4.1.1 Name any TWO examples of merit goods - NSC Economics - Question 4 - 2022 - Paper 2

A decrease in the interest rate encourages borrowing among consumers and businesses. This increases the money supply in the economy, leading to greater spending on goods and services. This greater demand can push prices upward, resulting in demand-pull inflation. Conversely, a lower interest rate may reduce the overall cost of borrowing, leading to lower costs for companies and potentially decreasing cost-push inflation.

The loss-minimizing (equilibrium) point in the graph is point C.

The product sold in a monopoly is unique with no close substitutes, and it often has significant barriers to entry.

A natural monopoly occurs when a single firm can supply a good or service to an entire market at a lower cost than multiple firms can. This typically happens in industries with high fixed costs and low marginal costs, such as utilities.

A monopoly typically makes economic profits in the long run due to its ability to set prices above marginal costs, create barriers to entry, and reduce competition. This allows the monopolist to maintain higher profit margins.

To calculate economic loss:

1. Identify average revenue (AR) at point R50 and average cost (AC) at R40.
2. Economic loss = (AR - AC) × Quantity = (R50 - R40) × 500 = R10 × 500 = R5000.

The cause of cost-push inflation in the cartoon is wages.

One way to measure inflation is through the Consumer Price Index (CPI).

Inflation is the sustained increase in the general price level of goods and services in an economy over a period of time.

A decrease in the general price level can result in lower revenues for producers, leading to potential cutbacks in production and layoffs. It can also give them less incentive to invest in new projects or expand operations.

The government can combat demand-pull inflation by:

1. Increasing taxes to reduce consumers' disposable income, thereby decreasing spending.
2. Reducing government spending on public services and infrastructure projects.

Lack of information leads to market failure as consumers and producers may not make informed decisions, resulting in inefficient resource allocation. Immobility of factors of production, such as land and labor, hampers the ability of markets to respond to changes in demand, causing misallocation and inefficiencies.

An increase in tourism can lead to environmental damage through:

1. Overcrowding at natural sites, damaging ecosystems.
2. Increased waste production, affecting local wildlife and habitats.
3. Resource depletion, particularly water and energy, impacting local communities.