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Questions and Answers

What do flows (2) and (3) represent?

  • Investment
  • Spending
  • Savings
  • Income (correct)

    • What is the price elasticity of demand when the price increases from R7 to R9?

  • 2.27
  • 0.63
  • 1.16 (correct)
  • 1.60

    • What is the unit of measurement for the output of the farm?

  • Tonnes per hour
  • Kilograms per hour
  • Bushels per hour
  • Number of potatoes per hour (correct)

    • What is the main goal of calculating the average product and marginal product of a farm?

    <p>To determine the optimal level of production</p> Signup and view all the answers

    What is the relationship between the price and quantity demanded of a product?

    <p>Inversely proportional</p> Signup and view all the answers

    What is the purpose of calculating the price elasticity of demand?

    <p>To determine the responsiveness of the quantity demanded to a change in price</p> Signup and view all the answers

    What is the Total Product when 2 units of capital and 3 units of labour are used?

    <p>17</p> Signup and view all the answers

    At which point does the Average Product start to decline?

    <p>seventh unit of labour</p> Signup and view all the answers

    What is the Marginal Product when 2 units of capital and 7 units of labour are used?

    <p>6</p> Signup and view all the answers

    Which diagram shows a rightward shift of the demand curve and a leftward shift of the supply curve?

    <p>C</p> Signup and view all the answers

    What is the likely outcome in the market for product B if the price fails to adjust to the new equilibrium?

    <p>Shortage</p> Signup and view all the answers

    What is the cause of the shift in the supply curve from S1 to S2?

    <p>Increase in production costs</p> Signup and view all the answers

    What is the direction of the shift in the demand curve?

    <p>Leftward</p> Signup and view all the answers

    What is the result of the increase in production costs and decrease in incomes?

    <p>Decrease in demand and supply</p> Signup and view all the answers

    What is Dairy Group's primary goal?

    <p>To grow the strength of the local dairy industry</p> Signup and view all the answers

    What is the consequence of people's concern about gaining weight from drinking full cream milk?

    <p>The demand curve will shift from D1 to D2</p> Signup and view all the answers

    What is the market structure of the Balloon manufacturers shown in the diagram?

    <p>Pure competition</p> Signup and view all the answers

    What is the maximum economic profit (or minimum economic loss) for the firm in the diagram?

    <p>Profit of R60</p> Signup and view all the answers

    What is the opportunity cost of Steven using his own premises as a workshop?

    <p>R18 000 in rent</p> Signup and view all the answers

    What is the alternative income that Steven could have earned if he had invested his money?

    <p>R5 000 per year in interest</p> Signup and view all the answers

    What is the amount Steven initially invested in his business to buy tools and machines?

    <p>R50 000</p> Signup and view all the answers

    What is the salary that Steven could have earned if he did not work for himself?

    <p>R60 000</p> Signup and view all the answers

    What happens to the market when the average salary in South Africa declines?

    <p>There will be an excess supply in the market</p> Signup and view all the answers

    What is the effect of a decrease in James's salary on the demand of chicken liver?

    <p>The demand for chicken liver will decrease</p> Signup and view all the answers

    What happens in the long run in a perfectly competitive market?

    <p>New firms enter the market</p> Signup and view all the answers

    What is the role of Dairy Group in South Africa?

    <p>The leading raw milk buyer</p> Signup and view all the answers

    What is the effect of a decrease in salaries on disposable income?

    <p>Disposable income will decrease</p> Signup and view all the answers

    What is the impact of a decrease in salaries on debt?

    <p>People will have more debt</p> Signup and view all the answers

    What is the definition of an inferior good?

    <p>A good for which demand decreases when income increases</p> Signup and view all the answers

    What happens to the market supply curve in the long run?

    <p>It shifts to the right</p> Signup and view all the answers

    Which movement reflects a decrease in quantity demanded but NOT a decrease in demand?

    <p>from point a to point e</p> Signup and view all the answers

    What part of the MC curve can be seen as the firm's supply curve?

    <p>The entire MC curve</p> Signup and view all the answers

    At the profit maximizing price and output, the firm in Exhibit 23-3 has an average profit of _______ and a total profit of ________.

    <p>$50 and 850</p> Signup and view all the answers

    The profit maximizing firm in Figure 25.1 would produce _______ units of output.

    <p>90 units</p> Signup and view all the answers

    What is the difference between a decrease in quantity demanded and a decrease in demand?

    <p>A decrease in quantity demanded is a movement along the demand curve, while a decrease in demand is a shift of the demand curve.</p> Signup and view all the answers

    What does the marginal cost curve represent?

    <p>The firm's supply curve</p> Signup and view all the answers

    Study Notes

    Demand and Supply

    • Flows (1) and (2) represent income and spending respectively.

    Elasticity of Demand

    • Price elasticity of demand is calculated when price decreases from R9 to R7.
    • The correct answer is 1.60.

    Law of Diminishing Returns

    • The law of diminishing returns sets in at the fifth unit of labour.

    Demand and Supply Shift

    • If the costs of production rise and incomes fall, the demand curve shifts to the left and the supply curve shifts to the left.

    Market Equilibrium

    • If the supply curve shifts from S1 to S2, but the price fails to adjust, there will be an excess demand in the market.

    Inferior Goods

    • A decrease in James's salary will lead to an increase in the demand for chicken liver, which is an inferior good.

    Perfect Competition

    • In the long run, new firms enter the industry, causing the market supply curve to shift to the right, until prices drop sufficiently to allow all firms to make a normal profit.

    Market for Full Cream Milk

    • People's concern about weight gain from drinking full cream milk leads to a shift in the demand curve from D1 to D2.

    Pure Competition

    • The maximum economic profit (or minimum economic loss) for the firm is a profit of R60.

    Economic Profit

    • Steven's opportunity cost includes R18,000 in rent and R5,000 in interest, and a salary of R60,000.

    Demand and Quantity Demanded

    • A movement from point a to point d reflects a decrease in quantity demanded but not a decrease in demand.

    Supply Curve

    • The rising part of the MC curve above the minimum point can be seen as the firm's supply curve.

    Profit Maximization

    • At the profit maximizing price and output, the firm has an average profit of $40 and a total profit of 1700.

    Profit Maximizing Firm

    • The profit-maximizing firm would produce slightly less than 90 units of output.

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