Question1 The graph below indicates that the Increase indemand of raw water will shift the demand curve to the right from (D0 to D1),The change(increase) in demand of raw water willresult in no change in price(P0) which will result in flat or vertical supplycurve(S0) Point (A)shows the equilibrium point which will determine the price of raw water whichremains the same, whereas Point B indicate the price after the change in demandof raw water to date.Equilibrium point (A) and (B) shows the price ofraw water that does not change when there is an increase in demand from Q0 toQ1 This indicates that in a perfectly competitive market individual firms are pricetakers and that the price is determined by the intersection of the marketsupply and demand curves competitive, (A) and ( B ) Price (R) Quantity Demand Question 2 Factors that can affect the supply curveof raw water to shiftIn1994 the new democratic government took over in South Africa, the internationalcountries lifted the suctions which were exposed because of the apartheid.These change the economic status of the country. Thefollowing are some of the factors which caused the change in Supply to shift.
Climate ChangesAccording to Vollgraaf& Mbatha (2016) South Africa in 2015/2016 experienced its worse drought in100 years. The agricultural and manufacture output dropped drastically. Thedrought decreases the supply of agricultural products. This caused the supplycurve to shift to the left.New TechnologySouth Africangovernment invested money on innovation hub. Many student were sent in othercountries such as China and Cuba to enquire new skills and technology forimproving the economy of the country.
Industries also invested in newtechnology. Example the courier service companies are using the GPS to locatethe address for delivery to save on time to go around searching for the address.Because of the use of technology, the output levels increase causing the supplycurve to shift to the right.Government Policies:South Africa passedsome legislation and policies from 1999 with the aim of controlling consumptionand make revenue Abedian &Jacobs :2001. One of the policy was to increase from 0.
12 cent per cigarette to 0.38cin 2009/10. The goal of policy was to reduce the cigarette consumption andprevent the negative impact caused by it. The supply curve shifted to the leftbecause of the low supply of the cigarettes.
Factors that can affect the demand curve ofraw water to shiftChange in Taste andPreferences The consumption ofpoultry meat in South Africa increased by almost 80% from 21.5 kg per personper year in 2000 to 80.5 kg per person per year in 2014. As chicken isrelatively expensive and generally available in most places, it grows to bemost important protein source in the diet of majority of South Africans (Burgin2015). This resulted to steady economic growth and increase in average incomelevels of South Africans since 2000. This cause the rightward shift of thedemand curve. PopulationAccording to the World Bank (2015), since 1994 in SouthAfrica the working age population has grown by 11 million and comprises 65% populationof 54.
9 million in 2015. Therefore, more people in employment mean moreproduction, more income and more spending. This expansion of South Africa’sworkplace presents the country with a demographic window of opportunity forincrease economic growth and better living standard (World Bank:2015). Becauseof the increase in population the demand curve will shift to the right. Question 3 South Africa is a welfare developing state. Acountry leading with inequalities, with the highest poverty rate and withchallenges in education, health, crime and employment.
Social grants are the one of the many toolsused to make sure that people faced with those challenges have something tolive on, this is the way our government is trying to reduce unemployment butagain we need to look at our economy and how will it be affected in the longrun.Since these social grants are paid out of taxesthe country might find itself unable to pay these social grants due toinsufficient money received from tax payers. My proposal is to build an economical enablingInfrastructure.
Economic enabling Infrastructure refers to the basic physicalsystems of country’s or community’s population, including roads, utilities,water, sewage, etc.Having good quality Infrastructure in SouthAfrica will have a positive effect in economic growth meaning increase in jobcreation and increase foreign direct investment to improve tax revenue. Anincrease in economic growth will result in increase in Gross Domestic Productof a country. Question 4Iwould choose the option of ensuring that my child is on Discovery medical aidbecauseto me health is the mainpriority and discovery medical aid will give my child access to privatehospital care, meaning the opportunity cost will be the quality health careinstead of good quality education. In South Africa, we have a very poor publichealth services as compared to public education. The South AfricanConstitution’s Bill of Rights saysthat everyone has the right to have access to health care services. Yet morethan 80 percent of the nation’s population has no medical insurance and dependon a public health system with too few doctors and poor facilities, resultingin treatment delays.
(Bloomberg Quick Take : 2017) The country’s poorest people have access tofree services and medicines at about 4,200 public clinics, but these facilitieshave been badly managed and are hampered by broken equipment, medicineshortages and insufficient numbers of staff. BusinessDay newspaper found that out of the 1,427 facilities inspected in the fouryears through March 2016, only 6 percent of them passed their inspections oncriteria ranging from drug availability to infection control. The biggest reason cited by doctors leaving SouthAfrica’s public sector is the poor working conditions. Medical Aid scheme willhelp me to pay for my child’s health care needs.Takingthe child to the private school can be costly and in case the medical conditionfor the child become a challenge it will be more expensive taking him/her tothe private hospital, sometimes the child will end up to the public hospitalswhich are having all the challenges stated above. Question 5 Examplesof Monopoly and Oligopolistic CompetitionRetail Sector – Monopolistic CompetitionWater Sector-Oligopolistic CompetitionOil and gas Sector-Oligopolistic CompetitionBoth Monopoly andOligopoly are market competition models that are imperfectmeaning that they showsome characteristics of Imperfect competition.
In perfect competition, therearen’t barriers to entry and exit in the market place, there are a large, eveninfinite, number of buyers and sellers, and every buyer and seller is a “pricetaker,” meaning no one has the power to set prices.A cartel is a specialcase of oligopoly when competing firms in an industry collude to createexplicit, formal agreements to fix prices and production quantities. In theory,a cartel can be formed in any industry but it is only practical in an oligopolywhere there is a small number of firms A cartel has less command over anindustry than a monopoly According to News 24 June 2017, two fire companies(Fireco Gauteng has admitted cartel conduct.Fireco Gauteng andAfrion have admitted that they engaged in price fixing, market division andcollusive tendering in contravention of the Competition Act.
Fireco Gauteng hasagreed to pay an administrative penalty of R909 000, while Afrion has agreed topay R327 000.Thecommission said its investigation found that from at least 1996 to 2015 thecompanies had fixed prices, divided markets and tendered collusively whenbidding for tenders to install fire control and protection systems in new andexisting buildings. Question6 A cartel occurs when two or more firms enteragreements to restrict the supply or fix the price of a product in an industry.Cartel become harmful to small and mediumsized businesses and consumers by artificially raising prices, restrictingchoice or reducing product quality or service. Cartels are against the public interest becausecartels aim to Increase price; Distort normal workings of a competitive market fromconsumers to powerful vested interests. Successful cartels become an ‘easy’ wayto make profit, therefore it may discourage innovation and efficiency gains.
In South Africa cartel behaviour isprohibited by section 4(1)(b) of the Act. The penalty for participation in acartel is a fine of up to 10% of the firm’s annual turnover. The firm alsofaces the risk of damages claims by customers who may have suffered harm becauseof the cartel activity.It found that work done by South Africa’s competition authoritiesin battling cartels in the cement and food industries has helped to reduceprices, stimulate growth, including by allowing new entrants into some markets,and helping hundreds of thousands of South Africans ward off deeper poverty. Question7C-Class continues to be the best-selling model in MercBenz due to its high demand and lesser in price as compared to E Class Model.
Tomeasure production efficiency of C Class, we need to look at how well a companyis producing its Mercedes-Benz to maximize its outputs while using the leastamount of resources. The price of Mercedes Benz C Class is cheaper than of EClass which means the unit cost of C Class will be less that of E Class, whenproduction cost per unit of C-Class is cheaper the company will thereforeincrease its production efficiency. Variable costs for C-Class will be higher than variable costof E-Class , the more production of C class will result in increase in VariableCost while Fixed cost remain the same both models.Total Cost =TFC +TVCThe increase in TVC result in increase in total outputof C- Class. Mercedes leverage on the economies of scale, because they producemore C-class on a larger scale but they must try and avoid Diminishing returnto scale. Diminishing return will be bad to business because it will lead to decreasein output, decrease in Profit while more money will be spending on VariableCost. Question 8 China’s industrialproduction rose by 6.1 percent year-on-year in November of 2017, following a6.
2 percent gain in the prior month while markets expected 6.2 percent. This implies thatChina’s economy is booming. China achieves this by being very innovative,investing in good technology, increase in employment and job specialization. Also, due to goodscalability China products are cheaper than other countries. If South Africa wantsto achieve a greater scale like China they should invest in good technology,build more factories, do research and development,reduce in imports and increase laborspecialization.
This will result to an increase in total output and lower the priceof products as each worker will be doing what he/she do best. If South Africa wantsto achieve a greater scale like China they can invest in the following:Advanced ManufacturingSouth African factories will have to pursue newmarket and step up innovation and production. To achieve this it need to drawits skilled labour to grow into globally competitive manufacturing hub focus onhigh value added categories such as automotive, industrial machinery andequipment as well as chemicals. Infrastructure ProductionAlthough South Africa is investing ininfrastructure, there are still gaps in electricity, water and sanitation. The partnership between public and privatesectors can drive together three strategies to make infrastructure spending upto 40% more productive: making maximum use of existing assets and increasemaintenance.
Service ExportsSouth Africa has high developed serviceindustries, but is captures only 2% of the rest of the sub Saharan Africa’smarket for service imports which is worth nearly half a trillion rand. Theexport to the region could ramp up with the right investment, and governmentcan help by promoting regional trade deals. Agricultural Transformation The consumption of agricultural products isrising, throughout Africa and Asia.South Africa could increase agricultural exports. This be the key drive of ruralgrowth, benefiting the nearly one in ten South Africans who depends onsubstance or smallholder farming. McKinsey Global Institute(2015)