Economics Grade 12 NSC June 2014 Memo (English)

basic education Department: Basic Education REPUBLIC OF SOUTH AFRICA SENIOR CERTIFICATE EXAMINATION ECONOMICS HIGHER GRADE 2014 MEMORANDUM MARKS: 400 This memorandum consists of 23 pages. Copyright reserved Please turn over

Downloaded from hlayiso.com Economics/HG 2 DBE/2014 SCE - Memorandum SECTION A QUESTION 1 1.1 MULTIPLE-CHOICE 1.4.1 B_ underestimationvvv 1.1.2 C technological developmentv vv 1.1.3 B_ method of calculationvvy 1.1.4 D_ per capita national incomevvv 1.1.5 D_ increase in the quantity demanded for buttervvv 1.1.6 B_ decrease in supply vvv 1.1.7 A consumer Vvv 1.1.8 D pricevvv 1.1.9 D hawker’vv 1.1.10 A attract infrastructure to rural areas’ Vv 1.1.11 D_ developmentvvv 1.1.12 B dependency on agriculturevvv 1.1.13 C Coffeevvv 1.1.14 A importing goodsvvv 1.1.15 A volume of imports will decreasevvv 1.1.16 B_ export subsidiesvvv 1.1.17 B fiscalvvv 1.1.18 D essential services are under valued by the private sector’vv 1.1.19 D_ supplementaryw~vy 1.1.20 C regressivevvv (20 x 3) (60) Copyright reserved Please turn over

Economics/HG Downloaded from hlayiso.com 3 SCE - Memorandum 1.2 TRUE OR FALSE 1.2.1 1.2.2 1.2.3 1.2.4 1.2.5 1.2.6 1.2.7 1.2.8 1.2.9 1.2.10 True vv FalsevY¥ Truev¥ False vv Falsevv Truev¥ Truev¥ True Vv Truevv¥ Falsevv 1.3 CHOOSE FROM LIST 1.3.1 1.3.2 1.3.3 1.3.4 1.3.5 1.3.6 1.3.7 1.3.8 1.3.9 1.3.10 Copyright reserved double countingYY real income vv New Development Plan vv devaluation’vY planningvv mechanisation’v unemploymenty” inflation’v wagesv¥ Solarvv DBE/2014 (10 x 2) (10 x 2) TOTAL SECTION A: Please turn over (20) (20) 100

Downloaded from hlayiso.com Economics/HG 4 DBE/2014 SCE — Memorandum SECTION B QUESTION 2: NATIONAL INCOME 2.4 2.1.1 circular flow vv” 2.1.2 under vv 2.1.3 non vv 2.1.4 national vv 2.2 Only goods and services with a market value are includedv ¥ Changes in price level present difficulties” Y Method of calculation is not entirely accuratev V Leisure time is not regarded as contributing to welfarev ¥ The cost of negative elements are not reflected Vv” Increased expenditure on defence does not increase the welfare of the population vv” (Any 3 x 2) 2.3 DATA RESPONSE: 2.3.1 Adjusted for inflation/oased on basic process/adjusted for price increases/nominal against real income/Expressed in terms of base year. vv v 2.3.2 Financial intermediation, insurance real estate and business services VV Vv 2.3.3 R1 623 853 m VvVvv 2.3.4 Secondary: 372 706v + 146 966v + 87 492 V = R607 164mv Tertiary : 238 164v + 661 028” + 432 376v +589 206v =R 1920 864mv 2.3.5 Agriculture/forestry/mining/fishing vv 2.4 Oordragbetalings: ¢ Payments made between parties without receiving anything in retum. vv /'No quid pro quo' e When calculating national income, problems arise where goods and services have no prices. VW ¢ This applies to public sector services such as defence, law and orderv ¥ Transfer payments by the government include all government expenditure which does not involve the purchase of the services of the factors of production. VY e Transfer payments do not require the compensatory services or goods. Vv e These items do not contribute to the national output and are thus excluded from national account figures. Vv“ Copyright reserved Please turn over (2) (2) (2) (2) (6) (3) (3) (3) (3) (2)

Economics/HG Downloaded from hlayiso.com 5 DBE/2014 SCE~ Memorandum They are however included under the personal disposable income (income after tax payments) of the national accounts. V” (Max 8 marks) Double counting: It occurs when the payments of factors of production are added in more than one phase of the production process. E.g. the value of intermediate goods. vv When we add the values of the total outputs of all the business enterprises in the economy, this will give an aggregate which is many times greater than the value of the national output. vv” e This is because of double counting. Vv e The outputs for some enterprises are inputs for others. VW e National output can either be measured by adding the values of final products, or by totalling the values which are added at each stage in the production process. VY e The value of intermediate goods does not form part of the national account figures. Vv (Accept any other relevant facts) (Max 8 marks) QUESTION 3: PRICE FORMATION 3.1.1 marginal utility” 3.1.2 positive vv 3.1.3 quantity vv 3.1.4 quantity supplied Vv 3.2 Single producerYY” No close substitute VW Prices can to a certain extent be manipulated by producer’ ” Producer may restrict output in order to raise pricevY” Imperfect knowledge of the market, which is deliberately done and exploited by advertisingY ¥ Barriers restrict rivals from entering the market” v Discrimination is possible VW” (Any 3 x 2) 3.3 DATA RESPONS: 3.3.1 The difference between the price which people are prepared to pay for a product and the actual price that they pay. vv” 3.3.2 EAP Vvvv 3.3.3 OEPF Vvvv Copyright reserved Please turn over (16) [50] (2) (2) (2) (2) (6) (3) (3) (3)

Downloaded from hlayiso.com Economics/HG 6 DBE/2014 SCE — Memorandum 3.3.4 GAPCY vv (3) 3.3.5 The marginal consumer is forced to pay the full reserve price VV¥ and therefore gets no consumer surplus. VV ¥ (6) 3.3.6 Yes Vv (2) 3.4 e Markets bring supply and demand together VY - The most important economic function of the market is to bring together buyers and sellers in the same place. VW” - The question of what, how, and for who are answered by firms and households linked together in the marketing of goods and services. vv e Markets _have__emerged _as__a__ method __of_ _ organisin production/markets allocate resources.vv - Through the information transmitted by markets, producers can make decisions about what factors of production to use and consumers decide what to consume. Vv e The _major_ economic function of the market system is price determination. Vv - The prices of a specific product is determined by the demand (by the consumers) and the supply (by the producers). Vv - Any change in the price implies a change in either demand or supply or both. Vv” e Markets are self-regulating. VY - When prices, profits or wages drift away from their natural levels as determined by cost, the market forces of demand and supply will drive them back to their equilibrium. VV ° Market_serves to co-ordinate production and consumption decisions. VY - In acentrally planned economy people cannot tell producers what to consume; they must choose from the goods and services available. vv - In a market economy consumers determine what must be produced.vv” e Market reduce price fluctuations caused by the seasonal nature of products. vv - Market specialists carry stock of goods in order to prevent price fluctuations.”vY” e Establishment of specialised markets. Vv - Markets allow both producers and consumers to take advantage of the specialised services. VY (Any 4 x 4) (16) [50] Copyright reserved Please turn over

Economics/HG Downloaded from hlayiso.com 7 DBE/2014 SCE -— Memorandum QUESTION 4: ECONOMIC AND REGIONAL DEVELOPMENT AND 41 4.1.1 4.1.2 4.1.3 4.1.4 4.2 e e e e e e e URBANISATION developng vv” informal vv GEAR vv Department of Trade and Industry v” Maputo corridor vv” Wild Coast Development programme and the Fish River SDI vv Lubombo Initiative vv West Coast Investment Initiative vv Platinum SDI vv Phalaborwa Sub — corridor vv Coast - to - coast corridor Vv” (Any 3 x 2) 4.3 DATA RESPONS 4.3.1 4.3.2 4.3.3 4.3.4 4.3.5 4.3.6 Copyright reserved Stats SA vv / Statistics South Africa vv A typical characteristic of a depression is retrenching, unemployment and bankruptcies.““~“ During a period of depression one will find a very high rate of unemployment. “Vv Eskom does not have the capacity to produce enough electricity to supply for the growing demand, it resulted in power cuts/outages/ load shedding. e Creation of employment and construction VW v e Inward industrialisation VvVvv¥ e Education and training VV ¥ e Keeping up with moder technology vv” e Drawing up of population policy “WV e Wage subsidies VVvY e Tax relief to industries Vv v e = EPWP'svv (Any other relevant measure) (Any 2 x 3) The public sector. Y~ According to Schissler, job creation is overwhelmingly driven by public-service hiring. “~In the first quarter state-controlled companies and the public service had added some 158 000 jobs year on year. vv” (2x 2) Any person between the working ages (15-60/65) who is available for employment. “¥ Please turn over (2) (2) (2) (2) (6) (2) (3) (3) (6) (4) (2) [20]

Downloaded from hlayiso.com Economics/HG 8 DBE/2014 SCE — Memorandum 44 e Unbalanced urbanisation vv - South African cities are spread unevenly across the country and unbalanced in respect of their size. VW” - Example: The over-concentration in the Gauteng area/Cape Town metropolitan area VY e Problems of road and services/Environmental disadvantagev V - Roads and services are often inadequate for the high concentration of the population and water is polluted.” ¥ - Uncontrolled urban growth has resulted in people having to travel far from their homes to their work places. Vv” - High percentage of motor vehicles in proportion to the population.” ” e Inadequate facilities/Lack of services VV - Modern cities are unplanned and inadequate facilities for the removal of refuse and sewage, poor and inadequate housing, insufficient water supplies for a large number of people and industries. VW” « Misuse of agricultural soil VV - The best agricultural soil is often utilised for urban needs.” ” - E.g. Housing/Industrial development.v” e Rapid development of cities/Increased unemployment Vv” - Lack of job opportunities for the unskilled in cities because of the fast development of cities vv e Residential density vv - Large number of people lives too close to one another and often there is neither privacy nor security where they stay.vv - There is wide spread squatting and informal settlements Vv” e Social problems VY - There is an increased rate of crime, high rate of divorce, drug abuse and alcohol, high rate of violence, and mental disorders.”~” (Accept any relevant facts) (Any 4 x 4) QUESTION 5: INTERNATIONAL ECONOMICS 5.1 5.1.1 ad valorem vv 5.1.2 appreciation vv 5.1.3 Southern Africavv 5.1.4 exchange rate vv Copyright reserved Please turn over (16) [50] (2) (2) (2) (2)

Economics/HG 5.2 5.3 5.4 Downloaded from hlayiso.com 9 DBE/2014 SCE — Memorandum Different monetary systems or currency Vv Countries’ laws, rules, customs differvY Trade relationsYvv No free movement of capital or labour”” Granting of credit difficulty” Cultural, social and political differencesvY Transport costs’“” (Any 3 x 2) DATA RESPONSE: 5.3.1 Fvvv 5.3.2 OQ! Qvvy §.3.3 Increased demand for dollars Vv” 5.3.4 Price of dollar in terms of rand will decrease VV v 5.3.5 Exports decrease VVvv¥ Investments in SA decrease VVY” Export companies close down/decreased production vv v Increased unemployment Vv Vv” (Any 2 x 3) 5.3.6 Pula vv Natural Resources Natural resources include resources from the land, such as minerals, forests, fuels, fish from the sea, etc. vv Natural resources vary from country to country, as they are not evenly distributed across the world. VW Some countries have, for example, large oil resources. VW South Africa on the other hand, has few oil resources and therefore has to import from other countries. However, South Africa has a large variety of mineral resources.v ¥ By exporting minerals e.g. gold and diamonds, South Africa can earn foreign exchange, which can be used to pay for essential imports of goods and services such as oil. VW” The unequal distribution of natural resources causes countries to be mutually dependent. vv They must therefore trade with one another to increase prosperity and living standards. VY (Any 4 x 2) Copyright reserved Please turn over (6) (3) (3) (3) (3) (6) (2) [20] (8)

Economics/HG Downloaded from hlayiso.com 10 DBE/2014 SCE — Memorandum Climatic conditions Weather conditions are not the same across the world.““ There are virtually dry areas while other areas enjoy rainy weather. Vv Certain products can be grown only in areas where there is a lot of rainfall. VW Because of its irregular rainfall, South Africa will never be able to develop into a great agricultural country. v “Nevertheless it can still satisfy its own needs by importing a few agricultural products from other countries. Vv” Drought compels South Africa to import yellow or white maize from abroad, should local production not meet the domestic demand. VV Differences in climate between countries cause certain products to be produced only in seasons. “Because the need for such products is not seasonal and the goods are perishable and cannot be stored indefinitely such products are imported. VW (Any 4 x 2) (Accept relevant examples) (Example maks (4 x 2) 8 marks QUESTION 6: THE STATE 6.1 6.1.1 indirect vv 6.1.2 Finance vv 6.1.3 progressive VY 6.1.4 privatisation vv 6.2 e Functional vv Administrative vv Financial vv (3 x 2) 6.3 DATA RESPONSE: 6.3.1 education vvv 6.3.2 SchoolsY¥ VY Health vvv Housing’ vv” Welfare service VVV¥ (Accept if specific examples are mentioned) (Any 2 x 3) 6.3.3 Taxes VVV 6.3.4 Public borrowing, Public debt, Loans, Issuing government bonds/ Copyright reserved loan levies. VVvv (Any 1 x 3) Please turn over (8) [16] [50] (2) (2) (2) (2) (6) (3) (6) (3) (3)

Downloaded from hlayiso.com Economics/HG 11 DBE/2014 SCE - Memorandum 6.3.5 130.5 — 154.8 = R-24.3 bn Vv / -R24.3 bn/ 154.8 x 100/1 = vv -15.71% v (Accept 15.71%) (5) [20] 6.4 e Price stabilityyv” - Prices rise when the demand exceeds the supply of goods and prices decreases when the supply exceeds the demand. v” - It is, however, abnormal for prices to increase year after year and when this happens, we say that inflation exists and this is a continuous increase of price over an extended period. Vv - Continued inflation is disadvantageous to a country and therefore it is necessary for the government to take action. VW e Full employmentvY - Full employment means that all persons who would like to work, who are fit to work and who are seeking work should be able to find work. vv - Full employment is possible only if production is stimulated and increased. VW - Measures to stimulate production are required e.g. promotion of labour intensive enterprises, subsidies, tax concessions and increased consumption. Vv e Economic growth’ Vv - Economic growth means an increase in total production or an increase in the real GDP. Vv - Tax relief will stimulate consumption and production vv e Balance of payments equilibriumyY - It refers to a position where a favourable ratio exists between the various economic variables (imports, exports, capital flows.) vv e Economic equityYY - The market mechanism often creates an unequal distribution of income. Vv - A more equal distribution of income can be achieved through a progressive tax system and free services to poor. Vv (Accept alternative terminology 4 x 2 = 8 for listing. (4x 2 =8 for discussion) Any4x4 (16) [50] Copyright reserved Please turn over

Downloaded from hlayiso.com Economics/HG 12 DBE/2014 SCE -— Memorandum QUESTION 7: IMPORTANT SOUTH AFRICAN ECONOMIC TOPICS (CHOICE MODULES) 7.1 LABOUR RELATIONS 714 (a) (b) 7.12 Labour court Vv Affirmative VW To attend to the interest of their membersY YW” To negotiate with employers for better conditions of work” To manage pension, unemployment funds and medical aid schemesvY To research matters relevant to the industry or sector” ¥ (Any 2 x 2) 7.13 DATA RESPONSE (a) (b) Copyright reserved Obstacles in the way of expansion and economic growth Vv Discourage domestic and foreign direct investments” VY” Leads to labour inefficienciesY VV” May cause job lossesv vv (Accept relevant alternatives) (Any 2 x 3) Unfair dismissals VVv” They help to set minimum conditions without government intervention.vY They assist in the settlement of disputes. VV” They help to standardize the conditions of employment for the industry concerned thus eliminating competition on the basis of labour costs. Vv They promote labour peace. Vv” They remove wage conflict from the shop floor. VY” Help in the provision of pensioning of provident pension/fund. Vv Strive to attain a balance between the rights of employers and the rights of employees. Vv Attends to the provisioning of certain social security and medical aid schemes. Vv (Any 4 x 2) AND/OR Please turn over (4) (4) (6) (3) (8) [25]

Downloaded from hlayiso.com Economics/HG 13 DBE/2014 SCE - Memorandum 7.2 PRODUCTIVITY AND UNEMPLOYMENT 7.2.1 (a) unskilled vv (b) real vv (4) 7.2.2 Seasonal fluctuations VW” Minimum wagesv ¥ Increased mechanisation’ Y Unexpected natural disastersv V (Accept relevant alternatives) (Any 2 x 2) (4) 7.2.3 DATA RESPONSE (a) Lower costs VWv” Higher profits Vvvv (b) Quantity of output/Quantity of input vv ¥ OR Quantity of ouput: Quantity of input “vv (9) 7.2.4 e An unemployed person's personal pride and dignity are affected adversely and his standard of living declines. VY e Unemployment can increase crime rates, due to frustrations experienced in a climate of uncertainty and disorder. Vv e Expensive skills and potential abilities are lost because they are unused. Vv” e Unemployment can harm our new democracy. VY It can also affect social stability adversely through a lowered confidence, mutual respect and tolerance. Vv e Negative effect on perceptions of the success of the market economy. vv” e The country cannot realise its full potential in the production of goods and services.WV (Accept any other relevant argument) (Any4x2) (8) [25] AND/OR 7.3 INFLATION 7.3.1 (a) Cost-push inflation Vv (b) Stagflation vv (4) 7.3.2 Creditors Vv InvestorsY ¥ Fixed income earners VY Consumersv Vv Pensioners Vv (Any2x2) (4) Copyright reserved Please turn over

Economics/HG 7.3.3 7.3.4 Downloaded from hlayiso.com 14 DBE/2014 SCE — Memorandum DATA RESPONSE (a) Decrease in interest rates VVV” Increase in GDP VVvv Increase in productivity Vv“ v Appreciation of the rand ¥Vvv” Oil prices stabilised VWv” Efforts of monetary authorities vv v (Accept relevant alternatives) (Any 1 x 3) (b) Between 3% - 6% Vvvv (c) Consumer Price Index VvVvv” ¢ Also known as supply-side inflation as it is caused by producers increasing prices. VY” e Imported inflation caused by unfavourable exchange rates or increasing prices of imported components. VY ¢ On the domestic front, can be caused by trade unions asking for higher wages thus pushing up costs of production. VW” e Cost-plus-profit pricing occurs when producers faced with rising input costs adjust selling prices to maintain their existing mark-up policies. vw e Taxes e.g. VAT increase can fuel this type of inflation vv (Accept any other relevant arguments) (Any 4 x 2) EN/OF 7.4 STRATEGIC RESOURCES 7.4.1 74.2 7.4.3 Copyright reserved (a) SASOL Vv (b) Strategic VY Use of solar energy in residential homes, on farms and in rural areas VV The promotion of gas as alternative to electricity vv Motor vehicles operating on batteries VV or other alternative fuel sources e.g. Biomass, Wind, Hydro and TidesV¥Yv = (Any 2x 2) DATA RESPONSE (a) Developing country” — most people use river or stream water (38%)v ¥ (b) River Vvv Stream water VVv (Any 1 x 3) (c) Department of Water Affairs/Forestry/Environmental affairs Vv Please turn over (3) (3) (3) (8) (4) (4) (3) (3) (3)

Economics/HG 7.4.4 Copyright reserved Downloaded from hlayiso.com 15 DBE/2014 SCE —- Memorandum Food production for population e.g. maizev Stock feed for animals e.g. Lucernev” Provide for livestock which in turn provides for meat etc. VW” Industries which process raw materials e.g. canningY V Provides employment to those working in agriculture and miningYY Agricultural surpluses can be exported and thus earn foreign exchangev ¥ Prevent depopulation of rural areas by finding alternative sources of water. VW Exploitation of mineralsv ¥ Greater industrialization’yY Used in quarrying operations’ V (If listed agriculture, mining, fishing, forestry and quarrying - max.4 marks) (Any 4 x 2) TOTAL SECTION B: Please turn over (8) [25] [50] 200

Downloaded from hlayiso.com Economics/HG 16 DBE/2014 SCE -— Memorandum SECTION C Essays must be well structured and presented in a systematic format. Responses should have an introduction, body and conclusion. QUESTION 8: NATIONAL INCOME Introduction Cyclical changes refer to the phenomenon of successive periods of increasing and decreasing economic activities. “vv (3) (Accept any logical/original introduction) Body Cyclical trends vv” A period of increasing prosperity is referred to as an upswing in the economy while a period of decreasing prosperity is referred to as downswing VY These cyclical trends are referred to as business cycles VW” e Business cycle may be represented graphically as follows: 4 Economic activities v Trend line “ (Upward slope) Recessionv TroughY = > 0 Time Vv Marks for graph: ° Axes ~ One mark each - 2Marks « Cure — One mark - 1Mark e Trend line — One Mark - 1 Mark * Labelling — One Mark each - 4Marks MAX- 8 Marks Copyright reserved Please turn over

Downloaded from hlayiso.com Economics/HG 17 DBE/2014 SCE — Memorandum CAUSES OF BUSINESS CYCLE e Real/Actual causes VY An increase in investment leads to growth in economic activities and is associated with the upswing of the economy. Vv A decrease in investment leads to a decline in the economy and the following downturn. vv Actual causes also found in the relationship between savings, investment and consumer spending. Vv With indirect production there is a division between both time and space between provision of raw materials, manufacturing of the means of production, and the eventual use of the products which leads to periodic firming which results in cyclical waves of upswings and downturns. VW The reciprocal effect between the total market forces, e.g. total demand and supply is also a cause. Also favourable or unfavourable agricultural conditions e.g. droughts and floods. Vv In the USA/democratic countries there may also be a parallel ‘political cycle’ where the economy is stimulated about a year before the presidential elections by increased purchases by the government sector. VW” An increase in the money supply which puts the economy in an upswing and after elections the economy moves into a downswing. Vv” The design of new profitable production processes leads to stimulation of demand and a new upswing phase is created. vv The discovery and implementation of new technology and machinery. vv The creation and exploitation of new markets. Vv” The discovery of new resources, e.g. minerals and metals. Vv” e Monetary causes Money makes up an integral part of the economy and the availability of sufficient cash, and particularly credit will play a role in the extent of economic activities. Vv Businesses increasingly use commercial banks for a supply of credit to finance short term economic activities and an increase in credit will lead to an upswing in the economy. Vv” When production increases the demand for bank loans and credit extensions rise. VV During the prosperity phase banks grant large volumes of credit because of the good profits banks make on their loans and services. VW To prevent inflationary pressures and bankruptcies, banks begin to restrict and later reduce credit which initiates the downswing. Vv According to a second theory there is a natural rate of interest where the supply of credit equals the demand for credit. VW Whenever the market rate of interest is lower than the natural rate of interest, the demand for loans increases because the interest rate for taking up credit is relatively low. VW This results in an increase in economic activity leading to an upswing. VY When the market rate of interest exceeds the natural rate, businesses tend to repay their loans because the interest rate for taking up credit is relatively high. vv Copyright reserved Please turn over

Downloaded from hlayiso.com Economics/HG 18 DBE/2014 SCE — Memorandum - A third theory explains business cycles in terms of the fact that the bank rate determines the level of interest rates which banks charge. VW” - If interest rates rise, businesses tend to reduce their inventories, produce less. and place smaller orders, which gives rise to a downswing. VW - As interest rates drop, the cost of carrying inventories decreases and there is renewed demand for raw materials and more inventories are kept which marks an upswing. Vv“ - _ This is known as the under-consumption theory. VW” e Psychological causes VV - People's perceptions of a country's economy can be an important psychological cause of business cycles. Vv - Waves of optimism/pessimism and economic climate - Positive expectations create the upswings while negative outlooks cause the downswing in the economy.v¥ - Expectations of business leaders have an important influence in the level of investment/Business confidence. Vv ¥ (45) Conclusion e The business cycle is the result of human decisions and actions.v ” (Accept any logical/original conclusion) (2) [50] AND/OR QUESTION 9: PRICE FORMATION Introduction It is important, especially for the supplier, the manufacturer, consumer and government to have a fair understanding of the determinants of the price elasticity of demand Vv V (3) Body The following determinants of the price elasticity of demand can be identified: e Anecessity VV - The demand is inelastic because a minimum quantity will be bought no matter what the price may be. Vv - For example, a fall in the price of bread would not increase consumption. (demand) Vv e = Aluxury vv - The demand is elastic because people can do without the article if they consider the price to be too high. VW” - For example a Jacuzzi. Vv Copyright reserved Please turn over

Downloaded from hlayiso.com Economics/HG 19 DBE/2014 SCE- Memorandum e Asubstitute’vY - A slight price rise may cause people to substitute a particular good for an alternative product. VW - This explains why the prices of substitutes tend to increase or decrease simultaneously. Vv - For example a rise in the price of butter would cause the demand for margarine to increase, leading to a rise in the price of margarine. vv e Alternate uses Vv - Where the demand is elastic.”vv - For example, a slight fall in the price of rubber would cause rubber to be used for other purposes which were previously considered to be too expensiveY ¥ e.g. for belting, for floor-covering, shoe soles and household utensils. “” e Income vv - Changes in income can also affect the quantity demanded for a particular good or service. VW - Quantity demanded thus changes as the income of people who buy a certain good changes. Vv - When demand elasticity is measured in terms of income changes, it is referred to as the income elasticity of demand (rather than the price elasticity of demand.) Vv e Income elasticity of demand is affected by the following factors: - People with a low income have to spend the greater part of their income on necessities, such as bread; as a result, they have little money with which they can purchase other goods. Vv” - Their demand for necessities is therefore, income inelastic, but their demand for other goods is elastic, depending on the amount of money they are able to spend.on other goods. VY - People with a moderate income have a greater surplus with which to purchase goods other than necessities. As income rises, therefore, the demand for goods and services other than necessities tends to become more income elastic. Vv e «Time: vv - Demand for articles that last longer periods after there has been a change is more elastic. VW - Consumers' habits do not change immediately. Demand for articles that they are familiar with using may be maintained even if the price has changed. Vv - Technological problems also affect demand for articles that consumers use. A change in price of those articles may result in inelastic demand because of difficulty in adapting usage patterns to price changes. Vv” e Habit forming articles: Vv - Demand is usually relatively inelastic. For example, tobacco and alcohol. vv - The quantity demanded seldom changes if there are small price fluctuations. vv (Give credit for use of graphs where appropriate — 2 marks for each graph/Max.10) Content/Body = (45) Copyright reserved Please turn over

Downloaded from hlayiso.com Economics/HG 20 DBE/2014 SCE —- Memorandum Conclusion Knowledge of price elasticity of demand enables producers to adjust prices; adjust the scale of production, and attract more customers (2) (Accept any other relevant conclusion) AND/OR QUESTION 10: ECONOMIC DEVELOPMENT, REGIONAL DEVELOPMENT AND URBANISATION Introduction A comparison between the developed countries and developing countries indicates a development gap in respect of aspects such as standards of living, productivity, population growth, formation of capital, distribution of income, economic structure. The dominant characteristic of developing countries is widespread poverty. Alleviating this poverty requires an understanding of the broad economic and social characteristics that these economies share. VV V (Accept any logical/original introduction) Body e Low standard of livingvY - This is generally in the form of low incomes, resulting in poverty, inadequate housing, poor health, limited education and training, high infant mortality, low life expectancy and limited expectation of employment. Vv” - The per capita gross national product or national income, as an index of the welfare of a country, is relatively low. VW - There is widespread poverty, which can be ascribed to low average income and an imbalance in the distribution of income in the country. VW” - Since incomes are low and people have to spend their income in order to survive, savings are low and insufficient to finance the investment (capital formation) needed for economic growth and development. vv e Low productivity vv - The productivity of labour, measured by the output per worker is very low. - This can be ascribed to poor physical health, inadequate or poor nutrition, low standards of personal hygiene, etc. Vv - Another factor contributing to low productivity is the lack of capital goods, managerial expertise, and motivation. VY - The lack of adequate monetary capital for the development of human capital is a serious defect. VW - Too little money is spent to develop human capital in the form of more efficient workers, managerial competence, entrepreneurship, etc. vv Copyright reserved Please turn over [50] (3)

Downloaded from hlayiso.com Economics/HG 21 DBE/2014 SCE — Memorandum * High population growth and the burden of dependants” V - In developing countries the population growth, as measured by the number of births, is very high. Vv - Although the death rates are also high in developing countries, they are declining because of the growing availability of modern medicine. Vv” - High population growth rates imply that there is a large number of young children who cannot support themselves and who are financially dependent on their parents. Vv - Children aged under 15 and people over 60/ 65 years of age are non-productive members of society and must be financially supported by the labour force and other limited resources. VW” - The number of children below the age of 15 years makes up about 40% of the total population, in comparison with less than 20% in highly developed countries. Vv - The natural growth rate for developing countries can vary from 2% to as high as 5%, in contrast to highly developed countries where it is as low as 1% and may even be nil. Vv” e Unemployment and underemploymentv Vv - The essential reason for the poverty in developing countries is that there are not enough productive jobs for the labour force. VW - Unemployment occurs where people who are willing and able to work cannot obtain work. vv - Underemployment occurs where people do less work than they are capable of doing, e.g. labourers who work shorter hours, seasonal workers and people who are not as economically active as their full potential allows. Vv” - About 30% of the work force in third world countries is not fully utilised, as a result of unemployment and underemployment. Vv e Defective economic structure/contribution of agriculture to GDP is high/ sectoral distribution of production/dependence on agriculturev Vv - The majority of the population are dependent upon the agricultural sector. VW” - According to figures provided by the World Bank, in the low-income countries agriculture provides an average of 32% and manufacturing 14% of the gross domestic product (GDP). vv - In the industrialised countries, the agricultural contribution is usually less than 4% and that of the manufacturing sector is more than 20%.” ” - Agricultural productivity is generally low, because there are large numbers of people in relation to the amount of land availablev ¥ - Other limiting factors are elementary technology, poor organisational techniques, and a lack of physical and human capital’ Vv. - A further weakness of the economic structure of developing economies is dependence on the export of primary products. VW - The export commodities of poorer countries usually comprise basic food substances and raw materials that usually fetch relatively low prices on the international markets. VW” - Secondary products, of which there is a shortage in third world countries, must be imported at very high cost. Vv” - Lack of capital has resulted in third world countries running up huge sums in foreign debt. vw - The redemption of foreign debt commitments further contributes to a poor economic structure. VW Copyright reserved Please turn over

Downloaded from hlayiso.com Economics/HG 22 DBE/2014 SCE - Memorandum e¢ Weaker position in international relations’ ” - The distribution of political and economic power between the developed and the developing countries is very unbalanced. Vv - The wealthier countries control the pattern of international trade and influence the ability to convey technology, development aid, and capital to the poorer countries. VW (Where statistical data is used, accept current relevant figures). Max. (45) Conclusion Although certain common features can be identified, significant differences exist between developing countries. Within the category of developing countries the level of development varies, e.g. a developing country such as Brazil has a much more advanced economy than Somalia.“ Y (Accept any logical/original conclusion) AND/OR QUESTION 11: THE STATE Introduction Tax is a compulsory contribution levied by the state on its citizens for the purpose of financing services of a public interest. VVY (Accept any other relevant introduction) Body e Fair (Impartial) VY” - Tax must be spread proportionally among different income groups. Vv - Impartiality implies a progressive tax scale where higher income groups pay a higher tax rate. Vv - Taxpayers under same financial and economic circumstances must pay the same tax rate, but not necessarily the same amount. Vv” - The government must take into account factors such as possession of capital, income, family responsibilities.v - For example an unfair tax system will be e.g. Regressive tax system. Vv ¢ Productive (Efficient) ““ - The tax system must provide sufficient revenue to finance government - expenditure. Vv - The productivity of the system depends on factors such as kinds of tax, rates of tax, exemptions and allowance.v” - Administration must be efficient to avoid tax evasion. Vv” - Tax scales should not be too high because it affects productivity negatively. vv Copyright reserved Please turn over (2) [50] (3)

Downloaded from hlayiso.com Economics/HG 23 DBE/2014 SCE —- Memorandum e Simple VY - It must be simple for the tax collector and taxpayer to understand easily. vv” - For the government the system must be easy to apply and adapt to changes. v - When a system of taxation is simple, the administration is usually more efficient. Vv - The co-operation of the tax payer can be obtained more readily if he understands the tax system easily. Vv” e Elastic Vv - It should be easy to increase or decrease the revenue from taxes without disrupting the economy. I.e. the system must be flexible. vv” - Circumstances which may warrant changes in taxation are: national disasters, modem warfare etc. VW e Economical (Streamlined) VY - Collection of tax revenue must incur as little costs as possible to the tax collector and taxpayer. VW - The cost of tax collection should not be more than 2% of total tax revenue. Vv” - The collection procedure should be smooth and cause little disruption to the normal running of the community. VW e Convenient Vv - For the taxpayer the time, place and method of payment must be convenient e.g. monthly deductions. VY” - For the state, a convenient system of taxation means regular flow of revenue to the treasury. VV e Certain (reliable) Vv“ - All taxes levied must be collected. It must be impossible for the taxpayer to evade a tax. Vv - | The taxpayer must know exactly how much to pay and where to pay. Vv” - The method of calculation must be known. Vv“ e Maximise the National Income VY” - The system must promote productivity of labour and per capita income. Vv - High taxation discourages investment, which in turn stagnates economic growth. vv” - High taxation de-motivates employers and employees. Vv” - Amoderate tax rate will stimulate foreign investment. VW” Content/Body = (45) Conclusion: Tax evaders affect nearly all governments; therefore the government needs to improve its productivity to so that it can reduce the tax rate. Through the Asset Forfeiture Unit, South Africa has managed to limit the impact of tax evaders. TOTAL SECTION C: GRAND TOTAL: Copyright reserved (2) [50] 100 400