QUESTION 1 1a) A community in Northern Namibia produces only two goods, TVs and CDs. With...

QUESTION 1
1a) A community in Northern Namibia produces only two goods, TVs and CDs. With the aid of properly labelled production possibilities curves illustrate each of the following (putting TVs on the vertical axis).
i) A shift in production from CDs (services) towards TVs (goods). (5)
ii) An increase in the potential output of the community due to a greater availability of the factors of production. (5)
iii) Using well labelled diagrams, explain how the equilibrium price and equilibrium quantity of apples will change as a result of the following;
First scenario : A change in the wages of farm workers from R150 per day to R200 per day. (10)
Second Scenario : A decrease in the price of fertilizers and a concurrent increase in the demand for apple juice. (10)
1b)
i) Briefly explain price elasticity of demand and how it is measured. (5)
ii) Explain with diagrams and relevant examples, THREE (3) categories of price elasticity of demand. (9)
iii) Explain any THREE (3) determinants of price elasticity of demand. (6)
1c)
1c (i) Lonewolf Ltd is the sole manufacturer and supplier of solar panels in the country. As a result of this the CEO claimed in a recent meeting that he can set any price he wishes and sell as many units of his product as he wants at that price. Is this correct? Motivate your answer. (7)
c(ii)Explain using properly labelled diagrams, why a perfectly competitive firm will earn only normal profit in the long-run. (16)
c(iii) Explain SEVEN (7) conditions necessary for a perfectly competitive market to exist. (7)

Solutions

Expert Solution

Production possibilities curves – CDs and TVs

1 The PPF in orange shows the shift in production from CDs towards TVs. The PPF in black is the original PPF.

2 The PPF in purple shows an outward parallel shift because of an increase in potential output of the community due to a greater availability of the factors of production.

Rahul Sunny answered 1 year ago

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