Economics Grade 12 Paper 2 Gauteng Mock 2017 Memo

Downloaded from hlayiso.com PREPARATORY EXAMINATION 2017 MARKING GUIDELINES ECONOMICS (SECOND PAPER) (10732) 17 pages

Downloaded from hlayiso.com 10732/17 GAUTENG DEPARTMENT OF EDUCATION PREPARATORY EXAMINATION ECONOMICS (Second Paper) MEMORANDUM SECTION A (COMPULSORY) QUESTION 1 1.1 MULTIPLE-CHOICE QUESTIONS 1.1.1 Bhomogenous 1.1.2 Celastic 1.1.3 Anormal 1.1.4 C govrernment projects 1.1.5 Aservices 1.1.6 D sustainable development 1.1.7 B COP17 1.1.8 D pollution (8 x 2) (16) 1.2 MATCHING ITEMS 1.2.1 H The point where the firm does not make supernormal profit or loss but merely normal profits 1.2.2 G Enterprises producing the same kinds of products 1.2.3 E A situation where one firm fixes the price and the others accept it as the market price 1.2.4 B Individuals are not able to abstain from consumption 1.2.5 D The general price level shows a persistent decrease 2

Downloaded from hlayiso.com 10732/17 1.2.6 A Visit to a country by a non-resident of a country 1.2.7 F Any significant and sustained change in the normal weather pattern 1.2.8 I Levies for the adverse effect on the environment (8 x 1) (8) 1.3 IDENTIFY THE CONCEPT 1.3.1 Perfect market 1.3.2 Oligopoly 1.3.3 Pareto efficiency 1.3.4 PPI  1.3.5 Bio-fuel  1.3.6 World heritage sites (6 x 1) (6) [30] 3

Downloaded from hlayiso.com 10732/17 SECTION B QUESTION 2: MICRO-ECONOMICS 2.1 2.1.1 Name the TWO market structures where complete market information is possible. • Perfect competition  • Monopolistic Competition  (2 x 1) (2) 2.1.2 How can the government influence the prices of goods in the perfect market structure? The government does not intervene in the economy under perfect conditions. (1 x 2) (2) 2.2 Data Response 2.2.1 Identify TWO barriers of entry as portrayed by the cartoon. • Patent rights  • Exclusive resources  (2 x 1) (2) 2.2.2 What type of monopoly is depicted in by the above cartoon? Artificial monopoly. A monopoly with patent rights (2) 2.2.3 Briefly describe the term monopoly. In a monopoly there is only one producer or seller for a product.  (2) 2.2.4 Why can’t a monopolist charge excessively high prices for his products? • A monopolist is exposed to market forces.  • Consumers have limited budgets and will look for alternatives if the price becomes too high.  (2 x 2) (4) (Accept any other correct relevant response.) 4

Downloaded from hlayiso.com 10732/17 2.3 Data Response 2.3.1 What is the FreeMe tariff plan of Telkom? Consumers buy large data bundles at the high-end bundles with free minutes, free SMSes, zero-rated social media and other benefits. (1) 2.3.2 What type of competition is depicted in the above extract? None price competition  (1) 2.3.3 Why has Vodacom decided to introduce a similar marketing strategy as Telkom? • They might lose customers to Telkom. • There is intense competition because there is only a few suppliers of mobile data. These suppliers are inter- dependent on each other.  (2 x 2) (4) 2.3.4 What else can Vodacom do to increase its client base? • They can apply more vigorous advertising campaigns.  • They can improve on their after-sales services.  • Offer competitive packages; cellphone contracts. (2 x 2) (4) (Accept any other correct relevant response.) 2.4 Briefly explain the nature of products under monopolistic competition. • Products are not identical.  • Differentiated products are similar but not identical.  • The similarity between the products lies in the fact that they satisfy the same consumer needs.  • Examples are the huge variety of men’s and women’s clothing, shoes, etc.  • Differences may be imaginary.  • Different branded names for products but the content or ingredients might be exactly the same.  • E.g. some medicine, toothpaste etc.  (4 x 2) (8) (Accept any other correct relevant response.) (Allocate a maximum of 4 marks for the mere listing of facts / examples.) 5

Downloaded from hlayiso.com 10732/17 2.5 How will new entrants in the perfect competitive market impact on the profit levels of existing businesses? New entrants in perfect markets will impact on profit levels of existing businesses by ... • entering the market when existing businesses make economic profits.  • increasing the market supply.  • lowering the price levels of goods and services.  • causing smaller / lower profit than previously.  • continuing to increase production, until some businesses cannot cover their average variable cost any more  • causing the shut down and existence the market.  • realising only normal profits in the long run.  (4 x 2) (8) (Accept any correct relevant answer.) [40] (Allocate a maximum of 2 marks for the mere listing of facts / examples.) 6

Downloaded from hlayiso.com 10732/17 QUESTION 3: CONTEMPORARY ECONOMIC ISSUES 3.1 3.1.1 Name any TWO examples of items that can be recycled. • Plastic  • Glass  • Paper  • Cans  Any (2 x 1) (2) (Accept any other correct relevant response.) 3.1.2 How can tourism negatively affect the environment? • It can cause permanent environmental restructuring • Tourism generates waste products • It can cause environmental stress  Any (1 x 2) (2) (Accept any other correct relevant response.) 3.2 Data response 3.2.1 How many SMMEs were selected to exhibit the uniqueness and authenticity of the South African tourism profile? 70 SMMEs  (1) 3.2.2 List ONE benefit that SMMEs have enjoyed during the Indaba. • The businesses have enjoyed networking opportunities with buyers from around the world  • Attended workshops facilitated to provide knowledge and tools on how to access the market  • Shared the stories with global media  (1) 3.2.3 What challenges do SMMEs normally encounter in the tourist industry? • Some SMMEs stagnate due to insufficient access to funding.  • Some do not have the necessary exposure to showcase their businesses.  (2 x 2) (4) (Accept any other correct alternative response.) 7

Downloaded from hlayiso.com 10732/17 3.2.4 How can SMMEs in the tourist sector develop the South African economy? • They will offer a large variety of goods and services in the tourist industry and will enhance South Africa’s profile as a tourist destination. • More tourists will be attracted to South Africa with an inflow of foreign capital.  • SMMEs can also create jobs and this will reduce the poverty level in the country.  • These tourists will pay various types of taxes which could be used for economic development.  (2 x 2) (4) (Accept any other correct alternative response.) 3.3 Data response 3.3.1 Name ONE example of a renewable resource. Trees  (1) 3.3.2 What is needed, according to the above information, to ensure the economical use of resources? Conservation  (Any 1 x 1) (1) (Accept any other correct relevant response.) 3.3.3 Briefly describe the concept of conservation. Conservation is any strategy aimed at achieving the sustainable use and management of natural resources. (Accept any other correct relevant response.) (2) 3.3.4 How does the depletion of resources impact the environment negatively? Depletion of resources impact the environment negatively by ... • affecting biodiversity.  • causing waste products to be generated, also known as pollution.  • leading to climate change.  (Accept any other correct relevant response.) (2) 3.3.5 What can be done to reduce the cutting down of our trees? • Marketing campaigns against deforestation / public opinion.  • Use of technology to substitute the wood in products, thus reducing the demand for wood • Legislation that protects natural occurring forests / expanding plantations to increase supply (2 x 2) (4) (Accept any other correct relevant response.) 8

Downloaded from hlayiso.com 10732/17 3.4 Briefly explain charging for the use of the environment and levy environmental taxes as measures to protect the environment. Charging for the use of the environment • The pricing of the environment is one method used by the government to impose environmental charges.  • The 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 charge for rubbish collection and sewage disposal on households, businesses and others.  (max. 4) Levy of environmental taxes • A tax is imposed on the output (or consumption) of a good where external environmental costs are generated. • These are known as green taxes  • For example, a tax on tyres.  • In this case, the good already has a price and the tax imposed has the effect of increasing the price.  • To achieve a socially efficient output, the rate of tax should be equal to the marginal external cost.  (max. 4) (Accept any other correct relevant response.) (2 x 4) (8) (Allocate a maximum of 4 marks for the mere listing of facts / examples.) 3.5 How does the government benefit from tourism in South Africa? The government benefits from tourism by ... • levying of taxes as the main benefit  • recovering external costs by levying tourist taxes.  • recovering from tourist an amount that is added to the supply price. This amount serves to compensate the host community in providing infrastructure, basic services and public amenities (such as showers and toilets on the beach) to tourists.  • raising revenue  • raising public income from tourists as one of the most common forms e.g. airport departure taxes, air ticket taxes, taxes on hotel room occupancy. • receiving income from casinos as a very profitable source of income  • receiving payment from tourists e.g. normal expenditure taxes, such as VAT, excise duties and custom duties.  (4 x 2) (8) (Accept any other relevant correct response.) (Allocate a maximum of 2 marks for the mere listing of facts / examples.) [40] 9

Downloaded from hlayiso.com 10732/17 QUESTION 4: MICROECONOMICS & CONTEMPORARY ECONOMIC ISSUES 4.1 Answer the following questions. 4.1.1 List any TWO environmental World Heritage Sites in South- Africa. • iSimangiliso Wetland Park  • Cape Fynbos Region, including Table Mountain and Agulhas National Park  • uKhahlamba Drakensberg Park  (Any 2 x 1) (2) 4.1.2 How can a producer in the perfect market maintain his / her profit levels if the market price decreases? The producer must decrease his / her production costs and attempt to find a cheaper production method / system. (1 x 2) (2) 4.2 Data response 4.2.1 Label point A in the above graph. Point of profit maximisation / MR=MC (1) 4.2.2 Identify the demand curve in the above graph. MR / AR (1) 4.2.3 Calculate the profit / loss in the above market. Cost =P x Q =10 x 100 =1000 Income =P x Q =12 x 100 =1200 Thus profit will be 1200 – 1000 = 200 (4) 10

Downloaded from hlayiso.com 10732/17 4.2.4 Draw a well-labelled graph to illustrate the long term equilibrium position of the perfect competitor. Cost/Revenue LMC LAC   e MR=AR=D  0 Q Quantity  Mark allocation Labelling of axis 1 mark Correct position of LMC curve: 1 mark LAC curve: 1 mark Convergence of all curves (e): 1 mark (Max 4 marks) (4) 4.3 Data response 4.3.1 What type of tourism is evident in the picture? Eco-Tourism  (1) 4.3.2 State ONE reason why tourists are attracted to South Africa. • Scenery (fauna and flora)  • National parks / wildlife • Peaceful political transition • Conventions • Cradle of Humankind (1) (Accept any other correct relevant response.) 4.3.3 Briefly describe the term tourist. People traveling and staying in places outside their usual living environment.  (2) 4.3.4 Explain tourism is good for our businesses. • Tourism provides entrepreneurial opportunities for informal business persons.  • Tourism provides a good and sustainable source of income for small businesses.  • It also provide a stable income and maintaining a standard of living for individuals.  (Accept any other correct relevant response.) (2) 11

Downloaded from hlayiso.com 10732/17 4.3.5 How does indigenous knowledge promote tourism? • Tourists seek authenticity and uniqueness when they visit places.  • They want to understand the indigenous culture, history and environment, and how local people live and work.  (2 x 2) (4) (Accept any other correct relevant response.) 4.4 Briefly explain the aims / objectives of competition policies in South Africa. • The aim of a competition policy is to prevent the abuse of economic power. • Regulate the growth of market power by means of takeover and mergers.  • Prevent restrictive practices, especially oligopolists, such as fixing prices, collusion in respect of tenders and price discrimination • To provide all South Africans with equal opportunity to participate fairly.  • To provide for markets in which consumers have access to and can freely select the quality and variety of goods and services they desire.  • To create greater capacity and an environment for South Africans to compete effectively in international markets • To restrain particular practices which undermine a competitive economy.  • To establish independent institutions to monitor competition.  (Allocate a maximum of 4 marks for the mere listing of facts / examples.) (2 x 4) (8) 4.5 Why should businesses sustain the environment? Businesses should sustain the environment by ... • using the environment as the primary / natural resource needed to produce goods and services.  • using the environment in a sustainable way, to keep resources from becoming extinct / depleted  • ensuring the use of the environment in a sustainable way, to ensure long-term economic profit  • ensuring healthy and developing communities, which will in turn create a larger market for businesses  (4 x 2) (8) (Accept any other relevant correct response.) (Allocate a maximum of 2 marks for the mere listing of facts / examples.) TOTAL SECTION B: 80 12

Downloaded from hlayiso.com 10732/17 SECTION C QUESTION 5: MICRO-ECONOMICS 40 MARKS – 40 MINUTES “Adam Smith proclaimed that the invisible hand will control the economy. However, in reality it is necessary for the government to intervene.” • Discuss in detail the implementing of the following aspects as part of government intervention as consequence of market failure. Use well-labelled graphs in your discussion (26 marks) Taxation (13 marks) Maximum prices (13 marks) • Why is it necessary to implement a national minimum wage in South Africa? (10 marks) INTRODUCTION Market failure means that the best available or optimal production outcome has not been achieved. (Max. 2) (Accept any other suitable introduction.) BODY: MAIN PART Taxes • The appropriate way for government to intervene in the market is by levying a tax as a method to recover external cost.  S1  Cost/Price D S Mark allocation P1 e1 Original equilibrium 1 mark  Shift of supply curve after tax 1 mark Increase in price 1 mark P e  Decrease in supply 1 mark Max. 4 marks S1  D S 0 Q1 Q Quantity 13

Downloaded from hlayiso.com 10732/17 • When people consume goods that are harmful to themselves and society in general, then they are classified as demerit goods.  • Examples of demerit goods are drugs, alcohol, cigarettes etc.  • As individuals often struggle to determine the negative cost of their consumption, it is the task of the state to impose taxes to reduce their consumption.  • In the figure above the quantity (Q) is reduced to Q1 after the imposition of a tax.  • The imposition of the tax shifts the price from P to P1.  • The producer will pass the tax to the consumer by charging the higher price (P1).  (Max. 13: discussion 9; graph 4) Maximum Prices • Sometimes the government will set the price of a good or service at a maximum price that is below the market price.  • The government intervenes and passes a law that suppliers may not charge more than the maximum price.  • Maximum prices are usually set on basic goods, such as food and transport so that citizens can achieve a certain minimum standard.  Price D S Mark allocation  Original equilibrium point 1 mark P e Decrease in price 1 mark   Indication of shortages 1 mark Labelling of axes 1 mark Max 4 marks P1  shortage S D 0 Q1 Q Q2 Quantity • In the figure above, the maximum price is set at P1, while the market price is at P.  • The immediate effect is the quantity supply drops from Q to Q1.  The shortage caused by the price ceiling creates a problem of how to allocate the good since the demand is higher than the supply.  (Max. 13: discussion 9; graph 4) (Max. 26) 14

Downloaded from hlayiso.com 10732/17 Additional part It is necessary to implement a national minimum wage in South Africa by ... • ensuring a more equal redistribution of income.  • preventing discrimination (exploitation) of workers, in particular unskilled workers, in negotiating their conditions of employment.  • enabling workers to try to secure their real wages, because their wages remain relatively low.  • ensuring an increase in people’s standard of living.  • setting a national wage level at R3500 per month (still negotiating).  • allowing certain businesses that cannot afford to pay this minimum amount can apply for exemption.  • ensuring an increase in the supply of workers.  • E.g. more people will be interested in furthering their studies to form part of the South African labour force  (Accept any other relevant correct response.) (Allocate a maximum of 2 marks for the mere listing of facts / examples.) (Max. 10) Conclusion Markets are seen as effective if the allocation of resources is so fair that it is impossible for one participant to be further disadvantaged without disadvantaging another participant. (Accept any other relevant conclusion.) (Max. 2) [40] 15

Downloaded from hlayiso.com 10732/17 QUESTION 6: CONTEMPORARY ECONOMIC PURSUITS 40 MARKS – 40 MINUTES “Inflation is the only man-made economic force that is solely man’s fault.” • Discuss in detail the causes of demand-pull inflation. (26 marks) • How successful is the fiscal policy as a measure to combat inflation? (10 marks) INTRODUCTION Inflation is the general increase in prices over a specific timeframe / Inflation reduces the purchasing power of a currency / Demand-pull inflation is caused by consumers who are demanding more, while the supply of the product stays the same or is reduced.  (Accept any other correct relevant introduction.) (Max. 2) BODY MAIN PART Increase in household consumption  - When consumers spend money, they increase the amount of money in circulation, which leads to inflationary pressure.  • Decrease in saving rates  - When consumers/businesses decrease their saving commitments, they are creating an increase in money supply by reinvesting/spending this money  • Decrease in general taxes  - This is mostly referred to as income tax, as this tax has a direct influence on disposable income  e.g. money supply. • Accessibility to credit  - When consumers/producers can access credit easier, they will normally do so, meaning that this money increases money supply Investment expenditure increases  - Mostly to do with businesses but also applicable to households as they indirectly create a bigger credit base for lending money out to create profit Increase in government expenditure - Increase in government expenditure without an increase in demand leads to price hikes.  - Especially if the increase in expenditure is financed through the banking system  - Governments can use three channels for expenditure:   Spending on infrastructure   Protection services   Social protection  16

Downloaded from hlayiso.com 10732/17 Export services  - Foreign sector growth contributes to a greater demand for locally produced goods.  - Demand for commodities is very volatile, but when demand is high commodities are traded and prices increase.  (Accept any other relevant correct response.) (Allocate a maximum of 8 marks for the mere listing of facts / examples.) (Max. 26) ADDITIONAL PART Fiscal policy as a measure to combat inflation is successful by ... • increasing direct taxation.  • decreasing disposable income which means that people will have less money available to spend. This will lead to a decrease in the demand.  • increasing indirect taxation  e.g. VAT, excise duties or customs duties. An increase in these taxes will increase the price of goods and services which should lead to a decrease in demand.  • decreasing government expenditure.  • leading to less money injected into the circular flow which would lead to a decrease in demand.  • financing of the budget deficit.  • acquiring loans from the non-banking sector which is non-inflationary.  (Accept any other relevant correct response.) (Allocate a maximum of 2 marks for the mere listing of facts / examples.) (Max. 10) CONCLUSION Inflation must be carefully monitored and combatted so that it can have a minimal effect on the economy. (Accept any other relevant conclusion.) (Max. 2) [40] TOTAL SECTION C: 40 TOTAL: 150 17