Page 1 of Assignment
ASSIGNMENT – 2022 SECOND SEMESTER
ECO10A
ECONOMICS IA (MICROECONOMICS)
Page 2 of Assignment
ASSIGNMENT – 2022 SECOND SEMESTER
ECO10A
ECONOMICS IA (MICROECONOMICS)
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Page 3 of Assignment
ASSIGNMENT – 2022 SECOND SEMESTER
ECO10A
ECONOMICS IA (MICROECONOMICS)
Question 1 [20]
1.1.
1.2.
1.3.
Define the following concepts or terms:
1.1.1. Marginal cost (MC)
(1)
1.1.2. Unitary elastic demand
(1)
1.1.3. Supply
(1)
1.1.4. Private good
(1)
1.1.5. Services
(1)
Differentiate between the following economic concepts by providing relevant
examples of each:
1.2.1. Complement goods versus substitute goods
(3)
1.2.2. Want versus demand
(3)
1.2.3. Homogeneous goods versus heterogeneous goods
(3)
1.2.4. Intermediate goods versus final goods
(3)
Use your own example to provide a detailed explanation of the economic concept
known as opportunity cost.
(3)
Question 2 [8]
The production possibilities curve (also called a production possibilities frontier) indicates the
combinations of any two goods or services that are attainable when the community’s
resources are fully and efficiently employed. Use a production possibilities curve (PPC) to
illustrate each of the following (indicating goods on the vertical axis and services on the
horizontal axis):
2.1.
A decrease in productivity in the goods sector
(4)
2.2.
A shift in production from services to goods
(4)
Question 3 [20]
3.1.
3.2.
In terms of price and quantity, provide the following laws:
3.1.1. The law of demand
(1)
3.1.2. The law of supply
(1)
The table below depicts the demand and supply schedules in the market for fizzy
drinks. Study the table and answer the questions that follow.
Price
10
20
30
40
50
Quantity Demanded
10
8
6
4
2
Quantity Supplied
2
4
6
8
10
Page 4 of Assignment
ASSIGNMENT – 2022 SECOND SEMESTER
ECO10A
ECONOMICS IA (MICROECONOMICS)
3.2.1. Based on the provided values for demand and supply, graphically illustrate the
equilibrium price and quantity in the market for fizzy drinks.
(4)
3.2.2. Illustrate what the effect on the market will be if a price is charged above the
equilibrium price.
(4)
3.3.
Read the scenario below and answer the question that follows.
Scenario
A farmer, Kgabo Phaka, is known for his high-quality cattle and he is one of the
primary suppliers of steaks and fillets to the Woolworths stores in his area. According
to Kgabo, the secret to great steaks is happy cattle. His cattle are free-range cattle,
as they enjoy their lives in the field. The field provides plenty of food rich in nutrients
for his cattle to graze on daily.
Kgabo explains that a devastating fire destroyed most of his field, leaving his cattle
without food. The farmer is now forced to divert resources to buying food to feed his
cattle. The food does not provide the same nutrients as the field, therefore it takes
much longer for the cattle to meet the requirements to be sold for meat. Kgabo
explains that his ability to supply healthy cattle decreased significantly, leaving him
with higher input costs and decreased revenue.
Using a graph, illustrate and explain the devastating impact of the fire on the
equilibrium price and quantity in the market for steaks and fillets to the Woolworths
stores in his area.
(6)
3.4.
Calculate the equilibrium quantity and price if the quantity supplied can be
represented by the equation QS = 30 + 0.4P and the quantity demanded can be
represented by the equation QD = 120 – 1.1P. [Tip: Solve the value of P first and then
substitute this P-value in the calculation of the Q-value.]
(4)
Question 4 [15]
4.1.
Read the scenario below and answer the questions that follow.
Scenario
Suppose the average income of a consumer named Warren decreases from
R15 000 to R12 000. As a result, the quantity of product A demanded by Warren
increases from 260 units to 280 units.
4.1.1. Use the ARC (midpoint) formula to calculate the income elasticity of demand
for product A given the information above.
(3)
4.1.2. Based on your answer in 4.1.1, is product A an inferior good or a normal
good? Substantiate your answer with reference to your calculated elasticity
value.
(2)
4.2.
Read the statement below and answer the question that follows.
Statement
The price elasticity of demand is the percentage change in the quantity demanded if
the price of the product changes by one per cent, ceteris paribus. The sensitivity of
the quantity demanded to a change in the price will depend on the slope of the
demand curve.
Page 5 of Assignment
ASSIGNMENT – 2022 SECOND SEMESTER
ECO10A
ECONOMICS IA (MICROECONOMICS)
Using two separate graphs drawn to the same scale, illustrate and explain the impact
of different demand elasticities on the equilibrium price and quantity following an
increase in supply.
(10)
Question 5 [10]
Read the scenario below and answer the questions that follow.
Scenario
Suppose that a consumer consumes only two products, namely beer and hamburgers. The
price of beer is R40 and the price of hamburgers R120. The consumer receives a monthly
income of R1 200.
5.1.
Based on the information regarding the price of the two products consumed by and
the monthly income of the consumer, graphically illustrate the consumer’s budget
line. Let beer be on the Y-axis and hamburgers on the X-axis. Marks will be awarded
for the calculated values of the points of intersection.
(4)
5.2.
Using a graph only, illustrate how the budget line will change for the following
circumstances:
5.2.1. The price of beer increases from R40 to R60.
(3)
5.2.2. The price of hamburgers decreases from R120 to R100.
(3)
Question 6 [8]
The table below depicts the production schedule for a firm producing in the short run. Study
the table and answer the questions that follow.
Units of Fixed Input
Units of Variable Input
(LABOUR)
Total Product (TP)
2
0
0
2
1
8
2
2
18
2
3
29
2
4
39
2
5
47
2
6
52
2
7
56
2
8
52
6.1.
Based on the provided values for the production schedule, explain the concept of
diminishing returns in short-run production with the aid of a total product (TP) curve.
Clearly indicate where TP is at a maximum.
(6)
6.2.
Based on your answer in 6.1, at how many units of labour is the highest total product
(TP) reached?
(1)
6.3.
Where total product (TP) is at a maximum, what should marginal product (MP) equal?
(1)
Page 6 of Assignment
ASSIGNMENT – 2022 SECOND SEMESTER
ECO10A
ECONOMICS IA (MICROECONOMICS)
Question 7 [10]
Read the scenario below and answer the questions that follow.
Scenario
The behaviour of a firm depends on the features of the market in which it sells its product(s)
and on its production costs. The following diagrams illustrate the possible short-run
equilibrium positions of two firms:
Firm A
Firm B
Both firms employ the marginal approach to determine profit in the short run. However, they
differ with regard to certain market structure criteria:
•
The number of firms in the market
•
The nature of the good or service sold
•
Ease of entry for new competitors into the market
•
Control that the firm has over price
Page 7 of Assignment
ASSIGNMENT – 2022 SECOND SEMESTER
ECO10A
ECONOMICS IA (MICROECONOMICS)
7.1.
In the scenario, the possible short-run equilibrium positions of two firms are given.
With reference to firm A:
7.1.1. Identify the market structure of firm A.
(1)
7.1.2. Using the marginal approach to determine profit, is firm A making a short-run
profit or loss? Explain your answer with reference to the provided diagram. (4)
7.2.
In the scenario, the possible short-run equilibrium positions of two firms are given.
With reference to firm B:
7.2.1. Identify the market structure of firm B.
(1)
7.2.2. Using the marginal approach to determine profit, is firm B making a short-run
profit or loss? Explain your answer with reference to the provided diagram. (4)
Question 8 [9]
The Competition Commission (Commission) is one of three independent statutory bodies
established in terms of the Competition Act, No. 89 of 1998 (the Act) to regulate competition
between firms in the market.
The Market Conduct Division conducts investigations into alleged abuse of
dominance, vertical restrictive practices and horizontal restrictive practices not
classified as cartel conduct. It also evaluates exemption applications filed with the
Commission.
To answer the following questions, you will have to find the relevant information by visiting
the Competition Commission’s website: https://www.compcom.co.za
8.1.
The abuse of dominance refers to anti-competitive practices perpetrated by dominant
firms. List the factors that constitute abuse of dominance.
(2)
8.2.
Differentiate between restrictive vertical practices and restrictive horizontal practices.
(4)
8.3.
Explain the concept known as market power.
(1)
8.4.
The Act prohibits the abuse of a dominant position by firms in a market, but does not
prohibit firms from holding a dominant position. Clarify this statement.
(2)
ASSIGNMENT TOTAL: [100]
Page 8 of Assignment