CHAPTER 2: BASIC CONCEPTS IN ECONOMICS

Activity 1

Which of the following statements do you agree or disagree with? (Indicate your answer with an
X).

The three basic economic problems are:

Statements Agree Disagree

Allocation, production and distribution.
Scarcity, opportunity cost and production.
Production, distribution, division.
Allocation, distribution and expenditure.
Production, marketing and consumption.

Activity 2

Which of the following statements do you agree or disagree with? (Indicate your answer with an
X).

Statements Agree Disagree

An economy consists of economic subjects with needs and the
resources available to satisfy such needs.
Making everyone in the world as wealthy as those in the wealthiest
economies is not feasible given the current level of resources and
technology available on the planet.
The scarcity of labour, capital, natural resources and entrepreneurship
force economic subjects to make choices.
Within the context of available incomes and options, the best choice is
the one that carries the highest opportunity cost.
The trade-offs that accompany choices can be measured by
opportunity costs.

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Activity 3

Indicate the applicable kind of remuneration of the four production factors.

Production factor Remuneration

Capital.
Natural resources.
Labour.
Entrepreneurs.

Activity 4

Link the applicable macroeconomic objectives to the following descriptions.

Description Macroeconomic objective

The personal income tax rate for high-income earners is
increased to 45 %.
The result of greater levels of fixed investment in production
sectors of the economy is 180 000 new employment
opportunities.
It was announced that the rate of growth in the consumer
price index is 2%.
The gross domestic product has increased by 1.7%.

Activity 5

The following statements are normative economic statements. (Indicate you answer with an X).

Statements Agree Disagree

The current unemployment rate in South Africa is approximately 28%.
In 2017 the rate of value-added tax (VAT) in South Africa was 14 per
cent.
A strong currency is better than a weak currency.
The personal income tax rate should be reduced.
All South Africans should have a positive attitude towards promoting
exports.

Activity 6

Indicate the concepts linked to the following descriptions.

Description Concept
Costs are created for others through market transactions without
compensating them.
Monopoly formation.
Goods that everyone wants, but nobody wants to supply.
Part of exhaustive government spending on real assets.
State pensions.
Peter’s debt is so large that he will never be able to pay the interest on
his loans.

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Activity 7

Which of the following descriptions indicate progressive taxation, regressive taxation or

proportional taxation?

Description Kind of taxation

All companies pay 27% tax.
Assume that Thabo paid a total of R5000 VAT per month on his
total spending for both September and October. His salary for
September was R20 000 but he had received an increase of
R2000 for October.
The higher your monthly income the higher the tax bracket.

Activity 8

Link the applicable macroeconomic policy with the following descriptions.

Description Macroeconomic policy

The Minister of Finance had a meeting with COSATU to motivate a
6% general wage increase rather than a 12% general wage
increase.
The South African Reserve Bank increases the repo-rate.
Government has instituted a higher tariff on the importation of new
motor vehicles.

Activity 9

With which of the following statements regarding macroeconomic objectives do you agree or
disagree with? (Indicate your answer with an X).

Statements Agree Disagree

If economic growth is higher than population growth then it implies that
a country experiences an improvement in its average standard of
living.
If the general price level increases faster than the average incomes of
economic subjects, then it could mean that there is a decline in the
buying power of their incomes.
A rise in the rate of unemployment implies that the available production
factors are not being used efficiently.
If a country experiences a surplus on its balance of payments, then it
means that it receives an overall inflow of income from foreign
countries.
A country's income distribution will be equitable if those people who
work hardest earn a higher income than those who do not work hard.

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Activity 10

Which of the following descriptions represents expansionary monetary policy, restrictive

monetary policy, expansionary fiscal policy or restrictive fiscal policy actions?

Description Kind of policy

Government is cutting back on subsidies.
The South African Reserve Bank decreases the repo-rate.
The marginal tax rate for tax payers earning more than
R1 500 000 is increased to 45%.

Activity 11

The following statements indicate solutions for the problem of what to produce in a Centrally
Planned economy. With which of the following solutions do you agree or disagree with?
(Indicate you answer with an X)?

Solution Agree Disagree

Consumer preferences.
Producers’ decisions.
The central authorities or the state.
Market mechanism.

Activity 12

The following statements are true in respect of a market economy. (Indicate you answer with an
X).

Statement Agree Disagree

Relative freedom exists.
Production is planned and organized by firms.
Goods are mostly exchanged for other goods.

Activity 13

The critical function that separates a financial intermediary from other types of businesses is
that it:

Description Agree Disagree

Generates tax revenue for government spending.
Facilitates the exchange of non-durable goods.
Enables the exchange of government bonds.
Provides insurance to car owners.
Diverts household saving to real investment.

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Activity 14

Indicate the concepts linked to the following descriptions.

Description Concept
Assets that can be easily converted into money.
Sector of the economy that contains goods & services and real assets.
Physical assets that can be used to produce more goods & services in
the future.
Goods that consumers consume in less than 1 year.
The additional satisfaction that a consumer will get by consuming one
more chocolate slab.
Products consumed by final users.
Channel money from those who have surplus funds to those who need
more money.
People buy financial instruments.

Activity 15

When the local government plants flowers and trees in parks and on sidewalks it is addressing
the following kinds of market failure. (Indicate your answer with an X).

Kind of market failure Agree Disagree

Public goods.
Inequity.
Imperfect competition.
Instability.
Employment.

Activity 16

The following are examples of goods markets. (Indicate your answer with an X).

Examples of goods markets Agree Disagree

Johannesburg Stock Exchange.
A fresh produce market.
The annual Easter show in Johannesburg.
The bond exchange of South Africa.
A job interview.

Activity 17

The following are examples of durable final goods. (Indicate your answer with an X).

Examples of factor markets Agree Disagree

A holiday trip around the world lasting for two years.
The steel plates used in the manufacture of a luxury car.
Anti-aging facial cream for women.
A university textbook.
A meal from the cafeteria.

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Activity 18

The following are examples of a financial asset. (Indicate your answer with an X).

Examples of a financial asset Agree Disagree

Shares in a company listed on the Johannesburg
Securities Exchange
A government bond with a maturity of 10 years or less.
A savings account.
The purchase of a machine on credit.
A unit trust account or endowment policy bought from a
life insurance company.

Activity 19

With which of the following statements do you agree or disagree with? (Indicate you answer
with an X).

Statements Agree Disagree

Trading of production factors on factor markets gives rise to the
income of households.
Real assets are goods that are used to produce other goods and
services.
Product and factor markets exist in the real sector of the economy.
Firms are regarded as economic objects.
The law of diminishing marginal returns applies because some factors
in the production process are limited or scarce.

Activity 20

With which of the following statements relating to taxation do you agree or disagree with?
(Indicate you answer with an X).

Statements Agree Disagree

A levy on fuel is consistent with the benefits received principle because
it taxes the people who use roads.
A tax that causes a significant change in the behaviour of people is
likely to be an inefficient tax.
A regressive tax is one where people pay a relatively greater portion of
their income as tax as their incomes decline.
Very high tax rates on high income earners could cause them to work
and invest less and encourage them to leave the country.
If a government collects less tax and other income than it spends,
government debt will increase and increase the interest they have to
pay on their debt.