QUESTION 1 [30 marks]
a. Tebogo enjoys her coffee with a few cookies. Assume the priceof cookies decreased, how would this affect Tebogo’s demand forcoffee? Use a relevant diagram to support your answer.
b. With the use of a diagram, distinguish between change indemand and change in quantity demanded. c. Trade unionsalways try and get a much higher wage rate than what the market iswilling to pay. Using and appropriate explain what will likelyhappen in the labour market if the wage rate demanded by a tradeunion is above the market equilibrium wage.
d. Calculate the following different elasticities:
i. A price increase from P2 to P10 causes quantity demanded tochange from 80 units to 30 units. Calculate and interpret priceelasticity of demand.
ii. Income increase by 10% results in quantity demandedincreases by 5%. Calculate and interpret income elasticity ofdemand.
iii. Quantity of good B increases by 50% because of an increasein price of good A by 40%. Calculate and interpret cross elasticityof demand.
iv. How would a firm manipulate the prices of goods in di-iii inorder to maximize revenue and profits?
