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AEM520S - AGRICULTURAL ECONOMICS - 2ND OPP - JAN 2020 |
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NAMIBIA UNIVERSITY
OF SCIENCE AND TECHNOLOGY
FACULTY OF NATURAL RESOURCE AND SPATIAL SCIENCES
DEPARTMENT OF AGRICULTURE & NATURAL RESOURCES SCIENCES
QUALIFICATION: BACHELOR OF AGRICULTURE/BACHELOR OF REGIONAL AND RURAL DEVELOPMENT .
QUALIFICATION CODE: 27BAGR/07BRRD | LEVEL: 5
COURSE CODE: AEM520S
COURSE NAME: AGRICULTURAL ECONOMICS
DATE: January 2020
PAPER: THEORY
DURATION: 3 Hours
MARKS: 100
SECOND OPPORTUNITY/SUPPLEMENTARY EXAMINATION QUESTION PAPER
EXAMINER(S)
M. Lubinda
MODERATOR:
C. Kalumbu
INSTRUCTIONS
Answer ALL four (4) questions.
Read all the questions carefully before answering.
Number your answers.
Make sure your student number appears on the answering script.
PERMISSIBLE MATERIALS
1. Examination paper.
2. Examination script.
3. Calculator
THIS QUESTION PAPER CONSISTS OF 5 PAGES (Including this front page)
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Agricultural Economics
AEM5208S
QUESTION ONE
[MARKS]
a. Explain the four basic economic concepts that are used to analyze and understand
(4)
individual choices.
b. The study of Agricultural Economics involves the use of theories, models, and concepts
as aids for analyzing and understanding complex relationships and phenomena in the
real world. Comparative Advantage is one such concept. What is comparative
(6)
advantage? Describe how you would use the concept of comparative advantage to
explain trade between within or between countries.
c. Consider the market for imported onions by the following demand and supply functions:
P = 4000 —0.2Q
P=1000+0.8Q
Where P is the market price of onions (in NS per ton), and Q is the quantity demanded
and supplied of imported onions.
i. State the price range in which imported onions will be sold and bought in the
market.
(2)
ii. | Suppose the government, suppose the government sets the price of imported
onions at NS 2000 per ton. Would this price control create a shortage or surplus
(4)
in the market? Calculate the magnitude of the shortage or surplus in the market.
iii. Estimate the benefits in monetary terms that would accrue to the consumers as
a result of the price control.
(5)
iv. Compute the cost of this price control on the Namibian society. (hint: the cost
%
of the price control is the deadweight loss)
(4)
TOTAL MARKS
[25]
Second Opportunity Examination
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Agricultural Economics
AEMS5208S
QUESTION TWO
[MARKS]
a. Discuss the application and use of the elasticity concept in economics. Your discussion
should focus on the application and use of the elasticity in the assessment of the
responsiveness of consumers to changes in income, prices, and prices of related
(10)
goods.
b. Explain how you would use the market model to assess the desirability of a tax policy
from an economic efficiency perspective.
(5)
c. Suppose you are the Policy Analyst at the Ministry of Agriculture, and you have been
tasked to analyze and quantify the responsiveness of consumers to the introduction
of an NS500 excise tax on each ton of imported onions. Suppose you know that the
monthly demand and supply of imported onions, before the introduction of the tax,
can be represented by the following functions.
P = 4000 - 0.2Q
P = 1000+ 0.8Q
Where P is the market price of onions (in NS per ton), and Q is the quantity demanded
and supplied of imported onions. Use this information to answer the questions below.
i. | Determine the equilibrium price and quantity before the introduction of the
excis; e tax.
(2)
i. Estimate the equilibrium price and quantity after the introduction of the
(2)
excise tax.
iii. | Estimate the price elasticity of demand between the equilibrium price before
and after the introduction of the excise tax. Is the demand for imported onions
(6)
elastic, unit elastic, or elastic? Show all your calculations and explain your
answer.
TOTAL MARKS
[25]
Second Opportunity Examination
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Agricultural Economics
AEMS5208
QUESTION THREE
[MARKS]
a. What is an indifference curve? State any three properties of indifference curves for
ordinary goods.
(4)
b. In consumer theory, consumer preferences are assumed to be complete and transitive.
Explain what these concepts mean.
(4)
c. Explain the income effect and substitution effect of a price change on the consumer’s
consumption bundle. Furthermore, explain the relationship between income effect and
(6)
substitution effect for normal, inferior, and Giffen goods.
d. Consider a rational consumer, whose consumption bundle is composed of two goods,
food, and clothes. One a monthly basis, the consumer has an income of NS5000 that he
spends on food and clothes. The prevailing prices of food and clothes are NS100 per unit
and NS200 per unit, respectively. Suppose the following function represents the utility
that a consumer gets from consuming different units of food and clothes:
U —= 2xJ7xy233
Where U represents the total utility that the consumer gets from consuming bundles
containing different units of food and clothes; x, is the units of food per month, and x
represents the units of clothes per month. Based on this information answer the
questions below:
i. Determine the units of food and clothes in the consumer’s optimal consumption
bundle.
(5)
ii. | Suppose the price of food increased to NS$200 per unit ceteris paribus (i.e.,
income and the price of clothes remained constant). Estimate the impact of this
price change on the utility of the consumer. (Hint: impact is estimated as the
(6)
difference in the consumer’s utility before and after the price change).
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Agricultural Economics
AEM5208
QUESTION FOUR
a. State any four characteristics of a monopoly market structure.
[MARKS]
(4)
b. The theory of firm behavior states that Monopolies have market power. What does this
mean? Explain how monopolies are created.
(4)
c. Consider a small-scale farmer who is operating a tomato production enterprise. Given
that there are many producers of tomatoes and that tomatoes are undifferentiated, the
farmer is operating in a perfect competitive industry. Suppose the current price of
tomatoes is NS120 per box, and the following function represents the farmer's total cost
for producing tomatoes:
TC = 200+ 40Q + 2Q?
Where TC is the total cost, and Q is the number of tomato boxes. Both TC and Q are
measured in thousands.
i. Derive the mathematical expressions for the farmer’s variable cost, average
total cost, average fixed cost, and marginal cost functions.
(4)
i. Determine the farmer’s efficient scale, break-even price per box, and optimum
output level.
(7)
iii.
Estimate the farmer’s total cost, total revenue, and profit, when he produces
the optimum output level.
(6)
TOTAL MARKS
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THE END
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