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2023 CECC Test 1 Memo

The document outlines a test for the CECC 021 – Mathematical Economics I course at the University of Limpopo, scheduled for March 17, 2023. It includes two main questions focused on supply and demand functions, requiring calculations of equilibrium price and quantity, consumer and producer surplus, and the effects of government interventions like price ceilings and subsidies. Students are instructed to answer all questions within a 90-minute timeframe, with specific monetary values denoted in South African Rands.

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93 views3 pages

2023 CECC Test 1 Memo

The document outlines a test for the CECC 021 – Mathematical Economics I course at the University of Limpopo, scheduled for March 17, 2023. It includes two main questions focused on supply and demand functions, requiring calculations of equilibrium price and quantity, consumer and producer surplus, and the effects of government interventions like price ceilings and subsidies. Students are instructed to answer all questions within a 90-minute timeframe, with specific monetary values denoted in South African Rands.

Uploaded by

nsovowaylon
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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UNIVERSITY OF LIMPOPO

SCHOOL OF ECONOMICS AND MANAGEMENT


DEPARTMENT OF ECONOMICS
CECC 021 – MATHEMATICAL ECONOMICS I

TEST: 01 TIME: 09:00 – 10:30

DATE: 17 MARCH 2023 DUE: 11:00 AM

TEST DURATION: 90 MINUTES MARKS: 65

INSTRUCTIONS

 ALL monetary values should be denoted in South African Rands.


 ANSWER ALL QUESTIONS.
 Round your answers off to two decimal place.
QUESTION 1 [30]

Given the following supply and demand functions:

Pd  15  0.25Qd
Ps  8  0.1Qs
a) Calculate the equilibrium quantity and price. (3)
𝑃𝐸 = 𝑅10 𝑎𝑛𝑑 𝑄𝐸 = 20 𝑢𝑛𝑖𝑡𝑠
b) Calculate the values of Consumer and Producer surplus. (3)
𝐶𝑆 = 50 𝑎𝑛𝑑 𝑃𝑆 = 20 𝑢𝑛𝑖𝑡𝑠
c) Analyse what would happen if the government imposed a price ceiling of R8.25. (5)
𝑄𝑑 = 27 𝑢𝑛𝑖𝑡𝑠 𝑎𝑛𝑑 𝑄𝑠 = 2.5 𝑢𝑛𝑖𝑡𝑠
𝑄𝑑 > 𝑄𝑠 = 24.5 𝑢𝑛𝑖𝑡𝑠 = 𝑒𝑥𝑐𝑒𝑠𝑠 𝑑𝑒𝑚𝑎𝑛𝑑
d) Assuming a black market arises because of the price ceiling; calculate the price that
consumers will be willing to pay. (2)
𝑃𝑑 = 𝑅14.38
e) Calculate the profit made by the black market operators. (2)
𝜋 = 𝑅15.33
f) If the government imposes a price floor of R14.50 per unit instead of a price ceiling in
this market, analyse its impact thereof. (5)
𝑄𝑑 = 2 𝑢𝑛𝑖𝑡𝑠 𝑎𝑛𝑑 𝑄𝑠 = 65 𝑢𝑛𝑖𝑡𝑠
𝑄𝑠 > 𝑄𝑑 = 63 𝑢𝑛𝑖𝑡𝑠 = 𝑒𝑥𝑐𝑒𝑠𝑠 𝑠𝑢𝑝𝑝𝑙𝑦

g) Sketch both functions on the same set of axis, clearly showing your solutions for:
a), b), c), d), e) and f) above. (10)

QUESTION 2 [35]

Consider the following functions and answer the questions that follow:

Pd  30  3Qd
Ps  5  2Qs

a) Calculate the equilibrium quantity and price ( PE and QE ) (3)


𝑃𝐸 = 𝑅9 𝑎𝑛𝑑 𝑄𝐸 = 7 𝑢𝑛𝑖𝑡𝑠
b) Interpret the slopes of both functions in accordance with economic theory. (4)
Both -3 and 2 are not going to make sense if interpreted in accordance with economic
theory. Therefore, the correct interpretation is the following: An increase of R1 in the
price will lead to a reduction of 0.33 units in the quantity demanded and a R1 increase
in price will lead to a 0.5 unit increase in quantity supplied.
c) Suppose that the government provides a subsidy of R3.75 per unit. What would be
the new PE and QE ? (5)
𝑃𝐸 = 𝑅6.75 𝑎𝑛𝑑 𝑄𝐸 = 7.75 𝑢𝑛𝑖𝑡𝑠
d) What price does the producer receive after the subsidy? (2)
𝑃𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑟 = 𝑅10.50
e) Show (calculate) the distribution of the subsidy in both monetary and percentage
form. Who receives more? (6)
𝑆𝑢𝑏𝑠𝑖𝑑𝑦𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑟 = 𝑅1.50 (40%) 𝑎𝑛𝑑 𝑆𝑢𝑏𝑠𝑖𝑑𝑦𝑐𝑜𝑛𝑠𝑢𝑚𝑒𝑟 = 𝑅2.25 (60%)
f) Calculate the values of Consumer and Producer surplus after the subsidy. (5)
𝐶𝑆 = 90.09 𝑎𝑛𝑑 𝑃𝑆 = 60.06
h) Sketch ALL the relevant functions on the same set of axis; clearly showing your
solutions for: a), b), c), d), e) and f) above. (10)

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