2019 TEST 3 econ tutorial excellent revision PDF

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2019 TEST 3

1. C- A price ceiling is a legal maximum on the price at which a good can be sold. This is provided to help buyers in the market. A price floor is a legal minimum on the price at which a good can be sold. This is to help sellers in the market. 2. C- The price ceiling takes comes into use at P2 and the price cannot increase to P3 due to the price ceiling. At P2 a shortage will occur in the market. As quantity demanded is greater than quantity supplied. 3. B- Prices have the crucial job of balancing supply and demand and, thereby coordinating economic activity. When policymakers set prices by legal decree, they obscure the signals that normally guide the allocation of society’s resources. Hence they often hurt those they are trying to help and make markets inefficient. 4. D- A price ceiling at $6.00 will cause the market to supply a quantity of 30 and quantity demand of 70 units. This will lead a shortage of 40 units in the market. 5. C- A price floor will be binding at any price above the market equilibrium price. In this market a price floor will be binding at any price above $10. 6. D- The impact of the minimum wage depends on the skill and experience of the worker. Highly skilled and experienced workers are not affected because their equilibrium wage is well above the minimum wage. 7. A- The amount of tax imposed in the market is $3. As the price before tax was $5 and then after tax was imposed the market price went to $8. 8. C- After the tax is imposed the sellers will received is $5. Due the tax imposed sellers will receive less than before. 9. B-The demand is inelastic and the supply is elastic for macaroni. Since demand is inelastic that means that a change in price will cause a small decrease in quantity demanded. Buyers pay more tax as the more inelastic the curve the more tax you pay. The same outcome happens in the market for cigarettes as the demand is inelastic. 10. C- If a tax had to be imposed on a particular luxury good, the price will increase due to the tax. But rich people want valve for the money as they can use that same money for a vacation rather to pay for that particular luxury good. So the tax burden falls on the suppliers which are middle class. In the short run there aren’t many alternatives for these suppliers and hence they suffer.

11. A-The more inelastic the supply curve is the more the tax burden falls. So in market A the supply curve is very inelastic and the tax burden falls in that market for suppliers. 12. B- Hulisani gave up her job where she earned R250 000 and started a catering job. The R250 000 that she left will fall about of the opportunity cost. This will be included in the economic profit. 13. A- Economic profit is made up total revenue – total cost (explicit + implicit cost). 150 000 – 100 000(interest she would of gotten) – 75 000 (the salary she would of gotten) = -25 000. The economic profit is R25 000 loss. 14. D- When the firm starts with one worker some resources are idle and only few outputs are made. As the firm hires more and more workers, these additional workers will contribute less to the production process as the workplace is crowed. This is known as diminishing marginal product. 15. A- At low levels of output, the firm experiences increasing marginal product, and the marginal cost curve falls. 16. D- Marginal cost = change total cost ÷ change in quantity. The change in total cost is 2500 and change in output is 1. Hence the marginal cost is 2500. 17. B- Average variable cost = variable cost (4280 – 1080) ÷ 6 = 533.33.

÷ quantity. The variable cost is 3200

18. C- Average fixed is calculated as fixed cost ÷ quantity. Fixed costs are cost that remains constant. As the number of units increase, the fixed still remain constant and hence the average fixed cost tends to decrease. 19. C- In the long run the firm experiences economic and diseconomics of scale. Economic of scale is the property whereby long run average total cost falls as the quantity of output increases. Diseconomic of scale is the property whereby long run average total cost rises as the quantity of output increases. Long run average total cost is falling at low levels of production because of increasing specialization and rising at high levels of production because of increasing coordination problems. 20. C- Constant returns to scale is the property whereby long run average total cost stays as the quantity of output changes. The firm experience this at quantity 3 to quantity 4. 21. C- The profit maximizing point is where P=AR=MR= marginal cost. This is where MR = MC. Also the change in profit is zero. The firm should be constantly producing at this point.

22. C- Marginal revenue is equal to price in the competitive market. MR is R80 which mean the price is R80. Total revenue is Price x quantity. TR = 80 x 6 = R480. 23. D- Total revenue is R90 (9 x 10). Total cost is R70 (ATC X Q. 7 X 10 = 70). Profit is exactly R20 (90 – 70). 24. C- TR= 999 X 12= 11 988. TC is 10 985 (MC is change TC ÷ change in quantity. MC was 15 and TC was 11 000 so MC – TC is 10985). Hence the profit is R1003. 25. C- Fixed cost is sunk cost in the short run. The restaurant cannot run away from these costs. The owner shut downs the restaurant at lunchtime only if the revenue from the few customers fails to cover the restaurants variable cost. 26. B- If the firm decides to shut down they still have to pay the fixed cost. These costs are still incurred if the business isn’t producing any output at all. It’s a cost that has already been committed and cannot be recovered (sunk cost). 27. C- The firm will shut down if total revenue is less than variable cost. The firm cannot meet its variable cost. It’s better for the firm to shut down and it can control its variable cost by letting some its employees go. 28. B- In the long run the firms supply curve is horizontal which means perfectly elastic. This is arrived by the price in the market which is equal to the minimum ATC. 29. D- Demand had decreased and price also decreased from P2 to P1. This means firms will stop entering the market as existing firms will be making zero economic profit. The quantity will increase as there are more firms in the market. 30. A- Resources used in production may be available only in limited quantities. For example a farm. Anyone can choose to buy a farm but the quantity of land is limited. As more people become farmers, the price of farm land increases. An increase in demand for farm products cannot induce an increase in quantity supplied without inducting a rise in farmers cost. This leads to an increase in price. The long run market supply curve that is upward slopping....