2019 Term Test i love your mum i see us down on the beach down in mexico PDF

Preview

Summary

i love your mum i see us down on the beach down in mexico...

Description

Question 1

(25 marks)

Read the article below and answer the questions which follow: MILK PRICE TOO RICH FOR MANY KIWIS Dominion Post © 2009 Fairfax New Zealand Limited. All Rights Reserved. The price of milk has gone up by almost a quarter in two years, putting it beyond the budgets of many low-income families, research suggests. A University of Otago study has found many families are buying cheap fizzy drink instead of milk, because it is too expensive. In just two years, the price of two litres of milk has increased by more than 20 per cent, or at least 57 cents. A 1.5-litre bottle of fizzy drink can cost less than a dollar. Researchers Louise Signal and Moira Smith want the Government to bring in price controls to make milk more affordable. They are also advocating that milk be included in the new "breakfast in schools" programme in low-income areas. "The price of milk is high, and it is high compared to what it was in the past in New Zealand," Dr Signal said. "The price of a healthy diet is increasingly difficult for low-income families to afford." The researchers say the Government contributed to rising milk prices by removing subsidies and control from the milk industry, applying GST to food, and by the linking of retail prices to international commodity prices.

Use the diagram below of an increasing world price for milk to answer the questions that follow. NZ Market for Milk

Price 1 2 5

6

Wp1 Wp

4 8

3

S

7

D Qd Qd 1

Qs Qs

Quantity 1

(a) (i)

Why are the world prices above the equilibrium price? (1 mark)

(ii)

Why is the world price horizontal? What type of elasticity does this illustrate, and explain why? (3 marks)

1

Please Turn Over

(iii)

Using the diagram provided on the previous page, copy and complete the table below in your answer booklets. (7 marks) World Price

Increased World Price

Consumer Surplus Producer Surplus Consumer price Producer price Quantity of Exports Total Surplus Change in Surplus

(iv)

In two or three sentences, use the concept of surplus to explain to the researchers mentioned in the article why an economist would see an increasing world price as being a positive outcome overall. Refer to your previous diagram as part of your answer. (3 marks)

(v)

In a few sentences, explain why a domestic maximum price of milk imposed under the world price for milk would be problematic. (2 marks)

(i)

Assume milk in New Zealand has a demand function of Qd = 9 - 2P per litre, and a supply function of Qs = 3P - 3 per litre. Calculate the equilibrium price and quantity of milk (Show your working). Assume the price is in dollars, and the quantity is in millions of litres. (3 marks)

(ii)

Explain your working in (b)(i) above in words.

(iii)

Calculate the equilibrium price and quantity of milk if a 20 cent per litre subsidy were to be given to producers of milk. Show your working. (4 marks)

(b)

2

(2 marks)

Please Turn Over

Question 2

(25 marks)

(a) (i)

Using an indifference curve and a budget line, show a utility maximising consumer consuming a combination of milk and fizzy soft drinks. (Put milk on the vertical axis and fizzy soft drinks on the horizontal axis). (3 marks)

(ii)

On your diagram above, show the effect of an increasing price of milk. Be sure to explain the your answer. (7 marks)

(iii)

What is happening to the marginal rate of substitution as you move down your indifference curve? (1 mark)

(iv)

What is the relationship between the marginal rate of substitution and relative prices at the point of tangency? (1 mark)

(v)

Explain (you do NOT have to draw) what impact an inelastic price elasticity of demand for milk would have on the substitution effect in your diagram above. Explain (you do NOT have to draw) how that influences the slope of the demand curve for milk. (4 marks)

(i)

Explain the difference between a change in demand and a change in the quantity demanded (do not draw any diagrams) (4 marks)

(ii)

For each of the following five events, state which curve will shift in the market for potato chips, and the effect on price. (5 marks)

(b)

1. 2. 3. 4. 5.

An increase in the price of potatoes. An increase in the price of dip. Potato chips are found to increase the risk of heart disease. More productive potato picking machines are developed. A positive advertising campaign for potato chips is launched.

END OF EXAMINATION

3

Please Turn Over...