QUESTION ONE [25]

1.1 For each of the following independent scenarios, use the demand-supply model to motivate your answer.

1.1.1 As the owner/manager of a company, one has to be aware of the effects of external circumstances on the demand and supply of the good or service that ones company produces and sells. Assume your company produces and sells intermediate food items to the producers of the final good. In terms of the above statement, appraise the economic impact that a challenging social factor such as the increasing awareness of the importance of organic food in one's diet will have on the intermediate food item produced by your company. (13)

1.1.2 Assess how a factor such as technology affects the equilibrium price and quantity of the good or service produced by a company. (12)

QUESTION TWO [40]

2.1 Defend the reason for the following, using elasticity of demand as the basis for your answer. Motivate your answer with the aid of examples.

2.1.1 Narrowly defined markets tend to be associated with a more price elastic demand than broadly defined markets. (6)

2.1.2 Goods tend to have more price elastic demand over large time horizons. (6)

2.1.3 Necessities tend to have relatively inelastic demands, whereas luxuries have relatively inelastic demand. (6)

2.2 Read the scenario below and answer the question that follows: George Richard is a farmer who is also a skilled metal worker. He makes unique garden sculptors that could earn him R400 per hour. One day he spent 10 hours planting R5 000 worth of seeds on his farm.

2.2.1 Measure George's opportunity cost. (4)

2.2.2 Determine the cost that is measured by his accountant. (4)

2.2.3 If the seeds George planted yield R10 000 worth of crops, argue the point that George does earn an accounting profit. (4)

2.2.4 Would you advise George to continue as a farmer or switch to metal work? (10)

QUESTION THREE [15]

3.1 Questions 3.1 to 3.2 is based on the excerpt below. Shine is one of many firms in the market for toothpaste which is in short-run equilibrium. It engages in advertising to create the perception of a unique product. Discuss the long-run aggregate supply curve.

3.1.1 Draw a diagram illustrating Shine's demand curve, marginal revenue curve, average total cost curve and marginal cost curve, clearly labeling the company's profit maximizing output, price and equilibrium position. Include in your answer how the profit position is determined. (10)

3.1.2 Determine why Shine is able to establish this profit position in the short-run, using the characteristics of the market structure this firm falls within as the basis for your answer. (5)

QUESTION FOUR [20]

4.1 Examine which phase of the business cycle is linked to a contraction in gross domestic product. Use a diagram to motivate your answer. (9)

4.2 Three consecutive contractions in gross domestic product implies the onset of recession for an economy. Compile a fiscal policy to take an economy out of this undesirable situation.(11)