Question 1You are currentlyconducting research on the provision of raw water to south Africa wholesalebuyers including Municipalities and Large commercial players using yourunderstanding of the Demand and Supply curve, explain and illustratediagrammatically how the increase demand would affect the Supply and Price ofraw water. Assuming a perfectly competitivemarket. The demand and supply curve it is one of the fundamentalprinciple and it provides a foundational frame work in how to assess theactions of an economy. Demand is the quantity of a good or service the buyersare willing to spend at a particular price. Meanwhile price a result of theconstant tug of war between the demand and supply.
Asthe price of a good increases the quantity demand of the good falls and theprice of a good decreases, the quantity of the good rises. The south Africanpopulation in 1994 was about 34 million and the number kemp on increasingannually in 2016 it was estimated at 55 million according to stats S.A then itmeans that the population has increased by 21 million over the years so wouldbe the demand for the supply of water. Anincrease of demand of water represented by a right ward shift of the demandcurve will result in an increase in quantity from Q3 – Q4 and the price of the supplyincreases as well from P4 – P6. The price of the water increases due to anincrease in the quantity demanded of the water thus ceteris paribus, and theprice moves along the supply curve. (Makovha D. d.
, 2017) Question 2Highlight and Explain some of the factors that may havecaused the supply and demand curve to shift in South Africa since 1994. Oneof the factors that affected the supply and demand to shift is the price thataffected demand, Willingness to buy suggest a desire, Economists call thistastes and preferences, in this case it was the need rather than the wantpeople needs water to survive. Abilityto purchase water suggest that income is important, prices of related goods canaffect demand as well, the size and composition of the population can affectdemand.Themore children a family decides to have the greater their demand for waterconsumption, and the greater for the market to supply the increasing populationwith water and we also need to apply the ceteris paribus assumption, whichmeans behind a demand and supply curve is that no relative economic factorsother than the water’s price are changing. (openstax cnx, 2016) Question 3Given the reality of scarce financial resources, whatproposal would you make between the two choices of S.A as a nation facesbetween distributing social grants to the impoverished and buildingeconomically enabling infrastructure. SouthAfrica is borrowing country, unfortunately our state revenues are declining andthe economy has slowed to a crawl according to news 24 2018-01-08. Iwould choose to economically enabling infrastructure, because the more weconcentrate on improving our infrastructure the greater we increase our chancesof getting more investments in the country, this will also increase employmentbecause the government will have to allocate more tenders construction companies,which this companies will have to employ more none skilled and skilled laboursand this will improve the high unemployment rate the country is facing.
Graduateswill get in-service training on this companies in their field of careers, whichwill increase their chances of being permanent employees in future by givingthem experiential training and this would be good news for South Africa. whenmore people are employed it means more revenues for the government incollecting taxes and paying off our 50 billion short fall with the SARB. OurGDP will increase because will not only hire engineers, architecture, projectmanagers etc. But also unskilled workers will be employed to do manual workwhich needs supervision from the skilled workers. Thiswill reduce drastically the number of people who depend on the social grantsbecause of the unemployment rate at the moment in the country.it will alsoreduce the high bill of the health sector which is funded by the governmentbecause the more you have women who work for themselves instead of opting to besex workers forced by circumstances of not knowing where the next meal willcome from for their families. This will reduce the high epidemic of HIV/Aidstransmission.
The more women working the more they can make their own choicesin regard to their lives. (associates, 2015) Question 4Given the option of either sending your child to aprivate school or ensuring they were on discovery medical aid, which one wouldyou choose? Explain your reasoning Ourchildren are mostly our pride and joy and there is absolutely nothing a lovingparent wouldn’t do for their off-spring. They are also the future and leadersof tomorrow. Iwould choose to send my child to a private school because I believe that weneed to give our kids the best education they deserve so that they can be ableto compete with the other kids of the rest of the world in future. I believethat giving them the best education will open doors that were closed for themand giving them the best education will improve their chances of becomingwhatever they want to be and they can add value to the economy of their countryof birth when they are successful, most Government schools don’t give our kidsthe best education they deserve, they are mostly over crowded in the classroomsand even if the child does not understand the subject the teacher wouldn’tnotice immediately up until their write a test. Thatis why we have a high number of public school that don’t pass their matric witha bachelor’s degree which qualifies them to go to any university of their choice.Sending my child to the private school I would be giving them a fair chance inlife of becoming the best of what they could be without limitations.
Thoughthis private schools causes an arm and a leg I would sacrifice the discoverymedical aid payments to give my child the best investment in so that he or shecould be able to face the world. (ww.google.co.
za, 2017) Question 5South Africa’s Economy has been criticised as having amonopoly/oligopoly characteristic in certain key sectors by a number ofinfluential organizations including the world bank and the InternationalMonetary Fund. List three sectors that you perceive as operating in aMonopolistic/Oligopolistic fashion in South Africa. Explain how this has translateditself in terms of product pricing, the level of competition, quality ofservice etc. where applicable your research should detail instances of cartellike behaviour investigated by the competition commission.
Monopolyfirms is the only seller of a serviceswhere is no close substitutes, and Oligopoly is a market dominated by a smallnumber of strategically interdependent firms, and most of the times thiscompanies they try to control prices or supply of a commodity. (Makovha, 2017) Multichoice (DSTV South Africa) was investigated by the independent communicationsauthority of South Africa (ICASA) has published its investigations intosubscription based television broadcasting services. The reason of the inquiry isto determine whether there are competition issues in the sector and whether ICASAneeds to step in and enforce new pro-competition conditions.
The enquiry wasbased on a number of questionnaires that were sent to the participatedstakeholders and formed part of the first analysis which ICASA has opened forcomment, in addition to traditional TV based subscription services such asDSTV, other streaming services such as Netflix and Show max also formed part ofthe enquiry.Speakingspecifically on paid for televisionsubscriptions, the regulator said it is concerned about the uncompetitivenature in which it has first- access to the certain shows, its exclusivityrights to sporting events such as (cricket, rugby and soccer) and the high barriers of entry into thepaid-for space and whether certain companies have a monopoly.ICASAproposed to enforce on these Monopolistic companies shortening exclusivecontracts. Long term contract in themarket for the acquisition of premium content is input fore- closure; whoeverwins an exclusive contract forecloses competitors from accessing the content asway of limiting the harm to competition created by long-term contracts theirduration should be reduced.
ICASA proposed that contracts may not be awardedfor longer than five years. (Bussines Tech, 2017 ) Eskomfalls under this monopoly/Oligopoly firms because they are the only largestcompany in South Africa that generates and supply Electricity for the nation,Eskom is the player, Referee and lines man in the energy Sector. It cost thecountry billions with its electricity cuts during 2014-2015 because of poormaintenance of their power stations,extra –ordinary measures are needed to prevent power failures but Eskom willnot enable this by letting go of its monopoly on power generation.
(Timesline, 2010) Transnetowns and operates all eight commercial ports and 16 cargo terminals across Africa’slargest economy, even the biggest container terminal at Durban and Africa’slargest coal port at Richards Bay is owned by Sasol. Revenues from ports andterminal are account to 42 percent of Transnet’s earnings before interest.Transnet presses ahead with a 300 billion rand investment plant to upgrade andexpand port and rail infrastructure, the company is charging different pricesfor bulk and container goods because of the tariff structure that was set manyyears ago and they are unable to change it.
(Business Report, 2013)Question 6What are the challenges faced bysmaller and medium sized business when larger dominant players engage in Cartellike activities?Oligopolistsnormally collude by entering into arrangement, agreement or understanding tolimit competition for smaller and medium sized emerging firms in the industryand maintain high levels of profiting by themselves in the long run. Sellerscan for example agree to charge the same prices for certain product, to granduniform discounts, or to limit their marketing and distribution to certainregions.Aspecific agreement among competitive firms to shorten output, to set prices orto share the market, is called a Cartel. The purpose of the members is tooperate in a particular market as a shared monopoly. The classic example inSouth Africa is the cartel between the three major cement producers, PretoriaPortal Cement (PPC), Anglo Alpha and Blue Circle, which together account formore than 90 percent of the total cements sales in the country.
These threefirms have long colluded on price setting and market share and were givenofficial permission to continue colluding, even after the practices concernedwere prohibited in 1988. In October 1994 however, Government withdrew thispermission and gave the cartel until the end of September 1996 to terminate itsaffairs.Monopolisticcompetition, however in contrast to monopoly, entry is possible and the merethreat of possible entry by new firms may be as effective in disciplining Oligopoly as actual competition would be .The fact that the market is dominated by a few large producers does not meanthat there is little or no competition under Oligopoly. Competition is oftenintense, although it tends to be none – price competition, rather than pricecompetition (which they tend to avoid). The more intensely oligopolistscompete, the closer they are likely to come to perfectly competitive output. (Philip Mohr) Question7From a production and efficiencyperspective explain why it is more efficient for Mercedes to manufacture 200000 C class vehicles, rather than 20 000 E class vehicle per annum? Makespecific reference to variable costs, fixed costs, Total costs and Generaleconomics of scale. Variable costs is costs of productionthat vary as output changes costs of labour materials, Fixed costs is costs that remain constant as output varies for anexample rent on premises and Total costsis costs of production that vary as output changes costs of labour or material.
(Makhovah, 2017) Fixedcost of C class Mercedes = R 558 598, 00 x 12Months =R 6 703 176,00 Fixed cost of E class Mercedes = R 766 700, 00 x12Months =R9 200 400,00 (New Mercedes-Benz C-Class Specs & Prices in South Africa – Cars.co …) Totalcost of C class Mercedes annually = 200 000 x 6 703 176.00 =R1.
4 billionTotalcost of E class Mercedes-Benzes = 20 000 x 9 200 400, 00 =R184 millionVariablesin this case will depend on the production and efficiency of how many annuallyMercedes-Benz produces according to the calculations above it would be cheaperand it makes economic sense for Mercedes to keep producing more of the C-classMercedes as it bring s a healthy profit than the E class Mercedes because it iswhat they are best at it. Question 8Based on your observation on theabove question, what would you propose South African companies to take in orderto compete in the manufacturing space with Chinese companies who have muchgreater scale and much larger domestic market? Chinahas essentially treated Africa with far more dignity than the westerncountries. It treated Africa not as continent in need of saving or lecturingbut as partners in a long term business deal, South African should do the sameto the suffering neighbouring countries in our continent. China strikesbusiness deals that exchange loans, infrastructure aid and goods in exchangefor African commodities, political support and access to its vast emergingmarkets, while leaving Africans alone finding solutions to their problems,South Africans should stop loose thinking, loose taking and loose doing andstart implementing the good solutions that we know we should because China orany other country is not going to do for us.Chinadoes not stay away from countries with poor governance in terms of propertyright and rule of law, while western investors tend to stay away from countrieswith weak governance. China takes risks which rewards it with more businessopportunities, we should go back to Thabo Mbeki’s style of attracting investorsin Africa not only in south Africa this would open doors for us to manufactureeven in other continents of Africa.
Whatwe should learn or take from Chinese companies is that they act very fast byworking 12 hours a day six days a week as a norm, while S.A companies usuallycare about work life balance and will never match the speed of china if wedon’t change our mind set. The healthy competition can work in our advantage todefend and grow our role as a gate-way to other African countries because willno longer take our manufacturing skills for granted in future.South Africa is very rich in natural mineral resourceswith a considerable presence of diamonds, Gold, Silver, wood and aluminium,Africa is estimated to contain 90 Per cent of the entire world supply ofplatinum and cobalt, half of the world’s Gold supply we could invest in openingsustainable manufacturing companies that will create use of this raw -materialsinstead of exporting 90% of it cheaper and buying expensive imports in returncreated from them. (Mao, 2017)The South African Motor industry and components industry is growing quicklyand is perfectly good for investment opportunities. Vehicle manufacturers suchas BMW, Ford, Volkswagen, Daimler-Chrysler and Toyota have production plants inthe country, while component manufacturers (Arvin Exhust, Bloxwitch, Corning, andSenior Flexonics) have established production bases in the country.The industry is largely located in two provinces, the Eastern Cape(coastal) and Gauteng (inland).
Companies with production plants in SouthAfrica are placed to take advantage of the low production costs, coupled withaccess to new markets as a result of trade agreements with the European Unionand the Southern African Development Community free trade area. Opportunitiesalso depend on the production of materials (automotive steel and componentsSouth Africa’s aim is to become an automotive investment destination ofchoice. Modernization and upgrading of key elements in the automotive industryare required to keep pace to achieve international competitiveness.Interest rates are currently at historic low levels, reducing the costof investments. It is significant to note that most major multinational vehiclemanufacturers are currently represented in SA, which means that international developmentsalso impact on the country. The outlook for the vehicle industry is in goodstanding in terms of both exports and the domestic market.
(Manufacturing in South Africa – Brand South Africa, 2017)