14 Fresh cream is a substitute for ice-cream and waffles are a complement of bot
ID: 1142077 • Letter: 1
Question
14 Fresh cream is a substitute for ice-cream and waffles are a complement of both. If the price of ice-cream falls, one can expect that a) The demand for fresh cream will increase and the quantity of waffles demanded will increase b) The demand for fresh cream will decrease and the demand for waffles will increase c) The quantity of fresh cream demanded will decrease and the demand for waffles will increase d) The quantity of fresh cream demanded will decrease and the quantity of waffles demanded will increase .5 If the price and the quantity of screwdrivers exchanged falls, it is likely that a) Demand for screwdrivers has increased b) Demand for screwdrivers has decreased c) Supply of screwdrivers has decreased d Supply of screwdrivers has increased. 1.6 Overproduction of apples causes farmers' incomes to fall. This is an example of a) b) c) d) Perfectly elastic demand Elastic demand. Unitary elasticity of demand Inelastic demand 7 Which one of the following statements is correct? If the price elasticity of the demand for ice cream is greater than one, then the suppliers of ice cream can increase their total revenue by raising the price of ice cream. The price elasticity of demand stays the same at each point along a linear demand curve If a 10 per cent increase in university fees results in a 5 per cent reduction in the quantity of university education demanded, then the demand for university education is price elastic. If the price elasticity of the demand for bread is less than one, a decrease in the price of bread will lower the total revenue of the suppliers of bread. a) b) c) d) 8 Normal profit implies that a) All factors employed are earning an amount equal to their opportunity costs b) Firms are earning enough to cover all the costs of production c) Price must be greater than average variable cost d) All of the above 1.9 A firm finds that by producing and selling the last unit of its product, the marginal revenue it earns is R40 and the marginal cost it incurs is R35. In order to maximise profits, the firm should a) Decrease its output if it is a perfectly competitive firm, but not necessarily if it is a monopolistic firm b) Decrease its output if it is a monopolistic firm, but not necessarily if it is a perfectly competitive firm c) Increase its output irrespective of the type of firm it is d) Decrease its output irrespective of the type of firm it isExplanation / Answer
Ans. 1.4 d) on the fall in the prices of ice-cream, consequently the demand for its substitute, fresh-cream would fall as people would prefer to buy more of ice-cream in place of fresh cream as well. Also, the quantity demanded of waffles would also increase as with an increase in the demand for ice cream standing as its substitute waffles would also be demanded more.
Ans.1.5 d) when the price, as well as the quantity of screwdrivers, exchanged, falls it can be said that, the supply of screwdrivers has increased. Due to an increase in the supply of screwdrivers, its prices will fall because more the supply reduced is the demand, due to which the prices also fall consequently as there is no demand. Then due to increased supply, the quantity produced would also reduce as there is no demand for the product.
Ans.1.6 d) With the overproduction of apples, the demand for the same would become inelastic after some time, which means, with an increased supply of apples in the market, the demand for the same did not increase in the same pace. And hence the farmer's income fell as the demand did not meet the supply and being a perishable good it wasted or got rotten without redeeming any price for the same.
Ans.1.7 c) With an increase in fee by 10 the demand for the university education decreased by 5 this means that the demand is price elastic. That is, with an increase in price the demand falls consequently and hence the elasticity of demand is greater than one.
Ans 1.8. d) all the optioned mentioned above are correct. Normal profits imply when the firm is able to cover up all the cost that it has incurred during production.
Ans 1.9 b) decrease the production if it's a monopolistic firm because of the decrease in the production the supply of the product would decrease and consequently the demand for the same would be the same. But due to decreased supply, the prices would increase and the firm will earn more profits.
A perfectly competitive firm will not decrease its output because then the supply would decrease and due to the resultant rise in prices, the firm would lose its customers as they will get the same product at lower prices in the others shop (due to a perfectly competitive market).
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