QUESTION FOUR(20 Marks)
Assume that a perfectly competitive hand sanitiser market is in long-run equilibrium. The price of hand sanitisers is observed to increase during the COVID 19 pandemic, and then it returns back to its normal price after the pandemic. Use the diagram below to discuss this market before, during and after the pandemic. Include in your discussion the profit levels in each case.
FINAL ONLINE SUMMATIVE ASSESSMENT vmc PROGRAMME Bachelor of Business Administration; Bachelor of Commerce in Human Resource Management; Bachelor of Commerce in Marketing; Bachelor of Commerce in Entrepreneurship; Bachelor of Commerce in Financial Management; Bachelor of Commerce in Information and Technology Management; Bachelor of Commerce in Retail Management; Bachelor of Commerce in Supply Chain Management; Bachelor of Commerce in Public Administration Bachelor of Commerce In International Business Bachelor of Commerce in Project Management; Bachelor of Commerce in Accounting MODULE Economics 1A YEAR One (1) INTAKE January 2020 DATE 19 June 2020 TOTAL MARKS 100 SECTION A [40 MARKS] Answer ALL questions in this section. QUESTION ONE (40 Marks) Choose the most appropriate answer. Write down numbers 1.1 to 1.20 in your answer book and next to each number write the letter that represents the correct answer. E.g. 1.21 a 1.1 When there are not enough resources to produce the desired goods and services, we say that there is.... a) Unemployment. b) A shortage c) Scarcity d) All of the above 1.2 Thomas has the following options in order of preference i. Go to campus ii. Go to the beach iii. Stay home and play video games. If he chooses to go to campus, then his opportunity cost of doing so is represented by... a) i only b) ii only c) i and ii d) i, ii and iii 1.3 Efficiency is illustrated by... a) Points beyond the PPF curve b) Points along the PPF curve c) Points within the PPF curve d) None of the above 1.4 South African companies are shifting towards, capital intensive production processes. The reason for such a shift can be explained by considering... a) The labour laws of the country b) The quality of the labour available c) The prices of the resources available d) All of the above 1.5 In a hypothetical economy that produces two goods, there is an improvement in the production of one of the goods. This will be illustrated by... a) A point on the PPF diagram b) An outward swivel of the PPF diagram c) An outward shift of the PPF diagram d) An inward shift of the PPF diagram 1.6 In the goods market, firms receive _____________ for their activities. a) Profit b) Sales revenue c) Rent d) Interest 1 1.7 In an economy, the government... a) Produces public goods and services b) Purchases factors of production in the factor market c) Purchases goods in the goods market d) All of the above 1.8 Which of the following will not change the demand for good X? a) The price of the good X b) The income of the consumers of good X c) The expected price of good X d) The price of good Y, a substitute of good X 1.9 All of the following will result in a change in the supply of good X except... a) The price of production substitutes of good X b) The expected future prices of good X c) The state of technology available to produce good X d) The price of good X 1.10 Prices will increase in a market if... a) The price is above equilibrium price b) Quantity is above equilibrium quantity c) Quantity is below equilibrium quantity d) None of the above 1.11 The following will result in a definite increase in equilibrium price and equilibrium quantity... a) An increase in demand and in supply b) A decrease in demand and in supply c) An increase in demand and a decrease in supply d) None of the above 1.12 Which of the following is not a form of government intervention? a) Minimum prices b) Subsidies c) Taxation of products d) None of the above 1.13 In order for a price ceiling to be effective... a) It must be fixed above the equilibrium price b) It must be fixed below the equilibrium price c) It must be fixed equal to the equilibrium price d) None of the above 1.14 When the price is equal to zero.... a) Price elasticity of demand equals infinity b) Price elasticity of demand equals zero c) Price elasticity of demand equals one d) Price elasticity of demand lies between zero and one 2 1.15 If total revenue increases as the price is increased, price elasticity of demand is... a) Perfectly elastic b) Unitary elastic c) Inelastic d) Elastic 1.16 Accounting profit is equal to... a) Total revenue less total explicit costs b) Normal profit plus economic profit c) All of the above d) None of the above 1.17 When average product is decreasing... a) Marginal product is decreasing b) Marginal product is increasing c) Marginal product equals zero d) Average product is increasing 1.18 Figure 1 diagram shows a situation of... a) Economic profit under perfect competition b) Normal profit under perfect competition c) Economic profit under monopolistic competition d) Normal profit under monopolistic competition 1.19 Which of the following firms do not earn normal profits in the long run? a) Monopolistic competition b) Monopoly c) Perfectly competitive firms d) None of the above 1.20 For a firm in an oligopoly market structure with a kinked demand curve, equilibrium is determined by... a) Marginal revenue equals marginal cost b) Price equals marginal cost c) All of the above d) None of the above 3 SECTION B [60 MARKS] Answer ANY THREE (3) questions in this section. QUESTION TWO (20 Marks) Consider the hypothetical example of Dominion Island that has firms producing only two goods, gold and cotton, the proceeds of which it uses to purchase other goods and services from neighbouring islands through its banks. Assuming that all other required institutions in an economy are prevalent in this island, discuss the circular flow of income and spending in Dominion Island. No diagram is required. QUESTION THREE (20 Marks) Use Figure 2 to fully discuss the welfare effect of setting a minimum wage of R 13/hr above or below the equilibrium wage. 4 QUESTION FOUR (20 Marks) Assume that a perfectly competitive hand sanitiser market is in long-run equilibrium. The price of hand sanitisers is observed to increase during the COVID 19 pandemic, and then it returns back to its normal price after the pandemic. Use the diagram below to discuss this market before, during and after the pandemic. Include in your discussion the profit levels in each case. 5 QUESTION FIVE (20 Marks) A producer of a new range of energy drink introduces their product at R25 per can. After a month of sales, they introduce a special of R 40 for two cans. A month later they sell the product at the original introductory price. They subsequently introduce another special after another month of R 45 for two. After a month of sales, they re-introduce the original special of R40 for two and this special is kept on-going for numerous months thereafter. Use price elasticity theory to show why, ceteris paribus, the producer settles at the initial special of R 40 for two. In your discussion, include a comment on the type of price elasticity observed with the demand for this energy drink at these prices. END OF PAPER 6
