QUESTION 3 (25 Marks)

Assume that ZIMLIFE is a brand of cereals that proclaims,' We are Zimbabwe's first and only scientifically formulated, balanced, nutrient dense food to contain Moducare. All ZIMLIFE products are also high in Energy, Protein and Dietary Fibre and contain Calcium, Iron, Selenium, Zinc, essential vitamins and minerals, 19 Amino Acids and Omega 3+6'.

The demand function for ZIMLIFE cereal in the greater Durban area is described by: Q =40 000 - 3000P + 10A,

where Q is measured as the number of 500g boxes consumed each week, P is the price of a 500g box and A is the cumulative effect of determinants, other than price, on the number of ZIMLIFE boxes demanded. Assume P = 33 and A = 50,000.

3.1 Assume the price decreases to R25 per box (ceteris paribus), calculate the price elasticity of demand for this good and provide a possible reason for the degree elasticity. (5 marks)

3.2 Provide advice to the General Manager of ZIMLIFE, David Swethen Moore, of the implication of the price elasticity obtained in 3.1 for revenue maximisation. (5 marks)

3.3 Discuss ANY FIVE (5) factors affecting the price elasticity of demand for cereals in your country. (15 marks)

(Motivate your solution with relevant diagrams)

QUESTION 4 (25 Marks)

It is naive to try to break up monopolies into even a few effectively competing units, because the basic cause of monopoly is the law of decreasing cost with mass production. Moreover, if there are even a few firms, the price is likely to be close to marginal cost.'

4.1 Using examples in your country discuss the rationale for government in creating monopolies for the provision of basic goods and services. Explain whether you agree / disagree with the above statement. (15 marks)

4.2 Discuss the advantages of nationalisation over privatisation of the mining industry in South Africa. (10 marks)

QUESTION 5 (25 Marks)

International trade (sometimes called globalisation) is often considered a contentious area in policy debates. Individuals who support globalisation claim that international free trade is beneficial to all participants (i.e. the importing and exporting countries, as well as the global economy) while others claim that international trade can be harmful for certain countries and hence call for some degree of protectionism.

5.1 Critically discuss the above statement with reference to your country. (15 marks)

5.2 With the aid of diagrams explain the concept of a floating exchange rate regime, the factors that determine the value of the currency in such a system and explain the rationale given by many governments for devaluing their local currency. (10 marks)