Q1. What is meant by the term resources? What are the four factors of production and explain the factors incomes associated with each factor of production (20 marks)
a) Resources means being able to produce something that can be a good or service. For e.g. the sun, trees, natural gas, materials, staff.
b) The four factors of production are land, labor, capital and entrepreneurship.
(i) Land- is considered the natural resources or raw materials we find on the earths surface to produce a good or service. Such as forest, coal, copper, oil. The reward earned b land resources is rent.
(ii) Labor- is the time and effort contributed by employees to the production of goods and services. For e.g. the waitress who brings your food...
delivery vans, computers. Money is not capital but it is used to buy the capital to produce the good or services but it is not capital it self. The reward earned by owners of capital resources is interest.
Entrepreneurship- is the man willing to take a risk by combining the other factors of production-land, labor and capital to produce goods or services. The payment to entrepreneurship is profit.
Q2. What is the difference between transfer earnings and economic rent? Explain with the use of an example (10marks)
A) Transfer earnings – is the least reward or payment that a laborer factor would earn as its best paid alternative choice. For e.g. a sales clerk gets pay a minimum of $15 an hour. If she was to receive a less than the minimum wage, she most likely wouldn’t want to work for that.
B) Economic rent- is the debate between what the laborer is earning and what he could be earning in its best alternative employment. For e.g. if an employee would be willing to work for at least $700 a week but instead makes $1000 a week then his economic rent would be...
A price floor is only effective when it is above the equilibrium mark. To create a surplus of goods. The quantity must be demanded.
(ii) Non-binding price floor - is in effective when below equilibrium price. The price will still fall below the equilibrium level and clear the market. But the growers with higher production costs will be unable to sell at this price.
Diagram illustrating binding and non- binding price floor
c) HIGHER THAN THE EQUILIBBRIUM PRICE IN ORDER TO BE EFFECTIVE.
Q6. What is meant by the term “economies of scale”? How is it different from “dis-economies of scale”? What are the types of economies of scale? How this concept is reflected in the long run average cost curve (LRAC)? (20marks)
a. Economies of scale- are for small levels of production of firms, when the average costs of output decline as output increases.
b. Dis-economies of scale- are for the relatively large levels of production that occur when average costs of output rise as output increases.
Types of economies of scale...
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