SECTiON A [100 MARKS] Answer ALL the questions in this section. Choose the most appropriate answer. Write down the letter that represents the correct answer next to each number in your answer booklet. e.g. 26 B QUESTION 1 (4 Marks) Consider the market for oranges. Suppose that both of the following occur simultaneously: (i) the price of apples (a substitute for oranges) decreases; and (ii) world-wide droughts reduce the harvest of oranges by 30%. Then, in the market for oranges we would expect: a) The equilibrium price of oranges oould either increase or decrease, but equilibrium quantity will denitely decrease. b) The equilibrium quantity of oranges could either increase or decrease, but equilibrium price will definitely decrease. c) The equilibrium price of oranges oould either increase or decrease, but equilibrium quantity will definitely increase. d) The equilibrium quantity of oranges could either increase or decrease, but equilibrium price will definitely increase. QUESTION 2 (4 Marks) \"A tax increase applied to both cigarettes and alcohol could have a positive effect on public health through reductions in consumption of both goods. However, this measure would not be sufficient to bridge gaps in prevalence measures and health outcomes between sex and other population groups, given the observed difference in the sensitivity of consumption to price variations." Source: httgs:l/iris.gaho.orglbitstream/handle/l0665.2/31303/v40n4a06-engpdf Suppose that the coefficient of the price elasticity of demand for cigarettes is 0,4. lf government wants to reduce smoking by 10 percent, by how much should it raise the price of cigarettes? a) 10 percent b) 20 percent c) 25 percent d) 50 percent QUESTION 19 (4 Marks) The following table indicates the demand for airline tickets between Johannesburg and Cape Town for business travelers and holiday travelers. Price (R) Business Tl?\" ellers HolidaV I15\" ellels (quantity demanded) (quantity demanded) l 200 1 800 1400 _.i- Assume that the price increases from R3 000 to R3 500. The difference between the price elasticity for business travelers and the price elasticity for holiday travelers is because business travelers travelling between Johannesburg and Cape Town, airline tickets are more of a necessity than for holiday travelers. Therefore, price elasticity for business travelers is --------------------------- compared to the price elasticity for holiday travelers. ) Inelastic ) Ebmm ) Unitary elastic ) Perfectly elastic (1.0 U0.) UESTION 20 (4 Marks) A friend of yours who owns a flowerselling business has the following opinion about the law of demand: She does not think that the law of demand is valid for red roses, because during February, when the price of red roses was very high, she sold many more. It therefore seems that there is a positive relationship between the price of red roses and the quantity demanded of it. Which one of the following is the best response to her argument? a) You agree with her and indicate that based on the evidence for red roses, the law of demand does not apply. b) You agree with her and argue that the law of demand is only applicable to a few goods and services. c) You disagree with her by stating that her information must be incorrect. d) You disagree with her and explain that the cause of the increase in the quantity demanded might be the result of some other factor and not the increase in the price. QUESTION 21 (4 Marks) Supply chain problems' alongside a decrease in consumer. As rising gas and food prices cause US consumers' confidence and short-term outlook for the economy to plunge, some are shifting their spending habits and the blame from the pandemic to ongoing supply chain costs, constraints and related government policies, according to The Conference Board Consumer Confidence Index and the Consumer Brands Association. Source: https://www.foodnavigator-usa.com/Article/2022/06/29/Supply-chain-challenges-take- centerstage-as-consumer-confidence-falls-spending- shifts# ~:text=Jun%2D2022%20By,Elizabeth%20Crawford,-As%20rising%20gas Which panel of Figure 5 (below) illustrates 'supply chain problems' alongside a decrease in consumer confidence? So Price per Unit Price per Unit Do Quantity Quantity (a) (b) So Price per Unit Price per Unit Do D1 Quantity Quantity (c) (d) AQUESTION 22 (4 Marks) Sipho is a qualified teacher but he choose to run a business instead of being employed. Sipho have a bakery business and he own an office space from which he run his businesses. He could have earned a rental income of R16 000 per month had he rented out his shop to a tenant. Use the information in the table below to calculate economic profit R15000 R100000 Costs flour, milk and sugar R23 000 Wages and other expenses R26 000 a) R51 000 b) R20 000 C) R36 000 d) R35 000 QUESTION 23 (4 Marks) The US. government grants subsidies to many industries including oil, agriculture, housing, farm exports, automobiles, and health care. If production is subsidised by the government, it results in the equilibrium price to and equilibrium quantity to ,ceteris paribus. a) increase; increase b) increase; decrease c) decrease; increase d) decrease;decrease QUESTION 24 (4 Marks) Wholesale prices of South Africa's most favoured fish-and-chips choice, Cape hake, have climbed in recent years to above R45/kg on a whole-weight basis. Assuming an increase in demand for Cape hake. This in turns leads to an increase in supply for chips (a complement of Cape bake in production). As a result, the equilibrium price would and equilibrium quantity would in the market for chips. ) increase;increase ) increase; decrease ) decrease; increase ) decrease; decrease (100-9) QUESTION 25 (4 Marks) Consider diagram (figure 6) below, which illustrates the market for low-skilled labour. S 10 a e 6 C b 2 D Q Q2 Q1 Suppose that the equilibrium quantity is reduced from Q1 to Q2 units, through the introduction of a price floor. Which of the following correctly describes the resulting decrease in MARKET surplus? a) Market surplus will decrease by a - C. b) Market surplus will decrease by e + c. c) Market surplus will decrease by a + b + e + c. d) Market surplus will decrease by b - e. END OF PAPERQUESTION 3 (4 Marks) Cooking oil prices are up 60%. The spike in the price of cooking oils is expected to remain high over the next few months, and could possibly extend until the end of the year. The crisis, which has been on going for over a year, has been largely due to a global shortage in oil producing crops. The demands for oil are high, and currently standing, South Africa does not produce enough vegetable oil to be able to meet local demand. As a result, it has pushed the industry to source oils from Europe; having our domestic prices being influenced by international oil prices. Source: https://oildrop.co.za/blog/cooking-oil-prices-succeeding-60percent-affect-the-south- africanmarket The diagram below illustrates the demand and supply of cooking oil NB: quantity x represents cooking oil Figure 1: Demand and supply for cooking oil Price Pa P 2 P1 Dz 0 Q1 Q2 Q3 Quantity X If the demand curve for cooking oil shifts from D1 to D2, one could say that a) The quantity demanded of cooking oil has decreased to Q1 and price has fallen to P2. b) The price of coconut oil which is a substitute for cooking oil must have fallen. C) There had been an increase in demand for cooking oil . d) The higher price of cooking oil has caused the quantity demanded to fall from OQ1 to 0Q2.QUESTION 4 (4 Marks) Which one of the following statements is incorrect? a) Equilibrium in a perfectly competitive labour market occurs where the demand for labour is equal to the supply of labour. b) Equilibrium in a perfectly competitive labour market occurs where the quantity of labour demanded is equal to the quantity of labour supplied. c) Equilibrium in a perfectly competitive labour market is the result of the interaction between the demand for labour and the supply of labour. d) The individual supply of labour bends backwards when the income effect becomes stronger than the substitution effect. QUESTION 5 (4 Marks) Read the article below and answer the question that follows: \"Twelve years ago, 300,000 children in China were poisoned after drinking infant milk formula that contained melamine, a chemical used in plastic. Six babies were killed by the toxic substance, which was used by 22 companies to artificially boost the protein levels that showed up in nutrition tests.\" Source: https:/fwww.scmpcom/businessfcompanies/article/3051808/foreign-brands-still- dominateparents-donot-trust-chinashome Ten years after China's infant milk tragedy, parents still will not trust their babies to local formula. As a result, many Chinese parents buy baby formula that is produced outside China. Which of the following accurately describes the likely effect of this on baby formula prices? a) An increase in the price of baby formula produced in China and a decrease in the price of baby formula produced outside China. b) A decrease in the price of baby formula produced in China and an increase in the price of baby formula produced outside China. c) A decrease in the price of both baby formula produced in China and baby formula produced outside China. d) An increase in the price of both baby formula produced in China and baby formula produced outside China. QUESTION 6 (4 Marks) In the market for strawberries the following two things happen. After an influential article on the health benefits of strawberries, the demand for strawberries increases. Due to worker unrest and strikes, many workers stay away from work. Assume that the magnitude of the impact of both events is the same. Which of the following statements is lNCORRECT? a) The strikes caused a similar decrease in the supply of labourers in the strawberries industry, this caused the wage rate to increase and the number of workers to stay the same. b) The demand for strawberries increases this will cause the price of strawberries to increase. c) The demand for strawberries increases causing the wage rate to increase and the number of workers to increase. d) When the price increases the demand for labourers in the strawberries, industry increases. QUESTION 7 (4 Marks) The following table shows the demand cun/e facing Jack's Enterprise a monopolist who produces at a constant marginal cost of R5. Complete the table below and answer the question that follows m -_-- -_-- ---- ---- III--- ---- Calculate the firm's economic profit. a) R270 b) R180 ) R210 QUESTION 8 (4 Marks) Nadia opens a saloon in a shop that she owns at Mall of Africa. She resigns from herjob to run the saloon on a full-time basis. She would have earned a salary of R10 000 per month from her previous job as a stylist, as well as a rental income of R5 000 per month had she rented out his shop to a tenant. The monthly production cost and operating expenses of the saloon are R95 000 and R45 000 respectively. Her monthly sales revenue is R150 000. Calculate the economic profit and accounting profit. ) Economic prot R2 000; accounting profit R8 000 ) Economic profit R5 000; accounting profit R15 000 ) Economic profit R5 000; accounting profit R10 000 ) Economic prot R2 000; accounting profit R8 000 QUESTION 9 (4 Marks) You have been provided with the following information for a farm producing potatoes in the short run. The output is measured in the number of potatoes produoed per hour. Complete the average product and marginal product columns. mm At which point does the law of diminishing returns set in? fourth unit of labour fifth unit of labour sixth unit of labour seventh unit of labour v3.33, 0.0 V QUESTION 10 (4 Marks) Suppose that you are the managing director of Linen Factory that produces duvet covers, fitted sheets and pillows. The price elasticity of the demand for duvet covers is 2,5; for fitted sheets is 1,0; and for pillows is 0,5. Linen Factory is experiencing serious cash flow problems and you have to increase total revenue as soon as possible. You are in a position to set the prices for these goods. Which of the following pricing strategy is CORRECT? a) The demand for duvet covers is inelastic. To increase the total revenue from the sale of duvet covers the price of duvet covers should thus be decreased. b) The demand for tted sheets is unitarily elastic. Total revenue will increase. The price of tted sheets should therefore be increased. 0) The demand for pillows is inelastic. To increase the total revenue from the sale of pillows, the price of pillows should be increased. d) The demand for duvet covers is perfectly inelastic. To increase the total revenue from the sale of duvet covers the price of duvet covers should thus be decreased QUESTION 11 (4 Marks) Study the following demand and supply schedules and answer the questions that follow. What is the equilibrium price (EP) and quantity (Q)? EP (30 {1.0 CTQ) ) ) E0 (70) ) EP(2 0) Ed (50) ) EP (50) Ed (50) ) EP(4 0) E0 (70) QUESTION 12 (4 Marks) Which two of the following statements are false? iMacroeconomic theory inevitably involves a lot of simplification and abstraction. iiMacroeconomic theory can be useful only if it replicates every possible detail of the real world. iii. Because macroeconomic theory uses concepts that do not exist in a physical sense, it cannot serve as a basis foreconomic policy decisions. iv. One ofthe main purposes of economic theory is to help us to predict what will happen if something change. a) land iiarefalse b) iiandiiiarefalse c) iiiandivarefalse d) land ivarefalse QUESTION 13 (4 Marks) Opportunity cost is the forgone benefit that would have been derived from an option not chosen. To properly evaluate opportunity costs, the costs and benets of every option available must be considered and weighed against the others\" As the opportunity cost of a good decreases, people buy a) more of that good but less of its complements. ) less of that good and also less of its complements. ) less of that good but more of its complements. ) more of that good and also more of its complements. QUESTION 14 (4 Marks) The following market have the same equilibrium price, equilibrium quantity and supply curves. However, the demand curve in Market 1 is relatively elastic, while the demand curve in Market 2 is relatively inelastic. Which of the following will happen if the supply of both markets decrease by the same amount? Figure 2: Market 1 Market 2 Price Price Quantity Quantity a) The price in Market 1 will increase by less than the price in Market 2. b) The quantity in Market 2 will increase by less than the quantity in Market 1. ) The quantity in Market 1 will decrease by less than the quantity in Market 2. d) The price in Market 2 will decrease by more than the price in Market 1. QUESTION 15 (4 Marks) "Income elasticity of demand refers to the sensitivity of the quantity demanded for a certain good to a change in the real income of consumers who buy this good." Source: Investopedia 2022 - https://www.investopedia.com/terms/i/incomeelasticityofdemand.asp Suppose the income elasticity of demand is + 1.5. Sales have increased from 4,000 units to 4,500 units following a change in income. Originally, the average income was R30,000. What did it change to? a) Income will increase by 8.33% to R32500 b) Income will increase by 8.35% to R34500 C) Income will increase by 6.33% to R38500 d) Income will increase by 12.5% to R42000QUESTION 16 (4 Marks) A product X is an inferior good with no close substitutes. It is a complement to Y. Which best describes X? Income elasticity of demand Cross elasticity of demand with products A negative positive B positive negative C negative negative D positive positive QUESTION 17 (4 Marks) Figure 3 below shows how market conditions have changed in the housing market. HOUSE PRICES S1 S2 iD1 D2 Q1 Q2 Q/ month Equilibrium has moved from P1Q1 to P2Q2. The most likely explanation for the changes shown is a a) Fall in mortgage interest rates and an increase in the number of houses built b) Fall in mortgage interest rates and a decrease in the number of houses built ) Rise in mortgage interest rates and an increases in the number of houses built d) Rise in mortgage interest rates and a decrease in the number of houses builtQUESTION 18 (4 Marks) D2 shows how the demand curve has shifted from D1. S2 shows how the supply has shifted from $1. Which diagram in Figure 4 best represents how demand and supply for a normal product would shift if the costs of production rise and incomes fall? A B Price SZ Price S1 X 51 D2 D2 D1 O Quantity O Quantity C D Price Price S1 X SO X D2 O Quantity O Quantity