Economics Grade 12 Paper 2 Gauteng Mock 2015 Memo (English)

Downloaded from hlayiso.com GAUTENG DEPARTMENT OF EDUCATION PREPARATORY EXAMINATION 2015 MEMORANDUM SUBJECT: ECONOMICS P2 (10732)

Downloaded from hlayiso.com 10732/15 GAUTENG DEPARTMENT OF EDUCATION PREPARATORY EXAMINATION ECONOMICS (Second Paper) MEMORANDUM SECTION (COMPULSORY ) QUESTION 1 30 MARKS – 15 MINUTES 1.1 Various options are provided as possible answers to the following questions. Choose the correct answer and write only the letter (A – C) next to the question number (1.1.1 – 1.1.8) in the ANSWER BOOK. 1.1.1 A are the same t√√ 1.1.2 B regulate the formation of mergers√√ 1.1.3 A Price maker√√ 1.1.4 C Technical superiority√√ 1.1.5 B Fiscal√√ 1.1.6 C Hyper√√ 1.1.7 B The diverse natural beauty of a country√√ 1.1.8 C Global warming√√ (8x2) (16) 1.2 Choose a description from COLUMN B that matches an ITEM in column A. Write only the correct letter (A – I) next to the question number (1.2.1 – 1.2.8) in the ANSWER BOOK. 1.2.1 H Minimum level of income that the owner of the business requires to stay in the market √ 1.2.2 E When two firms dominate the market√ 1.2.3 F Market such as JSE (Johannesburg Security Exchange)√ 1.2.4 I Consumption of a product by one person will not prevent others from enjoying it√ 1.2.5 G Measure of inflation at the point of production√ 1

Downloaded from hlayiso.com 10732/15 1.2.6 B Price increase feeding on itself and causing further price increase√ 1.2.7 C A place listed by the United Nations, of special cultural or physical significance√ 1.2.8 D Costs borne by society which do not go through the market mechanism√ (8x1) (8) 1.3 Identify the concept described in each of the following statements. Write only the term next to the question number (1.3.1 – 1.3.6) in the ANSWER BOOK. 1.3.1 Price leadership√ 1.3.2 Conservation√ 1.3.3 Competition Appeals Court√ 1.3.4 Core inflation√ 1.3.5 Minimum prices√ 1.3.6 Consumer price index (CPI) √ (6x1) (6) TOTAL SECTION:A 30 2

Downloaded from hlayiso.com 10732/15 SECTION B Answer TWO of the three questions from this section in the ANSWER BOOK. QUESTION 2 MICRO ECONOMICS 40 MARKS – 20 MINUTES 2.1 2.1.1 Name TWO examples of artificial barriers to entry that a monopolist can enjoy  Patents√  Licensing√ (2x1) (2) 2.1.2 Why is it important for the economy to achieve allocative efficiency in a perfectly competitive market?  In order to ensure the optimum use of available resources to produce the output most demanded by consumers√√ Accept any relevant response (1x2) (2) 2.2 2.2.1 Which market structure is depicted in the graph?  Perfect competition√ (1) 2.2.2 What does the shaded area on the graph show? Economic profit√ (1) 2.2.3 Distinguish between the short run and the long run  Short run – The period of production where only the variable factors of production can change while at least one factor is fixed√√  Economic profit or loss can be made√√  Long run – The period of production where all factors can change. The time is long enough for variable and fixed factors to change√√  Normal profit made√√ (2x2) (4) 2.2.4 Explain the change in equilibrium from E1 to E2  Freedom of entry and realization of economic profit in the short run attract new businesses to the market√√  This will lead to an increase in supply and a drop in price resulting in a shift from E1 to E2√√ (2x2) (4) 3

Downloaded from hlayiso.com 10732/15 2.3 2.3.1 Why are the businesses depicted above referred to as ‘paralystatals’ (paralysed) instead of ‘parastatals’?  Because of the recent inefficiencies by the businesses√√  Strikes by the post office workers√√  Black-outs by Eskom√√  Request for financial bail-out by SAA√√  Inappropriate appointments at SABC√√ Accept any relevant response (2) 2.3.2 How does the SA Post Office (Picture 1) contribute to market failure?  The recent post office strike has caused a delay in the delivery of post and related services√√  There is a backlog regarding mail delivery due to the strike√√ Accept any relevant response (2) 2.3.3 Name the parastatal depicted in Picture 2.  SAA√√ (2) 2.3.4 How are businesses affected by Eskom’s load shedding?  Lower output√√  Decreased profits√√  Increased costs√√  Reduced investor confidence√√  May lead to retrenchment√√ (2x2) (4) 2.4 Explain the measures that government can implement to improve income distribution? Traditional methods e.g. the levying of various taxes and the provision of free services, services in kind and cash benefits to the poor.√√  Implementing redress methods e.g. the use of law to enforce redistribution. It includes BEE, affirmative action, land restitution, land redistribution and property subsidies (for RDP houses). √√ The government can use other ways to improve income distribution and overcome market failure:  Transfers income directly to the poor e.g. child support grants, unemployment benefits etc. √√  Provides goods free of charge e.g. community goods, education etc. √√  Implements employment creation programmes e.g. public works programme. √√  Subsidising merit goods e.g. subsidising arts and cultural events. √√ Accept any relevant answer (4x2) (8) 4

Downloaded from hlayiso.com 10732/15 2.5 Why is it important to evaluate the total cost and total benefits of an economic project? Market signals e.g. price help to allocate resources through demand and supply. √√  Goods supplied by the government such as roads, bridges etc. are provided free. √√  With the absence of market signals, decisions on the desirability of a project may be subjective. √√  CBA brings greater objectivity to decision making.√√  This is done by identifying all the relevant benefits and costs of a project so that an informed decision can be made. √√  The rationale of CBA is to ensure that scarce resources are used effectively√√ (4x2) (8) [40] QUESTION 3 CONTEMPORARY ECONOMIC ISSUES 40 MARKS – 20 MINUTES 3.1 3.1.1 State any TWO purposes of tourism.  Leisure and recreation√  Cultural tourism√  Ecotourism√ (2x1) (2) 3.1.2 Why does the government offer environmental subsidies to producers? To reduce environmental damage√√  To encourage the production of environmentally friendly substitutes, such as unleaded petrol / to promote positive externalities√√  To encourage the recycling of waste, such as bottles, cans and cardboards.√√ (1x2) (2) 3.2 3.2.1 Identify the group of people in society that is most affected by demand pull inflation.  Marginalised people√ (1) 5

Downloaded from hlayiso.com 10732/15 3.2.2 Does the inflation indicated in the cartoon fall within the range of the SARB’s target? No, not within target range of 3%-6%√ (1) 3.2.3 What is the message of the cartoon?  The Minister/policy makers alone cannot be blamed for increase in prices. √√  The people are awaiting a positive outcome from the efforts to combat price increase. √√  There is no single cause responsible for price increase/ Inflation is caused by more than one factor.√√ (Accept any other relevant message) (2) 3.2.4 What is the main reason for the type of inflation indicated in the cartoon above? Excessive demand √√/demand exceeding supply√√ Any relevant answer (1x2) (2) 3.2.5 How can the fiscal policy be used to tackle demand pull inflation? Increase in taxes√√ Decrease in government spending√√ (2x2) (4) 3.3 3.3.1 Which sector contributed the least to air pollution?  Commercial and residential heating.√ (1) 3.3.2 Provide an example of air pollution caused by transport.  Carbon emissions√ Accept any other relevant example (1) 3.3.3 Explain why the industry is the major contributor to air pollution according to the graph  Large amount of waste in production process√  No proper recyceling √  Gas emissions√  Any relevant answer (2x1) (2) 3.3.4 Mention any form of government intervention that can reduce air pollution? Pay for environmental use√√ Levying of environmental tax√√ Pay for enviromnetal subsidies√√ Issuing of marketable permits√√ (1x2) (2) 6

Downloaded from hlayiso.com 10732/15 3.3.5 How can an improvement in technology reduce air pollution?  Clean technologies (also known as green technologies), have lower levels of toxic emissions.√√  Improvement in technology can facilitate a solution to air pollution by providing alternative production techniques that are less damaging to the environment.√√ (4) 3.4 Discuss the impact of a continuous rise in prices on investors and savers. Assets with fixed nominal values√√  A large portion of the wealth of individuals is held in the form of fixed value, fixed interest-yielding claims (such as fixed deposits), company debentures and government bonds√√  These assets have a fixed nominal value and give a fixed return if they are held until maturity (when they are paid). √√  Because their nominal values remain constant, the purchasing power of the nominal values decreases as prices increase, that is, their real value decreases√√ Assests 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 proportionality to the rate of inflation, that is, their markets values are flexible. √√  Often, the prices of these assets increase more rapidly than increases in the general price level. √√  In this case, inflation creates wealth, to the advantage of those holding such assets√√ (Any 4x2) (8) 3.5 Why are indigenous knowledge systems important to the South-African economy?  Indigenous knowledge is local knowledge – knowledge that is unique to a given culture or society. √√  Today’s tourists are no longer satisfied with a passive experience. They want to understand the indigenous culture, history and environment. √√  Indigenous culture may be seen as one of the main reasons why many overseas tourists choose South Africa as their holiday destination. √√  In this regard, world heritage sites are of significance. They articulate several of the aspects in which tourists are interested. √√  Our environmental world heritage sites represent the extremes of our indigenous environmental uniqueness. √√  Examples: Robben Island; The Sterkfontein caves; Richtersveld Cultural and Botanical Landscape; Mapungubwe; The Vredefort Dome; iSimangiliso Wetland Park; The Cape Fynbos Region; uKhahlamba Drakensberg Park√√ (maximum ONE example) (Accept any other relevant fact) (8) [40] 7

Downloaded from hlayiso.com 10732/15 QUESTION 4 MICRO ECONOMICS & CONTEMPORARY ECONOMIC ISSUES 40 MARKS – 20 MINUTES 4.1 4.1.1 Give TWO examples of businesses that form part of monopolistic competition in your local area.  Grocery stores√ filling stations√ pharmacies√ hairdressers√ restaurants√ fast-food outlets√ (Accept any relevant example) (2x1) 4.1.2 What effect will inflation have on creditors?  Creditors will suffer due to inflation /the purchasing power of the money repaid will decrease due to inflation. (1x2) (2) 4.2 4.2.1 Identify the area that represents external benefits gained from consuming the product in the graph  Area B√ (1) 4.2.2 Give an example of a product that yields a positive externality  Education√  Health√  Any relevant answer (1) 4.2.3 Explain the term externality  The cost and benefit to third parties which is not included in the price of the product√√ (2) 4.2.4 Which quantity would be produced if the market was left to its devices  Quantity Q√√ (2) 4.2.5 Explain how this externality results in an inefficient allocation of resources.  The demand for education (as an example) is represented by DD. √√  The cost is P and the quantity demanded and supplied is Q.  If the cost is P, most people will not afford to buy goods or services. √√  The demand curve D1D1, also represents the marginal social benefits (msb). That is, the level of education that should be demanded. √√  If the market is left to its devices, quantity Q could be produced at price P. √√  However, if social benefits are acknowledged, quantity Q1 will be produced at price P1. √√  More education would be demanded, this will lead to social inefficiency. √√ (2x2) (4) 8

Downloaded from hlayiso.com 10732/15 4.3 4.3.1 Identify the reason for the slow growth in tourism from Europe and US. A decrease in disposable income.√ (1) 4.3.2 Name the institution in the public sector with which the Department of Tourism works in partnership. SA Tourism (SATOUR) √ (1) 4.3.3 What is the meaning of the word Eurozone? Eurozone refers to the economic region that consists of all the European Union countries√ that use the Euro as their national currency.√ (2) 4.3.4 Why do you think that there is a strong focus on emerging markets by tourism officials?  Emerging markets refer to developing countries experiencing high levels of economic development and growth in recent years.√ √  They are relatively poor countries whose economies are still considered underdeveloped in which investment would be expected to achieve higher returns but would be accompanied by greater risk.√ √ (1x2) (2) 4.3.5 In your opinion, how can tourism benefit the poor? Tourism offers opportunities to diversify sources of income for poor people. √√ It allows them a stake, for example to start and operate small-scale tourism businesses in the community.√√ It empowers them for example, to exploit opportunities on-the-job √√ It creates partnerships linking up with mainstream tourism businesses supplying goods or services. √√ (2x2) (4) 4.4 Explain imperfect competition and demerit goods as reasons for market failure. • Competition in market economies is limited by the power of certain producers to prevent new businesses from entering the market√√. • Barriers to entry are created because of advertising, lack of capital and the controlling of resources√√. The imperfect markter does not allow for price negotiations√√. Advertising is used to promote producer sovereignty(dominance) √√. • Demerit goods: These are over-consumed goods√√ e.g. cigarettes, alcohol and drugs√√. Thus more of the goods is produced than is socially desirable√√. The government bans or reduces consumption of these products through taxation, and provides information to the population on their harmful effects√√. (4x2) (8) 9

Downloaded from hlayiso.com 10732/15 4.5 Discuss profit maximisation under perfect competition using the total revenue and total cost approach. Mark allocation: 1 mark Labelling of Axis 1 mark Drawing and labelling of TC 1 mark Drawing and labelling of TR 1 mark Profit maximization (CD) 2 marks (Max 4)  The business maximises profits at the longest distance between TC and TR√√  According to the graph, that will be the difference between points C and D√√  Once the maximum profit is achieved, profits starts to decrease with the next unit of output√√ (4x2) (8) [40] TOTAL SECTION B: 80 10

Downloaded from hlayiso.com 10732/15 SECTION C Answer ONE of the two questions from this section in the ANSWER BOOK STRUCTURE OF ESSAY: MARK ALLOCATION: Introduction Max. 2 Body:  Main part: Discuss in detail/In depth discussion/Examine/ Max. 26 Critically discuss/Analyse/Compare/Evaluate/Distinguish/ Explain/Assess/Debate  Additional part: Give own opinion/Critically discuss/Evaluate/ Max. 10 Critically evaluate/Draw a graph and explain/Use the graph given and explain/Complete the given graph/Calculate/ Deduce/ Compare/Explain/Distinguish/Interpret/Briefly debate Conclusion Max. 2 Total 40 QUESTION 5 MICRO ECONOMICS 40 MARKS – 20 MINUTES “De Beers has a leading role in the diamond exploration, diamond mining, diamond retail, diamond trading and industrial diamond manufacturing sectors”.  Discuss the characteristics of a monopoly as a market structure. (26 marks)  Compare the long run equilibrium positions of a perfect market and a monopolist, using graphs only. (10 marks) Introduction: A monopoly is a market structure in which there is only ONE seller of a product that has no close substitutes.√√ (2) Main Part: Number of firms√  The monopoly consists of one single firm√√  The monopoly is also the industry√√  Example: Eskom√ Nature of the product√  The product is unique with no close substitute√√  Example: electricity√ Market entry√  Refers to how easy or difficult it is for a business to enter or leave the market√√  Entry into the market is completely blocked√√  Examples of barriers to entry: patents, licensing, sole rights, import restrictions√ Market information√  All information on market conditions is available to buyers and sellers√√  This means there are no uncertainties√√ Control over price√  The monopoly has considerable control over price. Price maker√√ 11

Downloaded from hlayiso.com 10732/15 Demand curve for the firms products√  Is equal to the market demand curve√√  Downwards sloping from left to right√√ Long run economic profit√  Can be positive√√  Because new entries are blocked, the supply of goods cannot be increased. This guarantees profits in the short and long run√√  The monopoly will continue to earn economic profit as long as the demand for its product remains unchanged√√ They are exposed to market forces√  Although the monopolist is the only supplier of a product, the product is still influenced by market forces in the economy√√ Large amounts of starting capital are required√.  Large industries like Eskom and SASOL require millions of starting capital√√ (Max 26 marks) (26) Additional part Long run profit maximization of perfect market and monopoly Perfect market Monopoly Mark allocation Mark allocation Labeling of axis 1 mark Labeling of axis 1 mark Labeling on axis 1 mark Labeling on axis 1 mark Draw and labeling of MC 1 mark Draw and labeling of MC 1 mark Draw and labeling of AC 1 mark Draw and labeling of MR 1 mark Draw and labeling of AR/MR/D 1 mark Draw and labeling of AC 1 mark Indication of equilibrium 1 mark Indication of equilibrium 1 mark Heading 1 mark Heading 1 mark Max: 5 marks Max: 5 marks (Max 10 marks) (10) 12

Downloaded from hlayiso.com 10732/15 Conclusion Both the monopoly and the perfect market will make economic profit in the short run. However, the perfect market will make normal profit in the long run and the monopoly will realize economic profit. (2) [40] QUESTION 6 CONTEMPORARY ECONOMIC ISSUES 40 MARKS – 20 MINUTES “The environment is under pressure because human claims on the environment are more than what nature can provide for on a long term basis.” • Discuss the state of the environment with reference conservation and preservation. (26 marks) • Evaluate the success of major international agreements on environmental sustainability. (10 marks) Introduction Environment refers to the physical surroundings and physical conditions that affect people’s lives. √√ The ever-increasing pressure on our environment originates from increasing population numbers and excessive consumption. √√ Our air, land, and water are under constant assault from the ever-growing ravages of man-made pollution generated chiefly by industrialized societies.√√ (Accept any appropriate introduction) (2) Main part Conservation Conservation is necessary because human actions cause pollution and over- utilisation of resources.√√ Conservation is a strategy aimed at achieving the sustainable use and management of natural resources.√√ Conservation seeks a creative continuity of the environment while ensuring that change is sympathetic to the quality of life for both present and future generations.√√ Certain aspects of conservation need to be taken into account: • Firstly, there is an opportunity cost.√√ • Secondly, externalities are often present.√√ • Lastly, self- interest has a short term horizon – meaning that decisions cannot be left entirely to market forces.√√ Over utilization of resources causes a reduction in supply, increase in prices, contraction of demand and a search for substitutes.√√ This necessitates conservation of both renewable and non-renewable resources.√√ 13

Downloaded from hlayiso.com 10732/15 Conservation has to be concerned with limiting what is harvested in order to maintain a stable stock at least at the minimum level.√√ Government can use permits and quotas as two possible direct control methods in order to maintain the stock of resources at the minimum level.√√ Preservation Preservation involves any strategy undertaken to safeguard the environment, maintain its current condition and keep it as habitable as possible for people and animals.√√ Heritage sites, indigenous forests, species of animals etc. that have special cultural or environmental significance, are often targeted for preservation.√√ Preservation is not likely to work as a private enterprise because the benefit to society is much bigger than the income of the producer. √√ It may be possible to use cost-benefit analysis to calculate the social benefits of preservation of the environment.√√ The weaknesses in market solutions require the government to intervene in order to preserve environmental assets.√√ Government could do any of the following: • Buy or expropriate√√ – Environmental assets are simply closed for human use.√√ • Subsidise√√ – A subsidy would increase net benefits to the owner and raise the property’s present value.√√ • Controls√√ – The government can compel the owner to apply control measures like restricting the quantities exploited or number of visitors allowed per day.√√ (Max 26 marks) 14

Downloaded from hlayiso.com 10732/15 Additional part (Evaluate the success of major international agreements) Stockholm Conference (1972) √ The Stockholm Conference was the first major large-scale international meeting on the environment convened with the support of the United Nations. √√ The meeting agreed upon a declaration containing 26 principles concerning the environment and development, an action plan with 109 recommendations and a resolution.√√ This meeting directly impacted on the environmental policies of many countries.√√ Rio de Janeiro Earth Summit (1992) √ This meeting acknowledged the importance of cooperation in addressing environmental concerns that threaten sustainability.√√ The conference helped to make countries around the world aware of the dangers of unsustainable development.√√ Unfortunately the principles outlined and accepted at the summit were not binding and subsequently many countries did not conform to them.√√ Rio+5 (1997)√ This conference noted that globalization made some countries poorer – in particular, African countries and the least developed countries showed a low level of growth or even declined.√√ Kyoto Protocol for Climate Change (1997)√ Countries committed themselves to reducing their total emissions of greenhouse by 5%.√√ Unfortunately, China was excluded from this agreement and the USA withdrew.√√ World Summit on Sustainable Development (2002) √ The objective of this summit held in Johannesburg was to conserve natural resources in a world that is growing in population. √√ The meeting focused on issues like poverty eradication, water and sanitation, energy, health agriculture and biodiversity. √√ COP 17 (2011)√ The main goal of the conference held in Durban was to establish a treaty to limit carbon emissions and plan strategies to keep global temperature rise to less than 2 degree Celsius in the 21st century.√√ Although the framework for this treaty was established, it was not finalized.√√ 15

Downloaded from hlayiso.com 10732/15 Conclusion The solutions to our environmental problems will depend on our ability to make sound economic decisions that take account of the natural environment and to change our individual behavior and attitudes.√√ (Accept any appropriate conclusion) (2) [40] TOTAL SECTION C: 40 GRAND TOTAL: 150 16