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. KFC raises the price of its chicken. The price elasticity of demand for KFC grilled chicken is 0.8. This means that KFC's total revenue increases. 2. Consider the following diagram: Price of cherries per kilo P1 ------------ P2 ------------------------- : 5 D1 0 Q1 02 Quantity of cherries (kilos) The diagram shows the market for cherries. In year 1. demand is shown by 01 and supply 81. In year 2, supply increases to 82. This causes consumer surplus to now become area YTZ 3. The equilibrium of a perfectly competitive market is allocatiye efficient. This means that consumer surplus is equal to producer surplus 4. If a 1 percent increase in the price of x increases the quantity demanded of Y by 2 percent, then X and Y are substitutes and the cross elasticity of demand equals 2. 5. Consumers' total benefit from consuming a good is equal to the consumer surplus on the quantity purchased. Question 1 [10 marks] The figure below shows the market for pink fizzers and will be used to answer questions 1.1 - 1.2 |i D a.) U L. N N E a a: o 25 5 75 IOO I 25 Quantity Figure 1. Market for pink zzers 1.1. If the price of a pink fizzer is R3, what isthe consumer and producer surplus of the 50m fizzer? [4 marks] 1.2. What is the efficient quantity and how does this compare to the equilibrium quantity? [3 marks] 1.3. Briefly describe the concept of the "invisible hand" and name the moral philosopher who termed the notion [3 marks] Question 2 [10 marks] Jason wants to hire Malibongwe to tutor him in economics. Jason is willing to pay R300 for the first hour oftutoring, R250 for the second, R200 for the third. R150 for the fourth, and R100 for the fifth. Malibongwe has an opportunity cost per hour of R60 for the first, R90 for the second. R120 for the third. R150 for the fourth. and R180 for the fifth. 2.1 What is the equilibrium price and quantity of hours? [2 marks] 2.2 Would Malibongwe be willing to tutor for more than the equilibrium number of hours. Explain your answer.[2 marks] 2.3. At the equilibrium price and quantity what, if any. is Malibongwe's producer surplus? [2 marks] 2.4 At the equilibrium price and quantity what. if any is Jason's consumer surplus? [2 marks] 2.5 At the equilibrium price and quantity what is the total surplus? [2 marks] Question 3 [10 marks] 3.1. Name the two views of fairness and discuss how each views redistribution of income from the rich to the poor? [4 marks] 32 Why does the problem of the big tradeofl arise when the government engages in the process of redistributing income using taxes and transfers? [6 marks]