Link for article needed in part b question 2: https://eur01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fprotect-za.mimecast.com%2Fs%2FT2-CCDRZ58i5j5WLmCWRx_E&data=05%7C01%7Calxsha015%40myuct.ac.za%7C685da1bf243e40845fdb08db27b38d35%7C92454335564e4ccfb0b024445b8c03f7%7C0%7C0%7C638147424362676437%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=9Qg8Rd4n41%2BNbZfhv5oEkvkPYG6u94DZQmHde1arvxI%3D&reserved=0

Part A [10 marks, 2 marks each] Please indicate whether you think each of the following statements is true or false. If you think the statement is false, you briefly need to explain why. 1. Price support is an example of a price ceiling 2. A minimum wage set above the equilibrium wage decreases the workers' surplus because workers must spend resources looking for jobs. Use the following image to answer questions 3-5. Graph A Graph B a a fig . S \\ \\. / / I \\ / $12 > ,-/ . p Price Price $8 H . J \\ _ _-/ floor ceiling -: K /- u.- . 1 : -' . i D ,f' : I ' ,. . : D | -I - I | \"3.000 20.000 1.400 1.000 0 (J 3. In graph A, the price ceiling causes a deadweight loss represented by areas U and W. 4. In graph B, the price floor causes quantity to fall to 1400. 5. In graph A, the price ceiling transfers some producer surplus to consumers and in graph B, the price floor transfers some consumer surplus to producers, thus total surplus is eventually maximized. Part B [30 marks] Question 1 [14 marks] 1.1 If the production of a good causes pollution (an external cost), is the unregulated competitive market equilibrium of that product efficient? If not, explain why with reference to the rm's supply curve, the social cost curve, and the notion of overproduction or underproduction at the market equilibrium. You do not need to draw a graph [4 marks] 1.2. Define the term \"marginal social cost\" {2 marks] Consider Table 1 below which will be used to answer questions 1.3 1.5 Quantity (tons of Marginal Private cost Marginal External paper) (Rands) Cost (Rands) 100 10 5 200 20 10 300 30 15 400 40 20 500 50 25 1.3. Redraw Table 1 and fill in the blanks by finding the marginal social cost at each level of production [5 marks} 1.4 If the market is competitive and is left unregulated and 400 tons of paper are produced, what is the price of a ton of paper? [1 mark] 1.5 If the government imposes a tax equal to the external cost at each level of production. what is the tax if 400 tons are produced and what price would be charged if 400 tons are produced? [2 marks] Question 2 [10 marks] 2.1. Read the following article about why implementing a minimum wage may be good for South Africa. The article can be accessed here: htt :l/www.fln24.com/Econom lwh natlonalminlmumwa els ood-lorsaeconom 20160726 What reasons does Stefanie Luce, give to explain why the introduction of a national minimum wage can be beneficial for South African economy. In your own words, explain the thought process behind each of the reasons that you identify [4 marks] 2.2. Compare and contrast a price ceiling and a price floor in terms of their definitions, in terms of their position relative to the equilibrium price in order to ensure that each is effective, and in terms of whether they create a shortage or a surplus. You need not draw a diagram. you may simply explain in words. [6 marks] Question 3 [6 marks] 3.1. What is the incidence of a tax? [1 mark] 3.2. Using a well labelled diagram, explain how a tax can create inefficiency. Assume the seller is taxed in this case. [5 marks] [THE END]