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10
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Talita Lewis & Michael Engelbrecht

Talita Lewis, et al.

3-in-1
Grade 10 Economics 3-in-1 CAPS
CLASS TEXT & STUDY GUIDE

This Grade 10 Economics 3-in-1 study guide uses a logical, easy-to-follow approach to introduce you to the core concepts of
this subject. This book illustrates, with ease, the links between multiple economic factors that make this complex subject so
interesting, allowing you to be confident of success. The focus is on understanding, exam preparation and providing a solid
grounding for Economics in Grades 11 and 12.

Key Features:
• Comprehensive study notes and worked examples per term
• Topic-based and term-based questions
• Answers to all questions
• Exam papers and memos
 10
GRADE

Economics
CAPS Talita Lewis & Michael Engelbrecht

3-in-1

THIS CLASS TEXT & STUDY GUIDE INCLUDES

1 Accessible Notes per Term

2 Topic-based Questions

3 Detailed Answers E-book

available

Plus bonus Exam Papers and Memos

2012 publication | 2014 edition | ISBN: 978-1-920297-95-4  150721 | TAS

 CONTENTS
Exam guidelines..................................................................................................... i

TERM 1: MACROECONOMICS .............................................................. 1 TERM 3: ECONOMIC PURSUITS ....................................................... 55

Topic 1 Basic concepts ............................................................................... 2 Topic 1 Growth, development and globalisation ........................................ 57
Topic 2 The basic economic problem.......................................................... 7 Topic 2 South African economic growth and development
– a historical view .......................................................................... 67
Topic 3 Circular flow and quantitative elements ........................................ 12
Topic 3 The history of money and banking in South Africa ........................ 79
Topic 4 Business cycles ............................................................................ 20
Topic 4 Population and labour force .......................................................... 88
Term-based questions .................................................................................... 26
Term-based questions ..................................................................................... 94

TERM 2: MICROECONOMICS.............................................................. 27 TERM 4: CONTEMPORARY ECONOMIC ISSUES ....................... 96

Topic 1 Dynamics of markets .................................................................... 28 Topic 1 Unemployment .............................................................................. 98
Topic 2 The production possibility curve ................................................... 38 Topic 2 Labour relations........................................................................... 106
Topic 3 The public sector .......................................................................... 47 Topic 3 Economic redress........................................................................ 113
Term-based questions .................................................................................... 54 Term-based questions ................................................................................... 119

ANSWERS ................................................................................................. 121

Answers to topic-based questions ............................................................... 121
Answers to term-based questions................................................................ 129

EXAM PAPERS AND MEMOS ........................................................... 134

Mid-year exam Paper 1 ........................................................................ 134
Paper 2 ........................................................................ 136
End-of-year exam Paper 1 ........................................................................ 138
Paper 2 ........................................................................ 141
Exam memos ................................................................................................. 145
 2
Topic 1: DYNAMICS OF MARKETS
People have needs and wants. Businesses offer goods and services that will
satisfy these needs and wants. This scenario creates a market. Utility indicates how much satisfaction the
specific product will give the consumer.

WHAT IS A MARKET? A product has utility for the consumer if it will satisfy the needs and wants of the
consumer at a given point in time.

A market is a potential place or arranged situation where

buyers (households) and sellers (businesses) of products Total utility is the total Marginal utility is the utility
meet and exchange goods, services and money. satisfaction that a a consumer derives from
consumer derives from each additional product he /
consuming a product. she consumes.
A market will exist if:
 there is at least one buyer and at least one seller
 the buyer has the means (money) to purchase the product
 the seller has the required product to offer
 both the buyer and the seller agree on certain terms such as price and quantity,
and
 both the buyer and seller take responsibility for the transaction.

VALUE, PRICE AND UTILITY

The value of a product indicates how much the If a person eats a lot of
consumer is willing to pay for the product (the price). bananas the marginal
utility gained from each
extra one will get less
Value and price can be perceived as the same, but a certain product could have and less.
no value to a person even if the product is 'worth' a certain price (for example,
electronic equipment in a rural area where there is no electricity).
TERM 2: TOPIC 1

The price of the product is its exchange value in terms of The consumer is willing to pay a specific price for a product because the product
money when a person decides to purchase the product. has a certain utility (usage value).

The value of a product is measured in monetary terms (price) and indicates how
much the product will satisfy the needs and wants of the consumer.
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 THE COMPOSITION OF MARKETS TYPES OF MARKETS 2
Markets are composed of buyers and sellers: A common characteristic of all markets is that they represent the interaction of
potential buyers and sellers. However, markets take different forms, such as
 Buyers (consumers) demand certain products.
perfect markets and imperfect markets.
 Sellers (businesses) supply certain products.
Perfect markets are markets where homogenous
The market is established when there is interaction between buyers and sellers.
(uniform) products are sold by many suppliers who
Product markets offer goods and services, while factor markets offer factors
enter and exit the market freely, and where buyers
of production.
and sellers have access to all information.
The size of the factor market will be determined by the size of the product market.
(The more products suppliers need to produce, the more workers and material A perfect market is characterised by perfect competition – where no participants
are needed.) are large enough to set the price of products.

Geographical markets include:

Imperfect markets are markets where there is only one or a few
 local markets – the markets in the area in suppliers of a unique product and there is restricted entry to this
which you stay All these markets market, and where buyers have limited access to information.
are interlinked.
 regional markets – the provincial markets
 national markets – markets where the
customers are spread throughout
a country In imperfect markets
information is not quickly
 world / international markets – markets where the customers are spread disclosed to all participants
throughout the world. and the matching of buyers
and sellers is not immediate.

World markets exist because of improved technology such as improved

methods of communication (for example, email), improved methods of payment
(for example, internet banking), as well as the quick and effective transportation Examples of imperfect markets are monopolies and oligopolies.
of goods.

The products traded in these markets must be durable and transportable, such A monopoly is a situation where there
as wheat, oil and diamonds. is one large supplier of a product.

The single seller in a monopoly situation can ask any price for a necessity,

TERM 2: TOPIC 1
because consumers have to buy the product.

An oligopoly is a situation
where there are a few large
suppliers of a product.

In an oligopoly the suppliers have limited access to their competitors' information.

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 2 DEMAND THE DEMAND SCHEDULE

A demand schedule is a table that indicates the quantity

Demand is the quantity of a product that consumers of a product that is demanded at different prices.
are willing and able to buy over a given period of time.
Study the following example of a demand schedule:
A demand for a product is the result of decisions made by consumers about
which needs and wants to satisfy. Quantity demanded
Price of product X
of product X
R10 160
The demand for a
product is one of the R15 140
factors that influences
the price of the product. R20 120
The other factor is the
supply of the product. R25 100

There is an inverse relationship between the price and the quantity demanded.
As the price of the product increases, less of the product is demanded.
THE DETERMINANTS OF DEMAND
The following factors will influence the demand for a product: THE LAW OF DEMAND
 the price of the product The law of demand states that:
 the consumers' tastes and buying behaviour  as the price of the product increases, the quantity demanded of the
 the consumers' income product decreases, and

 the availability and prices of substitute products, and  as the price of the product decreases, the quantity demanded of the
product increases.
 the availability and prices of complementary products.
Law of demand:
P ↑ → Qd ↓
Substitute products are those products that
P ↓ → Qd ↑
can be used in the place of one another if
the original product is not available or too
expensive, such as butter and margarine. THE DEMAND FUNCTION
The demand function is the relationship between individual
demand and the factors (determinants) that influence it.
TERM 2: TOPIC 1

Complementary products
are those products that are The demand function is therefore the quantity of a product demanded by an
used together, such as petrol individual depending on his / her income and tastes, and the price of the product
and a motor vehicle. and the prices of related products.

It is expressed as:
Qd = f (determinants)
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THE DEMAND CURVE SUPPLY 2
A demand curve (graph) D
indicates the quantity of
a product that is demanded Supply is the quantity of a product that producers are

Price
at different prices. willing and able to offer over a given period of time.

Study the following example D Supply is therefore the quantity of a product that individual producers plan to sell.
of demand curve DD.
Quantity
Note the following about the demand curve DD: THE DETERMINANTS OF SUPPLY
 It slopes down from left to right. The following factors will influence the individual producer's supply of a product:
 It has a negative slope.  the price of all the inputs (factors of production)
 It is the result of the inverse relationship between the price of a product and  the cost of technology used in producing the product
the quantity demanded of the product (the law of demand).  the price of alternative products (substitutes) and complementary products
 the number of suppliers (sellers) of the product
If two things have an inverse relationship, one  the price consumers are willing to pay for the product.
increases as the other one decreases, and vice versa.
THE SUPPLY SCHEDULE
CHANGES IN THE QUANTITY DEMANDED AND
CHANGES IN DEMAND A supply schedule is a table that indicates the quantity of a
product that producers are willing and able to offer at specific prices.
Changes in the quantity
Changes in the demand
demanded Study the following example of a demand schedule.
 These are changes that result  These are changes that result from a Quantity supplied of
from the change in the price of change in any other factor, such as: Price of product X
product X
the product.  consumer tastes and preferences
 Such a change is shown as a  consumer income, or R10 100
movement along the graph,  the availability of substitute and R15 120
indicated graphically as: complementary products.
R20 140
 Such a change is shown as a
movement (shift) of the graph as a R25 160
whole, indicated graphically as:
There is a direct relationship between the price and the quantity. As the price of
P P the product increases, more of the product is supplied.

TERM 2: TOPIC 1
I made R30 I will stop being an
profit on each accountant then
muffin I sold and start making
this week. muffins too!

Q Q
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 2 THE LAW OF SUPPLY CHANGES IN THE QUANTITY SUPPLIED AND
The law of supply states that: CHANGES IN SUPPLY
 as the price of the product increases, the quantity supplied of the product
increases, and
Changes in the quantity supplied Changes in the supply
 as the price of the product decreases, the quantity supplied of the product
decreases.  These are changes that result from  These are changes that result from a
the change in the price of the change in any other factor, such as:
Law of supply: product.  the price of inputs (factors of
P ↓ → Qs ↓  Such a change is shown as a production)
P ↑ → Qs ↑ movement along the graph, indicated  the prices of alternative products, or
graphically as:  the number of suppliers.
THE SUPPLY FUNCTION  Such a change is shown as a
movement (shift) of the graph as
a whole, indicated graphically as:
The supply function is the relationship between individual
supply and the factors (determinants) that influence it.
P P
The supply function is therefore the quantity of a product supplied by an individual
producer, depending on the price of inputs (factors of production), the prices of
alternative products and the number of suppliers.

It is expressed as:
Qs = f (determinants)

THE SUPPLY CURVE Q Q

A supply curve (graph) indicates the quantity of a product that is offered at
different prices.

Study the following example of supply curve SS.

PRICE FORMATION
Note the following about the supply S
curve SS: In a competitive market, the price of a product is determined by the interaction
 It slopes up from left to right. between the demand and supply of that product. This process is called price
Price

formation.
 It has a positive slope.
TERM 2: TOPIC 1

 It is the result of the direct The price that is formed therefore represents:
S
relationship between the price of a  a level at which the plans of buyers (consumers) exactly match the plans of
product and the quantity supplied of Quantity
sellers (suppliers)
the product (the law of supply).
 a level where the quantity demanded by buyers will be equal to the quantity
If two things have a direct relationship, an increase or decrease supplied by sellers, and
in one causes the other one to change in the same direction.  market equilibrium.
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 Market equilibrium is where the supply of a SHOWING PRICE FORMATION ON A GRAPH 2
product equals the demand for that product. Study the following example of graphical price formation.

S
D
Market values (also known as equilibrium values) are the
market price and the market quantity at market equilibrium.

E
P1
The market price The market quantity (equilibrium

Price
(equilibrium price) is the price quantity) is the quantity at the
at the point of equilibrium. point of equilibrium.
S
D

The price and Q1 Quantity

quantity of a product Note the following about the representation:
tend to remain
stable at the point of  market equilibrium is at point E
market equilibrium.  market values are P1 (market price) and Q1 (market quantity).

CHANGES IN MARKET EQUILIBRIUM

Market equilibrium occurs when there are no forces These will
causing a change. The market will stay in this position temporarily result
THE PRICE FORMATION SCHEDULE in too many or too
unless something causes it to move away from equilibrium. few customers.
A price formation schedule is a table that indicates the equilibrium values.
Study the following example of a price formation schedule. Changes in market equilibrium are caused by:
 a change in the demand for the product by consumers,
or
Price of Quantity demanded Quantity supplied
product X of product X of product X  a change in the supply of the product by producers.

R10 160 100

R15 140 120
R17,50 130 130
R20 120 140

TERM 2: TOPIC 1
Source: Thomas Lunde

Source: Roger A Smith

R25 100 160

Here the market

price is R17,50 and
the market quantity
is 130 units.

Too many customers Too few customers

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 2 A change caused by an increase in supply A change caused by a decrease in supply
Study the following example of a change caused by an increase in supply. Study the following example of a change caused by a decrease in supply.

Increase in supply of product X from S to S1: Decrease in supply of product X from S to S1:

S1
S
D S1 D S

E E1

Price
Price

E1 E

Quantity Quantity

Note: Note:

 When supply increases, the supply curve shifts from S to S1.  When supply decreases, the supply curve shifts from S to S1.

 The new market equilibrium is at E1, so the equilibrium price  The new market equilibrium is at E1, so the equilibrium price
will decrease and the equilibrium quantity will increase. will increase and the equilibrium quantity will decrease.

Factors causing an increase in supply are: Factors causing a decrease in supply are:
 a decrease in the price of any inputs (factors of production)  an increase in the price of any inputs (factors of production)
 a decrease in the cost of the technology used in producing the product  an increase in the cost of the technology used in producing the product
TERM 2: TOPIC 1

 an increase in the prices of alternative products (substitutes) produced  a decrease in the prices of alternative products (substitutes) produced by
by other suppliers other suppliers
 a decrease in the prices of complementary products  an increase in the prices of complementary products
 a decrease in the number of suppliers (sellers) of the product, and  an increase in the number of suppliers (sellers) of the product, and
 an increase in the price consumers are willing to pay for the product.  a decrease in the price consumers are willing to pay for the product.

Copyright © The Answer Series: Photocopying of this material is illegal 34

A change caused by an increase in demand A change caused by a decrease in demand 2
Study the following example of a change caused by a decrease in demand.
Unlike changes in supply, a change in demand is a two-
step process: first the demand curve shifts and then the
supply curve shifts. This is because the change in demand
affects the change in supply. Businesses need to adjust
the quantities that they produce and the prices that they Decrease in demand for product X from D to D1:
set in order to keep up with what consumers want.
S1
D
Study the following example of a change caused by an increase in demand. S
D1

Increase in demand for product X from D to D1: E

E2
D1 S

Price
E1
D
S1
E1
Price

E2
E

Quantity

Quantity Note:
 When demand decreases the demand curve shifts from D to D1.
 The new market equilibrium is at E1, so both the equilibrium price
Note:
and the equilibrium quantity will decrease.
 When demand increases the demand curve shifts from D to D1.  Then, in time, the supply will adjust, and the supply curve will shift
 The new market equilibrium is at E1, so both the equilibrium price to S1.
and the equilibrium quantity will increase.  The price will then increase to E2, causing the quantity demanded
 Then, in time, the supply will adjust, and the supply curve will shift to decrease.
to S1.
 Equilibrium will then be at E2, with the decreasing price causing the

TERM 2: TOPIC 1
quantity demanded to increase again.
Factors causing a decrease in demand are:
Factors causing an increase in demand are:  a decrease in consumers' income
 an increase in consumers' income  the availability of a lower-priced substitute product
 the availability of a lower-priced complementary product
 price increases of complementary products, and
 price increases of substitute products, and
 a change in consumers' tastes and buying behaviour.  a change in consumers' tastes and buying behaviour.
35 Copyright © The Answer Series: Photocopying of this material is illegal
 2 MARKET SURPLUS AND MARKET SHORTAGE FUNCTIONS OF MARKETS
When the market is not in equilibrium this creates a market surplus or market
shortage.
Markets provide a few useful functions:
An excess supply is where the supply of the
product is greater than the demand for the product.  Markets bring together potential buyers and sellers.

A market surplus exists when there is an excess supply of a product. Markets are formed through the interaction of consumers (buyers) and
This shows that the price has been set higher than the market price. producers (sellers) as they negotiate prices and exchange goods and services.
Markets therefore create contact between buyers and sellers.

A market surplus
 Markets ensure that resources are allocated effectively to households
and businesses.
D S
░░░ Market prices influence the economic decisions of both consumers and
producers. Producers, who want to maximise their profits, will consider the
Price

relative prices of goods and services before they decide what, how, and for
whom to produce. Consumers, on the other hand, who want to maximise the
utility of their money, will consider the relative prices of goods before they
decide how to spend this money. Profit maximisation and utility maximisation
lead to an efficient way of allocating resources.
Quantity

 Markets are, in theory, able to regulate themselves, and therefore do not

An excess demand is where the demand for the always require direct intervention from external forces.
product is more than the supply of the product.
Prices are determined by the forces of supply and demand (market forces).
Markets are therefore regarded as being guided by 'an invisible hand', which
A market shortage exists when there is an excess demand for a product. ensures that prices are set in such a way that resources are allocated
This shows that the price has been set lower than the market price. efficiently. In the absence of markets some regulating body such as the
government would have to decide what goods would be produced and in what
quantities and for what price.
A market shortage

D S
TERM 2: TOPIC 1

However, markets
Price

sometimes do need indirect

intervention from external
forces to make distribution
░░░ of resources fair. In real life
market failure does occur.

Quantity

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 2
Topic 3: THE PUBLIC SECTOR
Market failure occurs when the market system is unable to INDIRECT TAXES
achieve an efficient allocation of scarce resources and therefore
is not able to achieve the best available outcome.
A tax is a compulsory payment by a citizen
of a country to the government.
I am afraid there is
Where's his no stock and
medicine? Mega-medicine is A direct tax is a tax imposed An indirect tax is a tax that is charged
closed for a holiday. on a person or on property. when money is spent on products.

In most cases it is indirect taxes, not

direct taxes, that the public sector uses
Market failure usually occurs because of imperfect competition and results in to correct inefficiencies in the market.
the inefficient allocation and use of resources. But the progressive approach to taxing
income is used to fix up one type of
An example of a market failure would be when a monopoly owned all the market failure – the unequal distribution
of income and wealth.
farmland in a country and it had full control over the supply of this land and
the price at which it was for sale.
The levying of indirect taxes raises money for the public sector but is often
also intended to discourage the consumption, production and / or
The public sector is made up of the government (national, importation of certain products.
provincial and local) and all the enterprises that it owns.
Suppliers increase the price of their products to take account of the tax so
that their profits are not reduced. Therefore indirect taxes are actually paid
The public sector can apply various methods of involvement to attempt to by the buyer (consumer) of the taxed product.
correct inefficiencies or optimise the allocation of resources.
Examples of indirect taxes include selective taxes, such as customs duties
and excise duties, and general taxes, such as value added tax (VAT).
To optimise a process is to achieve
the best possible outcome. By discouraging the importation of foreign
Customs duties are border
products, customs duties protect domestic
taxes on imported products.
The methods it can use are: industries from foreign competition.

TERM 2: TOPIC 3
 indirect taxes
 subsidies Excise duties are inland
 welfare taxes on specific products.
 maximum and minimum prices
 production by government When excise duties are used to discourage the consumption and production of
 minimum wages. products that are seen to be unhealthy (such as tobacco) or socially harmful
(such as gambling) they are then referred to as 'sin taxes'.
47 Copyright © The Answer Series: Photocopying of this material is illegal
 2 An ad valorem tax is a tax that is calculated by SUBSIDIES
adding a fixed percentage to an invoice value.

VAT is not charged on all products. For example, in South Africa fruit and A subsidy is a financial grant or another form
vegetables are 'zero-rated', which means that VAT is not charged on these items. of support made available by the government.

The end-purchaser pays the VAT to the seller, who then pays it to the government. A government provides subsidies to improve the economy and the lives of
its citizens.
If the seller paid VAT on inputs when making the product, or simply on buying the
product for resale, that amount can be deducted from the VAT that the seller has A subsidy can be a direct payment or an indirect contribution, and it is meant to
to hand over to the government. influence the behaviour of businesses by making certain choices more desirable.

THE EFFECT OF INDIRECT TAXES Examples of subsidies include production subsidies, export subsidies and
employment subsidies.
The following graph illustrates the effect of the government levying a sin tax
on cigarettes. A production subsidy is a government
subsidy for producers to make the production
S1
of certain products more affordable.
D S

Production subsidies make it more attractive for producers to produce this

E1 product, and so make it more affordable for consumers to buy it.
Price

P1 E

P
An export subsidy is where the government
subsidises exports to support domestic businesses.

Export subsidies help domestic businesses produce

goods for export at competitive prices. They also help
Q1 Q
the country's balance of payments. These subsidies
Quantity
are often focused on new industries.

Note: An employment subsidy is where the

 The original market values were established at the point of market government subsidises the wages of workers
equilibrium, E. to encourage businesses to create more jobs.
 After the government levies a sin tax on cigarettes the price will
TERM 2: TOPIC 3

increase from P to P1.

 The consumers will buy fewer cigarettes at this price, so the
quantity demanded will decrease from Q to Q1.
 Therefore the supply curve will shift to the left, to S1, indicating a
decrease in supply.
 The new market equilibrium will be at E1.

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THE EFFECT OF SUBSIDIES WELFARE 2
The following graph illustrates the effect of the government subsidising the
Welfare is government support that aims
price of maize. to improve the standard of living of all
citizens up to a certain minimum level.
S
D S1 Welfare is usually provided in the form of welfare grants.

A welfare grant is when the government subsidises people

E who are in social distress through transfer payments.
Price

P E1
P1

Q Q1
Quantity
Transfer payments are payments made by the
government for which it receives nothing in return, and
Note: which are made to raise people's standard of living.
 The original market values were established at the point of market
equilibrium, E.
People's 'standard of living' refers to the amount
 After the government provides a subsidy to maize producers, the
and type of goods and services that they consume.
price will decrease from P to P1.
 The consumers will buy more maize at this price, so the quantity A person's standard of living results from his / her income and wealth.
demanded will increase from Q to Q1. Like subsidies, welfare grants are a form of income redistribution.
 Therefore the supply curve will shift to the right, to S1, indicating
an increase in supply. Income redistribution is the legally required
 The new market equilibrium will be at E1. transfer of money from some people to others.

 The new market price for maize is P1 and the new market quantity Examples of welfare grants are child-support grants, pension grants, disability
is Q1. grants and basic-income grants.

TERM 2: TOPIC 3
Welfare grants are
sometimes called social
grants or income subsidies.

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