Question 1 (16 marks)“A circular flow diagram models the continuous movement of production,income, and the services of scarce resources that flow between producersand consumers. In particular, the circular flow diagram is a model of thecontinuous production and consumption interaction among the four majorsectors of the macro economy – households, businesses, government and theforeign sector; using the three macroeconomic markets – product, resourceand financial.”Draw a two-sector circular flow diagram indicating the above scenario.

(Showall labels and arrows. Indicate the flow of all the above in the economy.) (14)Note to student:Further research will be necessary for you to answer this question fully.Please remember to acknowledge your sources used – a total of two markswill be allocated to referencing. Please note that this question cannot bemarked if no references have been provided, as the marker will be unable toverify the information. In these instances, a mark of 0 (zero) will be awardedto the question.Question 2 (20 marks)The following five (5) investors have invested R1 000 000 each in theportfolios of assets, as indicated. The investment horizon ranges from two tofive years.© Milpark Business School (Pty) Ltd Economic Fundamentals BSAE101 Assignment 2 2012 Page 14Investor Amount invested in fixedincome securitiesAmount invested insharesa) Jackie 1 000 000 0b) Antje 800 000 200 000c) Verona 500 000 500 000d) John 300 000 700 000e) Deon 0 1 000 000Use the above information and your knowledge of risk profiling to identify andexplain into which category each of the above investors falls.Note to student:You will be penalised for copying the theory without application to thesituation. You should use the theory in support of your own answer. Nonapplicationwill result in a zero mark being awarded.Question 3 (24 marks)“Households provide factors of production to firms in return for payment.”Consider the following scenario:3.1 If the supply of labour decreases, indicate the effect it would have onthe wage rate by using a fully labelled graph. (Show all labels andindicate the shifts on the graph using arrows.) (10)3.2 Use the labelled graph in 3.1 to explain, in your own words, thechange in the wage rate and quantity of labour. (2)3.3 “Supply refers to the quantity of a product that the firms or producersare willing and able to offer for sale during a specific period.”Mr Peters sells home entertainment appliances. He is consideringdecreasing the price of Sony DVD players.With reference to the above scenario, if Mr Peters decreases the priceof Sony DVD players from R200 to R100, use a labelled graph to showthe effects it will have on the demand for Sony DVD players. (9)3.4 List three (3) factors that will affect or influence the supply of SonyDVD players.