Short Question

1. Assume that tea and lemons are complements and coffee and tea are substitutes. Say that the

government imposes a price ceiling on tea that is below the current market equilibrium price. (2)

a) How, if at all, will this affect the price of lemons?

b) How, if at all, will this affect the price of coffee?

2. Draw a demand and supply diagram to show surplus and shortage. (2)

3. Explain the following economic concepts with a PPF (3)

a) Scarcity

b) Economic Inefficiency

c) Economic Growth

4. Define marginal benefit. Show the efficient point using a marginal cost/benefit diagram. (2)

5. With the help of a diagram, explain the derivation of the Total Revenue curve. (2)