QUESTION ONE

1. State and explain whether the following statements are true or false.
2. Government subsidization of firms producing good A results in an increase in the demand for Good A. (2 marks)
3. Demand is inelastic if the percentage increase in quantity exceeds the percentage decrease in price. (2 marks)
4. If demand is perfectly elastic, then a shift in the supply curve will not affect the market equilibrium. (2 marks)
5. The law of demand helps to explain social behaviour. (2 marks)
6. Price elasticity of demand is perfectly inelastic if the percentage change in the quantity demanded of a good is less than the percentage change in the price. (2 marks)
7. Economic questions that can be answered by examining data and making observations are part of normative economics. (2 marks)

QUESTION TWO

Suppose the government regulates the prices of beef and chicken and sets them below their market-clearing levels. Explain why shortages of these goods will develop and what factors will determine the sizes of the shortages. (4 marks)

QUESTION THREE

Assume a Zambian car manufacturer called Z motors produces Z sport utility vehicles. Do you think the price elasticity of demand for Z sport-utility vehicles (SUVs) will increase, decrease, or remain the same when each of the following events occurs? Explain your answer.

1. Due to ad campaigns, Zambians believe that SUVs are much safer than ordinary passenger cars. (2 marks)
2. The time period over which you measure the elasticity lengthens. During that longer time, new models such as four-wheel-drive cargo vans appear. (2 marks)