Basic economics

Question 1 [16 MARKS] Suppose that a community in a given communal farm in Namibia could produce the following combinations of sheep and cattle on a given piece of farmland: Alternative Quantity of sheep Quantity of cattle A 500 0 B 400 20 C 300 35 D 200 45 E 100 50 F 0 53 (a) Using graph paper (or a computer program), draw the PPF for sheep and cattle, being as exact and neat as possible. (Put cattle on the horizontal axis. Assume that the dots define a complete curve.) [5 Marks] (b) Is it possible or efficient for this community to produce 250 sheep and 70 cattle? [2 Marks] (c) Is it possible or efficient for this society to produce 300 sheep and 20 cattle book? [2 Marks] (d) If society is currently producing alternative D, then the opportunity cost of moving to alternative C (and getting 100 more sheep) is _______ cattle. [1 Mark] (e) Is the opportunity cost of producing sheep higher or lower moving from alternative F to E than moving from alternative B to A? Why is this likely to be so? [3 Marks] (f) Suppose that a bush-to-feed project reduces the bush encroachment problem currently experienced in the area and allows the community to produce more sheep and cattle. Draw one possible new PPF in the graph above that represents the results of this change. Indicate the direction of the change that occurs with an arrow. [3 Marks] Question 2 [48 MARKS] Consider the Tractor ploughing services market in Northern Namibia. 2.1 Explain the difference between a change in “quantity supplied” and a change in supply. [4 Marks] Considering the supply side of the tractor ploughing services, what kind of change (increase or decrease, in quantity supplied or supply) would each of the following events cause? Use a graph to illustrate each scenario. (a) There is a rise in the price of gasoline used to run tractors. [5 Marks] (b) There is a rise in the going price for tractor ploughing services. [5 Marks] (c)More people decide to buy tractors and venture in providing tractor ploughing services to farmers. [5 Marks] (c)A new tractor is invented that is cheap and makes it possible to plough fields at a lower cost. [5 Marks] 2.2 Explain the difference between a change in “quantity demanded” and a change in demand. [4 Marks] Considering the demand side of the market for tractor ploughing services, what kind of change (increase or decrease, in quantity demanded or demand) would each of the following events cause? Use a graph to illustrate each scenario. (a) A government subsidy that assist farmers to afford tractor ploughing services is introduced. [5 Marks] (b) Many farmers decide to use conservation tillage where concept of no tillage (zero tillage) is practised. [5 Marks] (c) There is a rise in the going price for tractor ploughing services. [5 Marks] (d)Farmers decide to increase the use of donkeys to plough their fields. [5 Marks] Question 3 [31 MARKS] 3.1 Suppose that the supply and demand schedules for local tomatoes are as follows: Price per Kg 17 16 15 14 13 12 11 Quantity supplied (tonnes) 9 7 5 3 1 – – Quantity demanded (tonnes) 3 4 5 6 7 8 9 The price is in N$ per kilogram, and the quantity is in thousands (1000) of kg (tonnes). Farmers are not willing to supply tomatoes when the price is less than N$13 per kg. (a) Using a computer spreadsheet or presentation program, carefully graph and label the supply and demand curve for tomatoes. [4 Marks] (b) What is the equilibrium price of tomatoes? The equilibrium quantity? Label this point on your graph. [2 Marks] (c) At a price of N$16 per kg, what is the quantity supplied? What is the quantity demanded? What is the relationship between quantity supplied and quantity demanded? What term do economists use to describe this situation? [3 Marks] (d) At a price of N$13 per kg, what is the relationship between quantity supplied and quantity demanded? What term do economists use to describe this situation? [3 Marks] (e) When borders are closed for imports as with the recent COVID 19 pandemic acute shortages of tomatoes occur in which the demand for tomatoes is above the country’s capacity to supply. Using the analysis that you have just completed, describe the effect of COVID 19 on the market for tomatoes. [5 Marks] 3.2 Continuing on from the previous problem, suppose that the incomes of consumers decline dramatically due to COVID 19 pandemic and thus their consumption of tomatoes drops. The supply side of the market does not change, but at each price buyers now demand 3 (000) kilograms less than before. For example, at a price of N$11 per kg, buyers now demand only 6 (000) kilograms instead of 9 (000) kilograms. (a) On a new graph, draw supply and demand curves corresponding to prices of N$16 per kg or less, after the decline in consumer incomes. Also, for reference, mark the old equilibrium point from the previous exercise, labeling it E1. [5 Marks] (b) If the price were to remain at the old equilibrium level (determined in part (c) above), what sort of situation would result? [3 Marks] (c) What is the new equilibrium price? The new equilibrium quantity? Give this point on your graph the label E2. [2 Marks] (d) Has there been a change in demand? Has a change in the price (relative to the original situation) led to a change in the quantity demanded? [2 Marks] (e) Has there been a change in supply? Has a change in the price (relative to the original situation) led to a change in the quantity supplied? [2 Marks] Question 4 [20 MARKS] Use the formulas for elasticity to answer the following questions. (a) When Mariba’s income rises by 10 percent, her expenditures on carrots rise 12 percent. What is Mariba’s income elasticity of demand for carrots? Are carrots, for her, a normal or an inferior good? [4 Marks] (b) Suppose that the price elasticity of demand for milk is 0.6. If a grocer raises the price of milk by 15 percent, by what percentage will milk sales decrease as a result of the price increase? Will the grocer’s revenue from milk sales go up or down? [4 Marks] (c) Suppose that the price elasticity of supply for paper is 1.5. You notice that the quantity of paper supplied decreases by 6 percent as the result of a change in the price of paper. Determine by what percentage the price of paper must have declined. [4 Marks] (d) When price of beef falls by 10 percent, quantity demanded rises by 2 percent. [4 Marks] (e) When price of goats rises by 5 percent, quantity demanded drops by 10 percent. [4 Marks] END GOOD LUCK !!!!

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