Grade 10 Economics Term 2

Grade 10 Economics
Term 2
Study Notes
© e-classroom www.e-classroom.co.za
Dynamics of Markets
 A market is any contact or communication between potential buyers and
sellers to exchange goods or factors of production for money
 The interaction between demand and supply determines the prices and
quantities of goods and services
Value, Price and Utility

Utility is the ability of a product or service to satisfy the needs or wants of
consumers
The more utility goods or services have, the greater the demand for them.
These goods or services have value.
Characteristics of Utility
 Differs from person to person according to their needs and preferences e.g.
one person may like video games, but another person may dislike them
 Utility can change e.g. a swimming pool has more utility in summer
 Utility is not the same as usefulness –a product that has utility e.g.
cigarettes may be harmful, not useful
 Diminishing marginal utility – additional utility decreases when you buy more
and more of a product
 The consumer will pay more for goods and services with higher utility
 The more satisfaction a consumer gets from the product, the more he or she
is willing to pay for it
Value
 Barter value – when a product can be used in exchange for other

goods and services
 A product has exchange value when someone is willing to pay for it;
expressed in Rands and Cents
Relationship between Price, Value and
Utility
 People will pay money for a product or service that has utility but is
scarce. The commodity has a price
 Price of product or service = exchange value
 Therefore, high utility and high scarcity leads to high prices
Composition of a Market
Market characteristics
 The seller who offers the best product will sell the product
 The buyer who offers the highest price will get the product
 Negotiation between a buyer and seller is called bargaining
 The deal is completed once the exchange of goods or services for a
price takes place
Types of Markets
 Goods market – a market for consumer goods and services

 Factors market – a market for factors of production e.g. natural
resources, labour, capital or entrepreneurship
 World markets – a market that serves the entire world; made more
possible because of developments in electronic technology; using e-
commerce, South African buyers can purchase goods and services from
all over the world
Market Structures
Perfect Markets
 Large number of buyers and sellers
 Perfect knowledge about market conditions
 No barriers to exit and entry
 All the goods and services on the market are homogenous (identical)
 No government interference regarding price
 No collusion between sellers to manipulate prices
 Example of a close-to-perfect market - the stock exchange
Market Structures
Imperfect Markets
 Buyers and sellers influence product prices e.g. a seller can drop his prices and
force someone else out of the market
 Producers can reduce quantity produced which increases the price
 Goods and services offered are not identical
 Buyers and sellers are not free to enter or leave the market
 Suppliers / producers sometimes collude to restrict quantity of product available
e.g. OPEC countries with crude oil
 Barriers to entry often exist e.g. a vendor’s license may be required
Market Structures
Types of Imperfect Markets

Monopoly – only one seller of goods or services so provider can demand
any price e.g. Eskom or Transnet
Oligopoly – Only a few firms dominate the market e.g. Cell C, Vodacom,
MTN
Monopolistic competitive – Many buyers; many sellers with similar
products therefore price variations occur e.g. a more expensive
microwave may have extra functions or a better warranty
Prices (demand, supply and price
formation)
Theory of Demand
The prices of goods or services are determined by the interaction between demand (of
consumers) and supply (by producers).
 DEMAND
 Refers to the quantities of a product that potential buyers are willing and able to buy
 We need to consider the behaviour of consumers to understand demand
 Consumers will try to satisfy as much of their need as possible with their available resources
(income)
formation)
 NEEDS are consumers’ desires for goods or services which they need to survive
 WANTS are desired by consumers, but for comfort, not survival
 Individual demand - the quantity an individual consumer will buy in a specific period.
Influenced by:
 Consumer’s income, taste and preferences
 The price of the product and prices of substitute products and complementary products
 Size of household
 Market demand is the total quantity of a specific product that all consumers in that
market are willing to buy and it is influenced by the same factors
Law of Demand
 The quantity demanded of a product increases as

the price of the product decreases
 The quantity demanded of a product decreases as
the price of the product increases
 So long as all other factors remain constant
The Demand Schedule and Curve
 The individual demand schedule is a table that illustrates

the relationship between the price of a product and one
consumer’s demand for it
 The individual demand curve is a graphical illustration of
the relationship between the price of a product and one
consumer’s demand for it
Example of Individual Demand Schedule &
Demand Curve
Source: Via Afrika, 2020
Example of Individual and Market Demand
Schedules
• There are three consumers:
Sally, Sipho and Sarah.
• The table shows the individual

demands of each consumer at
different prices of the peaches.
• The last column shows the

total market demand which is
the sum of the individual
demands.
Example of Individual and Market Demand Curves
• The individual demand curves are shown on the graph for Sarah,
Sipho and Sally, as well as the market demand curve (Total Market).
These graphs are drawn by plotting the quantities from the
Individual and Market Demand Schedule.
• The demand curve has

a negative slope – it
goes downwards from
left to right.
• When the price of the

product changes there
is movement on the
demand curve (up or
down).
Illustrating Shifts in the Demand Curve
If the price of the product

remains constant, but any
other factor changes, the
whole demand curve will
shift to the left or right
and form a new demand
curve
Image source: Tutor2u.net, 2018
formation)
Theory of Supply
The definition of supply - the quantities of goods or
services (products) that producers are willing and able
to sell at certain prices
 We need to consider the behaviour of suppliers to
understand supply
 Producers will always try to maximise their profit
formation)
 Individual Supply – the quantity of a product an individual producer (seller) is
willing to sell at a certain price. Influenced by:
 Price of products and alternate products
 Cost of production
 Other producers may enter or leave the market
 Changes in technology make new and cheaper production processes possible
 Natural factors such as drought or floods may affect supply
 Market Supply – This is the total quantity of a certain product that the producers
of the product are willing to sell and it is influenced by the same factors.
Law of Supply
 The quantity supplied of a product increases as

the price of the product increases
 The quantity supplied of a product decreases as
the price of the product decreases
 So long as all other factors remain constant
The Supply Schedule and Curve
 The individual supply schedule is a table that

illustrates the relationship between the price
of a product and one producer’s supply of it
 The individual supply curve is a graphical
illustration of the relationship between the
price of a product and one producer’s supply
of it
Example of Individual Supply Schedule & Supply
Curve
The supply curve has a positive slope – it goes

upwards from left to right.
When the price of the product changes there is

movement on the supply curve (up or down).
Image Source: Via Afrika, 2020
Example of Individual and Market Supply
Schedule
• There are three producers:
Joe, Sam and Ben.
• The table shows the individual

supply of each producer at
different prices for the
oranges.
• The last column shows the

total market supply which is
the sum of the individual
supplies.
Example of Individual and Market Supply
Curves
• The individual supply curves are shown on the graph for Joe, Sam and Ben, as
well as the market supply curve (Total Market). These graphs are drawn by
plotting the quantities from the Individual and Market Supply Schedule.
• The supply curve has a

positive slope – it goes
upwards from left to
right.
• When the price of the

product changes there is
movement on the supply
curve (up or down).
Illustrating Shifts in the Supply Curve
Image source: Tutor2u.net, 2018
Price Formation and Market
Equilibrium
 In perfect competition, a market is regulated by the forces of demand and supply
which can be plotted on the same graph e.g.
SUPPLY AND DEMAND OF PHONES

Demand Supply
18000
16000 16000 16000
14000 14000 Market surplus 14000
PRICE OF PHONES (R)

12000 12000 12000
11000
10000 10000 10000
8000 8000 Market shortage 8000
6000 6000 6000
4000
2000
0
1000 2000 4000 5000 6000 8000 10000
QUANTITY OF PHONES
Price Formation and Market Equilibrium
 Market equilibrium occurs when the quantity supplied matches

the quantity demanded i.e. in the example, consumers intend to
buy exactly the same number of phones that the producers
intend to sell
 Equilibrium point – where demand and supply curves intersect -
any changes in demand and supply affect this equilibrium.
 Equilibrium price – the price where the quantity demanded is the
same as the quantity supplied (R11 000 in the example)
 Equilibrium quantity – the quantity demanded and supplied at
the equilibrium price (5000 phones in the example)
Market Surplus and Market Shortage
 Market surplus – this occurs when the price goes above the equilibrium
price and excess products are available. The quantity demanded will
be less than the quantity supplied e.g. at R6 000, 10 000 phones
are demanded, and 12 000 phones are supplied. Surplus = 2000
phones.
 Market shortage – this occurs when the price goes below the
equilibrium price and insufficient products are available. The quantity
demanded will be greater than the quantity supplied e.g. at R4 000,
12 000 phones are demanded but only 10 000 phones are available.
Shortage = 2000 phones.
Price Mechanism
 Prices will change as soon as there is an imbalance in the market

 Price mechanism - if there is a surplus of goods, prices will drop and if
there is a shortage of goods, prices will go up
 Buyers and sellers will negotiate to find a price that will keep both
happy – they agree on an equilibrium price and quantity that suits
each party
Functions of markets
 Bringing supply and demand together: buyers want to get what they need at the
lowest possible price and buyers wish to sell their products at the highest possible
price to maximise profit. If sellers make too much profit, the buyers feel
exploited. Sellers compete with each other which keeps the prices under control.
 Allocating resources: the market‘s actions show producers how much to invest into
producing a product. If they invest too much the product will be priced too highly
for suppliers to pay.
 Self-regulatory markets
 prices that are too high result in lower sales so producers will have to reduce
their prices in order to sell and they will make a loss
 If prices are too low, it is not worthwhile for producers to make the product -
only once the price increases will producers start making the product again
Scarcity, Choice and Opportunity Cost
 The problems of scarcity and choice limit production, as producers never have
the resources to produce everything
 Producers must choose what to produce and how to produce it because they
can’t use the same resources to produce another product e.g. a country has
limited fertile land and must decide how to allocate the land to different
crops
 Opportunity cost – the real cost of choosing one thing over another e.g. if you
take a vacation instead of spending the money on a car, the opportunity cost
of the vacation is not getting the new car
Production Possibilities Curve
 A production possibilities curve (PPC) visually illustrates the concept of

scarcity and choice
 A PPC shows the maximum amount of a product that can be produced with
fixed resources (assuming all the factors of production are utilised and no
wastage occurs)
 Inputs – what a producer uses to make a product
 Outputs – the goods or services that are produced
Production possibilities curve - example
B
A
Production Possibilities Curve - example
• If the factory makes 9 000 computers, they cannot make any text-books
because they will have used all their resources on computers
• If they make 70 000 text-books, they cannot produce any computers
because they will have used all their resources on text-books
• If the factory wants to make more computers, it must make fewer text-
books
• The factory’s resources need to be combined in such a way that the
maximum number of computers and textbooks can be made in order to
maximise sales and profits: this is called efficiency
• Any point to the left of the curve e.g. A, indicates wastage. Any point to
the right of the curve e.g. B, is impossible to produce, due to lack of
resources
Efficiency and Unemployment in Economy
 The economy of a country is efficient when all the

available resources e.g. capital, labour, natural resources
and entrepreneurship, are used in the production
processes of the country
 Unemployment occurs when some of these factors are not
being used and production could be increased by utilising
unused resources.
Shapes of PPC (rates of exchange)
 A PPC can be either a straight line, a convex curve or a concave curve.
Image source: Synthenomics, 2019
Position of the PPC
 The position and shape of the PPC depends on these factors: physical
resources; skills and technology; effort; investment in infrastructure,
construction, research and innovation
 Straight-line PPC – there is a constant rate of exchange (marginal rate of
substitution : MRS) between products e.g. on the previous graph, for every
additional 10 units of butter produced, production of guns reduces by 25 units
 Convex or Concave PPC – the rate of exchange or MRS in no longer constant
Changes in the PPC
 Internal factors may cause change in the PPC (producer has control)
e.g. number of workers or size of production space
 External factors may cause change in the PPC (producer has no
control) e.g. the price of fuel or a drought or flood
Change in one output e.g. a a new harvesting

machine may mean that more of one product
(corn) can be produced in the same time as before
Image source: ReviewEcon, 2020
Changes in the PPC
Change in both outputs e.g. electricity

becomes cheaper and this increases the
number of robots that can be made,
leaving more resources available for crop
production, so more corn is produced.
This means that more of both products
are made than before.
With economic growth there is an

increase in the amount and quality of
resources and improvements in
technology, resulting in greater
production of all goods ( a higher Real
GDP) Image source: ReviewEcon, 2020
Indifference Curves
 An indifference curve is a graph that shows all

the combinations of quantities of goods which
will satisfy a consumer equally.
 At Point A, the consumer has more of Good Y
than Good X and at Point D, the consumer has
much more of Good X than Good Y, but they are
equally happy with (or indifferent about) either
choice (or any choice on the curve)
Image source: Via Afrika, 2020
Multiple Indifference Curves
 Consumers have more than one indifference curve. A
collection of indifference curves is called an
indifference map.
 Changes in income mean that consumers can make
different choices
 If the consumer’s original income is represented by
IC2 and his income increases, he will be able to buy
more of both products (X and Y) and he would move
to IC3
 If his income decreases, he would be able to buy less
of both products (X and Y) and he would move to
Curve IC1
 Changes in price of one of the products would affect
the slope of the curve
Image source: Via Afrika, 2020
Effects of Inefficiencies
 Market inefficiency refers to a market that does not produce the maximum
output with minimum input; or income generated in the market is not fairly
distributed amongst all the participants
 Uneven distribution of income
 This leads to absolute poverty for some at which point the government must
provide help in the form of welfare grants and pensions (for elderly)
 Poverty is accompanied by poor health, unhealthy living conditions and crime
 The provision of government assistance increases the market and therefore
businesses will produce more and the PPC moves to the right
 Monopolies
 If there is not enough competition in a market, monopolies may develop
 A monopoly exists when there is only one supplier of a product
 The monopoly can then dictate the prices of certain products and exploit
consumers, especially with essential goods and services such as basic foods,
fuel, electricity, medication, public transport
 The government forbids monopolies to avoid exploitation
 If more producers join the market, efficiency improves, the PPC shifts to the
right and consumers benefit
 Inflation and extreme fluctuations in business cycles
 High inflation rates > economic instability
 Reserve bank tries to control the rate of inflation
 Extreme peaks and dips in the business cycle causes instability which
undermines investor confidence in the economy
 The state intervenes by using monetary policy instruments (government
spending and/or interest rates) and fiscal policy instruments
(taxation)to even out the impact of the business cycle across the whole
economy
 In a stable economy, businesses don’t need to keep as much cash in
savings, and can use it in production, which shifts the PPC to the right
 Pollution and exhausted natural resources

 Sadly,many businesses will pollute the environment and
deplete natural resources to make profits
 The government establishes and enforces laws to control
this
 Adhering to these laws can lead to increased costs for
producers
 The PPC moves to the left with increased production costs
Public sector
 Central government represents the core of the public

sector and includes departments of Education, Transport
and Social Welfare and Parliament
 The next layer of the public sector is general government
including the nine provincial governments
 The final level includes public corporations owned by
government such as SABC.
Reasons for Government Intervention
in Economy
 Making health care and education available for everyone
 Private sector does not provide enough services for all
citizens
 Protection of the public against monopolies e.g. by
setting maximum prices for certain commodities
 Prevention of exploitation of workers, therefore wages
and working hours are regulated
 Control of strategic enterprises > provision of electricity
and water
Ways that Government Intervenes in Economy
 Government takes care of the following:

 Maintains justice, law and order
 Collects taxes
 Spends tax money
 Owns some company shares e.g. in Transnet or Spoornet as establishing
the cost of the infrastructure of these companies is too much for private
companies to manage
 Influences prices and quantities e.g. sets price ceilings; sets price floors;
subsidises certain products and services; and taxes certain products and
services
Kinds of Intervention – Direct Taxes
 Direct taxes - money that individuals pay out of their
wages or salary, or that businesses pay out of their
profits, to the South African Revenue Service (SARS)
 Tax-paying consumers and businesses have less money to
spend
 People have less disposable income or less ‘take-home’
pay
 Taxes cause the demand curve to shift to the left and the
equilibrium point moves from E to E1.
Kinds of Intervention - Indirect Taxes
Indirect taxes are taxes charged on goods and services
 Value-added tax (VAT) is an example of an indirect tax - it is charged as a percentage of the
price of an item (currently 15%)
 Unit price tax e.g. excise tax on cigarettes and alcohol as a flat rate per unit regardless of
unit price
Reasons for indirect taxes
 Increase government income
 Reduce demand for products
 Increase price of imported goods which encourages local buying
Effects of indirect taxes
 Makes certain products more expensive thereby reducing the demand for them
 Businesses sell less
 People buy locally
 Disposable income decreases
Graphs Showing Effect of Indirect Taxes on
Market Equilibrium
Effect of Excise Tax on Effect of VAT on supply (ad valorem

supply tax)
Kinds of Intervention - Subsidies
The government uses money received from taxes to provide subsidies to help poor citizens
buy products and services and to help producers supply basic products at fair prices
Subsidies to consumers -
 Encourage consumers to buy more of a certain product
 Demand for the product therefore increases
 Achieved by reducing the indirect taxes on a product i.e. VAT or excise duty
 Governments may sometimes give consumers subsidies in the form of vouchers or grants
towards buying particular items
How subsidies can harm an economy -
 Interference with the working of a market economy
 Leads to ineffective use of scarce resources, as producers are enabled to continue with
production that would not be possible without the subsidy
Subsidies to Consumers
Governments will pay an amount to consumers
to subsidise the cost of certain products and
demand for that product will then increase.
Example Eskom will pay part of the cost if you
buy a solar-powered water heating system as the
government wants to ease electricity shortages.
When this was announced, the demand for solar
heaters increased and the demand curve moved
right (D*D*). Since the quantity demanded
exceeded the quantity supplied, the equilibrium
price moved up from P to P* and the equilibrium
quantity moved up from Qe to Q0.
Kinds of Intervention - Subsidies
Subsidies to producers –
 The government pays a subsidy to the producer on condition that the producer then sells
the product or service to consumers at a lower price
 Governments often pay subsidies to farmers, so that they can produce cheaper food which
helps poorer people
 The South African government used to subsidise the price of bread
 Subsidies may be paid in the form of cash, or in the form of a tax reduction, to encourage
producers to export goods.
Reasons for farming subsidies –
 Farming is risky business (many potential natural hazards e.g. drought or floods)
 Farmers have very high input costs e.g. farm machinery, fertilisers and pesticides
 Farmers are essential for the country’s food security
Subsidies to Farmers
• A subsidy is paid to a farmer lowering production
cost and the quantity of maize produced
increases
• The supply curve shifts downwards to the right,
forming a new curve (S*S*) that intersects the
existing demand curve at E*
• Thus the subsidy causes an increase in quantity
supplied (Qe to Q0) and a decrease in market
price from P to P*
Many farmers in the USA and countries in the EU

receive subsidies which means they can sell their
produce cheaper. Countries who don’t receive
subsidies find this unfair as consumers will buy
imported products if they are cheaper, and then
local farmers are forced out of the market.
Kinds of Intervention - Welfare
 Many governments including South Africa give welfare grants each month to
people who are not able to work. Examples of welfare grants include old-age
pensions, disability grants and child support grants
 Welfare grants are a form of transfer payment (taking from richer people and
giving it to the poorer people)
 Sometimes the government pays welfare grants to producers in order to
benefit poor people
Kinds of Intervention - Maximum and
Minimum Prices
Maximum Prices
 A price ceiling is the legal maximum price a supplier
can charge for a product e.g. bread
 This is so that poorer people are still able to buy it
 Price ceilings usually lead to market shortages (Q2-
Q1)
 Often the formation of a black market (usually
illegal) results in which products are sold for higher
than the normal price
Kinds of Intervention - Maximum and
Minimum Prices
Minimum Prices
 A price floor is a guaranteed minimum
price for a certain product
 This is done to keep certain producers e.g.
farmers in business and guarantee them an
income
 If the price floor is above the equilibrium
price there will be a surplus of products
and producers struggle to sell them
Image source: Wikipedia, 2020

Kinds of Intervention: Production of Goods
by Public Sector
 The public sector produces two kinds of products -
 Public goods which are used by the community or society - for example, street lighting,
roads, libraries, clinics
 Merit goods which are goods or services that benefit the whole community but are not
profitable for a private company to produce - for example, child inoculations
 Government-owned companies e.g. Telkom, Transnet, Sasol and Eskom. Since 1994, the
government has started to privatise these companies, which means that some of them
have been wholly or partly sold to private investors
 Public goods are non-excludable (benefit all) and have non-rivalry (not profitable for
private companies)
The effects of government production:
 Products and services provided at a lower cost or for free
 More people will use the products or services
 Demand for these products and services therefore increases
Kinds of Intervention
Minimum Wages
 In South Africa, farm workers, domestic workers and

some workers in restaurants earn a minimum wage to
prevent them from being exploited by employers
 This is intended to raise the income and living standard
of the very poor
 Unfortunately, the demand for workers often drops which
leads to increased unemployment
References
 Badenhorst, I., Mabaso, G., Mbotho, J., Maliehe, T., Tshabalala, H., & van Zyl, J. (2011). Via Afrika economics. Cape Town: Via
Afrika.
 Business Jargons. (2020). Demand Curve Obtained from Individual Demand Schedules [Image]. Retrieved from
https://businessjargons.com/market-demand.html
 Synthenomics. (2019). Production Possibilities Frontiers [Image]. Retrieved from
http://synthenomics.blogspot.com/2012/03/exercise-in-production-possibilities.html
 Tutor2u. (2018). Shifts in the Demand Curve [Image]. Retrieved from https://www.tutor2u.net/economics/reference/shifts-in-
market-demand
 Tutor2U. (2018). Shifts in Market Supply [Image]. Retrieved from https://www.tutor2u.net/economics/reference/shifts-in-
market-supply
 Via Afrika. (2020). Demand, supply and price [Image]. Retrieved from https://viaafrika.com/wp-content/uploads/2019/07/Eco-
G10-studyguide.pdf
 Via Afrika. (2020). Indifference Curve [Image]. Retrieved from Via Afrika. (2020). Multiple Indifference Curves [Image].
Retrieved from https://viaafrika.com/wp-content/uploads/2019/07/Eco-G10-studyguide.pdf
 Via Afrika. (2020). Multiple Indifference Curves [Image]. Retrieved from https://viaafrika.com/wp-
content/uploads/2019/07/Eco-G10-studyguide.pdf
 Wikipedia. (2020). Price Floor [Image]. Retrieved from https://en.wikipedia.org/wiki/Price_floor

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Grade 10 Economics

Value, Price and Utility

 Barter value – when a product can be used in exchange for other

 Goods market – a market for consumer goods and services

Types of Imperfect Markets

 The quantity demanded of a product increases as

 The individual demand schedule is a table that illustrates

Source: Via Afrika, 2020

• The table shows the individual

• The last column shows the

• The demand curve has

• When the price of the

If the price of the product

Image source: Tutor2u.net, 2018

 The quantity supplied of a product increases as

 The individual supply schedule is a table that

The supply curve has a positive slope – it goes

When the price of the product changes there is

Image Source: Via Afrika, 2020

• The table shows the individual

• The last column shows the

• The supply curve has a

• When the price of the

Image source: Tutor2u.net, 2018

SUPPLY AND DEMAND OF PHONES

16000 16000 16000

14000 14000 Market surplus 14000

PRICE OF PHONES (R)

8000 8000 Market shortage 8000

6000 6000 6000

 Market equilibrium occurs when the quantity supplied matches

 Prices will change as soon as there is an imbalance in the market

 A production possibilities curve (PPC) visually illustrates the concept of

 The economy of a country is efficient when all the

Image source: Synthenomics, 2019

Change in one output e.g. a a new harvesting

Image source: ReviewEcon, 2020

Change in both outputs e.g. electricity

With economic growth there is an

 An indifference curve is a graph that shows all

Image source: Via Afrika, 2020

Image source: Via Afrika, 2020

 Pollution and exhausted natural resources

 Central government represents the core of the public

 Government takes care of the following:

Effect of Excise Tax on Effect of VAT on supply (ad valorem

Many farmers in the USA and countries in the EU

Image source: Wikipedia, 2020

 In South Africa, farm workers, domestic workers and

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