Economics Grade 12 P2 Eastern Cape Mock 2023 Memo (English)

NATIONAL SENIOR CERTIFICATE GRADE 12 SEPTEMBER 2023 ECONOMICS P2 MARKING GUIDELINE MARKS: 150 This marking guideline consists of 20 pages.

2 ECONOMICS P2 (EC/SEPTEMBER 2023) SECTION A (COMPULSORY) QUESTION 1 1.1 MULTIPLE-CHOICE QUESTIONS 1.1.1 A – total costs  1.1.2 C – artificial monopoly  1.1.3 A – AR curve  1.1.4 B – Public Works Programme  1.1.5 C – deflation  1.1.6 D – Paleo tourism  1.1.7 D – command and control  1.1.8 B – environmental sustainability  (8 x 2) (16) 1.2 MATCHING ITEMS 1.2.1 F– The additional unit of output which is produced as one more unit of the variable input is combined with the fixed input  1.2.2 D – When the market price is not a pure reflection of the scarcity of that good  1.2.3 A – A situation where one firm fixes the price and others accept it as the market price  1.2.4 I – Illegal goods are bought and sold  1.2.5 B – Works at keeping inflation within the target range  1.2.6 H – People travelling within their country  1.2.7 E – Species become instinct and cannot be reversed  1.2.8 C – Highly toxic with a slow decomposition rate  (8 x 1) (8) Copyright reserved Please turn over

(EC/SEPTEMBER 2023) ECONOMICS P2 3 1.3 GIVE ONE TERM 1.3.1 Supply curve  1.3.2 Monopoly  1.3.3 Non-rival goods  1.3.4 GDP deflator/implicit deflator  1.3.5 Outbound tourism  1.3.6 Deforestation  (6 x 1) (6) TOTAL SECTION A: 30 Copyright reserved Please turn over

4 ECONOMICS P2 (EC/SEPTEMBER 2023) SECTION B Answer any TWO of the three questions from this section in your ANSWER BOOK. QUESTION 2: MICROECONOMICS 2.1 Answer the following questions. 2.1.1 Name any TWO characteristics of a monopolistic market. • Large number of buyers and sellers  • Differentiated products  • Entry and exit are relatively easy  • Little control over prices  • Incomplete market information  (Accept any other relevant correct response.) (Any 2 x 1) (2) 2.1.2 Why do firms aim at maximising profits? Businesses owners need to cover their costs and sustain their businesses, and that includes investing in their businesses. (Accept any other correct relevant response.) (Any 2 x 1) (2) 2.2 2.2.1 Identify a participant from the extract that is likely to be affected by barriers to entry. • SMME’s (1) 2.2.2 Name any other competition institution besides the one mentioned in the extract. Competition Tribunal/Competition Appeal Court  (1) 2.2.3 Briefly describe the long run period. Long run period is a period long enough for a producer to be able to vary its factors of production.  (2) 2.2.4 Explain the role of the Competition Commission. The Competition Commission refers to the institution that investigates restrictive business practices, abuse of dominant positions and mergers in order to achieve equity in the South African economy.  (Accept any other relevant correct response.) (2) Copyright reserved Please turn over

(EC/SEPTEMBER 2023) ECONOMICS P2 5 2.2.5 How would businesses benefit from the Competition Commission policy? Businesses would benefit from the competition policy because: • Competition policy establishes a business culture which maintains competition between businesses in the economy  • Businesses get the opportunity to improve and develop in order to remain a strong competitor in the field of business  • Through competition, productivity growth is improved amongst various businesses  • Competition policy guards against anti-competitive behaviour by large businesses and therefore promotes fair competition between businesses  (Accept any other correct relevant response.) (Any 2 x 2) (4) 2.3 DATA RESPONSE 2.3.1 Identify the curve that depicts average revenue. • DD curve  (1) 2.3.2 At which point is the price determined from the graph above? • Point B  (1) 2.3.3 Briefly describe the term total revenue. Total revenue is the value of all sales that have taken place.  (Accept any other correct relevant response.) (2) 2.3.4 Explain the relationship between marginal revenue and average revenue curves in a monopoly market. • Both average revenue and marginal revenue are the same for the first unit, which is why they start at the same point on graphs • Average and marginal revenue curves both slopes downwards from left to right and marginal revenue is always lower than average revenue.  • Marginal revenue decreases faster than average revenue when the firm decreases its price.  (Accept any other correct relevant response.) (2) 2.3.5 Calculate average revenue. Show ALL calculations. AR = TR/Q  = (10 x 50)/50  = 500/50  = R10  (4) Copyright reserved Please turn over

6 ECONOMICS P2 (EC/SEPTEMBER 2023) 2.4 With the aid of a graph explain the derivation of the demand curve for individual business in a perfect market. INDUSTRY INDIVIDUAL PRODUCER PRICE PRICE d s   DD/MR/AR p  p  s d Q QUANTITY Q Q1 QUANTITY Mark allocation Correct drawing of the demand curve of individual firm 1 mark Indication of demand and supply curves of the industry 1 mark Correct link of market price and price of individual firm 1 mark Correct labelling of demand curve of individual firm 1 mark Max. 4 • An individual business in a perfect market derives the price from the market price that the industry determines through interaction of demand and supply curves  • The demand curve of an individual firm is horizontal (perfectly elastic)  so even a small change in price will cause an infinitely large change in the quantity demanded  • The price of the individual business is exactly at the level of the market price determined in the industry  • So, for every unit that the business sells, it receives the same price.  (Accept any other correct relevant response.) (Max. 4) (8) 2.5 How can firms in a monopolistically competitive market increase market share? • Monopolistic firms produce products that are imperfect substitutes by using product differentiation and this will attract more customers  • Firms use distinctive marketing strategies and branding to distinguish their products  • Products could be sold in large volumes at lower prices sacrificing a higher profit margin to gain large volume of sales  • Provision of consistent quality of products will attract more consumers  • Monopolistic firms may use better packaging that will suggest good quality products which is really preferred by consumers  • The firm may engage in intensive advertising making customers aware of the availability of the product and where to find it  (8) [40] Copyright reserved Please turn over

(EC/SEPTEMBER 2023) ECONOMICS P2 7 QUESTION 3: CONTEMPORARY ECONOMIC ISSUES 3.1 3.1.1 Name any TWO types of inflation. • Consumer inflation  • Producer inflation  • Hyperinflation  • All-inclusive inflation  (Any 2 x 1) (2) 3.1.2 Why is it important to sustain the environment? • The environment should be sustained because sustainability improves the quality of people’s lives and protects the ecosystem  • Sustainability preserves natural resources for future generations  (Accept any other correct relevant response.) (Any 1 x 2) (2) 3.2 DATA RESPONSE 3.2.1 Which form of travelling can be regarded as environmentally friendly? • Flying (1) 3.2.2 Give an example of eco-tourism. • Camping  • Hiking  • Wildlife / Zoo  (Accept any other correct relevant response.) (Any 1 x 1) (1) 3.2.3 Briefly describe a reason for growth of the tourism sector. The tourism industry has increased due to the following: • An increase in disposable income  • A reduction in working hours  • More awareness of leisure and recreation  • Improved transport, communication and accommodation facilities  • Increase in advertising and promotion.  (Any 1 x 2) (2) 3.2.4 Explain labour intensive in relation to tourism. • Many jobs require human resource capital in the tourism sector  • Tourism is regarded as labour intensive because it has the lowest ratio in employment creation  • More jobs are created with every unit of capital invested in tourism than elsewhere  • Many tourism activities are within the reach of small operators  (Accept any other correct relevant response.) (Any 1 x 2) (2) Copyright reserved Please turn over

8 ECONOMICS P2 (EC/SEPTEMBER 2023) 3.2.5 How important is promoting foreign tourism for the South African economy? • Tourism contributes 3,7% to South Africa’s GDP, mainly in the agricultural sector.  • It is responsible for promoting natural resources, culture, heritage etc.  • It brings in foreign currency, and may have the potential to attract foreign investment.  • Foreign tourists contribute immensely to economic growth because of the amount of money that is spent in the country. • The difference between inbound tourism and outbound tourism is known as tourism trade balance with the rest of the world.  • South Africa has been experiencing a positive trade balance.  (Accept any other correct relevant response.) (Any 2 x 2) (4) 3.3 DATA RESPONSE 3.3.1 Identify any ONE example, of items that is excluded from the CPI basket. • Fresh and frozen meat and fish  • Interest rates on mortgage bonds  • Vegetables  • VAT and assessment rates  (Accept any other correct relevant response.) (Any 1 x 1) (1) 3.3.2 From the table above which type of goods have more weight? Services  (1) 3.3.3 Briefly describe the term consumer price index. Consumer price index is the index that measures the price of a fixed basket of consumer goods and services relating to cost of living  (Accept any other correct relevant response.) (2) 3.3.4 Briefly explain the impact of cost push inflation on the economy. • Cost push inflation is highly dangerous to the economy because high prices are combined with a decrease in national output. (2) 3.3.5 Calculate inflation rate for all goods for the period September 2021 and September 2022. Inflation rate = CPI 2022 – CPI 2021  /CPI 2021 x 100  = 108,5 – 98,0/98,0 x 100  = 8,5%  (4) Copyright reserved Please turn over

(EC/SEPTEMBER 2023) ECONOMICS P2 9 3.4 Differentiate between conservation and preservation as creative means of ensuring the continuity and functioning of the environment. Conservation • Conservation deals with the sustainable use and management of natural resources so that they are available for use by future generations.  • Renewable resources such as forests and fish stocks are scarce and potentially sustainable, it is therefore important to conserve and properly manage these resources, so they are not depleted.  • Conservation seeks creative continuity of the environment while ensuring that environmental changes consider the quality of life for both present and future generations  • It relates to the preservation of natural resources to ensure they are not completely used up and disappear from the environment  • Management of the environment in ways that prevent it from being damaged or destroyed  • Conservation of certain plants and animal species is vital for their survival.  Preservation • Preservation means to keep something unharmed when no development takes place in a specific area.  • It involves the elements of the environment that are threatened by extinction e.g. indigenous forests.  • Environmental preservation is an essential basis for sustainable development and poverty alleviation.  • Preservation is to keep the resources that are non-renewable intact e.g. ecological systems, heritage sites.  • Preservation is linked to conservation.  • It is about preserving existing assets to ensure they do not get used in a way that is destructive to the environment.  (Accept any other correct relevant response.) (8) Copyright reserved Please turn over

10 ECONOMICS P2 (EC/SEPTEMBER 2023) 3.5 Analyse the importance assigning weights in a basket of goods and services • The weights are meant to reflect the relevant importance of the goods and services as measured by the shares in the total consumption of households.  • The weights attached to each good/service determines the impact that its price change will have on the overall index.  • Expenditure weights should be updated regularly to ensure that they do not become unrepresented and irrelevant.  • Weights need to be updated to reflect the introduction of new items and removal of old ones.  • Increasing frequency of updating weights minimises the distorting impact that changes in consumer preferences and item substitution might have on the index.  • At some point it becomes desirable to use the weights of a more recent period to ensure that the index is weighting appropriately the price changes faced by consumers.  • A CPI is usually calculated as a weighted average of the price change of the goods and services covered by the index.  (Accept any other correct relevant response.) (8) [40] Copyright reserved Please turn over

(EC/SEPTEMBER 2023) ECONOMICS P2 11 QUESTION 4: MICROECONOMICS AND CONTEMPORARY ECONOMIC ISSUES 4.1 4.1.1 Name any TWO types of pollution. • Air pollution  • Water / sea pollution  • Land / environmental pollution  • Noise pollution  (Accept any other correct relevant response.) (Any 2 x 1) (2) 4.1.2 Why does a monopoly make economic profits even in the long run? • Existence of high barriers to entry prevents firms from entering the market even in the long run, therefore, it is possible for the monopolist to avoid competition and continue making supernormal profits in the long run  • Monopoly has control over the prices to be fixed and the entry of new firms is also restricted  (Accept any other correct relevant response.) (Any 1 x 2) (2) 4.2 DATA RESPONSE 4.2.1 Identify the consequence of competing with prices in an oligopoly. • Price wars (1) 4.2.2 Name any type of collusion. • Tacit / informal / explicit  • Overt / implicit / formal  (Accept any other correct relevant response.) (Any 1 x 1) (1) 4.2.3 Briefly describe non-price competition. • Non-price competition occurs when businesses use various other strategies other than price to increase their market share.  (Accept any other correct relevant response.) (2) 4.2.4 Explain the implication of a kinked demand curve. • It implies that prices are stable only at the kink of the kinked demand curve. Above the kink, market share is lost, below the kink, price wars war occurs, disadvantaging all businesses.  (2) 4.2.5 How would smaller companies / new businesses in an oligopoly be affected by competing with prices? • Smaller companies with fewer financial resources are likely to be driven out of business.  • New businesses would find it hard to enter the market, because they would not be able to maintain themselves without making enough profit.   • They would not be able to cover their costs.  (Accept any other correct relevant response.) (Any 2 x 2) (4) Copyright reserved Please turn over

12 ECONOMICS P2 (EC/SEPTEMBER 2023) 4.3 DATA RESPONSE 4.3.1 Identify the decline of wages in real terms. • - 0,9% (1) 4.3.2 Name any category of households affected by the rising inflation. • Middle class • Low-income households (Accept any other correct relevant response.) (1) 4.3.3 Describe the concept inflation. Inflation is a sustained and significant increase in the general price level over a period of time and a simultaneous decline in the purchasing power of money.  (Accept any other correct relevant response.) (2) 4.3.4 Explain the consequence of inflation on debtors. Debtors benefit from inflation because they receive money with a high purchasing power and repay their debt with low purchasing power,  (Accept any other correct relevant response.) (2) 4.3.5 How does inflation impact on low-income earners? • Low-income earners are most stressed by inflation because they spend more of their income on necessities such as food, gas and rent  which are categories with greater than inflation rate, leaving few ways to reduce spending  • Low-income earners are likely to have smaller cash buffers to tide them over a period of high inflation • They would not stock up when prices are discounted. They buy in bulk and save, as well as delay purchases if there is an opportunity to save in the future.  (Accept any other correct relevant response.) (Any 2 x 2) (4) Copyright reserved Please turn over

(EC/SEPTEMBER 2023) ECONOMICS P2 13 4.4 Briefly discuss the level of entry and nature of products in a perfect market. Nature of the product • All firms sell homogenous products which are identical and buyers cannot distinguish between products that any businesses sell.  • It makes no difference to a buyer where or from whom to buy because all the products are exactly the same.  • Buyers cannot prefer one buyer over the other.  Level of entry • There is complete freedom of entry and exit into the market  • The market is totally accessible to all buyers and sellers at large  • There are no legal, financial or technical barriers to enter the market  (Accept any other correct relevant response.) (8) 4.5 How best can the South African Reserve Bank reduce demand pull inflation? The Reserve bank can do any of the following: • Can keep the inflation within the target range of 3%–6%.  Can use the monetary policy  in the following ways: o Increase interest rates so as to discourage borrowing by the various participants of the economy which would eventually increase demand  o Reduce the supply of money, this can be done by raising the banks reserve requirements, so as to decrease the size of money supply  o Persuade commercial banks to reduce credit to consumers and producers, so as to decrease the rate of demand of goods and services  (Accept any other correct relevant response.) (8) [40] TOTAL SECTION B: 80 Copyright reserved Please turn over

14 ECONOMICS P2 (EC/SEPTEMBER 2023) SECTION C Answer ONE of the two questions from this section in the ANSWER BOOK. QUESTION 5: MICROECONOMICS • Discuss in detail the causes of market failure. (26 marks) • Examine the impact of income inequality in the economy. (10 marks) INTRODUCTION Market failure occurs when the market is unable to achieve the efficient allocation of scarce resources and is therefore not able to achieve the best available outcome.  (Accept any other correct relevant response.) (Max. 2) (2) BODY: MAIN PART Missing markets/public goods • Missing markets can only form under certain conditions and when these conditions are absent, markets struggle to exist.  • Public goods are not provided for by market mechanism because producers cannot withhold the goods for non-payment and since there is often no way of measuring how much a person consumes, there is no basis to establish a market price.  • Merit goods are those goods that are highly desirable for the general welfare of the people and are often not highly rated by the market  • If people have to pay market prices for them, relatively little would be consumed  • There are those goods like cigarettes, and alcohol, which are over-consumed in a free market  • Government can ban their consumption or reduce it by means of taxation such as excise duties and by providing information about their harmful side effects  • Producers produce goods in order to make a profit, hence they produce only goods which they can earn a profit, hence, they fail to produce enough  • Public goods are consumed by the community and no one can be excluded from consuming the product  • As a result of this non-excludability, the private sector is usually unwilling to provide these public goods  Copyright reserved Please turn over

(EC/SEPTEMBER 2023) ECONOMICS P2 15 Imperfect information/lack of information • Consumers, workers and entrepreneurs do not always have the necessary information at their disposal to make rational decisions  • Consumers do not have perfect information through advances in technology, increase the amount of information to which people have access  • Workers may be unaware of job opportunities outside their current employment  • Entrepreneurs may lack information about the costs, availability and productivity of some factors of production and may be operating on the basis of incorrect information  • Incomplete information about production techniques, cost of production, needs and wants of households etc. means that factors of production are employed without answering the three basic questions of the economy  • Producers do not know exactly what the demand will be and thus cannot adjust their supply to be more efficient  Immobility of the factors of production • Labour may take time to move into new occupation and geographically, to meet the changes in consumer demand • Physical capital e.g. factory buildings, telephone lines, bridges etc. are not moveable at will, this capital lasts for years but cannot be moved to fit changes in demand  • Technological applications change production methods, but it takes time for most industries to adjust with greater technological changes  • Markets may not respond to changes in consumer demand if resources cannot be easily reallocated, this means that businesses will not use factors of production optimally  • Workers are reluctant to change to another job, the worker has to give notice, this means that supply of labour will not always meet the demand for it, therefore, markets fail  Imperfect distribution of income and wealth • Market system is neutral on issues of income distribution  • Discrimination distorts earnings for women and minority groups, disabled persons and people subject to illness and incapacity  • The market produces goods and services only for those who can afford and this leads to some people having too many goods while others have too few goods  • If initial distribution is unequal, the final distribution will be unequal too and for this reason it is often argued that the market fails  Imperfect competition • In market economies competition is often impaired by power of certain producers to prevent new businesses from entering the market  • Power often lies to a greater extent with producers than with consumers and this leads to inefficient allocation of resources  Copyright reserved Please turn over

16 ECONOMICS P2 (EC/SEPTEMBER 2023) • Most businesses operate under conditions of imperfect competition that allow producers to restrict output, raise prices and produce where price exceeds marginal cost.  • Imperfect market does not allow price negotiations.  Externalities • Externalities are the effects of the actions of one party on other parties who was not involved in the transaction.  • They cause market mechanism to allocate resources inefficiently because the make price does not reflect the full costs/benefits of the economic activity.  • The market price only reflects private costs and private benefits.  Negative externalities • These are costs to the third party that are not included in the market price e.g. pollution.  • The costs of negative externalities such as ill health are not paid by the producers  • These harmful goods are often over produced in the economy which is not socially desirable  Positive externalities • These are benefits to the third party from the actions of another party which are not included in the market price e.g. education, health.  • Markets fail when goods with positive externality are often under produced and the government steps in to produce for the shortfall  (Accept any other correct relevant response) (Allocate a maximum of 2 marks for mere listing of facts/examples.) (Max. 26) (26) ADDITIONAL PART • A high level of economic inequality means a higher level of poverty.  • Poverty is associated with increased crime and poor public health which places a burden on the economy  • In the face of increasing food prices and lower incomes, support for pro-growth government policies decline  • Wealthy citizens maintain disproportionate political power compared to poorer citizens which encourages the development of inefficient tax structures skewed in favour of the wealthy  • Unequal income distribution increases political instability which threaten property rights, increases the risk of state rejected contracts and discourages capital accumulation  • A widening rich poor gap tends to increase the rate of rent seeking and predatory market behaviours that hinder economic growth  • Growth is suppressed in economically unequal societies by decreasing availability of investments for human capital  (Max. 10) (10) Copyright reserved Please turn over

(EC/SEPTEMBER 2023) ECONOMICS P2 17 CONCLUSION • Market failure can have devastating effects on the economy which requires government to intervene to reduce consequences.  (Accept any other relevant conclusion.) (Max. 2) (2) [40] Copyright reserved Please turn over

18 ECONOMICS P2 (EC/SEPTEMBER 2023) QUESTION 6 • Discuss in detail the benefits of tourism. (26 marks) • Analyse the importance of indigenous knowledge systems in strengthening South Africa’s tourism profile. (10 marks) INTRODUCTION Tourism is the activities of people travelling and staying in places outside their usual environment for not more than one consecutive year and for business, leisure and visiting friends and family.  (Accept any other correct relevant response.) (Max. 2) (2) BODY Households • Households benefit from tourism through tourists spending which is an income to households because of salaries and wages they earn through employment in the tourism industry.  • Tourism provides indirect employment in the form of financial and retail services.  • Most of the infrastructure created for use by tourists is also available for use by local people.  • Households benefit from a variety of skills required by tourism for which education and training are needed and allows them to be employed.  • Households become exposed to foreign culture which impacts on cultural and social knowledge and enjoyment  • Individuals receive income through employment in the tourism industry  as waiters, coach drivers etc.  Businesses • Tourism provides many direct and indirect opportunities for entrepreneurs and the government uses a number of incentives to promote businesses in the tourism sector  • Tourism benefits local businesses and companies through an increase in expenditure on the goods and services offered by local businesses  • The informal sector benefits because of trading in traditional products such as crafts and arts  • The business environment is stimulated in rural and urban areas promoting entrepreneurial opportunities and assisting with BEE.  • Tourism destinations are developed through the public and private partnerships (PPPs)  • Through public-private partnership, for tourism to perform at its best, basic physical and services infrastructure is provided by the government and private institutions provide the superstructure  Copyright reserved Please turn over

(EC/SEPTEMBER 2023) ECONOMICS P2 19 Government • The government benefits through an increase in tax revenue.  • Government may levy a small tax to cover the cost of providing services such as showers and toilets at a beach  • The government may also charge tax in the form of airport departure taxes.  • Taxes are charged for two reasons: o To recover for external costs – this assists the host community for providing infrastructure  o To raise revenue – with the growth of tourism, many countries levy tax which are used as a source of revenue  • Tourism helps to create jobs at little cost to the government especially in the informal sector, such as tour guides, curio seller and musicians.  • Income earned is used to promote tourism in the country and through the government is enabled to achieve its socio-economic objectives, informal sector growth, BEE and SMMEs development. Infrastructure development • A country should have a well-maintained and adequate infrastructure for it to be considered a tourist destination  • Together with the private sector the government has to develop and upgrade infrastructure to meet the demands and expectations of tourists  • Locals and tourists benefit from the infrastructure  • Tourists require social infrastructure e.g. clinics and ambulances  • Adequate and well maintained physical and basic services infrastructure are essential for tourist destinations • The government has prioritised economic infrastructure to promote tourism growth  (Accept any other correct relevant response.) (Allocate a maximum of 2 marks for mere listing of facts.) (Max. 26) (26) ADDITIONAL PART • Indigenous knowledge system has contributed to the operation of cultural tourism through preservation of culture, learning community history  • Indigenous culture in South Africa is a huge tourist attraction that has brought many different cultures together  • Millions of foreign tourists are attracted by the diverse and rich culture in South Africa  • Foreign tourists are fascinated to experience local pottery, handcrafted art, traditional dance, music, cooking methods and food  • Tourists seek authenticity and uniqueness at destinations and want to understand culture, history and environment which is provided by the IKS  • Tourism ventures are an important way to protect and promote indigenous knowledge while creating a source of income  (Accept any other correct relevant response.) (Max. 10) (10) Copyright reserved Please turn over

20 ECONOMICS P2 (EC/SEPTEMBER 2023) CONCLUSION Tourism is a much wider concept and can be quite demanding but very interesting when it is related to a specific community.   (Accept any other correct relevant response.) (Max. 2) (2) [40] TOTAL SECTION C: 40 GRAND TOTAL: 150 Copyright reserved Please turn over