1
90198
Level 1 Economics, 2006
90198 Describe the market
Credits: Five
You should answer ALL the questions in this booklet.
Achievement Criteria
Achievement
Describe the market, market
equilibrium and alternatives to market
allocation.
Achievement with Merit
Explain how changes in supply,
demand or other factors affect market
equilibrium.
Achievement with Excellence
Demonstrate a thorough understanding
of the market.
Overall Level of Performance
© New Zealand Qualifications Authority, 2006
All rights reserved. No part of this publication may be reproduced by any means without the prior permission of the
New Zealand Qualifications Authority.
You are advised to spend 45 minutes answering the questions in this booklet.
QUESTION ONE
Lenisa is thinking of buying a new mobile phone. She wants to shop around first. Jo tells
Lenisa that there are many markets she could get her mobile phone from.
(a)
Define the term market.
(b)
Apart from a shop, name ONE other market where Lenisa might buy her new mobile phone.
(c)
Lenisa pays for her new phone with money.
Describe how using money is more convenient than barter.
(d)
Describe why Lenisa donating her old phone to the Salvation Army is a non-market activity.
L1 Economics 2006, 90198 – page 2 of 8
QUESTION TWO
Lenisa now owns a mobile phone that she bought from a local electronics shop.
She uses her phone mainly to send text messages and the occasional phone call.
Two days later, she realises that although she can continue to make phone calls, she
is unable to receive or send text messages on her phone.
(a)
Which Act of Parliament allows Lenisa to take her phone back to the shop?
(b)
Describe ONE provision in this Act that allows Lenisa to do so.
Description: The Act states that the product must
(c)
Under this Act, Lenisa can expect the shop owner to do one of THREE things.
State these THREE options.
(1)
(2)
(3)
QUESTION THREE
Lenisa decides to research the market for the particular model of mobile phone that she
owns. She obtains the following data from the market.
Market for Model TG20 Mobile Phones
(a)
Price ($)
Market Demand
Market Supply
100
650
400
120
500
500
140
350
600
160
200
650
180
100
700
On Graph 1, plot the market demand and market supply for Model TG20 mobile phones.
Clearly label all parts and use dotted lines to indicate the market equilibrium price and
quantity.
L1 Economics 2006, 90198 – page 3 of 8
Graph 1
The Market for Model TG20 Mobile Phones
(b)
State the:
(i)
equilibrium price
per unit.
(ii)
equilibrium quantity
units.
Assume the current price for TG20 mobile phones is $150 per unit.
(c)
(d)
Use dotted lines to identify on Graph 1:
(i)
the quantity demanded (label this Qd)
(ii)
the quantity supplied (label this Qs).
(i)
Fully label the resulting surplus or shortage.
(ii)
Fully explain how the market would react to this situation. Refer to your graph and
discuss the effect on both price and quantity.
L1 Economics 2006, 90198 – page 4 of 8
QUESTION FOUR
The mobile phone market is a competitive one. Mobile phone providers are constantly
looking at ways to increase their market share.
(a)
Describe TWO examples of non-price competition that mobile phone providers may use to
increase their market share.
(1)
(2)
(b)
Explain ONE advantage and ONE disadvantage to mobile phone consumers of non-price
competition.
Advantage:
Disadvantage:
QUESTION FIVE
Mobile phones and health: what every user should know
A leading scientist has urged parents to stop children under 8 using mobile phones, arguing
that there is still no proof they are safe. So what is the truth?....
Extract from Times Online
Source: http://www.timesonline.co.uk/article/0,,8123-1437184,00.html
(a)
Show the effect of the above health alert on Graph 2. Use dotted lines to show the new
equilibrium price (label as P1) and the new equilibrium quantity (label as Q1).
L1 Economics 2006, 90198 – page 5 of 8
Graph 2
The Market for Mobile Phones
(b)
(c)
State what has happened to the:
(i)
equilibrium price
(ii)
equilibrium quantity
For each of the following situations, state the effect on the equilibrium price and quantity of
mobile phones. The first one is done for you as an example.
Situation
Effect on Price
The latest technology in mobile phone
manufacturing increases the output by 200%.
Decrease
(i) Consumers’ disposable income increases due
to a tax cut.
(ii) Power and energy costs increase.
L1 Economics 2006, 90198 – page 6 of 8
Effect on Quantity
Increase
QUESTION SIX
Sir William Stewart, a leading scientist in the UK, recently urged parents to stop their
children from using mobile phones until more is known about their safety. It is thought that
young children might be more vulnerable to fields given off by such phones because of their
thinner skulls and developing nervous systems.
Source: www.timesonline.co.uk
There is increasing pressure on the government to act in order to control the use of mobile
phones. As a result, the government decides to apply an indirect tax of $50 for each mobile
phone sold.
Graph 3
The Market for Mobile Phones
Price ($)
200
175
S
150
125
100
75
50
0
D
40
80
120
160
Quantity (000)
200
(a)
On Graph 3, show the effect of the tax on mobile phones. Use dotted lines to show the new
equilibrium price (label as P2) and the new equilibrium quantity (label as Q2).
(b)
What is total consumer spending before the tax?
(c)
State the price:
(d)
$
(i)
the consumer pays after the tax
$
(ii)
the supplier receives after the tax.
$
How much revenue does the government collect from this tax? SHOW WORKING.
$
L1 Economics 2006, 90198 – page 7 of 8
(e)
Fully explain how an indirect tax would affect suppliers and consumers of mobile phones, and
the government.
(i)
Suppliers:
(ii)
Consumers:
(iii)
Government:
L1 Economics 2006, 90198 – page 8 of 8