Question

Tom is a full-time lecturer at a private higher education institution and is considering a career in carpentry. He wishes to pursue a career in carpentry (a childhood dream) which he has studied part-time and is now equipped to take on clients. In his current position he earns a rate of R1000 per day and if he were to pursue a career in carpentry he would earn R800 per day.  Due to the flexibility of the employment conditions at the higher education institution he works for, Tom can negotiate the number of days he works at and will receive a rate of remuneration based on the number of days worked.
Question 1
1.1 Construct a production possibility frontier to illustrate Tom’s earnings potential between the two careers if initially he was not working as a carpenter, then he worked one week per month, then two, then three and finally four weeks per month (assuming only four weeks in a month).         (5 marks)     
1.2 Discuss the underlying assumption of the shape of the above drawn diagram and comment on how likely this could be true with respect the above scenario.                                                        (6 marks)                 
1.3 Discuss a factor that would lead to an outward shift of the diagram drawn in 1.1 and illustrate this on the diagram drawn.                                                                                                        (5 marks)      
1.4 Discuss a factor that could lead to an inward shift of the curve drawn.                      (4 marks)
1.5 In the labour market for carpenters, the current market clearing wage rate is R800 per day. With the aid of a diagram, discuss the welfare effects of government intervention in the form of legislation that sets the minimum wage rate for a carpenter at R1000 per day.                     (20 marks)

Answer 1

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