Economics Grade 12 NSC Supplementary 2012 Memo (English)

Downloaded from hlayiso.com 1 GRAAD 12 NATIONAL SENIOR CERTIFICATE GRADE 12 ECONOMICS FEBRUARY/MARCH 2012 MEMORANDUM MARKS: 300 This memorandum consists of 22 pages. Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 2 DBE/Feb.–Mar. 2012 NSC – Memorandum SECTION A (COMPULSORY) QUESTION 1: LO1–LO4 1.1 1.1.1 A – leading 33 1.1.2 C – portfolio 33 1.1.3 C – demand- and supply- 33 1.1.4 B – productive inefficiency 33 1.1.5 B – undersupply 33 1.1.6 B – MR > MC 33 1.1.7 A – liberalisation 33 1.1.8 A – comparative 33 1.1.9 C – affirmative action 33 1.1.10 B – cost-push inflation 33 1.1.11 A – indigenous knowledge systems 33 1.1.12 C – private benefit 33 (12 x 2) (24) 1.2 1.2.1 Open-market transactions 33 1.2.2 Terms of trade 33 1.2.3 AsgiSA 33 1.2.4 Monopolistic competition 33 1.2.5 Kyoto Protocol 33 (5 x 2) (10) 1.3 1.3.1 B – government spending and taxation 33 1.3.2 C – workplace skills and leadership 33 1.3.3 A – $1 = R7,40 33 1.3.4 F – advertising campaigns 33 1.3.5 D – minimum earnings required to prevent the entrepreneur from leaving the industry 33 1.3.6 G – a tariff as a percentage of the value of imported goods 33 1.3.7 E – the price level rises so rapidly that people lose confidence in the value of the currency of a country 33 1.3.8 I – the enjoyment and appreciation of undisturbed nature 33 (8 x 2) (16) TOTAL SECTION A: 50 Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 3 DBE/Feb.–Mar. 2012 NSC – Memorandum SECTION B QUESTION 2: LO1 AS1–AS4 – MACROECONOMICS 2.1 2.1.1 leakage 33 2.1.2 fixed property 33 2.1.3 Finance 33 2.1.4 Monetarists 33 (4 x 2) (8) 2.2 • Primary sector33 • Secondary sector33 • Tertiary sector33 (3 x 2) (6) 2.3 2.3.1 Shows the relation between tax rates and tax revenue of the government 99 (2) 2.3.2 At point V 99 (2) 2.3.3 Tax revenue will decrease 99 (2) 2.3.4 At 100% tax rate, nobody will be prepared to work and the revenue of government will also be zero 99 (2) 2.3.5 Tax evasion may occur 99 (2) 2.4 2.4.1 Point B (peak)/D (trough)99 (Any 1 x 2) (2) 2.4.2 It indicates the expected growth rate of a country 99 /also referred to as the long-term growth potential of the economy 99 /the general direction in which the indexes that were used in business cycles move 33 (Any 1 x 2) (2) 2.4.3 • Using expansionary monetary policies 99 e.g. reducing interest rates 99 • Expansionary fiscal policies 99 e.g. reducing tax 99 • Increased government expenditure 99 e.g. capital investment projects 33 (Any other relevant examples) (Any 2 x 2) (4) 2.4.4 If the business cycle is currently in a downswing, it will lead to the turning point, moving into an upswing 99 / if the business cycle is currently in an upswing, it will lead to an extended expansion phase 33 (Any other relevant answer) (Any 1 x 2) (2) Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 4 DBE/Feb.–Mar. 2012 NSC – Memorandum 2.5 • There is a flow of goods (imports) to the business from the foreign sector 99 • which the business pays for 99 • This will be regarded as expenditure for the business 99 • There is also a flow of goods from the business to the foreign sector 99 • This will be income for the business 99 (Any 4 x 2) (8) 2.6 • Free-floating exchange rates: They work automatically. |If imports increase, the demand for foreign exchange increases. The currency depreciates as a result of working of market forces. Depreciation makes imports more expensive in the depreciating country and exports cheaper in the foreign country. Imports decrease and exports increase, and the currency appreciates. • Managed floating exchange rates: Central banks use their reserves to effect depreciation and appreciation. Over the long term currencies have to find their equilibrium levels. • Fixed exchange rates: Currencies are devalued and revalued. (Any 4 x 2) (8) [50] Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 5 DBE/Feb.–Mar. 2012 NSC – Memorandum QUESTION 3: LO2 AS1–AS3 – MICROECONOMICS 3.1 3.1.1 unregulated 33 3.1.2 fixed 33 3.1.3 social 33 3.1.4 artificial 33 (4 x 2) (8) 3.2 • Competition Commission 33 • Competition Tribunal 33 • Competition Appeal Court 33 (3 x 2) (6) 3.3 3.3.1 Perfect market 33 (2) 3.3.2 Market demand and supply establishes the price in the market (R8) 33 / The individual producer on the market is a price taker33 and will sell any quantity at the price of R8. (2) 3.3.3 Price D S1 33 S E2 R10 New supply curve (S1) = 2 marks R8 3 E1 Decrease in quantity = 1 mark 3 Increase in price = 1 mark Labelling of axes = 2 marks TOTAL = 6 MARKS S1 3 S D 0 100 000 Quantity 3 (6) Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 6 DBE/Feb.–Mar. 2012 NSC – Memorandum 3.4 3.4.1 Collusion is an arrangement between businesses with the aim to limit competition between them 33 (2) 3.4.2 • Type of product 33 wine is a differentiated product 33 • Market entry 33 although it is free, it is not easy 33 • Control over prices 33 Consol and Nampak has considerable control over prices, but not as much as Owens Illenois as monopolist 33 • Mutual dependence 33 one business is influenced by the other businesses' action 33 (Any 1 x 4) (4) 3.4.3 Through the competition policy the government can: • Prevent the abuse of economic power 33 / • The growth of market power 33 / • Prevent restrictive practices 33 (Any 1 x 2) (2) 3.4.4 Positive effect on local wine prices (decrease) cet.par. 33 (2) 3.5 • If the provision of public goods were left to the market we would not have any public goods. 33 • The provision of public goods and services requires a huge capital outlay33 and the return on investment in provision of public goods is not profitable33 • The failure to supply public goods means we would be less well-off. 33 • There would be allocative inefficiency33 • The reason why the market fails to supply these goods is because: - public goods are non-excludable33 (8) - public goods are non-rival33 (Any 4 x 2) 3.6 Fully labelled graph to illustrate shut-down point in a perfect market Price/Cost MC3 AC 3 3 Labelling of axes = 2 marks AVC 3 Labelling of curves = 3 marks Profit maximising point = 1 mark Shut-down point (e1) = 2 marks R8 TOTAL = 8 MARKS R6 e MR = AR 3 333 e1 0 60 3 Quantity (8) [50] Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 7 DBE/Feb.–Mar. 2012 NSC – Memorandum QUESTION 4: LO3 AS1–AS4 – ECONOMIC PURSUITS 4.1 4.1.1 3% 33 4.1.2 GDP 33 4.1.3 free-trade 33 4.1.4 DBSA 33 (4 x 2) (8) 4.2 • Economic growth 99 • Full employment 99 • Price stability 99 • Balance of payments stability 33 • Equitable distribution of income 33 (Any 3 x 2) (6) 4.3 4.3.1 Dumping occurs when goods are sold to foreign markets at such low prices that the local industries cannot compete 99 (Any other relevant answer) (2) 4.3.2 A large number of firms are forced to close down 99 / Textile workers are becoming unemployed 99 (Any 1 x 2) (2) 4.3.3 Grant protection 99/ E.g. quotas, tariffs, customs duties, subsidies 99 (Any 1 x 2) (2) 4.3.4 Investment is in the extraction of raw materials 99 rather than in the manufacturing of goods and services that would increase the GDP 99/the low value of raw materials does not contribute to the industrial development of the economy 99 (Any 2 x 2) (4) 4.4 4.4.1 To prevent the entire system from failing 99 Any other alternatives e.g. energy savings (2) 4.4.2 Angola/Botswana/Democratic Republic of Congo/Lesotho/ Madagascar/Malawi/Mauritius/Mozambique/Namibia/Seychelles/ South Africa/Swaziland/Tanzania/Zambia/Zimbabwe 99 (Any 1 x 2) (2) 4.4.3 Supporting structures to the production processes 99 (e.g.) transmission corridors, power stations, hydro power stations, pylons 99 (Any 1 x 2) (2) 4.4.4 • Attaining economic efficiency 99 • Eradication of poverty 99 • Ensuring a environmentally sustainable use of resources 99 (Any 2 x 2) (4) Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 8 DBE/Feb.–Mar. 2012 NSC – Memorandum 4.5 • Calculated from using the information provided by the Lorenz curve 99 • Shows the distribution of income among proportions of the population99 • Is the ratio of the proportion of the population who lives on less than a proportional income 99 • Measures the degree of inequality in incomes 99 • If income is perfectly distributed the co-efficient is 0 99 • At the other extreme the co-efficient would be 1 99 • A government should try to address the unequal distribution of incomes in a country by using tools such as the progressive tax scale 99 and by creating opportunities to create higher incomes99 through BEE 99 and employment equity 99 (Any 4 x 2) (8) 4.6 • South Africa's SDI programme is aimed at attracting infrastructure 99 and investments to neglected and underdeveloped areas 99 • It endeavours to foster sustainable industrial development and growth 99 particularly in areas where poverty and unemployment are at their highest 99 • SDI's enable government to enforce its industrial development commitment across national, provincial and local government boundaries 99 • The SDI is an interdepartmental investment strategy led by the national departments of Trade and Industry and Transport 99 • Some SDI's are in the form of corridors 99 • A corridor is a track of land that forms a passageway allowing access from one area to another and offering particular advantages to mining, manufacturing and other businesses 99 • (e.g.) Maputo Corridor, Coast-to-Coast corridor 99 (Any 4 x 2) (8) [50] QUESTION 5: LO4 AS1–AS4 – CONTEMPORARY ECONOMIC ISSUES 5.1 5.1.1 stagflation 33 5.1.2 debtors 33 5.1.3 within 33 5.1.4 sustainable 33 (4 x 2) (8) Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 9 DBE/Feb.–Mar. 2012 NSC – Memorandum 5.2 • Increase in disposable incomes of households/consumption/general public not savings conscious 33 • Easy availability of credit 33 • Increase in economically active population 33 • Increase in money supply without corresponding increase in production33 • Excessive demand/commodities demand 33 • Investment spending/not enough savings to finance essential capital investments 33 • Government spending increases 33 • Government's spending becomes extravagant 33 • Export earnings increase 33 • Working of market mechanism 33 (Any 3 x 2) (6) 5.3 5.3.1 Environmental sustainability means the ability of the environment to survive its use for economic activity 33 (2) 5.3.2 World Climate Summit/Cancun Summit in Mexico 33 (2) 5.3.3 Natural disasters limit their availability due to the rate at which they can be produced 33 (2) 5.3.4 Earthquakes cause water pipes to burst leading to water shortage 33 Tsunamis destroys fresh water resources/pollute fresh water/ cause widespread flooding 33 (4) 5.4 5.4.1 South African Reserve Bank 33 (2) 5.4.2 Monetary Policy Committee 33 (2) 5.4.3 Interest rates 33 (2) 5.4.4 Inflation target 33 (2) 5.4.5 Monetary policy 33 (2) 5.5 • Increased direct taxation 33 reduce excessive demand in the economy 33 • Increased indirect taxation 33 e.g. VAT and excise duties 33 • Reducing government spending 33 cancel government projects 33 • Introduce measures like tax rebates to improve productivity 33 • Loan levy can be introduced 33 • Finance budget deficit on non-inflationary basis 33 get loans from non- banking sector 33 • Imposing surcharge on imported goods 33 increases prices of imported goods – consumers buy fewer goods 33 • Supply-side economy 33 reducing tax on personal income, company tax, tax on interest and dividends and government spending33(Any 2 x 4) (8) Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 10 DBE/Feb.–Mar. 2012 NSC – Memorandum 5.6 • Granting property rights 33 ensures that people cares for things that belong to them by using them as profitable as possible 33 if property rights are expanded to common goods, polluters can be charged for the right to pollute 33 • Charging for the use of the environment 33 impose environmental charges – levies fee on consumers and producers for waste they produce and dump in environment 33 • Environmental taxes 33 taxes imposed on output of good e.g. taxes charged on items such as tyres will increase the price of tyres 33 • Environmental subsidies 33 for activities that reduce environmental damage – cost to reduce or prevent harmful effects is recovered from proceeds of taxation 33 used for development of new techniques or equipment 33 encourage production of environment friendly substitutes 33 encourage recycling of waste 33 • Marketable permits 33 businesses are allowed to pollute by giving them a licence to pollute up to a maximum – these licences can be sold to other businesses if they do not pollute at all 33 (Any 2 x 4) (8) [50] QUESTION 6: LO2 & LO3 AS1–AS4 – MICROECONOMICS AND ECONOMIC PURSUITS 6.1 6.1.1 HDI 33 6.1.2 Industrialised 33 6.1.3 Identical 33 6.1.4 Public 33 (4 x 2) (8) 6.2 • Health and nutrition 33 • Education 33 • Services 33 • Housing and urbanisation 33 (Any 3 x 2) (6) 6.3 6.3.1 Manufacturing sector is concerned with the transformation of raw materials into semi-finished or finished goods 99 (2) 6.3.2 More jobs can be created/increased competition in the market benefits the consumer (lower prices) 99 (Any other relevant fact) (2) 6.3.3 • Exports 99 • Tourism 99 • Agriculture 99 • Information, communication and technology 99 • Cultural industries 99 (Any 1 x 2) (2) Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 11 DBE/Feb.–Mar. 2012 NSC – Memorandum 6.3.4 It promotes BEE because it complies with transforming the South African economy so that the number of black people that own and manage and control the economy can increase significantly 99 and income inequalities will decrease substantially 99 (Any other relevant answer) (2 x 2) (4) 6.4 6.4.1 Occurs when some of the costs and benefits of a decision or action are borne or enjoyed by a second or third party not directly involved in the decision making 99 (Any other relevant answer) (2) 6.4.2 Negative 99 (2) 6.4.3 At quantity Q1 99 (2) 6.4.4 The cost of the externality is not included in the market price 99 the market overproduces 99 therefore there is a misallocation of resources 99 If the cost of externality was taken into account, then the market would produce at Q2 99 which is more desirable to society 99 (Any 2 x 2) (4) 6.5 • Economic growth is defined as an increase in the real value of production and income in a country 99 • Economic growth occurs as a result of an increase in the productivity capacity of a country and is reflected by an increase in the value of real gross domestic product (GDP) 99 • Economic development can be defined as structural changes in the economy that can lead to an increase in the standard of living 99 and an increase in the level of economic welfare of the poor 99 • Economic development would result in a more equal distribution of wealth and income, better access to health care and education of the poor 99 (Any other relevant answer) (2 x 4) (8) 6.6 • Through its taxing (Progressive Tax System 99) and spending powers (Budget 99) the government can distribute income by subsidising goods and services 99 • Transferring income to poorer households 99 (e.g.) grants 99 • Providing certain goods free of charge 99 • Implementing job creation programmes 99 • Implementation of minimum wages for the unskilled worker 99 • Setting of maximum prices on basic foodstuffs (paraffin) 99 which benefit the poor 99 • Policy measures (e.g.) Land Reform programmes 99/BEE 99/ Affirmative Action 99(Employment Equity Act), Property subsidies 99 • Preferential access to government contracts for the previously disadvantaged 99 (Any 4 x 2) (8) [50] TOTAL SECTION B: 150 Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 12 DBE/Feb.–Mar. 2012 NSC – Memorandum SECTION C Answer any TWO questions from this section in the ANSWER BOOK. Essay responses: • Responses should include an introduction, body and conclusion. • For the introduction and conclusion 5 marks will be allocated. • In addition, 5 marks will be allocated for the interpretation of the topic. • A maximum of 40 marks will be allocated for the body. QUESTION 7: LO1 AS3 – MACROECONOMICS Discuss the problems of public sector provisioning. INTRODUCTION The government responds to market failures by establishing and maintaining state- owned enterprises to provide public goods and services 999 (Any other relevant introduction) (Max. 3) BODY 1. Accountability 99 • It is required to give an explanation of one's decisions, actions and expenditures over a period of time 99 • There are mechanisms for evaluating government's economic and financial performance 99 • That the desired quantities and quantity of goods and services for which taxes are raised are delivered 99 • That monopolies, corruption, nepotism, incompetence and apathy does not occur 99 • Two important elements of accountability is participation and transparency 99 • Ministerial responsibilities i.e. the ministers of government departments are responsible for decisions and actions and expenditures 99 • Parliamentary questioning arises and members of the government departments have to respond 99 • The national treasury is responsible for treasury control 99 • The Auditor-General reports annually in writing on each government department99 Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 13 DBE/Feb.–Mar. 2012 NSC – Memorandum 2. Efficiency 99 • Public goods are efficiently provided if Pareto efficiency is achieved 99 • That is if resources are allocated in such a way that no one can be made better off without making someone else worse off 99 • Bureaucracy 99 the official rules and procedures.99/insensitivity to the needs of their clients 99 • Incompetence99 the lack of skill or ability to do a task successfully99 / • may have improper qualifications/or an attitude of apathy 99 • Corruption99 the exploitation of a person's position for private gain 99 / taking bribes, committing fraud, nepotism 99 3. The problem of assessing needs 99 • State owned enterprises do not operate according to the forces of supply and demand 99 • It becomes thus very difficult for state-owned enterprises to assess needs and they are thus prone to under- or over-supplying public goods and services 99 • The census and other household surveys as well as local government structures provide this type of information 99 • Since resources are scarce, government must then decide which needs and whose needs are to be satisfied 99 • In the private sector houses are built according to the price that people are able and willing to pay 99 • In the public sector housing is regarded as a social responsibility and authorities supply them according to the needs of people 99 4. Pricing policy 99 • In a market economy prices are determined by supply and demand 99 • The objectives of firms are to maximise their profits and they usually set prices to achieve this objective 99 • Government is not set confined to the profit maximisation objective 99 • Government takes into account certain social, economic, political and environmental conditions as well as public opinion 99 • Free-of-charge services99 this is met from taxes 99 and applies to most community goods 99 (e.g.) defence, police 99 and collective goods 99 whereby charges and toll fees are levied 99 • User-charges 99 option to charge depends on technical reasons 99 (e.g.) cost of providing a double lane road could be recovered by toll charges 99 Economic reasons 99 such as services like water and electricity 99 that have a zero price 99 political reasons 99 where income distribution is significantly unequal, administrative rationing according to need takes place 99 (e.g.) public health and education 99 • Direct and indirect subsidies 99 direct subsidies are used to cover part of the costs 99 (e.g.) urban bus service 99 and an indirect subsidy is used to write off accumulated losses or deficits 99 • Standing charges 99 called availability charges 99 (e.g.) water and electricity 99 standing charges goes to meet fixed costs and the price per unit consumed covers variable costs 99 Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 14 DBE/Feb.–Mar. 2012 NSC – Memorandum • Price discrimination 99 different users have different elastic ties of demand for a good 99 (e.g.) commercial and manufacturing businesses pay higher rates than households and they pay on a sliding scale 99 5. Parastatals 99 state-owned enterprises 99 that either render a service or when an existing enterprise is nationalised 99 They focus on making a profit and maximizing cost at the expense of the needs of some groups 99 (e.g.) Iscor 99 SABC, SAA, Spoornet 99 6. Privatisation 99 refers to the process whereby state-owned enterprises and state-owned assets are handed over or sold to private individuals 99 Nationalisation is the process whereby the state takes control and ownership of privately owned assets and private enterprises 99 It includes contracting of services, Public-Private Partnerships, deregulation, increasing competitiveness 99 (Any 5 x 8) CONCLUSION If the above problems are not dealt with timeously by government, government will continue to fail its people in terms of service delivery 99 (Any other relevant conclusion) (Max. 2) Use the following assessment grid in conjunction with the above to assess the discussion: MARKS INTERPRETATION OF TOPIC 0 Candidate has shown no understanding of the topic. Candidate has shown some understanding of topic but has missed 1 important aspects of topic. (1–15) Candidate has interpreted topic correctly but has not linked facts to 3 topic. (16–30) Candidate has interpreted topic correctly and has linked facts to 5 topic. (31–45) (Max. 5) [50] Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 15 DBE/Feb.–Mar. 2012 NSC – Memorandum QUESTION 8: LO2 AS3 – MICROECONOMICS Discuss monopoly as a market structure and illustrate, with the aid of a graph, how a monopolist can achieve economic profit. INTRODUCTION Is a market structure in which there is only ONE seller of a good or service that has no close substitutes 333 (Max. 3) BODY MONOPOLY AS MARKET STRUCTURE 1. Number of firms 33 • The monopoly consists out of one single firm 33 • Example: Eskom 33 or De Beers – diamond-selling 33 (Accept any other relevant example) 2. Nature of product 33 • The product is unique with no close substitute 33 • Example: Diamonds are unique 33 3. Market entry 33 • Refers to how easy or difficult it is for businesses to enter or to leave the market 33 • Is entirely/completely blocked 33 • A number of barriers to entry that may give rise to monopoly can be: economies of scale 33 or limited size of the market 33 or exclusive ownership of raw materials 33 or patents 33 or licensing 33 or sole rights 33 or import restrictions 33 4. Market Information 33 • For a monopolist all information on market conditions is available to both buyers and sellers 33 • This means that there are no uncertainties 33 5. Control over price 33 • Regarded as a price maker 33 • Able to influence price through changing the quantity 33 but limited by market demand and the goal of profit maximisation 33 • Monopolist chooses the combination of price and quantity that suits it the best 33 Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 16 DBE/Feb.–Mar. 2012 NSC – Memorandum 6. Demand curve for the firm's product 33 • It equals the market (industry) demand curve 33since it is responsible for the entire output of the industry. • Downward-sloping from left to right 33 7. Marginal revenue curve 33 • Because the demand curve is downward sloping price will decrease for each additional unit produced 33 • Therefore the marginal revenue will be less than price, thus the demand curve and Marginal revenue curve is not the same 33 • The Marginal revenue curve lies below the demand curve. 33 8. Cost of production 33 • The shape of the cost curves (MC and AC) is the same as any other producer 33 • The MC increases as more is produced 33 • The AC declines, reaches a minimum and then increases 33 • Profit maximisation is where MC = MR 33 9. Profit 33 • Can earn economic profit in the short run and the long-run 33 • Because new entries are blocked(no competition) and short-run economic profit therefore cannot be reduced by new competing firms entering the industry 33 • The monopoly can thus continue to earn economic profit as long as the demand for its product remains intact 33 (Max. 30) Graph to illustrate economic profit for a monopolist Price/Cost 3 MC 3 AC 3 333 P1 f Economic profit c e d MR 3 AR = D 3 0 Q1 Quantity 3 Labelling of axes = 2 marks Shape of cost curves = 2 marks Shape of revenue curves = 2 marks Profit maximising point = 1 mark Indicating economic profit = 3 marks TOTAL = 10 MARKS (8) [50] Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 17 DBE/Feb.–Mar. 2012 NSC – Memorandum CONCLUSION In the short run a monopolist can make an economic profit or an economic loss. They produce less output than competitive industries and sells at a higher price. 33 (Any other relevant conclusion must be accepted.) (Max. 2) Use the following assessment grid in conjunction with the above to assess the discussion: MARKS INTERPRETATION OF TOPIC 0 Candidate has shown no understanding of the topic. Candidate has shown some understanding of topic but has missed 1 important aspects of topic. (1–15) Candidate has interpreted topic correctly but has not linked facts to 3 topic. (16–30) Candidate has interpreted topic correctly and has linked facts to 5 topic. (31–45) (Max. 5) [50] Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 18 DBE/Feb.–Mar. 2012 NSC – Memorandum QUESTION 9: LO3 AS3 – ECONOMIC PURSUITS Discuss export promotion as part of South Africa's foreign trade policy. INTRODUCTION Export promotion refers to measures taken by governments increase production of goods and services that can be exported. The government provides incentives to encourage production 333 (Max. 3) BODY REASONS • Export promotion measures lower cost of production which make it easier to compete on the international market 33 • Achieve significant export-led economic growth 33 • Export enlarges production capacity of country because more and larger manufacturing industries are established 33 • The first step to export-led economic growth is to implement policies that encourage the establishment of industries to produce goods and services for export markets 33 METHODS Exports are promoted through: • Incentives 33 export incentives include information on export markets, research with regard to new markets, concessions on transport charges, export credit and export credit guarantees and publicity commending successful exporters 33 this will encourage manufacturers to export an increased volume of their production 33 Trade missions help to market SA products abroad 33 and supply SA companies with information about potential markets 33 • Direct Subsidies 33 described as direct because it involves government expenditure. Include cash payments to exporters, refunds on import tariffs and employment subsidies. The aim is to increase the competitiveness of exporting company 33 reduce cost of production 33 and explore and establish overseas markets 33 • Indirect subsidies 33 Regarded as indirect because it results in the government receiving less revenue 33 e.g. general tax rebates, tax concessions on profits earned from exports or on capital invested to produce export goods, refunding of certain taxes e.g. custom duties on imported goods used in the manufacturing process 33 allows companies to lower their prices and enables them to compete in international markets 33 Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 19 DBE/Feb.–Mar. 2012 NSC – Memorandum • Challenge for governments to design incentives and subsidies in such a way that prices of export goods can't be viewed as dumping prices 33 1) Trade neutrality 33 can be achieved if incentives in favour of export production are introduced up to point that neutralises the impact of protectionist measures in place 33 e.g. subsidies equal to magnitude of import duties can be paid 33 2) Export processing zones (EPZs) 33 is free-trade enclave within a protected area – is fenced and controlled industrial park that falls outside domestic customs area, and usually located near harbour or airport 33 NOTE: For the response with regard to the effectiveness of export promotion methods, a maximum of 5 marks can be allocated. ADVANTAGES • No limitations on size and scale 33 since world market is very large 33 • Cost and efficiency of production 33 based on this and organised along lines of comparative advantage 33 • Increased domestic production 33 will expand exports to permit more imports and may result in backward linkage effects that stimulate domestic production in related industries 33 • Exchange rates are realistic 33 and there is no need for exchange control and quantitative restrictions 33 • Value can be added to natural resources of the country 33 • Creates employment opportunities 33 • Increase in exports has positive effect on balance of payments 33 • Increase in production leads to lower domestic prices, which benefit local consumers 33 DISADVANTAGES • Real cost of production 33 subsidies and incentives reduce total cost of production which must be met from sales 33 real cost is thus concealed by subsidies 33 products cannot compete in open market 33 • Lack of competition 33 businesses charge prices that are so low that they force competitors out of the market 33 Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 20 DBE/Feb.–Mar. 2012 NSC – Memorandum • Increased tariffs and quotas/can be against spirit of provisions of WTO 33 overseas competitors retaliate with tariffs and quotas 33 goods are sold domestically below their real cost of production (export subsidies and dumping) 33 • Protection of labour-intensive industries 33 developed countries maintain high levels of effective protection for their industries that produce labour-intensive goods in which developing countries already have or can achieve comparative advantage 33 • Withdrawal of incentives often leads to closure of effected companies 33 • Incentives often lead to inefficiencies in the production process, since companies don't have to do their best to compete 33 • Can be seen as dumping 33 (Max. 40) CONCLUSION The South African government has mandated Trade and Investment South Africa (TISA) 33 From the above discussion it is clear that protection still plays a significant role in the South African international trade policy 33 (Any other relevant conclusion must be accepted.) (Max. 2) Use the following assessment grid in conjunction with the above to assess the discussion: MARKS INTERPRETATION OF TOPIC 0 Candidate has shown no understanding of the topic. Candidate has shown some understanding of topic but has missed 1 important aspects of topic. (1–15) Candidate has interpreted topic correctly but has not linked facts to 3 topic. (16–30) Candidate has interpreted topic correctly and has linked facts to 5 topic. (31–45) (Max. 5) [50] Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 21 DBE/Feb.–Mar. 2012 NSC – Memorandum QUESTION 10: LO4 AS2 – CONTEMPORARY ECONOMIC ISSUES Discuss the benefits of tourism to the different sectors in the South African economy. INTRODUCTION Tourism describes the activities of people traveling to and staying in places outside their usual environment for no more than one consecutive year for leisure, business and other purposes 333 (Max. 3) BODY 1. BENEFITS OF TOURISM TO THE DIFFERENT SECTORS IN THE ECONOMY: 1.1 Households 93 • They receive income because of salaries and wages through employment 99 and their own involvement in the tourism industry as tour operators. • Most of the infrastructure that is created for tourists are also used by the local people 99 e.g. roads, hotels 93 • Tourism requires a number of skills, which require education and training. 99 • Learnerships for a number of skills required by the tourism industry are offered 99e.g. tour guides, travel agents and chefs 33 1.2 Government 93 • The main avenue for governments to benefit from tourism is through the levying of taxes 99 • These taxes have a dual purpose 99 • To recover external costs 99 This cost is recovered from the tourist through adding the taxes to the supply price/normal expenditure taxes (e.g. VAT, excise duties, customs duties) 99 • This amount serves to compensate the host community for providing the infrastructure, public amenities (showers, toilets) to the tourists 99 • To raise revenue. 99 Tourists are seen as part of the overall tax base 99 • E.g. through airport departures, air ticket taxes and taxes on hotel rooms 39 1.3 Businesses 93 • Economic and basic services infrastructure is usually provided by the public sector 99 • A superstructure consists of businesses that provide accommodation, transport, and retailing and recreation services 99 • Tourism also stimulates certain socio-economic objectives such as entrepreneurship development, Black Economic Empowerment and SMME development 99 Copyright reserved Please turn over

Downloaded from hlayiso.com Economics 22 DBE/Feb.–Mar. 2012 NSC – Memorandum • They are normally private sector activities and make up the profit-generating element of a tourist destination 99 • A combination of public and private sector finance is used to develop destinations 99 • The public sector also provides a range of financial incentives for private sector tourism investment (grants, subsidies, loans, taxes) 99 • There are also many informal and less traditional opportunities for tourism benefits and these serve as stepping stones for previously neglected groups in the tourism business 99 • E.g. car rentals, craft curios sales 93 1.4 Infrastructure 93 • Adequate and well-maintained physical and basic services infrastructure are essential for tourist destination areas 99 • Economic infrastructure has been prioritised by Department of Tourism 99 • E.g. accesses to beaches, lakes and rivers) 93 • Social infrastructure has also been improved 99 • E.g. ambulance services, medicines, and information services 93 (Max. 40) CONCLUSION From the above discussion it is clear how households, businesses, the government and infrastructure benefit from increased tourism. (Max. 2) Use the following assessment grid in conjunction with the above to assess the discussion: MARKS INTERPRETATION OF TOPIC 0 Candidate has shown no understanding of the topic. Candidate has shown some understanding of topic but has missed 1 important aspects of topic. (1–15) Candidate has interpreted topic correctly but has not linked facts to 3 topic. (16–30) Candidate has interpreted topic correctly and has linked facts to topic. 5 (31–45) (Max. 5) [50] TOTAL SECTION C: 100 GRAND TOTAL: 300 Copyright reserved