ECS1501 May/Jun 2017 exam paper — questions

Every question, by topic

1. Question 1.1 · Demand, supply and market equilibrium · 5 marks

   This question concerns the market for milk, where two simultaneous shocks occur: government subsidies to dairy farmers rise, causing an increase in the number of dairy farmers, while at the same time unfavourable economic growth causes average household income to fall. The effect of the increased subsidies on the market is larger in magnitude than the effect of the decreased household income. Using a demand-and-supply diagram for the milk market, illustrate both changes described above (the increase in dairy farmers due to higher subsidies, and the decrease in household income) occurring at the same time, given that the subsidy effect outweighs the income effect. Show all the resulting shifts and the new equilibrium clearly on the graph provided.Show the full questionShow less

2. Question 1.2 · Demand, supply and market equilibrium · 5 marks

   This question concerns the market for milk, where two simultaneous shocks occur: government subsidies to dairy farmers rise, causing an increase in the number of dairy farmers, while at the same time unfavourable economic growth causes average household income to fall. The effect of the increased subsidies on the market is larger in magnitude than the effect of the decreased household income. Provide a critical discussion of the diagram you drew for the milk market in question 1.1, explaining which curve(s) shifted, in which direction, and why, and relating your explanation to the combined effect of the increased number of dairy farmers (due to subsidies) and the decreased household income on the equilibrium price and quantity of milk.Show the full questionShow less

3. Question 2 · Demand, supply and market equilibrium · 3 marks

   For the market described, the quantity demanded is given by the equation QQdd = 1800 + 0,6PP, while the quantity supplied is given by QQss = 7200 − 0,2PP. Using these two equations, determine the equilibrium quantity and the equilibrium price for this market.Show the full questionShow less

4. Question 3.1 · Price and income elasticity · 3 marks

   A local shop called Burger Boet sells hamburgers, and the scenario examines how a price change affects demand and revenue. Burger Boet reduces the price of its hamburgers from R40 to R35, and as a result the quantity of hamburgers demanded rises from 800 to 1 150 units. Determine the price elasticity of demand for a burger at Burger Boet.Show the full questionShow less

5. Question 3.2 · Price and income elasticity · 3 marks

   A local shop called Burger Boet sells hamburgers, and the scenario examines how a price change affects demand and revenue. Using the price elasticity of demand value calculated for hamburgers at Burger Boet, explain how the shop could increase its total revenue earned from hamburger sales.Show the full questionShow less