QUESTION 1 [50 MARKS]

(a) ''Production involves the use of factors of production (resources). In relation to these resources, all business organisations face what is known as the basic economic problem''.

Identify and explain the three questions that arise while making choices about the use of scarce resources.

[7 Marks]

(b) ''The recent foot and mouth disease also known as '' fivre Aphteuse'' outbreak in Rodrigues has quickly found its way to Mauritius. While local breeders welcome the measures taken by the Ministry of Agriculture to counter the disease, the breeders in Rodrigues are expecting some kind of compensation from the government following heavy losses of stock.

The authorities immediately took necessary measures to contain the disease and prevent it from spreading further. It was decided to cull the worst affected animals. As such there is now a temporary ban on the import of animals and of meat from Rodrigues because it has been established that the outbreak in Mauritius originates from Rodrigues''

Use appropriate supply and demand diagrams to analyse the effects on the market equilibrium price and quantity traded of beef, following:

(i)A fall in the price of fish.

[6 marks](ii)An outbreak of ''fivre Aphteuse'' resulting in the slaughtering and disposal of a large number of infected cattle heads.[6 marks]

(iii) The government decide to grant subsidies as compensation to vulnerable breeders.[6 marks]

(c)Using appropriate examples, explain the concepts of price elasticity, income elasticity and cross elasticity of demand.[10 marks]

(d) Discuss how knowledge of price elasticity, income elasticity, and cross elasticity might be of practical use to a firm dealing in sales of smart phones.[15 marks]

(a) ''Production involves the use of the four factors of production.Due to the scarcity of these factors, all business organisations face the basic economic problem."

Identify and explain the three questions arise in businesses while making choices of how to manage scarce resources.[6 Marks](b) You are given the following market demand and supply functions for an important medicine to fight Tuberculosis Virus, an infectious and deadly disease.

Market Demand: Qd = 150 - 5P Market Supply:Qs = 90 +10P

Where P is the price (Rupees (Rs)), Qs = Quantity Supplied and Qd = Quantity Demanded.

Calculate:

(i) The equilibrium price and quantity that enables business transaction to take place between the class of buyers and sellers.[4 marks]

(ii) Given the benefits that the medicine confers on an economy, the Mauritian government contemplates to sets a price ceiling of Rs3.

a) Will there be a Shortage or Surplus following government intervention?[1 mark]

b) Calculate the value of the Shortage or Surplus.[5 Marks]

c) Calculate the new equilibrium Price and Quantity if the demand function change to Qd = 120- 2P.[3 marks]

(iii) a)Explain what is meant by a maximum price and states its limitation.[6 marks]

b)Explain how the government may proceed to maintain the price at Rs3.[3 marks]