Answer the following questions - NSC Economics - Question 2 - 2022 - Paper 2

The government provides subsidies to producers to decrease their production costs. This support encourages increased production of goods and can help maintain prices at stable levels, benefiting both consumers and the economy.

A non-price strategy shown is the adoption of door-to-door delivery services, which enhances customer convenience and improves market reach.

An example of a monopolistic competitive industry is the restaurant industry, where many firms offer differentiated products.

A patent is a legal right granted to an inventor that gives them exclusive rights to make, use, or sell an invention for a specific period, usually 20 years. This protection encourages innovation by preventing others from copying the invention.

Prices in a monopolistically competitive market are lower than in a monopoly due to higher competition among many businesses. Firms in monopolistic competition have less market power compared to a monopoly, which can set higher prices due to being the sole producer of a product.

Product differentiation allows producers to:

1. Capture a larger market share by appealing to different consumer preferences.
2. Reduce price elasticity of demand, as customers perceive their products as unique, enabling firms to charge higher prices.

The market price identified in the graph is R18.

One product on which the government can impose a maximum price is bread.

A minimum price is a legally established lowest price that can be charged for a good or service, intended to ensure that producers can maintain a sustainable income.

The government intervenes by taxing demerit goods to discourage their consumption, as these goods can negatively impact society and public health. The taxes also aim to increase prices for these goods, thereby reducing demand.

Maximum prices can lead to:

1. Increased demand for the product, as consumers find it more affordable.
2. Shortages, as producers may be discouraged from supplying enough of the product at lower prices, leading to excess demand.

When negative externalities are present:

1. The market equilibrium may lead to overproduction at quantity Q, as it does not account for external costs.
2. Social efficiency is achieved at a lower quantity where the marginal social cost (MSC) aligns with the marginal private cost (MPC). Thus, policies to internalize these external costs are essential to counteract social inefficiencies.

In an oligopoly:

1. Firms are interdependent; the actions of one firm can directly impact competitors.
2. They may engage in collusion, maintain stable prices, or react to changes in pricing or product offerings to protect market share, ensuring strategic decision-making.