Question 1
1.1 B
1.2 A
1.3 B
1.4 B
1.5 A
Question 2
2.1 False
2.2 True
2.3 False
2.4 True
2.5 False
2.6 True
2.7 True
2.8 True
2.9 False
2.10 True
2.11 False
2.12 True
2.13 True
2.14 False
2.15 True
Question 3
3.1.1 Economics is a social science that examines how goods and services are
produced, distributed, and consumed. It studies how individuals, businesses,
governments, and nations allocate scarce resources to a variety of uses (Mohr &
Fourie, 2020:10).
3.1.2 Human capital is a term that refers to the economic value of an employee's
experience and abilities. Education, training, intelligence, skills, and health are all
examples of human capital (Mohr & Fourie, 2020:62).
3.1.3 A public good is a good or service that is provided free of charge to all members
of society (Mohr & Fourie, 2020:89).
3.1.4 The cross price elasticity of demand quantifies the sensitivity of a good's demand
to changes in the price of a related good (Mohr & Fourie, 2020:102).
3.2 Second-degree price discrimination occurs when a business charges different
prices depending on the volume of goods sold. When a business charges a
different price for different quantities consumed, such as quantity discounts on bulk
purchases, this is referred to as price discrimination (Mohr & Fourie, 2020: 95).
3.3. A homogeneous product is one that is difficult to differentiate from competing
products manufactured by different suppliers. In other words, the product meets the
same physical and quality standards as comparable products from other suppliers. One
product is easily interchangeable with another (Mohr & Fourie, 2020:74). Veggies are
an example of a naturally occurring product. 1 kg of vegetables can be purchased
anywhere and will serve the same purpose.
A heterogeneous product, on the other hand, can be distinguished from competing
products and cannot be substituted for. This means that you, as the buyer, must
prioritize the features that are most important to you. The physical characteristics of
comparable items may differ between suppliers. Actual prices between products are
likely to vary significantly because suppliers can differentiate their products from the
competition (Mohr & Fourie, 2020:74). A heterogeneous good is something like an
iPhone. People who prefer the iPhone know that the iPhone has a unique quality,
brand, or other difference from a Samsung mobile phone and are willing to pay more for
it than other phones.
3.2.2 A complementary good is one that functions well in conjunction with another
paired or associated good. When increasing the quantity of good A necessitates
increasing the quantity of good B, the two goods are complementary (Mohr & Fourie,
2020: 80). For example, cereal and milk demand. When the price of one good
decreases and more people purchase it, they almost always purchase the
complementary good as well, regardless of whether the complementary good's price
decreases as well. If the price of one good goes up while demand goes down, the
demand for the paired or complementary good may also go down.
Substitute goods are goods that are in direct competition with one another. This means
that these items are interchangeable with others (Mohr & Fourie, 2020: 80). For
instance, butter can be used in place of margarine and vice versa. If the price of butter
increases, but if the price of margarine does not increase, demand will increase
proportionately.
3.3 The term opportunity cost refers to the value of the next best alternative good that
is foregone, sacrificed, or given up in the production of a given commodity (Mohr &
Fourie, 2020:15). Rather than taking a vacation with his friends, Mark attends
baseball training to improve his game. Vacation was the opportunity cost.
3.4 What will be produced?
Because resources are limited, all businesses must prioritize their output. A business
must decide how much of each good or service it will produce, just as a society must
decide how much food and shelter it will produce to meet the needs of the population
(Mohr & Fourie 2020:12).
How will it be produced?
A comparable-quality good or service can be manufactured in a variety of different
ways. As an entrepreneur, it is critical to be knowledgeable about all available options.
Should a business manufacture all of the goods and services it sells in-house or
outsource manufacturing? Is it better to manufacture in the United States or in another
country? Which is preferable: labor-intensive or capital-intensive production?
How will the output society produces be distributed?
Every good and service is made with the intention of being consumed. Who gets what in
a free market is determined by who can afford it at a price determined by supply and
demand. As a business owner, you should approach this question in the same way you
would approach what to produce. Who are your clients? Is your product reasonably
priced for your target market? Is there a sufficient number of them to sustain your
business? Mohr and Fourie (2020:13).
3.5 Below is a circular flow diagram illustrating the coexistence of households and
businesses. Firms manufacture goods by utilizing household production (land, labor,
capital, etc.), and households earn an income in exchange.
Businesses profit from consumer spending in exchange for the privilege of selling them
goods. Foreign trade has an effect on import and export (assumed domestic imports
and firm exports).
Foreign sectors
Import Export
Factors
Households
Spending
Firms
Income
Goods
Question 4
4.1.1 All else being equal, the law of demand states that when prices fall, demand
expands, and when prices rise, demand contracts. Other things being equal implies that
all factors influencing demand other than price are assumed to be constant
(unchanging), such as the prices of related goods, the consumer's income, and future
price and income expectations (Mohr & Fourie, 2020:99).
4.1.2 According to the law of supply, when prices rise, supply increases; when prices
fall, supply decreases, all other variables remaining constant. Other things being equal
implies that all factors affecting supply other than price are assumed to be constant
(unchanging), including the prices of factors of production, the firm's objective,
government policy, and future expectations about price (Mohr & Fourie, 2020:120).
4. 2 Wants come before needs, and they are heavily influenced by human needs. A
young man, for example, must dress. However, he dresses in the most expensive and
branded clothing. Dressing up or wearing expensive or branded clothing is not required.
He will, however, use it because he wants to. Demand is defined as the willingness and
ability to purchase (Mohr & Fourie, 2020:98). Things a person wants to buy or consume
that are within their financial means, i.e., you can afford it, so you demand it. When a
person has a strong desire for something expensive but also the financial means to
acquire it, his desires turn into demands. Desire is the primary distinction between
wants and demands. A client may have a strong desire for something but be unable to
obtain it.
4.3 A change in price results in a shift in the demand curve. A shift along the demand
curve occurs when the quantity demanded changes solely due to a change in price,
whereas a shift of the demand curve occurs when all other variables affecting the
quantity demanded remain constant and only the price changes, as illustrated in the
graph below.
4.4 Increases in household income will impact the amount of mobile data consumed
and the equilibrium price. The change is due to the positive income effect, which states
that as income rises, demand rises, and as income declines, demand declines (Mohr &
Fourie, 2020:105). Income declines as demand for substandard services and goods
increases. Increases in household income result in an increase in commodity demand if
income has a positive demand elasticity. As a result, the market's equilibrium quantity
and price level increase. The graph below illustrates this.
Question 5
5.1.1 Yes, It is elastic. An elastic demand is one in which the quantity demanded
changes significantly in response to a price change. It is demand elastic due to its near
one elasticity value of 0.35. Furthermore, this is a one-of-a-kind luxury item that can be
substituted.
5.1.2 Due to the fact that demand is elastic at a given price level, decreasing Diego's
price results in a greater percentage increase in quantity sold, thereby increasing total
revenue.
Question 6
6.1.1 An indifference curve depicts a pair of goods that provide equal levels of
satisfaction and utility to the consumer, rendering the consumer indifferent. The
consumer has an equal preference for the combinations of goods displayed along the
curve that is, the consumer is agnostic to any combination of goods on the curve (Mohr
& Fourie, 2020:112).
6.1.2 The budget line illustrates all possible combinations of two goods that a consumer
could purchase if he spent his entire income at the indicated prices (Mohr & Fourie,
2020:111).
6.2
On the x-axis, there is a good X, and on the y-axis, there is a good Y. Budget lines are
labeled BL1, BL2, and BL3, and indifference curves are labeled IC1, IC2, and IC3. A, B,
and C represent the consumer equilibrium points. As shown in the graph above, a
consumer's equilibrium points change as his or her income and preferences change.
Point A dissatisfies the customer, whereas points B and C satisfy the customer. When a
consumer's income rises, his or her equilibrium shifts from A to B, then to C. By
connecting the points A, B, and C, I obtain the income consumption curve. This diagram
shows how different indifference curves show the different consumer equilibrium
combinations of two goods at different income levels.6.3.1 When the price of the good
rises, the budget line pivots to QBQ'M, creating a new equilibrium B on a lower
indifference curve. Price increases on a good result, resulting in a decrease in the
quantity desired.
6.3.2 Indifference curve
Question 7
7.1.1 Total revenue = Price x quantity
Total revenue = R100 x R150 = R15, 000.00
7.1.2 As shown below, the company is currently profitable because its revenue exceeds
its production costs.
Profit = revenue - cost of production
Profit = R15, 000 - R9, 500 = R5, 500.00
7.2.1 In the short run, a company's capital is fixed, and the only way to increase output
is to hire more workers. Because of the high fixed capital costs but low variable labor
costs, costs rise more slowly than output as output rises (Mohr & Fourie, 2020:133).
7.2. Diminishing returns indicate that as more workers are hired to produce more units,
the marginal cost continues to fall due to scale economies (Mohr & Fourie, 2020:133).
Question 8
8.1.
In the short run, a market that is competitively optimal can generate economic profits on
a limited number of occasions. In this case, the price > ATC, or the minimum of the ATC
curve, is below the price, which is represented by the MR line. The shaded area of the
given graph represents the amount of economic profit made. The profit is equal to the
area of the shaded rectangle.
8.2
Monopoly Oligopoly
Number of One firm two or more companies in this market
firms
Entry No barriers to entry Barriers to entry
Collusion No collusion Collusion exists.
Question 9
The Central Selling Organization of De Beers holds a significant monopoly in the South
African diamond industry (CSO).
A company based in South Africa, which is involved in the production and distribution of
diamonds, is the only one operating in the market at the moment. There is only one firm
in this market because there is no competition.
Each product or service that is sold is identified by a distinct brand. Because there are
no comparable products on the market, the goods and services have a distinctive brand
that distinguishes them from the competition.
The ease with which a company can enter the market: It is not easy to become a part of
a company. As a result of the monopoly, numerous barriers are put in place to
discourage new entrants.
Because the company is solely responsible for the pricing of their products, they have
complete control over the pricing of their products. It is possible for them to under-or
over-price a product based on their personal preferences.
References
Mohr, P. & Fourie, L. & Associates. 2020. Economics for South African students. 6th ed.
Pretoria: Van Schaik.
