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Practical 1 (Chapter 1)

The document outlines activities related to economic concepts such as trade-offs, unemployment rate reduction, and economic growth using a production possibilities curve. It includes decision-making scenarios for firms and parents choosing schools based on costs and benefits. Additionally, it discusses the effects of monetary policy on interest rates, investment, and employment.

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2 views

Practical 1 (Chapter 1)

The document outlines activities related to economic concepts such as trade-offs, unemployment rate reduction, and economic growth using a production possibilities curve. It includes decision-making scenarios for firms and parents choosing schools based on costs and benefits. Additionally, it discusses the effects of monetary policy on interest rates, investment, and employment.

Uploaded by

sadpost787
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Practical 1 Chapter 1 and 2

Activity 8 - 10
Activities 8-10 are based on the following figure (production possibilities curve)
Activity 8
The following is possible descriptions of movements of a trade-off.
Number Description
1 From point A to point B.
2 From point B to point C.
3 From point A to point D.
4 From point C to point D.
5 From point A to point C.

Number Agree Disagree


1

4
5
Activity 9
The following are possible descriptions of a reduction in the unemployment rate.

Number Description
1 From point A to point B.
2 From point B to point C.
3 From point A to point D.
4 From point C to point D.

Number Agree Disagree


1

4
Activity 10
The following are possible descriptions of economic growth.
Number Descriptions
1 From point A to point B.
2 From point B to point C.
3 From point A to point D.
4 From point C to point D.
5 From point C to point A.

Number Agree Disagree


1

4
5
But First…
Let’s look at Work Chart 1 Activity 6
Make sure you understand the logic…
Work Chart 1 Activity 6
Assume that a firm needs to make a decision on whether to invest in either project A or project
B. Assume the following table.

Project A Project B
Net cost Sacrifice R540 000 R600 000
Net revenue Gain R720 000 R780 000

Economists consider: explicit costs (Net Cost) + implicit cost (Opportunity Cost)

Golden Rule for Economic Choice

Choose the alternative with the smallest sacrifice relative to the gain
Answer: Option 1
𝑁𝑒𝑡 𝐶𝑜𝑠𝑡
𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒

How much do you sacrifice in terms of cost to be able to earn R1 of revenue

Project A Project B
Net cost R540 000 R600 000
Net revenue R720 000 R780 000
Net cost: Net revenue ratio 0.75 0.77

Based on the Golden Rule:


Project A
Smallest sacrifice to gain
Answer: Option 2
𝑁𝑒𝑡 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝑁𝑒𝑡 𝐶𝑜𝑠𝑡

How much do you sacrifice in terms of revenue to be able to spend R1 on cost

Project A Project B
Net cost R540 000 R600 000
Net revenue R720 000 R780 000
Net revenue: Net cost 1.33 1.30

Based on the Golden Rule:


Project B
Smallest sacrifice to gain
Work Chart 1 Activity 9
Assume that parents need to decide to which good private school to send their
children. Assume that they have identified four schools (A, B, C & D). Two very
important factors for them are the cost of attending a school per annum and the
distance that they have to travel each morning. They are also interested in
combinations of three other aspects namely high level of education (H1), good
infrastructure (H2) and good sport facilities (H3).

Assume the following consequence table.


School A School B School C School D
Annual fees R105 000 R100 000 R160 000 R140 000
Additional aspects included H1+H2 H 1+ H 2 H 1+ H 2+ H 3 H 1+ H 2+ H 3
Distance to school 5km 6km 12km 10km

Rule 1: Eliminate the irrelevant objective.


Next question…

Construct a consequence table after eliminating the irrelevant objective

Rule 2: Eliminate the irrelevant alternative


R110 000

School [A] School [B] School [D]


Annual fees R105 000 R100 000 R140 000
Additional aspects included H1+H2 H1+ H2 H1+ H2+ H3
Distance to school 5km 6km 10km

Assume that the parents negotiated with School D on a


reduction of fees if their child is not participating in any sport
activities. School D is willing to reduce their fees to R110 000.

Eliminate 2nd round dominated alternative


Answer…
School [A] School [B]
Annual fees R105 000 R100 000
Additional aspects included H1+H2 H1+ H2
Distance to school 5km 6km

Then….
Determine the final solution for the
parents.
School [A] School [B]
Annual fees R105 000 R100 000
Additional aspects included H1+H2 H1+ H2
Distance to school 5km 6km

The parents choose School B at the end!


Activity 30
Indicate what the effect would be on each of the components listed if the SARB persist with
its restrictive monetary stance especially when the interest rate (repo rate) increases.
Assume that this action is the only thing affecting the economy. Indicate the appropriate part
of every block (increase or decrease or unchanged) on the diagram as shown below with an X.

X X X
Interest rates → Real investment → Employment
Increase Increase Increase
Decrease Decrease Decrease
Unchanged Unchanged Unchanged
↓
Demand for money ← Imports ← Incomes
Increase Increase Increase
Decrease Decrease Decrease
Unchanged Unchanged Unchanged

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