Economics Grade 11 Paper 2 North West June 2018 Memo

Downloaded from hlayiso.com PROVINCIAL ASSESSMENT GRADE 11 ECONOMICS P2 MEMORANDUM JUNE EXAMINATION 2018 MARKS: 150 This marking guideline consists of 11 pages Demo NW/JUNE/ECOM/ EMIS/6*******

Downloaded from hlayiso.com Economics/p2 NSC-MEMORANDUM NW/JUNE 2018 SECTION A (COMPULSORY) QUESTION 1 1.1. Multiple choice 1.1.1. B (quantity supplied) 1.1.2. A (zero)  1.1.3. B (utility)  1.1.4. A (elastic)  1.1.5. B (downwards sloping)  1.1.6. C (average revenue)  1.1.7. A (economics of scale)  1.1.8. C (Oligopolistic)  (8 x 2) (16) 1.2. MATCHING ITEMS 1.2.1. H  When something is in short supply or not readily available. 1.2.2. F  The responsiveness of demand for good A to change if the price of good B changes. 1.2.3. D  Any market that does not have all the characteristics of a perfect market. 1.2.4. B Powerful competitors try to take over each other’s market share by progressively reducing prices. 1.2.5. C Barriers to enter the market. 1.2.6. G General business expenses that are not part of what is produced. 1.2.7. A Fixed cost plus variable cost 1.2.8. E Increasing average costs as the contribution of the variable inputs become more expensive. (8 x 1) (8) 1.3. ONE WORD ITEMS 1.3.1. Complimentary  1.3.2. Income elasticity of demand  1.3.3. Perfect completion  1.3.4. Monopolistic competition  1.3.5. Minimum wage  1.3.6. Marginal costs  (6 X 1) (6) TOTAL SECTION A: 30 Demo NW/JUNE/ECOM/ EMIS/6*******

Downloaded from hlayiso.com Economics/p2 NSC-MEMORANDUM NW/JUNE 2018 SECTION B QUESTION 2: MICRO ECONOMICS 2.1. Answer the following questions 2.1.1 Give TWO characteristics of a perfect market. • Many sellers  • No control over the price / price taker  • Homogenous product  • No barriers to entry and exit • Complete information  • No collusion  (Any 2 x 1) (2) 2.1.2 Why would a producer of a product with a unitary price elastic demand not use price to increase profits?  The producer will not increase price as the demand will equally reduce and no additional revenue will be generated. (Any1x 2) (2) 2.2 DATA RESPONSE 2.2.1 Give the value for A and explain the answer. A=20 ✓ Fixed costs remain constant irrespective of the output. ✓ (2) 2.2.2 Give any TWO examples of fixed costs. Rentals  Insurance premiums Loan payment (Any 2x1) (2) 2.2.3 Why do variable costs change? Variable costs change with output because when output is produced, more of a particular input factor has been used more, for example electricity, labour.  (2) 2.2.4 Calculate the value of B. Show all calculations. ∆𝑇𝐶 MC= ∆𝑄  28−25 = 2−1  3 =  1 =3 (4) Demo NW/JUNE/ECOM/ EMIS/6*******

Downloaded from hlayiso.com Economics/p2 NSC-MEMORANDUM NW/JUNE 2018 2.3 DATA RESPONSE 2.3.1 What relationship does McDonald’s Big Mac have with the fries and the soda drink? They are complementary products.  (1) 2.3.2 Explain what complement or complementary goods are? They are different goods that are used together to satisfy a specific need.  (2) 2.3.3 What will happen to the demand for fries if the price of the Big Mac burger decreases? Substantiate your answer.  The demands for fries will increase   When the price of the Big Mac burger decreases the demand for Big Mac burgers will increase.   As fries are consumed with the Big Mac burger and more burgers are demanded, more fries will be demanded (3) 2.3.4 The price of a Big Mac burger is R23.00 and the price of a Burger King Whopper burger is R25.00. Explain the relative prices of the burgers and if I choose the Big Mac burger what will the Burger King Whopper burger be? • The Big Mac burger is relatively cheaper than the Whopper burger.  • A relative price is a price of a good or service relative to the price of another good or service. •If I choose the Big Mac burger the Whopper burger becomes the opportunity cost (Any 2x2) (4) 2.4 Differentiate between cost in the short run and cost in the long run (4x2) (8) Short Run Long Run • A period so short that other factors • Periods long enough so that all of production will remain fixed and factors of production and cannot be change.  intermediate inputs can become • In short run total costs will equal variable.  total fixed costs including total • Total costs equal to variable costs. variable costs.   2.5 Why is it important for business to consider Economies of Scale in its operation? • To produce on a large scale.  • Leads to greater specialisation of resources.  • More highly skilled workers can be used.  • Allows firms to reduce the average cost of production.  (2x4) (8) [40] Demo NW/JUNE/ECOM/ EMIS/6*******

Downloaded from hlayiso.com Economics/p2 NSC-MEMORANDUM NW/JUNE 2018 QUESTION 3 3.1. Answer the following questions. 3.1.1 Name TWO components of total cost. • Total fixed costs • Total variable costs (2x1) (2) 3.1.2 What will happen when monopolistic competitor decides to increase prices? (1x2) (2) • Consumers will turn to other producers because products are slightly different.  3.2. Data response 3.2.1 Name the market structure depicted in the graph. • Perfect market.  (1) 3.2.2 What type of curve is shown in the graph? • Horizontal/ Straight demand curve.  (1) 3.2.3 Calculate the Total Revenue amount. Show all calculations • Total Revenue = Price x Quantity  = 70 x 50  = 3 500  (4) 3.2.3 What will happen when firms in a perfectively competitive market sell its products at a price above the market price? • The will lose customers.  • Expected revenue will not be generated.  (2x4) (4) 3.3. Read the extract below and answer the questions that follow. 3.3.1 List two example of oligopoly industries mentioned in the article above? • The energy industry  • Banking industry  • Supermarket industry  • IT Services  • Accounting  (Any 2 x 1) (2) Demo NW/JUNE/ECOM/ EMIS/6*******

Downloaded from hlayiso.com Economics/p2 NSC-MEMORANDUM NW/JUNE 2018 3.3.2 Briefly describe the term oligopoly.  A market structure where only a few sellers operate. (2) 3.3.3 What type of demand curve is associated the market structure mentioned above. (2)  Kinked demand curve.  3.3.4 Explain why energy, banking, and supermarket sectors are dominated by a handful of very large firms?  Oligopolies use collusion making entry difficult.   Spend huge amounts on advertising.  (4) 3.4. Briefly explain FOUR characteristics of monopolistic competition  Each business produces a differentiated product.   Products sold are differentiated or heterogeneous.   Entry and exit to and from the market is completely free.  There are a large number of producers or business in the industry.  Business has a downward-sloping demand curve.  (4x2)(8) 3.5. Explain how habit forming product affect elasticity of demand  A change in the price has a relatively small impact on the quantity demanded.   Consumers are addicted to the product.  E.g cigarettes and alcohol  They will continue to consume the product even if a price increases.   The demand for products tends to be price inelastic.  (4x2) (8) Question 4 4.1. Answer the following questions. 4.1.1 Name any two monopoly industries in South Africa.  Eskom   Denel  (2x1) (1) 4.1.2 Why is monopoly faced with downward sloping curve?  They are price makers.   Monopolist can influence price and quantity.  (Any 1x2) (2) 4.2 Data response 4.2.1 Name the source from which the cartoon is extracted www.economicscartoon.com 2017  (1) Demo NW/JUNE/ECOM/ EMIS/6*******

Downloaded from hlayiso.com Economics/p2 NSC-MEMORANDUM NW/JUNE 2018 4.2.2 At which price will more quantity be purchased? (1) At a price of R1.00  4.2.3 Give the formula used to calculate elasticity of demand (2) %∆𝐐𝐃  %∆𝐏 4.2.4 Explain how consumer responds to price changes in the cartoon.  Consumer will look for substitute because of price increase.   Decide to no longer purchase the product.   Cola is a luxury therefore is elastic demand.  (3x2) (6) 4.2. Data response question 4.3.1 Give the graph the appropriate heading. (1)  Cost Structure.  4.3.2 What is represented by point B on the graph  Shut Down Point.  (1) 4.3.3 Give alternative name for Marginal Cost  Supply curve.  (2) 4.3.4 Explain why variable cost changes with level of output?  Variable costs do not remain the same. The costs differ according to each level of output.  (2) 4.3.5 Why is the ATC above the AVC?  ATC is greater than Average Variable Cost. It also includes average fixed costs.  (2x2) (4) 4.4 Briefly explain the characteristics of an oligopoly.  Each firm produces a different product, some firms can produce homogeneous product.   There are many similar products that are sold at different prices.   Firms normally agree on non-price competition such as advertising or product differentiation.   There is small number of fairly large producers or firms in the industry.   Fairly strong barriers that prevent firms from joining or leaving the market usually exist.  (4x2) (8) Demo NW/JUNE/ECOM/ EMIS/6*******

Downloaded from hlayiso.com Economics/p2 NSC-MEMORANDUM NW/JUNE 2018 4.5 In your opinion explain why entrepreneurs only earn normal profit  When making economic profit others will enter to share the profit and entry will result in normal profit.   Others see economic profit as indication that forces of competition may not be strong and barriers exist in some industries.   Economic profit is in relation to implicit return, a return for risk bearing   Industries willing to take risk will earn high returns though temporary.  (4x2) (8) [40] TOTAL SECTION B: 80 QUESTION 5  Discuss the following factors influencing price elasticity of supply. (26) o Number of suppliers (8) o Time (8) o Nature of the product (10)  Explain how cost and revenue data can be used to make a decision on whether to stop production or decrease prices of a product or service offered. (10) INTRODUCTION The responsiveness of supply to a change in price. (2) MAIN PART Number of suppliers  Where only few suppliers of products exist price increase are not followed by large increase in quantity supplied  This factor explain why the supply of oil in the world does not increase when the price of oil spikes.   If every country could produce oil, there would be no shortage of oil Time  Time taken to produce a product determine its supply  Agricultural produce that requires sun, rain and germination period as well as products that require complicated technology will result in output being less responsive to change in price  E.g locating oil Nature of the product  Some products are easily stores as a result of certain characteristics such as durability.   These goods are generally low priced.   They are in abundant supply  Suppy for durable goods is elastic  Supply for non-durable goods is inelastic Demo NW/JUNE/ECOM/ EMIS/6*******

Downloaded from hlayiso.com Economics/p2 NSC-MEMORANDUM NW/JUNE 2018 ADDITIONAL PART  A firm should calculate the marginal revenue (MR) of each additional service offered or product sold.   They should compare this to the marginal cost (MC) of selling additional unit .   If the MC exceeds the MR of adding more units, a firm should stop the production, because each extra unit will add more expenses than revenue.   If the MR is greater than the MC, a firm should decrease the price of its products or service.   To attract more customers.   Each extra unit sold will add more to revenue than to expenses.   This will increase a firm’s profits.   A firm should only decrease prices up to the point where prices are equal to the MC.  (10) CONCLUSION Suppliers will always try to sell more at a high price (2) [40] QUESTION 6  Compare in detail the features of a monopoly with those of perfect competition. (26)  Discuss normal profit and economic profit as well as the conditions under which they are earned by firms. (10) INTRODUCTION Perfect market serves as a yardstick against which the other market structures are compared.  MAIN PART Number of firms  The many sellers in a perfect competition.   In a monopoly there is only one seller Nature of the product  Products in a perfect competition are homogeneous or heterogeneous.   Homogeneous products are goods or services that are exactly the same.   In a monopoly products are unique Control over the price  A perfectly competitive business has no control over the price of its product and is therefore a price-taker.   Monopoly has varying degrees of control over the prices of their products.   Such businesses are price-makers.  Demo NW/JUNE/ECOM/ EMIS/6*******

Downloaded from hlayiso.com Economics/p2 NSC-MEMORANDUM NW/JUNE 2018 Barriers to entry  This refers to how easy or difficult it is for businesses to enter or leave the market.   Under perfect condition, entry is completely free whereas under monopolistic conditions it is entirely blocked.   Very often access is denied by law.  Collusion  In a perfect competition there is no secret communication between sellers that enables them to negotiate favourable terms for themselves.   It is impossible for a monopoly to collude since he/she is the only seller.  Availability of information  This refers to market participants’ information on market conditions.   In the case of perfect market and monopoly, information on market conditions is available.  Size of profits  Perfect competition make economic profits in the short-run and normal profit in the long-run.   Monopoly earn economic profit (supernormal) in the short-run and long-run.  Output  Output is high in the perfect competition  Output is low in a monopoly.  ADDITIONAL PART Normal profits  A firm makes normal profits when total revenue (TR) equals total costs or when average revenue (AR) equals average cost (AC).   Normal profit is the maximum return the owner of a firm expects to receive to keep on operating in the industry.   Given a market price of P2 , profit is maximised where MR = MC = P2.   This occurs at a quantity of Q2.   At Q2 the firm’s average revenue (AR) per unit of production is P2, which is also equal to the average cost per unit C2 (AC).   Since AR = AC, the firm earns a normal profit since all its costs are fully covered.   Point E2 is usually called the break-even point.  Economic profits  When a firms’ TR>TC  When a firms’ AR>AC CONCLUSION A market is perfectly competitive when there is no excessive control or power in the hands of either buyers or sellers TOTAL SECTION C: 40 TOTAL MARK: 150 Demo NW/JUNE/ECOM/ EMIS/6*******