2
QUESTION ONE
[25 MARKS]
= Consumers derived utility from consuming good x and goody. Utility function is U(X, Y)
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X4Y4,good y is a composite good with price (Py= N$1 ), the price of good x is (Px =N$5.00)
and consumer income is (I = N$100). Government would like to increase the consumption of
good x with 200 per cent. Government can achieve this objective by either giving cash subsidy
or a voucher that can only be used in the purchase of good x. Government can only spend
N$200.00.
a) Use a well labelled graph to represent the above information.
[5 marks]
b) Calculate optimal combination of good x and goody associated with each option. Which
option will you recommend and why?
[10 marks]
c) If government has only N$60.00 to spend to increase the consumption of good x to 24 from
the initial level, which option will you recommend?
[ 10 marks]
QUESTION TWO
[lOMARKS]
a) Construct two different economics models. Each model must at least have three
exogenous variables and one endogenous variable. Use your knowledge of economic
theories to state expected sign between exogenous variables and endogenous variables
in your models.
[4 marks]
b) Consider the market for beans that is initially in equilibrium with a market price of
N$140.00 per kg and a market quantity of 100 000kg. Beans are an inferior good. The
elasticity of demand for bean is perfectly inelastic and the elasticity of supply is relatively
elastic. Suppose that people's incomes rise, and the production cost of beans increases.
Draw graphs illustrating the initial equilibrium and the new equilibrium after the
described changes. Provide a verbal description of the outcome in this market due to
these changes.
[6 marks]
QUESTION THREE
[20 MARKS]
Let us analyse Namibia's beef market. The current total supply of beef is 1500kg per day at a
current market price is N$115.00 per kg. The beef market is characterised by a unitary
elasticity of demand and a 0.4 elasticity of supply. Currently, a new player is planning to enter
the beef market with a daily production of 150kg. Calculate the percentage change in market
price and percentage change in total supply of beef which is associated with the new player.