Microeconomics Answers

1. Do you agree or disagree with the following statements? Briefly explain your answers and illustrate with Demand and Supply curves.

a) The price of a good rises causing demand for another good to fall. The two goods are therefore substitute goods.

b) A shift in supply causes the price of another good to fall. The shift must have been an increase in supply.

c) During 2019, the minimum wage increased sharply. This change would likely lead to an increase in the prices of both normal and inferior goods.

d) Two normal goods cannot be substitutes for each other.

e) If demand increases and supply increases at the same time, prices will clearly rise.

f) The price of good A falls. This causes an increase in the price of good B. Goods A and B are therefore complements.

Which of the following statements about a monopoly is true?

A. The monopolist has a flat demand curve because of high barriers to entry.

B. For a monopolistic firm, profit will be maximised where price = marginal revenue.

C. In the long run, a monopolist can earn only normal profits.

D. Price, in the long run, is not usually equal to the minimum average total cost.

For each of the following functions, use the Lagrange multiplier to find the critical values that 

will optimize functions subject to the given constraints and estimate by how much the objective 

functions will change as a result of 1 unit change in the constant of the constraint 

i) Maximize Z = 2x

2 

- xy + 3y

2 subject to x + y = 72 [5 Marks]

ii) Maximize f(x,y) = 26x – 3x

2 + 5xy – 6y

2 + 12y subject to 3x + y = 170 [5 Marks]

iii) Maximize f(x,y,z) = 16x2yz subject to x + y + z = 224 [5 Marks]

For each of the following functions, use the Lagrange multiplier to find the critical values that will optimize functions subject to the given constraints and estimate by how much the objective functions will change as a result of 1 unit change in the constant of the constraint  

i) Maximize Z = 2x2 - xy + 3y2 subject to x + y = 72 [5 Marks]

ii) Maximize f(x,y) = 26x – 3x2 + 5xy – 6y2 + 12y subject to 3x + y = 170  [5 Marks]

iii) Maximize f(x,y,z) = 16x2yz subject to x + y + z = 224   [5 Marks] 

Wage inequality and globalisation: Has the move towards a more integrated South

African economy brought with it greater demand and supply mismatches

▪ How does globalisations affect the demand for high and low skilled workers across the

globe?

▪ Given that much of South Africa’s economic activity is based on the natural resources, do you think the country is ready to make the shift to a more technologically driven production process?

▪ As South Africa has a large contingent of unemployed and low skilled workers how do you see the integration process affecting the mismatch between the demand and supply

▪ Apart from the mismatches of supply and demand in the labour market, what other factors are largely contributing to inequality levels within the country?