Section A: Answer ALL THREE questions

1. Answer three of the following questions. (5 marks each)

(a) Explain two determinants of the price elasticity of demand and why understanding

this concept is important to businesses.

(b) Consider a market that is currently in equilibrium. If the good is inferior, illustrate

and explain the possible impacts on price and quantity if there is an increase in income and a tax on the product.

(c) What are the factors that make a firm economically vulnerable?

(d) Comment on the following statement: ‘Perfect competition is always good, while monopolies are always bad’.

Please use a separate booklet

3. Using information on any economy known to you and relevant macroeconomic and microeconomic theory, examine the consequences of a relative fall in interest rates in the nation in which your business is based. How will your business be affected directly by the lower interest rates; how will the economy be impacted by this and in turn, how

might that affect the success of your business? You should use an appropriate firm/business in your answer. (30 marks)

Section B: Answer ONE question

Please use a separate booklet

4. Explain why the demand curve is typically downward sloping and the supply curve is

typically upward sloping. What other shapes can the demand and supply curves take? Explain your answer. Using a demand and supply diagram, explain how equilibrium price and quantity are determined in a market of your choosing. By choosing 2 factors that will shift demand and 2 factors that will shift supply in your chosen market, explain and show how the equilibrium position will change and on which factors the new equilibrium will depend. (40 marks)