QUESTION 1 [25 marks]

a) Graphically illustrate how market forces in a market economy can equate the demand and supply. [6].

b) Some economists argued that 'although the outcomes of the market process may often be desirable, they are by no means always so.' Give two examples of the market outcomes which are not desirable. (Motivate your answer) [8]

c) Recognizing the limitations and failings of markets is an important task of managing the economy, but to recognize market failures is only part of the way to finding a solution.

(i) Propose the appropriate remedies/solutions how such market failures can be corrected. (Note, in your discussion highlight the possible unintended consequences of such remedies if there's any). [11]

QUESTION 2 [25 Marks]

a) We know that the number of personal computers being sold has increased, yet the price is falling. Use supply and demand curves to explain how this can happen. [13]

b) Often, supporters of monopolies argue that 'market power is not necessarily a bad thing.' Is there some truth in this statement? Explain your answer. [12]

QUESTION 3 [25 Marks]

3.1 Explain what is mean by

(a) anticompetitive and

(b) collusion behaviors. [5]

3.2 ''ArcelorMittal to pay R1.5bn fine for role in steel cartel the biggest fine imposed on a single company for anticompetitive behavior in SA's history.'' Does ArcelorMittal anticompetitive behaviors strengthen the case for more competition, than monopoly in a market economy. Explain your answer. [10]

3.3 'Collusions & cartels are difficult to achieve and even more difficult to maintain.' Explain these difficulties. [10]

QUESTION 4 [10 Marks]

(a) Explain how changes in the size of the circular flow depend on the relative size of injections and leakages. [10]

(b) Evaluate the use of GDP and its variants for making comparisons of the standard of living over time. [15]

QUESTION 5 [10 Marks]

a) Discuss the money (deposit) creation process. [5]

b) Discuss the three main tools of monetary policy used by the Central Bank. [10]

c) What do you understand by expansionary fiscal policy and under what circumstances is it used? [10]