ECONOMIC P2

• When analysing markets, a range of assumptions are made about the rationality of economic agents involved in the transactions
• The Wealth of Nations was written

  1776
• Rational


  (in classical economic theory) economic agents are able to consider the outcome of their choices and recognise the net benefits of each one
• Rational agents will select the choice which presents the highest benefits
• Governments act rationally by


  Placing the interests of the people they serve first in order to maximise their welfare
• Groups assumed to act rationally


  • Consumers
  • Producers
  • Workers
  • Governments
• Rationality in classical economic theory is a flawed assumption as people usually don't act rationally
• A firm increases advertising

  Demand curve shifts right
• Demand curve shifting right

  Increases the equilibrium price and quantity
• Marginal utility


  The additional utility (satisfaction) gained from the consumption of an additional product
• If you add up marginal utility for each unit you get total utility
• Answer FOUR questions as follows in the ANSWER BOOK
• Answer only the required number of questions. Additional answers will NOT be marked. In SECTION B, only the first TWO questions will be marked and in SECTION C only the first ONE
• Number the answers correctly according to the numbering system used in this question paper
• Write the question number above each answer
• Read ALL the questions carefully
• Start the answer to each question on a NEW page
• Leave 2 – 3 lines open between sub-sections of questions
• Answer the questions in full sentences and ensure that the format, content and context of your responses comply with the requirements of the questions
• Use only black or blue ink
• Non-programmable calculators may be used
• Write neatly and legibly
• Types of supply elasticities

  • Any TWO
• Price elasticity of demand


  How a firm would benefit from considering it before changing prices
• TU


  Total utility
• Why people spend money on goods and services


  To gain utility/satisfaction
• Diminishing marginal utility


  The additional utility (satisfaction) gained from the consumption of an additional product decreases as more of the product is consumed
• A consumer becomes dissatisfied with the over usage of a good or service
• Determining missing values A and B in the table

  Show all calculations
• Luxury goods


  Goods that are not necessities and whose demand increases more than proportionately as income rises
• Price of i-Phones decreases


  Demand for i-Phone chargers increases
• Price elasticity of demand coefficient of 0.8 for i-Phone


  Indicates i-Phone has inelastic demand
• Examining the relationship between product and factor markets


  Discuss in detail
• Evaluating the impact of land shortage on food production

  Use neatly labelled graphs
• Factors influencing elasticity of demand

  • Any TWO
• Perfect competition vs monopoly

  Consumers benefit more under perfect competition
• Strategy Eskom can use to prevent load shedding

  Encourage residents and businesses to use electricity sparingly
• Price maker


  A firm that has the ability to set the price of its product
• Load shedding


  Reduces productivity
• Eskom can implement load shedding without losing customers