Economics 2021 KZN June Memo_hlayiso.com_.pdf

Downloaded from hlayiso.com ' KWAZULU-NATAL PROVINCE EDUCATION REPUBLIC OF SOUTH AFRICA NATIONAL SENIOR CERTIFICATE GRADE 12 MARKS : 100 DURATION : 1% Hours THIS marking guideline consists of 18 pages.

Downloaded from hlayiso.com Common Test June 2021 on-PGwnloaded from Stanmoreghysics.com SECTION A: COMPULSORY: MICROECONOMICS QUESTION 1 30 MARKS - 20 MINUTES 1.1. MULTIPLE CHOICE 1.1.1. Bv’v (Short) 1.1.2 Av v (administered) 1.1.3. Cv v(unique) 1.1.4 Dv v (blocked) 1.1.5 Av v (private) 1.1.6 Bvv (externalities) 1.1.7 Dv v(industry) 1.1.8 Cv (price taker) 1.2 MATCHING 1.2.1 Hv An alternative concept for the point where a firm in a perfect market makes normal profit. 1.2.2 Dv Actual expenditure of running the business such as wages, insurance born by the business. 1.2.3 Fv Exclusive rights given to produce certain goods and services. 1.2.4 Av A formal agreement between firms in the same industry to reduce competition. 1.2.5 Gv Income received per unit sold. 1.2.6 Bv A market whose entry is blocked due to legislation 1.2.7. lv Compulsory payment made to the government to cater for the public services. 1.2.8 Cv Business expenses that cannot be recovered e.g. advertising 1.3 ECONOMIC CONCEPTS 1.3.1 Profit maximization point ~ 1.3.2 Economies of scalev 1.3.3. Duopoly” 1.3.4 Product differentiation’ 1.3.5 Pareto efficiency” 1.3.6 SubsidiesY” TOTAL SECTION A: [30] Copyright reserved Please turn over

Fen P8wnloaded from Stanmorephysics.com Downloaded from hlayiso.com Common Test June 2021 SECTION B Answer any TWO of the three questions in this section in the ANSWER BOOK. QUESTION 2: MICROECONOMICS 40 MARKS - 30 MINUTES 2.1. Answer the following questions. 2.1.1 2.1.2 List any TWO characteristics of public goods. e Public goods are non rival in consumption. v (2x1) (2) e Public goods are non-excludable. ” e Public good are non-rejectable. v (Accept any relevant and correct response) Why is the demand curve equal to average revenue in the perfect market? (1x2) (2) ° Each unit is sold at the same price which is the same as the horizontal demand curve.v v (Accept any relevant and correct response) [4] 2.2 DATA RESPONSE 2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 Give ONE example of near perfect market. (1) Agricultural production’ (Accept any relevant and correct response) What is the nature of product in this market. (1) Homogeneous / same/ identical ” (Accept any relevant an correct response) Briefly describe the term marginal cost. (2) Marginal costs is the amount by which total costs increases when an extra product is produced. v ” (Accept any relevant and correct response) Explain the entry of firms in a perfect market. (2) The entry into a perfect market is free and easy because there are no barriers. vv (Accept any relevant and correct response) Why are firms in the perfect market not able to control the price? = (2X2)(4) e The price is determined by the market through market forces. VV e Firms are regarded as price takers and have no control over price.vv (Accept any relevant and correct response) [10] Copyright reserved Please turn over

Fen 8wnloaded from Stanmorephysics.com Downloaded from hlayiso.com 2.3 DATARESPONSE 2.3.1 2.3.2 2.3.3 2.3.4 2.3.5 Identify the market price on the graph above. R10“ Which part of the demand curve is relatively inelastic? ED/ Bottom part /lower part” Briefly describe the term price leadership. Price leadership is a situation where one firm fixes a price and other firms accept it as the market price. VW (Accept any relevant and correct response) Why would the firm be reluctant to increase prices in an oligopolists market? e Firms are reluctant to increase the price because it_will create price wars.v “ e Increasing the price will result in a decrease in demand leading to a decrease in revenue and profit of the firms.v ” (Accept any relevant and correct response) Calculate the revenue earned by this firm. Show all calculations. Total Revenue = Price x Quantity” R10Y x 9v R90v (Accept any relevant and correct response) Copyright reserved Common Test June 2021 (1) (1) (2) [10] (2) (4) Please turn over

Downloaded from hlayiso.com Fen 8wnloaded from Stanmorephysics.com Common Test June 2021 2.4, Using a correctly labelled graph, discuss how a firm uses TRITC rule to maximize profit.” Vv COST TC a” TRY REVENUE e TEE EEE 7 \ Cs id | I I I I b Y I ! J ------------- ——- 1 30 Vv 1 if ' wee ee a 1 ' ' 1 10 1 1 I ! ! 1 1 1 I ' 1 1 1 I ' 1 1 1 I 1 1 20 50 70 «685 ©6100 MARK ALLOCATION Labeling on axis 1 mark Correct position of TC andTR = 1 mark profit maximisation point 2 marks — Break even point 1 mark [max 4 marks] Explanation e If TC >TR the business makes a loss, if TR > TC the business makes economic profit. vv e Profit is maximized at a point where there is the biggest difference between TC and TR, where TR is greater than TC at R30 with 70 units sold. vv e The business will be making normal profits at points a and d. vv Max4 (Accept any relevant and correct answer) (8) 2.5. Evaluate how collusion can positively affect the economy. e Collusion would benefit the supplier by logically fixing prices which will increase profits. vv e Third parties e.g. OPEC (oil cartel) and Greenpeace actually have similar interest. OPEC artificially increase price of oil through collusion. This reduces quantity consumed. vv This decrease the amount of negative externality of pollution. vv e Higher investment in research and development to improve the product quality to the benefit of the consumers. vv e The government receive increased revenue through indirect taxes on inflationary prices. vv (8) (Accept any relevant and correct response) [40] Copyright reserved Please turn over

Downloaded from hlayiso.com Common Test June 2021 Fen 8wnloaded from Stanmorepgysics.com QUESTION 3: MICROECONOMICS 40 MARKS - 30 MINUTES 3.1. Answer the following questions. 3.1.1. Give TWO examples of monopolistic competition markets. e Restaurants ¥ (2x1) (2) e Motor car manufacturers v (Accept any relevant and correct response) 3.1.2. How does reduction of producer taxes affect the (1x2) (2) consumers? The reduction of producer taxes would decrease market prices resulting in an increase in aggregate demand due to affordability by consumers. Vv ” (Accept any relevant and correct response) [4] 3.2. DATA RESPONSE 3.2.1. Which institution uses cost benefit analysis? (1) GovernmentY 3.2.2. What type of prices are used to calculate this technique? (1) Shadow pricesY 3.2.3. Briefly explain the term private benefit (2) e The gain a consumer gets from the use of goods. vv e The gain a producer gets from the sale of a product. vv (Accept any relevant and correct response) 3.2.4. Why does the government implement minimum prices? (2) e To allow businesses to make more profits. v V e To encourage producer to produce under produced goods vv (Accept any relevant and correct response) (Accept any relevant and correct response) 3.2.5. Calculate the cost benefit analysis of KwaNotshiza. Show all (4) calculations. _ Private benefits Private costs CBA 250” 200v 1,25v [10] Copyright reserved Please turn over

Downloaded from hlayiso.com Common Test June 2021 on-PGwnloaded from Stanmorepgysics.com 3.3. DATA RESPONSE (1) 3.3.1 Identify profit maximization in the long term. E,v 3.3.2. Which curve represents the demand curve in the graph above in (1) the long run? AR1/MRi ¥ 3.3.3 Briefly describe the term variable costs . (2) Variable costs are costs that change as the quantity of output changes. vv (Accept any relevant and correct response) 3.3.4 Why is the price at point E2 lower than the price at point E,? e More firms entered the market which decreased the price due to (2) increase in supply.v “ e The shift of the supply curve caused the price to decrease from R20 to R10.vv (Accept any relevant and correct response) 3.3.5 Calculate the value of the shaded area. Show ALL calculations. (2x2) (4) Economie profit = TR —- TC PxQ - CxQ (20x50) ¥- (15x50) v 1000 — 750v 250v (Accept any correct calculation) [10] Copyright reserved Please turn over

Downloaded from hlayiso.com Common Test June 2021 Fen 8wnloaded from Stanmorephysics.com 3.4. With a correctly labelled graph, discuss production inefficiency in markets. (4x2) (8) Computers Labelling of axis =1 Labelling on axis =1 Indication of point D = Indication of point C =1 PPC curve Point A or B (max 4 marks for labeling) 18 21 ¥ 27 Cellphones Vv EXPLANATION e Production inefficiency is when resources are not used appropriately to produce a maximum number of goods at a lowest possible cost. vv e Point D shows production inefficiency because goods are produced at a lower quantity than they possibly can. vv” e Point C is unattainable because of unavailability of resources. V e Production efficiency can only be attained at point AorB. “Y max 4 (4x2) (8) [40] (Accept any relevant and correct response) 3.5. Evaluate the success of Competition policy on the economy. Positive Contribution: The competition policy has promoted a competitive economy by : e Successfully investigating and prosecuting unfair competition on regular basis in the country. vv e Making recommendations about penalties for businesses found guilty of abuse and this been endorsed and fines imposed. vv e Implementing Competition Tribunal decision which accepts or rejects the investigation and recommendation of the Competition Commission and confirms penalty imposed. vv Copyright reserved Please turn over

Downloaded from hlayiso.com Fen 8wnloaded from Stanmorepkysics.com Common Test June 2021 e The Competition Amendment Bill has improved the competition policy by holding directors / owners accountable for uncompetitive behavior. vv e Curbing the economic power of big conglomerate to arrive at a more equitable distribution of income and wealth. Vv“ e Regulate market power of mergers where conditions were imposed to prevent possible unemployment that may result. vv Negative Effects: e There are still frequent occurrence of collusive behavior, despite fines being imposed. e.g. construction/ cement/ steel. vv e Too many dominant firms prevented disadvantaged black industrialists entering into the market (BEE).v~ e The original competition policy did not take into account the impact of mergers and acquisitions on SMME’s in terms of fair pricing. vv e The shortcomings of the competition policy has led to the adoption of the Competition Amendment Bill which will promote competition further.vv (Accept any other correct relevant response) (Max 08) [40] QUESTION4 MICROECONOMICS 40 MARKS — 30 MINUTES 4.1. Answer the following questions. 4.1.1 Give TWO examples of positive externalities. (2x1) (2) e Education.” e Health.v (Accept any relevant and correct response) 4.1.2 Why do people in rural areas sometimes pay higher prices for goods and services than those living in urban (1x2) (2) areas? Most manufactured goods are produced in factories, which are situated in urban areas, the cost of transporting them to rural areas will lead to higher prices. vv (Accept any relevant and correct response) 4.2. DATA RESPONSE 4.2.1 Identify the market structure depicted above. (1) Monopolistic competition ~ 4.2.2 What is the shape of the demand curve in this market? (1) Downwards sloping from left to right. / relatively elastic “ 4.2.3 Briefly describe the term substitute goods. (2) Substitute goods are goods that are used to replace other goods to satisfy the same need. vv (Accept any relevant and correct response) Copyright reserved Please turn over

Downloaded from hlayiso.com Common Test June 2021 Fen 8wnloaded from Stanmorepkysics.com 4.24 Why are firms in this market sometimes regarded as price (2) setters? products in this firm are differentiated and allow sellers to charge individual prices on their products . Vv“ (Accept any relevant and correct response) 4.2.5 How does branding promote businesses in the industry? (2X2)(4) e Branding differentiate products from those of competitors to gain market preference. vv e Customer loyalty is built to gain profits due to consistent demand. vv e Consumers are privileged to a variety of products to choose from. vv e Research and innovation is encouraged among firms which improves product quality. vv (Accept any relevant and correct answer) [10] 4.3. DATA RESPONSE 4.3.1 Identify the market structure depicted in the cartoon above. (1) Oligopoly” 4.3.2 What is the nature of the product of this market? (1) Heterogeneous /differentiated/ homogeneous” 4.3.3 Briefly describe the term pure oligopoly. (2) Pure oligopoly is a market structure in the oligopoly market where product sold are homogeneousvy ~ (Accept any relevant and correct response) 4.3.4 Explain the role of mutual dependence in an oligopoly market. (2) e Actions of one firm regarding price and quantity triggers the response of other firms. vv e Firms are forced to come up with strategies in order to counteract the actions of competitors. vv” (Accept any relevant and correct response) 4.3.5 How does price-fixing negatively affect consumers? e It forces consumers to pay high prices for goods and (2X2)(4) services. Vv e It creates scarcity in order to increase prices while allowing inefficient suppliers to produce poor quality goods. vv” e Reducing competitiveness by decreasing GDP and employment levels. v~ (Accept any relevant and correct response) [10] Copyright reserved Please turn over

Fen 8wnloaded from Stanmorepkysics.com Downloaded from hlayiso.com Common Test June 2021 4.4. With an aid of a well labelled graph, discuss negative externalities as (2 x 4)(8) consequences of market failure. VU Price / Cost v oO » \ te i ae: KN gn SN oe, we SOR \ iN Xn ate KX OX we DS Negative externality ~2< fx fs fx nul! Ho | Oo af kX fx” ASS Mark allocation Correct labelling of axis = =1 Z Correct labelling of curves =1 Correct shift of the supply curve = Indication of negative ‘ BD (mrs) externality =2 (Max 4) I ! Qe Qi Quantity [max 4] Explanation As a result of the negative externality e.g. pollution, the marginal social cost (MSC) represented by S2Sz2 is greater than Marginal Private Cost.vv Lesser quantity Q1 is produced at higher price P2 which causes social inefficient solution. Vv“ The shaded angle represents negative externality (welfare loss).v v [max 4] (Accept any relevant and correct response) 4.5. How does the government proceed with a project even if private costs exceed private benefits in the cost benefit analysis? e The primary objective is to provide public goods and services irrespective of costs incurred. v e Social costs and social benefits are also taken into account when deciding on a project. vv e When a need for infrastructure is necessary but might not have benefits in terms of profit. e.g. building of a community centre, bridge etc. vv e Funding of these projects are mainly financed through tax revenue and does not impoverish any individuals as such. Vv” e The infrastructure adds to the welfare of the community at large and non-excludable to anyone using it. vv (4x 2)(8) [40] TOTAL SECTION B: [80] Copyright reserved Please turn over

Downloaded from hlayiso.com on-PGwnloaded from Stanmorepiysics.com Common Test June 2021 SECTION C QUESTION 5: MICROECONOMICS 40 MARKS — 40 MINUTES e With aid of graphs, discuss how economic profit and economic loss is determined in a monopoly market. (26 marks) e Why does the performance of South African monopolies contradict the long-run equilibrium position of a monopoly? (10) marks) Copyright reserved Please turn over

Downloaded from hlayiso.com Common Test June 2021 on-PGwnloaded from Stanmorepiysics.com INTRODUCTION Monopoly exist where there is only one seller of a product, where product hasnoclose [40] substitutes, and where barriers block entry into the market completely. v v (Accept any other relevant and correct answer) BODY/ MAIN PART ECONOMIC PROFIT P/C/R 1 Mc MARK ALLOCATION Correct positioning and labeling of cost curves =1 mark v b Correct positioning and labeling of revenue curves = R13 4 mark on yy Cc Indication of profit maximization = 2 marks Indication of market price = 1 mark ay Correct indication of economic PROFIT = 1 mark Indication of cost = 1 mark D/AR MR ¥ > 0 100 . Quantity Explanation e The point where MC = MR is a point where production cost of last unit is equal to revenue it earns. (Point a) — profit maximizing production quantity of 100 units on the horizontal axis. Vv“ e The monopolist will produce at the output level of 100 units where MR = MC, because it can maximize profit at this level. vv e Pointb represent the average revenue at selling price of R13 while point c represent the average costs at the cost price R8. vv e When the average revenue is more than average cost, it results in an economic profit for the business. / When TR is more than TC it will result in economic profit for the business. vv e The monopoly makes economic profit when AC is below the average revenue (AR). “¥Y e Total income = Price x quantity = R13 x 100 = R1300 vv e Total costs = Cost x quantity = R8 x 100 = R800Vv e Profit=R1300-R800=R500. vv (accept any other correct and relevant response) Copyright reserved Please turn over

Downloaded from hlayiso.com -on-PGwnloaded from Stanmorepiysics.com Common Test June 2021 ECONOMIC LOSS P/C/R 4 MARK ALLOCATION v RL Correct positioning and labeling of cost curves =1 5 Correct positioning and labeling of revenue curves =1 Indication of profit maximization =1 v Indication of market price =1 R13 Correct indication of economic loss =2 Indication of cost =1mark max mark = 6 ° Q Explanation e Amonopoly makes an economic loss when its revenue is less than its costs. vv e The monopoly will produce at the output level where MR=MC, because it can minimize losses at this level. Vv” e Point b represent the average revenue at selling price R13 while point c represents the average cost at the cost price R15 vv e The average cost is more than the average revenue, resulting in an economic loss for the business / When TC is more than TR it will result in an economic loss for the business. vv e The shaded shows the economic loss. vv e The monopoly suffers an economic loss in the short run when the AC curve is the above the market price.v ” (Max 26) (Accept other correct and relevant responses) ADDITIONAL PART Why does the performance of South African monopolies contradict the long-run equilibrium position of a monopoly? (10 marks) e Compared to a typical monopoly where economic profit always prevails over the long-run, natural monopolies do not enjoy the benefits experienced by other monopolies. vv e Natural monopolies require high development costs which prevent others from entering the market. vv e Natural monopolies supply goods and services to the nation as a whole and therefore it is difficult to set very high prices. vv Copyright reserved Please turn over

Downloaded from hlayiso.com Common Test June 2021 -on-PGwnloaded from Stanmorepbysics.com e Eskom is subjected to National Energy Regulator in South Africa (NERSA) that determines the selling price of electricity in South Africa. vv e Anatural monopoly has experienced high maintenance costs compared to artificial monopolies that compromises profits. v “ e Natural monopolies cannot manipulate its quantities to increase prices. Vv” e Revenue seems to be less than costs due to corruption, non payment by a large number of electricity users. vv e Under normal circumstances a monopoly will shut down if average costs exceeds average revenue in the long-run, but natural monopolies like SAA are often bailed out by the government due to its strategic position in the country. vv e The internal (private costs) structure of natural monopolies have increased, but the private benefits (revenue of sales) stagnated due to poor maintenance of infrastructure. Vv v (Max 10) (Accept any relevant and correct response) CONCLUSION The monopoly can continue to earn economic profit for as long as the demand for its product continues and its production cost stays the same. (2) (Accept any relevant and correct response) [40] Copyright reserved Please turn over

Downloaded from hlayiso.com Common Test June 2021 Fon-PGwnloaded from Stanmorepiysics.com QUESTION 6: MICROECONOMICS 40 MARKS — 40 MINUTES Discuss government intervention to effects of market failure under the following headings: e Maximum prices (13 marks) e Subsidy (13 marks) Why is it necessary to implement a national minimum wage in South Africa? (10 marks) (10 marks) INTRODUCTION Market failure occurs when market forces of demand and supply do not ensure the correct quantity of goods and services are produced to meet demand at the right price. Vv BODY / MAIN PART Maximum Price e Government may impose a maximum price on essential goods. v ” e The aim is to ensure that everyone including the poor is able to buy the product. vv e The maximum price is always less than the market price. v” e Maximum price can be demonstrated by means of a graph below: MAXIMUM PRICE Price Ss D v v Pp Correct indication of equilibrium price = 1 mark v Correct indication of maximum price = 2 marks vv By Correct drawing of curves = 1 mark Pp A 9 ; ew Correct labeling of axis = 1 mark 5 D Correct indication of Q; and Qe = 2 marks [max 6] 0 Q, Q Q, Quantity v Explanation: e The government intervenes and passes a law of setting maximum prices below the market price. vv e The effect of this maximum price is that quantity supplied decreases to Q1 and quantity demanded increases to Q2. vv e There is a shortage in the market which is equal to the difference between Qtand Q2. vv e A shortage creates problems of how to allocate products to consumers. v ” e Black markets often develop where people can obtain products. vv“ e A black market is illegal markets in which either illegal goods are bought and sold of illegal prices are charged. vv e Maximum prices may cause a shortage of goods but they do improve the welfare of some consumers since goods can be purchased at lower prices. Vv “ Copyright reserved Please turn over

on-PGwnloaded from Stanmorepkysics.com Downloaded from hlayiso.com Common Test June 2021 Providing consumer subsidy The government provided subsidies to producers in order to encourage them to increase the production of goods. “vv Producer subsidies are often given to suppliers of agricultural products such as milk, wheat and maize. vv Subsidies lower the cost of producing goods and thus the market price of these goods is lowered. Vv Price v S2 BC) scastieceraeye seeeewaapeces cen Labeling on axis = 1 mark v Original price = 1 mark 22 Labeling of subsidy = 2 marks eras a wr en case : Change in quantities = 1 mark : Change in supply = 1 mark AG [eon sscesse ye eta ions 7 : Labeling of axis = 1 mark : [max 6] D Q 100 140 The market price of P(R30) and corresponding quantity is Q(100). vv If the government subsidises the production, the market price will decrease to (R22), with corresponding quantity Q2.(140) vv The lower price of (R22), allows the poor to purchase more of a product. vv (Max 26) (Accept any relevant and correct answer) ADDTIONAL PART Why is it necessary to implement a national minimum wage in South Africa? Minimum wage has the following benefits: Protect workers from being exploited by employers. Vv” It increases buying power enabling workers to afford more goods and services. Vv It improves standard of living by being able to satisfy more wants. v Improves the distribution of income to those people who received very low wage in the past. vv People become encouraged to find employment, which will reduce unemployment and poverty. Vv“ It reduces dependency on government, such as issuing of social grants. v (Max 10) (Accept any relevant and correct answer) Copyright reserved Please turn over

Downloaded from hlayiso.com Common Test June 2021 on-PGwnloaded from Stanmorepiysics.com CONCLUSION e Market failures can have devastating effects on the economy which requires the government to intervene for purposes of correcting market failure. (Accept any relevant and correct answer) (2) [40] TOTAL SECTIONC: [40] GRAND TOTAL: [150] Copyright reserved