ECS1601 - Assignment Answers

ECS1601/201/2/2017




Tutorial letter 201/2/2017

Economics 1B


ECS1601

Semester 2


Department of Economics


IMPORTANT INFORMATION:
This tutorial letter contains the answers to assignments 01 to 04




BARCODE

, CONTENTS
Page

1 DISCUSSION OF ASSIGNMENT 01/2017 ................................................................................... 3
2 DISCUSSION OF ASSIGNMENT 02/2017 ................................................................................... 7
3 DISCUSSION OF ASSIGNMENT 03/2017 ................................................................................. 10
4 DISCUSSION OF ASSIGNMENT 04/2017 ................................................................................. 14




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, ECS1601/201

1 DISCUSSION OF ASSIGNMENT 01/2017

Dear Student

In this tutorial letter, we provide you with the answers to the multiple-choice questions in Assignment 01,
with brief explanations where necessary. In most cases, however, we merely refer you to the prescribed
textbook and/or the study guide. If you have any questions about the answers that are provided, please
discuss them with your fellow students and your e-tutor on the e-tutor website.

1 DISCUSSION OF ASSIGNMENT 01/2017

All references, unless otherwise indicated, are to the prescribed textbook: Mohr, P, Fourie, L & associates.
2015. Economics for South African students. 5th edition. Pretoria: Van Schaik.

1.1 The correct option is [5].
Refer to Figure 3.1 in the prescribed textbook. The three major in the economy are production,
income and spending. Therefore, none of options [1] to [4] is correct.

1.2 There is no correct option.
A stock variable has no time dimension and can only be measured at a specific moment. Capital,
wealth and population size have no time dimension and they can be measured at a specific moment;
therefore they are stock variables. On the other hand, income, profits, and savings are flow variables.
Flow variables have no time dimension and can be measured over a period of time.

1.3 The correct option is [4].
Stock variables have no time dimension, while flow variables have a time dimension. Therefore,
stock variables are measured at a particular point in time, while flow variables are measured over a
period of time.

1.4 The correct option is [4].
In economics, the four production factors are as follows:
 Natural resources (land), which are gifts of nature such as mineral deposits, water, arable land,
vegetation, animal life, the atmosphere, etc.
 Labour can be defined as the exercise of human mental or physical effort in the production of
goods and services. It includes all effort exerted with a view to obtaining reward in the form of
income. The efforts of goldminers, rubbish collectors, professional boxers, etc are all classified
as labour.
 Capital comprises of all manufactured resources, such as machines, tools, and buildings,
which are used in the production of other goods and services. Capital goods are not for their
own sake but to produce other goods.
 Entrepreneurs are the driving force behind production. Factors of production have to be
combined and organised by entrepreneurs who see opportunities and are willing to take risks
by producing goods in the expectation that they will be sold.

1.5 The correct option is [3].
There are four types of remuneration associated with the different factors of production. The
remuneration for land is rent. The remuneration for labour is wages. The remuneration for capital is
interest and for entrepreneurship, it is profit. See section 3.4 in the prescribed textbook.

1.6 The correct option is [5].
In the circular flow diagram, households make consumption expenditure and receive goods and
services. The households offer their factors of production for sale on the factor market where these
factors of production are purchased by firms. The firms combine the factors of production and
produce consumer goods and services. These goods and services are offered for sale in the goods
market, where they are purchased by the households. See section 3.7 in the prescribed textbook.



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, 1.7 The correct option is [5].
Income consists of the total earnings from all the factors of production. Read the discussion on
production, income and spending in Section 3.2 of the prescribed textbook.

1.8 The correct option is [4].
Government spending (G) constitute an addition or injection in the economy, while taxes (T)
constitute a leakage or withdrawal from the circular flow of income between households and firms.
Refer to Figure 3.5 in the prescribed textbook.

1.9 The correct option is [1].
Financial institutions are not directly involved in the production of goods. They act as links between
households and firms with surplus funds and other economic participants that require funds, for
example firms that wish to expand their production activities. See Section 3.7 in the prescribed
textbook.

1.10 The correct option is [4].
Exports constitute an addition or injection in the circular flow of income and spending in the domestic
economy. A decrease in exports from South Africa will decrease revenues to South African
businesses (firms) and decrease income to South African resource suppliers (households).

1.11 The correct option is [5].
Macroeconomics is concerned with the economy as a whole. See Box 1-3 in the prescribed textbook.

1.12 The correct option is [2].
Specialisation occurs when workers are allocated specific tasks within a production process. In
market exchange, people may maximise the benefits in the economy. Option [1] is incorrect because
specialisation does not necessarily cause opportunity costs to be equalised. Option [3] is incorrect
because of the following reasons: although the principle of comparative advantage depends on
opportunity cost, comparative advantage is not the same as opportunity cost. Option [4] is incorrect
because the ability of a country to produce higher output due to other factors other than tax rates.
The term “opportunity cost” applies in economics as a whole, which includes macroeconomics and
microeconomics. Therefore, option [5] is incorrect.

1.13 The correct option is [4].
Anglo American represents the business sector (firms), which means that it is responsible for
providing goods and services.
Nando’s is an example of a firm, and in the factor market firms pay households for the exchange of
factors of production.
In South Africa, households do influence the financial sector.
If the government pays for Nkandla’s security upgrades, firms will benefit for the services they
provide.

1.14 The correct option is [4].
The functions of money are explained in Section 14.1 in the prescribed textbook.

1.15 The correct option is [4].
A unit of account is an agreed measure for stating the prices of goods and services. In a money
economy the price of goods and services are expressed in monetary terms. Money (R200) thus
functions as a unit of account.

1.16 The correct option is [5].
See section 14.3 in the prescribed textbook.

1.17 The correct option is [2].
Refer to Box 14-1 in the prescribed textbook.



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