ECONOMICS GRADE 12 FOR LEARNER ASSISTANCE REVISION DOCUMENT MARCH 2020

CURRICULUM GRADE 10 -12 DIRECTORATE NCS (CAPS) SUPPORT DOCUMENT GRADE 12 ECONOMICS LEARNER ASSISTANCE REVISION DOCUMENT (LOWER & MIDDLE ORDER ACTIVITIES) MARCH 2020 [Page 1 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

How to use this Revision Booklet This booklet should be used as “pocket book” because it is simple, easy to carry, easy to use and understandable. The aim of this pocket book is to highlight the simple questions where candidates can collect about 60% of their marks. It guides the candidates on the important aspects to consider under each topic, such as concepts/diagrams / illustrations/cartoons. It should be used in conjunction with other prescribed textbooks and sources where detailed information is provided before answering the questions provided The Economics Mind the Gap is an important source to use to study the summary of topics and how answers are to be crafted Learners should understand the action verbs in order to know how to respond appropriately to the question. For example; mention, comment, and demonstrate. Refer to 2017 Grade 12 Economics Examination Guidelines for the explanation of the action verbs. The Revision Booklet cover the entire Economics CAPS curriculum. It focuses on questions where you can earn easy marks. Topics that are included in this Revision Booklet  Macroeconomics  Microeconomics  Economic pursuits  Contemporary Economic Issues  Assessment Activities A summary of important aspects is included in each topic. Learners can obtain other information from Economics Grade 12 Learner Support Document for 2020 Winter and Spring Revision classes. [Page 2 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

It is important to study all topics in the Economics curriculum to pass the subject because all topics are assessed and carry the same weight in the examination. Ensure you understand all the relevant concepts, formulae etc. Section A is compulsory. There is multiple choice, Matching of terms and description of concepts. This is where you will get more easy marks. Section B has questions ranging from 1 mark to 8 marks. For this section it is important to understand the current information in Economics. There are a number of easy marks that you can earn. Section A and B is the 40% where you will earn easy marks, start by understanding questions asked in these two sections Section C: These are essay type of questions. Study the topics thoroughly to be able to earn marks on naming and discussing concepts. This is where you will earn the extra 20% of easy marks. All essay topics for both Economics Paper 1 and 2 are listed in the 2017 Grade 12 Economics Examination Guidelines. It is important to learn all key concepts and understand them so that you can be able to answer any question asked. Use the Mind the Gap and approved textbooks to study the topic, answer questions asked against answers given. When you are confident that you understand the topic attempt the questions set in the Assessment Section of each topic explained. Find other past question papers from November 2016-June 2020 and go through similar questions and check the memoranda to ensure that you get them right. NOTE: The activities in this document only cover lower and middle order type of questioning. You are now ready to answer 60% of the question paper. All the best in your studies. [Page 3 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

CIRCULAR FLOW CONCEPTS/TERMS Final goods- are goods that are ready for consumption by the participants in the economy. Intermediate goods- are goods that are used as inputs to produce other goods and services Double counting: occurs when intermediate products are added to final products and will cause national accounts to reflect an incorrect higher total Residual item – balancing item due to errors and omissions Taxes on production –refers to taxes on production not linked to a specific product taxes on land and building taxes are payable corporate tax Taxes on product- are payable per unit of some good and service eg VAT Subsidies on production- it refers that are not linked to specific goods and services eg subsidy made on production Subsidies on product- financial incentives to help struggling industries produce, as well as direct subsidies payable per unit exported Gross Domestic Expenditure Gross national income (GNI)-total remuneration for the factors of pro Real GDP- it is the referred to as GDP at constant prices, real GDP are adjusted for price changes Nominal GDP- it is referred to as the GDP at current prices, it gives the current value of the price. GDP Deflator: it’s a ratio of GDP at current prices to the GDP at constant price for a particular period Formula for GDP Deflator: Nominal GDP ÷ Real GDP x 100 The National Account aggregates National account is an accounting record of a country total production, income and expenditure It is used to measure economic activities of a country i.e. GDP GDP is a total value of all final goods and services produced within the borders of a country in a specific in a specific period The term aggregate means total There are three methods that used to measure the national accounts The income method: remuneration for the factors of the factors of production that have been used in the production of goods and services The production method/ value added method: value of all the final goods and service produced in the primary, secondary and tertiary sector [Page 4 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Expenditure method: total expenditure on final goods and services within the borders of a country Reasons for calculating GDP Deflator are to eliminate the effect of price changes to get the actual GDP not distorted by inflation. Differentiate between domestic production and national production. Domestic production (GDP) is the production that takes place within the borders of a country. It does not matter whether production is by South African or foreign firms. National production (GNP) is the output of a country produced by the factors of production owned by the permanent residents of that country, regardless of where the production takes place. In order to compare the GDP of one year with that of another, the nominal (current GDP which include the effect of inflation) has to be changed to a real (constant) GDP as follows: Nominal GDP x 100 / deflator Thus to calculate the real GDP the index should be deflated, that is, removing the effects of inflation since the base year. How can national income figures be expressed? National income figures can be expressed at market prices, basic prices and factor cost, depending on which approach is used to calculate the GDP of a country. In the national accounts there are two types of taxes namely  Taxes on production – refer to taxes on production not linked to a specific good or service (e.g. tax on land and buildings, business licensees, payroll taxes).  Taxes on products – taxes that are payable per unit of some good or services ( e.g. VAT, import duties, tax on imports and exports). The national accounts reflect two types of subsidies namely  Subsidies on production – subsidies that are not linked to specific goods or services, e.g. subsidy on employment.  Subsidies on products – financial incentives to help struggling industries to produce, and direct subsidies payable per unit exported, to encourage exports (e.g. government subsidy on bread). National account aggregates show the total (aggregate) value of income, expenditure and production in a country, the so called national income figures and are recorded in the national income accounts of the country. In short they can be summarised as PIE, illustrated below (the 3 methods in calculating the GDP): Source: Mind the Gap, DBE The production method is a method whereby we determine the Gross Domestic Product - GDP (P) - at market prices by adding the final values of all goods and services produced, calculated as gross value added. [Page 5 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

The income method is a method whereby we determine the Gross Domestic Product - GDP (I) - at market prices by adding all the income earned by the owners of the factors of production (gross domestic income). The expenditure method is a method whereby we determine the gross domestic product - GDP (E) - at market prices by adding the spending of the four major sectors of the economy - consumption, government, investments and exports (minus imports). Let's do an example of the different methods in calculating the national account aggregates.  What does the expenditure method calculate or add? The expenditure method adds up all the money spent in the country by households, firms, government and the foreign sector on final goods and services. Calculation yields GDP at market prices. This table shows that South Africa exported more goods and services than it imported in 2017. This caused an injection from the circular flow to the value of about R 67 372 billion in 2017.  What does the income method calculate or add up? The income method add up all the money earned by households as remuneration for the factors of production, that is, by adding the amount of money earned through wages, rent, interest and profits. Calculation yields GDP at factor cost. Assessment Activities Activity 1 SECTION A 1.1 Various options are provided as possible answers to the following questions. Choose the answer and write only the letter (A–D) next to the question number. 1.1.1 The study of individual households in an economy is known as …. Economics. A Macro B Micro C International D National 1.1.2 A sum of taxes, imports and savings is called … A. investments B. injections C. leakages [Page 6 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

D. capital 1.1.3 Savings flow back into the circular flow as … A. government spending. B. investment. C. exports. D. imports. 1.1.4 The flow of money from the financial sector into the economy is called a/an … A. injection B. expense C. revenue D. Leakage 1.1.5 Earnings received from the export of goods and services are called … A. leakages B. injections C. investments D. money 1.1.6 The national aggregate that represents the value added in each phase of production is called the gross domestic … A. expenditure B. product C. Income D. services 1.1.7 South Africa uses a system of national accounts recommended by the … A. UN. B. IMF. C. World Bank D. WTO 1.1.8 Taxes and subsidies on … are taken into account when calculation of GDP at the basic prices. A. Exports B. Commodities C. Production D. Products 1.1.9 If the national income increases by R200 millions as a result of an investment of R50 million, what is the value of a multiplier. A. 0.25 [Page 7 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

B. 4 C. 2 D. 6.25 1.1.10 Consumption of fixed capital is used to calculate GDP at … A. basic prices. B. factor cost. C. market prices D. fixed prices 1.2 Choose the description from COLUMN B that matches an item in COLUMN A. Write only the letter (A - K) next to the question number (1.2.1 – 1.2.10) in the ANSWER BOOK. COLUMN A COLUMN B 1.2.1 Economic equilibrium A Where factors of production are bought and sold. 1.2.2 Savings B Leakages equals to injections. 1.2.3 Households C The flow of goods and services. 1.2.4 Injection D Income that is not consumed. 1.2.5 Real flows E The total value of exports, investments and government spending. 1.2.6 Factor market F Inputs into the production of goods and services. 1.2.7 GDP G Market where goods and services are traded. 1.2.8 Investments H Major consumers of economic goods and services 1.2.9 Goods market I Money spend by firms to buy capital goods. 1.2.10 Residual J The total value of spending inside the boarders of the country. K Balancing figure in the calculation of gross domestic L Total value of final goods and services produced within the boarders of the country. 1.3 Give economic term / concept for each of the following descriptions. Write only the term next to the question number (1.3.1 1.3.12) in the answer book. 1.3.1 The index that is used to convert nominal GDP to real GDP. 1.3.2 Spending that does not depend on the level of income. 1.3.3 The mechanism that brings together buyers and sellers of goods and services. 1.3.4 The GDP after it has been adjusted for price increases. 1.3.5 When economy leakages are more than injections. 1.3.6 The amount of income available to households to spend. 1.3.7 A market where households’ savings are channeled through. 1.3.8 A model that shows the flow of production, income and expenditure for an economy over a period. 1.3.9 Prices actually paid by consumers for goods and services plus all taxes minus subsidies. 1.3.10 A small initial increase in spending which produces a proportionately larger increase in aggregate national income. [Page 8 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 2 2.1 Study the diagram below and answer questions that follow. THE CIRCULAR FLOW 2.1.1 Identify the producers from the diagram above. (1) 2.1.2 Name ONE form of income that is earned by households. (1) 2.1.3 Describe the term circular flow. (2) 2.1.4 Briefly discuss the role played by the financial sector on the above diagram. (2) 2.1.5 How does an increase in household spending influence the economy? (2x2)(4) ACTIVITY 3 3.1 Study the table below and answer questions that follow. GROSS VALUE ADDED BY KIND OF ECONOMIC ACTIVITY Value added (GVA) 2017 2018 Primary sector 453 554 456 939 Secondary sector 879 900 909 192 Tertiary sector 2 839 874 2 976 161 Gross value added at basic prices (A) Source: Statistics South Africa, 2019 3.1.1 Identify the method used to calculate the national income on the above table. (1) 3.1.2 Name ONE industry that operates under the primary sector. 3.1.3 Describe the term basic prices. (2). 3.1.4 Briefly explain why the tertiary sector is the major contributor to the national income. (2) 3.1.5 Calculate the gross value added at basic prices (A) on the above table. Show all calculations. (4) [Page 9 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 4 4.1Study the table below and answer questions that follow. THE INCOME METHOD Value added (GVA) 2017 2018 Compensation of employees 875 162 874 395 Net operating surplus 638 782 (A) Consumption of fixed capital 236 380 197 910 Gross value added at factor cost 1 750 324 1 748 800 Source: Statistics South Africa, 2019 4.1.1 Which item consists of gross salaries and wages on the above table? (1) 4.1.2. What is the shown by the gross value added at factor cost between 2018 and 2019? (1) 4.1.3 Define the term consumption of fixed capital. (2) 4.1.4 What is the negative effect of a shortage of skilled labour in the national income? (2) 4.1.5 Calculate the contribution by net operating surplus (A) on the national income. Show all calculations. (4) ACTIVITY 5 5.1Study the graph below and the questions that follow 5.4.1 Identify the original consumption function in the above diagram. (1) 5.4.2 What is the value of the marginal propensity to consume in the graph? (1) 5.4.3 Describe the term autonomous consumption. (2) 5.4.4 Briefly describe the impact of an increase in marginal propensity to save have on the value of the multiplier. (2) 5.4.5 How does government spending impact positively on the economy? (4) [Page 10 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

BUSINESS CYCLES CONCEPTS Business cycles are:  an increasing and decreasing of economic activities.  the upward and downward movement of levels of gross domestic product (GDP).  successive periods of fluctuations in economic activity. Key words fluctuations, increasing/decreasing, economic activity and periods Actual (Real) Business cycle is obtained when the effect of seasons, irregular events and the long –term growth trend are removed from the time series. The composition of the business cycle Source: Mind the Gap, page 16 The above graph shows economic activity over an extended period of time as the economy moves between periods of expansion (recovery/prosperity) and periods of contraction (recession/depression). Features  The business cycle oscillates between the upper (peak) and lower (through) turning points. [Page 11 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

 A period where there is a general increase in economic activity is known as an upswing. This is the entire period from the through to the peak.  A period where there is a general decline in economic activity is known as a downswing. This is the entire period from the peak to the through.  Peaks are the high points on a business cycle. The period immediately before and through the upper turning point of the cycle is called the boom.  Troughs are the lower turning points on a business cycle. The period immediately before and through the lower turning points of the cycle is known as the slump.  The length of a business cycle is the distance from one peak to the next peak or from one through to the next through.  Amplitude is the vertical distance between a trough and the next peak.  The trend-line may be positively sloped (when the GDP is rising), horizontal (when the GDP is staying the same) or negatively sloped (when the GDP is falling). Thus indicating the expected growth rate of a country.  Extrapolations – is a technique used to predict the future by using past data  Moving averages – are used to minimise the effect of short-term fluctuations. The aim is to highlight the long term movements when dealing with time series data. Define the concept business cycle: It is the recurrent, but not periodic pattern of expansion and contraction in the level of economic activity that occurs within a country OR It refers to fluctuations in economic activity or production over several months or years. Difference between the expansion phase and the contraction phase that could appear on a business cycle? Expansion is characterised by growth in real GDP, income and employment. It consists of two phases i.e. the recovery and prosperity (also known as the boom) phase. Firms make high profits and this attracts other businesses to enter or the firms expand in the market. As more businesses open, more factors of production (e.g. labour) are employed. The increase in income causes an increase in aggregate demand which in turn forces producers to increase their output. This causes an increase in investment spending as producers expand their businesses and buy more inventories. Contraction is a period of gradual decline in economic activity. There is a decrease in aggregate demand that forces a decrease in output. The decrease in sales leads employers to reduce employment and income decreases. There is a downward spiral of real GDP (output), employment, income, standard of living, etc. This period consists of two phases i.e. recession and depression. When will a recession kick in? When there is a continuous decrease in economic activity for a period of six consecutive months ( or two quarters). Causes of the business cycle There are numerous theories as to the causes of business cycles. Among these are the Monetarist approach and the Keynesian approach. The government uses monetary instruments such as interest rates to mediate these business cycles. The Monetarist (exogenous) approach. [Page 12 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Exogenous variables are similar to independent or explanatory variables. They are used in a theory to explain other things but they are not themselves explained by the theory. This follows the belief that economic growth arises due to influences outside the economy or business of interest, markets are inherently stable. When disequilibrium occurs, market forces kick in and bring the market back to its equilibrium route, government should not intervene. Exogenous factors are factors that originate from outside the domestic economic system. Examples are technology advances, climate conditions affecting production, political shocks and unexpected events that can act as a trigger mechanism for a contraction or expansion. The Keynesian (endogenous) approach Endogenous variables are dependent variable. This follows the belief that economic growth is primarily the result of Endogenous and not external forces, markets are inherently unstable and prices are not flexible enough. Endogenous factors are factors that are inherent to the economy, markets are inherently unstable and that business cycles are part of the way market economies operate. They say that changes in investment spending and consumer spending bring about changes in the demand for output. Kinds of business cycles  Kitchin cycles – These cycles last between three and five years and are thought to be caused businesses adapting their inventory levels.  Jugler cycles – These cycles last slightly longer, from seven to eleven years and they are thought to be caused by changes in net investments by businesses and the government.  Kuznets (Building) cycles – These are caused by changes in activity in the building and construction industry. They are usually between 15 and 20 years.  Kondratieff cycles – These are long cycles because they describe long term fluctuations in economic activity – lasting fifty years and longer. ASSESSMENT ACTIVITIES Activity 1 1.1 Various options are provided as possible answers to the following questions. Choose the answer and write only the letter (A–D) next to the question number. 1.1.1 During an economic recession … A. unemployment rate will increase. B. production increases. C. aggregate demand increases. D. spending increases. 4.1.2 Negative economic growth for at least two consecutive quarters of the year is known as … A. boom. B. depression. C. peak. D. recession. [Page 13 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

4.1.3 The new economic paradigm is embedded in …side policies. A. demand B. supply C. demand and supply D. fiscal 4.1.4 In business cycles, estimating something unknown from information that is known is called… A. amplitude. B. extrapolation. C. trend. D. length. 4.1.5 Monetary policy focuses on … and the aggregate money supply. A. income B. government expenditure C. taxation D. interest rates 4.1.6 Business cycles diagram are drawn in the shape of … A. bar graphs. B. pie charts. C. waves. D. circles. 4.1.7 The number of new motor cars sold is a … business cycle indicator. A. lagging B. coincident C. composite D. leading 4.1.8 The distance of the fluctuations of a variable from the trend is measured by the … A. moving average. B. amplitude. C. frequency. D. length. 4.1.9 Exogenous factors such as … can cause fluctuation in the level of economic activity. A. weather pattern B. inflexibility of markets C. demand patterns D. economic reasons 4.1.10 Government expenditure forms part of the …policy A. monetary B. fiscal C. Reserve bank D. Financial [Page 14 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

1.2 Choose the description from COLUMN B that matches an item in COLUMN A. Write only the letter (A - K) next to the question number (1.2.1 – 1.2.10) in the answer book. COLUMN A COLUMN B 1.2.1 Phillips curve A. Originates outside the economy. 1.2.2 Business cycle B. The removal of unnecessary laws, regulations and by-laws that inhibit free operation of the market. 1.2.3 Peak C. Assess the performance of the economy. 1.2.4 Repo rate D. Analyse the changes in the series of data over period of time. 1.2.5 Lagging indicator E. Managed by the reserve bank. 1.2.6 Moving average F. Successive periods of growth and decline in the economic activity. 1.2.7 Exogenous factor G. Illustrates the relationship between unemployment and inflation. 1.2.8 Economic indicator H. The upper turning point of the business cycle. 1.2.9 Open market transaction I. Focuses on interest rates and the amount of money in the economy. 1.2.10 Monetary policy J. Seeks to identify levels of income, output and employment. 1.2.11 Deregulation K. Involves buying and selling of government share and securities. 1.2.12 Aggregate money L. The rates banks are paying for lending money from the central bank. supply M. Does not change until after the business cycle has changed. 1.3 Give economic term / concept for each of the following descriptions. Write only the term next to the question number (1.3.1 1.3.12) 1.3.1 A fluctuation in economic activities over a period of time. 1.3.2 The turning point of a business cycle where the level of economic activities is at its lowest. 1.3.3 The distance from the trend line to the peak and the trough. 1.3.4 The institution in South Africa which is responsible for monetary policy. 1.3.5 This school of thought believes market are inherently unstable. 1.3.6 The prices that are controlled by the government. 1.3.7 The cycles are caused by the changes in investments by businesses and government. 1.3.8 A point where level of economic activities is overheating in the business cycle. 1.3.9 It is measured from peak to peak. 1.3.10 These indicators inform businesses, households and decision makers of where the economy might be heading to. [Page 15 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 2 2.1 Study the cartoon below and answer questions that follow. THE SOUTH AFRICAN ECONOMIC CRISIS 2.1.1 Name ONE cause of economic crisis that is shown on the above cartoon. (1) 2.1.2 What policy can be used by the Minister of finance to reduce the effects of economic crisis? (1) 2.1.3 Briefly describe the term business cycle. (2) 2.1.4 What is the impact of corruption on business cycle? (2) 2.1.5 How do supply - side policies affect business cycle? (2x2) (4) ACTIVITY 3 3.1 Study the cartoon below and answer the questions that follow. SOUTH AFRICAN ECONOMY HEADED FOR JUNK STATUS 3.1.1 Which route is taken by the South African economy according to the cartoon above? (1) 3.1.2 What trend is taken by the South African economy on the above cartoon? (1) 3.1.3 Describe the concept recession. (2) 3.1.4 Briefly discuss endogenous explanation for business cycles. (2) 3.1.5 How can fiscal policies be used as a tool to minimise economic fluctuations? (2x2)(4) [Page 16 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

PUBLIC SECTOR CONCEPTS [Page 17 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

The composition and necessity of the public sector. A. Levels (spheres) of government National government is that part of the public sector responsible for the overall running of the country and deals with national issues such as safety and security, foreign affairs and international trade. In South Africa the national government includes the President, Cabinet Ministers and Members of Parliament. The government is responsible for national issues such as defense, education, health, housing, safety and security. Central government also includes public service organizations such as the CSIR and SABS. Provincial government forms the part of the public sector that deals with economic issues specific to a given region or province. Provincial government receives a budget from national government, but they also generate their own income, mostly from taxes. They draw up frameworks for developing the economy of the province and improving services such as housing, health clinics and education. Local government forms the part of the public sector that deals with local issues within a town or municipal area. These include municipal roads, libraries, traffic control and refuse removal. [Page 18 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

B. State-owned enterprises (SOE) -These enterprises are created by government to undertake commercial activities on behalf of government to provide public goods and services (e.g. electricity), also referred to as parastatals. C. Public -private partnerships- is whereby the government forms partnerships with private sector in order to provide public goods and services efficiently. Necessity/ reasons for government to intervene in the economy.  provides the structure and law and order that allow society to exist.  determines the policies they believe will improve the living conditions and lives of the citizens. It puts policy into action.  must deliver services and enforce law and order. Adam Smith argued that the government has three main duties to:  protect its citizens against external threats.  maintain law and order within the country.  provide certain goods and services which are needed by the citizens, but which are not profitable for entrepreneurs to provide. The government also intervenes in South Africa’s mixed economic system when there is market failure. Market failure occurs when the free market forces of demand and supply fail to lead to an efficient allocation of resources. Role of the public sector  The provisioning of public goods and services  Public goods are non-rival in consumption  It is not possible to exclude individuals from using public goods  Public goods are non-rejectable  Collective goods: goods for which it is possible to exclude free riders by levying fees or tolls To conserve common resources: o Negative externalities o Positive externalities To manage the economy: To protect consumers from monopolies. The promotion of merit goods and the restriction of demerit goods The reasons why government should intervene in the economy. The provisioning of public goods and services Public goods/services are also known as community goods/services e.g. public roads, national defense and streetlights, which are not provided by the private sector in a mixed economic system. The following characteristics of public goods and services are important [Page 19 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Public goods/services are non-rivalry in consumption Take a litre of Coke as an example. When one person has consumed the litre of Coke, it cannot be used by another person. Such goods are said to be rivalrous in consumption. Some goods can be divided into sale-able units and are therefore non-rivalrous in consumption. Some examples are streetlights. They can still be used by other consumers without being used up. These goods/services are also known as communal goods/services. It is not possible to exclude individuals from using public goods/services A good example will be the Union Building’s park. It is impossible to prevent individuals from enjoying the city’s views, while having a picnic. Also known as collective goods. Now the problem of free riders could arise, where individuals realize they could still benefit from good/services without paying for it. A good example will be watching TV without paying your TV license. Government try to overcome this problem of free riders by imposing compulsory payment in the form of taxes e.g. the tax levy on fuel consumption, which is included in the fuel prices. Public goods are non-rejectable The third characteristic gives individuals the choice whether or not to consume the public product/service provided e.g. calling on the police force to remove criminals or choosing to pay a security firm to do this job. Existence of externalities This is benefits or costs which result from the production of a good or service, but which are not reflected in the price of the product. Externalities are also known as spillover effects. The consumption of a good/service could have positive or negative consequences. A negative consumption of a good/service could be the depletion of natural resources or pollution. A positive consumption of a good/service could be free education. These negative and positive side effects of production and consumption are known as externalities. How could government assist in reducing these negative externalities and thus limit the damages or social costs? Government could intervene by imposing taxes (increase their private costs) on e.g. paper producers, thus increasing their cost of production and then hoping they will limit their pollution. How could government assist in maximizing the benefits and encouraging the production of the good/service? Government could subsidies the production of the good or service to lower the cost of production or government could produce the good itself. The promotion of merit goods and the restriction of demerit goods. Differentiate between the concepts merit and demerit goods? Merit goods are goods or services whose provision has more public benefit than private benefit. Examples include healthcare, education, emergency services and sporting facilities. Demerit goods are goods such as cigarettes, which are deemed socially and environmentally harmful. The government often takes steps to discourage consumption and production of these goods e.g. through sin taxes. To protect consumers from monopolies [Page 20 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

When monopolies are formed, there is a potential for resources to be wasted and for consumer to pay higher prices for goods and services than they would if there was perfect competition in the market. The state intervenes and strives to protect consumers through fair trade and healthy competition. ASSESSMENT ACTIVITIES ACTIVITY 1 1.1 Various options are provided as possible answers to the following questions. Choose the answer and write only the letter (A–D) next to the question number. 1.1.1 Parastatals are business entities of a …sector A. commercial B. private C. service D. public 1.1.2 A fixed amount paid by consumers on water and electricity irrespective of the units consumed is known as … A. municipal tax. B. user charge. C. flat rate. D rates. 1.1.3 Large public corporations or business entities in the public sector are known as … A. parastatals. B corporations. C public companies D informal sector 1.1.4 Government’s medium term expenditure framework (MTEF) provide for an outline … A. four B. one C. two D. three 1.1.5 When businesses owned by government the are sold to the private sector is known as … A. nationalisation B. privatisation C. rationalisation D. centralisation 1.1.6 A characteristic of collective goods is that they are … A. excludable B. competitive C. non competitive D. even 1.1.7 The government taxes these goods because the market oversupplies them. A. merit goods [Page 21 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

B. demerit goods C. scarce goods D. final goods 1.1.8 The treasury committee is chaired by the … A. Speaker. B. Minister of Finance. C. Auditor general. D. President 1.1.9 The budget deficit of developing countries should generally not exceed …% of GDP. A. 3 B. 2.5 C. 6 D. 5 1.1.10 Payment made by the government to someone for which there is no service that is rendered in return is called … payments A. commission B. taxation C. salary D. transfer 1.1.11 A committee of parliament that monitors the activities of each government department is … committee A. portfolio B. parliamentary C. monetary policy D. fiscal policy 1.1.12 Low income earners pay a larger proportion of their income than higher income earners. A. progressive tax B. excise tax C. regressive tax D. proportional tax 1.1.13 The Minister of Finance presents the main budget to parliament during the months of … every year. A. January B. April C. February D. March 1.1.14 The largest portion of the government’s equitable share expenditure is allocated to … A. education. B. health. C. welfare. D. defense. 1.1.15 The public sector is necessary institution because it … A. uses resources. B. controls the market. [Page 22 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

C. take care of common resources. D. gives social grants. 1.1.16 The public sector fails when it … A. produces too few goods. B. interferes in the economy. C. allows rent-seeking. D. levies tax on demerit goods. 1.1.17 The public sector consists of the … A. national and general governments. B. state owned enterprises. C. national and general governments plus state owned enterprises. D. local government 1.2 Choose the description from COLUMN B that matches an item in COLUMN A. Write only the letter (A - T) next to the question number (1.2.1 – 1.2.20) in the ANSWER BOOK. COLUMN A COLUMN A 1.2.1 Economic equity A. Loans made by the government to pay off its deficit. 1.2.2 Excise duties B. Services used by the society whether they are prepared to pay for them or not. 1.2.3 Capital gains tax C. Inability of the government to manage the economy on resources effectively. 1.2.4 MTEF D. The state of an economy in which no one can be better off without making someone worse off. 1.2.5 State owned entities E. Estimates of income and expenditure for a three-year period. 1.2.6 Progressive taxation F Reasonable division of income among the population. 1.2.7 SARB G. Are commonly referred to as sin tax. 1.2.8 Local government H. Levied on sale of fixed assets such as property. 1.2.9 Direct taxes I. Percentage paid in tax increases as income increases. 1.2.10 Inefficiency J. Shows the relationship between possible tax rates and government revenue. 1.2.11 Provincial government K. Organisations that were created by the state to undertake certain activities on its behalf. 1.2.12 Community goods L Details the government revenue and its spending. 1.2.13 MTBPS M. State resources are not used to the best possible manner. 1.2.14 Public sector failure N. Deals with local issues within a town or municipal area. 1.2.15 Pareto efficiency O. Decide on the country’s monetary policy. 1.2.16 Laffer curve P. Compulsory payments that are not shifted to the end user. 1.2.17 Fiscal policy Q. Those who are able to influence government processes to work in a way that benefits them. 1.2.18 Bureaucrat R. State’s statement setting out its three year budget. 1.2.19 State debt S. An official in a government Department. 1.2.20 Rent seeking T. Deals with economic and other issues specific to region / province. 1.3 Give economic term / concept for each of the following descriptions. Write only the term next to the question number (1.3.1 1.3.12) in the answer book 1.3.1 A document that details expected revenue and projected expenditure [Page 23 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

1.3.2 Goods provided for society as a whole which may give rise to the problem of free riders. 1.3.3 Goods that are harmful to the society 1.3.4 Government officials showing little or no interest in delivering services efficiently to the public. 1.3.5 Removal of unnecessary restrictions by law. 1.3.6 Taxes levied on the sale of goods and services. 1.3.7 An increase in the real gross domestic product 1.3.8 A business owned wholly or partly by the state 1.3.9 The acquisition of privately owned enterprises by government with or without compensation 1.1.10 Goods characterized by non-rivalry in consumption and non-excludability ACTIVITY 2 2.1 Study the cartoon below and answer questions that follow. THE PUBLIC SECTOR FACED WITH CHALLENGES! 2.1.1 Identify ONE government objective shown on the above cartoon. (1) 2.1.2 Which fiscal tool is used according to the cartoon? (1) 2.1.3 Define the concept economic equity. (2) 2.1.4 What could be the possible cause of wasteful expenditure by the public sector? (2) 2.1.5 How can the government improve the efficiency of the public sector? (4) [Page 24 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 3 3.1 Study the cartoon below and answer questions that follow. ANOTHER BAIL-OUT FOR SOUTH AFRICAN AIRWAYS 3.1.1Identify the parastatal that is shown on the cartoon above. (1) 3.1.2 Name another parastatal that the South African government has placed under business rescue. (1) 3.1.3 Describe the term parastatals. (2) 3.1.4 Briefly explain how financial bail-outs can affect the functioning of the public sector. (2) 3.1.5 How can the government ensure the effectiveness of public co-operations? (4) ACTIVITY 4 4.1 Study the table below and answer questions that follow. DIVISION OF REVENUE R billion 2019/ 20 National allocations 739.5 Provincial allocations 1 225.7 Local government allocations 125.0 Total allocations (A) Source: National treasury 4.1.1 Name the highest level of the public sector. (1) 4.1.2 According to the table above, which level of government has the lowest allocation? (1) 4.1.3 Describe the concept government expenditure. (2) 4.1.4 Why is the national budget the most important item of the economic calendar? (2) 4.1.5 Calculate the total allocation (A). Show all your calculations. (4) [Page 25 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Problems in public sector provisioning of public sector goods and services and public sector failure Activity 1 1.1 Study the graph below and answer the questions that follow: 1.1.1 Identify the point at which government will maximize tax revenue. (1) 1.1.2 What illegal behavior by the workers will be encouraged if the tax rate is high? (1) 1.1.3 Briefly describe the Laffer curve. (2) 1.1.4 Explain the impact of an increase in direct tax rate on business. (2) 1.1.5 How can borrowing (state debt) be used as an instrument of fiscal policy? (4) 1.2 How does the government plan to divide Eskom into 3 units? (8) Activity 2 2.1. Study the illustration below and answer the questions that follow: 2.1.1 Name the ministry responsible for all SOE’s in South Africa. (1) 2.1.2 Why are the SAA planes facing downwards in the cartoon? (1) 2.1.3 Briefly explain the concept state capture. (2) 2.1.4 Explain the impact of SOE’s failure on the state budget. (2) 2.1.5 How can the minister of public enterprise solve the challenges facing all SOE’s? (4) 2.2 How can taxation be used to stimulate employment in South Africa? (8) [Page 26 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Activity 3 3.1 Study the illustration below and answer the questions that follow: 3.1.1 Name the problem of public sector inefficiency depicted in the above picture. (1) 3.1.2 Name one chapter 9 institution responsible for stopping the above problem. (1) 3.1.3 Briefly describe the term rent seeking behaviour. (2) 3.1.4 How can South Africa be freed from inequality? (2) 3.1.5 How can the parliament ensure greater state accountability? (4) 3.2 Evaluate the success of economic growth and price stability as a part of government's macroeconomic objectives. (8) Activity 4 4.1 Study the extract below and answer the questions that follow: THE MINISTER OUTLINES HIS MTEF During the 2019 Medium Term Budget Policy Statement (MTBPS), I outlined our main budget fiscal outlook. At that time, I projected that in 2019/20 tax revenue would be R1.3 trillion and that spending would be about R1.5 trillion. That left us with a budget deficit of R215 billion, or 4.3 per cent of GDP. I said that we were at a crossroads, and that we could go either to heaven, or the other way. Then, we expected economic growth of 0.7 per cent in 2018. This is still our estimate. But, many of the risks that we warned about have materialized. We now expect a slower but still steady recovery after the 2018 technical recession. It is expected that real GDP growth in 2019 will rise to 1.5 per cent, and then strengthen moderately to 2.1 per cent in 2021 (Source: Business DAY, 22 November 2019) 4.1.1 During which month of the year does the minister outlines the MTBPS in parliament (1) 4.1.2 Name the main source for government revenue (1) [Page 27 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

4.1.3 Briefly describe the term medium term expenditure framework (2) 4.1.4 Why is it important for the treasury to keep the deficit under 3% of the GDP (2) 4.1.5 How would the MTEF assist all stakeholders in long term planning? (4) INTERNATIONAL TRADE Concepts Absolute advantage, balance of payments, BoP disequilibrium, capital transfer account, comparative advantage, current account, current transfers, demonetization, debt forgiveness, direct investment, exports, financial account, free trade, imports, globalization, international trade, international monetary fund, international trade, monetization, net balance, net trade, opportunity cost, portfolio investment, reserves account, special drawing rights, specialization, terms of trade, trade balance, trade deficit, transfer payment, trade surplus, unrecorded transaction, financial derivative DEMAND REASONS FOR INTERNATIONAL TRADE Size of population - An increase in population creates a need for more goods and services. - Local suppliers may not able to satisfy the needs and wants for the growing population. - As a result, members of the population can import some of the goods and services from other countries. Income levels - An increase in people`s income will increase the demand for goods and services. - This will also result in the demand for goods and services that are produced in other countries. Change in the wealth of the population - An increase in wealth of the population leads to greater demand for goods. - People who have access to loans can spend more on luxury goods, many of which are produced in other countries. Preferences and taste - Tastes and preferences differ from person to person. - People need a variety of goods and services. - If goods and services are not available in the country it will lead to international trade. The difference in consumption patterns - Consumption patterns differ from country to country. - People in well developed countries have a higher demand for luxury goods which they can easily buy in other countries. - Poor people in developing countries have a high demand of basic goods and services. SUPPLY REASONS FOR INTERNATIONAL TRADE Natural resources - Natural resources are not evenly distributed across the earth. - If a country without a particular natural resource needs that resource it has to import the resource from the country that has it. Climatic conditions - Countries have different climates and certain crops can only grow in certain climatic conditions. [Page 28 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

- Some countries cannot grow agricultural products they need, as a result, those countries have to import these products from countries that can grow them abundantly. Labour and technological resources - Countries that have skilled labour and technology can produce high-technology goods. - These countries can export the goods they produce to other countries. Specialisation - Countries specialise in the goods that they can produce most efficiently and they then export some of such products. BALANCE OF PAYMENTS The balance of payments is a systematic record of all transactions between one country and the rest of the world. • Trade in goods • Trade in services • Income flows 1. CURRENT ACCOUNT - It record transaction related to production, income and expenditure - Merchandise exports and imports: record transaction on all visible goods (raw materials and intermediate goods, final goods) that South Africa export and import. - Net gold export: shows the record of the income earned from the exportation of gold. While gold is a physical good it is recorded separately because of the amount of money that it earns as an individual product and South Africa relies heavily on it as an earner of income. - Services: record money earned or spends on services such as insurance, transportation, recreational, professional. - Income: Income earned by South African citizens from non- citizens and vice versa (non - South African citizens earning income from South African). It consists of two components which are compensation of employees e.g. salaries and wages and investment income e.g. dividends and profits. - Current transfer: Items transferred from residents to non-residents and vice-versa without any counter performance required e.g. gifts. 2. CAPITAL TRANSFER ACCOUNT - It contains small amounts that move between countries as a result of the transfer of fixed assets and also grants of money from a foreign charity and money that migrants move. - For example, when a foreign foundation gives a grant for HIV research, it is a transfer receipt (inflow). When a South African emigrates to Australia, the money she takes out of the country is a transfer payment (outflow) 3. FINANCIAL ACCCOUNT Financial accounts consist of the following sub-accounts: [Page 29 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

- Direct investments - An investment in fixed property or the acquisition of a significant (10 % or more) share in a business. - Portfolio investment. - The purchase of financial assets e.g. shares on a shares market of another country. Another name = “hot money” because it can be quickly converted into cash - Financial derivatives - An investment made in a specific asset with a fixed future value that is paid out on a specific date. - Other investment - Transactions that do not fall under direct, portfolio and financial derivatives, are classified as other investments e.g. short term loans - Reserve assets - Financial capital held by the monetary authorities such as the central bank to finance the trading disequilibrium Balance of payment format 1. CURRENT ACCOUNT Goods exports + Net gold exports + Services receipts + Income receipts less Merchandise imports less Payment for services less Income payments Current transfers (net receipts) Balance on Current Account Memo item: trade balance 2. CAPITAL TRANSFER ACCOUNT NET LENDING TO (+) OR BORROWING FROM (-) REST OF THE WORLD 3. FINANCIAL ACCOUNT Net direct investment Net portfolio investment Net financial derivatives Net other investments Reserve assets Balance on Financial Account Memo item: balance on Financial Account excluding reserve assets Unrecorded transactions Correcting disequilibria in the balance of payments The solution to correct balance of payments disequilibrium lies in earning more foreign exchange through more exports and reducing imports. • Export promotion = government can help to promote exports [Page 30 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

• Import substitution = government can help to reduce imports, making a country more self-reliant. How can the BOP disequilibria be corrected? o Automatic corrections by the forces of demand and supply freely working towards equilibrium. o Deliberate measures by the government intervening and manipulating imports and exports. Which methods can the government implement to correct the disequilibrium on the BOP account? o Obtain assistance from the IMF, the World Bank and the World Trade Organization. o Promote tourism as this lead to an inflow of foreign currency. o Control foreign exchange by forcing exporters to change foreign currency to local currency. o Incentives (concessions) can be granted to local manufacturers and exporters. o Control of imports by imposing duties or by implementing a quota system. o Disposable income can be lowered by higher taxation. o Devaluating the local currency (Rand) to make exports cheaper and increase the price of imports. Activity 1 SECTION A 1.1 Various options are provided as possible answers to the following questions. Choose the answer and write only the letter (A–C) next to the question number. 1.1.1 The systematic record of all the transactions of a country's inhabitants with the rest of the world is known as the … A. trade balance. B. balance of payments. C. Financial account. D. Capital transfer. 1.1.2 The value of visible exports minus visible imports is………………. A. exchange rate B. net balance C. term of trade D. trade balance E. 1.1.3 Portfolio investments refers to investments in A. Property B. banks C. shares D. real estate [Page 31 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

1.1.4 Withdrawal of capital investment from a company or a country ……. A. disinvestment B. sanction C. investment D. embargo 1.1.5 The financial account in the balance of payment records the transactions related to... A. production B. assets and liabilities C. net gold exports D. debt forgiveness 1.1.6 The practice of selling goods in a foreign country at lower prices than in the country of origin is known as A. exportation B. dumping C. importation D. free trade 1.1.7 Payment for services forms part of the ...in the balance of payment. A. financial account B. current account C. capital transfers account D. trade balance 1.1.8 The ratio of export prices and import prices is known as the.... A. terms of trade B. exchange rate C. balance of trade D. net balance (2 x 8) [16] [Page 32 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

1.2 Choose the description from COLUMN B that matches an item in COLUMN A. Write only the letter (A-J) next to the question number (1.2.1-1.2.8) in the answer book COLUMN A COLUMN B 1.2.1 Capital transfer account A. the value of exports minus imports 1.2.2 Transfer payment B. subaccount in the balance of payment 1.2.3 Special Drawings Rights C. where one country can produce goods or services 1.2.4 Absolute advantage cheaper than others 1.2.5 Trade balance D. money received without any productive services rendered 1.2.6 Free trade E. A financial instrument distributed among the member 1.2.7 International trade countries of the IMF. 1.2.8 Comparative advantage F. The outflow is greater than the inflow of funds. 1.2.9 Direct investment G. when consumers and producers are free to buy goods 1.2.10 Globalisation and services anywhere in the world without any 1.2.11 Deficit restrictions H. The exchange of goods and service across the international borders. I. A situation where one country has a relative advantage in the production of goods and services. J. the economic integration and cooperation of countries of the world with international trade as a key element K. Includes transactions relating to investment in business. L. The transfer of ownership of fixed property between the residents of countries 1.3 Give ONE term for each of the following descriptions. Write only the term next to the question number (1.3.1-1.3.6) in the ANSWER BOOK. 1.3.1 The sum of net direct investment, net portfolio investment and other investments. 1.3.2 The worldwide interaction of economies, with trade as a key element. 1.3.3 An international organisation that lends money to countries with ongoing balance of payment problems. 1.3.4 A situation where one country has a relative advantage in the production of goods and services. 1.3.5 The unfavorable balance on the balance of payments. 1.3.6 The sector that needs to be included for the economy to be regarded as an open economy. [Page 33 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 2 2.1 Read the extract below and the questions that follow BALANCE OF PAYMENT: CURRENT ACCOUNT RELEASE SEPTEMBER 2019 In the second quarter of 2019, the deficit on the current account of the balance of payments increased from R143.5 billion to R204.1 billion in the first quarter. South Africa’s trade balance switched from a surplus of R41.9 billion in the first quarter of 2019 to a deficit of R27.2 billion in the second quarter. The deterioration in the trade balance came about as the value of merchandise imports increased more than that of exports. South Africa’s terms of trade (including gold) deteriorated in the second quarter of 2019 as the rand price of imports increased more than that of exports. Source: SARB Quarterly bulletin 2019 2.1.1 Identify the concept, which shows that the current account balance was negative. (1) 2.1.2 Which institution grants special drawing rights? (1) 2.1.3 Briefly describe the trade balance. (2) 2.1.4 Explain the importance of foreign direct investment in the economy. (2) 2.1.5 How can the South African economy gain/benefit from international specialisation? (4) 2.2. Explain by means of a graph the effect of the value of the rand if there is an increase in the number of South African tourists visiting the USA. (8) ACTIVITY 3 3. Study the table below and answer the questions that follow: SOUTH AFRICA’S FINANCIAL ACCOUNT – 2018 to 2019 2018 Q4 2019 Q1 R Billion R Billion Net direct investments -31.5 -3.41 Net portfolio investments -63.2 11.3 Net financial derivatives 3.9 -2.1 Net other investments 113.6 -15.8 Reserve assets -6.2 34 Balance on Financial Account 22.8 A Source: SA Quarterly Bulletin 2019 3.1 .1 Name any ONE other account that forms part of the Balance Of payments. (1) 3.1.2 Identify an item that captures the effect of a foreigner purchasing Shares on the Johannesburg Securities Exchange. (1) 3.1.3 Describe term balance of payments. (2) 3.1.4 Why is gold export listed as a separate item in the Balance of payments. (2) [Page 34 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

3.1.5. Calculate the balance on the financial account for 2019 1 st quarter. (4) 3.2 Differentiate between managed floating and free-floating exchange rate systems. (8) 3.2 How can the South African Reserve Bank intervene in the foreign exchange market to stabilise the exchange rate? (8) ACTIVITY 4 4.1 Study the extract below and answer questions that follow. EXPORTS CONTRACTING THE BALANCE OF PAYMENT The current account deficit averaged 3.6 % of GDP in the first three quarters of 2019, as rising export prices offset the impact of declining export volumes. Net trade subtracted 0.3% points from growth over the period, as exports contracted due to unreliable electricity supply and weak business conditions, while import growth slowed alongside domestic activity. Portfolio investments are expected to fund the majority of the current account deficit over the medium term, although the President’s investment drive is expected to help raise direct investment. Adapted from The National Budget Review, 2020 . 4.1.1 Identify the account that shows records of investments by foreigners in South Africa. (1) 4.1.2 According to the extract, what is the cause for a deficit on the current account? (1) 4.1.3 Describe the term balance of payment. (2) 4.1.4 Briefly explain portfolio investments as a measure to correct a negative trade balance. (2) 4.1.5 How does a negative balance of payments affect the economy? (2 x 2) (4) FOREIGN EXCHANGE MARKETS Exchange rates, domestic price, interbank foreign exchange market, Johannesburg Securities exchange, direct intervention, indirect intervention, appreciation, depreciation, devaluation, revaluation, overvalued, undervalued, free floating exchange rates, fixed exchange rates, managed or controlled floating, terms of trade, exports, imports, deterioration in terms of trade, improvement in terms of trade, free trade, protection, exchange control [Page 35 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

EXCHANGE RATES KEY CONCEPTS Foreign exchange market a market where the currencies of different countries are exchanged, usually through the interaction of the demand for and the supply of currencies; also known as forex markets. Forex – every country has its own currency (shorthand for foreign exchange). When international trade occurs, imports have to be paid for in foreign currency. Exchange rates – it is the price of one national currency in terms of another currency. It is the ratio at which one currency can be exchanged for another currency on the exchange market. Fixed exchange rate – when a country fixes its currency to a quantity of gold or the US dollar, and announces a statutory exchange rate. Revaluation – measure enforce by a government to increase the exchange value of the currency. Devaluation – measure taken by a government to decrease the value of the currency. Floating exchange rate – exchange rate determined by market forces of demand and supply. Appreciation – an increase in the value of a currency in terms of other currencies as a result of market forces. Depreciation – a decrease in the value of a currency in terms of other currencies because of market forces. Foreign exchange control – these are various forms of control imposed by a government on the purchase or sale of foreign currencies by private residents. Foreign exchange market Introduction It is expressed (quoted) as the domestic price of one unit of a foreign currency, e.g. $1 = R9.80 or R9.8000 (rates are quoted in four decimals in foreign exchange markets). The price of a Dollar, Euro and any other currency is expressed in terms of the Rand (domestic currency). However, it can also be quoted the other way round, e.g. the foreign price of one unit of the domestic currency: R1 = (1 ٪ 9.8). The price of the Rand is expressed in terms of the dollar and other currency. The first quotation is direct and the second one is indirect. The leading exchange markets in the buying or selling of foreign exchange is situated in London, New York and Tokyo. These markets serve the world but they are interlinked with regional and country markets. Differences in currencies Every country has its own currency, e.g. the US Dollar, the British Pound, the Japanese Yen, the French Franc, the Chinese Yuan and the Botswana Pula. A currency is a legal tender only in the country of origin. Trading blocks sometimes use a single currency, e.g. member countries of the European Union use the Euro. [Page 36 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

The US dollar serves as a base currency worldwide. The demand for and supply of foreign exchange on forex markets Imports create a demand for forex. An importing country such as South Africa will have to pay for imports with dollars, Euros or other currencies. Where the demand for and supply of foreign exchange are equal, the foreign exchange market is in equilibrium Demand of foreign exchange DD represent original demand for dollars SS represent original supply of dollars Point E where DD is equal to SS is the original exchange rate $ = R6 Original equilibrium quantity of US dollars is 15 dollars SHIFT IN THE DEMAND CURVE • The new demand curve of the dollar is D1D1 • Point E1 is the new equilibrium where the exchange rate is $1 = R8 • The new equilibrium quantity of US dollars is 25 dollars The demand for foreign exchange is determined by: • Importing goods and services from foreign countries [Page 37 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

• Services from foreign countries to the country concerned • Payments of interest and dividends on loans and foreign investments • Payments of instalments on repayment of overseas loans • Tourists or representatives pending money in foreign countries • Outflow of capital to foreign countries SUPPLY OF FOREIGN EXCHANGE • DD is the original demand of the US dollars. • SS is the original supply of the US dollar. • Point E where DD = SS is the original equilibrium exchange rate $1 = P • Original equilibrium quantity of the US dollars is Q dollars Increase in supply The new supply curve is S1S1 • Point E1 is the new equilibrium where the exchange rate is $1 = R4 • The new equilibrium quantity is 25 dollars The supply of foreign currency is determined by: • Exporting goods and services to foreign countries [Page 38 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

• Receiving interest and dividend on loans and foreign investments • Inflow of foreign capital • Expenditure of money by tourists • Other receipts received from foreign countries • Rendering services to foreign countries • Repayment (by foreign countries) on loans made in South Africa • Investments made by foreign countries in South Africa Exchange rate systems Free floating  Exchange rates that are determined by the market forces (demand and supply).  Exchange rate disequilibrium is controlled by the market through itself correcting mechanism.  There is no government intervention through the SARB. SA uses a free floating exchange rate system. Managed/ controlled floating  It is when the market forces (demand and supply) are allowed to influence exchange rates but up to certain levels.  There is an intervention of the government from time to time to stabilize exchange rates.  The central bank through buying and selling of foreign currency Fixed exchange rates o Determined and prescribed by the government. o Government intervention leads to stable exchange rates that benefit investment and trade between countries. o Exchange rates are fixed for a short period. There is revaluation and devaluation. Terms of trade Ratio between export and import prices, expressed in the form of an index. Increase in terms of trade – when export prices are higher than import prices. Decrease in terms of trade – when import prices are higher than export prices (disequilibrium) [Page 39 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Activity 4 4.1 Study the graph below and answer the questions that follows 4.1.1 Name the country that uses ZAR as its currency. (1) 4.1.2 What type of exchange rate system is determined purely by the market forces? (1) 4.1.3 Briefly describe the term exchange rate. (2) 4.1.4 What is the significant of the balance on current account? (2) 4.1.5 What impact will the increase in the value of the rand against the dollar have on trade? 4.2 Differentiate between Appreciation and Revaluation (8) [Page 40 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 5 5.1 Study the graph below and answer questions that follow. 5.1.1 What is the cause for an increase in the price of Dollars, according to the graph? (1) 5.1.2 By how much is the increase in the exchange rate of Dollars against the Rands? (1) 5.1.3 Describe the term depreciation. (2) 5.1.4 What can be the cause for an increase in the demand for foreign currency? (2) 5.1.5 How does an increase in the value of Dollars affect South Africans? (2 x 2) (4) 5.2 Discuss the climate conditions and labour resources as the supply reasons for international trade. (2X4) (8) [Page 41 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 6 6.1Study the table below and answer the questions that follow: Dollar to Rand forecast by day-January 2020 DATE RATE 27/01/2020 14.4357 28/01/2020 14.2629 29/01/2020 14.2506 30/01/2020 14.3023 31/01/2020 14.3522 6.1.1. When was USA imports at its highest? (1) 6.1.2. What could cause the rand to depreciate on day 4? (1) 6.1.3. Describe the term depreciation. (2) 6.1.4. How can interest rates be used to influence exchange rates? (2) 6.1.5. Calculate how much will a South African tourist pay for the flight ticket valued at R 18 450.00 given $1= R15.67. Show all calculations. ACTIVITY 7 7.1 Study the extract below and answer the questions that follow. Why Countries Devalue Their Currency With a potential outbreak of a trade war between China and US, talks of Chinese using currency devaluation as a strategy have been rumbling. However, the volatility in risks involved may not make it worth it this time, as China has made recent efforts to stabilize and globalize the Yuan. In the past, the Chinese denied it, but the second largest economy in the world time and time again been accused of devaluing its currency in order to advantage its own economy. (Adapted from Market News, 6 July 2019) 7.1.1. Identify one country involved in the trade war. (1) 7.1.2. Which country uses Yuan as a currency? (1) 7.1.3. Briefly describe the concept foreign exchange market. (2) 7.1.4. Briefly explain the impact of the trade war globally. (2) 7.1.5. How can South Africa ensure a net inflow of capital? (2) [Page 42 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

PROTECTION AND FRE TRADE CONCEPTS BRICS An association of emerging economies consisting of Brazil, Russia, India, China disinvestment Withdrawal of capital investment from a company or country embargo An official state ban on trade or other activities with a particular country export promotion An Incentives to encourage the production of goods that can be exported. It is part of Free trade When producers and consumers are free to buy goods and services from anywhere import substitution Goods that were previously imported are replaced with locally produced goods. It is part of South Africa’s international trade policy Mercosur An organisation to promote free trade amongst Argentina, Brazil, Paraguay and Uruguay SECTION A 1.1 Various options are provided as possible answers to the following questions. Choose the answer and write only the letter (A–C) next to the question number. 1.1.1 The institution that provides incentives to South African businesses to increase exports is the ... A. SARS B. Department of Trade and Industry C. World Trade Organisation D. SARB 1.1.2 A statement which records the transactions between South Africa and the rest of the world is ... A balance of payment. B. Financial reserve account C. Trading account D. Portfolio investment 1.1.3 A measure which is used to promote exports is ... A. tariffs. B. quotas. C. bribes. D. subsidies 1.1.4 The government institution that promotes financial support to facilitate export promotion is ... A. Department of Trade and Industry. B. Department of Transport. C. SARB. D. Khula Finance Schemes. [Page 43 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

1.1.5 One measure of the government’s measures to correct BOP deficit is ... A. Import tariffs B. term of trade C. export promotion D. balance sheet 1.1.6 Producing goods locally that were previously imported is referred to as ... A. subsidies B. import substitution C. export promotion D. imports 1.1.7 When a country is forced to produce certain goods because of exclusion by other countries. A. voluntary imports substitution. B. forced trading. C. compulsory import substitution. D. exchange control 1.1.8 The replacement of previously imported goods with locally produced goods is... A. export promotion. B. import substitution. C. international trade. D. forced trading 1.1.9 A country that wants to decrease its imports drastically applies... A. incentives. B. foreign exchange control. C. quotas. D. subsidies 1.1.10 A tariff is levied as a fixed as a fixed amount per unit, this is called ...tariff. A. specific B. ad valorem C. composite D. unit 1.1.11 A certain amount of money payable before the importer can import goods is... A. import credit. B. import deposit C. import tariff. D. import control. 1.1.12 A trade policy whereby the government discourages importing of goods in order to protect local industries. A. protectionism B. free trade C. open economy D. centralisation [Page 44 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

1.2 Choose the description from COLUMN B that matches an item in COLUMN A. Write only the letter (A-K) next to the question number. COLUMN A COLUMN B 1.2.1 Incentives A Custom duties or excise taxes 1.2.2 Tax rebates B Third party guarantees that a loan agreement will be repaid by signing the contract. 1.2.3 Surety C Offered to producers to encourage them to export their products. 1.2.4 Subsidies D One of the advantages of exports promotion. 1.2.5 Tariffs E Reduces taxes on profits. 1.2.6 Economic growth F Government’s cash allowance to businesses aimed at reducing costs 1.2.7 Administrative obstacles G Government policy 1.2.8 Embargo H Physical control standards. 1.2.9 Import quotas I Levied as a percentage of the price. 1.2.10 Composite tariff J Forced import substitution. 1.2.11 Specific tariff K Levied as price as well as a fixed amount per unit. 1.2.12 Ad valorem L A limit on quantity to be imported. M Time consuming customs procedures N Levied as a fixed amount per weight or size. (1x12) (12) 1.3 Give economic term / concept for each of the following descriptions. Write only the term next to the question number (1.3.1 1.3.10) in the answer book 1.3.1 Government policy to replace imports with locally produced goods and services. 1.3.2 Withdrawal of investments by foreign countries. 1.3.3 A country decided on its own free will to replace imports. 1.3.4 A ban on imports of goods and services. 1.3.5 Producing a wide variety of products instead of focusing on one product. 1.3.6 Trade agreements that lay the rules governing the level of trade. 1.3.7 Co-operation between countries that leads to economic gains for all. 1.3.8 The organisation that replaced GATT and promote the reduction of trade barriers. 1.3.9 The removal of trade practise that prevent the free flow of goods and services between countries. 1.3.10 Production costs decrease as a number of products produced increase. ACTIVITY 2 2.1 Study the extract below and answer questions that follow. CORONAVIRUS WILL LIKELY KNOCK SA MINING, TOURISM AND TELECOMS China is South Africa’s largest supplier of imports, and its biggest buyer of exports and the impact of the coronavirus outbreak on the Chinese economy will certainly be felt in the South African economy. Mobile phones are South Africa’s largest import category by value from China, supplying 85% of South Africa’s mobile phone imports. A disruption would have knock-on effects on the wider telecommunication sector. Adapted from fin24, February 2020 [Page 45 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

2.1.1 Identify the country in the extract that belongs to the BRICS. (1) 2.1.2 Name the type of infrastructure that is provided by China to South Africa. (1) 2.1.3 Briefly describe the term globalisation. (2) 2.1.4 What is the negative impact of a decrease in imports for the country? (2) 2.1.5 How can South Africa reduce the negative effects of international trade? (2x2)(4) [10 Activity 3 3.1 Study the graph below and answer the questions that follow: EXPORT PROMOTION 7 6 5 4 3 2 1 0 2016 2017 2018 2019 AU BRICS EU 3.1.1 Identify the year in which South Africa exported more goods to BRICS nations (1) 3.1.2 Name one country besides South Africa that is a member of BRICS (1) 3.1.3 Briefly describe the term export promotion (2) 3.1.4 What impact does globalisation have on exports in South Africa? (2) 3.1.5 How can the South African government promote exports? (4) [Page 46 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

MICROECONOMICS Perfect Market: Key Concepts [Page 47 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

[Page 48 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Perfect Market Perfect competition is the structure in which there are many firms producing homogenous products. None of the firms could be large enough to influence the market. Prices are determined by the market (demand and supply). In the graphs below, the point where demand and supply meet is called equilibrium point. Firms take the price that is determined by the market, they do not have influence of price. The demand curve of the firm is horizontal because they cannot change the price. The horizontal demand curve represents the D=P=AR=MR. This demand curve is perfectly elastic, meaning that a slight increase in the price the quantity demanded will drop to zero. DETERMINATION OF OUTPUT IN THE PERFECT MARKET IN THE SHORT TERM The equilibrium price in Fig 1 is P1 where demand and supply intersect. The individual producer in Fig 2 can sell any quantity at this price. He takes the price that has been determined in the market. He has no reason to reduce the price to P0 because buyers are prepared to pay P1. If he reduces the price, he will soon run out of stock. He will be forced to increase the price back to P1. If he sells at P2 he will have no buyers. Consumers will buy from other sellers because there are many other sellers in the market. He will be forced to reduce the price back to P1. [Page 49 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

What is marginal revenue? Marginal revenue (MR) is the additional revenue the producer gets by producing one more unit. The individual producer must produce at a point where marginal revenue is equal to marginal cost (MR=MC). The profit maximizing point in Fig 3 is A. In a perfect market the price (P) is the same as MR and the demand (D). In Fig 3 both MR and D coincide in one curve. In Fig 3 if the firm is producing a quantity between 0 and Q1 it is worthwhile to continue producing because at this stage more profits can be obtained by producing more. At this stage MR lies above MC. The profit-maximising rule says as long as MR is more than MC the firm must continue to produce until MR = MC. The maximum profit is obtained at point A where MR = MC. At any point to the left of A, the firm must increase its output in order to increase profit. At any point beyond A, MC lies above MR – the cost of producing one more unit is more than the revenue obtained. A wise entrepreneur will not produce beyond A because that will reduce his profit. Point A is called the profit maximising point* because that is where the profit is at its maximum. How much must be produced and sold at this price? Firms use marginal revenue-marginal cost rule [Page 50 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Marginal Revenue and Marginal Cost of a firm operating in a perfectly competitive market IN THE LONG-TERM Production level in the long-run is determined using the long-run average cost (LAC) curve. LAC is a summation of short-term costs, SACs. LAC is U-shaped. This shows that long-run costs decrease in the beginning as the size of the firm increases. This happens because when the firm begins to buy in bulk, it gets discounts and the average input costs decrease. In the long-run all factors of production are variable. The firm can increase its size or it can acquire more factors of production. As the business becomes bigger, its costs of production per unit become lesser. We say in the long-term the firm enjoys the economies of scale*. This is depicted by the falling part of the LAC curve in Fig 4 – the area between A and B. [Page 51 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

The curves SAC1 to SAC4 are the short-term average cost curves of the same firm. The curves SMC1 to SMC3 represent the short-term marginal cost curves of the same firm. At a price of P 1 the firm is producing Q1 and making economic profit (shaded area). As time goes on the firm is able to increase its size. As the size increases, the average costs are decreasing – shown by the lower SAC2. During this stage the firm is able to buy more inputs at a lower cost because of bulk-buying. As long as LAC is decreasing, the firm must continue to increase its size because it will make more profiting by doing so. The optimum point of production level in the long term is “e” where output is Q3. Here LAC is at its minimum point. LMC cuts LAC at its minimum point. As long as the firm is producing any quantity to the left of Q3 it can increase its profit by producing more. The firm must take advantage of the economies of scale applicable to this stage. However, the firm must not exceed point “e”. At any production level beyond “e” the firm will suffer the diseconomies of scale* because it will become too big and complex [Page 52 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

The individual firm and the industry when the firm initially earns an economic profit •If firms are making an economic profit – new firms enter the market In the long run, economic profit cannot be sustained. The arrival of new firms in the market causes the demand curve of each firm to shift downward, bringing down the price, the average revenue and marginal revenue curve in the long run the firm will make zero economic profit. Its horizontal demand curve will touch its average total cost curve at its lowest point. The individual firm and the industry when the firm initially makes an economic loss •If firms are making an economic loss – existing firms exit the market [Page 53 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Determination of the output of the industry Fig 5 shows the long term production level for the industry. Equilibrium in the industry is achieved where the quantity demanded is equal to the quantity supplied. The existence of economic profit in the industry attracts other firms. At P1 the industry is prepare to sell Q6. As more firms enter the market, the supply increases to S2 and the price drops to P3. The economic profit that was made in Fig 4 has decreased. Both the individual firm and the industry are making normal profit at P3. The individual firm produces Q3 while the industry produces Q6. Q6 is a sum total of all the quantities supplied by the individual firms that make up the industry. In the long run all businesses will produce output where they are making normal profit. Those businesses that make losses will exit the market. [Page 54 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

DETERMINATION OF PROFITS IN THE PERFECT COMPETITION Profit is a positive difference between TR and TC. There are two kinds of profits that the business can make economic profit and the normal profit. 1. ECONOMIC PROFIT It is possible for an individual in the perfect market to make an economic profit in the short-term. There are two ways of determining economic profit – the total revenue/total cost approach and the marginal revenue: marginal cost approach. a) Total Revenue/Total Cost Approach The total revenue curve (TR) is drawn from the origin. Total cost (TC) starts above the origin because before production takes place there are fixed costs that are incurred. Between the output 0 and Q1, the firm is making a loss. TC runs above TR meaning the costs are more than revenue. However, the firm must continue producing because it can still make profit by producing more. If it continues to produce it will reach a breakeven point where TR is equal to TC (breakeven point B1). At this point the firm is making a zero profit (zero loss). The firm is now able to cover its costs. It must continue to produce in order to realise a profit. Between Q 1 and Q3 it is making economic profit. It will earn the maximum profit where the difference between TR and TC is the greatest. This will be at Q2. The maximum profit is found where the line XY (which is parallel to the TR curve) is tangent to TC. Again as the firm continues to grow, TC starts to increase until it reaches breakeven point B 2. The firm should not grow more than point B2 because it will make a loss. b) The MR/MC approach According to the MR/MC rule maximum profit is made at point where MR=MC. In Fig 7 below, that point is point A. At this point the total cost is 0CBQ1. Total revenue is 0PAQ1. The difference between TR and TC is [Page 55 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

CPAB. This is the economic profit that this firm is making. If the firm is producing a quantity which is less than Q1, it must continue to produce because it will still make more profit by doing so. For quantities to the left of Q1 MR runs above MC. The firm must continue to produce until it reaches Q1. The profit maximisation point is a point where MR = MC (point A in Fig 7). 2. NORMAL PROFIT. Because in the perfect competition there is free entry, more sellers will be attracted by the economic profit. As more firms enter the market economic profit is depleted. In the long-run only normal profit is made. Point E in Fig 8 shows normal profit in the long-run. 3. ECONOMIC LOSS If the firm is making a loss, it will try to minimise its loss. The point where the loss is at it’s a lowest is where MR=MC. Fig 9 shows economic loss in the short-run. [Page 56 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Economic loss is minimised at Point B where MR=MC. A At a price of P the AC lies above the AR curve. The cost of producing one unit is more than the revenue received from that unit. In other words MC is more than MR. Total cost is 0CAQ. Total revenue is 0PBQ. Total cost is more than total revenue. The area CABP marks the economic loss. The supply curve and the shutdown point If the firm is making a loss when should it shut down? It should shut down at a point where average variable costs (AVC) are more than marginal revenue (MR). Remember, MR is the same as the price. It does not make sense to produce at a cost that is more than revenue. At that point the firm must shut down. That point is represented by A in Fig 10. If the price falls below P, the firm must shut down. Point A is called a shut-down point*. However, if the price is anywhere between P and P1, the firm can continue to produce because the price is above AVC. For the prices above P the firm is prepared to offer Q, Q 1 and Q2 for sale. In other words, points A, B and C form the supply curve of this firm. The supply curve is the rising part of the MC curve above the AVC. [Page 57 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

The supply curve of the firm and the market supply curve •Firm’s supply curve – the rising part of the firm’s MC curve above the minimum of AVC •Market supply curve – add the supply curves of the individual firms horizontally Activity 1 1.1 Various options are provided as possible answers to the following questions. Write down the question number (1.1.1 -1.1.8) and write only letter (A-D) next to the question number. 1.1.1 A close example of a perfect market in South Africa is a ... industry. A retail B farming C banking D transport 1.1.2 The slope of a demand curve of an individual firm under perfect competition ... A is vertical B. is horizontal. C. slopes downwards from left to right. D. is kinked. 1.1.3 An average revenue of a firm in a perfectly competitive market is equal to its... A. total cost. B. selling price. C. marginal cost. D. economic profit. [Page 58 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

1.1.3 A monopolist will maximise its revenue where its marginal revenue equals ... A marginal cost. B one. C zero. D the market price. 1.1.4 Products of a monopoly markets are ... A differentiated. B homogeneous. C unique. D heterogeneous. 1.1.5 The gap between AC curve and AVC curve ... as production increases. A decrease B increases C stays the same D enlarges 1.1.6 Entry into the monopoly is ... A free and easy B open C free but not easy D blocked 1.1.7 A negative externality can be caused by...goods A merit B luxury C demerit D community 1.1.8 The production of goods which does not reflect the wishes of the consumers is called ... A productive efficiency. B allocative inefficiency. C technical inefficiency. D allocative efficiency. 1.1.9 A firm will spend less on pollution reduction equipment because of its marginal ...cost A public B social C production D private 1.1.10 Profitability of a monopolist depends on the cost of production and... A. savings. B. demand. C. number of competitors. D. supply. [Page 59 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

1.1.11 A monopolist will maximise his revenue where his marginal revenue is equal to... A. the market price. B. zero. C. one. D. marginal cost. 1.1.12 A legal right whereby the holder obtains the exclusive right to manufacture a product is called a... A. license. B. certificate C. trademark. D. patent 1.1.13 A situation where no one can be made better off without making someone else worse off is known as ... efficiency. A. pareto B. productive C. technical D. consumption 1.1.14 Goods that are excludable and rival in consumption are called...goods. A public B. merit C. collective D. private 1.1.16 The oligopolist makes...profit in the short-run. A. zero B. normal C. economic D. minimum 1.2 Choose a description from COLUMN B that matches an item in COLUMN A. Write only the letter (A-I) next to the question number (1.2.1 – 1.2.8) in the ANSWER BOOK. COLUMN A COLUMN B 1.2.1 Shutdown A. A gain a producer gets from the sale 1.2.2 Duopoly Of a product. 1.2.3 Break-even point B. The business in a perfect market will consider closing down if AR = AVC. 1.2.4 Price leadership C. Compulsory payment made to the government for no service rendered. 1.2.5 Fixed costs D. An example of tacit collusion in an oligopoly market with regards to 1.2.6 Private benefit price. 1.2.7 Taxation E. A market which dominated by two 1.2.8 Economic loss large businesses. 1.2.9 Cartel F. The output at which total revenue is 1.2.10 Price discrimination equal to total costs. 1.2.11 Community goods H. Include payment for rent and insurance premiums. 1.2.12 Implicit cost I. Costs to produce one extra unit of a product. [Page 60 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

1.2.13 Duopoly J...An industry which is dominated by two large businesses. 1.2.16 Efficiency K. Value of inputs used in the production process. M. Average cost less than average revenue. N. Optimum allocation of resources. O. An illegal strategy to eliminate competition. N. A group of businesses offering similar products in the market. O. Available for use by the whole society. P. Buyers are charged different prices for the same product. 1.3 Give ONE term each of the following descriptions. Write only the term next to the question number (1.3.1 – 1.3.6) in the ANSWER BOOK. Abbreviation and acronyms may NOT be accepted. 1.3.1 Actual expenditure that a business incurs during production process. 1.3.2 The type of profit made by the firm in the perfect market in the long-run. 1.3.3 A situation where the value output increase at a lesser rate than, the value of that input. 1.3.4 Incentives given to businesses to reduce the costs of production. 1.3.5 Goods provided in small quantities and are beneficial to the society. 1.3.6 Income received for selling one extra unit of a product. 1.3.7 The period in which at least one of the factor of production is fixed. 1.3.8 Prices on certain goods that are controlled by the government. 1.3.9 Additional cost incurred by producing one more unit of a product. 1.3.10 Actual cost paid by a consumer when a good is purchased. 1.3.11 Cash incentives given to a producer to lower the cost of production. 1.3.12 Products which are similar in nature. [Page 61 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

PART 1: Study the graphs below and answer questions that follow. a) What is represented by the vertical axis on the above graph? b) What is represented by the horizontal axis on the above graph? c) Identify the equilibrium point on the above on the graph. d) What is the price on the above graph? e) What is the quantity sold at equilibrium? f) Why is the price (R10) equal to D? g) Calculate the total revenue at 50 units, 100 units and 150 units. h) Comment on the total revenue made in different quantities. Part 2: 1.1.1. Which market structure is depicted on the above graph? 1.1.2. Why is the demand curve of an individual producer is horizontal? 1.1.3. Describe the concept industry. 1.1.4. Briefly describe how the prices of the industry are determined. 1.1.5. What would be the effect on profit if the individual firm decides to increase the price? 1.1.6. Explain how long-run equilibrium is achieved in the market. [Page 62 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

1.2. Study the graph below and answer questions that follow. MC MC AC B AC E1 P1 D=MR=AR E0 P3 D=MR=AR 0 Q1 Q2 1.2.1. What type of profit is represented by point E0. (1) 1.2.2. Identify the optimum level of production in the short-run. (1) 1.2.3. Describe the concept long-run. (2) 1.2.4. What will be the impact of new entrants in the level of output? (2) 1.2.5. What is the difference between the long-run and the short-run the above graph. (2) 1.2.6 Briefly explain how economic profit is made on the above graph. (4) PART II 1.2.1 What is the original price in the above graph? (1) 1.2.2 Identify the profit maximization point in the long run. (1) 1.2.3 What type of profit or loss made by the above business in the long run.(2) 1.2.4 Describe the term normal profit. (2) 1.2.5 What will happen in the level of production in the long-run. (2) [Page 63 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

1.3 Study the graph below and answer questions that follow. P MC C 3 AC B 2 D=MR=AR AVC A 1 0 5 10 15 Q 1.3.1. What type of profit is depicted on the above graph? (1) 1.3.2 Identify the profit maximization point on the graph above. (1) 1.3.3. Define the concept marginal revenue. (2) 1.3.4. What will be the effect of an increase in price on output? (2) 1.3.5. Calculate the profit on the above graph. (2x2) (4) PART II 1.3. 1.3.2 Identify the profit maximization point. (1) 1.3.3 What is the value of the average cost. (1) 1.3.4 Calculate total revenue (show all the calculations) (2) 1.3.5 Calculate total cost (show all calculations) (2) 1.3.6 Calculate economic profit and show all calculations (2) 1.3.7 Why the price is equal marginal revenue? (2) 1.3.8 Which curve represent the supply in the graph above (2) 1.3.9Describe the concept marginal cost. (2) 1.3.10 What is the impact of an increase in the price on an output level. (2) [Page 64 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

PART 1 1.4. Study the graph below and answer questions that follow. MC AC P AVC F 10 A 7 D=MR=AR 0 50 Q 1.4.1. Identify the break-even point on the above graph. (1) 1.4.2. What is a loss minimizing output at point? (1) 1.4.3 Describe the concept marginal cost. (2) 1.4.4. Which curve represents supply? (2) 1.4.5. Why must this individual producer shut-down at point A? (2) PART II 1.4.1Identify the market price on the above graph (1) 1.4.2 What is the total cost of this market (2) 1.4.3 Give the formula for shut- down point (2) 1.4.4 Identify shut down point (1) 1.4.5 Is the above firm make economic loss or profit (2) 1.4.6 Calculate the profit or loss made by the above firm. (2) 1.4.7 Which part of the MC curve represent the supply curve (2) 1.4.8 Describe the concept average variable cost (2) 1.4.9 Describe the concept short run (2) [Page 65 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

MONOPOLY • A firm is regarded as a monopolist when it owns or controls the total supply of a scarce factor of production. • Monopoly is a market structure where only one seller operates. • Examples of monopolies in South Africa are Transnet, SABC, Eskom. • It is not easy for other businesses to enter the monopoly market because of strict barriers to entry. • The firm has absolute market power and faces zero competition. Unique products are sold in this market since there are no close substitutes. Characteristics of a monopoly • Price maker/control over price: Market power enables the monopolist to set its own price. • Supernormal profits: Although the monopoly can make normal profits in the long run, it is far more likely that the massive market power and high prices will ensure that it makes supernormal profits (economic profits). • Economies of scale: The mere size of large business gives it a cost advantage over a smaller rivals. • Perfect information: The monopoly has perfect information about the market, but new firms that wish to enter the market will not have the same information available to them. This will hamper their ability to enter the market. • Unique product: monopolies offer unique products that has no close substitutes hence no competitors. • Barriers to entry and exit: There are numerous barriers blocking firms from entering or exiting imperfect markets. Types of barriers to entry: • Government licenses/legal restrictions: The state may regulate an industry to prevent undesirable or incompetent firms from entering. • High start-up costs: These include costs such as capital investment and research and development that could be difficult for other firms to afford. • Patents: These are legal rights granted to investors of a production process or service. A person who invents a product is given special protection by government in the form of a patent. • Sunk costs: These are costs that cannot be recovered if the business exits the industry. For example, the cost of advertising is very high and cannot be sold off in the same way that machinery and equipment can. • Access to scarce resources: A natural monopoly is created if a single firm owns and controls a specific scarce resource. Other companies and potential competitors are therefore excluded from entering the market owing to the unavailability of the resource. • Deliberate actions: These are actions performed by the firms themselves. For example, a firm may embark on an aggressive advertising campaign that makes it difficult for a rival to compete. [Page 66 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

• Technical superiority: A monopoly is created if a company possesses a technical advantage over its potential competitors. Profit-maximising or equilibrium position in the short-run •Monopolies follow the same profit maximizing rule as competitive firm, MR=MC. •The downward sloping demand curve indicates that monopolist can increase its quantity when it lowers the price of the product. •The demand curve of a monopoly is also the AR curve. •The MR is always below the AR under monopoly. The short-run equilibrium of the firm under monopoly The monopolist will produce at Q1 where MR=MC. •The monopolist will charge price P1, which is determined by the demand curve. •Is the monopolist making an economic profit or loss? [Page 67 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

•We compare the AR and AC to determine whether the monopolist makes a profit or loss. •AR (=P) > AC, therefore the monopolist is experiencing economic profit. •NB in the long-run due to barriers to entry of firms, monopolist may also make economic profit. Part 1 Study the graph below and answer the questions that follow. 1.1.1 Give full description of the following concepts as indicated on the graph, and give the formula for each where applicable. Example: D = Demand is the quantity of goods and services that consumers are willing and able to buy at a given price at a given period of time. (4x5) (20) A. AC= B. AR = C. MR = D. MC = E. Economic profit [Page 68 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Part 2 1.2.1 Identify the profit maximisation point on the graph above. (1) Give a reason for your answer. 1.2.2 Identify the quantity produced by the firm above. (1) 1.2.3 How much is the cost of each unit produced? (1) 1.2.4 Calculate total cost (TC) of the firm. (2 1.2.5 Which area on the graph represents the total costs? (1) 1.2.6 Identify average revenue. (1) 1.2.7 Calculate total revenue (TR) made by the firm above. (2) 1.2.8 What is represented by the un-shaded area (0 13b100) on the graph above? (1) 1.2.9 Calculate the economic profit made by firm above. Show ALL calculations. (4) 1.2.10 What is represented by the shaded in the graph above? (1) 1.2.11 Describe the term economic profit. (2) 1.2.12 What is the relationship between the value of average revenue (AR) and average cost (AC)? (2) Part 3 1.3.1 Identify the market structure depicted on the graph above. (1) 1.3.2 What is represented by the point a on the graph above? (1) 1.3.3 Describe the term natural monopoly. (2) 1.3.4 Why will a monopoly not charge excessively high prices for the product. (2) 1.3.5 Why is the individual demand curve in the monopoly market the same as the demand curve for the industry? (2) 1.4 Briefly discuss legal requirements as a barrier to entry in a monopoly market. (8) [Page 69 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Activity 2 2.1 Study the graph below and answer the questions that follow. P/C/R MC AC b R12 a D/AR 0 100 Q 2.1.1 What is the quantity produced by the monopolist above? (1) 2.1.2 Identify the curve labelled L above? (1) 2.1.3 What is the cost per unit of production above? (1) 2.1.4 Calculate the total costs of the firm. (2) 2.1.5 Identify income earned for selling one unit of a product. (1) 2.1.6 Calculate total revenue received by the business. (2) 2.1.7 What type of profit is made by the firm above? (1) Part 2 2.2.1 What is the relationship between AR and AC on the graph above? (1) 2.2.2 Which economic equilibrium is depicted on the graph above? (1) 2.2.3 Describe the term long-run. (2) 2.2.4 Briefly explain the benefits that are enjoyed by the monopolist in the market. (2) [Page 70 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Activity 3 3.1 Study the graph below and answer the questions that follow. MR AR 3.1.1 Give ONE possible example of a monopoly operating in South Africa. (1) 3.1.2 Which curve is the same as the demand curve on the graph above? (1) 3.1.3 Describe the term artificial monopoly. (2) 3.1.4 Briefly explain the long-term equilibrium of a monopolist. (2) 3.1.5 Briefly explain how the monopolist influences the price of the product (2) 3.1.6 Redraw the graph above and show economic loss that would be made by a monopolist. (4) [Page 71 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Activity 4 4.1 Study the graph below and answer the questions that follow. P/C/R MC AC R15 C b R13 a D/AR G 0 100 Q 4.1.1 Provide a name for the curve labelled as G (1) 4.1.2 Give a name for point a on the graph above. (1) 4.1.3 Identify the following on the graph above. 1) Average cost (1) 2) Average revenue (1) 4.1.3 Calculate the following. 1) Total cost (2) 2) Total revenue (2) 4.1.4 Is the above firm making a profit or loss? (1) Explain the reason for your answer. (2) 4.1.5 What is shown by the shaded area on the graph above? (1) Part 2 4.2.1 What is meant by a unique product? (1) 4.2.2 Describe the entry into a monopoly market structure. (1) 4.2.3 Describe the term imperfect market. (2) 4.2.4 Briefly explain why does the marginal revenue curve lie below the demand curve? (2) 4.2.5 Discuss how competition benefits consumers. (4) 4.2.6 Discuss profit as a characteristic of a monopoly. (4) [Page 72 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

4.3 Differentiate between artificial monopoly and natural monopoly. (8) Activity 5 5.1 Study the graph below and answer the questions that follow. SA must stop relying on Eskom’s failing monopoly Experts say the time has come for South Africans to move away from Eskom for its energy needs. Eskom is failing and a successful south Africa depends on moving on to other power suppliers. This is the view of energy experts, as the embattled power utility announced that stage 6 load-shedding would be implemented for the first time, meaning longer and more frequent periods of rotational power cuts. Source: https://www.sowetanlive.co.za 5.1.1 What type of a monopoly is Eskom? (1) 5.1.2 Mention the nature of the product sold by this parastatal. (1) 5.1.3 Describe the term explicit costs. (2) 5.1.4 Why are monopolies regarded as inefficient? (2) 5.1.5 Briefly explain the effects of load shedding on business. (4) Activity 6 6.1 Study the graph below and answer the questions that follow. [Page 73 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

6.1.1 At what point does the monopolist maximise profits? (1) 6.1.2 At what point does profit maximisation occur in a perfectly competitive market? (1) 6.1.3 What is the price that the monopolist will charge? (1) 6.1.4 What is the quantity supplied by the monopolist? (1) 6.1.5 What is the quantity supplied under perfect competition? (1) 6.1.6 What is the average cost of production for the monopolist? (1) 6.1.7 What is the average cost of production in the perfect competition? (1) 6.1.8 How much economic profit does the monopolist makes? (4) [Page 74 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Monopolistic Competition Definition: There are relatively many buyers and sellers but fewer than perfect competition and more than monopoly. Characteristics of a monopolistic Competition • Number of sellers: There is a relatively large of sellers but fewer than perfect competition. • Price: Monopolistic competitor have little or no control over price. Competition takes place through differentiated products. • Type of the product: Products are similar but differentiated therefore heterogeneous. Sellers promote their products as unique through advertising. • Entry: Entry is relatively easy since it does not require huge capital outlay. Determination of prices and output in the short-run As with the other market structures, profits are maximised at the output where MC = MR. The diagram is the same as for the monopolist, except that the demand curve (D/AR) and MR curve are very elastic. As with perfect competition, it is possible for the monopolistically competitive firm to make economic profit in the short run. This is illustrated by Fig (a). [Page 75 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Determination of prices and output in the long-run Fig (b) depicts the equilibrium position of a monopolistic competition in the long-run. If a firm earns economic profit in the short-term, it attracts new firms in the long-run to also enter the market. As new firms enter, they will take some of the customers away from established firms. The demand for the established firms’ products will therefore fall. Their long-run average revenue curve, LAR (which is also demand) will shift to the left, and will continue doing so as long as economic profits are earned. Long-run equilibrium will be reached when only normal profits are earned i.e. when there is no further incentive for new firms to enter. This occurs at point a where LAR is tangent to LAC in Fig (b). Output will be QL – where LAR = LAC. At any other output, LAC is greater than LAR and thus less than normal profit would be made. [Page 76 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Oligopolies • Definition: An oligopoly consists of a small group of firms that supply most of the market. Examples of oligopolies are cell phone service providers and the banking sector. Characteristics of Oligopoly  Number of businesses: There are few large businesses, for example Vodacom, MTN, and Cell C in the cellular industry • Nature of the product: The product may be identical or differentiated. If the product is homogeneous the market is a pure oligopoly. Examples of differentiated oligopolies are manufacturers of hair care products, banking services, and insurance companies. • Freedom of entry and exit: There are substantial barriers which prevent entry into the market. It is possible for many smaller firms to operate on the periphery of an oligopolistic market, but none of them are large enough to have any significant effect on market prices and output. • Interdependent decision making: The decisions taken by one firm are influenced by the decisions of other firms • Control over price: The oligopolist is a price-maker. However, he must consider the reaction of other firms. • Non-price competition: Oligopolists do not use price when they compete with each other. They use non-price competition strategies such as aggressive advertising, branding, product loyalty and good service (e.g. after- sales services). • Collusion: is an arrangement between businesses to limit competition between them. Since there are few firms in the industry, it is easy for them to collude. Prices and production levels in oligopoly • The oligopolist is faced with a kinked demand curve which has two segments – one for higher prices that is elastic; and one for lower prices that is inelastic. • This is because the decision to change the price or quantity depends on the possible reaction of competitors. • An oligopoly has little to gain from reducing prices and has much to lose from raising prices. • This is the reason why oligopolies are forced to keep their prices stable. [Page 77 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Kinked demand curve. A kinked demand consists of two sections. The top section (D1) is very elastic and the bottom part (D2) is highly inelastic. Suppose the market price is R20. At this price 10 units are produced and sold. Total revenue is R20 x 10 = R200. If the firm tries to increase its profit by increasing the price by R2 to R22 it faces the risk that the quantity demanded will fall from 10 units to 4 units. Total revenue will fall to R88. A small change in price causes a huge change in quantity. The firm that increases the price will lose its customers to those that did not increase the price. The firm can also try to increase its profit by reducing the price and thereby increase its total sales. If the price is reduced by R4 from R20 to R16, demand increases only by 4 units from 10 to 14 units. Demand is inelastic. There is a small increase in revenue to R224. The increase in total revenue may be very small but firms feel obliged to reduce prices as well because they want to retain their market share. Therefore, the oligopolist is faced with a difficult situation because if he increases the price above the market price, he will lose customers. If he reduces the price below the market price, he will initiate a price war. [Page 78 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Activity 1 1.1 Study the graph below and answer the questions that follow. P E1 90 E 70 60 E2 D 0 10 40 42 Q 1.1.1 Identify the market structure depicted on the graph above. (1) 1.1.2 What type of demand curve is displayed on the graph? (1) 1.1.3 Identify the market price. (1) 1.1.3 What quantity is demanded at the market price? (1) 1.1.4 Calculate the total revenue at the point E (2) 1.1.5 What happens to the quantity if the price of the product increases to R90? 1.1.6 Calculate the total revenue if other firms tried to increase the revenue by increasing the price to R90. (2) 1.1.7 Why is the upper part of the demand curve (labelled E1 –E) elastic? (2) 1.1.8 Calculate the total revenue at point E2. (2) 1.1.9 Why is the bottom part of the demand curve labelled ED inelastic? (2) 1.1.10 Which price will enable the business to earn the highest profit? Support your answer. (2) [Page 79 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Part 2 2.1 Discuss entry into the market and nature of the product as characteristics of the oligopoly market (8) 2.2 Differentiate between tacit and overt collusion. (8) 2.3 Discuss non-price competition strategies used by an oligopoly market. (8) 2.4 Differentiate between a perfect and monopolistic competition. (26) MARKET FAILURES The causes/reasons of market failures are explained as follows: 1.Externalities: An externality occurs when some of the costs and benefits of a decision or action are borne or enjoyed by second or third parties that were not part of or directly involved in the decision making. Negative externalities:  Pollution is an example of a negative externality.  Another example of negative externality is the cost imposed on society by the use of motor cars. They include air & noise pollution, accidents, congestion and damage to roads.  There is a link between the smoking of tobacco and a range of illnesses. Treatment of these illnesses is a cost to public and private health care services – an external cost on top of the private cost, which is a cost carried by producers. • The above Graph A shows the market equilibrium situation. The original price is P and the original quantity supplied is Q. This represents private cost. However, if it were possible to calculate the external costs, these could be added to the private costs. • If consumers were required to pay the full cost of production (the social cost), a different quantity will be sold at Q₁ and a higher price will be paid at P₁. In this case, a freely operating may lead to lower prices and higher outputs of goods that have harmful social consequences. [Page 80 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

The government may intervene to curb negative externalities in the following way:  Government could tax the output from the producer  Government could use regulation/laws and use the existing legislative framework in an attempt to control and constrain the behaviour of businesses and industries that generate negative externalities.  Persuasion: public relations campaigns by the government and institutions can be used to change behaviour of people e.g. smokers, drug-abusers, alcohol drinkers etc Positive externalities: A positive externality occurs when a benefit is derived by a second or third party from the action or decision of another party.  Graph B shows positive externalities. DD represents the demand from individuals, that is, the private benefits gained from purchasing a particular good or service and SS represents the direct cost of providing that good or service.  I f it was possible to quantify the external benefits associated with the provision of this good or service, the social benefit accruing to society could be represented by D₁D₁.  If the external benefits were to be taken into consideration, output will increase to Q₁ and the price would be P₁.  In this case, freely operating markets were failing because they produce less than required of a socially useful good In the case of positive externalities, government might choose one of the 3 approaches illustrated below:  Government could subsidies the output from the producer e.g. in the case of a private school education where parents pay school fees, governments usually pay subsidies to promote such education.  Direct controls e.g. compulsory education to the age of 15, inoculations and treatment of notifiable diseases etc. 2.Merit and demit goods [Page 81 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

 In the case of merit goods where a higher consumption of the good is regarded as good for society, the government makes use of subsidies.  In the case of demerit goods, such as cigarettes, the government imposes taxes to discourage consumption 3.Public goods  Since the market is not willing to supply public goods, it is up to government to ensure that these goods are supplied. 4.Imperfect competition  Government can deal with the effects of imperfect competition by: - Taxing the firms’ economic profits - Imposing price controls: some industries in South Africa are supervised by control bodies e.g. electricity provision, communication, broadcasting and postal services. 5.Lack of information  Government deals with problems of imperfect information by means of regulations designed to ensure greater access to information.  E.g. government can require firms to disclose information about their operations.  The SABS also fulfil such a function in SA. Consequences (effects) of market failures Inefficiencies: Market failure occurs when markets do not achieve technical and allocative efficiency.  Technical or productive efficiency: in terms of cost it means that a business does not produce goods at the lowest possible cost. There is room to reduce costs without producing fewer goods or without producing goods of lower quality.  Technical efficiency is achieved when existing resources are used in the most efficient manner – that is when the maximum possible output is obtained with a given set of resources  Allocative inefficiency: this kind of inefficiency means that the product mix does not reflect consumers’ tastes and therefore resources are not allocated in the right proportions. The quantities preferred by consumers are not available. Cost- Benefit Analysis  Cost-benefit analysis (CBA) is a standard method used to compare the social cost and benefits of alternative projects or investments.  Cost and benefits are measured and then weighed up against each other in order to generate criteria for decision-making  CBA is, in essence, an accounting procedure for investment whereby the total cost of the particular project is weighted against its total benefits.  Government usually uses CBA to see whether they should undertake a certain project.  The uses of the CBA in practice [Page 82 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

 In practice, a CBA tries to answer the question: ‘Do the gains to the people exceed the sacrifices required of them?’  If the answer is yes – CBA >1  If no – CBA < 1 Activity 1 Multiple choice: 1.1 Various options are provided as possible answers to the following questions. Choose the correct answer and write only the letter (A – D) next to the question number (1.1.1 - ) in the ANSWER BOOK. 1.1.1. A firm will spend less on pollution reduction equipment because of its marginal … A. private cost B. social cost C. private benefit D. public cost 1.1.2. A systematic process of comparing the benefits of a project against its costs is called … A. CBA B. BCA C. ABC D. BAC 1.1.3. The market tends to produce merit goods in … quantities. A. even B. large C. excessive D. insufficient 1.1.4 The cost of a good or service to the producer, is known as… A. private cost. B. cost benefit C. social cost D. private benefit 1.1.5 When forces of demand and supply fail to allocate resources efficiently, is called … A. market failure B. market economy C. marginal utility D. social failure 1.1.6 One of the characteristics of merit goods is that they are … A. over-consumed B. often not highly rated C. public goods [Page 83 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

D. popular 1.1.7 Cost benefit analysis should use … A. Market prices B. Shadow prices C. equilibrium price D. basic price 1.1.8 The wage rate set by the government below which no employer can pay their workers a/an… A. minimum wage B. equilibrium wage C. bonuses D. maximum wage 1.1.9 The production of goods which does not reflect the wishes of the consumers is called … inefficiency. A. allocative B. mechanism C. double D. productive 1.1.10 The tax that is levied by government on environmental polluters is called … tax. A. import B. personal income C. green D. consumption 1.1 Choose a description from COLUMN B that matches the item in COLUMN B. Write only the letter (A – I) next to the question numbers (1.2.1 – 1.2.8) in the ANSWER BOOK. COLUMN A COLUMN B 1.2.1 Pareto efficiency A. The combination of goods does not match the needs of consumers. 1.2.2 Productive efficiency B. Evaluating degree of difficulties of a private project before it starts. 1.2.3 Allocative inefficiency C. Paid by consumers when buying goods and services. 1.2.4 Negative externality D. A situation where no one can be made better off without making someone else worse off. 1.2.5 Social costs E. Harmful spill-over effects. 1.2.6 Maximum price F. Incurred by the business. 1.2.7 Private costs G. Production at the lowest possible cost. 1.2.8 Feasibility study H. Private cost plus external cost. I. A price that is set lower than the market price. 1.3 Give ONE term for each of the following descriptions. Write only the term next to the question numbers (1.3.1 – 1.3.6) 1.3.1 Incomplete market, they cannot meet the demand for certain goods. 1.3.2 The combination of private benefit plus external benefit. [Page 84 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

1.3.3 Laws that are put to decrease the generation of negative externalities. 1.3.4 The sum total of private costs and external costs. 1 .3.5 Prices set or controlled by the government. 1.3.6 Prices that are set by authorities above the equilibrium price to benefit the producer. Activity 2 2.1. Study the graph below and answer questions that follow. PART 1: 2.1.1. Identify the original price on graph. (1) 2.1.2. What does graph A represent? (1) 2.1.3. Which curve represents private benefit on graph A? (1) 2.1.4. What is represented by the shaded area in graph B? (1) 2.1.5. What is the effect of tax on output? (1) 2.1.6. Describe the concept positive externality. (2) 2.1.7. Name two methods used by the government to encourage positive externalities. (2) PART 2: (Refer to the above graph) 2.2.1. What is represented by graph B? (1) 2.2.2. What does the shaded area represent? (1) [Page 85 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

2.2.3. Describe the concept externalities. (2) 2.2.4. Briefly explain what the impact of negative externalities on the society. (2) 2.2.5. How can the government discourage negative externalities? (2x2) (4) 3.1. Study the article below and answer the questions that follow. SA Sugar tax could increase to 20% Non-profit organisation, the Healthy Living Alliance (Heala) is pushing to have sugar tax increased to 20%, from the present 11%. Heala presented a memorandum with 17000 signatures to the Treasury in hopes that it would demonstrate mass public support for the cause. The sugar tax was originally initiated in 2018. This was to decrease consumption of carbonated soft drinks. [Source: CAPE Business News, February 13, 2020] PART 1: A. What is tax? (1) B. Why government charges tax (1) C. What do we call the type of tax levied on goods purchased? (1) D. Define the term demerit goods. (2) E. Why taxes are charged on demerit goods (2) PART 2: 3.1.1. Identify the measure that is used by government to control unhealthy consumption habits? (1) 3.1.2 What is the objective of Heala according to the article? (1) 3.1.3. Describe the term market failure. (2) [Page 86 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

3.1.4. Briefly explain the reason for government to promote merit goods. (2) 3.1.5. How does the levying of taxes decrease consumption of demerit goods? (2 x 2) (4) 4.1. Study the extract below and answer questions that follow. RENEWABLE ENERGY THE WAY TO GO! Medupi and Kusile are still in construction, and although some units are supplying power to the grid, full commercial operation is at least four years overdue. Consequently, their cost to date of just over R400 billion, excluding the interest incurred on the debt used to build the plants, has balloon to more than double the original estimates. Adapted from Financial Times, January 2020 4.1.1. Identify the social cost of providing electricity in South Africa discussed on the above extract. (1) 4.1.2. According to the extract, why is it advisable that South Africa resort to renewable energy? (1) 4.1.3. Briefly describe the concept cost - benefit ratio. (2) 4.1.4. What is the benefit of providing cheap electricity to South Africa? 4.1.5. How can cost-benefit analysis assist the government in planning for large projects? (4) ECONOMIC PURSUITS CONCEPTS TOPIC ECONOMIC GROWTH AND DEVELOPMENT Term Definition Accelerated and Shared An initiative to promote development strategies ,e.g. infrastructure and skills Growth initiative for development South Africa (ASGISA) Broad Based Black economic Has the goal of the sustainable (able to continue)distribution of wealth empowerment (BBBEE) across as broad a spectrum of South African society as possible, especially the most vulnerable such as women, mainly through ownership and management of business enterprises Black Economic Empowerment An earlier policy similar to BBBEE, with the aims of distributing wealth to (BEE) and developing skills in black citizens in post-apartheid South Africa Development Bank of Southern Promotes development in the Southern African region by financing Africa (DBSA) important development projects demand-side approach The focus is on attempts to increase aggregate demand in an economy. Fiscal and monetary policy can be used economic development The process by which the standard of living improves economic development policy A policy that involves the interaction of economic, social and human development [Page 87 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

economic growth An increase in the productive capacity of an economy over time. It is a change in the real GDP economic growth policy A policy that helps to increase the annual total production or income in the economy Growth, employment and A strategy to promote economic growth, increase employment and redistribution (Gear) redistribute income Globalisation The worldwide interaction of economies with trade as an important element Integrated Manufacturing Strategy A strategy to strengthen institutional capacity to deliver services that will (IMS) facilitate development Joint initiative on Priority Skills An initiative to aid the development of urgently needed skills to facilitate job acquisition (JIPSA) creation Life expectancy Expresses in number of years how long a child born today is expected to live National Growth Path (NGP) Initiatives to stimulate economic growth North-South divide Refers to the developed countries in the Northern hemisphere and the developing countries in the Southern hemisphere Public and Private Sector These are contracts between the public sector institution/ municipality and a Partnership(PPP) private business, in which the design financing and operation of public sector are managed by the private business Reconstruction and A development policy to improve service delivery to the poor and create an Development Programme environment for human development (RDP) South African Reserve Bank (SARB) Central bank of South Africa with the main goal to maintain price stability, thereby promoting balanced and sustainable growth Small, Medium and Micro A small business that has small share of the market place, operates Enterprises (SMMEs) independent of larger enterprises; employs few people and is managed directly by owners Supply-side approach Policies aimed at increasing the aggregate supply [Page 88 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ECONOMIC GROWTH VS ECONOMIC DEVELOPMENT GROWTH DEVELOPMENT ▪ Increase in the country’s ▪ Improvement in the standard of living of GDP/productive capacity Focuses people/in the real per capita income of ▪ on the production of goods and citizens overtime Focuses people’s services ▪ standard of living, self-respect and ▪ Increase in the country’s real freedom of choice gross domestic product Growth Measured by HDI ▪ ▪ leads to development DEMAND SIDE APPROACH: approach that is used to stimulate economic growth by increasing the aggregate demand, through making discretionary changes in monetary and fiscal policies. International best practice argues that developing economies should run their economies in a way that creates economic growth. This would help social transformation, human capital formation and redistribution of income. Components of aggregate demand (C, I, G & X) MONETARY POLICY: the SARB through interest rates and money supply in the economy uses the following instruments: o Interest rates changes o Open market transactions o Moral suasion o Cash Reserve requirements FISCAL POLICY: in order for the government to stimulate macroeconomic growth and employment and ensure redistribution of wealth uses the following instruments:  TAXATION  Progressive personal income tax  Wealth taxes  GOVERNMENT SPENDING  Cash benefits  Benefits in kind (natural benefits)  Investment spending  Public works programmes  Land reinstitution and redistribution  Subsidies on properties SUPPLY SIDE APPROACH: approach that is used/aimed to stimulate economic growth by increasing the aggregate supply, in the long term without causing inflation. [Page 89 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

NOTE: when tax rates are lowered, more earnings, savings and investments will be encouraged, as well as removing rigid regulation, this will lead to an expansion in economic activity. (therefore both monetary and fiscal policies are also applied)  Improvement of efficiency and effectiveness of markets whereby they operate equitably and inclusively  Reducing unnecessary regulations  Increasing competition (Competition Act to reduce anti-competitive behaviour by companies)  Privatisation (some state-owned companies sold to private owners, this serves to reduce state intervention in the economy and increase efficiency in the companies - Business efficiency where greater output can be achieved through:  taxes must be collected efficiently – tax rates should be reduced (influenced by Laffer curve)  rigid regulations applying to businesses should be relaxed  Free advisory services must be available - The cost of doing business must be lowered:  The cost of inputs should be low as possible (infrastructure)  Reliable and plentiful supply of water and energy  Efficient and low-cost transport and communication system - The factors of production - the following is important:  Human resources (education & training, better utilisation, productivity)  Natural resources (availability, better utilisation)  Capital (capital formation)  Technology (advancement & progress)  Entrepreneurship (successful) EVALUATION OF SA POLICIES TO GROWTH & DEVELOPMENT Growth and Development policies:  Growth policies: aim to achieve macroeconomic objectives  Development policies: aim at achieving industrial, agricultural and human development MAJOR GOVERNMENT POLICIES , STRATEGIES, INITIATIVES SINCE 1994 - RDP: (1994) as the main strategy aimed to alleviate poverty and address the inequalities and shortfalls in social services by focusing on job creation, welfare, housing, healthcare, land reform, education, training, water and sanitation. - GEAR: (1996) macroeconomic strategy aimed at strengthening economic development, broadening of employment, redistribution of income and socioeconomic opportunities in favour of the poor. - ASGISA: (2006)aimed at reducing unemployment and poverty by half by 2014 - JIPSA: initiative that was established to support ASGISA. To solve the problem of shortage of skilled labour(skills development) - EPWP: nationwide government intervention to create employment using labour intensive methods and give people skills. - New Growth Path (NGP): (2010) as an approach to accelerate economic growth and employment i.e. generate 5 million new jobs by 2020 [Page 90 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

- National Development Plan (NDP): aim to transform SA by 2030, set out to expand economic opportunities through investment in infrastructure, more innovation, private investment, and entrepreneurship. - SBDPP: designed to deliver support and services to small, medium and micro enterprises - BBBEE: designed to assist in the transformation and redress of previously disadvantaged groups. NORTH/SOUTH DIVIDE Distinguished with the following:  Unequal standard of living  -real GDP per capita  -life expectancy  -education, literacy level  Globalisation inequalities/challenges  -poverty level  -economic growth  -production and trade  Environment  -Mass production and consumption  Sustainable development  -pattern of development REGIONAL DEVELOPMENT INDUSTRIAL DEVELOPMENT POLICIES IN SOUTH AFRICA INDUSTRIAL DEVELOPMENT: is the increase in the number and size of industries in the country, which is facilitated by the government through the development of industrial development policies Reasons for industrial development:  Necessary to bring about economic development i.e. it’s an engine, diversification of the economy  Essential in stimulating economic development, maintaining macroeconomic stability  Industrialisation causes forward and backwards linkages,  Creates employment, increases investment, increases productivity INDUSTRIAL DEVELOPMENT POLICIES: The following industrial policies have been developed since 1994 NATIONAL INDUSTRIAL POLICY FRAMEWORK (NIPF) Targets at halving unemployment and poverty by 2014 Aims  Diversification of the economy  Intensifying industrialisation process in the long run  Promote labour intensive industries [Page 91 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

 Promote broad-based industrialisation  Development on the African continent – increase potential on large scale production INDUSTRIAL POLICY ACTION PLAN (IPAP 1 – 10) Is an action plan of implementing NIPF. It was developed to fast-track industrialisation in order to address shortcomings experienced in the manufacturing sector. Aims  Structural change  Diversification of goods  Intensification of industries  Labour-intensive industries  Historically disadvantaged people  Involvement of the African continent FOUR LEADING SECTORS OF THE NIPF  Capital/transport equipment and Metals  Automotive assembly and Components  Chemicals, plastic fabrication and Pharmaceuticals  Forestry, Pulp, and paper, and Furniture INDUSTRIAL DEVELOPMENT STRATEGIES NATIONAL RESEARCH AND DEVELOPMENT STRATEGY (NRDS)  Researches on technology  Researches on diseases  Human resources  Globalisation INTERGRATED MANUFACTURING STRATEGY (IMS) Focuses on six key performance areas  Growth  Competitiveness  Employment  Small business development  Black economic empowerment  Geographic spread of economic activity REGIONAL DEVELOPMENT: is a multidisciplinary process that systematically directs all aspects of human, economic and physical development in specific geographic areas called regions, especially in underdeveloped areas. Aims: [Page 92 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

• Stimulate development in underdeveloped areas • Reduce unequal development of economic activities • Coordinate and implement national and regional industrial policies • Optimum spatial distribution of economic activities • Prevent the emergence on new imbalances Best practice Guidelines: • Total development as a multidimensional process • Development of people, for people, by people • Development from within • Development from below • Cooperation between the private and the public sectors and local community SOUTH AFRICA’S ENDEAVOURS SPATIAL DEVELOPMENT INITIATIVES (SDI)  Is an interdepartmental strategy to promote sustainable industrial development in areas where poverty and unemployment are at the highest.  It is a link between important economic hubs and regions in a country, aiming at fasttracking investment through PPPs. All SDIs are based on partnership between public and private sectors (PPPs)  Examples: Richards Bay, Lubombo, Wild Coast, Fish River, Platinum, Phalaborwa,  West Coast Investment Initiative Aims • Stimulate economic growth in selected strategic locations • Generate economic growth and faster sustainable economic development • Create employment • Develop infrastructure projects • Develop inherent economic potential • Ensure rapid planning and development • Restructure the apartheid economy • Maximise certain types of private investment • Exploit underutilised location & economic advantages for export orientated growth • Establish public-private partnerships (PPP) CORRIDORS Is / are tracks of land that form the passageway allowing access from one area to another.  Corridors in South Africa are spatial areas that offer specific advantages to mining, manufacturing and other businesses.  The advantages also include the presence of existing infrastructure and the specialisation of products or services. [Page 93 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

 These corridors are development areas within South Africa and are the development priorities of all development agencies.  The DTI provides help in support of the development corridors.  Eg. the Maputo corridor, that starts in Guateng and extends through Mpumalanga to the Maputo port, offers opportunity to the transport industry or the Phalaborwa sub-corridor in the Northern Province offers opportunities for mining and related activities. Examples: Maputo corridor, Coast-to-Coast corridor NOTE: Learners must be able to identify/indicate (SDI and corridors) on the SA map THE SDI COMPONENTS THE LOCATION THE FOCUS POINTS PROGRAMME a) Spatial 1. Maputo Links Mpumalanga with Agriculture, mining, tourism, development Development Corridor Gauteng and Maputo in infrastructure, manufacturing initiatives Mozambique 2. Lubombo Corridor From St Lucia in Agri-tourism, education, craft, KwaZulu-Natal along the commercial and agriculture Indian Ocean coast line to sectors Ponto do Quro in Mozambique 3. Richards Bay SDI Includes the Durban and Industrial projects and tourism Pietermaritzburg manufacturing nodes 4. Wild Coast SDI Former Transkei Agri-tourism, forestry 5. Fish River SDI Fish River region and East London Industrial projects and forestry 6. West Coast Investment Saldanha Fishing Initiative 7. Platinum SDI Rustenburg Tourism, manufacturing, agriculture and mining 8. Phalaborwa SDI Phalarborwa Mining, agriculture 9. Coast-2-Coast Walvis Bay – Tourism, Industries and transport Corridor Johannesburg Maputo (Trans-Kalahari) INDUSTRIAL DEVELOPMENT ZONES (IDZs) A purpose built industrial estate, physically enclosed and is linked to an airport or seaport/harbour with export as the main objective. Aims [Page 94 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

 Encourage international competiveness in manufacturing  Encourage exportation of SA goods  Provide a location for strategic investment  Encourage and maximise the use of infrastructure  Link the domestic industries with the zone-based industries - Generate employment Examples: Coega, Richards Bay, East London, Saldana Bay, Dube Trade port SPECIAL ECONOMIC ZONES (SEZs)  Are geographically designated areas of a country set aside for specifically targeted economic activities, supported through special arrangements and systems.  They enjoy tax relief and support systems to promote industrial development.  There are plans to reduce tax to 15% as an incentive to attract new industries.  The DTI has indicated that the existing IDZs where special tax incentives do not apply, would be graduated into SEZs. Note: the existing IDZs are being changed into SEZs in order to address the shortcomings by IDZs Aims The aim of creating SEZ is to attract : • only new business • business which are developing a new product line - Business which are expanding their volume. • Expand the strategic industrialisation focus to cover diverse regional development • Provide a clear, predictable and systematic planning framework • Clarify and strengthen governance arrangement • Provide a framework for a predictable financing framework to enable long term planning. Benefits • Preferential Corporate Tax • Building Allowance • Employment Incentive • Customs Controlled Area • 121 Tax allowance INCENTIVES • Skills Support Programme (SSP) • Small and Medium Enterprise Development Programme (SMEDP) • Critical Infrastructure Programme (CIP) • Black Business Supplier Development Programme (BBSDP) • Seda Technology Program (STP) • Strategic Investment Programme (SIP) • Foreign Investment Grant (FIG) • Duty/Custom free incentives [Page 95 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

• Services to Business Processes APPROPRIATENESS OF SA’s REGIONAL DEVELOPMENT POLICIES must be evaluated in terms of the following benchmark criteria: • Free market orientation – minimum government intervention allowing market forces and profit motives to efficiently allocate resources • Competitiveness – businesses should be more competitive and not dependent on government financial aid. • Sustainability - the capacity of the region has to support its own development, such that employment and sustainable development is achieved. • Good governance – development strategies should be managed effectively and free of corruption. • Provision of resources – sufficient resources should be provided in resource – poor areas, such as the development of infrastructure. • Investment on social capital- improving the quality of education and healthcare in regions. • Integration – an integrated approach should be followed, ensuring that benefits in one part of the region spill over to other industries and areas. • Partnerships – partnerships should be built between central government, local authorities, civil society, special interest groups, NGOs and the private sector. SMALL BUSINESS DEVELOPMENT POLICIES (explain and evaluate) • The Department of Trade and Industries has various programmes in place to support SMMEs. • The creation of employment for structurally unemployed people • Focus is on incentives for small businesses • providing easier access to capital, information, business advice and • promotion of entrepreneurial development among women and the youth THE APPROPRIATENESS OF BLACK ECONOMIC EMPOWERMENT IN THE SOUTH AFRICAN ECONOMY • This strategy is in line with the empowerment of marginalised groups towards development in developing countries. It is in line with the UN and World Bank development initiative of indigenous people in a country. • Limitations/challenges are: managerial appointments did not always meet the required training and experience criteria needed to make a success of the positions. Foreign and local investors do not show trust in the industry mainly because of corruption and the expressed views of nationalisation. PERFORMANCE INDICATORS The performance of the economy is assessed and determined by using the tools known as social and economic indicators. Economic indicators: is statistic (data) that shows the behaviour of an economic variable over a specific period of time. [Page 96 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

• Production : nominal GDP, real GDP, per capita GDP • Inflation rate: two keys: PPI, CPI • Foreign trade: terms of trade, exchange rate, • Employment : EAP, employment rate, unemployment rate • Productivity: labour productivity, remuneration per worker • Interest rates: repo rate • Money supply: the level of money supply in the economy is important because any change in its quantity will have a direct effect on interest rates. Social indicators: also called human development/development indicators because they promote improvements in the standard of living. • Demographics: population growth, life expectancy • Health and nutrition: Health (infant mortality, life expectancy, health expenditure, access to healthy water, access to sanitation); Nutrition (process of providing or obtaining the food necessary for health and growth) • Education: literacy, knowledge, skills (effective and appropriate) • Services: energy, sanitation, refuse removal and water access and use, access to food • Housing and urbanisation: Housing (housing subsidies, housing loans); Urbanisation (natural growth of urban population, migration, establishment of new towns) Activity 1 Section A 1.1. Various options are provided as possible answers to the following questions. Choose the answer and write only the letter (A-D) next to the question numbers (1.1.1 to 1.1.5) in the ANSWER BOOK, EG 1.1.6. D 1.1.1. The demand-side policy relates to….. A a reduction in costs B improving the efficiency of inputs C the influence on inflation and unemployment D improving the efficiency of markets 1.1.2. Demand side policy may be implemented through……..to improve the economic growth. A human resource B capital formation C entrepreneurship D increasing exports 1.1.3. The industrial policy that is aimed at focusing economic development in specific areas is called…. A centralisation B integrated C international D decentralisation 1.1.4. The Department of Trade and Industry initiative that focuses on improving competitiveness in production is called the….. [Page 97 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

A National Industrial Policy Framework B National Research and Development Strategy C Integrated manufacturing Strategy D Small Business Support Programme 1.1.5. An incentive to encourage greater investments in skills training is……… A Skills Development Programme B Corridors C Strategic Integrated Projects D Seta Technology Programme 1.1.6. Economic growth is measured in terms of ………GDP A per capita B real per capita C nominal D real 6 x 2 = 10 1.2. Choose a description from COLUMN B that matches the item in COLUMN A. Write only the letter (A-F) next to the question numbers (1.2.1. to 1.2.5.) COLUMN A COLUMN B 1.2.1. Economic policies A. A passageway allowing access from area to another usually 1.2.2. Industrial Policy Action Plan advantageous to businesses. 1.2.3. Special economic Zones B. Demarcated geographical area in which some aspects of the 1.2.4. Corridor business environment differs from the rest of the country 1.2.5. Human capital C. A nation-wide government intervention to create employment 1.2.6. Expanded Public Works using labour-intensive methods Programme D. A course of action decided by the government to achieve goals of the country. E. Developed to fast-track industrialisation in the country in order to address shortcomings experienced in the manufacturing sector F. The economic value of the labour force G. Interdepartmental strategy to promote sustainable industrial development in areas where poverty and unemployment are at the highest. 1.3. Give ONE term for each of the following descriptions. Write only the term next to the question numbers (1.3.1. to 1.3.6.). 1.3.1. The strategy that focuses on improvement in the manufacturing sector. 1.3.2. Approach that is used to stimulate economic growth by increasing the aggregate demand. 1.3.3. An increase in the number and size of industries in the country. 1.3.4. An initiative of government that was established to support ASGISA 1.3.5. Purpose built industrial estate, physically enclosed and is linked to an airport or seaport. 1.3.6. Developed countries in the Northern hemisphere and the developing countries in the Southern hemisphere. [Page 98 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Section B Activity 2 2.1. Study the picture below and answer the questions that follows 2.1.1 What is used to measure economic growth? (1) 2.1.2. Identify the policy introduced in 2010 to accelerate economic growth. (1) 2.1.3. Briefly describe the term demand-side approach. (2) 2.1.4. Briefly explain why the economy is not growing. (2) 2.1.5. How government can intervene to grow the economy of the country? 2x2 (4) Activity 3 3.1. Study the cartoon below and answer the questions that follows. 3.1.1. Which policy is used to stimulate growth? (1) 3.1.2. What is the aim of growth policies? (1) 3.1.3. Briefly describe the term economic growth. 3.1.4. Explain the best practice that developing countries should adopt in order to promote economic growth. (2) 3.1.5. How the supply side approach can promote growth and development? (4) [Page 99 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

3.2. Explain the aims of regional development. (8) 3.3. Explain good governance and competitiveness as benchmark for regional development in South Africa. (8) Activity 4 4.1. Study the cartoon below and answer questions that follow: 4.1.1 Name ONE example of a country member of G8 (1) 4.1.2 Provide a characteristic of the group of countries represented by “South divide”. (1) 4.1.3 Briefly describe the term Economic development. (2) 4.1.4 What effect would political oppression have on countries in the South divide? (2) 4.1.5 How do globalization inequalities impact on trade in North/South divide? (4) 4.2 Briefly discuss unequal standard of living and environment as characteristics of North South divide. (8) [Page 100 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 5 5.1. Study the graphs below and answer the questions 5.1.1. Which figure indicates that the GDP growth was unsatisfactory? (1) 5.1.2. Identify the sector that contributed the most in the third quarter. (1) 5.1.3. Briefly describe the term economic development. (2) 5.1.4. Explain why was the GDP performance so poor in the second quarter? (2) 5.1.5. How can the economic growth performance of South Africa be improved? (2X2) (4) ACTIVITY 6 6.1. Read the extract below and answer questions that follow: Trade and Industry to launch 10th iteration of IPAP The IPAP 2018/20 - 2020/21 is the tenth iteration of a rolling annual action plan aligned to successive three year cycles of government planning. It includes a legacy review which provides a high-level summary of the achievements of industrial policy over nine years, said the Department of Trade and Industry (dti).The plan, which is a key component of the Nine-Point Plan, aims to develop a more competitive and diversified economy with a higher global share of products. The latest iteration places emphasis on supporting transformation led by the dti’s flagship Black Industrialists Scheme inclusive of a bouquet of new and. These investments were expected to create approximately 4 720 direct jobs. 14 MAY 2018 6.1.1. What does IPAP stand for? (1) 6.1.2. What is the main objective of IPAP? (1) 6.1.3. Briefly describe the term industrial development. (2) 6.1.4. Explain what is contained in the nine-point plan of the country? (2) 6.1.5. How IPAP is related to NDP? (4) 6.2. Explain the aims of National Industrial Policy Framework. (8) [Page 101 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 7 7.1. Read the extract below and answer questions that follow: NDP progressing well despite high inequality Apr 15 2018 06:00 The National Development Plan (NDP) has progressed despite a recent report stating that South Africa has the most unequal society in the world. This is according to the deputy chairperson of the National Planning Commission (NPC), said the NDP, which is the development blueprint of the country, had achieved a lot within a number of years, but also acknowledged that many people were still trapped in poverty. “Too few South Africans work. The quality of school education for the majority is of poor quality and our state lacks capacity in critical areas. There has been significant progress, but our country remains divided, with opportunity still shaped by the legacy of apartheid. In particular, young people and women are denied the opportunities to lead the lives that they desire. The NDP envisions a South Africa in 2030 where everyone feels free, yet bound to others; where everyone embraces their full potential, a country where opportunity is determined not by birth, but by ability, education and hard work,” he said. Makgoba further said the recently convened NPC annual Lekgotla was deeply concerned that the trends pertaining to key objectives of the NDP – to reduce poverty, inequality and unemployment – have seen a backward slide, Source: CityPress 15 April 2018 7.1.1. Which policy is implemented according to the extract? (1) 7.1.2. Which sector is the area of focus? (1) 7.1.3. Briefly describe the term National Development Plan. (2) 7.1.4. What is the state’s role in the implementation of the NDP? (2) 7.1.5. How National Development Plan is expected to achieve its objectives? (4) 7.2. Briefly discuss the programme of Reconstruction and development programme. (8) ACTIVITY 8 8.1. Read the extract below and answer questions that follow: National Development Plan target is far off 20 June 2018 - 10:04BY SUNITA MENON We are far off from the target of the National Development Plan (NDP)‚ according to the head of the secretariat of the National Planning Commission of SA‚ Tshediso Matona.Speaking at the Vision 2030 Summit at Emperors Palace on Wednesday‚ Matona said: "The NDP is very ambitious given the current context."We cannot achieve this if we stay along this path that we're on‚" he said. The goals of the NDP are to eliminate poverty and reduce inequality by 2030. This calls for sustained growth of 5.4% and a 6% decrease in unemployment by 2030. However‚ growth is expected at 1.5% in 2018‚ according to Treasury‚ and unemployment remains uncomfortably high at 26.7%. Business LIVE 8.1.1. What challenge must South Africa address by 2030 according to the extract above? (1) 8.1.2. In the extract above, identify ONE way in which South Africa could minimise the challenges it faces. (1) 8.1.3. Briefly describe the term unemployment (2) 8.1.4. Explain the economic benefit of the implementation of the National Development Plan on the economy of South Africa. (2) 8.1.5. How can poverty and inequality be addressed in South Africa? (4) [Page 102 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

TOPIC: Industrial Development policies ACTIVITY 10 10.1. Read the extract below and answer questions that follow: THE RBIDZ COMPANY The Richards Bay Industrial Development Zone (RBIDZ) is a state-owned, legally registered, industrial development company situated in KwaZulu-Natal. It has the responsibility of encouraging international export competitiveness. It achieves this in several ways including tax and duty free incentives, providing world-class infrastructure and competitive input costs. The KwaZulu-Natal government is the sole owner of the RBIDZ, reporting to the Department of Economic Development, Tourism and Environmental Affairs (DEDTEA) through an accounting authority (Board) that is appointed by the MEC. Sources: African News 10.1.1. Which Industrial Development Zone mentioned above? (1) 10.1.2. What is the responsibility of the new project the extract is referring to? (1) 10.1.3. Briefly describe the term Industrial Development Zones. (2) 10.1.4. What are the challenges that hinder industrial development in South Africa? (2) 10.1.5. Why are Industrial Development Zones important in the economy of South Africa? (4) 10.2. Explain the aims of spatial development Initiatives. (8) ACTIVITY 11 11.1. Read the extract below and answer questions that follow: Nkomazi special economic zone to boost industrialisation in Mpumalanga ECONOMY / 8 JANUARY 2019, 3:13PM / ANA REPORTER South Africa's 10th special economic zone (SEZ), recently designated at Nkomazi in Mpumalanga, is expected to boost the industrial development of the province, the department of trade and industry said on Tuesday. The Nkomazi SEZ will be developed as an agro-processing hub, supported by logistics and other related services. To date, the country's SEZ programme has attracted 115 private companies and seen R11.6 billion worth of investments from private investments leveraging on R4.6bn of public investments, while creating more than 14 020 direct jobs. The programmes carries a reduced 15 percent corporate tax incentive, among other measures to encourage investment. “Taking advantage of the tax incentive package and the SEZ investment pipeline, the Department of Trade and Industry target is to increase the number of investments into the zones, and double the rand value of operational investments. 11.1.1. Identify the special economic zone the article is referring to. (1) 11.1.2. Provide any example of benefits offered by special economic zones. (1) 11.1.3. Briefly describe the term Special Economic Zones. (2) 11.1.4. Explain the main aim of establishing this SEZ . (2) 11.1.5. How government will attract businesses to invest in this special economic zones? (4) [Page 103 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 12 12.2. Read the extract below and answer questions that follow Work begins to upgrade N3 corridor SOUTH AFRICA / 23 MARCH 2018, 9:14PM / JONISAYI MAROMO The South African National Roads Agency SOC Limited (Sanral) on Friday announced that work to upgrade the N3 Corridor - the 84km freeway between Durban and Pietermaritzburg KwaZulu-Natal province had started. The planned upgrade will be done in phases over the next eight to 10 years. The N3 Corridor is essential if one of government’s strategic integrated projects linking the Port of Durban with Gauteng, South Africa’s economic heartland, is to succeed. He said the Sanral Board had directed that the project be given priority and construction on the critical sections must commence within the next two years. Detailed designs are being drawn up for the reconstruction of the N3 between Durban and Cedara at an estimated cost of between R22 and R24 billion. The plans include a ring road around Pietermaritzburg to avoid the notorious Town Hill section of the N3. 12.1.1. Which corridor is represented in the above extract? (1) 12.1.2. Which government department drives the implementation of regional development policies? (1) 12.1.3. Briefly describe the term corridor. (2) 12.1.4 What is the aim of the government with the adoption of regional development policies? (2) 12.1.5. How would regional development in South Africa benefit the rest of Africa? (4) PERFORMANCE INDICATORS The performance of the economy is assessed and determined by using the tools known as social and economic indicators. Economic indicators: is statistic (data) that shows the behaviour of an economic variable over a specific period of time.  Production : nominal GDP, real GDP, per capita GDP  Inflation rate: two keys: PPI, CPI  Foreign trade: terms of trade, exchange rate,  Employment : EAP, employment rate, unemployment rate  Productivity: labour productivity, remuneration per worker  Interest rates: repo rate  Money supply: the level of money supply in the economy is important because any change in its quantity will have a direct effect on interest rates. Social indicators: also called human development/development indicators because they promote improvements in the standard of living.  Demographics: population growth, life expectancy  Health and nutrition: Health (infant mortality, life expectancy, health expenditure, access to healthy water, access to sanitation); Nutrition (process of providing or obtaining the food necessary for health and growth)  Education: literacy, knowledge, skills (effective and appropriate) [Page 104 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

 Services: energy, sanitation, refuse removal and water access and use, access to food  Housing and urbanisation: Housing (housing subsidies, housing loans); Urbanisation (natural growth of urban population, migration, establishment of new towns) ACTIVITY 1 1.1 Study the data below and answer the questions 1.1.1 Identify the seasonally adjusted figure from the given data. (1) 1.1.2 What has happened to real GDP comparing 2019 &2018? (1) 1.1.3 Briefly explain the concept real GDP. (2) 1.1.4 How load shedding might have influenced GDP decline in 2019 during the fourth quarter? (2) 1.1.5 What can be done to improve the economic growth performance in South Africa? (2X2) (4 ACTIVITY 2 2.1. Study the picture below and answer questions that follow: 2.1.1 Identify the type of inflation illustrated in the given data. (1) [Page 105 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

2.1.2 What is the inflation target of South Africa? (1) 2.1.3 Describe the concept producer price index. (2) 2.1.3 What impact would a higher inflation rate have on a poor typical individual? (2) 2.1.4 How can the economic indicators assist the government in policy making? (4) ACTIVITY 3 3.1. Read the extract below and answer questions that follow: GDP in the fourth quarter of 2019 decreased by 1, 4% Gross domestic product (measured by production) South Africa’s gross domestic product (GDP) decreased by 1, 4% in the fourth quarter of 2019. The transport, storage and communication industry decreased by 7, 2% and contributed -0, 6 of a percentage point to GDP growth. Decreased economic activity was reported for land and air transport, as well as transport support services. The trade, catering and accommodation industry decreased by 3, 8% and contributed -0, 5 of a percentage point to GDP growth. Decreased economic activity was reported for wholesale and motor trade and accommodation (Stats SA: 03 March 2020) 3.1.1 Identify the period in which the above report is based on. (1) 3.1.2 Give one contributing factor to a decline in GDP. (1) 3.1.3 Briefly describe the concept gross domestic product. (2) 3.1.4 How the epidemic of corona virus may impact on domestic production. (2) 3.1.5 Briefly discuss the impact of recent job losses on the registered decline in GDP. (4) ACTIVITY 4 4.1 Study the graph below and answer questions that follow: 4.1.1 Identify the type of indicator illustrated above. (1) 4.1.2 Which year registered the highest price level? (1) 4.1.3 Briefly describe the term inflations targeting (2) 4.1.4 Briefly explain how a decline illustrated in the data would influence consumer buying power? (2) 4.1.5 How would a decline in inflation influence a typical poor household? (4) [Page 106 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 5 5.1 Study the information below and answer questions that follow: EDUCATION CHALLENGES IN SOUTH AFRICA PERFORMANCE INDICATOR % Population with at least some secondary education (% 25 years and above) 74,3 Public expenditure on education (% of GDP) 6,2 Gross enrolment at secondary institutions (%) 96,8 Gross enrolment at tertiary institutions (%) 19,7 Percentage dropout from secondary to tertiary institutions (%) 82,2 [Adapted from UN Statistics on South Africa, 2018] 5.1.1 Identify the social indicator in the information above. (1) 5.1.2 What percentage of the GDP was spent on education? (1) 5.1.3 Describe urbanisation as a social indicator. (2) 5.1.4 Explain briefly the importance of educating the population for the economy. (2) 5.1.5 How the South African human capital can be influenced by the 82,2% secondary to tertiary drop outs? (4) ACTIVITY 6 6.1 Study the information below and answer questions that follow: South African economy is under severe stress faced with high population growth and recent job losses reducing its tax base. This increase a group of population which is dependent on state securities for survival increasing the burden on the budget. 6.1.1 Identify the demographic indicator illustrated in the data above. (1) 6.1.2 Name the cause of economic stress. (1) 6.1.3 Describe the concept social indicators. (2) 6.3.4 Briefly explain how can health services be used to reduce high population growth rate? (2) 6.3.5 Briefly discuss the impact of high population growth above economic growth in the economy (4) [Page 107 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 7 7.1 Study the information below and answer questions that follow: In the fourth quarter of 2019, South Africa’s unemployment rate remained unchanged at the nose-bleed level of 29.1%, according to data released on Tuesday, 11 February 2020 7.1.1 Identify the economic problem discussed in the data above. (1) 7.1.2 Name the institution that provide data on the state of indicators. (1) 7.1.3 Briefly explain the concept unemployment. (2) 7.1.4 How the low economic growth contributes to unemployment? (2) 7.1.5 Briefly discuss the state majors that can be used to stimulate employment (4) DISCUSSION QUESTIONS (MIDDLE ORDER) 1. Briefly discuss repo rate and money supply as economic indicators. (8) 2. Discuss the economic indicators relating to productivity (8) 3. In your opinion, why is it important for the government to consider assessing the performance of the economy from time to time? (8) CONTEMPORARY ISSUES CONCEPTS INFLATION Key concepts  Administered prices inflation: Price that are set and controlled by the government.  Bracket creep: the movement of income tax payers into higher tax brackets as a consequence of an interest in money incomes with income bands for each rate of tax remaining the same.  Consumer price index: an index that measures the price of the fixed basket of consumer goods and services  Core inflation; Excludes items from the CPI basket that are highly volatile or prices affected by government policy.  Cost-push inflation: occurs when there is an increase in the cost of production.  Deflation; It a general decrease in price level [Page 108 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

 Demand-pull inflation: Occurs when the aggregate demand for goods and services exceeds the aggregate supply of goods and services.  Government bond :paper issued by the government in exchange for a loan which redeemable at some future date in long term  Headline inflation: it an unadjusted CPI figures  Hyper inflation:An inflation rate that is above 50% .People lose confidence in the value of money and start bartering goods and services  Implicit GDP deflator: the behavior of prices of all final goods and services produced in a particular year, and not only a selected basket of goods and services .it is calculated by comparing a GDP at current price with the GDP at constant price  Index: a measure designed to show average changes in the price, quantity or value of a group of an item over a period of time  Inflation: A sustainable and significant increase in general level over a period of time.  Inflation target: Form part of monetary and is managed by the Reserve Bank to keep inflation within the range as set by the minister of finance (between 3% -6%  Monetary Policy Committee (MPC):Consist of the government of reserve bank ,3 Deputy governors and another 3 members .Their main purpose is to determine an interest rate that will be consistent with meeting the inflation target.  Price index: includes the prices of a representative sample of goods and services.  Production price index: measures the price at the level of the first significant commercial transaction.(when they are leaving the factory gate )  Stagflation: Low growth, high unemployment and high inflation rates occurs simultaneously.  Weighted index. An index number in which the component items are weighted according Tourism INFLATION Definition Inflation is a sustained and significant increase in the general price level over a period of time. Measuring inflation • Changes in the price level are measured by means of price indexes. • An index shows average changes in the price, quantity or value of a group of items over a period of time. • Indexes • The average price level in the economy is measured in the form of an index number – a price index. • Calculating a price index is a complicated process. Prices of a representative range of goods and services need to be recorded on a regular basis. • Weighting • To overcome the problem of differences in the importance of items in an index, and different units of measurement, a weighted index number makes the figures directly comparable. • The weight reflects the relative importance of an item. If food is given a weight of 30% and housing a weight of 15% it means that a change in the price of food is twice as important as a change in the price of housing. • Given a system of weighting, an index number can be calculated by the price relative method. [Page 109 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

• Inflation rate • The inflation rate can be calculated once the consumer price index figures have been set. • Inflation is always expressed as an annual rate. • The most common practice is to compare the index for a particular month with the index of the corresponding month in the previous year, for instance, on a year to year (y/y) basis. The result is then expressed as a percentage increase. • For example, Total index for February 2017 x 100 Total index for February 2018 1 Types of inflation Consumer inflation i) Headline inflation Consumer’s inflation is measured by the Consumer Price Index (CPI). It represents the cost of the “shopping basket” of goods and services of a typical or average South African household. The CPI inflation rate is also known as headline inflation. ii) Core inflation • Core inflation excludes items from the CPI basket that have highly volatile prices (prices which go up and down rapidly), and items with prices that are affected by government intervention and policy. • These items include food, petrol and electricity. It is compiled from the detail provided by the surveys of the CPI. iii) Administered prices inflation • Administered prices are the prices of goods and services that are set by government or controlled by government appointed authorities such as assessment rates and property taxes, price of fuels, electricity, telephone line rentals, television and radio licences, vehicle registrations, etc. iv) CPIX inflation • The CPIX inflation is calculated by using the CPI, but excluding mortgage interest rates from the basket. a) Producer’s inflation • Another kind of inflation is measured by the production price index (PPI). • The PPI measures prices at the level of the first significant commercial transaction. • The differences between CPI and PPI are tabulated below: Consumer price index (CPI) Production price index (PPI) • Pertains to cost of living • Pertains to cost of Production . • Basket consists of consumer goods and services. • Basket consists of goods only, not services. • Capital and intermediate goods are excluded. • Capital and intermediate goods are included. • Prices include VAT. • Prices exclude VAT. • Interest rates are taken into consideration. • Interest rates are excluded. • Prices of imported goods are not shown explicitly • Prices of imported goods are shown explicitly. b) All-inclusive inflation • Economists often need to check the changes to the prices of all final goods and services produced in a particular year, and not only a selected basket of goods and services. • To find this they calculate an implicit GDP deflator. [Page 110 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Year GDP at current prices (R GDP at constant GDP deflator Inflation billion) prices (R billion) (2005 = 100) (%) 2015 3 625 714 2 786 739 130 7,2 2016 3 880 824 2 805 240 138 8,2 2017 4 171 729 2 842 416 146 7,6 (source :Quarterly bulletin December 2018) • GDP deflator is merely an index number. This is because of the effect that constant prices of the base year exercise. • To calculate the inflation rate the same procedure as for the CPI inflation rate calculations is used. • GDP deflator for 2015 = 130 GDP deflator for 2016 = 138 Inflation rate for 2017 = 146 – 138x 100 138 = 8 x 100 138 = 5,7 • The implicit GDP deflator gives an inflation rate for the economy as a whole. • An alternative method of calculating inflation: GDP deflator for 2017 x 100 = 146x 100 GDP deflator for 2016 138 = 105,7% - 100 = 5,7% c) Hyperinflation • Hyperinflation occurs when there is an extremely rapid increase in the general price levels. The money becomes worth almost nothing. d) Stagflation • Stagflation refers to a condition of stagnation of economic growth (low growth and high unemployment) and high rates of inflation. e) Deflation • Deflation indicates a continuous decrease in the general price level. Deflation is accompanied by high unemployment and low prices. CAUSES OF INFLATION a) Demand-pull inflation • Demand-pull inflation takes place when the prices of goods and services increase when the aggregate demand is higher than the aggregate supply. Causes of Demand-Pull Inflation i) Consumer spending (C). The disposable income of households can increase at a faster rate than aggregate supply for three reasons: - Less savings. If consumers change their savings habits and start spending their current and accumulated savings, growth in aggregate demand can outstrip growth in aggregate supply. [Page 111 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

- Reduction in taxes. This applies more to personal income tax than indirect tax. Consumers have more disposable income if direct tax is decreased by the government. This will increase consumer spending. - Access to credit. The greater the availability of consumer credit (e.g. credit cards) or availability of cheaper credit as a result of a decrease in interest rates. ii) Investment spending (I). Lower interest rates may result in an improvement in the sentiment and profit expectations of businesses. Businesses invest more and this may lead to an increase in the demand for goods and services that are part of investment (e.g. new buildings require cement, bricks and labour). If aggregate demand increases at a faster rate than aggregate supply, price increase will follow. iii) Government spending (G). An increase in government spending without a corresponding rise in aggregate supply, leads to an increase in price hence inflation. iv) Export earnings (X). Increase in export earnings from exports can come from various sources, namely: • Foreign growth. Growth of the economies of trading partner countries may create a demand for a variety of locally produced goods. The sales of exports bring money into the country. Demand increases without a corresponding increase in supply, resulting in an increase in prices. • Commodities demand. The world’s demand for commodities expands and contracts like business cycles do. During an expansionary period, foreign demand increases, and this leads to greater volumes of exports. The income earned from these exports adds to aggregate demand, and prices increase. b) COST-PUSH INFLATION: Cost-push inflation is a general increase in prices caused by increase in factor costs. In order to stay in business, producers are compelled to pass these higher production costs on to consumers in the form of higher prices. Causes of cost-push inflation are as follows: • Increase in wages and salaries. If trade unions are successful in negotiating better wages, the wages will go up. The producers will increase the selling price to compensate for the higher input costs. • Price increase of imports. The price of the imported goods may rise because of the depreciation of the local currency against the currency of the country which we import from. The producers have to pay more for the importing of goods and therefore they will increase the prices of the local products that they produce. -Increase in profit margins. If the producers decide to raise their profit margins, then the cost of production will increase and the products will be more expensive. • Decrease of productivity. If the productivity decreases while the remuneration of the factors of production stays the same, the unit cost will increase. • Natural disasters. Natural disasters such as floods, droughts and extreme weather will have an impact on the costs of production. The prices of agricultural products will increase in times of disaster. • Exchange rate depreciation. If the rand depreciates in terms of the US dollar, all imported goods and services become more expensive. • Strikes and stay-aways which reduce production output and cause a drop in the supply. • An increase in administered prices may result in trade unions demanding higher wages. Producers may simply add the increase to the price of the final product. • An increase in indirect tax such as VAT and custom duties will be added to the selling price and contribute to inflation. • An increase in direct tax may lead producers to increase prices to offset their extra burdens. [Page 112 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

• The high cost of inputs in the agricultural sector such as diesel and fertilisers are added to the price of products. An increase in interest rates means businesses will pay more for loans. This increase may also be added to the selling price 4 Consequences of Inflation • Inflation means gains to some and losses to others. The following are the consequences of inflation: a) Creditors and debtors. Whereas borrowers (debtors) benefit from price increases, lenders (creditors) suffer due to price increases. This is because borrowers receive money with a relatively high purchasing power, and they repay their loans with money with low purchasing power unless interest rates are sufficient to prevent this. b) Salary and wage earners/Redistribution of income. Prices increases affect people whose incomes are relatively fixed. This group includes retired people, pensioners and the poor. c) Investors and savers/a decline in real savings. Different types of investments are affected differently by inflation: • Assets with fixed nominal values. Because their nominal values remain constant, the purchasing power of the nominal values decreases as prices increase, that is, their real value decreases. • Assets with flexible market values. The holders of shares and fixed property usually gain by price increases because the nominal values of these assets tend to increase at least proportionately to the rate of inflation. d) Taxpayers. With inflation, the taxpayers’ nominal incomes (wages and salaries) rise even when their real incomes remain unchanged. Individuals will have to pay higher taxes even if they are actually no better off than before. e) Industrial peace. Wage bargaining is often accompanied by strikes and mass action. These actions can sometimes spill over into violence, which affects society at large. f) Buying power of money decreased.The consumers can buy fewer goods and services with the same amount of money because of the price increases. g) Government income. Price increases lead to an increase in wages and salaries which mean that direct taxation will also increase. The government will receive extra income from the taxpayers. h) Unemployment and poverty increase. Due to an increase in prices which may result in less demand and less supply. The suppliers have to retrench some of the workers. As a result, unemployment and poverty will increase. i) Inflation has an adverse effect on the country’s balance of payments. Inflation causes domestic prices to increase and this makes domestic exports uncompetitive on the international market and South African exporters may lose majority trading partners. j) Inflation impacts negatively on economic growth. Uncertainty discourages savings and investments and cumulative effect has a negative influence on the rate of growth. k) A high rate of inflation is harmful to the workings of a system of free enterprise. In the long run, inflation is harmful to free enterprise as it distorts prices of goods and services. INFLATION IN SOUTH AFRICA a) Historical overview [Page 113 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

 Inflation was relatively low until the early 1970s, averaging 2,5% during the 1960s, according to the table below: Year 1960s 1970s 1980s 1990s 2000-10 2010-18 CPI 2.5 10.3 14.8 8.7 6.0 4.8 Table 1: Inflation in South Africa  During the 1970s it averaged 10.3, and then in the 1980s it peaked at about 14.8%.  The highest annual rate during this period was 18,6% in 1986, and the lowest was 10.9% in 1987.  Such a sustained period of double-digit inflation had never been experienced before in South Africa.  Inflation subsided significantly in the early 1990s. It subsequently decreased further to 6.0% in the 2000 and now at at average of 4,8 from 2010 to 2018 MEASURES TO COMBAT INFLATION Combating demand-pull inflation Monetary policy • The monetary authorities (the MPC of the Reserve Bank) can increase interest rates and reduce the money supply. • This raises the cost of credit and reduces the availability of credit to the various sectors of the economy. • Increased savings. An increase in interest rate may motivate people to save, because they will get higher interest on their savings • Various instruments can be used to accomplish this, namely, increasing the bank rate (repo rate) and encouraging savings. • The monetary authorities can apply moral pressure on financial institutions to be more careful when granting credit. • The monetary authorities can relax exchange controls as a measure to combat inflation. • Inflation targeting: in South Africa the inflation target is 3% - 6%. Fiscal policy • The Minister of finance uses policies of taxation and expenditure to control inflation • This reduces the demand for goods but also has a negative effect on employment and production • Indirect taxation such as VAT, or customs and excise duties can be increased • An increase in direct taxation which will decrease disposable income and spending. • A decrease in government spending which will lead to less money being injected into the circular flow which should lead to a decrease in demand. • Imposing a surcharge (increases imported goods prices) on imported goods can help to control inflation [Page 114 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

• Protection measures may also be taken to protect local industries against unfair foreign competition • A reduction in direct tax can encourage productivity. • A reduction on Companies tax. Less Company tax will encourage investment and capital growth which will lead to higher productivity. • A reduction on taxes on interests and dividends which will encourage savings. 1. Combating cost-push inflation (Supply-side policy)  To avoid cost-push inflation two indirect policy approaches are used: • Productivity. Increases in factor productivity are most viable option. Wage increases need to be accompanied by productivity increases. Improvements in technology can play an important role. • Competition. The best method for keeping a check on profit margins is to ensure competition – domestically from abroad. • Wage policies. Increases in wages and salaries must be in line with the increase in productivity. 2. Other measures  Price control is regarded as a direct method to combat inflation.  Stricter conditions for consumer credit can restrict excessive demand such as the introduction of the National Credit Act.  Encouraging personal savings.  A floating exchange rate for the country’s monetary unit.  Applying the principle of indexation (automatically adjusting prices to the inflation).  Increasing of the commercial banks cash reserve that banks have to keep at the Reserve Bank. Inflation Targets  The main mandate of the South African Reserve bank is to stabilise prices.  In South Africa inflation targeting was adopted as a strategy in 2000 to deal with inflation.  The corner stone of this policy is setting a target for inflation and then using monetary policy to reach this target.  In South Africa this target is set between 3% and 6%.  The Monetary Policy Committee (Minister of Finance and Governor of the Reserve Bank are members) make public announcement about the target and time frame for achieving it.  In South Africa repo rate is an instrument used to control inflation Repo rate is the interest rate that commercial banks pay to borrow money from the Reserve Bank.  The decision to change the repo rate is undertaken by the Monetary policy Committee after considering a wide range of variables.  Decision and factors that influenced the change are communicated to the public every two months.  The South Africa Reserve bank is accountable to parliament for achieving goals. [Page 115 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 1 1.1 Study the case study below and the questions that follow IMPACT OF INFLATION ON THE ECONOMY For people whose incomes do not keep pace with the rate of inflation, its impact can be especially strong. Inflation can make it difficult for low-income people to pay for basic household expenses such as housing and food. When prices of these goods rise, purchasing power of the consumer declines. In South Africa prices are regarded as stable when the changes are within the inflation target range. [Adapted from www.google.co.za] 1.1.1 Identify ONE item which low-income earners may struggle to pay when inflation is high. (1) 1.1.2 Which phrase in the extract implies a decrease in the quantity of goods purchased by the consumer? (1) 1.1.3 Describe the term inflation. (2) 1.1.4 Briefly explain the effect of inflation on the balance of payment. (2) 1.1.5 How do the actions of trade unions cause inflation? (4) ACTIVITY 2 2.1 Study the extract below and answer the questions that follow WHAT IS THE ROLE OF FOOD COMMODITY PRICE BOOMS AND NUSTS IN THE AGRICULTURAL SECTOR? IMPLICATIONS FOR MONETARY POLICY Food commodity price booms and busts push food and consumer price inflation, agricultural sector output growth, investment growth and employment growth in different directions. These movements imply opposing effects for the monetary policy. Although food commodity price booms are good for the agricultural sector output growth and employment growth, they come at a cost of heightened food and consumer price inflation with implications for monetary policy. The sustainability and profitability of farmers, and the pursuit of low and stable inflation, financial stability and maximum employment demand policy co-ordination. Source: Accelerated Land Reform, Mining , Growth, Unemployment and Inequality in South Africa,389-408,2019 2.1.1 Identify the index used to measure South Africa's inflation rate (1) 2.1.2 Give the main reason for the increase in the CPI inflation above. (1) 2.1.3 Describe the term core inflation. (2) 2.1.4 Briefly explain impact of a decrease in inflation rate on low income earners. (2) 2.1.5 How can the South African Reserve Bank ensure that the CPI fluctuates within the 3%–6% band? (4) [Page 116 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 3 3.1 Study the cartoon below and answer the questions that follow 3.1.1 Name the index that measures change in cost of living. (1) 3.1.2 Which committee is responsible for making decisions on interest rates? (1) 3.1.3 Describe the term stagflation. (2) 3.1.4 Briefly explain the impact of increase in inflation rate on investors. (2) 3.1.5 How can SARB use interest rate to curb inflation? (4) TOURISM Definition of the term tourism: tourism is the activities of people travelling to and staying in places outside their usual environment for no more than one consecutive year for leisure, business and other purposes not related to an activity remunerated from within the place visited. This general description of tourism suggests three important dimensions: ● Tourism arises out of movement of people, and their stay in various places or at destinations. ● There are two elements in tourism, for instance, the journey to the destination and the stay, including activities of the destination. ● Both the journey and the stay take place outside the usual environment or normal place of residence. Purposes of tourism • Tourists travel for various reasons. The most basic international classification includes the following three purposes: • Leisure and recreation e.g. enjoying a holiday, doing sports or visiting friends and family. Two terms have become popular in this category: [Page 117 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

• Cultural tourism: this includes visiting museums, art galleries, archaeological sites, architectural attractions such as churches, mosques and cathedrals and other buildings and structures, attending festivals, sports events and cultural events such as religious events, pilgrimages, folklore and dancing. • Ecotourism: this includes visiting natural areas, wilderness areas, visiting scenic attractions, flora and fauna, enjoying the climate, sunshine, the sea, a river or a lake. • Business and professional: this include attending meetings and conferences, participating in missions e.g. to investigate housing in area, incentive visits such as travel agents that are invited to visit and experience a resort, visiting factories and other businesses for learning and information. • Other: includes, among others, studying, attending to family business and receiving medical treatment. The supply-side tourism • The supply-side of tourism consists of all those enterprises, organisations and facilities that serve the specific wants and preferences of tourists. Most of them are in the service industry. They include the following: • Hotels, guest houses, bed and breakfast, accommodation, restaurants, camping sites, resort residences, recreational facilities and casinos. Retailers selling travel accessories, souvenir vendors, chemists, printers and craft traders. • Hotel schools, tourism education programmes, tourist instructors, recreation and game and nature park services, game farms. • Tour guides, travel agents, information centres, game rangers, housekeepers and food and beverage distributors. • Car hire businesses, transport services (taxis, buses, trains, airlines and shuttle services). Reasons for tourism Growth • An increase in disposable income. • A reduction in working hours. • More awareness of leisure and recreation. • Improved transport, communication and accommodation facilities. • Increases in advertising and promotion • Awareness of the benefits of holidays and travel. • Ease of obtaining foreign exchange and making payments • Increase in economic activities. • Big events such as local and international sport events, religious purposes such as the annual pilgrimage to Zion city. • Increased migration Growth in foreign arrivals • Foreign tourism to South Africa has grown at a high rate for three reasons: [Page 118 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

• The peaceful transition to a democratic South Africa has impressed the world, and many foreigners want to see it (political change) • South Africa offers the “world in one country”. People want to experience the South African diversity • Due to the depreciation of the rand against major currencies, South Africa is regarded as a relatively cheap and good value for money destination. The Effects of Tourism Growth Gross Domestic Profit (GDP) • Tourism impacts more on the services industry than on agriculture or manufacturing. • Travel and Tourism contributes both directly and indirectly to the GDP. The direct contribution of travel and tourism reflects the internal spending of travel and tourism by residents and non- residents for business and leisure purposes as well as industries’ direct spending on accommodation, food, retail, transport and destination services, and the public sector’s spending directly linked to visitors, such as cultural or recreational services. • Travel and tourism investment spending by government and the private sector such as the purchase of new aircraft and construction of new hotels, resort area, water and sanitation services, etc. • Purchases from suppliers of goods and services by the sectors dealing directly with tourists – including purchases of cleaning services by hotels, or fuel and catering services by airlines and IT services by travel agents. Employment • Tourism has a major effect on employment. • Directly and indirectly, 9% of South Africa’s employed people were in the tourism industry. Tourism sector is a large generator of jobs for the following reasons: • Tourism is labour intensive. It has the lowest rate of investment to employment creation. • Tourism employs many skills. There is room for almost any skill in the tourist industry such as accountants, hairdressers, tour guides etc. • Tourism can provide immediate employment. If it is properly organised and focused the tourism sector can create many jobs within a short period of time. • Tourism provides entrepreneurial opportunities. The tourism industry accommodates informal sector enterprises, form craft and fruit vendors to pavement vendors, chair rentals and others. Poverty • Tourism brings development to the poor in rural areas. • Tourism offers opportunities to diversify sources of income for poor people: • Allowing them a stake: for example, to start and operate small-scale tourism businesses around community assets and to establish SMMEs to provide services. • Empowering them: for example, to exploit opportunities of on-the-job and other training. • Creating partnerships: linking up with mainstream tourism businesses supplying goods and services. [Page 119 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Externalities • The rapidly expanding tourism industry could have both positive and negative impacts that extend well into the future. • While tourism attracts large amounts of revenue, it can also cause undue environmental damage that can harm the foundation on which it depends. • Tourism uses resources and produces waste. It also creates environmental, social and cultural costs and benefits in the process such as:  Degeneration of traditions and cultural values.  Environmental damage to sites and natural settings.  Pollution and waste are generated by tourism facilities.  Transportation and tourist activities themselves are identified as the major cause of environmental impacts associated with tourism. Environment • Tourism has an impact on the environment • Tourism activities create environmental stress. The four main categories of stressor activities are: • Permanent environmental restructuring (highways, airports, resorts) • Waste product generation such as biological and non-biological waste that damages fish production, creates health hazards, and detracts from the attractiveness of the destination. • Direct environmental stress caused by tourist activities: for example the destruction of coral reefs, vegetation and dunes. • Effects on population dynamics such as migration and increased urban densities accompanied by declining populations in other rural areas. Infrastructure • Adequate physical, economic and basic services infrastructure is essential for tourist destination areas, which means they require investment in: • Transport infrastructure including roads (including streets and pavements), railway lines, airports ports and car parks. • Communication infrastructure such as telephone lines, electronic signal stations, computer connection capacity, radio, television and print media. • Energy infrastructure e.g. electricity and liquid fuels. Eskom should add capacity at all times. • Basic Services e.g. clean water refuse removal, sewage systems and storm water removal Benefits of Tourism South Africa benefits directly from tourism because of the growth it brings to GDP, employment, infrastructure development and exposure to foreigners. [Page 120 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Households  Households benefit through three main impacts of prosperity:  Earning an income directly from the tourism industry. Spending by tourists means income to households because of salaries and wages they earn through employment or through their own endeavour in the tourism industry.  Improved infrastructure for tourists, but can be used by the local people e.g. Soccer City (FNB Stadium), hotels, roads, water supply and electricity etc.  Skills: tourism requires a variety of skills, for which education and training are needed Businesses  Economic and basic services infrastructure is usually provided by the public sector, which is the case in South Africa.  This is used as a foundation for a superstructure.  In tourism such a superstructure consists of businesses that provide accommodation, transport, built attractions, retailing and recreational services. They are normally private sector activities and make up the profit-generating element of a tourist destination.  A combination of public and private sector finance are used to develop destinations. In South Africa a PPP is the corporate form for this.  The public sector also provides a range of financial incentives for private sector tourism investment (grants, subsidies, loans, tax rebates, etc.).  Apart from the traditional opportunities in the formal sector, there are many informal and less traditional opportunities. These serve as stepping stones for previously neglected groups in the tourism business:  Entertainment, laundry and transportation services.  Car rental, craft and curios sales.  Walking tour guides and tour of scenic places.  Teaching of African languages, customs and traditions.  Eating places that emphasise local cuisine and guest houses.  Beach massages, manicures, pedicures and chairs and umbrellas for hire. Government  The main avenue for the government to benefit from tourism is through the levying of taxes.  It is customary for governments to levy specific taxes on the tourism sector. Such taxes have two purposes:  To recover external costs.  To raise revenue.  The most common forms of raising public income from tourism are airport departure taxes, air ticket taxes and taxes on hotel room occupancy as well as casinos.  Foreign tourists who visit South Africa also pay all the normal expenditure taxes, such as VAT, excise duties and custom duties. However, on their departure from the country tourists can reclaim the VAT that they have paid. [Page 121 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Infrastructure developments  Adequate and well-maintained physical and basic services infrastructure are essential for tourist destinations. These are normally shared by residents and visitors alike.  The government has prioritised economic infrastructure, including elements such as ports, beaches, rivers and lake access, to support tourism growth.  Most economic corridors have tourism as an important focus.  The PPPs are sometimes used for the development of infrastructure.  In addition to physical and basic services infrastructure, tourists as well as residents, also require social infrastructure, for example, ambulance services, medicines, clinics and hospitals, police protection and information services. South Africa’s tourism profile  The growth in South Africa’s foreign tourism proves that South Africa is a popular tourist destination for foreigners. Tourist generating countries  South Africa provides 74% of the tourists coming to South Africa. From this some are from SADC countries.  Tourists from outside South Africa bring the money in. For most of them South Africa is a holiday destination.  Europe, especially the United Kingdom generates about one-third of the tourists from Europe.  The highest growth was from countries outside Europe and Africa, particularly from the United Nations, Australia and Asia. Purposes for travelling  Foreign tourists visit South Africa for the purposes of vacation and business.  Domestic and international tourists alike spend much of their time and money on three key attractions: the coast, wildlife and the country’s varied scenery of mountains, deserts and bushveld. Destinations  Destination brings together all aspects of tourism, including demand, transportation, accommodation, supply and marketing.  Destinations and their images attract tourists, motivate the visit and therefore energise the whole tourism system.  The geographical distribution of tourists in South Africa is uneven.  Some 55% of inbound tourists prefer Gauteng and the Western Cape as destinations. Domestic tourists  Domestic tourists undertook a total of 26,4 million domestic trips in 2011. However the number of adult South Africans who travelled domestically grew to 13,9 million.  In 2011, the average amount spent per domestic trip grew to R780 per trip. More South Africans are travelling for leisure. [Page 122 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Indigenous Knowledge Systems (IKS)  This refers to local knowledge or the local way of doing things. Tourists want to experience how local people live and work.  Tourists are no longer satisfied with passive experience.  Instead they seek authenticity and uniqueness at destinations.  They want to understand the indigenous culture, history and environment.  Of significant importance, in this regard, are our World Heritage Sites. Examples are: • Mapungubwe • The Vredefort Dome • The Sterkfontein caves • Robben Island • Richtersveld Cultural and Botanical Landscape  Our environmental World Heritage Sites represent the extreme of our indigenous environmental uniqueness. We have three such sites: • iSimangaliso Wetland Park, formerly known as the Greater St Lucia Wetland Park. • The Cape Fynbos Region, including the Table Mountain and the Agulhas National Park. • uKhahlamba Drakensberg Park including almost the entire Drakensberg mountain range. Policy Suggestions Policies to promote Tourism Marketing  The marketing and promotion of South Africa’s tourism has both an international and a local dimension.  South African tourist attractions can gain from the promotion of South Africa abroad as a possible tourist destination.  Similarly, tourist attractions in all the provinces can gain by promoting the advantages of tourism in South Africa at large.  In an international context, generic marketing endeavors to have South Africa included as a tourist attraction when the tourist consider their itinerary or when travel agents presents their clients with options.  than one holiday a year, to consider the wide variety of destinations, and to try group tours.  South African tourism promotes the following initiatives: a) Welcome campaign • This campaign was launched in 2004 at the Tourism Indaba and it encourages all South Africans to make every tourist feel at home. If tourists are made to feel welcome, they are more likely to return for repeat visit and to tell others about their experience. b) Welcome Awards • The Welcome Awards recognises those businesses and individuals that improve the quality of tourist offerings. The awards recognises high standards and excellent service. c) Sho’t Left Campaign [Page 123 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

• This campaign is aimed at making travel more accessible and affordable for all South Africans. d) Tourism Indaba • The annual Tourism Indaba is one of the largest marketing events on the African calendar. It showcases a wide variety of the best tourism products in Southern Africa and attracts visitors and media from across the world. • The Tourism Indaba promotes destinations, attractions, tour and events to tourism companies, tour operators, developers and private individuals. e) Tourism Enterprise Partnership • Tourism Enterprise Partnership’s objective is to improve the sustainability of small tourism enterprises to protect and promote job-creation and transformation within the tourism industry. Directing/Spatial distribution  Tourist flows should be redistributed to poorer areas where tourists do not usually go, since most tourists flock to the same familiar destinations because the attractions at those destinations are well known.  To redistribute tourist flows, three approaches can be followed: o Creating representative bodies (with stakeholders from less familiar areas) to lobby the wider tourism industry to promote their areas. o Improving marketing to highlight benefits and attraction of these areas. Owners or representative bodies can check their past endeavors to promote their attractions, in terms of the four “Ps” of marketing (Product, price, promotion and place). o Improving and extending supporting services. The cause of the uneven distribution of tourism may not be in the attractions themselves but due to the supporting services such as accommodation, services (e.g. retailing, safe parking, security, bank card payment, hairdressers etc.), access to the attractions destinations (efficient transport, dirt and gravel roads etc.) and ancillary services. Taxing  The World Travel And Tourism Council (WTTC) condones the levying of taxes on the tourist industry, within the following guidelines: • Equity: requires taxes to be fair and that the tourist industry be treated equally to the other sectors of the economy. • Efficiency: this means that the tax should not affect the tourism demand, unless specifically imposed to restrict access. • Simplicity: the taxes should not disrupt the operations of the tourism industry and should be simple to pay and administer. Infrastructure development  The economic and basic services infrastructure must be maintained to sustain all economic activity and not just tourism [Page 124 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

 The accessibility and Infrastructure of rural areas should be improved. If secondary roads (gravel and dirt roads) are properly maintained, domestic tourism will increase because most South Africans have a rural background and love to travel into the rural areas. Develop new tourism products  Tourism needs to be promoted in new and unusual niche markets such as wine and cuisine tourism, and adventure tourism such as horse trails, river rafting, shark cage diving and bungee jumping and also in cultural tourism. Improve security and reduce negative perceptions  Efforts have to be made to improve security, especially at tourist sites. The media need to focus on the many positive stories to boost the country’s image. Attract more international events to the country  After the success of the 2010 World Cup, South Africa is in good position to attract other, future events.  There needs to be a policy to attract international events. Promote the film and television industry  The film industry has a huge potential to promote the country.  Favourable conditions need to be provided for filmmakers, as these industries reach a greater tourism market audience than targeted advertising campaigns. Environmental management  Government is aware of the importance of ensuring that all aspects of the environment are managed in a responsible manner in terms of scarce resources such as land, water and forest, and especially the heritage sites. Education and training  Adequate education and training and awareness programmes are required to address deficiencies in the tourism industry in South Africa.  These programmes need to address the shortcoming regarding the previously neglected groups in South Africa in terms of job levelling in the industry.  The Tourism, Hospitality and Sport Education and Training Authority (THETA) is the Skills, Education and Training Authority (SETA) currently conducting planning of education and training of this sector. [Page 125 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITIES: TOURISM Activity 1 1.1 Look carefully at the pictures below and answer the question that follow 1.1.1 Identify the type of tourism shown by the above images. (1) 1.1.2 Name the campaign used to promote domestic tourism in SA. (1) 1.1.3 Describe the term eco-tourism. (2) 1.1.4 Explain the impact of tourism on the environment. (2) 1.1.5 Why is tourism viewed as a major job creator? (4) Activity 2 2.1 Study the graph below and answer the questions that follow: 2.1.1 Identify the month in 2017 that shows the least number of tourist. (1) 2.1.2 What was the cause of a decline in tourism in 2016? (1) 2.1.3 Describe the term tourism. (2) 2.1.4. Why has tourism grown so fast in SA since 1994? (2) 2.1.5 Calculate the percentage change in number of tourists from overseas between 2014 January and 2017 March. (4) [Page 126 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Activity 3 3.1 Study carefully the extract below and answer the questions that follow: Statistics show that the South African tourism sector is in decline The STATS SA report shows the overall number of visitors to South Africa in the first financial quarter of the year, normally one of the most popular times to visit the country, fell by 3%. The biggest decline was from the Middle East, which fell by a shocking 19.4%. The most concerning dip, though, was that of the number of tourists from Europe, a traditional stronghold of South African tourism, which dropped by 8.5%. The regions that boasted increases in visitors were Asia (up by just 0.8%), North America (up 1.4%), countries in east and central Africa (up 4%), while tourists from North Africa saw a massive boost of 13.6%. The biggest concern however is that the numbers for Q1 2019 aren’t just worse than 12 months before, they are lower than 2017’s number. Source: STATS SA 3.1.1 Identify the greatest contributor to SA tourism according to the extract. (1) 3.1.2 Name the economic sector under which tourism is classified. (1) 3.1.3 Describe the term outbound tourist. (2) 3.1.4 Briefly explain the contribution of tourism to economic growth. (2) 3.1.5 Why is South Africa preferred by most African countries as tourist destination? (4) Activity 4 4.1 Discuss the negative and positive externalities that result from tourism. (4x2) (8) 4.2 How can the increase in tourism alleviate poverty? (8) 4.5 How can tourism be beneficial to households? (8) 4.6 How can indigenous knowledge system be used to promote tourism in SA? (8) ESSAYS ACTIVITY 5 Discuss the benefits of tourism for: ● Business (10 marks) ● Infrastructure (8 marks) ● Households (8 marks) (26 marks) How can tourist attractions in less popular destinations be marketed successfully? (10 marks) [Page 127 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 6 Examine the effects of tourism to the economy. (26 marks) How successful has South Africa been in promoting tourism? (10 marks) ENVIRONMENTAL SUSTAINABILITY CONCEPTS Biodiversity :the variety of plant and animal life in the world or in a particular habit a high level f which is considered to important and desirable Conservation: Seeks creative continuity of the environment, while ensuring that environment change considers the quality of life for both present and future generations. Environmental sustainability: the ability of the environment to survive its use for economic activity. Green economy: sustainable development that does not erode the environment. Green taxes: taxes on output or consumption, which are charged for the adverse effects on the environment. Hazardous waste: is a waste that poses substantial or potential threats to public health or the environment.can be liquid, solids or contain gases Pollution: occurs when the flow of residual emission resulting from human activity exceeds the natural environment’s capacity to absorb them. Preservation: To keep resources that are non-renewable intact, e.g. ecological system heritage sites. Property right: is an exclusive authority to determine how a resources is used, whether that resource is owned by government or by individual. Residual waste: refers to the material that remains after the process of waste treatment has taken place. Environmental Sustainability a) The term environment refers to everything around us: land, water, air, plant and animal life. It provides us with the space to live, erect buildings and produce food. The environment also provides us with the resources for the production of goods and services. b) Pollution is the contamination of the environment by a chemical or other agent that renders part of the environment unfit for its intended use. Pollution occurs when people introduce waste matter into the environment, both directly and indirectly. The state of the environment  Environment is under pressure because human claims on the environment are more than what nature can provide for on a long-term basis. These claims originate for the following reasons:  Increasing population numbers.  Excessive consumption. The activities of humans put demands on the natural environment in two ways:  Inputs. The natural environment provides the resources for the living and working activities of humans.  Outputs. The living and working activities of humans produce waste that is disposed of in the environment. Pollution [Page 128 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

 Pollution is the introduction of waste matter into the environment, both directly and indirectly  Production and consumption of goods and services lead to unwanted residuals  Technology and the control of pollution have cleaner environmental effects than previous technologies e.g. electricity produced from coal and fossil fuel energy Types of pollution Air pollution: it occurs when there is an accumulation of substances in the atmosphere in such concentrations that they become part of the air we breathe. Air pollution can include noise pollution, tobacco smoke, exhaust fumes and acid rain. Air pollution has a negative impact on human health and harmful effect on ecosystems. The causes of air pollution include the following:  Chemical substances such as nitrogen oxides, carbon monoxide, fossil-fuel burning power plants.  Toxic substances from motor vehicles that combust fuel, chimneys and burning of wood, forest fires and the heavy industrial use of chemicals. Water pollution: this is the introduction of chemicals and physical or biological materials into fresh water. The largest sources of water pollution are the dumping of industrial waste and treated sewage into lakes and rivers, and the run-off from fertilisers. The introduction of these pollutants contaminate the water and affects organisms that live in rivers and seas. It also poses a great health hazard to people who use untreated water in rivers, dams and lakes for cooking, cleaning and drinking. Examples of water pollution are:  sewage disposal and domestic waste  Industrial effluents  Agricultural and mining waste Land pollution/environmental pollution: it arises from dumping toxic waste products. Land pollution damages the earth’s land surface through misuse of the soil by poor agricultural practices, mineral exploitation, industrial waste dumping and the haphazard disposal of urban waste. It includes visible waste and litter as well as the pollution of the soil itself. Examples of land pollution: soil pollution, waste disposal and soil erosion. Noise pollution: people who live near airports, train stations or factories can actually be harmed by the noise levels they endure. The disposal of toxic/hazardous waste: the disposal of toxic waste, also known as hazardous waste, is particular form of land pollution and presents particular challenges in both developed and developing countries. Toxic waste is any poisonous by-product of manufacturing, farming, sewerage systems, construction sites, motor vehicle garages, laboratories and hospitals. Toxic waste is often dumped or buried underground where it can contaminate soil and underground water supplies. Conservation Conservation deals with the sustainable use and management of both renewable and non-renewable resources to ensure that they are available for use for future generations. Conservation is necessary, since humans tend to over- [Page 129 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

utilise the environment. Conservation is applied in botanical parks, game parks, reptile and butterfly sanctuaries, minerals and forests, museums, buildings of special architectural and historical interest etc. The following aspects of conservation need to be emphasised: • There is an opportunity cost. • Externalities are often present. • Self-interest has a short-term horizon. Preservation Preservation means to keep something intact. Preservation deals with those aspects of the environment that are threatened with extinction. Some resources are not only non-renewable but if lost, they are irreplaceable. For example, an ecological system, a heritage site, an indigenous forest, a wetland, a river mouth ecosystem, species of animals, birds, insects and flowers on the verge of extinction. Private property: preservation is not likely to work as a private enterprise. Let’s use an example of a river mouth ecosystem which is part of a farm which is a private property. It has fresh water prawns and insects on which wild birds feed. During breeding seasons, some fish species breeds here. The farmer can sell some prawns and small fish as bait and charges a fee to people using a picnic spot or a hiking trail. The benefit to the society is much bigger than the income of the farmer. Society has the pleasure of the scenery, sea fish catches, birds and unspoiled nature. No compromise: if all the river mouth ecosystems were to be developed e.g. into a holiday resort, the animal and plant life would be severely affected. Humans will also suffer. Some things are simply not for sale. Government policy: the government can interfere by doing the following: Buy or expropriate. Under government control and management, social welfare may be maximised but it may be costly. In many instances, such assets are simply closed for human use, such as indigenous forests in South Africa. Subsidise. The river mouth ecosystem could be left to private ownership but a subsidy given through maintenance grants or tax concessions. Controls. The government can compel the owner to apply control measures, such as the quantities of prawns and young fish that may be removed, the activities of visitors and the number of visitors allowed per day. Externalities Externalities are the extra costs and benefits that are not captured by market transactions. They can either be positive or negative. This depends on whether people enjoy additional benefits that they did not pay for, or whether they suffer additional costs that they did not originally occur. An example of a negative externality could be pollution emitted from a factory affecting the health of residents in close proximity to the factory. An example of a positive externality could be the invention of new technology such as solar power being used in production processes. The term environmental sustainability means the ability of the environment to survive its use for economic activity. ⮚ The fact that current levels of pollution and environmental degradation are too high means that pure free market has failed to provide an optimal utilisation of the environment. [Page 130 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

⮚ Beyond the market, two options are possible: • Government intervenes and then allows market forces to operate and produce an outcome. • Government takes control and ensures, by means of laws, that the desired outcomes are realised. A. Using the market ⮚ The market can be used to ensure sustainability, provided sustainability is to the advantage of producers. Therefore, a particular approach is required. i) The market does not capture social costs and benefits. The market is driven by self-interest. This implies that the environment is for individuals to use for their own benefit. ii) The market fails for various reasons: • The environment is a common resource: Many parts of the environment are not privately owned, such as the seas. Many of the services provided by the environment do not have a price, so there is no economic incentive to economise on their use. At a zero price the environment will be overused. • Externalities: When people pollute the environment, the costs are borne by others. The greater these external costs, the lower the socially efficient level of output will be. If a business pollutes the air that we breathe, no one can stop it because the air belongs to no one. • Lack of knowledge: People may cause environmental damage without realising it, especially when the effects build up over a long time. • Carelessness: Consumers and businesses are frequently prepared to continue with various harmful practices and leave future generations to worry about their environmental consequences. iii) The mechanism of the market and social costs and benefits. If pure market forces fail to produce the desired result of sustaining the environment, it means that the market has failed. It failed because it did not capture in the market price all the costs and benefits that result from human production activities, and therefore the quantities that were produced and consumed were inappropriate. B. Public sector intervention ⮚ Policies include granting property rights people care for the things that belong to them and will try and use them as profitably for as long as possible. If property rights can be expanded to common goods such as clean air, those suffering from pollution can charge the polluters for the right to pollute. The principle of the polluters paying victims to reduce pollution is sometimes followed by government e.g. in terms of the Kyoto Protocol, the developed countries agreed to provide financial assistance to developing countries because they cause less pollution The developed countries therefore pay for the right to pollute. ⮚ Environmental subsidies: an alternative is to provide subsidies for activities that reduce environmental damage. For example, recycling of waste, production of unleaded petrol, development of an equipment to save energy or to reduce smoke etc. ⮚ Charging for the use of the environment: the pricing of the environment is one method used by the government to impose environmental charges. This means that government levies a fee on consumers and producers for the waste (solid, liquid and gas) they produce and dump in the environment. For example, local authorities levy charges for rubbish collection or sewage disposal on households, businesses and others. ⮚ Levying environmental taxes/green taxes: a tax can be imposed on the output of a good, wherever external environmental costs are generated. Green taxes are charged on items such as tyres. [Page 131 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

⮚ Marketable permits: each business is given a license (permit) to emit a share of the chemical pollutants. In developed countries the business who obtain these licenses or permits or credits, can trade them in a permit market. C. Public sector Control ⮚ Command and control (CAC) measures entail the setting of maximum permitted levels of, (e.g.) emission (carbon dioxide), or resource use (tons of fish) or minimum acceptable levels of environmental quality (in plantations).There are three approaches to devising CAC systems: • Quantity standards: these methods focus on amounts or quantities of pollution caused, irrespective of the environmental impact, for example motorcar gas emissions. As technology for reducing pollutants improves, so tougher standards could be imposed, based on the best available technology. • Quality standards: these methods focus on the environment impact. For example, standards are set for air and water purity. In South Africa municipalities can qualify for blue drop status on account of the purity of the tap water. • Social impact standards: here the focus is on people. For example, tougher standards for noise levels are imposed in densely populated areas than in rural areas. ⮚ Education plays a major role in improving people’s capacity to manage the environment. Pressure groups such as the Green Party and Friends of the Earth have forced industries to encourage managers to integrate environmental responsibility into all their business decision making. Education plays a major role in improving people’s capacity to manage the environment. ⮚ Voluntary agreements rather than imposing laws and regulations, the government can seek to enter into voluntary agreements with businesses for them to cut pollution. Such agreement may involve a formal contract which would therefore be legally binding, or they may be more informal commitments. D. International measures ⮚ Many of the environmental problems are not only local or national but are global. Global issues require joint action by the governments around the world. The world’s biggest concerns are loss of biodiversity, toxic and hazardous wastes and climate warming. ⮚ Since as early as 1972, a number of international events have been organised to address the issues of sustainable development and the impact of global practices on the future of our natural resources. Many decisions have been made at these conferences in order to provide guidelines to the developing countries of the world. ACTIVITIES: ENVIRONMENTAL SUSTAINABILITY Activity 1 1.1 Look carefully at the cartoon below and answer the questions that follow: [Page 132 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

1.1.1 Identify the environmental problem in the cartoon above. (1) 1.1.2 Name any ONE national park that conserves wild life in KZN. (1) 1.1.3 Briefly describe the term pollution. (2) 1.1.4 Explain a measure adopted by the international community to deal with the loss of biodiversity. (2) 1.1.5 How effective are government measures in protecting biodiversity in SA? (4) Activity 2 Getting to sustainable in South Africa While South Africa's National Development Plan sets the goal of a “transition to an environmentally sustainable, climate-change resilient, low-carbon economy and just society”, the country remains entrenched on a highly unsustainable path. The objective of the Air Quality Act is: to protect the environment by providing reasonable measures for the protection and enhancement of the quality of air in the Republic; the prevention of air pollution and ecological degradation; and securing ecologically sustainable development while promoting justifiable economic and social development. Source:Adapted from Greening Economic Sectors 2.1.1 Identify the environmental act that regulates air pollution in SA. (1) 2.1.2 What is the goal of the South Africa’s National Development Plan? (1) 2.1.3 Describe the term conservation. (2) 2.1.4 How can environmental sustainability contribute to economic development? (2) 2.1.5 Briefly explain the effects of pollution on the environment? (4) [Page 133 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

Activity 3 3.1 Study the cartoon below and answer the questions that follow: 3.1.1 What problem is represented by the cartoon? (1) 3.1.2 Which government department is responsible for solving the above problem? (1) 3.1.3 Describe the term preservation. (2) 3.1.4 Briefly explain the use of environmental subsidies to ensure environmental sustainability. (2) 3.1.5 Why does the market fail to use the natural environment sustainably? (4) Activity 4 4.1 Differentiate between conservation and preservation. (4x2) (8) 4.2 Discuss environmental taxes and marketable permits as environmental sustainability intervention strategies. (4x2) (8) ESSAY QUESTIONS ACTIVITY 5 Discuss in detail the measures used by government to ensure sustainable development. (26 marks) Evaluate how successful the government has been to conserve and preserve the environment in South Africa. (10marks) [Page 134 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]

ACTIVITY 6 Discuss the FIVE environmental problems and the international measures taken to solve these problems in order to ensure a sustainable environment. (26 marks) How does South Africa use conservation to ensure a sustainable environment? (10 marks) [Page 135 of 135] 2020 Grade 12 Economics Lower & Middle Order questions [Term1, 2 &3]