Question 1:

With the aid of a diagram, how the Production Possibility Curve (PPC) illustrates the fundamental economic concepts of scarcity, choice, and opportunity cost. (10)

Identify and explain three key factors that can cause the Production Possibility Curve (PPC) to shift to the right. (6)

The table below shows the quantity demanded (Qd) and quantity supplied (Qs) of milk at various prices. Use the data in the table to answer the following questions.

Price (R) of MilkQd for MilkQs for Milk
153200600
202000800
251500900
3012001200
3510001300
409001500
458501700
507002000
556002200

Calculate the equilibrium price and quantity in the market for milk.    (2)

If the current market price is R25, determine whether there is a surplus or shortage. Calculate the exact number of surplus or shortage units.  (4)

Identify the price at which a surplus of 1,100 units occurs. Justify your answer by providing the corresponding quantity supplied (Qs) and quantity demanded (Qd) at this price.    (4)

1.4. Due to a decrease in consumer income, consumers now buy 600 fewer litres of milk at every price.
Use a fully labelled demand and supply graph and the original dataset in the table above to illustrate the effect on the equilibrium market price and output for milk. On the same graph, clearly indicate and/or calculate:

(i) The initial equilibrium price and quantity values (from question 1.1 above). (2)
(ii) The shift in the demand curve using an arrow. (2)
(iii) The new equilibrium price. (2)
(iv) The new equilibrium quantity. (2)

Note: Clearly show all labels, values, equilibrium points, and shifts/changes (using arrows) on the graph.

The schedule below shows the quantities of shoes demanded at each income level in a community from 2020 to 2021:

YearIncome (R)Quantity (units)
20205 5001 200
20216 800880

Calculate the income elasticity of demand, using the arc method, and interpret your results.    (6)

List any four factors that could result in the shoes having inelastic price elasticity of demand.   (3)

Select the correct word from the words provided in the brackets [ ] to complete the following sentences.

If the cross-elasticity of demand coefficient (Ec) between tea and coffee is equal to Ec = 2.0, the two goods in question are classified as [substitutes/complements]

.   (1)

Economic growth is a [microeconomic/macroeconomic]  objective. (1)

When a product has many close substitutes, its demand is more likely to be [elastic/inelastic]  .   (1)

A [traditional/market/command]  economy is characterized by private ownership and minimal government intervention.  (1)

Consider the following statement: “An increase in the minimum wage will reduce employment levels.” This is an example of a [positive/normative]          statement. (1)

Suppose the Ed-coefficient for movie tickets is Ed = -1.8. If cinema owners want to increase their total revenue, they should [increase/decrease]   the price of movie tickets.     (1)

Identify and briefly explain the three (3) main injections of money into the circular flow model.   (3)

Determine whether the demand for each of the following goods is price elastic or inelastic. Justify your answer.

The demand for salt.    (2)

The demand for life-saving insulin. (2)

The demand for designer handbags.   (2)

The demand for bottled water.   (2)

Question 3:

Thabo consumes two goods: juice and sandwiches. The price of a bottle of juice is R10, and the price of a sandwich is R20. The table below shows the total utility (TU) and the marginal utility (MU) that Thabo derives from various quantities of juice and sandwiches. Use the table below to answer the following questions. Round all answers to two decimals.

Quantity of juiceTU of juiceMU of juiceQuantity of sandwichesTU of sandwichesMU of sandwiches
42601003750450
5340804920170
64006051060140
74606061180120

Calculate the weighted marginal utility to motivate and identify the utility- maximising equilibrium quantity combination of juice and sandwiches.  (9)

Calculate Thabo’s total expenditure at the equilibrium combination.   (2)

Calculate the total utility that Thabo will derive at the equilibrium combination.  (2)

Suppose Lerato—who consumes the same two goods as Thabo, juice and sandwiches—has an income of R240. Lerato pays the same prices for both goods as Thabo: the price of a glass of juice is R10, and the price of a sandwich is R20. At the utility-maximising equilibrium quantity, Lerato consumes 10 glasses of juice.

Using the indifference curve analysis, illustrate Lerato’s equilibrium quantity combination of juice and sandwiches. Label sandwiches on the x-axis and juice on the y-axis. On the same graph, calculate and clearly indicate each of the following: The origin values of the budget line
The equilibrium quantity of juice
The equilibrium quantity of sandwiches The indifference curve
The marginal rate of substitution (MRS) at the equilibrium combination. (11)
Suppose Lerato’s income increases from R240 to R400. Will the increase in her income make Lerato better or worse off? Motivate your answer by referring to the effect of an increase in income on:
(i) Income
(ii) The budget line
(iii) The new equilibrium indifference curve
(iv) Total utility (4)

Identify the two variables that are held constant along a budget line.  (2)

Consider the following diagram that depicts the demand- and cost information of Firm Y, which operates in a perfectly competitive market. Use the values on the diagram to answer the following questions.

Identify the price and output level (quantity) at which Firm Y will maximise profit or minimise loss.   (2)

Calculate each of the following at profit maximising output level for Firm Y.

Profit or loss  (2)

Total fixed cost    (2)

How do perfectly competitive firms and monopolistic firms differ in terms of the following aspects

The nature of the product that the firms produce.   (2)

The shape (slope) of the demand curve.  (2)

Answers to Above Questions on Economics

Answer 1: The ways in which the Production Possibility Curve (PPC) illustrates the fundamental economic concepts of scarcity, choice, and opportunity cost are explained as follows:

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