ECS2601 Assignment 3 QUIZ (COMPLETE ANSWERS) Semester 1 2026 - DUE 23 April 2026

ECS2601 Assignment 3 QUIZ (COMPLETE ANSWERS) Semester 1 2026 - DUE 23 April 2026; 100% TRUSTED Complete, trusted solutions and explanations. For assistance, Whats-App 0.8.1..2.7.8..3.3.7.2... Ensure your success with us.... Question 1 Not yet answered Marked out of 2.00 Question 2 Not yet answered Marked out of 2.00 QUIZ Average revenue per quanity, is also equal to price times quantity. Select one: True False A monopolist engages in perfect price discrimination … a. the marginal revenue curve becomes horizontal. b. the demand curve and the marginal revenue curve are identical. c. marginal cost becomes zero. d. the marginal revenue curve lies below the demand curve. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 3 Question 3 Not yet answered Marked out of 2.00 Question 4 Not yet answered Marked out of 3.00 QUIZ Price discrimination requires the ability to sort customers and the ability to prevent arbitrage. Select one: True False Consider the following functions faced by a monopolist: Demand: P=20-2Q MR=20-4Q MC=5+Q At which level of output is profit being maximised? a. 10 b. 2 c. 5 d. 3 Clear my choice ECS2601-26-S1  Welcome Message  Assessment 3 Question 5 Not yet answered Marked out of 2.00 Question 6 Not yet answered Marked out of 2.00 QUIZ Duopoly is a special case of which type of market structure a. Oligopoly. b. Monopsony. c. Monopoly. d. Imperfect competition. Clear my choice What do the Cournot and Bertrand models have in common? a. The two models have nothing in common. b. None of the options are correct c. Both are oligopoly models in which firms produce a good that the consumer cannot easily substitute. d. In both models, each firm takes some aspect of its rivals behavior (either quantity or price) as fixed when making itsown decision. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 3 Question 7 Not yet answered Marked out of 2.00 Question 8 Not yet answered Marked out of 3.00 QUIZ Given the previous unit sold, the monopolist earns less revenue from that unit due to a reduced price. Select one: True False A firm faces the following average revenue (demand) curve: P = 120 – 0.02Q where Q is weekly production and P is price, measured in cents per unit. The firm’s cost function is given by C = 60Q + 25,000.Assume that the firm maximizes profits. What is the level of Profit? a. 8 750 cents per week. b. 20 000 cents per week. c. 25 000 cents per week. d. 377 800 cents per week. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 3 Question 9 Not yet answered Marked out of 2.00 Question 10 Not yet answered Marked out of 2.00 QUIZ Optimal, third-degree price discrimination do not require that marginal revenue for each group of consumers equals marginalcost. Select one: True False An increase in marginal cost will always push the price up and cause the quantity supplied by a monopolist to be less thanthe quantity supplied before the increase in marginal cost. Select one: True False ECS2601-26-S1  Welcome Message  Assessment 3 Question 11 Not yet answered Marked out of 2.00 Question 12 Not yet answered Marked out of 3.00 QUIZ For a monopolist the market price is affected by their choice of quantity. Select one: True False A monopolist in a glass making market appoints you as a pricing strategist and wants to know how many glass productsshould the company produce and what price should the company charge in order to maximise profit. The demand, marginalrevenue and marginal costs curves of the company are as follows: Demand: P=10-Q MR=10-2Q MC=2.5+0.5Q What price should the company charge to maximise its profit? a. 7 b. 5 c. 8 d. 3 Clear my choice ECS2601-26-S1  Welcome Message  Assessment 3 Question 13 Not yet answered Marked out of 2.00 Question 14 Not yet answered Marked out of 2.00 QUIZ A strategy that leads to the best outcome regardless of what the competitor does: a. Nash equilibrium strategy b. Mixed strategy c. Cournot strategy d. Dominant strategy Clear my choice In which oligopoly model do firms earn zero economic profit? a. Bertrand b. Cournot c. Oligopoly firms always earn economic profits. d. Stackelberg Clear my choice ECS2601-26-S1  Welcome Message  Assessment 3 Question 15 Not yet answered Marked out of 2.00 Question 16 Not yet answered Marked out of 3.00 QUIZ Which of the following is/are TRUE regarding the average revenue? a. AR(Q) = P(Q) b. AR(Q) = D c. All of the options are true. d. AR(Q) MR(Q) Clear my choice Suppose that an industry is characterized as follows: C = 100 + 2q each firm’s total cost function MC = 4q firm’s marginal cost function P = 90 – 2Q industry demand curve MR = 90 – 4Q industry marginal revenue curve If there is only one firm in the industry, find the monopoly level of profit. a. R406.25 b. R550 c. R55 d. R40.62 Clear my choice 2 ECS2601-26-S1  Welcome Message  Assessment 3 Question 17 Not yet answered Marked out of 2.00 Question 18 Not yet answered Marked out of 2.00 QUIZ The maximum price that a consumer is willing to pay for a good is called the … a. reservation price. b. choke price. c. market price. d. first-degree price. Clear my choice The kinked demand curve model of oligopoly assumes that the elasticity of demand … a. in response to a price increase is less elastic than the elasticity of demand in response to a price decrease. b. is constant regardless of whether price increases or decreases. c. in response to a price increase is more elastic than the elasticity of demand in response to a price decrease. d. is perfectly elastic if price increases and perfectly inelastic if price decreases. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 3 Question 1 Not yet answered Marked out of 2.00 Question 2 Not yet answered Marked out of 3.00 QUIZ Which of the following is correct regarding a pure monopoly? a. Monopolies are efficient. b. Demand is the same as the marginal revenue. c. Monopolies can be price-discriminating. d. Monopolies are state-owned. Clear my choice A firm faces the following average revenue (demand) curve: P = 120 – 0.02Q where Q is weekly production and P is price, measured in cents per unit. The firm’s cost function is given by C = 60Q +25,000. Assume that the firm maximizes profits. What is the level of production? a. 6000 b. 3000 c. 1500 d. 750 Clear my choice ECS2601-26-S1  Welcome Message  Assessment 3 Question 3 Not yet answered Marked out of 2.00 Question 4 Not yet answered Marked out of 2.00 QUIZ Rent seeking involves which of the following activities? a. Bribery b. All of the options are correct. c. Advertising d. Hiring thugs. Clear my choice Which of the following is correct regarding a firm operating in an oligopolistic market? a. The firm demand is the same as its average revenue. b. A cartel is generally illegal. c. The firm has imperfect information. d. The firm is a utility minimiser. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 3 Question 5 Not yet answered Marked out of 2.00 Question 6 Not yet answered Marked out of 2.00 QUIZ Price discrimination based on the quantity consumed is referred to as … price discrimination. a. second-degree b. group c. third-degree d. first-degree Clear my choice A natural monopoly exists in an industry with constant returns to scale. Select one: True False ECS2601-26-S1  Welcome Message  Assessment 3 Question 7 Not yet answered Marked out of 2.00 Question 8 Not yet answered Marked out of 2.00 QUIZ Electric utilities often practice second-degree price discrimination which may lead to an increase in consumer welfare. Select one: True False A monopolist choose a price to charge in order to maximise profits, given that price depends on qunatity. Select one: True False ECS2601-26-S1  Welcome Message  Assessment 3 Question 9 Not yet answered Marked out of 2.00 Question 10 Not yet answered Marked out of 2.00 QUIZ Assume the marginal cost of a firm to produce headphones is R50. If the consumer is willing to pay R80 for the headphones,this means the reservation price of the consumer is a. 30 b. 50 c. 130 d. 80 Clear my choice For every addtional unit sold, the monopolist earns more revenue. Select one: True False ECS2601-26-S1  Welcome Message  Assessment 3 Question 11 Not yet answered Marked out of 2.00 Question 12 Not yet answered Marked out of 3.00 QUIZ The monopolistic competitor can sell to less consumers and maximize overall profit by producing multiple brands andpracticing a form of price discrimination. Select one: True False Given the relationship between the demand curve (Demand) and the marginal revenue (MR) curve of a monopolist in terms oftheir steepness (slope), What is the MR curve function , when the Demand curve function is given by: P = 100 - 4Q a. MR = 100 - 8Q b. MR = 50 - 2Q c. MR = 100 - 2Q d. MR = 200 - 8Q Clear my choice ECS2601-26-S1  Welcome Message  Assessment 3 Question 13 Not yet answered Marked out of 3.00 Question 14 Not yet answered Marked out of 2.00 QUIZ A firm faces the following average revenue (demand) curve: P = 120 – 0.02Q where Q is weekly production and P is price, measured in cents per unit. The firm’s cost function is given by C = 60Q + 25,000.Assume that the firm maximizes profits. What is the level of Price? a. R105 b. R0.90 c. R1.20 d. R60 Clear my choice In a Cournot duopoly model, one characteristic of the equilibrium position is that … a. output is less that the single-price monopoly output would be if only one firm were in the market. b. output is the same as would exist in a competitive market. c. both firms produce the same amount of output. d. one firm drives the other out of the market. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 3 Question 15 Not yet answered Marked out of 2.00 Question 16 Not yet answered Marked out of 2.00 QUIZ Cournot equilibrium is stable because each firm is producing the amount that maximizes its profit, given what its competitorsare producing. Select one: True False When MR MC, this mean a monopolist is facing reduced profits and should produce less. Select one: True False ECS2601-26-S1  Welcome Message  Assessment 3 Question 17 Not yet answered Marked out of 2.00 Question 18 Not yet answered Marked out of 3.00 QUIZ Which of the following models results in the highest level of output assuming a fixed number of firms with identical costs anda given demand curve? a. Stackelberg b. Cournot c. Cartel d. Monopoly Clear my choice A firm faces the following average revenue (demand) curve: P = 120 – 0.02Q where Q is weekly production and P is price, measured in cents per unit. The firm’s cost function is given by C = 60Q + 25,000.Assume that the firm maximizes profits. If the government decides to levy a unit tax of 14 cents per unit on this product, what will be the new level of profit? a. 6450 cents per week b. 1450 cents per week. c. 359 250 cents per week. d. 9800 cents per week. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 Question 1 Not yet answered Marked out of 2.00 Question 2 Not yet answered Marked out of 2.00 QUIZ Michael decides that he would pay as much as R3 200 for a new laptop computer. He buys the computer and realisesconsumer surplus of R800. How much did Michael pay for his computer? a. R2 400 b. R3 200 c. R4 000 d. R800 Clear my choice The market supply curves and market demand curves for books are given as follows: Supply curve: P = 0.000002Q Demand curve: P = 11 – 0.00002Q The short-run marginal cost curve: MC = 0.1 + 0.0009Q The equilibrium quantity of books is … a. 1 book b. 500 000 books c. 1 000 books d. 10 000 books Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 Question 3 Not yet answered Marked out of 2.00 Question 4 Not yet answered Marked out of 2.00 QUIZ When the government provides a subsidy for a product, this will ... a. Encourage overproduction. b. Be a government cost. c. All of the options are true. d. Increase Producer Surplus Clear my choice You operate a car-retailing business with a fixed amount of machinery (capital), but you have recently changed the number ofworkers that you employ per hour. As you increased the number of employees hired per hour from three to five, your totaloutput increased by five cars to 15 cars per hour. What is the average product of labour at the new levels of labour? a. AP = 4 cars per worker b. AP = 5 cars per worker c. AP = 3 cars per worker d. We do not have enough information to answer this question. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 Question 5 Not yet answered Marked out of 2.00 Question 6 Not yet answered Marked out of 2.00 QUIZ If the total cost is R1000 and the average fixed cost is R16 when 25 units of output are produced, then the average variablecost at that level of output is … a. Impossible to determine. b. R16. c. R24. d. R40. Clear my choice A firm producing five units of output has an average total cost of R100 and has to pay R250 to its fixed factors of production.The average variable cost is … a. R200 b. R50 c. R250 d. R100 Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 Question 7 Not yet answered Marked out of 2.00 Question 8 Not yet answered Marked out of 2.00 QUIZ When government intervenes in a competitive market by imposing an effective price ceiling, we would expect the quantity supplied to __________ and the quantity demanded to __________. a. rise; fall b. fall; fall c. rise; rise d. fall; rise Clear my choice Consider the equilibrium in the market for carrots expressed as: Qs=2P Qd=21-P. If P = R7 and Q = 14. What is the consumer surplus? a. 3.5 b. 49 c. 7 d. 98 Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 Question 9 Not yet answered Marked out of 2.00 Question 10 Not yet answered Marked out of 2.00 QUIZ If MC is greater than AC, AC must be decreasing in Q. Therefore, we have economies of scale. Select one: True False A sales tax of R1 per unit of output is placed on a particular firm whose product sells for R5 in a competitive industry withmany firms. What will happen to the firm’s price? a. More information is needed to determine what will happen to the price. b. Increase c. Decrease. d. Remain the same Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 QUIZ Question 11 Not yet answered Marked out of 2.00 Use the following graph to answer the question. Assume that a firm is producing at the profit-maximising output of q*, and a price of P, as indicated in the figure above. This isan example of: a. A competitive firm making a loss b. A competitive firm that should shut down c. A competitive firm that should exit the market d. A competitive firm making a positive profit Clear my choice Question 12 Not yet answered Marked out of 2.00 Implicit costs are the best alternative return of all of an agent’s input such as money or time. Select one: True False ECS2601-26-S1  Welcome Message  Assessment 2 Question 13 Not yet answered Marked out of 2.00 QUIZ Use the table below to answer the following questions: Output Price Revenue Cost Profit MC MR 0 75 100 - - 1 75 150 2 75 178 3 75 198 4 75 212 5 75 230 The data in the table gives information about the price (in Rands) for which a firm can sell a unit of output and the total costof production. At what output level will the firm start to make a positive profit: a. 3 b. 2 c. 4 d. 5 Clear my choice Question 14 Not yet answered Marked out of 2.00 Suppose the city decides to sell permits. What is the maximum price the vendor would pay for a permit per day? a. R50,00 b. None of the options are correct. c. R100,00 d. R75,00 Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 QUIZ Question 15 Not yet answered Marked out of 2.00 Assume that a firm is producing at the profit-maximising output of q*, and a price of P, as indicated in the figure above. Therectangle ABCD shows: a. The firm’s total profit b. The firm's total loss c. The firm’s total fixed cost d. The total number of units produced Clear my choice Question 16 Not yet answered Marked out of 2.00 In place of a price floor, the government can instead impose a production quota. Select one: True False ECS2601-26-S1  Welcome Message  Assessment 2 Question 17 Not yet answered Marked out of 2.00 Question 18 Not yet answered Marked out of 2.00 QUIZ If current output is less than the profit-maximising output, then the next unit produced will… a. increase revenue without increasing cost. b. increase cost more than it increases revenue. c. increase revenue more than it increases cost. d. decrease profit. Clear my choice Which of the following best explains why we cannot consider the returns to scale of a production function in the short run? a. Production functions exhibit negative returns to scale in the short run. b. Returns to scale determine the diminishing marginal returns of the inputs. c. Returns to scale is a property of the consumerʹs utility function in the short run. d. We cannot change all of the production inputs in the short run. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 Question 19 Not yet answered Marked out of 2.00 Question 20 Not yet answered Marked out of 2.00 QUIZ A small city has a number of hot dog stands operating throughout the CBD area. Suppose that each vendor has a marginalcost of R2,00 per hot dog sold and no fixed cost. Suppose the maximum number of hot dogs that any one vendor can sell is100 per day. If each vendor sells the maximum 100 hotdogs per day and demand for hot dogs is given as Q(d) = 4400 – 1200P, what is thetotal number of vendors in the market in the short run? a. 10 vendors. b. 20 vendors. c. 15 vendors. d. 2 vendors. Clear my choice Suppose Hayley, Chloe and Olivia all purchase small whiteboard markers for their rooms at R250 each. Hayley’s willingnessto pay was R400, Chloe’s willingness to pay was R350, and Olivia’s willingness to pay was R300. The total consumer surplusfor these three would be ... a. R250. b. R800. c. R1 050. d. R300. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 Question 1 Not yet answered Marked out of 2.00 Question 2 Not yet answered Marked out of 2.00 QUIZ A firm’s average fixed cost is R40 if it produces five units of output. If it produces four units, its average fixed cost will be … a. R10 b. R50 c. R40 d. R18 Clear my choice In the short run, a perfectly competitive firm earning positive profit is … a. on the downward sloping portion of its ATC. b. above its ATC. c. on the upward sloping portion of its ATC. d. at the minimum of its ATC. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 Question 3 Not yet answered Marked out of 2.00 Question 4 Not yet answered Marked out of 2.00 QUIZ Which of the following statements regarding a firm that is a price-taker is FALSE? a. The firm’s demand curve is horizontal but the market demand curve is downward sloping. b. The firm’s demand curve is downward sloping. c. The firm will sell its product at the going market price. d. The firm would not sell anything if it sets its price higher than the market price. Clear my choice Suppose a profit-maximising perfect competitor’s daily output level to make a profit is 100 units per day. Which of thefollowing statements is FALSE? a. The perfect competitor’s total cost (TC) will equal its AVC at an output of 100 a day multiplied by 100. b. The perfect competitor’s profit per unit of output will equal the gap between its average revenue (AR) curve and itsshort-run average cost (SAC) curve at an output of 100 a day. c. The perfect competitor’s average fixed cost (AFC) for each unit of output will equal the gap between its SAC andaverage variable cost (AVC) curves at an output of 100 a day. d. The perfect competitor’s total revenue (TR) will equal its AR at an output of 100 a day multiplied by 100. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 Question 5 Not yet answered Marked out of 2.00 Question 6 Not yet answered Marked out of 2.00 QUIZ A firm should always produce at an output at which long-run average cost is minimized. Select one: True False Thabang is willing to pay R20 for essay editing, and Tshego is willing to edit essays for R10. The perfect competitive marketprice for editting is R14. Calcuate total surplus. a. R9 b. R5 c. R10 d. R11 Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 Question 7 Not yet answered Marked out of 2.00 Question 8 Not yet answered Marked out of 2.00 QUIZ A firmʹs short-run average cost curve is U-shaped. Which of these conclusions can be reached regarding the firmʹs returns toscale? a. The firm experiences first decreasing, then increasing returns to scale. b. The firm experiences increasing returns to scale. c. The firm experiences increasing, constant, and decreasing returns in that order. d. The short-run average cost curve reveals nothing regarding returns to scale. Clear my choice A firm producing seven units of output has an average total cost of R150 and has to pay R350 to its fixed factors ofproduction. The average variable cost is … a. R50. b. R300. c. R100. d. R200. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 Question 9 Not yet answered Marked out of 2.00 Question 10 Not yet answered Marked out of 2.00 QUIZ Suppose Ruhan, Jayde and Chloe all purchase small whiteboard markers for their rooms at R200 each. Ruhan’s willingness topay was R450, Jayde’s willingness to pay was R350, and Chloe’s willingness to pay was R300. The total consumer surplus forthese three would be ... a. R900. b. R1 100. c. R500. d. R200. Clear my choice A small city has a number of hot dog stands operating throughout the CBD area. Suppose that each vendor has a marginalcost of R1,50 per hot dog sold and no fixed cost. Suppose the maximum number of hot dogs that any one vendor can sell is100 per day. If a hot dog is priced at R2, how many hot dogs would each street vendor want to sell per day? a. 75 b. 100 c. 50 d. 0 Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 Question 11 Not yet answered Marked out of 2.00 Question 12 Not yet answered Marked out of 2.00 QUIZ All government intervention in Perfect Competition cause deadweight loss. Select one: True False If accounting profits are positive and economic profits are negative in the long run, the proper strategy is to ... a. go back and recalculate figures, because accounting profits can never be more than economic profits. b. monitor the situation closely and leave the business the minute accounting profits start to decline. c. feel satisfied because, in the long run, accounting profits will average zero. d. close down the business and shift the resources to more profitable ventures. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 Question 13 Not yet answered Marked out of 2.00 Question 14 Not yet answered Marked out of 2.00 QUIZ Marginal revenue, shown graphically, is the … a. slope of a line from the origin to a point on the total revenue curve. b. slope of a line from the origin to the end of the total revenue curve. c. vertical intercept of a line tangent to the total revenue curve at a given point. d. slope of the total revenue curve at a given point. Clear my choice A price ceiling usually result in a deadweight loss. Select one: True False ECS2601-26-S1  Welcome Message  Assessment 2 Question 15 Not yet answered Marked out of 2.00 Question 16 Not yet answered Marked out of 2.00 QUIZ Production Quotas encourages the quantity supplied of any good. Select one: True False Each point on the long-run average cost curve is a … a. cost of production based on a particular input price ratio. Other points on the long-run average cost curve show costof output with alternative input prices. b. minimum point on some short-run average cost curve as well. c. point on the long-run marginal cost curve as well, because the long run average cost curve and long-run marginalcost curve are always identical. d. level of average cost that is the lowest possible average cost for that level of output. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 Question 17 Not yet answered Marked out of 2.00 Question 18 Not yet answered Marked out of 2.00 QUIZ Deadweight loss is the decrease in … from producing an efficient amount of a product. a. consumer surplus b. producer surplus c. profit d. consumer and producer surplus Clear my choice Short-run equilibrium is efficient because at that point … a. the benefit from the last unit produced is exactly equal to the cost of producing that unit of output. b. the price will always equal the average cost of production. c. accounting profits will exist but economic profits will be zero. d. all firms that are operating will be covering their fixed cost. Clear my choice ECS2601-26-S1  Welcome Message  Assessment 2 Question 19 Not yet answered Marked out of 2.00 Question 20 Not yet answered Marked out of 2.00 QUIZ Price ceilings are only effective if the black market is prevented. Select one: True False Themba decides that he would pay as much as R3 500 for a new laptop computer. He buys the computer and realisesconsumer surplus of R900. How much did Themba pay for his computer? a. R3 500 b. R4 400 c. R900 d. R2 600 Clear my choice UNISA  2024  ECS2601-24-S1  Welcome Message  Assessment 5 Question 1 Correct Mark 3.00 out of3.00 Started on Monday, 20 May 2024, 11:57 AM State Finished Completed on Monday, 20 May 2024, 2:01 PM Time taken 2 hours 4 mins Marks 32.00/40.00 Grade 80.00 out of 100.00 QUIZ Use the following graph for a monopolist to answer thequestion. From the graph we can infer that .... a. An increase in cost result to an increase in priceand a reduction in quantity supplied. b. AR=D c. All of the options are correct.  d. MR D Downloaded by Edge Tutor () lOMoARcPSD| Question 2 Correct Mark 2.00 out of2.00 Question 3 Correct Mark 3.00 out of3.00 In which oligopoly model do fi rms earn zero economicprofi t? a. Cournot b. Stackelberg c. Bertrand  d. Oligopoly fi rms always earn economic profi ts. An oligopoly model in which fi rms produce a homogeneousgood, each fi rm treats the price of its competitors as fi xedand all fi rms decide simultaneously what price to charge.Since each fi rm has an incentive to undercut in this model,the fi rms will price at MC and will thus make no profi t. Use the following graph to answer the question. Producer surplus in a monopoly is represent by ... a. A + B + D b. B + D  c. D + B + C + E d. A + B + C + D + E Downloaded by Edge Tutor () lOMoARcPSD| Question 4 Correct Mark 2.00 out of2.00 Question 5 Incorrect Mark 0.00 out of2.00 Question 6 Incorrect Mark 0.00 out of2.00 Question 7 Correct Mark 2.00 out of2.00 When a fi rm practices perfect fi rst-degree pricediscrimination, each unit is sold at the reservation price ofeach consumer (assuming each consumer purchases oneunit). Select one: True  False In a prisoner’s dilemma with prisoners A and B, if they bothconfess, A gets 5 years and B gets 8 years. If both remainsilent, A gets 2 years and B goes free. If one confesses andthe other does not, the one who confesses gets 1 year andthe other gets 15 years. Which statement is TRUE of thiscase? a. There is a dominant strategy for A but not for B. b. There is no dominant strategy for either A and B. c. There is a dominant strategy for both A and B.  d. There is a dominant strategy for B but not for A. Rent seeking involves which of the following activities? a. Hiring thugs. b. Bribery c. Advertising  d. All of the options are correct. Which of the following is/are TRUE regarding the averagerevenue? a. AR(Q) = D b. All of the options are true. c. AR(Q) = P(Q)  d. AR(Q) MR(Q) Downloaded by Edge Tutor () lOMoARcPSD| Question 8 Correct Mark 3.00 out of3.00 Question 9 Correct Mark 2.00 out of2.00 Question 10 Incorrect Mark 0.00 out of2.00 Given the relationship between the demand curve (Demand)and the marginal revenue (MR) curve of a monopolist interms of their steepness (slope), What is the MR curvefunction , when the Demand curve function is given by: P = 100 - 4Q a. MR = 200 - 8Q b. MR = 100 - 2Q c. MR = 100 - 8Q  d. MR = 50 - 2Q Price discrimination based on the quantity consumed isreferred to as … price discrimination. a. group b. fi rst-degree c. second-degree  d. third-degree A monopolist can produce at a constant average (andmarginal) cost of AC = MC = R5. It faces a market demandcurve given by Q = 53 – P. Calculate the profi t-maximizing price and quantity for thismonopolist. a. P = 26.5, Q = 53 b. P = 53, Q = 26.5 c. None of the options is correct.  d. P = 29, Q= 24 Downloaded by Edge Tutor () lOMoARcPSD| Question 11 Correct Mark 3.00 out of3.00 Question 12 Correct Mark 2.00 out of2.00 Question 13 Correct Mark 2.00 out of2.00 Question 14 Incorrect Mark 0.00 out of2.00 A fi rm faces the following average revenue (demand) curve: P = 120 – 0.02Q where Q is weekly production and P is price, measured incents per unit. The fi rm’s cost function is given by C = 60Q +25,000. Assume that the fi rm maximizes profi ts. What is the level of Price? a. R60 b. R105 c. R0.90  d. R1.20 A perfect price-discrimination monopolist will … a. produce the amount that is larger than a non-pricediscriminator. b. produce where MC=MR. c. All of the options are correct.  d. leave no consumer surplus for his/her customer. When MR MC, this mean a monopolist is facing reducedprofi ts and should produce less. Select one: True False  In a Cournot duopoly model, one characteristic of theequilibrium position is that … a. both fi rms produce the same amount of output. b. one fi rm drives the other out of the market. c. output is less that the single-price monopolyoutput would be if only one fi rm were in themarket.  d. output is the same as would exist in a competitivemarket. Downloaded by Edge Tutor () lOMoARcPSD| Question 15 Correct Mark 2.00 out of2.00 Question 16 Correct Mark 2.00 out of2.00 Question 17 Correct Mark 2.00 out of2.00 Which of the following curves will coincide on the graph fora monopolist or monopolistic competitor? a. Only the average revenue and marginal revenuecurves will coincide. b. The demand, average revenue and marginalrevenue curves will coincide. c. Only the demand and average revenue curveswill coincide.  d. Only the demand and marginal revenue curves willcoincide. Which of the following is correct regarding a puremonopoly? a. Monopolies are state-owned. b. Monopolies can be price-discriminating.  c. Monopolies are effi cient. d. Demand is the same as the marginal revenue. Refer to the table below to answer the question. What is the Nash equilibrium in the above game? a. Player one picks B and player 2 picks A. b. Both players pick B  c. Both players pick A d. Player one picks A and player 2 picks B. Downloaded by Edge Tutor () lOMoARcPSD| Question 18 Correct Mark 2.00 out of2.00 Average revenue per quanity, is also equal to price timesquantity. Select one: True  False Previous activity Assessment 4 Jump to... Next activity Assessment 6 Downloaded by Edge Tutor () lOMoARcPSD| Question 1 Correct Mark 1.00 out of 1.00 Study the diagram below, which shows the derivation of an IS curve and answer the question that follows: In the goods market, autonomous spending decreases from ___ to ___ if the interest rate increases from ___ to ___. Select one: A. 7 500 to 6 000; 6% to 7% B. 6 000 to 2 000; 6% to 7% C. 2 500 to 2 000; 6% to 7%  D.2 500 to 2 000; 7% to 6% Your answer is correct. In the goods market, autonomous spending decreases from 2 500 to 2 000 if the interest rate increases from 6% to 7%. The correct answer is: 2 500 to 2 000; 6% to 7% Downloaded by Edge Tutor () lOMoARcPSD| Question 2 Incorrect Mark 0.00 out of 1.00 Study the following diagram and answer the question. Which one of the following statements is correct? The diagram illustrates the following events in the economy: Select one: A. T↑ → Y ↓ → C↓ → Z↓ → Y↓  B. T↓ → Y ↑ → C↑ → Z↑ → Y↑ C. T↓ → C↓ → Z↑ → Y↑ D.G↑ → Y ↑ → C↑ → Z↑ → Y↑ D D D Your answer is incorrect. The diagram illustrates a shift to the right of the IS curve. Therefore, expansionary fiscal policy means that government spending must be increased and/or taxes have to be decreased. The decrease in taxes will increase disposable income, consumption spending, demand for goods, and output and income level. An increase in government spending increases the demand for goods directly. The correct answer is: T↓ → Y ↑ → C↑ → Z↑ → Y↑ D Downloaded by Edge Tutor () lOMoARcPSD| Question 3 Correct Mark 1.00 out of 1.00 Question 4 Correct Mark 1.00 out of 1.00 Which one of the following statements is INCORRECT? Select one: A. A decline in the general price level results in a decrease in the real quantity of money, and fewer goods and services can be bought.  This statement is the only INCORRECT statement. A decline in the general price level results in an increase in the real quantity of money, and more goods and services can be bought. B. The nominal value of a good is its value in terms of money, while the real value is its value in terms of some other good, service, or bundle of goods. C. Given the price level, the nominal quantity of money divided by the price level defines the real quantity of money. D.If the nominal quantity of money is R500 and the price level is R20, then the real quantity of money is 25. Your answer is correct. The correct answer is: A decline in the general price level results in a decrease in the real quantity of money, and fewer goods and services can be bought. Which one of the following statements is INCORRECT? Comparing the impact of an increase in government spending in the goods market model with the impact of an increase in government spending in the IS-LM model: Select one: A. In both models, the level of output and income will increase. B. The interest rate will be unchanged in the goods market model and lower in the IS-LM model.  This statement is the only INCORRECT statement. The interest rate will be unchanged (not lower) in the IS-LM model since the SARB determines the interest rate. C. In both models, consumption spending will be higher. D.Investment spending will be unchanged in the goods market model and higher in the IS-LM model. Your answer is correct. The correct answer is: The interest rate will be unchanged in the goods market model and lower in the IS-LM model. Downloaded by Edge Tutor () lOMoARcPSD| Question 5 Incorrect Mark 0.00 out of 1.00 Question 6 Incorrect Mark 0.00 out of 1.00 Which one of the following statements is correct? An upward shift of the LM curve due to an increase in the interest rate leads to a ___ Select one: A. lower demand for money and quantity of money. B. higher demand for money and quantity of money. C. lower quantity of money only. D.lower demand for money only.  Your answer is incorrect. In this module, we move away from the traditional approach and use the accommodation policy, where the central bank sets the interest rate. Through this accommodation policy, the SARB provides financing to banks that require liquidity. In South Africa, the SARB controls the interest rate by using open-market operations to adjust the money market deficit to influence the market interest rate. The interest rate at which this accommodation or refinancing occurs is referred to as the repo rate and changes in the repo rate affect all interest rates in the economy, thereby the cost of credit and the demand for and quantity of money. An upward shift of the LM curve due to an increase in the interest rate leads to a lower demand for money and quantity of money. The chain of events will look as follows: i↑→ M ↓→ M↓. The correct answer is: lower demand for money and quantity of money. d The term “full employment” refers to a situation in the economy ___ Select one: A. where everybody who wants to work is employed.  B. where there is no unemployment in the economy. C. in which there is only frictional and structural unemployment. D.in which there is only cyclical unemployment and frictional unemployment. Your answer is incorrect. Given the different types of unemployment, frictional unemployment always exists due to normal labour market turnover where workers change jobs and are considered voluntary unemployment. Structural unemployment is more long-term unemployment, and it is slow to fix as it is linked to the changing structure of the economy that requires either migration or re-training of the workers. Therefore, the term full employment refers to a situation in the economy in which there is no cyclical (or demand-deficient) unemployment. The correct answer is: in which there is only frictional and structural unemployment. Downloaded by Edge Tutor () lOMoARcPSD| Question 7 Correct Mark 1.00 out of 1.00 Which one of the following statements is INCORRECT? To derive the IS curve _____ Select one: A. a change in the interest rate will impact the goods market. B. government spending and taxes remain unchanged. C. the interest rate can increase or decrease. D.investment is regarded as fully autonomous.  This statement is the only INCORRECT statement. To derive the IS curve, the interest rate changes, and this change will impact the goods market. Investment is not regarded as fully autonomous (or exogenous) since a change in the interest rate will increase or decrease investment spending. Depicting this using a chain of events gives us i↓ → I↑ or i↑ → I↓. Your answer is correct. The correct answer is: investment is regarded as fully autonomous. Downloaded by Edge Tutor () lOMoARcPSD| Question 8 Correct Mark 1.00 out of 1.00 Economic growth decreases for two concessive periods in Country Ananda's economy. To avoid a recession in Country Ananda, both fiscal and monetary policies must be used simultaneously. In terms of the IS-LM model, the macroeconomic stabilisation policies the country needs to follow to avoid a recession can be represented graphically by which one of the following diagrams? Select one: A. Diagram A: B. Diagram C: C. Diagram D:  D. Diagram B: Downloaded by Edge Tutor () lOMoARcPSD| Your answer is correct. In terms of the IS-LM model, the macroeconomic stabilisation policies implemented to avoid a recession by increasing the demand for goods and services and the level of output and income in the economy are an expansionary fiscal policy where G↑ and/or T↓ (IS curve will shift to the right) and an expansionary monetary policy, where the lower interest rate cause the LM curve to shift downwards. The correct answer is: Diagram D: Downloaded by Edge Tutor () lOMoARcPSD| Question 9 Incorrect Mark 0.00 out of 1.00 This question is based on the following comparison between the impact of an expansionary fiscal policy with a contractionary monetary policy in the IS-LM model: Expansionary fiscal policy Contractionary monetary policy The demand for goodsHigherLower The level of output and incomeHigherLower The interest rateUnchangedHigher Investment spendingHigherLower Money demand and the quantity of moneyHigherLower Budget deficit HigherUnchanged The budget deficit increases in the case of expansionary fiscal policy because _______, while it has remained unchanged for contractionary monetary policy since __________. Select one: A. government spending increases and/or taxes decrease; government spending and/or taxes are an autonomous factor B. government spending increases and/or taxes increase; government spending and/or taxes are an autonomous factor  C. government spending and/or taxes are unchanged; government spending increases and/or taxes increase D.the money demand and quantity of money increase; the money demand and quantity of money decrease Your answer is incorrect. The reason for the increase in the budget deficit in case of expansionary fiscal policy is because government spending increases and/or taxes decreases, while a contractionary monetary policy refers to a change in the interest rate; thus, government spending and/or taxes are autonomous (or unchanged). The correct answer is: government spending increases and/or taxes decrease; government spending and/or taxes are an autonomous factor Downloaded by Edge Tutor () lOMoARcPSD| Question 10 Correct Mark 1.00 out of 1.00 Study the diagrams below and indicate which statement is INCORRECT. Diagram A Downloaded by Edge Tutor () lOMoARcPSD| (preview copy) Diagram B copy) Downloaded by Edge Tutor () lOMoARcPSD| Which one of the following statements is INCORRECT? Select one: A. Diagram B illustrates that an increase in the level of output and income will cause a rightward shift of the investment curve. B. Diagram A illustrates that investment spending is negatively related to the interest rate, while Diagram B illustrates that investment spending is positively related to the level of output and income. C. Diagram A illustrates that in the event of a rise in the interest rate, an upward movement will occur along the investment curve from point a to b. D.Diagram A illustrates that investment spending occurs when firms increase their spending on capital goods.  This statement is the only INCORRECT statement. In the event of a rise in the interest rate, an upward movement along an investment curve occurs from point a to b. When firms increase their spending on capital goods (increase in output) the investment curve will shift to the right. Your answer is correct. The correct answer is: Diagram A illustrates that investment spending occurs when firms increase their spending on capital goods. Downloaded by Edge Tutor () lOMoARcPSD| Question 11 Correct Mark 1.00 out of 1.00 Which one of the following statements is correct? Within the IS-LM model, if a contractionary fiscal policy is applied, and the higher the interest rate set by the monetary authorities, the ___ Select one: A. greater is the impact on the level of output and income.  B. impact on the level of output will be the same. C. less is the impact on the level of output and income. Your answer is correct. The diagram below refers to. Given the IS curve shifts from IS to IS (contractionary fiscal policy), if the interest rate is increased from i¯ to i¯the level of output and income will decrease from Y to Y (point a to b). If the interest rate is increased from i¯ to i¯ the level of output and income will decrease from Y to Y (point a to c), and if the interest rate is increased from i¯ to i¯the impact on the level of output and income will decrease from Y to Y(point a to d), where the impact is the greatest on the level of output and income. The correct answer is: greater is the impact on the level of output and income. 1 1, 1 2 2 3, 3 Downloaded by Edge Tutor () lOMoARcPSD| Question 12 Incorrect Mark 0.00 out of 1.00 This question is based on the diagram below: Which one of the following statements is INCORRECT? Select one: A. The IS curve will shift from ISto IS because of a decrease in any of the autonomous factors that change the demand for goods. B. The IS curve will shift from IS to ISbecause of an increase in consumer confidence.  This statement is correct. C. The IS curve will shift from ISto IS because of decreased government spending, autonomous consumption or autonomous investment. D.The IS curve will shift from IS to ISbecause of a decrease in the tax rate. 1 1 1 1 Your answer is incorrect. The correct answer is: The IS curve will shift from ISto IS because of a decrease in any of the autonomous factors that change the demand for goods. 1 Downloaded by Edge Tutor () lOMoARcPSD| Question 13 Incorrect Mark 0.00 out of 1.00 Which one of the following statements is INCORRECT regarding the interest parity condition relation? The interest parity condition relation E = (1+i/1+i*)Ē tells us that ___ Select one: A. an increase in the domestic interest rate leads to an increase in the exchange rate. B. an increase in the foreign interest rate leads to a decrease in the exchange rate. C. an increase in the foreign interest rate leads to an increase in the exchange rate. D.the exchange rate depends on the domestic interest rate, the foreign interest rate and the expected future exchange rate.  This statement is correct. e Your answer is incorrect. The correct answer is: an increase in the foreign interest rate leads to an increase in the exchange rate. Downloaded by Edge Tutor () lOMoARcPSD| Question 14 Incorrect Mark 0.00 out of 2.00 This question is based on the following information: Assume: nominal exchange rate (E) is R1 = $0.20 expected exchange rate (at the end of the period E) is R1 = $0.20 domestic interest rate (i) is 6%% interest rate in the USA (i*) is 6% Which of the following statements is INCORRECT regarding the interest parity condition relation? Select one: A. On the balance of payments side, a capital inflow occurs since there is a higher demand for rands on the foreign exchange market. This increase in the demand for rands results in an appreciation of the domestic currency. B. Assume that the domestic interest rate increases to 12%. If this happens, the interest parity condition no longer holds since the expected rate of return on domestic bonds is greater than that of foreign bonds.  This statement is correct. C. If the domestic interest rate increases from 6% to 12%, the current exchange rate will have to depreciate to re- established the interest parity condition. D.If the domestic interest rate increases from 6% to 12%, the current exchange rate will appreciate re-establishing the interest parity condition. e Your answer is incorrect. The correct answer is: If the domestic interest rate increases from 6% to 12%, the current exchange rate will have to depreciate to re-established the interest parity condition. Downloaded by Edge Tutor () lOMoARcPSD| Question 15 Correct Mark 1.00 out of 1.00 Given the following information: The domestic interest rate in SA on South African bonds: 12% The domestic interest rate in the USA on USA bonds: 6% If investors prefer to buy USA bonds, it indicates that they expect the R/$ exchange rate to ____ Select one: A. depreciate by more than 6%.  B. appreciate by less than 6%. C. appreciate by more than 6%. D.depreciate by less than 6%. Your answer is correct. Whether financial market participants will buy RSA or USA bonds depends on the difference in the interest rate and the expected changes in the exchange rate. Although the interest rate is higher on RSA bonds, it does not necessarily follow that RSA bonds are a better investment. The difference between the RSA interest rate and the USA interest rate is 6% (12% – 6%). Thus, if the expected depreciation of the rand is more than 6%, financial market participants will buy USA bonds. Why? By holding RSA bonds, the investor will get higher interest payments for the year, but the rand will be worth less in terms of dollars at the end of the year, making the investment in RSA bonds less attractive than investing in USA bonds. The correct answer is: depreciate by more than 6%. Downloaded by Edge Tutor () lOMoARcPSD| Question 16 Correct Mark 1.00 out of 1.00 Given the following information: The interest rate on RSA bonds:8% The interest rate on USA bonds:6% Which one of the following statements is correct? Select one: A. If the expected depreciation of the rand is 3%, financial market participants will be indifferent between RSA and USA bonds. B. If the expected depreciation of the rand is 3%, financial market participants will buy RSA bonds. C. If the expected appreciation of the rand is 3%, financial market participants will buy USA bonds. D.If the expected depreciation of the rand is 3%, financial market participants will buy USA bonds.  Your answer is correct. Whether financial market participants will buy RSA or USA bonds depends on the difference in the interest rate and the expected changes in the exchange rate. Although the interest rate is higher on RSA bonds, it does not necessarily follow that RSA bonds are a better investment. The difference between the RSA interest rate and the USA interest rate is 2% (8% – 6%). Thus, if the expected depreciation of the rand is 3%, financial market participants will buy USA bonds. Why? By holding RSA bonds, the investor will get higher interest payments, but the rand will be worth less in terms of dollars at the end of the period because of the depreciation, making the investment in RSA bonds less attractive than investing in USA bonds. The correct answer is: If the expected depreciation of the rand is 3%, financial market participants will buy USA bonds. Downloaded by Edge Tutor () lOMoARcPSD| Question 17 Incorrect Mark 0.00 out of 1.00 Question 18 Correct Mark 1.00 out of 1.00 The real exchange rate between the rand and the dollar is: ε = EP/P* Which one of the following statements is INCORRECT? Select one: A. Assume that the increase in P* and the increase in P are the same, and the rand depreciates against the dollar. Then, the nominal exchange rate is higher, the real exchange rate increases, and a real appreciation occurs. Therefore, the USA goods are relatively cheaper than before the change in the nominal exchange rate. B. USA goods are relatively more expensive if the nominal exchange rate is unchanged and the increase in the price of USA goods is higher than the increase in the price of SA goods because a real depreciation occurs. C. If the increase in the relative price of SA goods is higher than the increase in the price of USA goods, the real exchange rate increases, and a real appreciation occurs.  This statement is correct. D.If the increase in the price of domestic goods (P) is smaller than the increase in the price of foreign goods (P*) and E is unchanged, the real exchange rate decreases, and a real depreciation occurs. Your answer is incorrect. The correct answer is: Assume that the increase in P* and the increase in P are the same, and the rand depreciates against the dollar. Then, the nominal exchange rate is higher, the real exchange rate increases, and a real appreciation occurs. Therefore, the USA goods are relatively cheaper than before the change in the nominal exchange rate. Which one of the following refers to a depreciation of the rand? Select one: A. R1 = $0.50 to R1 = $0.55 B. $1 = R8 to $1 = R7 C. R1 = $0.25 to R1 = $0.30 D.R1 = $0.30 to R1 = $0.25  Your answer is correct. This is an example of a depreciation in the nominal exchange rate because the rand (the domestic currency) is worth less in terms of dollars than before. In other words, the rand depreciates because more rands are now needed to buy a dollar. The correct answer is: R1 = $0.30 to R1 = $0.25 Downloaded by Edge Tutor () lOMoARcPSD| Question 19 Incorrect Mark 0.00 out of 1.00 Suppose a European investor has €100 000 available that he/she will not need for transactions. After researching different financial investment opportunities, the investor had to choose between buying one-year European bonds or one-year USA bonds. What would the investor decide based on the following information? The interest rate on a one-year European bond = 6% The interest rate on a one-year USA bond = 3% Current exchange rate: €1 = $1.20 Expected exchange rate: €1 = $1.10 Which of the following statements is correct? Select one: A. The investor will choose to invest in USA bonds. B. The return on a one-year USA bond after one year is $120 000. C. The return on a one-year European bond is €103 000. D.The investor will choose to invest in European bonds.  This statement is incorrect. The return on a one-year USA bond is calculated as follows: At an exchange rate of €1 = $1.20, the investment in USA bonds, in dollars, is equal to €100 000 * $1.20 = $120 000. The investment after one year, in dollars, is worth: $120 000 * (1 + 0.03) = $123 600. Converting $123 600 back into euros at the expected exchange rate of €1 = $1.10 gives you $123 600 / 1.10 = €112 363.64. The return on a one-year European bond is calculated as follows: €100 000 * (1 + 0.06) = €106 000. Therefore the investor will choose the higher return and invest in USA bonds. Your answer is incorrect. The correct answer is: The investor will choose to invest in USA bonds. Downloaded by Edge Tutor () lOMoARcPSD| Question 20 Incorrect Mark 0.00 out of 1.00 This question is based on the following information. Given the goods market equilibrium in the diagram below, what happens to the output level and the trade balance if government spending increases? Which one of the following statements is correct? Select one: A. The level of output decreases, and the trade deficit decreases as exports decrease. B. The level of output decreases, and the trade deficit decreases as imports decrease.  C. The level of output increases, and the trade deficit increases as imports increase. D.The level of output increases, and the trade deficit increases as exports increase. Your answer is incorrect. If government spending increases, the chain of events will look as follows: G↑ → Z↑ → Y↑ → IM↑ → NX↓. The completed diagram will look as follows: The correct answer is: Downloaded by Edge Tutor () lOMoARcPSD| Question 21 Correct Mark 1.00 out of 1.00 Question 22 Incorrect Mark 0.00 out of 1.00 The level of output increases, and the trade deficit increases as imports increase. Which one of the following factors will cause a downward movement along the NX curve? Select one: A. A decrease in imports. B. A decrease in autonomous investment spending. C. An increase in government spending.  D.A decrease in government spending. Your answer is correct. An increase in domestic demand, e.g., increased government spending, will cause a downward movement along the NX curve. The correct answer is: An increase in government spending. If the SA rand depreciates, the impact on the NX curve is that ____. Select one: A. a downward movement along the NX curve takes place. B. the NX curve shifts to the left. C. the NX curve shifts to the right. D.an upward movement along the NX curve takes place.  Your answer is incorrect. In this case, we refer to a depreciation of the exchange rate. The impact of depreciation is an increase in exports, and therefore the NX curve will shift to the right. The correct answer is: the NX curve shifts to the right. Downloaded by Edge Tutor () lOMoARcPSD| Question 23 Correct Mark 1.00 out of 1.00 Which one of the following statements is correct? The chain of events in the case of an increase in exports on the trade balance is as follows: Select one: A. X↑ → Z↑ → Y↑ → IM↑ → NX↓ B. X↑ → Z↑ → Y↑ → IM↑ → NX↑  C. X↑ → Y↑ → Z↑ → IM↑ → NX↑ D.X↑ → Z↑ → Y↑ → IM↓ → NX↑ Your answer is correct. If exports increase, the ZZ curve will shift upwards. The demand for goods will increase as well as the level of output and income. This increase in output and income causes a rise in imports. However, the positive effect of an increase in exports on the trade balance outstrips the negative effect of an increase in imports. The NX curve will shift to the right, and the trade balance thus improves. Given goods market equilibrium and a trade balance position, the completed diagram will look as follows: The correct answer is: X↑ → Z↑ → Y↑ → IM↑ → NX↑ Downloaded by Edge Tutor () lOMoARcPSD| Question 24 Correct Mark 1.00 out of 1.00 Given that the Marshall-Lerner condition holds _____________ results in ___________ in the level of output and income and the trade balance ___________. Select one: A. a depreciation; an increase; deteriorates B. an appreciation; an increase; improves C. a depreciation; an increase; improves  D.a depreciation; a decrease; deteriorates Your answer is correct. When working with a depreciation of the currency in this module, always remember the Marshall- Lerner condition: A depreciation of the domestic currency decreases the price of exports and increases the price of imports and has, therefore, both a positive and a negative effect on the trade balance. Positive effect: the decrease in the price of exports results in an increase in exports and a decrease in imports, and the trade balance improves. Negative effect: the increase in the price of imports increases the import bill, which negatively impacts the trade balance. The chain of events for the positive effect will be as follows: The lower price of exports causes an increase in exports, which increases the demand for domestic goods and the level of output and income. P ↓ → X↑ → Z↑ → Y↑ The increase in the relative price of imports causes the switching of expenditure from foreign goods (which are now more expensive) to domestically produced goods. This results in a higher demand for domestic goods and a higher level of output and income. P ↑ → IM↓ → Z↑ → Y↑ The chain of events for the negative effect will be as follows: P ↑ → Imports Bill↑ E↓ → X↑ → Z↑→ Y↑ → IM↑ Thus, for the Marshall-Lerner condition to hold, depreciation must eventually increase net exports. For this to occur, the positive effect on the trade balance (increase in exports) must outstrip the negative effect (increase in imports). Therefore, the demand for goods curve (ZZ curve in the diagram below) will shift upwards, the domestic output level will increase, the NX curve will shift to the right, and a trade surplus will occur. Graphically this can be indicated as follows: exports import imports 1 Downloaded by Edge Tutor () lOMoARcPSD| The correct answer is: a depreciation; an increase; improves Downloaded by Edge Tutor () lOMoARcPSD| Question 25 Correct Mark 1.00 out of 1.00 This question is based on the following information. Given goods market equilibrium in the following diagram, what would the likely impact of a depreciation of the domestic currency be on the level of output and income and the trade balance? Which one of the following statements is correct? Select one: A. The domestic level of output and income will increase, and there will be an improvement in the trade balance. B. The domestic level of output and income will decrease, and there will be an improvement in the trade balance. C. The domestic level of output and income will decrease, and there will be an improvement in the trade balance. D.The domestic level of output and income will increase, and there will be a deterioration in the trade balance. Your answer is correct. If the domestic currency depreciates, exports will increase, the demand for goods will increase, and the level of output and income will increase (X↑ → Z↑ →Y↑). Remember the Marshall-Lerner condition when working with depreciation and the trade balance. Given that the Marshall-Lerner condition holds, a real depreciation leads to an increase in net exports (an improvement in the trade balance) and the level of output and income. Note: A depreciation of the domestic currency decreases the price of exports and increases the price of imports and has, therefore, both a positive and a negative effect on the trade balance. Positive effect: the decrease in the price of exports results in an increase in exports and a decrease in imports, and the trade balance improves. Negative effect: the increase in the price of imports increases the import bill, which negatively impacts the trade balance. For the Marshall-Lerner condition to hold, a depreciation must eventually lead to an increase in net exports. For this to happen, the positive effect on the trade balance (increase in exports) must outstrip the negative effect (increase in imports). Therefore, the ZZ curve will shift upwards. The diagram will look as follows in the case of a depreciation of the domestic currency: 0 Downloaded by Edge Tutor () lOMoARcPSD| The correct answer is: The domestic level of output and income will increase, and there will be an improvement in the trade balance. Downloaded by Edge Tutor () lOMoARcPSD| Question 26 Correct Mark 1.00 out of 1.00 Study the following three diagrams and answer the question. Diagram ADiagram BDiagram C Which one of the following statements is INCORRECT? Select one: A. Diagram C represents the following chain of events: G↑ → Z↑ → Y↑ → IM↑ → NX↓. B. In diagram A, the Marshall-Lerner condition holds since the real depreciation eventually leads to an increase in net exports and an improvement in the trade balance. The positive effect on the trade balance outstripped the negative effect. C. Diagram A could represent an increase in domestic demand, while Diagram C could represent an increase in exports since depreciation will reduce the price of exports. Therefore, exports increase and the ZZ curve will shift upwards.  This statement is the only INCORRECT statement. Diagram A could represent a depreciation of the nominal exchange rate, while Diagram C could represent an increase in government spending (or an increase in domestic demand). D.Diagram B represents an increase in exports, leading to an increase in the equilibrium level of output and income. Your answer is correct. The correct answer is: Diagram A could represent an increase in domestic demand, while Diagram C could represent an increase in exports since depreciation will reduce the price of exports. Therefore, exports increase and the ZZ curve will shift upwards. Downloaded by Edge Tutor () lOMoARcPSD| Question 27 Correct Mark 1.00 out of 1.00 Which one of the following statements is correct? Select one: A. The goods market is in equilibrium when domestic output is equal to the domestic demand for goods. B. Equilibrium output is associated with a trade deficit only. C. The goods market is in equilibrium when domestic output is equal to the demand for domestic goods. D.Equilibrium output is associated with a trade surplus only. Your answer is correct. What is the difference between the demand for domestic goods and the domestic demand for goods? The demand for domestic goods (produced in South Africa) excludes imports. In contrast, the domestic demand for goods (which can be produced in South Africa or any other country) includes imports. Therefore, the goods market is in equilibrium when domestic output equals the demand for domestic goods. The equilibrium output is Y = Z (the intersection point between the ZZ curve and the 45 line). EquilibriuThe diagrams below indicate that equilibrium is associated with three different positions, as indic Trade balanceDiagram Trade deficit Diagram Trade surplus The correct answer is: The goods market is in equilibrium when domestic output is equal to the demand for domestic goods. 0 Downloaded by Edge Tutor () lOMoARcPSD| Question 28 Correct Mark 1.00 out of 1.00 Based on the following diagram, which one of the following would be likely to achieve a higher output level and a trade surplus? Select one: A. A reduction in taxation. B. A simultaneous decrease in government spending and an appreciation of the exchange rate. C. A depreciation of the exchange rate.  D.An appreciation of the exchange rate. Y