilities curve–the curve that corresponds to full employment. In particular, unemployment results from any point INSIDE the production possibilities curve.

Question 4

5 ways the government can deal with surplus that results from imposing a minimum price above the equilibrium in a goods market

Answer 4

1. Government can purchase the surplus and export it
2. Government can purchase the surplus and store it (if non perishable
3. Government introduces production quotas to limit the quantity supplied to the quantity demanded at the minimum price
4. Government purchases and destroys surplus
5. Producers destroy surplus

Question 5

Households purchase in the _____ market and sell in the ____ market, while firms purchase in the _____ market and sell in the _____ market. (choose goods and factors for the ___)

Answer 5

goods, factors, goods, factors

Question 6

Which statement is true about demand

Answer 6

Demand refers to the quality of a good that households plan to buy

Question 7

Which of the following best describes the effect of an increase in the productivity of (2) available resources on the production possibilities curve?

Answer 7

An outward shift of the production possibilities curve;

Question 8

Output; Total Cost (TC); Marginal Cost (MC); Average Fixed Cost (AFC); Average; Variable Cost (AVC); Average Total Cost (AC)

(This is meant to look like a table, just don't seem to be able to insert a picture)
Output.  TC.    MC.  AFC.   AVC.   AC
0.            200
1.           265
2.           295
3.            310

The marginal cost of the second unit is?

Answer 8

(a) 265;
(b) 30;
(c) 15;
(d) 295.

Question 9

Output; Total Cost (TC); Marginal Cost (MC); Average Fixed Cost (AFC); Average; Variable Cost (AVC); Average Total Cost (AC)

(This is meant to look like a table, just don't seem to be able to insert a picture)
Output.  TC.    MC.  AFC.   AVC.   AC
0.            200
1.           265
2.           295
3.            310

The average fixed cost of the second unit is?

Answer 9

(a) 100;
(b) 147.5;
(c) 30;
(d) 95.

Question 10

Output; Total Cost (TC); Marginal Cost (MC); Average Fixed Cost (AFC); Average; Variable Cost (AVC); Average Total Cost (AC)

(This is meant to look like a table, just don't seem to be able to insert a picture)
Output.  TC.    MC.  AFC.   AVC.   AC
0.            200
1.           265
2.           295
3.            310

The average variable cost of the third unit is?

Answer 10

(a) 66.67;
(b) 103.33;
(c) 36.67;
(d) 15.

Question 11

Under which market structure does the firm have no control over the price of the (2) product?

Answer 11

(a) Perfect competition;
(b) Monopoly;
(c) Monopolistic competition;
(d) Oligopoly.

Question 12

Which of the following is NOT a feature of oligopoly?

Answer 12

(a) Collusion is possible;
(b) Firms have considerable control over the price of their products;
(c) Economic profit is possible in the long run;
(d) The demand curve for the firm’s product is horizontal.

Question 13

Which of the following will NOT shift the market supply of labour?

Answer 13

(a) A change in the size of the population due to a change in birth or death rates;
(b) A change in the labour force participation rate of women;
(c) An increase in the wages that can be earned in another occupation;
(d) A change in the wages of workers.

Question 14

Which one of the following statements is INCORRECT?

Answer 14

(a) Trade unions act as monopolistic suppliers of labour;
(b) Labour markets are sometimes monopsonistic, meaning there is only one
major employer;
(c) Employers and employees usually have perfect knowledge about the labour market conditions in which they operate;
(d) The labour market is a segmented market.

Question 15

Farmer Brown is a wine farmer. He has approached you to give him some advice. There is a lot happening in the wine industry and he needs some clarity on how these changes will affect the market for wine. The following changes have occurred simultaneously:
 The price of grapes (used in production of wine) has increased.
 Research results have recently been published that prove that wine is
healthy and that a glass a day is beneficial.

Answer 15

After you have looked up the correct info - practice this answer piece of paper

Explain, with an aid of a graph, the impact of the changes above, on the equilibrium price and quantity of eggs.
(Note: You do not have to draw a graph for the chicken market. Only draw and explain the graph for the egg market.)

Question 16

The income elasticity of demand for maize meal is estimated as 0.31. from this we can (2) deduce that:

(a) Maize meal can be regarded as an inferior good;
(b) Maize meal can be regarded as a luxury;
(c) Maize meal can be regarded as a necessity;
(d) A change in the price of maize meal will result in a smaller than proportional change in the quantity demanded.

Answer 16

.

Question 17

Describe the three different categories of price discrimination 9 marks
(HINT Use an example to illustrate each category of price discrimination.)

Answer 17

First-degree or perfect price discrimination, second-degree, and third-degree.

Question 18

Clearly distinguish between (2 marks):

Average revenue and marginal revenue

Answer 18

A firm’s average revenue is its total revenue earned divided by the total units. A competitive firm’s marginal revenue always equals its average revenue and price. This is because the price remains constant over varying levels of output.

Question 19

Clearly distinguish between (2 marks):

Implicit costs and explicit costs

Answer 19

An explicit cost is a defined dollar amount that appears in the general ledger. Whereas an implicit cost is not initially shown or reported as a separate cost.

Question 20

Clearly distinguish between (2 marks):

Ordinal utility and cardinal utility

Answer 20

Cardinal utility is the utility wherein the satisfaction derived by the consumers from the consumption of good or service can be expressed numerically. Ordinal utility states that the satisfaction which a consumer derives from the consumption of good or service cannot be expressed numerical units.

Question 21

Clearly distinguish between (2 marks):

Income elasticity of demand and cross elasticity of demand

Answer 21

Income elasticity of demand (YED) measures the responsiveness of quantity demanded to a change in income. Cross (price) elasticity of demand (XED) measures the responsiveness of quantity demanded for one good to a change in the price of another good.

Question 22

Clearly distinguish between (2 marks):

The short run and the long run (in production theory)

Answer 22

The Short-Run is the period in which at least one factor of production is considered fixed. Usually, capital is considered constant in the short-run. In the Long-Run, all factors of production are variable, while in the very long-run all factors of production are variable and research and development is possible.

Question 23

Explain why prices are such an important part of a market economy. (Hint: Include the role (functions) of prices in a market economy.) 5 marks

Answer 23

Why are prices important in a market economy?
Image result for Explain why prices are such an important part of a market economy. (Hint: Include the role (functions) of prices in a market economy.)
The price of goods plays a crucial role in determining an efficient distribution of resources in a market system. Price acts as a signal for shortages and surpluses which help firms and consumers respond to changing market conditions. … Rising prices discourage demand, and encourage firms to try and increase supply.
……………
The price of goods plays a crucial role in determining an efficient distribution of resources in a market system.

Price acts as a signal for shortages and surpluses which help firms and consumers respond to changing market conditions.
If a good is in shortage – price will tend to rise. Rising prices discourage demand, and encourage firms to try and increase supply.
If a good is in surplus – price will tend to fall. Falling price encourage people to buy, and cause firms to try and cut back on supply.
Prices help to redistribute resources from goods with little demand to goods and services which people value more.
Adam Smith talked about ‘the invisible hand‘ of the market. This ‘invisible hand’ relies on the fluctuation of prices to shift resources to where it is needed.

Question 24

Define the term “price discrimination” 1 mark

Answer 24

Price discrimination is a microeconomic pricing strategy where identical or largely similar goods or services are sold at different prices by the same provider in different markets.

Question 25

10 marks Explain, with the aid of a graph, the equilibrium position of a perfectly competitive firm that is earning economic profit in the short run.

Answer 25

Perfect competition: An industry structure in which there are many firms, none large enough to influence the industry, producing homogeneous products. Firms are price takers. There are no barriers to entry. Agriculture comes close to being perfectly competitive.

Equilibrium is the state in which market supply and demand balance each other, and as a result prices become stable. Generally, an over-supply of goods or services causes prices to go down, which results in higher demand—while an under-supply or shortage causes prices to go up resulting in less demand.

Profit maximisation:
When price is greater than average total cost, the firm is making a profit. When price is less than average total cost, the firm is making a loss in the market. Perfect Competition in the Short Run: In the short run, it is possible for an individual firm to make an economic profit.

Question 26

Use a diagram to explain the three pricing options which government can impose on a natural monopoly.

Answer 26

From the internet:
The government can regulate monopolies through:
Price capping – limiting price increases.
Regulation of mergers.
Breaking up monopolies.
Investigations into cartels and unfair practises.
Nationalisation – government ownership.

Question 27

Identify seven ways in which the labour market differs from the goods market. (7)

Answer 27

Labour market is the market where workers and employers meet together to meet the organization’s requirements. It is an example of a factor market where labour is factor of production. In this market demand is made by firms and supplied by households. The demand for labour is derived demand i.e. demand for labour increases if the demand of the product made by labour increases or vice versa.

Product market is the market where sellers and consumers meet together to meet the requirements. It produces and sells final goods for consumption. In this market consumers demand goods and producers supply goods demanded via sellers. It works on direct demand. The price of goods is determined by demand and supply. Example: fruit market.

Question 28

There are two broad categories of trade unions. (4) Distinguish between these two broad categories.

Answer 28

? doesn’t seem right - check textbook and see differences for 4 marks

From the internet:
There are two principal types of trade unions: craft unions and industrial unions.

Question 29

Out of 9
Describe three ways in which a trade union can attempt to achieve higher wages for its members. In each case, explain the impact on the wage rate as well as the level of employment.
(Note: You do not have to draw the graphs.)

Answer 29

When unions want to increase union member wages or request other concessions from employers, they can do so through
*collective bargaining. …
Collective bargaining raises the wages and benefits more for low-wage workers than for middle-wage workers and least for white-collar workers, thereby lessening wage inequality.

May be a minimum wage, basic benefits, or certain working conditions

If unions are unable to negotiate or are not satisfied with the outcomes of collective bargaining, they may initiate a

• work stoppage or
• strike.

THE ECONOMIC EFFECTS OF A STRIKE FOR BOTH PARTIES. The employer is likely to lose money due to delayed service to clients or to lost production time. The employees will lose their pay due to the no work, no pay principle. If the strikers are dismissed they will lose their livelihoods altogether.

Question 30

Microeconomics is a branch of economics that studies:

Answer 30

(a) the determination of the gross domestic product.
(b) the impact of inflation in South Africa.
(c) the effects of the aggregate behaviour of all decision‐making units.
(d) the behaviour of individual decision‐making units in the economy.

Question 31

What is an opportunity cost?

Answer 31

In economics we measure the cost of a choice in terms of the alternative we have lost due to our choice. The opportunity cost of a choice is the value to the decision maker of the alternative that could have been chosen but was not chosen