QUESTION 2 2.1 With the aid of diagrams differentiate between a price ceiling and a price floor as government intervention measures to market failure. Support your discussion with reference to the text above. (12)

2.2 Use a diagram to explain how a so-called black market can develop when the government intervenes in the price mechanism by fixing prices. (8)

SECTION B [60]

QUESTION 3 (20)

3.1 Explain what is meant by the term price elasticity of supply. (5)

3.2 Using diagrams and examples explain the following three (3) different categories of price elasticity of demand.

3.2.1 Unit elastic demand. (3)

3.2.2 Relatively inelastic demand. (3)

3.2.3 Relatively elastic demand. (3)

3.3 List and explain ANY THREE (3) determinants of the price elasticity of demand. (6)