Economics Question

Question 1
(a) “A good harvest from conducive weather may not always benefit the farmers in terms
of revenue earned”. Discuss using a suitable farm product diagram the validity of this
statement, taking into consideration the price elasticity of demand for farm products.
(30 marks)
(b) “While a tax tends to create the deadweight loss, a subsidy always results in a higher
economic surplus. Hence the government should avoid imposing taxes and should
always provide a subsidy in the market”. Do you agree? Illustrate with suitable market
diagrams.
(40 marks)
(c) For two products A and B, it will be irrational for a consumer not to buy more of product
A and less of product B if the marginal utility of A exceeds the marginal utility of B at
their last units of consumption. True, false or uncertain? Explain.