State two characteristics of a perfectly competitive market.

Using a fully labelled diagram, outline the relationship between marginal product (MP) and average product (AP) of labour.

Determine the slope of the market supply function for the corn farmers in Nissos.

Calculate the monthly equilibrium quantity of corn in Nissos.

Plot and label on Figure 1 the market demand curve and the market supply curve for corn in Nissos.

Draw and label the marginal revenue (MR) curve for corn for an individual farmer in Nissos on the grid below.

Using Figure 1, calculate the consumer surplus in Nissos at the market equilibrium.

Explain one possible advantage and one possible disadvantage of governments setting a price floor in agricultural markets.

Draw and label on Figure 1 a curve that illustrates the price floor in Nissos that leads to a monthly surplus of 3 million kg of corn.

State one measure that the government of Nissos might take to deal with this corn surplus, following the imposition of the price floor.

Outline why purchasing this surplus implies an opportunity cost for the government of Nissos.

Using Figure 1, determine the size of the decrease in monthly corn consumption following the imposition of the price floor.

Using Figure 1, calculate the change in consumer expenditure on corn in Nissos.

Award [1] for each valid characteristic.

Characteristics may include:

• many small firms
• homogeneous product
• no barriers to entry (and exit)
• perfect information
• perfect factor mobility
• firms are price takers.

The vertical axis may be labelled Marginal/Average Product, Product, Output, (or abbreviations of these). The horizontal axis may be labelled (Quantity of) labour, workers, variable factor, input.

(+) 1 is sufficient for [1].

10 − 0.5P = P − 2
12 = 1.5P
P = 8
Q = − 2 + 8 = 6

Any valid working is sufficient for [1].

Q = 6 million kg

An answer of 6 million kg or 6 million or 6 without working is sufficient for [1].

For full marks to be awarded the response must provide some valid working and include correct units.

Horizontal line at $8.00 with MR label on Figure 1 is sufficient for [1].

$\frac{1}{2}$ × 6 (20 − 8)

No workings are required.

$36 million is sufficient for [1].

OFR applies.

For providing a limited explanation of one advantage or one disadvantage, award a maximum of [1].

For an accurate explanation of one advantage or one disadvantage or a limited explanation of both, award a maximum of [2].

For providing an accurate explanation of one advantage or one disadvantage and a limited explanation of one disadvantage or one advantage, award a maximum of [3].

For providing two accurate explanations, award a maximum of [4].

Award [1] for a horizontal line above the equilibrium price.

Award [1] for the line being drawn at $10.

If the line is not labelled a maximum of [1] may be awarded.

OFR applies.

Award [1] for one accurate possible measure.

Measures may include:

• destroying the surplus
• storing for future use (possible future drought)
• exporting abroad at a lower price
• overseas food aid
• purchasing the surplus
• providing foodbanks or low-income families with (rationed) surplus
• any other valid measure.

1 million kg is sufficient for [1].

No workings are required.

OFR applies.

8 × 6 = $48 million
10 × 5 = $50 million

Any valid working is sufficient for [1].

Change = $2 million OR an increase of $2 million.

An answer of 2 or 2 million or $2 million without working is sufficient for [1].

OFR applies.

For full marks to be awarded the response must provide valid working and include correct units.