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This assignment is based on the following questions –
Question 1
As a budding young economist, you are called in to consult with a friend of yours who has just started his own business producing and selling pie cherries in Johannesburg. He tells you that, in the past year, he has attempted to gain some market power by increasing the price, but did not succeed. You do a study of the cherry industry and find that there are a very large number of pie cherry producers who are all quite small relative to the market. Compile a detailed report of what you would suggest to your friend in order for his business to gain more market power.
Question 2
You have just been appointed as a journalist by a well-known economics publisher. As your first article, the editor requests that you complete an article in which you discuss the problems that may arise when governments try to impose prices that differ from the equilibrium price established in a freely operating market. Illustrate your answer with examples drawn from actual experiences and use appropriate diagrams to support your argument. He expresses the importance of using these experiences and says that the document must not only include theory. He also confirmed that you should include detail on all references that you use in the article.
SECTION B
Question 1
Suppose that you are the chief economic adviser for a southern African government. Your boss, the president of the country, wishes to increase the level of output and employment in order to win re-election.
2.1 Determine which fiscal policy and monetary instruments would be more effective in achieving the desired goals.
2.2 Use a correctly labelled graph of aggregate demand and aggregate supply model to explain and illustrate the effect of your proposed policy.
After winning the elections, the new administration realises that the equilibrium output is still low, but prices have increased as a result of the previous policy response or action. They suggest using fiscal policy to boost output growth. However, other economists warn that such measures will make things worse (could increase the price again!). The president decides to cut a deal with the Reserve Bank to resolve this problem.
2.3 Using an AD-AS model, describe and illustrate a policy mix that will increase output, while keeping the prices at their original level.