Answer the following questions - NSC Economics - Question 2 - 2022 - Paper 2
Question 2
Answer the following questions.
2.1.1 Name TWO types of collusion. (2 x 1) (2)
2.1.2 Why does the government provide subsidies to producers? (1 x 2) (2)
2.2 Stud... show full transcript
Worked Solution & Example Answer:Answer the following questions - NSC Economics - Question 2 - 2022 - Paper 2
Step 1
2.1.1 Name TWO types of collusion.
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Answer
Two types of collusion are:
Overt/exlicit collusion, where firms openly communicate and agree on prices or output.
Tacit/implicit collusion, where firms indirectly coordinate actions without explicit agreement.
Step 2
2.1.2 Why does the government provide subsidies to producers?
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The government provides subsidies to producers to reduce their production costs, which encourages them to increase output and ultimately contribute to economic growth. This also helps to stabilize prices and supports industries deemed essential to the economy.
Step 3
2.2.1 Identify a non-price strategy shown by the above information.
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A non-price strategy shown is the door-to-door delivery service adopted by Checkers to enhance customer convenience and market share.
Step 4
2.2.2 Name ONE example of a monopolistic competitive industry.
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An example of a monopolistic competitive industry is the restaurant industry, where many firms offer differentiated products.
Step 5
2.2.3 Briefly describe the term patent.
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A patent is a legal right granted to an inventor that gives them exclusive rights to produce, use, or sell an invention for a specified period, thereby protecting it from unauthorized use by others.
Step 6
2.2.4 Why are prices in a monopolistically competitive market lower than the prices of a monopoly?
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Prices in a monopolistically competitive market are lower than in a monopoly due to the presence of many competitors, which increases competition and allows consumers to have more choices, driving prices down.
Step 7
2.2.5 Explain the benefits of product differentiation to producers of goods and services.
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Answer
Product differentiation benefits producers as it allows them to:
Stand out from competitors, attracting more customers.
Charge premium prices for unique features, increasing profit margins.
Foster brand loyalty, ensuring repeat business.
Step 8
2.3.1 Identify the market price in the graph above.
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The market price identified in the graph is R18.
Step 9
2.3.2 Name any ONE product on which the government can impose a maximum price.
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An example of a product on which the government can impose a maximum price is bread.
Step 10
2.3.3 Briefly describe the term minimum price.
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A minimum price is the lowest price that can be legally charged for a good or service, set by the government to ensure producers can cover their costs and earn a fair profit.
Step 11
2.3.4 Why would the government intervene in the market by levying taxes on demerit goods?
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The government may levy taxes on demerit goods to discourage their consumption, thus aiming to reduce social costs associated with their use, while generating tax revenue.
Step 12
2.3.5 How would maximum prices influence the economy?
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Maximum prices can influence the economy in the following ways:
Encourage higher demand than supply, possibly leading to shortages.
Result in black markets where goods are sold at higher prices.
Step 13
2.4 Use the graph below to explain the effect of negative externality on the market.
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When negative externalities are present, the market fails to allocate resources efficiently. For instance, at quantity Q, the price P is lower than the social cost, leading to overproduction. The social marginal cost (S1) exceeds the private marginal cost (S). The result is an inefficiency where the quantity produced is higher than the socially optimal level, denoted by Q1, creating a welfare loss indicated by the shaded area.
Step 14
2.5 How does mutual dependence influence the behaviour/actions of firms in the oligopoly market?
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In an oligopoly market, firms are mutually dependent on each other's decisions, leading them to:
Monitor competitors closely to adjust prices accordingly.
Potentially engage in collusion to avoid price wars.
Employ non-price competition strategies to maintain market share, such as advertising.
