QUESTION 1 (20 MARKS)

List and briefly explain the four participants who influence the flows of production, income and expenditure in an economy. (12)

Draw a production possibility frontier showing a combination of two goods that a country could produce, and an area of inefficiency and another that is unattainable. (8)

QUESTION 2 [26 MARKS]

Explain why international trade takes place by discussing these two concepts with the aid of an example:

• Absolute advantage; and
• Comparative advantage.  (8)

Critically discuss the economic concept at work in the scenario below: (12)

“Nouvelle Nougat experienced a boom under the national lockdown and the opening of its online store. In one week the patisserie fulfilled 250 orders. To capitalize on this market, the owners, Nou and Elle, hired two additional pastry chefs, which gave them a total of 10 pastry chefs working in the kitchen. As a result, input of resources, increased by 25% and output increased by 82%.”

2.2 What is the difference between an open and a closed economy? Has South Africa ever been a closed economy? (6)

QUESTION 3 [24 MARKS]

Discuss the difference between market and command economies. In your response, make use of examples (12)

Critically discuss GDP as an economic indicator, and its strengths and weaknesses. (12)

QUESTION 4 [30 MARKS]

South Africa is a major platinum producer. Suppose the world price of platinum were to rise, due to increased demand, as a result of the turbulent economic climate of late. Using a diagram explain how this change in the industry will impact the exchange rate between the rand and the dollar, ceteris paribus.

Answers to Above Questions on Economics

Answer 1: There are different participants that influence the flows of production income and expenditure in an economy. The most important ones include the household that accounts for consuming goods and services produced in the economy. Another important participant is firms that account for producing goods and services in the economy. Government is another important participant that influences the flow by playing its role in the form of collection of taxes from households and firms, spending money in the economy and regulating it as well. The final important participant is foreigners, and they influence the factors of production with their trade and investment decisions within the economy.