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Educating Young People Who Will Be Significantly Different! NAME CLASS Level 1 Economics, 2012 90986 Demonstrate understanding of how consumer, producer and/or government choices affect society, using market equilibrium Credits: Five Achievement Achievement with Merit Demonstrate understanding of how consumer, producer and/or government choices affect society, using market equilibrium. Demonstrate in-depth understanding of how consumer, producer and/or government choices affect society, using market equilibrium. Achievement with Excellence Demonstrate comprehensive understanding of how consumer, producer and/or government choices affect society, using market equilibrium. You should answer all questions in this booklet. If you need more space for any answer, use the page(s) provided at the back of this booklet and clearly number the question. Check that this booklet has pages 1 – 8 in the correct order and that none of these pages is blank. YOU MUST HAND THIS BOOKLET TO THE SUPERVISOR AT THE END OF THE EXAMINATION Total Assessors use only 1 © NZCETA 2012 Economics Level 1 CETA Exam AS 90986 (1.4) NZCETA has approval from NZQA to use their materials in the development of this resource. Assessor use only Suggested time 60 minutes QUESTION ONE: MARKET EQUILIBRIUM West Cape is a tourist destination renowned for its lovely beaches. Many firms own and operate holiday homes for tourists to rent. The table and graph below represent the market for one night stays in a holiday home in West Cape. a) Complete the table below by calculating the market demand for holiday homes in West Cape. Demand for Holiday Homes in West Cape Quantity Demanded (homes) by Nth Is tourists Quantity Demanded (homes) by Sth Is tourists Quantity Demanded (homes) by Foreign tourists 100 150 75 125 150 100 50 100 200 80 40 80 250 60 20 70 300 20 10 20 Price ($ per night) Quantity Demanded (Market) b) Use your answer from question (a) above to complete the West Cape Holiday Home Market diagram below. Ensure that you: Draw and label the market demand curve Use dotted lines to show the market equilibrium price and quantity. Label as Pe and Qe. West Cape Holiday Home Market Price ($/night) 350 S 300 250 200 150 100 50 0 0 50 100 150 200 250 300 350 400 Quantity (homes) 2 © NZCETA 2012 Economics Level 1 CETA Exam AS 90986 (1.4) NZCETA has approval from NZQA to use their materials in the development of this resource. Suppose the price of renting a holiday home in West Cape was $250 per day. 3 © NZCETA 2012 Economics Level 1 CETA Exam AS 90986 (1.4) NZCETA has approval from NZQA to use their materials in the development of this resource. Assessor use only c) On the graph you drew in question (b) show the market situation that exists at a price of $250. Ensure that you: Use dotted lines to show the quantity demanded (label Qd) Use dotted lines to show the quantity supplied (label Qs) Fully label any shortage or surplus. d) Use market forces to discuss how the market will react to this situation. In your answer you should: Fully explain the effect on price Fully explain the effect on quantity demanded Fully explain the effect on quantity supplied Ensure you use data and refer to the graph you drew in question (b) 4 © NZCETA 2012 Economics Level 1 CETA Exam AS 90986 (1.4) NZCETA has approval from NZQA to use their materials in the development of this resource. QUESTION TWO: Assessor use only CHANGE IN DEMAND There has been an oil spill that has caused the closure of West Cape’s beaches. a) Complete the graph below by showing the impact of the oil spill on the West Cape holiday homes market. Fully label any changes. West Cape holiday homes market S Price ($/night) Pe D Qe Quantity (homes) b) Discuss the effect of the oil spill on the West Cape holiday homes market. In your answer you should: Fully explain the change in market demand Fully explain how the market price and quantity change Fully explain the effect on resource use and profits of firms that operate holiday homes in West Cape. 5 © NZCETA 2012 Economics Level 1 CETA Exam AS 90986 (1.4) NZCETA has approval from NZQA to use their materials in the development of this resource. QUESTION THREE: Assessor use only CHANGE IN SUPPLY The holiday home cleaners union has negotiated a new contract that has increased the labour costs of holiday home firms. a) Complete the graph below by showing the impact of higher labour costs on the West Cape holiday home market. Fully label any changes. West Cape holiday homes market S Price ($) Pe D Qe Quantity (rooms) b) Discuss the effect of higher labour costs on the West Cape holiday home market. In your answer you should: Fully explain the change in market supply Fully explain how the market price and quantity change Fully explain two effects on holiday home consumers because of the change. 6 © NZCETA 2012 Economics Level 1 CETA Exam AS 90986 (1.4) NZCETA has approval from NZQA to use their materials in the development of this resource. QUESTION FOUR: Assessor use only MAXIMUM PRICE CONTROL South Point is a competing tourist destination. The South Point council has passed a maximum price law which states that hotel firms may not charge more than $80 per room for a one night stay in a hotel. They hope this cheaper price will lead to more tourists coming to the town. Complete questions (a) - (c) to fully explain the effect of the maximum price control on different sectors of the South Point economy. a) On the graph below show the effect of the $80 maximum price control. You must: Use dotted lines to show the original equilibrium. Label this price and quantity as Pe and Qe. Show the effect of the maximum price control on the graph. Use dotted lines to show the new equilibrium price and quantity. Label the new price and quantity as P1 and Q1. South Point Hotel Room Market Price ($/night) S 280 240 200 160 120 80 40 D 0 0 50 100 150 200 250 300 350 400 Quantity (rooms) 7 © NZCETA 2012 Economics Level 1 CETA Exam AS 90986 (1.4) NZCETA has approval from NZQA to use their materials in the development of this resource. Assessor use only c) Referring to the graph on the previous page identify: Quantity of hotel rooms rented before and after the maximum price control Before: After: (rooms) Price received by producers before and after the maximum price control Before: $ (rooms) After: $ Price paid by consumers before and after the maximum price control Before: $ After: $ And then calculate (show your working in the space provided): Revenue of producers before and after the maximum price control Before: $ After: $ Spending of consumers before and after the maximum price control Before: $ After: $ Space for working 8 © NZCETA 2012 Economics Level 1 CETA Exam AS 90986 (1.4) NZCETA has approval from NZQA to use their materials in the development of this resource. d) Discuss the impact of the maximum price control on South Point. In your answer you should: Fully explain the effect of the maximum price control on hotel room consumers Fully explain the effect of the maximum price control on hotel room producers Fully explain any benefit or cost to South Point society Ensure you refer to the graph in question (a), and your answers to question (b) and (c). 9 © NZCETA 2012 Economics Level 1 CETA Exam AS 90986 (1.4) NZCETA has approval from NZQA to use their materials in the development of this resource. Assessor use only