Q1. 1.

MICROECONOMICS THE WAR ON DRUGS

Group Activities

Prof. Greg Brown

You have been commissioned to investigate the measures that can be implemented to reduce the number of users of illegal drugs in the country. You must only focus on the DEMAND side. You must illustrate your analysis and recommendations using Supply & Demand diagrams and you must also comment on the relative price elasticities of the respective curves. You have been commissioned to investigate the measures that can be implemented to reduce the number of users of illegal drugs in the country. You must only focus on the SUPPLY side. You must illustrate your analysis and recommendations using Supply & Demand diagrams and you must also comment on the relative elasticities of the respective curves. You have been commissioned to investigate the measures that can be implemented to reduce the number of users of illegal drugs in the country. You decide that legalization will achieve this objective. Explain fully how you came to this conclusion using Supply & Demand diagrams.
HOTEL ACCOMODATION World Cup 2010

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Q2.

The price of hotel accommodation increased significantly between May and June 2010 as a result of World Cup 2010. Explain this phenomenon by using a set of supply and demand curves. Pay attention to the role played by the price elasticity of supply and the price elasticity for demand. Distinguish carefully between movements along a curve and shifts of a curve and identify those factors that lead to shifts in the demand curve. Q3. EXCHANGE RATES

(a) The demand for US dollars comes from various sources, including imports. Identify and briefly discuss three other sources, determining the demand for dollars in South Africa. (b) Use supply and demand curves to explain the concept equilibrium exchange rate. If the exchange rate was higher than the equilibrium rate why would the market fail to clear and which forces will drive the rate back to equilibrium? (c) Starting from an initial point of equilibrium, how would an increase in the demand for imported goods affect the equilibrium exchange rate and equilibrium quantity of dollars traded per day? Illustrate your answer. (d) Use demand and supply curves to explain why speculation leads to volatility in exchange rates. Q4. ENERGY LEVY

The Minister of Finance (Budget 2008) proposed a levy on the use of energy (electricity). Do you think this measure is merely a source of revenue for the fiscus or do you think it will reduce the quantity of electricity demanded? Use supply & demand diagrams to explain your view and pay special attention the concept of elasticity. Q5. YOU CANNOT SIMULTANEOUSLY FIX BOTH When you have monopoly power you can either fix the price and the market will determine the quantity or you can fix the quantity and the market will determine the price. Explain how the monetary authorities, in South Africa, use this principle and clearly distinguish between exogenous and endogenous variables. How will the recent decrease in the repurchase rate affect the growth in the money supply? Pay special attention to movements along a curve and shifts of a curve. Q6. HOUSE PRICES

Analyse the reasons why house prices, in SA, increased significantly and then start decreasing from 2006. Distinguish between movements along a curve and shifts of a curve. 1