SENIOR CERTIFICATE
ECONOMICS P1 FEBRUARY/MARCH 2017
MARKS: 150
TIME: 2 hours
SECTION A (COMPULSORY)
QUESTION 1 30 MARKS – 20 MINUTES1.1 Various options are provided as possible answers to the following questions. Write down the question number (1.1.1–1.1.8), choose the answer and make a cross (X) over the letter (A–C) of your choice in the ANSWER BOOK.
1.1.1 The point where economic contraction is at its lowest is called a …
- A trough.
- B peak.
- C trend.
1.1.2 The reduction or removal of tariffs that prevent the free flow of goods and services between countries is called …
- A protectionism.
- B trade embargo.
- C trade liberalisation.
1.1.3 The new economic paradigm that relates to the smoothing of business cycles is rooted in …-side policies.
- A demand-and-supply
- B only demand
- C only supply
1.1.4 A form of economic integration that removes all tariffs between member countries is called a …
- A free-trade area.
- B customs union.
- C common market.
1.1.5 The Reserve Bank uses the … policy to influence aggregate money supply.
- A fiscal
- B monetary
- C budgetary
1.1.6 The gap between rich and poor has widened because the demand for … workers has decreased globally.
- A unskilled
- B skilled
- C highly skilled
1.1.7 An industrial policy that encourages industrial development in a few urban areas is called …
- A decentralisation.
- B privatisation.
- C centralisation.
1.1.8 A regional development initiative that focuses on the socioeconomic development of Southern Africa is known as the …
- A African Union.
- B Southern African Growth Initiative.
- C Southern African Development Community. (8 x 2) (16)
- 1.1.1 A – trough
- 1.1.2 C – trade liberalisation
- 1.1.3 A – demand-and-supply
- 1.1.4 A – free-trade areas
- 1.1.5 B – monetary
- 1.1.6 A – unskilled
- 1.1.7 C – centralisation
- 1.1.8 C – Southern African Development Community
COLUMN A | COLUMN B |
---|---|
|
|
- 1.2.1 F – small initial change in spending produces a proportionally larger increase in national income
- 1.2.2 H – coordinates trade and promotes locally manufactured products worldwide
- 1.2.3 A – economic fluctuations affected by causes outside the market system
- 1.2.4 B – does not change until after the business cycle has changed
- 1.2.5 I – levied on high-income earners
- 1.2.6 C – reflects the demographic and gender composition of a country
- 1.2.7 E – ratio between inputs and outputs
- 1.2.8 D – sets out the broad approach to industrialisation of government
1.3 Give ONE term for each of the following descriptions. Write only the term next to the question number (1.3.1–1.3.6) in the ANSWER BOOK.
- 1.3.1 A set of accounts that shows a systematic record of the trade and financial transactions between a country and the rest of the world
- 1.3.2 The curve that shows the relationship between tax rates and tax revenue
- 1.3.3 The market engaged in the buying and selling of foreign currencies
- 1.3.4 A spatial area that forms a passageway, allowing access from one area to another as part of regional development
- 1.3.5 It is used to measure the performance and trends of economic variables over time
- 1.3.6 The withdrawal of money from the circular flow (6 x 1) (6)
- 1.3.1 Balance of Payments
- 1.3.2 Laffer curve
- 1.3.3 Foreign exchange / Forex
- 1.3.4 Corridor
- 1.3.5 Economic indicator
- 1.3.6 Leakage
SECTION B
Answer any TWO of the three questions in this section in the ANSWER BOOK.
QUESTION 2: MACROECONOMICS 40 MARKS – 30 MINUTES
2.1 Answer the following questions.
- 2.1.1 Name any TWO monetary policy instruments. (2 x 1) (2)
- 2.1.2 Identify ONE benefit of import substitution for domestic households. (1 x 2) (2)
2.1.1 Name any TWO monetary policy instruments.
- Repo rate / Interest rates
- Open market transactions
- Minimum cash reserve requirements
- Moral suasion
- Exchange rate policy (2 x 1) (2)
2.1.2 Identify ONE benefit of import substitution for domestic households?
- More job opportunities / increase in income
- Better choice of goods and services / Greater variety of
products
(Accept any other correct relevant response) (1 x 2) (2)
2.2 Study the diagram below and answer the questions that follow
- 2.2.1 Identify ONE injection in the diagram above. (1)
- 2.2.2 Name the type of economy portrayed by the above diagram. (1)
- 2.2.3 Briefly describe the term circular flow. (2)
- 2.2.4 What is the main objective of social transfers? (2)
- 2.2.5 Briefly explain the importance of the factor market in the circular flow. (2 x 2) (4)
2.2.1 Identify ONE injection in the diagram above.
- Government expenditure / government purchases (1)
2.2.2 Name the type of economy portrayed by the above diagram?
- Closed economy / three sector economy (1)
2.2.3 Briefly describe the term circular flow.
- The circular-flow model of the economy is a simplification showing how the economy works and the relationship between income, production and spending in the economy as a whole
(Accept any other correct relevant response) (2)
2.2.4 What is the main objective with social transfers?
- Redistribution of income/poverty alleviation/correct imbalances of
the past/promote equality/close the gap between rich and poor
(Accept any other correct relevant response) (2)
2.2.5 Briefly explain the importance of the factor market in the circular flow.
- The households own the factors of production and sell the factors on the input market and receive an income (wages, rent, interest and profit) in return to use in buying goods and services
- Businesses purchase the factors of production from the household in the factor market to be used in the production of goods and services
(Accept any other correct relevant response) Any (2 x 2) (4)
2.3 Study the extract below and answer the questions that follow.
BUY LOCAL AND BOOST THE SOUTH AFRICAN ECONOMY
The Proudly South African campaign requested the support of all South African producers. South Africa currently faces the challenge of competing in an unfair global economy. All South Africans should buy home-grown products and contribute to job creation. Our own industries need protection until they establish a base. Korea's giant brands like Samsung and Hyundai are not only big in their own country; they are also global giants and major providers of jobs.
[Adapted from Finweek, 12 October 2015]
- 2.3.1 Identify the challenge faced by South Africa to succeed in international markets from the extract above. (1)
- 2.3.2 Name ONE brand from the extract which is imported from Korea. (1)
- 2.3.3 Briefly describe the term protectionism. (2)
- 2.3.4 What measures can government take to ensure that local industries are protected? (2)
- 2.3.5 In your opinion, how can local support boost the South African economy? (4)
- 2.4 Distinguish between the amplitude and trend line as features underpinning forecasting. (2 x 4) (8)
- 2.5 How can the establishment of more labour-intensive industries benefit South Africa? (8)
>2.3.1 Identify the challenge faced by South Africa to succeed in the international markets from the extract above.
- 'Competing in an unfair global economy' (1)
2.3.2 Name ONE brand from the extract which is imported from Korea.
- Samsung/Hyundai (1)
2.3.3 Briefly describe the term protectionism.
Protectionism refers to government policies and regulations which are designed to benefit local producers of goods and services in their competition with imported goods, thus helping them to survive
(Accept any other correct relevant response) (2)2.3.4 What measures can government take to ensure that local industries are protected?
The government can:
- install import quotas
- charge higher tariffs on imported goods
- ban or restrict certain goods previously imported
- subsidise local industries
- enforce a local content requirement to protect employment
(Accept any other correct relevant response) (2)
2.3.5 In your opinion, how can local support boost the South African economy?
By exporting -
- surplus production
- foreign currency is earned for the country / BoP equilibrium
- employment opportunities are created
- increased consumption of locally produced products takes place
2.4 Distinguish between the amplitude and trend line as features underpinning forecasting.
Trend line
- The trend is the general direction of the economy
- The trend line that rises gradually will be positively sloped in the long run. This rising line indicates a growing economy
- The trend line represent the average position of a business cycle Amplitude
- Amplitude refers to the deviation from the trend line to the trough and from the trend line to the peak of the business cycle
- It shows the severity of each phase of the business cycle, the shorter the amplitude – indicates a mild recession
- The larger the amplitude, the more extreme the changes that occur
- If the peak is far from the trend line it means the underlying causes of expansion are very strong / If the peak is close to the trend line, the underlying causes are weak (Any 2 x 4)
(Allocate a maximum of 4 marks for mere listing of facts / examples) (8)
2.5 How can the establishment of more labour-intensive industries benefit South Africa?
Establishment of more labour intensive industries will benefit South Africa by:
- providing more jobs
- improving the utilisation of available resources
- e.g. mining, agriculture and manufacturing industries
- transferring a greater variety of knowledge and skills to the workers
- using artisans, technicians and engineers that will lead to better economic growth
- improving the standard of living of the citizens (economic development)
- generating more revenue for the state via income tax
QUESTION 3: ECONOMIC PURSUITS 40 MARKS – 30 MINUTES
3.1 Answer the following questions.- 3.1.1 Name any TWO aspects that can be used to differentiate countries in the North-South divide. (2 x 1) (2)
- 3.1.2 What is the relationship between economic growth and economic development? (1 x 2) (2)
3.1.1 Name any TWO aspects that can be used to differentiate countries in the North-South divide.
- Unequal standard of living
- Globalisation inequalities (challenges in globalisation)
- Environment Any (2 x 1) (2)
3.1.2 What is the relationship between economic growth and economic development?
- Economic growth should ensure more job opportunities and higher/ income to more households thus leading to improvement to the standards of living of the people (1 x 2) (2)
3.2 Study the information below and answer the questions that follow
GROWTH AND DEVELOPMENT PLANS OF SOUTH AFRICA
The National Development Plan (NDP) foresees a South Africa where everyone feels free, yet bounded to others, where everyone embraces their full potential. Realising such a society will require transformation of the economy and focused efforts to build the country's capabilities. Poverty and inequality should be reduced and the economy must grow faster in ways that benefit all South Africans.
The RDP, on the other hand, was an integrated, coherent socio-economic policy framework structured around its overall goal namely, a better life for all.
[Adapted from OECD Economics Survey 2015]
- 3.2.1 Identify ONE growth and development plan for South Africa in the extract above. (1)
- 3.2.2 What is the main aim of the RDP? (1)
- 3.2.3 What message is depicted in the cartoon above, in an economic context? (2)
- 3.2.4 What role has the RDP played in improving the lives of people since 1994? (2)
- 3.2.5 In your opinion, how can the NDP bring about 'a better life for all'? (4)
3.2.1 Identify ONE growth and development plan for South Africa from the extract above.
- National Development Plan (NDP) / Reconstruction and Development Programme (RDP) (1)
3.2.2 What is the main aim of the RDP?
- The improvement of the lives of the majority of South Africans / better life for all
3.2.3 What message is depicted in the cartoon above, in an economic context?
- People living under conditions of poverty with an expectation of change
3.2.4 What role did the RDP play in the improvement in the lives of the people since 1994?
The RDP:
- met the basic needs of people.
- increased infrastructure development.
- laid the foundation for sustained economic growth and job creation.
- developed human resources.
- ensured the safety and security of South Africa’s citizens and the state.
- transformed the government to reflect development and people-centred nature of the democratic state. (2)
3.2.5 In your opinion, how can the NDP bring about a better life for all?
- The NDP can fully transform the economic activities of the country
- It can assist in the: transformation of the overall mind set of all the South Africans in realising that everybody will be judged according to his/her potential and ability/reduction of poverty and inequality in society
3.3 Study the extract below and answer the questions that follow.
AFRICA MUST DIVERSIFY
The Minister of Trade and Industry has called for the African economies to diversify in order to attract foreign direct investment. He warned that economic integration in Africa was facing a threat if infrastructure development did not take place. Economies were inward looking and focused on the exports of raw materials to shore up its gross domestic product.
The recent global slump in oil and commodity prices due to slowing demand, particularly from China, required a new approach to doing business on the continent that would be consumption-based. Countries should diversify into a common market.
[Adapted from Business Report, 5 October 2015]
- 3.3.1 According to the Minister of Trade and Industry, why is it important for African economies to diversify? (1)
- 3.3.2 What new approach should countries follow in doing business? (1)
- 3.3.3 Briefly describe the term common market. (2)
- 3.3.4 Give ONE reason why developing countries diversify as part of their import substitution policies. (2)
- 3.3.5 How can South Africa benefit by focusing on value-added production? (4)
3.3.1 According to the Minister of Trade and Industry, why is it important for African economies to diversify?
- To be able to attract foreign direct investment (1)
3.3.2 What new approach should countries follow in doing business?
- The approach should be consumption-based (1)
3.3.3 Briefly describe the concept common market.
3.3.4 Give ONE reason why developing countries diversify as part of their import substitution policies?
- The industrial base of their economies need to be strengthened and expanded
- This will make them less dependent on foreign countries and give them more control over their economies / cut out the risk of world fluctuations in prices and demand problems
- Inexperienced manufacturers cannot compete with others, that justifies protection measures
3.3.5 How can South Africa benefit by focusing on value-added production?
South Africa can benefit by:
- establishing export driven industries
- creating more employment opportunities
- improving free trade by establishing new trade partners
- e.g. BRICS
3.4 Discuss competitiveness and investment in human capital as benchmark strategies for industrial development.
Competition
- Companies are more focused, innovative and effective if strong competition is present.
- This improves the overall quality of the manufactured products.
- As with technological advancement, high quality products can more easily be exported and compete on an international level. (Max 4) Human capital
- The development of human capital through skills development is of critical importance, as skilled employees are more productive than untrained ones.
- By investing in human capital, a country is assured of having long-term economic growth. (Max 4)
3.5 How can the development of small businesses benefit the South African economy?
Small businesses can benefit the South African economy by:
- Providing guidance to create employment for structurally unemployed people that might lead towards a more inclusive economy
- Promoting entrepreneurial development among women and the youth in rural areas where unemployment is very high
- Helping in the diversification of the economy by promoting the upliftment of a variety of skills
- Enhancing competition most needed to benefit the consumer pricewise
QUESTION 4: MACROECONOMICS AND ECONOMIC PURSUITS 40 MARKS – 30 MINUTES
4.1 Answer the following questions.
- 4.1.1 Name any TWO forms of import substitution. (2 x 1) (2)
- 4.1.2 What impact will an increase in the VAT rate have on the standard of living of the poor? (1 x 2) (2)
4.1 Answer the following questions.
4.1.1 Name TWO forms of import substitution.
- Voluntary
- Enforced (2 x 1) (2)
4.1.2 What impact will an increase in the VAT rate have on the standard of living of the poor?
- It will reduce their consumption spending hence they would buy less than they did before the increase (1 x 2) (2)
4.2 Study the table below and answer the questions that follow.
- 4.2.1 Which institution provides the statistics above? (1)
- 4.2.2 Which item records transactions relating to donations and gifts to other countries? (1)
- 4.2.3 Briefly describe the capital transfer account as part of the BoP. (2)
- 4.2.4 Give ONE reason for the decline in gold exports. (2)
- 4.2.5 Calculate the trade balance for 2015. Show ALL calculations. (4)
4.2.1 Which institution provides the above statistics?
- South African Reserve Bank (SARB) (1)
4.2.2 Which item records transactions relating to donations and gifts to other countries?
- Current transfers (1)
4.2.3 Briefly describe the capital transfer account as part of the BoP.
- It is a net amount that includes transactions and grants relating to ownership of fixed assets, debt forgiveness and the value of household and personal effects and financial claims and liabilities of migrants
4.2.4 Give ONE reason for the decline in gold exports?
- Less reliance on gold as a value stabilising commodity
- Worldwide recession led to a low gold price
- Closing-down of gold shafts led to down-scaling of gold production
4.2.5 Calculate the trade balance for 2015. Show all calculations.
Trade Balance = Merchandise exports + Net gold exports –
Merchandise imports
= R973 778 + R67 662 - R1 075 850
= - R34 410
- 4.3.1 Identify ONE major challenge in the cartoon above. (1)
- 4.3.2 State ONE negative consequence of poverty in the cartoon above. (1)
- 4.3.3 What does the 'Mandela Legacy' refer to? (2)
- 4.3.4 Suggest ONE way in which South Africa can be freed from inequality. (2)
- 4.3.5 How can human resources be targeted to be more effective in solving the problems in the cartoon above? (4)
4.3.1 Identify ONE major challenge in the cartoon above.
- Inequality/poverty (1)
4.3.2 Give ONE negative consequence of poverty in the cartoon above.
- Hunger/malnutrition/crime (1)
4.3.3 What does the Mandela Legacy refer to?
- The Mandela Legacy tried to solve major problems of poverty, social and economic inequality and create a transparent and democratic government where universal respect for humanity exists
4.3.4 Suggest ONE way in which South Africa can be freed from inequality.
- Fair distribution of national income
- Creation of employment opportunities
- Have an investor-friendly legislation that will attract FDI
- Provide education and training
- Encourage entrepreneurship
4.3.5 How can human resources be targeted to be more effective in solving the problems in the cartoon above?
- More emphasis should be placed on education, which receives the biggest slice of budget expenditure, to benefit all involved in education
- Major partners in the private sector should take responsibility to accommodate workers skilled on different levels and focus on manufacturing using labour intensive production methods
4.4 Briefly discuss Special Economic Zones as part of South Africa's industrial development plan.
Special Economic Zones (SEZ)
- Geographically demarcated area where specific economic activities have been identified to be developed
- These areas may enjoy incentives such as tax relief and support systems to promote industrial development
- It creates a basis for a broader range of industrial parks
- It also provides economic infrastructure to enable the effective clustering of value-adding and employment-enhancing manufacturers
The aims of SEZ's:
- Promote rapid development by acting as a magnet for investment in key growth areas
- Enable the development of new industrial regions through the establishment of new industrial hubs in under-developed regions and the strengthening of existing one
- SEZ's are used for the purposes such as export promotion, enterprise development, urban renewal, rural development and domestic or regional production (Any 4 x 2) (Allocate a maximum of 4 marks for mere listing of facts / examples) (8) 4.5 How can South Africa benefit from trading in global markets? South Africa can benefit from trading in global markets by:
- partaking more intensively in free trade that will fuel efficiency through elimination of extra costs and wastage
- pursuing lower prices which will benefit the local consumer in the satisfaction of a greater variety of wants
- accessing more goods and services produced in other countries which will increase the variety to choose from
- assisting local producers to increase production and employ more domestic factors of production which will limit unemployment and have a positive effect on the standard of living of many South Africans
SECTION C
Answer any ONE of the two questions in this section in the ANSWER BOOK. Your answer will be assessed as follows:
QUESTION 5: MACROECONOMICS 40 MARKS – 40 MINUTES
The state plays a significant role in a mixed economic system and is therefore one of the largest sectors in the economy.
- Discuss the macroeconomic objectives of the state. (26)
- How successful is the implementation of South Africa's fiscal policy? (10) [40]
INTRODUCTION
Economic growth is required for economic development and can only occur if policy planning in the country embraces those policies that which would ensure sustainability in the economy (Max 2)
MAIN PART
Price stability- Implies that prices in the economy do not change much over time
- Price stability is the opposite of inflation
- When prices are relatively stable and inflation is low, markets can function optimally and the government can promote economic growth and development more effectively
- The SARB strives to keep the inflation rate within the target range of 3 to 6% (Max 6)
- If more money flows into the country than going out, we could have a surplus on the BOP
- The state promotes domestic production of surpluses to increase exports and by monitoring changes in exchange rates
- Fluctuations, such as the depreciation and appreciation of a currency, can create uncertainties for investors, producers and retailers
- South Africa uses a floating exchange rate system, which allows its exchange rate to determine its own value, based on demand and supply
- The South African currency has fluctuated considerably over the last two decades
- Over the last decade it appreciated to reach a peak of R6,36 to the US dollar by the end of 2005
- Thereafter it depreciated sharply by 33% to R8,44 to the US dollar in 2010 and 2012
- International reserves increased from 12,9% a decade ago to 28,67% in 2011
- The SARB uses a free-floating exchange rate system
- Instability of exchange rates such as during the latter part of the 2000s is a great problem for businesses
- However, the international benchmark is whether market forces determine rates (Max 6)
- Full employment means that all persons who would like to work and who are looking for work should be able to find work, or create work for themselves / where all resources are utilised efficiently
- Employment in the formal non-agricultural sectors of the economy increased at a low rate
- However, in 2009 and 2010 it turned negative because of the effect of global recession
- The average growth of less than one per cent over the ten years is disappointingly low
- The result is that the unemployment rate is increased from 15% in 1994 to 25,2% in 2012
- Public sector employment increased during and after the global recession, reducing the total effect on employment
- The government supports education, labour-intensive businesses and the informal sector
- Low rates of unemployment also correlates with other socio-indicators, such as a lower crime rate and higher standard of health (Max 6) Economic equity
- This is the reasonable division of income among the population
- Redistribution of income and wealth achieves the reasonable division of income
- Measures that the government uses to achieve that are:
- Using the progressive income tax system, higher income groups pay higher tax rates
- Government uses taxes to finance social goods and services such as housing, education and primary health care
- Government pays cash grants such as old-age grants, disability grants, child support grants, etc.
- Government implements policies such as BBBEE to achieve that (Max 6)
- This refers to an increase in the productive capacity of the economy of the country for a specific period of time e.g. a year / an increase in the production of goods and services in the economy
- It is usually measured in terms of growth in the national output valued at market prices referred to a the gross domestic product (GDP)
- South Africa is a developing country and in terms of the World Bank's classification it is an upper-middle income country
- The average economic growth rate was 3.8% per year in the ten years between 2001 and 2012
- The government applied structural reform as the guiding principle in the fiscal policy discipline of the country
- Structural reform means that the budget had to reflect on transformation aims of the government, e.g. on education, health and welfare
- Under the GEAR policy, which was phased out by 2010, the budget deficit was reduced to less than 30% of the GDP in all the years before 2009
- This was the acceptable international benchmark for best practice
- The government is internationally acknowledged for its fiscal discipline and this stands the country in good stead in the international community
- The state attempts to ensure that there is a continual improvement in the productive capacity of the economy by offering quality education and skills training
- Economic growth makes it possible to improve the standard of living of people and also reduce poverty (Max 6)
ADDITIONAL PART
- Progressive personal income tax where those higher-income earners are taxed at a higher rate
- Wealth tax where properties like houses, offices and factory buildings in urban areas are taxed annually
- Other redistributions that advantage the poor and low income earners Expenditure:
- Cash benefits provided in the form of old-age pensions, disability grants, child support grants
- Benefits in kind which include the provision of healthcare, education and schools meals
- Property subsidies that help the beneficiaries to acquire ownership of fixed residential property
- Government complies in terms of expenditure and taxation in a way that enhances its chances of achieving macroeconomic objectives
- Government invest in more infrastructure to develop the economy, e.g. the Medupi power plant for the increase in the supply of electricity, the De Hoop dam
- The provision of housing to the impoverished and previously disadvantaged black majority
- Provision of meals at schools for school children (Max 10)
The government have the following in place to raise revenue:
CONCLUSION
Macroeconomic objectives are a desirable for the government to have for they serve as the roadmap in addressing the socio-economic circumstances in the country (Max 2)
QUESTION 6: ECONOMIC PURSUITS 40 MARKS – 40 MINUTES Economic and social indicators are used globally to compare and describe economic performances of countries.
- Examine the following social indicators:
- Demographics
- Education
- Nutrition and health (26)
- What can the South African government do to improve the delivery of social services to its citizens? (10) [40]
INTRODUCTION
Social indicators are measures that economists use to evaluate the performance of a country in terms of the social well-being of its citizens (Max 2)
MAIN PART
Demographics- This deals with the characteristics of the population, such as size, race, age sex, income geographic distribution, language, education occupation religion
- Definable issues related to human well-being over a period of time
- Population growth The population numbered 52,98 million in 2013
- Growth is slowing down
- Measuring population growth is important for delivering social services and for identifying the size of the tax base (the total number of people paying taxes)
- Life expectancy South Africa's life expectancy rate is down from 62,8 years to 49.7 years in 2015
- Dependency rate the high-age dependency rate in South Africa indicates the level of dependency on those who are working
- Human Development Index This is a socio-economic indicator of human development. Three basic aspects are considered: the standard of living, quality of health care and general standard of education - It combines measures of life expectancy, school enrolment, literacy and income to allow a broader view of a country’s development than does income alone (Max 10) Education
- The standard of living is related to the level of education
- Education is a key social indicator:
- Public expenditure the percentage of the national budget that is directed towards education
- Secondary enrolment this shows the percentage of an age group attending high school
- Primary completion the percentage of an age group that has completed primary education is an indicator of the efficiency of the education system
- Youth literacy rate the percentage of the 15-24 age group that are literate (Max. 10)
- The proportion of underweight children is the most important indicator of malnutrition
- Overweight children there is an association between obesity of children and other diseases
- Health Infant mortality: The number of children that will die before one year of age one way of measuring the health of a population Child mortality is substantially higher in poor households Under-five mortality the number of children that will die before the age of 5 years
- Health expenditure
- The amount of health expenditure by the state and private sector, as a percentage of GDP
- Health care has extensive positive externalities
- Access to safe drinking water: the percentage of a population that has reasonable access to safe drinking water
- Access to sanitation facilities: the percentage of a population with at least adequate sanitation facilities that can prevent human, animal and insect contact (Max 10)
The standard of living of the population is related to the quality of nutrition and health:
-
Nutrition
Child malnutrition Malnutrition is expressed in two ways – weight for age (underweight) and height for age (dwarfism) Malnutrition in all its forms amounts to an intolerable burden not only national health system but on the entire cultural, social and economic fabrics of the nation
ADDITIONAL PART
The South African government can
- provide free health services of quality at the provincial hospitals and clinics, because everyone is not able to pay for these services
- develop more major road infrastructure leading into economic hubs to accommodate more traffic
- extend school feeding schemes to more primary schools in the country where major unemployment is experienced in communities
- improve the provision of clean water to communities, especially when droughts are experienced
- increase free housing services and grants to the needy
CONCLUSION
Social indicators are the best yardsticks in checking on the development and progression of communities as a result of government initiative to improve the lives of the society at large / South African government annually increases its budget expenditure on health and education to improve the lives of its citizens (Max. 2)
SENIOR CERTIFICATE
ECONOMICS P1 FEBRUARY/MARCH 2016
MARKS: 150
TIME: 2 hours
SECTION A (COMPULSORY)
QUESTION 1 30 MARKS – 20 MINUTES
1.1 Various options are provided as possible answers to the following questions. Choose the answer and write only the letter (A–C) next to the question number (1.1.1–1.1.8) in the ANSWER BOOK, for example 1.1.9 C.
1.1.1 A measure used to indicate the economic prosperity of a country is called the …
- A gross domestic income.
- B per capita national income.
- C net national income.
1.1.2 Exogenous factors such as … can cause fluctuations in the level of economic activity.
- A weather patterns
- B inflexibility of markets
- C demand patterns
1.1.3 An example of a positive externality is …
- A education.
- B pollution.
- C tobacco smoking.
1.1.4 Which ONE of the following can cause a deficit on the balance of payments?
- A Inward foreign investments
- B Increase in foreign currency reserves
- C Decline in mineral exports
1.1.5 When the government sells more than 50% of the state-owned shares of a public enterprise, it is called …
- A privatisation.
- B nationalisation.
- C free trade.
1.1.6 The North-South divide highlights the economic … that exist between the developed and developing countries.
- A similarities
- B programmes
- C differences
1.1.7 The industrial development policy that aims at promoting long-term industrialisation is called …
- A the Industrial Policy Action Plan.
- B Special Economic Zones.
- C Spatial Development Initiatives.
1.1.8 The main objective of the Skills Support Programme is to …
- A reduce government expenditure.
- B encourage greater investment in training.
- C build five million houses.
- 1.1.1 B (per capita national income)
- 1.1.2 A (weather patterns)
- 1.1.3 A (education)
- 1.1.4 C (decline in mineral exports)
- 1.1.5 A (privatisation)
- 1.1.6 C (differences)
- 1.1.7 A (the Industrial Policy Action Plan)
- 1.1.8 B (encourage greater investment in training) (8 x 2)
1.2 Choose a description from COLUMN B that matches the item in COLUMN A. Write only the letter (A–I) next to the question number (1.2.1–1.2.8) in the ANSWER BOOK.
COLUMN A | COLUMN B |
---|---|
|
|
- 1.2.1 E - the total value of all final goods and services produced within the borders of a country in a given year
- 1.2.2 G - the upper turning point of the business cycle
- 1.2.3 A - uses interest rates to influence the level of expenditure
- 1.2.4 F - the weighting of domestically manufactured outputs
- 1.2.5 B - gives member countries the opportunity to get financial support from the IMF
- 1.2.6 I - a trade agreement between a group of emerging markets
- 1.2.7 C - laws and regulation to enhance manufacturing operations
- 1.2.8 D - assess the performance of the economy (8 x 1) (8)
1.3 Give ONE term for each of the following descriptions. Write only the term next to the question number (1.3.1–1.3.6) in the ANSWER BOOK.
- 1.3.1 The process whereby the standard of living of people in a country improves
- 1.3.2 The trade policy whereby the country encourages the local production of goods rather than importing the goods
- 1.3.3 When authorities deliberately increase the value of a currency
- 1.3.4 The turning point in the business cycle where the level of economic activities is at its lowest
- 1.3.5 A country's record of transactions with the rest of the world over a period of time
- 1.3.6 The introduction of money into the circular flow (6 x 1) (6)
- 1.3.1 Economic development
- 1.3.2 Import substitution
- 1.3.3 Revaluation
- 1.3.4 Trough
- 1.3.5 Balance of payments (BOP)
- 1.3.6 Injections (6 x 1) (6)
SECTION B
Answer any TWO of the three questions in this section in the ANSWER BOOK.
QUESTION 2: MACROECONOMICS 40 MARKS – 30 MINUTES
2.1 Answer the following questions:
- 2.1.1 Name TWO instruments of fiscal policy. (2 x 1) (2)
- 2.1.2 How can the appreciation of the rand affect the exports of goods and services? (1 x 2) (2)
2.1.1 Name TWO instruments of fiscal policy.
- Government spending
- Taxation (2 x 1) (2)
2.1.2 How can the appreciation of the rand affect the exports of goods and services?
- There will be a reduction in exports
- It makes goods and services more expensive (1 x 2) (2)
2.2 Study the extract below and answer the questions that follow
THE MULTIPLIER EFFECT
The government of Valspar has decided to expand the national road network by R200 million this year. The tendency of households is to save 20 per cent of their income.
- 2.2.1 What percentage of their income do households spend? (2)
- 2.2.2 Explain the term multiplier. (2)
- 2.2.3 What impact will a tax increase have on the multiplier? (2)
- 2.2.4 Calculate the size of the multiplier. Show ALL calculations. (4)
2.2.1 What percentage of their income do households spend?
- Income equals consumption plus savings. Households will spend 80% of their income (2)
2.2.2 Explain the term multiplier.
- It occurs when a small increase in spending produces a larger increase in national income (2)
2.2.3 What impact will a tax increase have on the multiplier?
- Implementation of a tax (VAT) effectively means that less money will be available to spend
- The expectation is that the multiplier will decrease and thus the total value the multiplier amount will decrease as well (2)
2.2.4 Calculate the size of the multiplier. Show ALL calculations.
-
= 1/0.2
= 5
2.3 Study the cartoon below and answer the questions that follow.
IT'S TIME TO SPEED UP THE RECOVERY
[Source: Sheneman, Tribune Media Services]
- 2.3.1 What message is depicted in the cartoon above? (2)
- 2.3.2 Give a reason for the current state of the economy. (2)
- 2.3.3 What main economic indicator is used to determine the state of the South African economy? (2)
- 2.3.4 How can the government speed up the recovery of the economy? (4)
- 2.4 Differentiate between real flows and money flows in the circular-flow model. (2 x 4) (8)
- 2.5 In your opinion, how can the Reserve Bank reduce the deficit on the balance of payments? (4 x 2) (8)
2.3.1 What message is depicted in the cartoon above?
- The economy is slowing down/recession
2.3.2 Give a reason for the current state of the economy.
- Aggregate demand decreases
- Bankrupts businesses
- World slows down in economic activities
- Inflation rate increases
2.3.3 What main economic indicator is used to determine the state of the South African economy?
-
Real Gross Domestic Product (2)
2.3.4 How can the government speed up the recovery of the economy?
Government has TWO important fiscal policy instruments :
- Taxes
- They can reduce taxes
- E.g. Income tax/company tax
- That will give consumers and companies more money to spend on goods and services and for companies to expand their production capacity
- Government spending
- They can increase spending
- E.g. Spending on salaries, infrastructure and creating more job opportunities (EPWP)
- That will increase expenditure which will stimulate economic activity
2.4 Differentiate between real flows and money flows in the circular flow model.
Real flows
- Factors of production from household to firms
- Goods and services from firms to households
- Goods and services from the government
- Goods and services from the foreign sector to households, businesses and the government (imports)
- Goods and services to the foreign sector (exports)
Money flows
- Payment for factors of production in the form of rent, profit, wages and salaries and interest from firms to households
- Payment for goods and services from households to firms
- Payment for goods and services from households to the foreign sector
- Payment for goods and services by households
- Payment of taxes by households and firms to government
- Payments for exports by the foreign sector
2.5 In your opinion how can the Reserve Bank reduce the deficit on the balance of payments?
- Countries experiencing deficits will borrow money from other countries. That is why developing countries have so much foreign debt
- In the event of a fundamental disequilibrium, member countries may borrow from the International Monetary Fund (IMF)
- Borrowing is nevertheless not a long-term solution for fundamental balance of payments disequilibrium
- South Africa will decrease imports by depreciating the currency. Exports will become cheaper for foreign buyers
- Increasing interest rates will decrease spending, including on imports
- Increasing FDI in the country with the higher interest rate
- There are domestic regulations that allow central banks to ration foreign exchange Those who require foreign exchange have to apply to the central bank
QUESTION 3: ECONOMIC PURSUITS 40 MARKS – 30 MINUTES
3.1 Answer the following questions.
- 3.1.1 Name TWO indicators related to foreign trade. (2 x 1) (2)
- 3.1.2 What is the effect of increased investment spending on the economy? (1 x 2) (2)
3.1.1 Name TWO indicators related to foreign trade.
- Terms of trade
- Exchange rate (2 x 1) (2)
3.1.2 What is the effect of increased investment spending on the economy?
- Expansion in infrastructure development
- Increased employment, productivity and production
- Increased economic growth (Accept any other relevant answer) (1 x 2) (2)
3.2 Study the table below and answer the questions that follow
- 3.2.1 Which year, according to the table above, indicates the highest life expectancy without HIV? (1)
- 3.2.2 Which institution is responsible for publishing life expectancy trends in South Africa? (1)
- 3.2.3 Explain the term life expectancy. (2)
- 3.2.4 What impact will HIV/Aids have on productivity levels? (2)
- 3.2.5 In your opinion, what brought about the improvement in life expectancy from 53,4 years to 61,2 years? (2 x 2) (4)
3.2.1 Which year according to the table above indicates the highest life expectancy without HIV?
- 2014 (1)
3.2.2 Which institution is responsible for publishing life expectancy trends in South Africa?
- Statistics SA/Stats SA (1)
3.2.3 Explain the concept life expectancy.
- Life expectancy expresses the number of years a new-born infant will live if the prevailing patterns of mortality remained the same throughout his or her life (2)
3.2.4 What impact will HIV/Aids have on productivity levels?
- Low productivity
- High levels of absenteeism
- High loss of working hours
3.2.5 In your opinion, what brought about the improvement in life expectancy from 53,4 to 61,2 years?
- Community awareness campaigns on the illness
- Improved medical services
- Improved drugs dealing with the illness
- More emphasis of the negative effects of the illness on the education front
3.3 Study the extract below and answer the questions that follow
OUR FUTURE: MAKE IT WORK – NDP 2030
The NDP aims to eliminate poverty and reduce inequality by 2030. South Africa can realise these goals by drawing on the energies of its people, growing an inclusive economy, building capabilities, enhancing the capacity of the state, and promoting leadership and partnerships throughout society.
[Source: www.nda.org.za]
- 3.3.1 What does the abbreviation NDP stand for? (2)
- 3.3.2 What is meant by an inclusive economy? (2)
- 3.3.3 Give a reason why it is important to eliminate poverty and reduce inequality in South Africa. (2)
- 3.3.4 What impact does the Expanded Public Works Programme have on your local community? (2 x 2) (4)
- 3.4 Briefly discuss employment as an economic indicator. (4 x 2) (8)
- 3.5 How will the new demarcated special economic zones (SEZs) benefit regional development in South Africa? (4 x 2) (8)
3.3.1 What does the abbreviation NDP stand for?
- National Development Plan (2)
3.3.2 What is meant by an inclusive economy?
- Inclusive means having an integrated approach, all aspects of the economy being considered (2)
3.3.3 Give a reason why it is important to eliminate poverty and reduce inequality in South Africa.
- Redress
- To address the legacy of apartheid
- To ensure a better standard of living for all
- SA need a broad based participation in economic activities
3.3.4 What impact does the Expanded Public Works Programme have on your local community?
- Community projects are earmarked
- Jobs are created while at the same time, community upliftment taking place
- Poverty is alleviated
- Providing an income for the unemployed
3.4 Briefly discuss employment as an economic indicator.
- Data relating to employment is an important indicator that is used to determine the success or state of the economy
- It indicates the number of workers employed, as well as the total number of people that are unemployed
- If the employment rate is compared with the economically active population, the unemployment rate can be determined
- It indicates the productivity of labour in the country
- E.g. the productivity rate could be used as a useful tool to justify the income per worker
- It relates to the employment rate in various sectors of the economy
- Employment indicators can be used by government to formulate the best policies to decrease unemployment and reduce poverty
3.5 How will the new demarcated Special Economic Zones (SEZs) benefit regional development in South Africa?
- Expand the manufacturing sector
- Create jobs
- Produce for the export market
- Create additional industrial hubs so that the national industry base will be
diversified
- Investments in the SEZs are based on Public-Private Partnerships (PPP),
where the state provides the infrastructure and the private sector sets up
business
- Various incentive schemes are offered to attract businesses into the SEZs
- Reduced tax benefits
QUESTION 4: MACROECONOMICS AND ECONOMIC PURSUITS 40 MARKS – 30 MINUTES
4.1 Answer the following questions.
- 4.1.1 Name TWO items in the financial account of the balance of payments. (2 x 1) (2)
- 4.1.2 What effect does inflation have on the poor? (1 x 2) (2)
4.1.1 Name TWO items in the financial account of the balance of payments.
- Direct investments
- Portfolio investments
- Other investments
- Derivatives
- Assets (Any 2 x 1) (2)
4.1.2 What effect does inflation have on the poor?
- The poor becomes poorer/The poor will be able to purchase less goods
4.2 Study the graph below and answer the questions that follow
EXCHANGE RATES
- 4.2.1 Which supply curve indicates a decrease in the supply of dollars? (1)
- 4.2.2 What type of exchange rate system is currently used in South Africa? (1)
- 4.2.3 Explain the term exchange rate. (2)
- 4.2.4 State ONE factor that could have led to an increase in the supply of dollars. (2)
- 4.2.5 Use the above graph to explain the effect of the increase in the supply of US dollars on the R/US$ exchange rate. (2 x 2) (4)
4.2.1 Which supply curve indicates a decrease in the supply of dollars?
- S2S2 (1)
4.2.2 What type of exchange rate system is currently used in South Africa?
- Free floating exchange rate system (1)
4.2.3 Explain the term exchange rate.
- It is the price of one currency in terms of another (2)
4.2.4 State one factor that could have led to an increase in the supply of dollars.
- Increase in the number of US tourists visiting South Africa
- Increase in imports from SA to the US
4.2.5 Use the above graph to explain the effect of the increase in the supply of US dollars on the R/US$ exchange rate.
- US$ - Depreciates
Reason: The supply of dollars increase SS to S1S1 and the
equilibrium point move from E to E1
The price for dollars will be fixed at P1 which is lower
- R - Appreciates
Reason: The demand for rand increase from DD to D1D1 and the
equilibrium point from E to E1
The price of rands will be fixed at P1 which is higher (2 x 2) (4)
4.3 Study the table below and answer the questions that follow.
- 4.3.1 What does the abbreviation MTEF stand for? (2)
- 4.3.2 What is the international benchmark for budget deficits as a percentage of the GDP? (2)
- 4.3.3 Calculate the budget deficit as a percentage of the GDP (A). (2)
- 4.3.4 In your opinion, what can the government do to reduce the budget deficit? (4)
4.3.1 What does the abbreviation MTEF stands for?
- Medium Term Expenditure Framework (2)
4.3.2 What is the international benchmark for budget deficits as an percentage of the GDP?
- 3% (2)
4.3.3 Calculate the budget deficit as a percentage of the GDP (A).
- A : 3,0% (2)
4.3.4 In your opinion what can the government do to reduce the budget deficit?
- Government can increase its revenue , e.g. increasing taxes/improve on efficiency/more productive labour force
- Government can reduce public sector expenditure , e.g. stricter financial procedures/control/appointment of competent employees/training of employees
4.4 Explain how the amplitude and trend line can be used in the forecasting of business cycles.
Amplitude:
The power of the underlying forces – for example interest rates, exports or consumer spending
- A large amplitude during upswing demonstrates strong underlying forces
- The duration of a cycle with a large amplitude is usually longer than one with a smaller amplitude The extend of change – the larger the amplitude the more extreme the changes that may occur
- For example during an upswing unemployment may decrease from 20% to 10% (a decrease of 50%) inflation may increase from 3% to 6% (by 100%) or a surplus on the current account (of the balance of payments) can change from surplus to a deficit
Trend line:
- The trend line that rises gradually will be positively sloped in the long run, the rising line indicates a growing economy
- The trend indicates the general direction in which indexes that were used in the business cycle move
- The trend will change when the time series data change their behaviour patterns of the past
- However some forces have to be overcome for that to happen e.g. Resistance points and Channels
4.5 How can taxation be used to stimulate employment in South Africa?
Individual Income Tax
- Lower taxes effectively increases the disposable income of people
- This could lead to an increase in the demand for goods and services
- Businesses (suppliers) will have to increase their production to compensate for the increased demand
- This could lead to job creation
Company Tax:
- Lower company tax increase investment possibilities to expand the business
- This will create the opportunity to employ more people
Taxes on imports:
- Import/custom duties reduce imports
- Stimulate local production and create more jobs
SECTION C
Answer any ONE of the two questions in this section in the ANSWER BOOK. Your answer will be assessed as follows:
QUESTION 5: MACROECONOMICS 40 MARKS – 40 MINUTES
To be internationally competitive, a country needs to have suitable trade policies in place. They have to grow their industries if they want to increase the standard of living.
- Discuss, in detail, the arguments in favour of protectionism. (26 marks)
- In your opinion, how can the government use subsidies to ensure that local industries are protected against unfair competition from abroad? (10 marks) [40]
INTRODUCTION
Protectionism refers to a deliberate policy on the part of the government to erect trade barriers, such as tariffs and quotas, in order to protect domestic industries against international competition.
BODY
Arguments in favour of Protectionism:
- 1. Raising revenue for the government
- Import tariffs raise revenue for the government
- In smaller countries the tax base is often small due to low incomes of individuals and businesses
- Low incomes do not provide much in the form of income taxes and therefore custom duties on imports is a significant source of income or revenue
- 2. Protecting the whole industrial base
- Maintaining domestic employment
- Countries with high unemployment are continuously pressured to stimulate employment creation and therefore resort to protectionism in order to stimulate industrialisation
- It is thought that using protectionism the country's citizens will would purchase more domestic products and raise domestic employment
- These measures on domestic employment creation at the expense of other countries, led to such measures as 'beggar-my-neighbour' policies
- Applying import policies is likely to reduce other countries ability to buy country's exports and may provoke retaliation
- 3. Protecting workers
- It is argued that imports from other countries with relatively low wages represent unfair competition and threaten the standard of living of the more highly paid workers of the local industries
- Local industries would therefore, be unable to compete because of higher wages pushing up the price levels of goods
- Protection is thus necessary to prevent local wage levels from falling or even to prevent local businesses from closing down due to becoming unprofitable
- Competition from low-wage countries may also reflect the fact that those countries have a comparative advantage in low-skilled labour-intensive industries
- 4. Diversifying the industrial base
- Overtime counties need to develop diversified industries to prevent overspecialisation
- A country relying too heavily on the export of one or a few products is very vulnerable
- If a developing country's employment and income is dependent on only one or two industries, there is the risk that world fluctuations in prices and demand and supply-side problems could result in significant fluctuations in domestic economic activity
- Import restrictions may be imposed on a range of products in order to ensure that a number or domestic industries develop
- 5. Develop strategic industries
- Some industries such as the iron-ore and steel, agriculture, (basic foodstuffs, such as maize), energy (fuels) and electronics (communication) among others, are regarded as strategic industries Developing countries a may feel that they need to develop these industries in order to become self-sufficient
Protecting specific industries
- 6. Dumping
- Foreign industries may engage in dumping because government subsidies permit them to sell at very low prices or because they are seeking to raise profits through price discrimination
- The reason for selling products at lower prices may be to dispose of accumulate stocks of the goods and as a result consumers in the importing country stand to benefit however, their long term objective may be to drive out domestic producers and gain control of the market and consumers are likely to lose out in the reduction in choice and higher prices that the exporters will be able to charge
- 7. Infant industries
- Usually newly established and find it difficult to survive due to their average costs being higher than that of their well-established foreign competitors however, if they are given protection in their early years they may be able to grow and thereby take advantage lower their average costs and become competitive and at this point protection can be removed
- 8. Declining industries/sunset industries
- Structural changes in the demand and supply of a good may severely hit an industry such industries should be permitted to go out of business gradually declining industries are likely to be industries that no longer have a comparative advantage and however, if they go out of business quickly there may be a sudden and large increase in unemployment
- Protection may enable an industry to decline gradually thereby allowing time for resources including labour to move to other industries
- Protecting domestic standards domestic regulations of food safety human rights and environmental standards have been increasingly acting as trade restrictions (Max. 26)
ADDITIONAL PART
In your opinion, how can the government use subsidies to ensure that local industries are protected against unfair competition from abroad? South Africa promotes exports through subsidies.
Direct subsidies:
Strict screening measures should be put in place when companies apply for financial assistance Government expenditure can provide direct financial support to domestic producers for their exports e.g.- Cash grants offered to South African exhibitors to exhibit their products at exhibitions overseas. explore new markets
- Foreign trade missions to explore new markets Imposition of tariffs on imports
- Funds for the formation of formal export councils
- Subsidies for training or employing personnel
- Funds for the export market research
- Product registration and foreign patent registrations
Indirect subsidies: Government can refund companies certain taxes to promote exports These types of indirect subsidies are:
- General tax rebates (Part of the cost of production can be subtracted from the tax that has been paid)
- Tax concessions on profits earned from exports or on capital invested to produce export goods
- Refunds on import tariffs in the manufacturing process of exported goods, companies often use – custom duties are paid on these goods and the government refunds them (Max 10)
CONCLUSION
Most countries agree that protectionism is harmful to the economy if not well managed. My opinion is that protectionism in certain areas of importance is needed especially where young industries come into existence
QUESTION 6: ECONOMIC PURSUITS 40 MARKS – 40 MINUTES Internationally, the main instruments on which growth and development policies are based are called demand and supply-side approaches. The supply-side approach focuses more on microeconomic goals.
- Examine, in detail (without using a graph), the supply-side approach in terms of South Africa's efforts to promote economic growth and development. (26 marks)
- In your opinion, have the RDP and GEAR been successful as growth and development policies? (10 marks) [40]
INTRODUCTION
- Anything that can influence the supply of goods or resources is a supply-side measure
- Supply-side policies focus on supply and its microeconomic components, such as competition and potential output.
BODY
The supply-side explanations are based on the monetarist approach and maintain that government intervention in the economy is only necessary if it improves the smooth operations of markets supply in the economy is fairly fixed particularly in the short term because for the economy to produce more, more workers are needed/more machines need to be built and installed/more electricity needs to be produced/and better roads need to be provided.
The South African approach
The South African government uses the supply-side approach complementing or in addition to a demand-side approach Its objective of growth and development higher levels of employment and equity distribution (equity) are embedded in the budget. The Medium Term Expenditure Framework (MTEF) was created to give certainty to the trend and emphasise the real magnitude of the expenditure the aim is to shift the supply curve in the above figure to the right – important focus of growth and development is government's industrial development policy and maintenance upgrading and creation of new infrastructure supply-side policies are also designed to create an environment where businesses and markets can function optimally
The effectiveness and efficiency of markets If businesses accomplish their aims, (profitability and growth), the business is effective In South Africa, government imposes aims on markets by laws, which they are forced to follow and they become effective when they meet these aims together with their own aims which are in fact merged with their own
- Effectiveness Government demands that markets function in a manner that
ensures that more black people are absorbed into the mainstream economy
because they were previously deliberately disadvantaged Two Acts were
promulgated to enforce preference for black workers and the businesses of black
people
- The Employment Equity Act The Act prohibits discrimination and requires that the workforce reflects the racial and gender profile of the population at large enterprises have to file an employment equity plan with the Department of Labour, and inspectors from the department visit business sites to ensure compliance
- Broad-Based Black Economic Empowerment Act The Act provides the legal basis for the transformation of the South African economy it requires redress so that the number of black people who won, manage and control businesses in the country can increase significantly and income inequalities can be decreased substantially
- Efficiency Pareto efficiency means that given the constraints of the effectiveness parameters, it is not possible to change the allocation of resources in such a way that someone is made better off without making someone else worse off it includes productive and allocative efficiency
- Competition Competition in the markets was increased in three ways: by establishing new businesses (small businesses) recruiting Foreign Direct Investment (FDI) and the reduction or removal of import restrictions that hampered competition from abroad in addition the competition regulator network was created to enforce competitive practices among domestic businesses The Competition Act (1998) is aimed at anti-competition practices eliminating the abuse of dominant positions and strengthening merger controls the Act provides for the operation of the Competition Commission, a Competition Tribunal and a Competition Appeal Court and in spite of all these, the Global Competition Index shows that South Africa's competitiveness is slipping by
- Deregulation Private sector causes imbalances that inhibit the free operation of markets have been revised and some were even abolished in the mid-1990s government maintains it is committed to improving the ease of doing business in the country exchange control measures were occasionally relaxed
- Business efficiency Some measures serve as incentives to increase efficiency
while others assist in establishing and improving efficiency the end result
is greater profitability
- Taxes the corporate income tax rate is 28% small business pay a lower rate as long as their income is less than the SARS income tax threshold individual income tax starts at 18% and increases slightly as determined by SARS on tax review yearly the effect of tax bracket creeping on personal income tax has been attended to in almost every budget with adjustments to income tax brackets the increase for the individuals was 33% VAT remained the same fixed at 14% the level of taxation in South Africa are reasonable compared to developed countries however, as a developing country, lower tax rates would be helpful to promote economic growth
- Capital formation Depreciation of capital goods used by businesses is designed to encourage investment e.g. new machinery may be depreciated over four years at 40% in the first year/and computers and electronic equipment over three years government through the DTI and the IDC also promote capital and loans to SMMEs and bigger business and this serve as an incentive to promote business efficiency
- Human resources education receives proportionally a bigger slice of the budget expenditure Sector Education and Training Authorities (SETAs) have to facilitate post-school, work-related training the labour relations Act that came into operation in 1998, promotes economic development, social justice, and peaceful labour relations in the promotion of efficiency
- Free advisory services the development of export markets/managing and running SMMEs/agricultural production/weather forecasts/and prevention and curing of animal diseases
- Cost of doing business In South Africa government controls most physical
infrastructure components the availability and cost of infrastructure services
play an important role in the financial viability and profitability of businesses
- Transport costs transport options in air, road, rail and sea are available government controls air and sea transport in South Africa. government has committed to improving the efficiency and reliability of its rail transport services and to make it more affordable
- Communication costs communication options are in cable, signal and mail government controls cable( land or fixed lines) and mail communication services cable communication services in South Africa is one of the most expensive in the world but reasonably efficient high costs make IT services for businesses and individuals expensive and inhibits global competitiveness
- Energy costs electricity and liquid fuels are the main sources of energy in South Africa Eskom is the only supplier (monopoly) government regulates the prices for petrol and paraffin the prices for imported crude oil are linked to international market prices, which are high high liquid energy prices undermine the efficiency of the economy (Max. 26)
Positive response:
- The introduction of the RDP programme shot the economy from negative four per cent (-4%) to about 3%
- The housing infrastructure of the majority of the people started to improve
- More electrification of the rural communities was put in place
- The RDP programme became the original route map for economic growth and development of the country
- The GEAR policy improved the economy from a 3% point growth to 6%
- The resultant growth in the economy trickled down to more social welfare of the communities
- The trade deficit of the country decreased
Negative response:
- Unemployment rate kept on going up
- Poverty and service delivery were never improved
CONCLUSION
Policy mix application can best help the government trade off strategies in dealing with the economy
SENIOR CERTIFICATE
ECONOMICS P1 MAY/JUNE2016
MARKS: 150
TIME: 2 hours
QUESTION 1 30 MARKS – 20 MINUTES
1.1 Various options are provided as possible answers to the following questions. Choose the answer and write only the letter (A–C) next to the question number (1.1.1–1.1.8) in the ANSWER BOOK, for example 1.1.9 C
1.1.1 Earnings received from the export of goods and services are called …
- A leakages.
- B injections.
- C investments.
1.1.2 Estimating unknown data based on a pattern of known data is called …
- A the amplitude.
- B a trend.
- C extrapolation.
1.1.3 Countries with fundamental balance of payment problems can apply for financial support from the …
- A International Monetary Fund.
- B Federal Bank.
- C Reserve Bank.
1.1.4 The mini-budget that covers a period of three years, which is tabled in October each year, is called the …
- A main budget.
- B medium-term expenditure framework.
- C short-term budget.
1.1.5 Government expenditure forms part of the … policy.
- A monetary
- B fiscal
- C Reserve Bank's
1.1.6 An important aim of industrial development is to increase …
- A imports.
- B economic growth.
- C foreign aid.
- 1.1.1 B - injections
- 1.1.2 C - extrapolation
- 1.1.3 A - International Monetary Fund
- 1.1.4 B - medium-term expenditure framework
- 1.1.5 B - fiscal
- 1.1.6 B - economic growth
- 1.1.7 A - Expanded Public Works Programme
- 1.1.8 A - good education
1.2 Choose a description from COLUMN B that matches the item in COLUMN A. Write only the letter (A–I) next to the question number (1.2.1–1.2.8) in the ANSWER BOOK.
COLUMN A | COLUMN B |
---|---|
|
A also known as the labour force B consists of enterprises that produce similar products C represents the real flow in the economy D evens out short-term fluctuation in economic data E provides goods and services promptly and in the desired quantity and quality amongst them F compares a country's export prices with its import prices by means of an index G when leakages are more than injections H absence of barriers and restrictions I managed by the Reserve Bank |
- 1.2.1 G - when leakages are more than injections
- 1.2.2 F - compares a country's export prices with its import prices by means of an index
- 1.2.3 D - evens out short term fluctuation in economic data
- 1.2.4 H - absence of barriers and restrictions
- 1.2.5 I - managed by the Reserve Bank
- 1.2.6 E - provides goods and services promptly and in the desired quantity and quality
- 1.2.7 A - also known as the labour force
- 1.2.8 B - consists of enterprises that produce similar products
>1.3 Give ONE term for each of the following descriptions. Write only the term next to the question number (1.3.1–1.3.6) in the ANSWER BOOK.
- 1.3.1 An account in the balance of payments that shows records of investments by South Africans in other countries
- 1.3.2 Primary participants and owners of the factors of production
- 1.3.3 The worldwide interaction of economies
- 1.3.4 An indicator that measures the number of babies who die before the age of one
- 1.3.5 Spatial areas that offer particular advantages to mining and other businesses along a particular trade route
- 1.3.6 The government's plan for revenue and expenditure for the coming fiscal year (6 x 1) (6)
- 1.3.1 Financial
- 1.3.2 Households/Consumers
- 1.3.3 Globalisation / International trade / Foreign trade / Global economy
- 1.3.4 Infant mortality
- 1.3.5 Corridors
- 1.3.6 Budget (main budget/national budget)/Fiscal policy
SECTION B
Answer any TWO of the three questions in this section in the ANSWER BOOK.
QUESTION 2: MACROECONOMICS 40 MARKS – 30 MINUTES
2.1 Answer the following questions.
- 2.1.1 Name TWO macroeconomic objectives of the state. (2 x 1) (2)
- 2.1.2 How can the Reserve Bank use interest rates to stimulate the economy? (1 x 2) (2)
2.1.1 Name TWO macroeconomic objectives of the state.
- Economic growth
- Full employment
- Exchange rate stability / Balance of Payment stability
- Price stability
- Economic equity
2.1.2 How can the Reserve Bank use interest rates to stimulate the economy?
- By reducing interest rates credit became more accessible which will lead to an increase in expenditure and stimulate economic activities (Accept any other correct alternative response)
- 2.2.1 Which institution published the information in the graph above? (1)
- 2.2.2 During which quarter of 2014 did South Africa experience a positive change in the GDP? (1)
- 2.2.3 What are the implications of recent trends in the GDP between 2011 and 2014? (2 x 2) (4)
- 2.2.4 Explain the importance of the GDP as economic indicator. (2 x 2) (4)
2.2.1 Which institution published the information in the graph above?
- Statistics South Africa / Stats SA / SSA (1)
2.2.2 During which quarter of 2014 did South Africa experience a positive change in the GDP?
- Second quarter (1)
2.2.3 What are the implications of recent trends in the GDP between 2011 and 2014?
Implications are:- A drop in the growth rate () means less is produced
- Decrease in income of businesses
- Retrenchments / job losses /unemployment increase
- Decrease in income of workers
- Lower standard of living / increase in poverty
2.2.4 Explain the importance of the GDP as economic indicator.
- Indicates the economic activity within a country
- Measures economic growth from one year to the next
- Determines the standard of living in a country
- Compare prosperity levels among countries
2.3 Study the extract below and answer the questions that follow.
PARASTATALS (SOEs) A BURDEN ON SA'S FUTURE
The financial health of the country's parastatals (state-owned enterprises) is in dire straits. Future bailouts required by the parastatals (SOEs) are one of three key threats to the South Africa's economy. The other two are weakerthan-expected economic growth and above-inflation public sector wage settlements. Radical change is needed to secure our fiscal future.
Some voice privatisation as the only option. Eskom has been the biggest recipient. To date it has received R350 billion in guarantees and has borrowed R144,5 billion. Roads agency, Sanral, has received guarantees valued at R38,9 billion, against which it has borrowed R30,2 billion. South African Airways is also on the brink of bankruptcy
[Adapted from Mail & Guardian, 27 February 2015]
- 2.3.1 Identify TWO parastatals (SOEs) in the extract. (2 x 1) (2)
- 2.3.2 Explain the term privatisation. (2)
- 2.3.3 How does the poor financial health of parastatals (SOEs) threaten South Africa's economy? (1 x 2) (2)
- 2.3.4 Explain how the privatisation of state-owned enterprises (SOEs) can secure our fiscal future. (2 x 2) (4)
- 2.4 Distinguish between leading and lagging indicators. (2 x 4) (8)
- 2.5 How can inefficiencies that contributed towards public sector failure be solved? (8)
2.3.1 Identify TWO parastatals (SOEs) in the extract.
- Eskom
- Sanral
- South African Airways Any (2 x 1) (2)
2.3.2 Explain the term privatisation.
- State-owned businesses are transferred to the private sector
2.3.3 How does the poor financial health of parastatals (SOEs) threaten South Africa's economy?
- Bailouts given to parastatals increase government expenditure which is not budgeted for
- Weaker economic growth does not attract investment and projects
- Higher wage settlements might lead to further inflation
2.3.4 Explain how the privatisation of state-owned enterprises (SOEs) can secure our fiscal future.
- The income generated through privatisation becomes additional funds for the government
- The tax base will be broadened, creating more income for the government
- It can lead to greater efficiency in the economy because there is more money available for new projects / reduce debt
- The government can use privatisation to promote broad-based black economic empowerment
2.4 Distinguish between leading and lagging indicators.
Leading indicators:- Give consumers, businesses and the state a glimpse of the direction in which the economy might be heading
- When these indicators rise, the level of economic activities will also rise a few months later / the specific turning points lead the reference turning points
- Examples of leading indicators are job advertising space, inventory and sales (Max 4)
- Won't change direction until after the business cycle has changed its direction / the specific turning points tend to follow the reference turning points
- They serve to confirm the behaviour of the coincident indicators
- Examples of these indicators are hours worked in construction and total of commercial vehicles sold
2.5 How can inefficiencies that contributed towards public sector failure be solved?
- Taxpayer's money can be used to ensure optimal allocation of resources E.g. subsidise students tuition fees on merit
- Protection of industries of strategic importance E.g. the textile industry that are labour intensive
- Monitor spending of government funds on social services budget related to avoid nepotism and corruption
- Put structures and policies in place to take care of the environment directly e.g. increase the number of security staff to prevent animals e.g. rhinos to become extinct
- Take care of the environment indirectly through programmes to make the communities aware of the state of the environment e.g. more environmental programmes on TV and grass root level
- Human rights must be honoured to ensure cooperation at all levels of government
QUESTION 3: ECONOMIC PURSUITS 40 MARKS – 30 MINUTES
3.1 Answer the following questions.
- 3.1.1 State TWO redress methods used by the government to correct the imbalances of the past. (2 x 1) (2)
- 3.1.2 How are developing countries challenged by globalisation? (1 x 2) (2)
3.1.1 State TWO redress methods used by government to correct the imbalances of the past.
- Employment Equity / Affirmative action
- Broad Based Black Economic Empowerment
- Land restitution and redistribution
3.1.2 How are developing countries challenged by globalisation?
- Exploitation of resources
- Unfair competition in global markets
- Demand for unskilled labour decreased
- The poor is getting poorer
- Los of national identity
3.2 Study the information below and answer the questions that follow
SA STEEL INDUSTRY IN CRISIS
ArcelorMittal SA became the latest casualty of falling steel prices and slowing demand. Some of the reasons are: cheap imports, the devaluation of China's currency, frequent power outages, violent industrial action, inadequate infrastructure and increasing production costs.
The steel industry is seeing a crisis; the media is talking about a job bloodbath, especially in smaller companies. These companies are highly indebted and are battling to survive.
[Adapted from Business News, 14 October 2015]
- 3.2.1 Give ONE reason for the falling steel prices. (1)
- 3.2.2 Who is Africa's largest steel producer? (1)
- 3.2.3 Why do you think China devalued its currency? (2)
- 3.2.4 What was the effect of China's currency devaluation on South Africa's steel industry? (2)
- 3.2.5 In your opinion, what can the South African government do to reduce the negative effects of this crisis? (2 x 2) (4)
3.2.1 Give ONE reason for the falling steel prices.
- Cheap imports
- Devaluation of China's currency
- Frequent power outages
- Violent industrial action
- Inadequate infrastructure
- Increasing production costs (1)
3.2.2 Who is Africa's largest steel producer?
- ArcelorMittal (1)
3.2.3 Why do you think China devalued its currency?
- To keep export volumes high
- Increase their domestic production
- Support economic growth
- Increase job opportunities
3.2.4 What was the effect of China's currency devaluation on the South Africa's steel industry?
- Plunging (decrease in) demand for our steel
- Loss in profits
- Retrenchment / job losses
3.2.5 In your opinion, what can the South African government do to reduce the negative effects of this crisis?
- To impose a tariff on certain steel products
- To facilitate the process between the steel industry being impacted and the labour unions to limit the lay-offs
- To improve Eskom's capacity to deliver electricity
- To subsidise the steel industry due to its strategic importance and labour intensive nature
3.3 Study the information below and answer the questions that follow.
BRICS COUNTRIES TO CONTRIBUTE EQUALLY TO NEW DEVELOPMENT BANK CAPITAL
The New Development Bank BRICS (NDB BRICS), formerly referred to as the BRICS Development Bank, is a multilateral development bank operated by the BRICS states, as an alternative to the World Bank and International Monetary Fund.
Formation of the capital of the New Development Bank (NDB), to be headquartered in Shanghai, will be shared equally by the five BRICS countries. The initial subscribed capital shall be US$50 billion. The goal of the bank is to mobilise resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries. Each participating country holds an equal number of shares and equal voting rights, and none of the countries will have veto power.
[Adapted from Business News, 16 October 2015]
- 3.3.1 Identify ONE country that forms part of BRICS. (1)
- 3.3.2 Which member country is interested in signing a nuclear power deal with South Africa? (1)
- 3.3.3 Explain the concept emerging economies. (2 x 2) (4)
- 3.3.4 How can South Africa benefit from the New Development Bank BRICS? (2 x 2) (4)
- 3.4 Distinguish between economic growth and economic development. (2 x 4) (8)
- 3.5 How can special economic zones (SEZs) contribute to regional development? (4 x 2) (8)
3.3.1 Identify ONE country that forms part of BRICS.
- Brazil
- Russia
- India
- China
- South Africa (1)
3.3.2 Which member country is interested in signing a nuclear power deal with South Africa?
- Russia (1)
3.3.3 Explain the concept emerging economies.
- Developing countries that succeed in attracting fixed and portfolio investments from developed economies
- Developing economies that show acceleration in industrialisation and economic growth (2 x 2)
3.3.4 How can South Africa benefit from the New Development Bank BRICS?
- Having access to funds for infrastructure and development
- Will have access to suitable and sustainable development projects
- Having access to funds at favourable interest rates (2 x 2) (4)
3.4 Distinguish between economic growth and economic development.
-
Economic Growth
- An increase in the productive capacity of an economy over time
- It is an increase in the real GDP
- Focuses on goods and services
- The process by which the standard of living improves
- Measured in GDP per capita
- Focuses on empowerment of people
3.5 How can special economic zones (SEZs) contribute to regional development?
- The government will use the new programme specifically to promote the creation of a regionally diversified industrial economy
- Establishing new industrial hubs in underdeveloped regions of the country
- This programme is crucial for government's strategic objectives of industrialization, regional development and job creation
- It will improve South Africa's attractiveness as a destination for FDI as well as domestic investment
- It gives a greater opportunity for regional development because it is not linked to a port or airport
- SEZ’s accommodates the foreign market for goods and services as well as the domestic market
- Because of a special tax incentive, more industries are established
QUESTION 4: MACROECONOMICS AND ECONOMIC PURSUITS 40 MARKS – 30 MINUTES
4.1 Answer the following questions.
- 4.1.1 Name TWO import substitution methods. (2 x 1) (2)
- 4.1.2 Why is industrial development a necessity in South Africa? (1 x 2) (2)
4.1.1 Name TWO import substitution methods.
- Tariffs
- Quotas
- Subsidies
- Foreign exchange control
- Physical control standards e.g. embargo
- Diverting trade e.g. import deposits (2 x 1) (2)
4.1.2 Why is industrial development a necessity in South Africa?
- Generate income - Industries will accommodate thousands of workers who will receive an income
- Boost economic growth – Industrial development will ensure an increase in the production of goods and services
- Increase job creation – Labour intensive industries will offer many new job opportunities
- Increase the export of value-added products – Industries can add value to the many natural resources available in our country Any (1 x 2) (2)
4.2 Study the information below and answer the questions that follow.
- 4.2.1 What tax scale is referred to in the heading of the extract? (1)
- 4.2.2 What important element of redress is found in the extract? (1)
- 4.2.3 Explain the negative impact of high tax rates. (2 x 2) (4)
- 4.2.4 Calculate the tax payable by a person whose taxable income is R200 000 per year. Show ALL calculations.
4.2.1 What tax scale is referred to in the heading of the extract?
- Progressive (1)
4.2.2 What important element of redress is found in the extract?
- Redressing the inequality of income / poverty (1)
4.2.3 Explain the negative impact of high tax rates.
- Tax payers develop tax resistance
- Avoidance / Evasion of tax Discourage people from:
- Entering the labour market
- Accepting promotions
- Working longer hours
4.2.4 Calculate the tax payable of a person whose taxable income is R200 000 per year. Show ALL calculations.
- (R18 100 X 26%)
- = R 4 706 plus R32 742
- Total tax payable = R 37 448 (4)
4.3 Study the information below and answer the questions that follow.
- 4.3.1 Which international institution provided the data in the extract? (1)
- 4.3.2 When did the income disparities in South Africa increase drastically? (1)
- 4.3.3 Which index describes the percentage of the population living below the poverty-line income? (2)
- 4.3.4 Give a reason why poverty in South Africa declined between 2000 and 2006. (2)
- 4.3.5 What is the relationship between the Lorenz curve and the Gini coefficient? (2 x 2) (4)
- 4.4 Distinguish between the money market and the capital market. (2 x 4) (8)
- 4.5 In your opinion, how can South Africa's monetary policy contribute to a higher economic growth rate? (4 x 2) (8)
4.3.1 Which international institution provided the data in the extract?
- World Bank (1)
4.3.2 When did the income disparities in South Africa increase drastically?
- 2009 (1)
4.3.3 Which index describes the percentage of the population living below the poverty line income?
- Head Count Index (2)
4.3.4 Give a reason why poverty in South Africa declined between 2000 and 2006.
- Increased social grants
- Increase in the informal sector
- Implementing skills developing programme
4.3.5 What is the relationship between the Lorenz curve and the Gini coefficient?
- The further the Lorenz curve is away from the line of equality, the higher will be the Gini coefficient
- The closer the Lorenz curve is to the line of equality, the lower will be the Gini coefficient (2 x 2)
4.4 Distinguish between the money market and the capital market.
-
Money Market
- Term: Short term loans and very short-term funds
- Who are trading on this markets: Individuals and business enterprises
- Examples: Banks, Insurance companies
- Products: Bank debentures, treasury bills, government bonds are traded (Max 4)
- Term: Long-term funds
- Who are trading on these markets: By individuals and business enterprises
- Examples: The Johannesburg Stock Exchange is a key institution in the capital market
- Products: E.g. Mortgage Bond and Shares are traded
4.5 In your opinion how can South Africa's monetary policy contribute to a higher economic growth rate?
- The Reserve Bank should protect the value of the rand by stabilising prices within the inflation targets which will enhance Direct Foreign Investments
- By lowering inflation rates it will lead to lower prices/easy availability of credit which will encourage spending and production therefore an increase in local production will take care of the current account deficit in the balance of payments
- By promoting the exportation of local production the current account deficit in the Balance of Payments can be lowered (decreased)
- The Reserve Bank can lower the repo rate thereby promoting the granting of credit / increase the aggregate money supply
- The increase in domestic production will stabilising the exchange rate which will encourage capital inflow from other countries and eventually will stimulate local production
SECTION C
Answer any ONE of the two questions in this section in the ANSWER BOOK. Your answer will be assessed as follows:
QUESTION 5: MACROECONOMICS 40 MARKS – 40 MINUTES
In the global economy countries strive to export more than they import to maximise the benefits of international trade.
- Examine the supply reasons for international trade. (26)
- Use a graph and explain how an increase in exports to the USA will affect the value of the rand. (10)
INTRODUCTION
There are many reasons for international trade. Countries may have a surplus of some goods and a shortage of other goods, and they will trade in order to correct these imbalances
BODY
Natural resources- These resources are not evenly distributed across all countries of the world
- They vary from country to country and can only be exploited in places where these resources exist
- South Africa is well endowed with different natural resources but less well endowed with skilled labour and capital
- whilst Japan and Ireland have relative abundance of skilled labour but they lack natural resources
- Labour differs from country to country in terms of skills, knowledge, training, quality, quantity and cost between them
- Some countries have highly skilled, well-paid workers and high productivity levels
- E.g. Switzerland
- Some countries need to modernize their industries and economies with advanced machinery, equipment and plant but cannot manufacture this equipment because they lack the capital to do so
- This has increased the need for international trade
- Countries that have good entrepreneurial skills offer more goods and services for trade
- Efficiency determines the supply of goods and services produced at lower prices and reduces the opportunity cost of acquiring them
- These conditions make it possible for some countries to produce certain goods at a lower price than other countries
- E.g. Brazil is the biggest producer of coffee
- Countries have different climatic conditions and are therefore able to produce different products
- The development levels and innovation processes of countries will always differ and as a result other countries may have them in abundance while others may not
- Countries like Germany, the United States, are able to use capital that embodies high levels of technology while other countries do not have access to the latest technology
- These countries that have high technological labour force are able to produce certain goods and services at a low unit cost
- E.g. US and Germany
- The production of certain goods and services allows some countries to produce them at a lower cost than others
- E.g. Japan produces electronic goods and sells these at a lower price
- International trade enables countries to specialize in the production of goods and services in which they have a comparative advantage
- Most of such surplus production gets exported to other countries and the revenue earned from these exports can be used to finance imports (Max 26)
EXPLANATION:
- An increase in exports to the USA will lead to an increased demand for rand from D1 to D2
- The quantity of rand demanded increase from 50 to 52bn
- The price of rand in terms of dollar increase from .060 dollar per rand to .062 dollar per rand Max (3 x 2)
CONCLUSION
The need to integrate shall never become obsolete as nations of the world need each other for the survival of all and for development purposes
QUESTION 6: ECONOMIC PURSUITS 40 MARKS – 40 MINUTES
The annual analysis of the economic performances of countries is very important. This is done by international institutions and governments to determine how countries performed in comparison with others.
- Analyse the following economic indicators that are used to measure the
performance of the economy:
- > Productivity (maximum 10 marks)
- > Foreign trade (maximum 16 marks)
- Why are comparisons of economic performances of countries important?
INTRODUCTION
Economic indicators are statistics that show general trends in the economy and are used to analyse the economic performance and predict the future performance of the economy
BODY
Productivity- It is possible to calculate THREE kinds of productivity, namely labour, capital and
multi-factor productivity
Labour productivity
- - is watched most closely, particularly in relation to real wage increases
- - E.g. In South Africa productivity increased less than labour remuneration
- - The economy as a result battled to stay out of a recession
- - Labour productivity is measured by dividing the real GDP by the number of workers employed
- - If productivity increases are lower than the real wage increases, inflationary pressures will occur
- - The relationship between productivity and wages is crucial for employers and workers and they are therefore important indicators
- - For the employers to survive in vigorous markets
- - For the employees to survive on their salaries (Max 10 marks)
(Accept analysis of other kinds of productivity)
Foreign trade
- In our increasingly globalized world, international trade is most important
- Exports serve to stimulate employment and imports serve to widen the choice of consumers
The terms of trade
- - This is the ratio of exports and import prices
- - Although the terms of trade express prices only, changes in them have quantity (volume) effects
- - Changes in terms of trade serve as indicator of changes that may spill over into the balance of payments
- - If this happens the currency may depreciate or appreciate The exchange rate
- - An exchange rate is the price of one country's currency in terms of another country's currency
- - Most currencies have a number of exchange rates, similar to the rand
- - If the rand appreciates against the US dollar it may depreciate against the euro
- - Changes in an exchange rate affect the prices for imports and prices of exports e.g. a depreciation of the rand against the dollar will result in US goods and services becoming more expensive domestically and earnings from exports to the US increasing , although the volume will remain the same and the opposite will happen when the rand appreciates (Max. 16 marks)
ADDITIONAL PART
- By comparing the economic performances of countries through international benchmarking, a country's performance on a specific aspect by using a specific indicator, is measured
- This comparison to other countries' performances regards the same aspect, expressed by using the same indicator
- By evaluating South Africa's performance with that of other developing countries, facing similar challenges, makes the comparison more fair and useful
- Investment banks can use these indicators in forecasts on the returns that could be expected if they invested their capital in a particular country
- International trade expects payments to be made by using the current exchange rate
- Exchange rates will determine the actual amounts that are received and paid to and by South Africa - a free-floating rate of exchange is used
- Indicators allow a country to identify what it is doing well and where it needs to focus more attention
- A country can develop an even better sense of its performance in specific areas and can identify countries that it can learn from
- Economic and social indicators are compiled in a specific way for countries to be able to receive international trade aid and funding from organisations
- Such benefits may not be given to those countries requesting such assistance if these indicators are not available
- Foreign countries, governments, international institutions and NGOs are globally involved in a myriad of activities, such as providing financial aid, making grants, giving loans and rendering free services
- Human rights which are highlighted in children and women, labour organisations, gender discrimination, racial discrimination and crime
- Environmental indicators such as pollution, ecosystem destruction, globally threatened animal species, fresh water sources and underground water withdrawals
- Government indicators that highlights corruption and nepotism, consistency of services such as water and energy supply, justice in terms of arrests, prosecutions and convictions and frequency of elections (Max. 10)
CONCLUSION
In order to grow and develop the economy it is critical to monitor these tools for planning and operational purposes
SENIOR CERTIFICATE
NOVEMBER 2016
MARKS: 150
TIME: 2 hours
1.1 Various options are provided as possible answers to the following questions. Write down the question number (1.1.1–1.1.8), choose the answer and make a cross (X) over the letter (A–C) of your choice in the ANSWER BOOK.
1.1.1 Goods characterised by non-rivalry and non-excludability are known as … goods.
- A public
- B common
- C private
1.1.2 The national aggregate that represents the value added in each phase of production is called the gross domestic …
- A expenditure.
- B product.
- C income.
1.1.3 Large public corporations or business entities in the public sector are known as …
- A corporates.
- B enterprises.
- C parastatals.
1.1.4 An exchange rate system where the forces of supply and demand entirely establish the value of a currency is called a … exchange rate system.
- A fixed
- B managed
- C free-floating
1.1.5 The standard of living of a population is best described by the …
- A balance of trade.
- B per capita income.
- C inflation rate.
1.1.6 Monetary policy focuses on … and the aggregate money supply.
- A income
- B interest rates
- C taxation
1.1.7 The process whereby people move from rural areas to towns and cities is called …
- A urbanisation.
- B immigration.
- C emigration.
1.1.8 A piece of land that forms a passageway that allows access from one area to another and is part of regional development is called a …
- A custom.
- B corridor.
- C freeway.
- 1.1.1 A – public
- 1.1.2 B – product
- 1.1.3 C – parastatals
- 1.1.4 C – free-floating
- 1.1.5 B – per capita income
- 1.1.6 B – interest rates
- 1.1.7 A – urbanisation
- 1.1.8 B – corridor
1.2 Choose a description from COLUMN B that matches the item in COLUMN A. Write only the letter (A–I) next to the question number (1.2.1–1.2.8) in the ANSWER BOOK.
COLUMN A | COLUMN B |
---|---|
1.2.1 Globalisation 1.2.2 Export promotion 1.2.3 Economy of scale 1.2.4 Bureaucracy 1.2.5 Repo rate 1.2.6 Production price index 1.2.7 Commodities 1.2.8 Malnutrition |
A the rate banks are paying for lending money from the central bank B products traded in their basic form,for example coal and timber C hampers the cognitive development of children D a common argument in favour of free trade E a trade policy that encourages the production of locally manufactured goods to be sold abroad F worldwide interaction of economies with trade as a common element G a system of government that does not approve rules and therefore causes delays H measures prices of locally manufactured goods at factory level I also known as intermediate goods |
- 1.2.1 F – worldwide interaction of economies with trade as a common element
- 1.2.2 E – a trade policy that encourages the production of locally manufactured goods to be sold abroad
- 1.2.3 D – a common argument in favour of free trade
- 1.2.4 G – a system of government that does not approve rules and therefore causes delays
- 1.2.5 A – the rate banks are paying for lending money from the central bank
- 1.2.6 H – measures prices of locally manufactured goods at factory level
- 1.2.7 B – products traded in its basic form, for example coal and timber
- 1.2.8 C – hampers the cognitive development of children (8 x 1) (8)
1.3 Give ONE term for each of the following descriptions. Write only the term next to the question number (1.3.1–1.3.6) in the ANSWER BOOK.
- 1.3.1 A fluctuation in economic activities over a period of time
- 1.3.2 The distance from the trend line to the peak and the trough
- 1.3.3 A tariff imposed as a percentage of the value of goods imported
- 1.3.4 The Act that promotes equal job opportunities for all
- 1.3.5 Compares a country's export prices to its import prices by means of indexes
- 1.3.6 People within the economically active population who are willing and able to work but cannot find a job (6 x 1) (6)
- 1.3.1 Business cycles
- 1.3.2 Amplitude
- 1.3.3 Ad valorem
- 1.3.4 Employment Equity
- 1.3.5 Terms of Trade
- 1.3.6 Unemployment (6 x 1)
SECTION B
Answer any TWO of the three questions in this section in the ANSWER BOOK.
QUESTION 2: MACROECONOMICS 40 MARKS – 30 MINUTES
2.1 Answer the following questions.
- 2.1.1 Name TWO types of business cycles. (2 x 1) (2)
- 2.1.2 How will foreign direct investment benefit the South African economy? (1 x 2) (2)
2.1.1 Name TWO types of business cycles.
- Kitchin
- Jugler
- Kuznets
- Kondratieff (2 x 1) (2)
2.1.2 How will foreign direct investment benefit the South African economy?
- Provide capital for new enterprises/expansion on existing enterprises / increased competition
- Increase in income/revenue for business/state / more profits
- Creation of more job opportunities/improve standard of living
- Increase economic growth
- Diversify the economy / a wider range of products
- Bring in new technology and knowledge
2.2 Study the cartoon below and answer the questions that follow.
- 2.2.1 Identify TWO indirect taxes in the cartoon above. (2 x 1) (2)
- 2.2.2 Name the fiscal instrument represented by the scale in the cartoon above. (2)
- 2.2.3 What is the 'surprise' depicted in the cartoon above? (2)
- 2.2.4 In your opinion, why did the Minister of Finance decide to keep income tax and VAT at the same levels? (2 x 2) (4)
2.2.1 Identify TWO indirect taxes in the cartoon above.
- Value-added tax (VAT)
- Fuel levies
- Sin tax (2 x 1) (2)
2.2.2 Name the fiscal instrument represented by the scale in the cartoon above.
- Taxation (2)
2.2.3 What is the 'surprise' depicted in the cartoon above?
- The Minister of Finance did not increase any income tax and VAT as expected / but the impact of the increase in fuel levies and excise duties were to such an extent that it made up for not increasing income tax and VAT
2.2.4 In your opinion, why did the Minister of Finance decide to keep income tax and VAT at the same levels?
- Due to increased income tax in 2014/15 he didn't want to overburden the tax payers
- To prevent a negative reaction from the labour force which is constantly demanding higher wages
- VAT as a regressive type of taxation remained the same to prevent the poor from becoming poorer
- To prevent loss of income through tax evasion and disincentive to work
- To stimulate consumer spending and economic growth
2.3 Study the extract below and answer the questions that follow
SOUTH AFRICA OPENS DOORS FOR CHICKEN IMPORTS FROM THE UNITED STATES
The Minister of Trade and Industry said South Africa will end punishing duties on US chicken and renew imports.
South Africa imposed 100% duties on the dumping of certain chicken portions. Removing those import barriers opened a market that had been closed for the past 15 years. This decision was within the tolerance of the South African poultry industry.
The products to be imported will be mainly the cuts that are not favoured by the US consumer. South Africans consume more chicken than people in any other African country and local producers have struggled to keep up with the rising demand.
The agreement, which would see the US emerge as one of the top poultry exporters to South Africa, should help smooth the passage of the (American) African Growth and Opportunity Act (AGOA). AGOA is a trade initiative providing duty-free treatment of US imports of certain products.
[Adapted from Mail & Guardian, February 2016]
- 2.3.1 Identify the reason in the extract why South Africa agreed to import chicken from the US. (1)
- 2.3.2 Name the trade initiative mentioned above. (1)
- 2.3.3 Briefly describe the term dumping. (2)
- 2.3.4 What will be the effect of population growth in South Africa on chicken imports from the US? (2)
- 2.3.5 What negative impact could this deal have on the local poultry industry? (2 x 2) (4)
- 2.4 Distinguish between exogenous approaches and endogenous approaches to business cycles. (2 x 4) (8)
- 2.5 How can imports be targeted to reduce the deficit on the balance of trade in South Africa? (8)
2.3.1 Identify the reason in the extract why South Africa agreed to import chicken from the US.
- South Africans consume more chicken than people in any other African country / Local producers have struggled to keep up with the rising demand / to smooth the passage of AGOA (1)
2.3.2 Name the trade initiative mentioned above.
- African Growth and Opportunity Act (AGOA) (1)
2.3.3 Briefly describe the term dumping.
- Selling goods in a foreign market at prices that are below the cost of production in the country of origin
2.3.4 What will be the effect of population growth in South Africa on chicken imports from the US?
- An increase in the population will cause an increase in the demand for chicken pieces from the US and imports will rise
2.3.5 What negative impact could this deal have on the local poultry industry?
- The local poultry industry may experience consumer's resistance against the product due to a low quality of import cuts / switch to other types of meat consumption
- The local poultry industry may experience an oversupply in the product during certain periods which might lead to low prices, leading to less income to industry
- Local producers leaving the industry because of losses due to unfair competition / low prices and high inputs
2.4 Distinguish between exogenous approaches and endogenous approaches to business cycles.
-
Endogenous approach:
- This follows the belief that economic growth is primarily the result of endogenous and not external forces
- This is often called the Keynesian view. This approach holds the view that markets are inherently unstable and therefore government intervention may be required
- The price mechanism fails to co-ordinate demand and supply in markets and this gives rise to upswings and downswings
- Prices are not flexible enough (e.g. wages)
- A business cycle is an inherent feature of a market economy
- Indirect links or mismatches between demand and supply are normal features of the economy (Max 4)
- Refer to those independent factors that can influence business cycles and originate outside the economy
- Some economists believe that business cycles are caused by exogenous factors such as those described below
- The monetarists believe markets are inherently stable and disequilibrium is
caused by incorrect use of policies, e.g. monetary policy
The following are examples:
- Weather conditions and shocks cause upswings and downswings
- Governments should not intervene in the market
- Sunspot theory based on the belief that increased solar radiation causes changes in weather conditions
- Technological changes
- South Africa can use import substitution as part of their international trade policy
- Tariffs can be imposed on imported goods, which will increase the prices of imported goods for domestic consumers, and that will tend to shift demand from imports to domestic products e.g. customs duties, ad valorem tariffs, specific tariffs
- Quotas can be imposed to limit the import of goods and services
- Subsidies will make local producers more competitive and switch from imported goods to locally produced goods
- Through exchange control government can reduce imports and limit the amount of foreign exchange made available to those who wish to import
- Physical control may put a complete ban or embargo on the import of certain goods from a particular country
- Trade can be diverted through monetary deposits, time-consuming customs procedures and high-quality standards are imposed to make the importing of goods more difficult (Max 8) (8)
2.5 How can imports be targeted to reduce the deficit on the balance of trade in South Africa?
QUESTION 3: ECONOMIC PURSUITS 40 MARKS – 30 MINUTES
3.1 Answer the following questions.
- 3.1.1 Name TWO social indicators related to income distribution. (2 x 1) (2)
- 3.1.2 How can deregulation benefit the business sector of South Africa? (1 x 2) (2)
3.1.1 Name TWO social indicators related to income distribution.
- Lorenz curve
- Gini Coefficient
- Quintile Ratio
- Head Count Index
- Human Development Index
- Poverty line / poverty gap
3.1.2 How can deregulation benefit the business sector of South Africa?
- By opening up opportunities for formerly excluded businesses to participate in the formal economy/Helping with entrance of new economic players in the economy / More businesses (more competition) benefits the business sector / efficiency of businesses will increase
- By providing easy access to markets
- By Simplifying administrative processes/red-tape / businesses interact directly with consumers without state interference
3.2 Study the information below and answer the questions that follow.
NDP HELPS SA TO FOCUS
Though the NDP, which outlines a plan to address issues in SA, is not perfect, it provides a road map to where government would like us to be in 2030. The NDP provides an opportunity for South Africans to work together to confront our challenges and build a better future for ourselves and future generations. Let us not squander this opportunity
[Adapted from NDP and Mail & Guardian, February 2015]
- 3.2.1 Identify any TWO previous strategies in the information above that were used to improve economic growth in South Africa. (2 x 1) (2)
- 3.2.2 State the main aim of the NDP. (2)
- 3.2.3 What negative impact will the NDP have on taxpayers? (2)
- 3.2.4 In your opinion, how successful will the implementation of the NDP be in the South African economy? (4)
3.2.1 Identify any TWO previous strategies in the information above that were used to improve economic growth in South Africa.
- GEAR – Growth Employment and Redistribution
- NGP – New Growth Path
- NSDS – National Skills Development Strategy Any (2 x 1) (2)
3.2.2 State the main aim of the NDP.
- It provides a road map to government for 2030 / poverty relief / economic growth / economic transformation / sustainable job opportunities / income distribution
3.2.3 What negative impact will the NDP have on the taxpayers?
- For implementation of the NDP the state will increasingly need more revenue – more and higher taxation will be needed / reduce disposable income even more / higher levels of fraud and corruption affecting services to the poor
3.2.4 In your opinion, how successful will the implementation of the NDP be in the South African economy?
The implementation of NDP will be successful due to the following reasons:
- A good progress has been made since 2014 in the construction of renewable energy sources e.g. solar farms and wind farms
- Standard of living might improve that will reduce poverty levels e.g. housing, social grants
AND / OR
The implementation of NDP will not be successful due to the following reasons:
- Since 2014 there has been no improvement in the unemployment rate and this scenario might continue to exist e.g. unemployment might increase even further
- The gap between rich and poor might increase further
- The following targets set out in the NDP will be difficult to reach: an economic growth rate of 5% (currently 0,8%) job creation of 5 million per annum
3.3 Study the extract below and answer the questions that follow.
LIVING STANDARDS – SOUTH AFRICA
The data shows the relative success of the government's service delivery efforts despite continuing backlogs and the fact that in many cases the quality of services delivered should have been higher.
Another conclusion is that state-driven service delivery efforts have probably gone as far as they can conceivably go and future improvements in living standards will be driven more by labour market access and levels of economic growth than by the efforts of state planners.
[Adapted from Institute of Race Relations, February 2016]
- 3.3.1 What happened to the standard of living of South Africans between 1996 and 2015? (1)
- 3.3.2 Identify an element of the Human Development Index (HDI) in the information above. (1)
- 3.3.3 What can the government do to improve the quality of service delivery even further? (2)
- 3.3.4 How can the private sector get involved through public-private partnerships to strengthen the efforts of government? (2)
- 3.3.5 In your opinion, how can labour market access drive future improvement in living standards? (2 x 2) (4)
- 3.4 Briefly discuss growth and trade as globalisation challenges that face developing countries. (2 x 4) (8)
- 3.5 How does South Africa comply with various international bodies that require them to standardise their indicators? (8)
3.3.1 What happened to the standard of living of South Africans between 1996 and 2015?
- It improved (1)
3.3.2 Identify an element of the Human Development Index (HDI) in the information above.
- Standard of living (1)
3.3.3 What can the government do to improve the quality of service delivery even further?
The government should:
- Accept accountability and give account for their actions and expenditures
- Improve on efficiency by appointing competent high skilled people
- Operate according to market forces
- Privatise those corporations that are not profitable
- Assessing the needs of people
- Put a stop to corruption / Prevent nepotism / poor management
- Utilise the available resources more efficiently e.g. budgets
- Practise transparency and consultation
3.3.4 How can the private sector get involved through public-private partnerships to strengthen the efforts of government?
The private sector can:
- Accept responsibility for a clean environment (street and pavement) to reduce the workload of municipalities
- Improve the skills of their workforce through in service training without any cost for tertiary training by government
- Offer various initiatives to government and pay for it to uplift the state of the environment, and reduce government's involvement and responsibility Corporate Social Investment
3.3.5 In your opinion, how can labour market access drive future improvement in living standards?
The following can improve the access into the labour market aimed at improved living standards:
- A better standard of basic education will improve skills needed to better the development of industry in general e.g. building and construction, tourism, health, service delivery
- Proper training will ensure more people access to the job market, because they will be able to offer much needed initiative and originality to keep the business competitive in a fast changing market
3.4 Briefly discuss growth and trade as globalisation challenges that face developing countries.
Growth
- Inefficiencies in management/governance leads to inefficient allocation of recourses
- It resulted in low levels of production and subsequently low levels in economic growth (Max 4) Trade
- Rich countries subsidise production and make it difficult for poorer/ developing countries to compete/many developing countries feel they are marginalised
- These countries have to accept low prices at relatively high input costs
3.5 How does South Africa comply with various international bodies that require them to standardise their indicators?
- IMF South Africa's annual budget review is compiled in terms the IMF's Government Finance Statistics (GFS) that focuses on public finance accounting
- WORLD BANK Requires countries to report on various economic and social indicators which South Africa conforms to These indicators are collected and published by The World Bank group of institutions in the World Development Indicators and the African Development Indicators . It assists the World Bank in deciding on how much loans it can make available to countries for development purposes
- United Nations South Africa conforms to the UN system in compiling their national accounts e.g. GDP statistics The United Nation's best known guide of economic indicators in the UN's System of National Accounts (SNA) e.g. changes to the Balance of Payments by the SARB This allows the IMF to decide how much it can make available to correct BOP deficit
QUESTION 4:MACROECONOMICS AND ECONOMIC PURSUITS 40 MARKS – 30 MINUTES
4.1 Answer the following questions.
- 4.1.1 Give TWO reasons for public sector failure. (2 x 1) (2)
- 4.1.2 How will a decrease in export prices affect our country's terms of trade? (1 x 2) (2)
4.1.1 Give TWO reasons for public sector failure.
- Management failure
- Apathy
- Lack of motivation
- Bureaucracy
- Politicians
- Structural weaknesses
- Special interest group (2 x 1) (2)
4.1.2 How will a decrease in export prices affect our country's terms of trade?
- It would be negatively affected because our revenue received from exports will decline
4.2 Study the graph below and answer the questions that follow.
- 4.2.1 What market is depicted in the graph above? (1)
- 4.2.2 What effect does the shift in the demand curve have on the price of dollars? (1)
- 4.2.3 Briefly describe the term exchange rate. (2)
- 4.2.4 What will the effect of the new price for dollars be on export trade between South Africa and the United States? (2)
- 4.2.5 Explain how an increase in the number of US tourists to South Africa will influence the value of the rand. (2 x 2) (4)
- The price of one currency expressed in terms of another (2)
4.2.4 What will the effect of the new price for dollars be on export trade between South Africa and the United States?
- Exports from South Africa will increase / more South African goods can be purchased at the same price because of the depreciation of the rand/ appreciation of the dollar (2)
4.2.5 Explain how an increase in the number of US tourists to South Africa will influence the value of the rand.
- More US tourists in South Africa means a higher demand for ZAR / The supply of dollars will also increase
- That will result in an increase in the value of the rand (2 x 2)
4.3 Study the extract below and answer the questions that follow.
SA ECONOMY CLOSING IN ON A RECESSION
South Africa's economy is at risk of falling into a recession, the World Bank said, as it cut the nation's growth forecast for this year to 0,8%.
Growth in Africa's third-largest economy is under pressure, following a slump in commodity prices, weakening demand from China and the worst drought in more than a century.
The rand has plunged 14% against the dollar in the past three months as sentiment worsened and credit-rating companies (Moody's, Standard & Poor's and Fitch) downgraded the country's credit rating because of growth risks.
South Africa is projected to remain largely below the average growth rate of 4,5% for sub-Saharan Africa in 2016 to 2017.
Against this backdrop, poverty in South Africa is set to rise as incomes fall.
[Adapted from Fin24, February 2016]
- 4.3.1 Give TWO factors in the extract above that contributed to the poor performance of the South African economy. (2)
- 4.3.2 When is a country officially in a recession? (2)
- 4.3.3 What impact will a downgrading of South Africa's credit rating have on its economy? (2)
- 4.3.4 In your opinion, what can government do to stabilise the business cycle? (2 x 2) (4)
- 4.4 Briefly discuss any TWO arguments in favour of privatisation. (2 x 4) (8)
- 4.5 How will subsidies influence export-orientated businesses negatively? (8)
4.3.1 Give TWO factors in the extract above that contributed to the poor performance of the South African economy.
- Slump in commodity price
- Weakening demand from China
- Drought
- Plunging value of the rand Any (2 x 1) (2)
4.3.2 When is a country officially in a recession?
- When the country experiences a negative economic growth rate for two consecutive quarters (2)
4.3.3 What impact will a downgrading of South Africa's credit rating have on its economy?
- Down grading implies a bigger risk for investors which might lead to an increase in interest rates
- The fact that South Africa who have very high levels of debt will have to pay higher interest rates which will definitely impact on the lower income groups who will not be able to afford goods and services
- There will be less money available for spending, that will put more pressure on the budget, the tax payer as well as social grants and infrastructure development
- A poor credit rating might increase poverty that will drive a lower standard of living which might lead to a recession
4.3.4 In your opinion, what can government do to stabilise the business cycle?
- The government can get involved in the smoothing of cycles through monetary and fiscal policy measures
- The government can apply supply and demand side policies to stabilise prices
- The government might take measures to influence the aggregate demand that will stimulate consumer spending
- The government might take measures to influence the level of aggregate supply and lead to an increase in domestic production and lower inflation pressure
4.4 Briefly discuss any TWO arguments in favour of privatisation.
- Privatisation ensures additional funds (income) for government this will help them to maintain and manage state-owned enterprises
- The tax base will be broadened creating more income for government
- Private enterprises are more efficient than public enterprises The profit motive in the private sector ensures that firms operate efficiently and at the lowest possible price SOE's – are bureaucratic, inefficient, unresponsive to consumer needs, poorly managed, uncreative with low levels of productivity
- Privatisation attracts more foreign investors to South Africa capital, skills, technology and foreign exchange flows into the country
- Privatisation relieves pressures from the budget deficits on the budget will decrease
- Promote black economic empowerment shares in public companies can be made available to black entrepreneurs Any (2 x 4) (8)
4.5 How will subsidies influence export-orientated businesses negatively?
- By subsidising certain industries, capital and entrepreneurial talents are drawn away from other businesses who enjoyed a comparative advantage
- Subsidies reduce the total cost of production which gives businesses a false indication of the real price (distorted prices)
- Local production can be inefficient, because local producers are shielded from overseas competition
- Businesses that become too dependant on subsidies will not be able to survive once the subsidies are withdrawn
- Subsidies allow businesses to charge lower prices which edge other export competitive industries out of the market
- Foreign countries may impose tariffs on subsidized products from other countries to benefit their own industries Max (8) (8)
SECTION C
Answer any ONE of the two questions in this section in the ANSWER BOOK. Your answer will be assessed as follows:
QUESTION 5: MACROECONOMICS 40 MARKS – 40 MINUTES
The circular-flow model shows how the economy works via the various markets.
- Discuss the role of the various markets in the circular flow without the use of a diagram. (26 marks)
- Explain the multiplier concept with the aid of a well-labelled graph. (10 marks) [40]
INTRODUCTION
- The circular flow model is a simplified representation of the interaction between the participants of the economy /
- Markets coordinate economic activities and determine prices for goods and services
MAIN PART
Goods/Product/Output markets
These are markets for consumer goods and services
In economics a distinction is made between goods and services:
- Goods are defined as any tangible items such as food, clothing and cars that satisfy some human wants or need
- Buying and selling of goods that are produced in markets e.g.
- - Capital goods market for trading of buildings and machinery
- - Consumer goods market for trading of durable consumer goods, semi-durable consumer goods and non-durable consumer goods
- Services are defined as non-tangible actions and includes wholesale and retail, transport and financial markets Factors/Resources/Input markets
- Households sell factors of production on the markets: rent for natural resources, wages for labour, interest for capital and profit for entrepreneurship
- The factor market includes the labour, property and financial markets
Financial markets:
- They are not directly involved in production of goods and services, but act as a link between households, the business sector and other participants with surplus funds
- E.g. banks, insurance companies and pension funds
Money markets
- In the money market, short term loans and very short term funds are saved and borrowed by consumers and business enterprises
- Products sold in this market are bank debentures, treasury bills and government
bonds
- The SARB is the key institution in the money market Capital markets
- In the capital market long term funds are borrowed and saved by consumers and business enterprises
- The Johannesburg Security Exchange is a key institution in the capital market
- Products sold in this market are mortgage bonds and shares
Foreign exchange markets
- On the foreign exchange market businesses buy/sell foreign currencies to pay for imported goods and services
- These transactions occur in banks and consists of an electronic money transfer from one account to another
- The most important foreign exchange markets are in London/New York/Tokyo
- The S.A Rand is traded freely in these markets e.g. when a person buys travellers cheques to travel abroad
Flows
- Flows of private and public goods and services are real flows and they are accompanied by counter flows of expenditures and taxes on the product market
- Factor services are real flows and they are accompanied by counter flows of income on the factor market
- Imports and exports are real flows and they are accompanied by counter flows of expenditure and revenue on the foreign exchange market
ADDITIONAL PART
Explain the multiplier concept with the aid of a well-labelled graph.
- The multiplier describes the fact that changes in spending/expenditure have an impact on income that is greater than the original change in spending
- Expenditure/spending increase from 20 to 50 (expenditure change by 30) which causes an increase in income from 300 to 700 (Income change by 400)
- ∆Y / ∆J = 400 / 30 = 13.3
- Therefore for each R1 increase in expenditure the aggregate income will rise by R13,30 Max (6)
CONCLUSION
Markets are critically important institutions in our economic system, because they regulate supply and demand and safeguard price stability and general business confidence
QUESTION 6: ECONOMIC PURSUITS 40 MARKS – 40 MINUTES
Government actions encourage operations and new investments to boost industrial development.
- Discuss South Africa's Spatial Development Initiatives (SDIs), highlighting its initiatives, objectives and Industrial Development Zones (IDZs). (26 marks)
- What advice would you give government to promote industrial development in South Africa? (10 marks) [40]
INTRODUCTION
Regional development refers to policies which are aimed at increasing the economic livelihood op specific areas or regions
MAIN PART
Spatial Development Initiatives
- SDI is a policy to promote sustainable industrial development in areas where poverty and unemployment are at their highest
- It can be defined as a link between important economic hubs and regions in a country
- The intention was to grow the SDI's mostly through private sector investment
- The state was to enhance inward investment through the granting of incentives
- The Public Private Partnerships, promotes the economic potential of underdeveloped areas
- In a PPP a private business may provide the capital to build the factory and to buy raw materials and employ labour, while the government provides the capital for the infrastructure e.g. roads and water
- There are 2 types of PPPs which are compensated differently: unitary payments and user-fees
- The SDI involves an interdepartmental investment strategy that the DTI and the Department of Transport (DOT) lead
Objectives of Spatial Development Initiatives
- Develop physical infrastructure such as roads and harbours
- Stimulate economic activities in the underdeveloped areas
- Create employment and stimulate economic growth in the underdeveloped areas
- Develop inherent economic potential in the under developed areas
- Attract private sector and foreign direct (FDI) investment
- Establish Public Private Partnerships (PPP)
Corridors
- These are spatial areas that offer specific advantages to mining, manufacturing and other businesses
- The advantages also include the presence of existing infrastructure and the specialisation of products or services
- These corridors are development areas within South Africa and are the development priorities of all development agencies
- The DTI provides help in support of the development corridors
- E.g. Maputo corridor that starts in Gauteng and extends through Mpumalanga to the Maputo port
Industrial Development Zones (IDZs)
- They are purpose-built industrial estates, physically enclosed and linked to a port or airport
- They are in duty-free import areas
- This strategy was aimed at making exports internationally competitive
- They focus on creating jobs and promoting exports
- The idea is that goods produced in these zones should be exported to foreign countries
- As services are provided from outside, the economy in the areas should be stimulated
- An IDZ offers a world-class infrastructure, enjoys a zero rate of VAT on supplies from South African sources and reduced taxation on some products
Special Economic Zones
- It creates a basis for a broader range of industrial parks and provide economic infrastructure to promote employment
- It was introduced because of the limitations of the IDZs and need not be linked to a port of airport
- IDZs are only created for export industries while the SEZs cater for exports and domestic consumption
- Geographically demarcated area where specific economic activities have been identified to be developed
- These areas may enjoy incentives such as tax relief e.g. 15% incentive to attract new industries
ADDITIONAL PART
The government can be advised to:
- offer incentives to domestic and foreign entrepreneurs who establish new businesses in South Africa
- pay incentives that will create an investor friendly environment for foreign direct investment to flow into the country
What the government can do to promote industrial development:
- - Provide tax incentives and relief for the young industries
- - Develop a user-friendly labour regime for the country that both employeremployee sensitive at the same promoting growth and development
- - Provide funding schemes for upstart businesses for support growth and development
- - Provide skills development programmes and offer cash grants as incentives to those who engage in this capacity development programmes
- - Critical Infrastructure Facilities (CIF) - The government specify financial incentives in the form of a cash grant of up to 50% to large enterprises requiring critical infrastructure such as roads, electricity water and purification services
- All these incentives are aimed at encouraging the development of businesses to support the state's effort to promote industrial development (Accept any other correct relevant answer)
CONCLUSION
Despite all the efforts from government it would be important to see a more rapid growth in this area of the economy, there are still too many poor people in South Africa without a job. The industrial sector is earmarked as safety net for the millions of jobless people in the rural areas
SENIOR CERTIFICATE
ECONOMICS P1 FEBRUARY/MARCH 2015
MARKS: 150
TIME: 2 hours
SECTION A (COMPULSORY)
QUESTION 1 30 MARKS – 15 MINUTES
1.1 Various options are provided as possible answers to the following questions. Choose the answer and write only the letter (A–C) next to the question number (1.1.1–1.1.8) in the ANSWER BOOK, for example 1.1.9 B.
1.1.1 The method used to derive total remuneration on factors of production is called the … method.
- A production
- B income
- C expenditure
1.1.2 In business cycles, estimating something unknown from information that is known is called …
- A amplitude.
- B extrapolation.
- C trend.
1.1.3 South African Defence Force services is provided by ... government.
- A central
- B local
- C provincial
1.1.4 The purchasing or selling of equities forms part of … investments in the balance of payments.
- A direct
- B portfolio
- C other
1.1.5 Negative economic growth for at least two consecutive quarters of the year is known as a …
- A boom.
- B depression.
- C recession.
1.1.6 The state aims towards a more equal distribution of income by using a … personal income tax system.
- A proportional
- B regressive
- C progressive
1.1.7 When a country's total imports exceeds its total exports it is referred to as a … on the trade balance.
- A surplus
- B deficit
- C equilibrium
1.1.8 With globalisation countries become economically more …
- A interdependent.
- B independent.
- C isolated.
- 1.1.1 B income
- 1.1.2 B extrapolation
- 1.1.3 A central
- 1.1.4 A portfolio
- 1.1.5 C recession
- 1.1.6 C progressive
- 1.1.7 B deficit
- 1.1.8 A interdependent
1.2 Choose a description from COLUMN B that matches an item in COLUMN A. Write only the letter (A–I) next to the question number (1.2.1–1.2.8) in the ANSWER BOOK.
COLUMN A | COLUMN B |
---|---|
1.2.1 Direct subsidies 1.2.2 Life expectancy 1.2.3 Balance of payments 1.2.4 Urbanisation 1.2.5 Financial market 1.2.6 Prosperity 1.2.7 Free trade 1.2.8 Medium-termexpenditureframework (MTEF) |
A, probable number of years a person will live after birth B, offers opportunities for borrowing and saving C, government estimates of income and expenditure for a three-year period D, the peak of a business cycle E, movement of people from rural areas to cities and towns F, a statement of a country's transactions with the rest of the world G, producers and consumers can buy and sell goods and services anywhere in the world H, financial grants to support the production of export goods I, a market for goods and services |
- 1.2.1 H financial grants to support the production of export goods
- 1.2.2 A probable number of years a person will live after birth
- 1.2.3 F a statement of a country’s transactions with the rest of the world
- 1.2.4 E movement of people from rural areas to cities and towns
- 1.2.5 B offers opportunities for borrowing and saving
- 1.2.6 D the peak of a business cycle
- 1.2.7 G producers and consumers can buy and sell goods and services anywhere in the world
- 1.2.8 C government estimates of income and expenditure for a three year period
- 1.3.1 The deliberate decrease in the value of a country's currency
- 1.3.2 Education and health services supplied by government
- 1.3.3 A model which illustrates the flows between participants in the economy
- 1.3.4 The largest contributor to government revenue
- 1.3.5 The policy implemented in 1994 in South Africa to redress inequalities of the past
- 1.3.6 The institution in South Africa responsible for monetary policy
- 1.3.1 Devaluation
- 1.3.2 Merit goods/Public goods
- 1.3.3 Circular flow model
- 1.3.4 Personal income tax
- 1.3.5 Reconstruction and Development Programme (RDP)
- 1.3.6 South African Reserve Bank (6 x 1) (6)
SECTION B
Answer TWO of the three questions in this section in the ANSWER BOOK.
QUESTION 2: MACROECONOMICS 40 MARKS – 20 MINUTES
2.1 Answer the following questions.
- 2.1.1 Give TWO examples of non-durable goods. (2 x 1) (2)
- 2.1.2 Why is the exchange market important to tourists? (1 x 2) (2)
2.1.1 Give TWO examples of non-durable goods.
- Food
- Fuel
2.1.2 Why is the exchange market important to tourists?
- Tourists need to exchange their own currency in order to buy goods and services in other countries.
2.2 Study the diagram below and answer the questions that follow
- 2.2.1 Provide the diagram above with an appropriate heading. (1)
- 2.2.2 Give any other injection besides investment. (1)
- 2.2.3 Identify A and B in the diagram above. (2)
- 2.2.4 How will national income be influenced by the above leakages and injections? (2)
- 2.2.5 Calculate the change in national income caused by the investment above. Show ALL calculations. (4)
2.2.1 Provide the diagram with an appropriate heading.
- Two sector economy/model
- Circular flow model
- Economic equilibrium (1)
2.2.2 Give/Name any other injection besides investment.
- Exports
- Government expenditure (Any 1 x 1) (1)
2.2.3 Identify A and B in the diagram.
- A = Households/consumers
- B = Business sector/producers/firms (2 x 1) (2)
2.2.4 How will national income be influenced by the above leakages and injections?
- National income will increase because (investments) J exceeds (savings) L (2)
2.2.5 Calculate the change in national income caused by the investment above. Show all calculations.
- M = 1/1-mpc = 1/1 - 0.75 = 4
- Effect: R120m x 4 = R480m (4)
2.3 Study the table below and answer the questions that follow.
- 2.3.1 Describe the trend in the balance on the current account from 2010 to 2012. (2)
- 2.3.2 Describe the term trade balance. (2)
- 2.3.3 Why is gold exports listed as a separate item on the current account? (2)
- 2.3.4 How can the government use our currency to improve the trade balance of 2012? (2 x 2) (4)
- 2.4 Discuss specialisation and economies of scale as arguments in favour of free trade. (2 x 4) (8)
- 2.5 Why is it necessary to protect developing countries against unfair overseas competition? (2 x 4) (8)
2.3.1 Describe the trend in the balance on the current account from 2010 to 2012.
- Increasing deficit in the balance on the current account (1 x 2) (2)
2.3.2 Describe the term trade balance.
- It is the difference between goods exported and goods imported. (1 x 2) (2)
2.3.3 Why is gold exports listed as a separate item on the current account?
- Due to the historic importance of gold as a strategic export product of South Africa. (1 x 2) (2)
2.3.4 How can the government use our currency to improve the trade balance of 2012?
- The government can devalue the rand This will make our goods cheaper to foreign countries which will promote exports
- Accept any other relevant response. (2 x 2) (4)
2.4 Discuss specialisation and economies of scale as arguments in favour of free trade.
Specialisation:
- The effect of increasing living standards result in the trading of more goods and services
- Allows industries that have a comparative advantage with a lower opportunity cost
- It increases economic efficiency and prevent wasting resources
- Each country that is best suited for specific goods and services will engage in producing more of those goods or services (2 x 2)
Economies of scale:
- Allows industries to maximise economies of scale and this will lead to cost reduction and enhance competitiveness in world markets
- Global economies benefit effective labour distribution and creation of economic efficiency World production and economic welfare increase and markets grow
- Producers compete to find the best production methods that cut costs and improve the quality of goods that will stimulate innovation and creativity (2 x 2)
2.5 Why is it necessary to protect developing countries against unfair overseas competition?
It will promote employment
- Trade protection is a measure to control unemployment
- Restricting foreign goods entering the country, domestic businesses not only produce more and employ more people, but new businesses will be able to enter the market, thus creating more jobs (2 x 2)
- With dumping products are sold at prices so low that they undercut both the cost of production in the country of origin and the domestic prices
- This makes it very difficult for local producers to compete
- Eventually it will force weak industries out of the market (2 x 2)
- New businesses have very high costs and low revenue when they start up
- They will need protection against well established competition from abroad
- Once the business has been through the infant stage and is competitive, the need for protection reduces (2 x 2)
- Some industries, such as iron and steel, agriculture and energy amongst others are often regarded as strategic industries
- Developing countries may feel that they need to develop these industries in order to become self-sufficient (2 x 2)
It gives temporary protection to infant industries
Self-sufficiency and strategic industries
QUESTION 3: ECONOMIC PURSUITS 40 MARKS – 20 MINUTES
3.1 Answer the following questions.
- 3.1.1 Name TWO social indicators. (2 x 1)
- 3.1.2 Why does the Monetary Policy Committee of the South African Reserve Bank meet every two months? (1 x 2)
3.1.1 Give TWO social indicators.
- Education
- Housing
3.1.2 Why does the Monetary Policy Committee of the South African Reserve Bank meet every two months?
- To consider inflationary conditions and adjust the repo rate to ensure price stability
3.2 Study the extract below and answer the questions that follow.
THE NATIONAL DEVELOPMENT PLAN (NDP)
The NDP needs South Africans to stop pointing fingers at 'wrongdoers' and instead help the vision take shape. The NDP would be implemented but the private sector and citizens must take part in the process.
The government had done a good job of providing citizens with access to health care and education. According to the minister of finance the state's role in the implementation of the NDP was not an intrusive one; rather it was one that would set up the framework for the private sector to function.
[Source: The Star, Business Report, 20 November 2013]
- 3.2.1 What is the state's role in the implementation of the NDP? (2)
- 3.2.2 Discuss TWO positive elements of the NDP. (2 x 2) (4)
- 3.2.3 Does the government provide quality education? Motivate your response. (2 x 2) (4)
3.2.1 What is the state’s role in the implementation of the NDP?
- The government role is to set up the framework for the private sector to function (1 x 2) (2)
3.2.2 Discuss TWO positive elements of the NDP.
- Infrastructure expansion with investment in five key physical and social infrastructure areas (namely in the energy, transport communication water and housing)
- The agricultural value chain by addressing the high costs of fertilizers an do the inputs and the promotion of processing and export marketing
- Mining value-chain by increasing mineral extraction improving infrastructure, skills development and supporting the beneficiation on the final manufacture of consumer and capital goods
- Green economy by expanding construction and production of technologies for solar energy, wind energy and bio fuels
- Manufacturing sector through innovation strong skills development, reduced input costs and increased research and development investment
- Tourism and certain high-level services (Any 2 x 2) (4)
3.2.3 Does the government provide quality education? Motivate your response.
Yes
- New schools being built
- Textbooks / study material / website
- Feeding scheme for children
OR
No
- Insufficient classrooms
- Non-delivery of textbooks to some schools
- Poorly skilled teachers
3.3 Study the cartoon below and answer the questions that follow.
- 3.3.1 Name any benefit of Black Economic Empowerment for the economy of South Africa. (2)
- 3.3.2 Define the concept broad-based black economic empowerment. (2)
- 3.3.3 What is the message depicted in the cartoon? (2)
- 3.3.4 In your opinion, has the BEE policy benefited the black people of South Africa? (4)
- 3.4 Distinguish between industrial development zones and special economic zones. (2 x 4) (8)
- 3.5 Discuss how the Small and Medium Enterprise Development Programme (SMEDP) and the Foreign Investment Grant (FIG) help to improve industrial development in South Africa. (2 x 4) (8)
3.3.1 Name any benefit of Black Economic Empowerment to the economy of South Africa.
- Transformation of the South African economy
- Increase in the number of black people to own and to control the economy
- Stimulation of income among previously disadvantaged communities
- Improvement in the standard of living
- Promotion of social equity
3.3.2 Define the concept Broad-Based Black Economic Empowerment
- BBBEE is a much broader policy than BBE, it includes the development of small businesses, the development of skills, ownership of businesses and preferential procurement
3.3.3 What is the message depicted in the cartoon?
- Does the business spend money on empowerment projects
- Do other members of the disadvantaged communities benefit
- Does the business take care of its activities on society
- Does the business take care of the environment and the market place
3.3.4 In your opinion, has the BEE policy benefited the Black people of South Africa?
Yes
- Empowerment of indigenous people Gender equality, more opportunities for representation on all levels of management
- Economic empowerment – spread of financial wealth Sharp increase in economic power through shareholding capacity of big business
- Standard of living Those who got empowered are enjoying a much higher standard of living
No
- Empowerment of indigenous people Benefits only a small part (few individuals) of the community due to nepotism and corruption
- Economic empowerment – spread of financial wealth Most black South Africans did not benefit at all – unemployed – lack of access to capital
- Standard of living Many black South Africans do not enjoy a higher standard of living – the gap between rich and poor has increased The Gini coefficient has worsened
3.4 Differentiate between industrial development zones and special economic zones.
- This is a purpose built industrial estate, physically enclosed and linked to an international port or airport with duty free incentives
- It was designed to encourage international competitiveness in SA’s manufacturing sector
- IDZ’s fall outside domestic customs zones and therefore able to import items free of customs and trade restrictions, add value, and then exports their goods
- They are designed to attract new investment in export-driven industries. Thus encouraging exports, economic growth and employment
- IDZs are the responsibility of provincial and local government
- Businesses develop around the IDZs (banking, personnel, insurance, auditing, IT, communication, accommodation, catering, shopping, transport)
- IDZs strengthen and stimulate economies in their immediate environments
- Each IDZ offers direct links to an international port or airport, world-class infrastructure, a zero rate VAT on supplies from South African sources, government incentive schemes, reduced taxation for some products, access to latest information (2 x 2) (4)
- These are where there are broader ranges of industrial parks and economic infrastructure provided for effective clustering of value-adding and employment – enhancing manufacturers
- Designed to increase the growth of the economy
- Boast exports
- And create employment
- Investment is based on public-private partnerships with the state providing the infrastructure
- And private enterprises setting up businesses
- Incentives are offered to firms so that they can have a competitive advantage
- (Lower prices for their industrial exports over other world producers)
- growth in an SEZ is based on export-oriented manufacturing
Industrial Development Zones:
Special Economic Zones:
3.5 Discuss how the Small and Medium Enterprise Development Programme (SMEDP) and Foreign Investment Grants (FIG) help to improve industrial development in South Africa
- This is a government initiative to assist the SMME’s in the economy to begin operating or to expand.
- Grants are given to SMME’s with total assets under R100 million.
- A variety of industries are eligible for these grants, ranging from manufacturing and tourism to agriculture.
- Grants are given for a maximum of three years. (Any 2 x 2)
- This takes the form of cash grants that is allocated to foreign companies that wish to invest in new manufacturing businesses.
- The grant covers 15% to maximum of R3 million to the costs of moving equipment and machinery into South Africa. The goal of this incentive is to increase foreign investment and technologies in the country. (Any 2 x 2)
Small and medium Enterprise Development Programme (SMEDP)
Foreign investment grant (FIG)
QUESTION 4: MACROECONOMICS AND ECONOMIC PURSUITS 40 MARKS – 20 MINUTES
4.1 Answer the following questions.
- 4.1.1 State any TWO methods to calculate national account aggregates. (2 x 1) (2)
- 4.1.2 Why is the gross national product of South Africa generally lower than the gross domestic product? (1 x 2) (2)
4.1.1 Give any TWO methods to calculate national account aggregates.
- Income
- Production / Value Added
- Expenditure (2 x 1) (2)
4.1.2 Why is the Gross National Product of South Africa generally lower than that of the GDP?
- Foreigner’s contribution to our economy is more than our contribution to their economies (1 x 2) (2)
4.2 Study the cartoon below and answer the questions that follow.
- 4.2.1 What message is depicted in the cartoon above? (2)
- 4.2.2 Give ONE example of a tax incentive. (2)
- 4.2.3 Explain the meaning of personal income tax relief. (2)
- 4.2.4 Which part of the population will benefit the most from personal income tax relief? Motivate your answer. (4)
4.2.1 What message is depicted in the cartoon above?
- Mr. Pravin Gordan is trying to find a balance in the distribution of the state’s income and the needs in the critical areas of the economy.
4.2.2 Give ONE example of a tax incentive.
- Duty-free incentives
- Tax-free cash grants (1 x 2) (2)
4.2.3 Explain the meaning of personal income tax relief.
-
It refers to measures taken by government to reduce the tax burden on the tax
payers. E.g. revision of tax rates (2 x 1) (2)
4.2.4 Which part of the population will benefit the most from personal income tax relief? Motivate your answer.
- The lower income part of the population.
Motivation:
To improve the standard of living of the poor the minister announced a relief in the scales specially applied to the low income levels.
4.3 Study the graph below and answer the questions that follow.
- 4.3.1 Which province made the highest contribution to the South African economy in 2012? (2)
- 4.3.2 Define the concept regional industrial development. (2)
- 4.3.3 What is the average GDP growth rate for South Africa? (2)
- 4.3.4 What do you think should the government do to promote industrial development in underperforming provinces? (4)
- 4.4 Discuss the monetary policy instruments used in stabilising the economy. (4 x 2) (8)
- 4.5 Assess how an increase in import prices and an increase in export prices (terms of trade) will affect the South African economy. (2 x 4) (8)
4.3.1 Which province made the highest contribution to the South African economy in 2012?
- Western Cape (1 x 2) (2)
4.3.2 Define the concept regional industrial development.
- Regional industrial development refers to policies which are aimed at increasing the economic livelihood of specific areas or regions Any other correct definition (1 x 2) (2)
4.3.3 What is the average GDP growth rate for South Africa?
- ± 2.2% (1 x 2) (2)
4.3.4 What do you think should the government do to promote industrial development in under-performing provinces?
- Build the necessary infrastructure
- e.g. transport facilities, electricity, water
- Develop incentives for potential investors
- e.g. reduced taxes
4.4 Discuss the monetary policy instruments used in stabilising the economy.
Interest rate changes
- It is used to influence credit creation by making credit more expensive
- or cheaper
- Stabilisation of the exchange rate by encouraging capital inflows
- or outflows in order to take care of deficit or
- Surplus on the current account of the balance of payments
Open market transactions
- SARB selling securities to restrict bank credit
- Banks have less money to lend and cannot extent as much credit as
- Before
- To encourage credit the SARB buys securities in the open market and money then flows back into the system
- Bank uses money to create credit
Moral suasion
- SARB consults with the banks and persuade them to act in a –manner
- desirable to the prevailing economic conditions Sells paper such as bills and bonds
Cash reserve requirement
- This is the minimum percentage of total deposits that banks have to keep as cash and that may be used for lending or investing
- A change in the cash reserve requirement makes more or less money available in the banking system
Exchange control policy
- A measure taken to prevent capital assets from being transferred to other countries
- A policy usually developed by developing countries where the central bank fears that large amounts of foreign currency will be removed from a country
- These have been reduced in South Africa recently
4.5 Assess how an increase in import prices and an increase in export prices (terms of trade) will affect the South African economy.
An change in the terms of trade can have the following effects:
An increase in export prices will result in:
- The numerical value of the terms of trade index improves
- Increased economic welfare because more revenue is earned with the same expenditure.
- However, over the long term the higher export prices may result in a decrease in sales volumes, depending on the price elasticity of demand.
- A welfare loss may result. (2 x 2) An increase in import prices will result in:
- The terms of trade worsening / numerical value of terms of trade index worsen
- Welfare lost because more resources were used to produce more units of exports to finance the higher cost of imports.
SECTION C
Answer any ONE of the two questions in this section in the ANSWER BOOK. Your answer will be assessed as follows:
QUESTION 5: MACROECONOMICS 40 MARKS – 35 MINUTES
The government's primary aim with business cycle policies is to achieve the best possible growth rates.
- Discuss the demand-and-supply-side policies used by the government to smooth out business cycles.
- Use a well labelled graph to explain the effects of demand-and-supply-side policies on prices.
INTRODUCTION
The new economic paradigm in terms of the smoothing of business cycles discourages monetary policy makers from using monetary and fiscal policies to fine-tune the economy but rather encourages achieving stability through sound, long term decisions relating to demand and supply in the economy/Smoothing means to smooth out the painful part of economic down-fall that is part of the market economy Any other relevant definition/description of smoothing/new economic paradigm (Max.2)
BODY: MAIN PART
The new economic paradigm is embedded in the demand and supply side policies. Demand-side policies
- It focuses on aggregate demand in the economy.
- When households, firms and the government spend more, demand in the economy increases.
- This makes the economy grow but can lead to inflation.
Inflation:
- − Aggregate demand increases more quickly than aggregate supply and this causes price increases.
- − If the supply does not react to the increase in demand, prices will increase.
- − This will lead to inflation (a sustained and considerable increase in the general price level)
Unemployment:
- − Demand-side policies are effective in stimulating economic growth.
- − Economic growth can lead to an increase in the demand for labour.
- − As a result more people will be employed and unemployment will increase.
- − As unemployment decreases inflation is likely to increase.
- − This relationship between unemployment and inflation is illustrated in the Phillips curve.
Supply-side policies
Reduction of cost
- − Infrastructural services
Reasonable charge and efficient of Transport, communication, water services and energy supply.
- − Administration costs
These costs include inspection, reports on applications of various laws, regulations and by-laws, tax returns and returns providing statistical information. It adds to costs. In SA businesses carry a heavy burden.
- − Cash incentives
It includes subsidies for businesses to locate in neglected areas where unemployment is high and compensation to exporters for certain costs they incur in development of export markets. Improving the efficiency of inputs
- − Tax rates
Low tax rates can serve as an incentive to workers. It will improve the productivity and output.
- − Capital consumption
Replacing capital goods regularly creates opportunities for businesses to keep up with technological development and better outputs
- − Human resource development
To improve the quality of manpower by improving health care, education and training.,
- − Free advisory service
These promote opportunities to export.
Improving the efficiency of markets
- Deregulation Remove laws, regulations and by-laws and other forms of government controls makes the markets free.
- Competition Encourages the establishment of new businesses.
- Levelling the playing field
Answers must be in full sentences and well described with examples to be able to obtain 2 marks per fact.
If facts are listed the candidate will only get a maximum of 13 marks. (Max 26)
BODY: ADDITIONAL PART
Explanation:
The above graph shows:
- Aggregate demand (AD) and aggregate supply (AS) are in equilibrium at point C.
- If aggregate demand is stimulated so that it moves to AD1 and aggregate supply responds promptly and relocates at AS1 a larger real output becomes available without any price increases.
- Supply is often sticky and fixed in the short term.
- Therefore, if aggregate demand increases to AD1 and aggregate supply does not respond, intersection is at point F. Real production increases but so do prices, in other words with more inflation.
- The aggregate demand curve locates at any position to the left of AS1 inflation prevails.
- The solution is to create conditions that ensure that supply is more flexible.
- If the cost of increasing production is completely flexible, a great real output can be supplied at any given price level. (Max.6)
CONCLUSION
It is clear from the discussion above that it is critically important to manage the aggregate supply and demand to ensure stability in the economy.
QUESTION 6: ECONOMIC PURSUITS 40 MARKS – 35 MINUTES
Economic indicators are used to determine the performance of the economy.
- Analyse in detail the following economic indicators:
- - Inflation rate
- - Employment
- In your opinion, why is it important for the government to consider assessing the performance of the economy from time to time?
INTRODUCTION
Economic indicators are statistical data that shows the behaviour of one or other economic variable, usually overtime
BODY: MAIN PART
1. Inflation rate
- - This is the general increase in the price level of goods and services in the economy over a certain period in time. E.g. one year.
- - This is therefore an indicator of the health of the economy and it is monitored in two ways that is at the production wholesale level producer price level (PPI)and at the retail or consumer level consumer price index (CPI).
Producer Price Index (PPI)
- Used to measure the price of goods that are produced domestically when they leave the factory yard and goods that are imported when they enter the country( at a port) and both of these are before consumers become involved.
- PPI consists of three baskets that are domestically manufactured outputs, e.g. changes in the PPI can be made monthly or quarterly or yearly.
- While changes in the imported products and exported commodities are given separately in the same report.
- PPI includes capital and intermediate goods but not services.
- It is based on a completely different type of a basket of items in the CPI.
- It measures the cost of production rather than the cost of living.
- It is used to predict consumer goods inflation, (CPI).
- If prices increase at the production level, they are likely to increase to a similar extent at the consumer level at a later stage.
Consumer Price Index (CPI)
- - Shows price increases of a representative (weighted) basket of goods and services that consumers buy.
- - It is abbreviated as CPI, this cover all the urban areas.
- - It is an overall index and weights are obtained from expenditures of different income categories of households.
- - It is the most comprehensive indicator measuring consumer inflation in the country.
- - It shows changes in the general purchasing power of the rand and it is used for inflation targeting. (Max.16)
2. Employment
- - In addition to economic growth, the employment of people of working age (15-64 years) is a major economic objective.
- - We need to know more than this; we need to know who the people are that need to be employed. The numbers are determined, not only by age, but also by people’s willingness to work.
The economically active population (EAP)
- - The EAP is also known as the labour force.
- - It consists of people between the age of 15 and 64 who are willing to work for income in cash or in kind and includes:
- - Workers in the formal sector
- - Workers in the informal sector
- - Employers Any one
- - Self-employed persons
- - Unemployed persons
- - The 2011 estimate of the South African population was 50.5 million people.
- - The EAP numbered 17.5 million. (34.6% of the population).
Employment rate
- - The number of employed persons expressed as a percentage of the EAP gives the employment rate.
- - The employment rate can also be converted into an index.
- - The SA employment rate was 74.9% in 2011.
- - This is low, compared to rates in developed and even some developing countries such as Argentina and Pakistan.
- - In SA the growth in the economy is not accompanied by the similar growth in employment numbers.
Employment indicators are used for:
- - To calculate trends in employment in different sectors or industries. This indicates structural changes in the economy.
- - To calculate productivity.
- - To show the success of the economy in utilising its full potential.
Unemployment rate
- - Statistics SA (SSA) obtains its labour data each year from Quarterly Labour Surveys (QLFS)
- - It uses the standard definition of the International labour Office (ILO) to calculate
unemployment.
- - The strict definition of unemployment is used to calculate the unemployment rate.
- - The unemployment are those people within the economically active population
who:
- - Did not work during the seven days prior to the interview
- - Want to work and are available to start work within a week of the interview
- - Have taken active steps to look for work or to start some form of selfemployment in four week prior to the interview.
In SA the official unemployment rate was 25.2% in 2012.
- - In developed countries, change in the unemployment rate trigger responses
- - from governments to fine-tune the economy.
- - Increases require more funds for unemployment insurance (UIF) drawings.
- - In developing countries, unemployment is the most important cause of poverty.
ADDITIONAL PART
- To give a policy direction in the country
- To develop mechanism to caution the most affected sectors of the economy promptly e.g. during the 2008-2009 recession some companies required a bail out from the government
- Develop some economic stabilisers to defuse the huge impact that may result from the unexpected economic downturn
- Open some other alternative markets for their goods and services
- To do research and advice the business community before the actual moment hits
- It can be used to stimulate thinking and growth in a number of sectors in the Economy
CONCLUSION
Countries cannot survive and grow their economies if they do not pay attention to economic indicators for their planning processes.
SENIOR CERTIFICATE
ECONOMICS P1 NOVEMBER 2015
MARKS: 150
TIME: 2 hours
QUESTION 1 30 MARKS – 20 MINUTES
1.1 Various options are provided as possible answers to the following questions. Choose the answer and write only the letter (A–C) next to the question number (1.1.1–1.1.8) in the ANSWER BOOK, for example 1.1.9 C.
1.1.1 Savings flow back into the circular flow as …
- A government spending.
- B investment.
- C exports.
1.1.2 The severity of cyclical fluctuations in business cycles is indicated by …
- A amplitudes.
- B moving averages.
- C extrapolations.
1.1.3 Public goods for which consumers have to pay are known as … goods.
- A community
- B private
- C collective
1.1.4 The financial account in the balance of payments records transactions related to …
- A production.
- B assets and liabilities.
- C net gold exports.
1.1.5 The practice of selling goods in a foreign country at lower prices than in the country of origin is known as …
- A exportation.
- B importation.
- C dumping.
1.1.6 According to the United Nations' classification, South Africa falls in the … human development index (HDI) group of countries.
- A low
- B medium
- C high
1.1.7 Money paid by the government to businesses as incentives to decrease their cost of production is known as …
- A subsidies.
- B tariffs.
- C sureties.
1.1.8 Demographics, as a social indicator, deals with …
- A mortality rates.
- B nutrition.
- C housing. (8 x 2) (16)
- 1.1.1 B (investment)
- 1.1.2 A (amplitudes)
- 1.1.3 C (collective)
- 1.1.4 B (assets and liabilities)
- 1.1.5 C (dumping)
- 1.1.6 B (medium)
- 1.1.7 A (subsidies)
- 1.1.8 A (mortality rate)
1.2 Choose a description from COLUMN B that matches the item in COLUMN A. Write only the letter (A–I) next to the question number (1.2.1–1.2.8) in the ANSWER BOOK.
COLUMN A | COLUMN B |
---|---|
1.2.1 Portfolio investment 1.2.2 Leading indicators 1.2.3 Medium-term expenditure framework 1.2.4 Exchange rate 1.2.5 Import substitution 1.2.6 G8 1.2.7 Social indicators 1.2.8 Regional development |
A price of one country's currency in terms of another country's currency B rich industrial countries of the world' C a trade policy that leads to an increase in local production D aims to reduce the centralisation of industries E education and health F give advance warning of changes in economic activity G collective term for developing countries H shows income and expenditure estimates for three years I buying and selling equities/shares |
- 1.2.1 I – Buying and selling equities
- 1.2.2 F – Give advance warning of change in economic activity
- 1.2.3 H – Shows income and expenditure estimates for three years
- 1.2.4 A – Price of one country’s currency in terms of another country’s currency
- 1.2.5 C – A trade policy that leads to an increase in local production
- 1.2.6 B – Rich industrial countries of the world
- 1.2.7 E – Education and health
- 1.2.8 D – Aims to reduce the centralisation of industries (8 x 1) (8)
1.3 Give ONE term for each of the following descriptions. Write only the term next to the question number (1.3.1–1.3.6) in the ANSWER BOOK.
- 1.3.1 The process whereby a relatively small change in injections results in a proportionally larger increase in national income
- 1.3.2 A market for short-term savings and loans
- 1.3.3 Goods and services, like education, that benefit society as a whole
- 1.3.4 The sector that needs to be included for the economy to be regarded as an open economy
- 1.3.5 The coefficient that measures the inequality of income
- 1.3.6 The number of years a person is expected to live (6 x 1) (6)
- 1.3.1 Multiplier
- 1.3.2 Money / financial
- 1.3.3 Merit / public
- 1.3.4 Foreign / international
- 1.3.5 Gini
- 1.3.6 Life expectancy
SECTION B
Answer any TWO of the three questions in this section in the ANSWER BOOK.
QUESTION 2: MACROECONOMICS 40 MARKS – 30 MINUTES
2.1 Answer the following questions.
- 2.1.1 Give TWO examples of injections in the circular flow. (2 x 1) (2)
- 2.1.2 What effect will quotas have on imports? (1 x 2) (2)
2.1.1 Give TWO examples of injections in the circular flow.
- Export income / X
- Investments / I
- Government expenditure/spending / G Any (2 x 1) (2)
2.1.2 What effect will quotas have on imports?
- It will restrict imports (decline)
- Imports become more expensive (1 x 2) (2)
2.2 Study the table below and answer the questions that follow.
- 2.2.1 What method of calculation was used in the table above to determine the gross domestic product? (1)
- 2.2.2 Give ONE example of taxes on products. (1)
- 2.2.3 Name the missing item labelled (A). (2)
- 2.2.4 How would you convert GDP to GNP? (2)
- 2.2.5 Calculate the compensation of employees as a percentage of GDP at market prices in 2013. Show ALL calculations. (4)
2.2.1 What method of calculation was used in the table above to determine the gross domestic product?
- Income method / GDP (I) (1)
2.2.2 Give ONE example of taxes on products.
- VAT
- Sins tax / excise duty
- Fuel levy (1)
2.2.3 Name the missing item labelled (A).
- GVA (GDP) at basic prices (2)
2.2.4 How would you convert GDP to GNP?
- GDP plus primary income from the rest of the world minus primary income to the rest of the world / GDP plus/minus net primary income (2)
2.2.5 Calculate the compensation of employees as a percentage of GDP at market prices in 2013. Show ALL calculations.
- 1 576/3 385 x 100 = 46,55% or 47% (4)
2.3 Study the cartoon below and answer the questions that follow.
- 2.3.1 What message is conveyed in the cartoon above? (2)
- 2.3.2 Which international organisation promotes free trade? (2)
- 2.3.3 Suggest ONE way in which a country can be disadvantaged by free trade. (2)
- 2.3.4 How does South Africa benefit from trade relations with China? (4)
- 2.4 Briefly explain the different kinds of tariffs as a method of import substitution. (4 x 2) (8)
- 2.5 How can the household, as an important participant in the circular flow model, contribute to building the economy? (4 x 2) (8)
2.3.1 What message is conveyed in the cartoon above?
- Free trade is benefitting the developed countries / less developed countries are disadvantaged
2.3.2 Which international organisation promotes free trade?
- World Trade Organisation (WTO) (2)
2.3.3 Suggest ONE way in which a country can be disadvantaged by free trade.
- Dumping can take place
- It can lead to economic instability
- Exploitation of natural resources
- It can compromise a country's economic independence
- Infant industries may not grow (mature)
- Lead to increased unemployment
- The environment, safety and labour regulations are undermined
- Foreign companies can sue governments for losses
2.3.4 How does South Africa benefit from trade relations with China?
- Greater variety of products on South African markets
- Many products are cheaper
- Chinese investment greater in South Africa: boost the economy
- Both countries form part of BRICS - it will benefit them even more
2.4 Briefly explain the different kinds of tariffs as a method of import substitution.
- Ad valorem a percentage of the value on luxury goods such as motorcars, jewellery and perfumes
- Specific an amount per unit, mass or size e.g. food, animals and plants
- Composite / multiple when a specific tariff and an ad valorem tariff are levied on imported products e.g. R10 is levied on a product plus a percentage of 20% of the value of the product (Accept any other relevant answer) (4 x 2) (8)
2.5 How can the household as an important participant in the circular flow model contribute to building the economy?
- The owners of the four factors of production can try to increase the quality thereof to make a better contribution to the economy
- Households can sell their factors of production at lower rates to help to lower the inflation rate and build the economy
- Households (labourers) can limit labour unrest and strikes where they usually claim unreal increases in payment (much more than the current inflation rate)
- Households can increase their savings and contribute indirectly to increased production in the manufacturing sector
- Households can limit their spending on luxury goods that will limit the aggregate demand and stabilise prices
- Households can concentrate on buying South African goods to stimulate local production, future exports and increased penetration of markets internationally
- Households can pay their relevant taxes and claim better service delivery and infrastructure development
QUESTION 3: ECONOMIC PURSUITS 40 MARKS – 30 MINUTES
3.1 Answer the following questions.
- 3.1.1 Name any TWO redress measures currently used in South Africa. (2 x 1) (2)
- 3.1.2 How does economic growth relate to economic development? (1 x 2) (2)
3.1.1 Name any TWO redress measures currently used in South Africa.
- BBBEE Act
- Employment Equity Act
- Land Restitution Act
- Land Redistribution Act
- Policy Promoting Equality
- Poverty reduction policy
- Affirmative Action
3.1.2 How does economic growth relate to economic development?
When an economy is growing the following may result:
- More jobs will be created
- More people will receive income
- The standard of living will improve
- You need economic growth for economic development to take place. Economic growth does not guarantee economic development
3.2 Study the cartoon below and answer the questions that follow.
- 3.2.1 What is the difference in the per capita income between countries in the North and countries in the South? (2)
- 3.2.2 What message is conveyed in the cartoon above? (2)
- 3.2.3 Why will the subsidising of agricultural produce by wealthy countries make it difficult for developing countries to participate? (2)
- 3.2.4 How do countries in the North contribute to the destruction of the environment? (2 x 2) (4)
3.2.1 What is the difference in the per capita income between countries in the North and countries in the South?
- South has low per capita income / which constitute 15% of the world’s income
- North has high per capita income / which constitutes 85% of the world’s income
3.2.2 What message is conveyed in the cartoon above?
- North/South divide / North is controlling the South / The North benefits more than the South / The North has all the wealth compared to the South / The South are marginalised
3.2.3 Why will the subsidising of agricultural produce by wealthy countries make it difficult for developing countries to participate?
- Subsidies lead to lower market prices for wealthy countries and developing countries experience unfair competition internationally
- Most African countries are dependent on agricultural produce that determine their national income in a large way. Most people are influenced negatively by the hothouse effect – produce decreases
3.2.4 How do countries in the North contribute to the destruction of the environment?
- Mass production of goods and services causing pollution
- High levels in industrial activities cause climate change
- Over industrialisation lead into the exhaustion of natural resources
- Deforestation due to over industrialisation (2 x 2)
3.3 Study the extract below and answer the questions that follow
THE SOUTH AFRICAN EXPERIENCE IN SDIs
In 1996 the SDI was developed in South Africa as an integrated planning tool.
It was modelled on the highly successful route between Gauteng and Mpumalanga in South Africa and the port of Maputo in Mozambique.
A strong local, regional and international investment profile continues to respond to the improving logistics and policy environment created by the participating governments. To date, the private sector has committed an estimated figure of well beyond R35 billion worth of investments in southern Mozambique and Mpumalanga.
[Adapted from Report on SEZ, DTI]
- 3.3.1 What does the abbreviation SDI stand for? (2)
- 3.3.2 Give ONE example of an SDI in South Africa. (2)
- 3.3.3 Explain the term corridors. (2)
- 3.3.4 How will South Africa benefit from SDIs? (2 x 2) (4)
- 3.4 Briefly discuss special economic zones (SEZs) in South Africa. (4 x 2) (8)
- 3.5 To what extent has the government's fiscal policy succeeded in ensuring a desirable redistribution of income? (4 x 2) (8)
3.3.1 What does the abbreviation SDI stand for?
- Spatial Development Initiative (2)
3.3.2 Give ONE example of an SDI in South Africa.
- Maputo Development Corridor
- Richards Bay SDI
- Wild Coast SDI
- Lubombo SDI
- Fish River SDI
- West Coast Investment Initiative
- Platinum SDI (Coast to coast)
- Phalaborwa SDI (2)
3.3.3 Explain the term corridors.
- A corridor is a spatial area that forms a passage way allowing access from one area to another and offering advantages to mining, manufacturing and other businesses
3.3.4 How will South Africa benefit from SDIs?
- Improving logistics and policy environment
- New investments
- Job opportunities
- New business opportunities
- New export opportunities
3.4 Briefly discuss special economic zones (SEZs) in South Africa.
- It is a geographical demarcated area where specific economic activities have been identified to develop
- Main aim is to expand the manufacturing sector
- Produce for the export market
- Create additional industrial hubs so that the national industry base will be diversified
- These areas may enjoy incentives such as tax relief and support systems to promote industrial development
- There are plans to reduce tax to 15% as an incentive to attract new industries
- The aim of creating SEZ is to attract:
- - only new businesses
- - business which are developing a new product line
- - business which are expanding their volume
- The DTI has indicated that the existing IDZs where special tax incentives do not apply, would be graduated into SEZs
- It creates a basis for a broader range of industrial parks and provide economic infrastructure to promote employment
3.5 To what extent has the government's fiscal policy succeeded in ensuring a desirable redistribution of income?
- Progressive personal income tax implicates higher tax rates levied on high income earners and lower rates of taxes applying to lower income earners
- - it leads to a desirable redistribution of income
- A too progressive personal income tax system has led to tax evasion and avoidance – this might cripple the system. The number of people responsible for most of the income of the state is decreasing
- Taxes on assets owned as well as wealth taxes (CGT) are both categories where those who can afford it; must pay the taxes concerned
- Cash benefits include grants to the poor – old age pensions; disability grant; UIF are amounts paid to those who form part of the lower income groups of people without any income
- Benefits in kind comprises lower fees or no fee for certain income categories, e.g. health care, education, protection, municipal services tries to redistribute income successfully although major problems of nepotism, apathy, lack of motivation and inefficiency occurs in these sectors where money allocated for these groups are not spent accordingly
- Land reform programme involves returning of land to people that were previously dis-owned without compensation as well as people excluded from owning land in the past. Implementation of this policy remains problematic due to certain decisions being taken that might reduce mass production dramatically and we might not be able to feed the nation – disadvantaging the poor even more
- Cash and financial benefits to SMMEs where Government provides training, employment subsidies and financing of SMMEs - previously disadvantaged groups will enjoy preference and income would be successfully redistributed
- Public works programmes provide employment but usually on a temporarily basis e.g. where unemployed are appointed to build stadiums for a World Cup
- Property subsidies are paid to persons earning less than R3 500 per month
QUESTION 4: MACROECONOMICS AND ECONOMIC PURSUITS 40 MARKS – 30 MINUTES
4.1 Answer the following questions.
- 4.1.1 Name any TWO phases of a business cycle. (2 x 1) (2)
- 4.1.2 How would a high level of education influence the ability of an individual to become employed? (1 x 2) (2)
4.1.1 Name any TWO phases of a business cycle.
- Recession
- Depression
- Prosperity
- Recovery
4.1.2 How does a high level of education influence the ability of an individual to get employed?
- It provides skills to do a specific job
- It provides knowledge to do a specific job
4.2 Study the table below and answer the questions that follow.
- 4.2.1 Identify the institution responsible for publishing the data above. (1)
- 4.2.2 What is the trend in the index of import prices? (1)
- 4.2.3 Explain the term terms of trade. (2)
- 4.2.4 Briefly explain why an increase in the terms of trade will have a positive effect on the welfare of the country. (2)
- 4.2.5 Calculate the terms of trade for 2011 (A). Show ALL calculations. Round off your answer to ONE decimal place. (4)
4.2.1 Identify the institution responsible for publishing the data above.
- South African Reserve Bank / SARB (1)
4.2.2 What is the trend in the index of import prices?
- The index of import prices is increasing (1)
4.2.3 Explain the term terms of trade.
- The ratio of the index of export prices to the index import prices /
- The relationship between export price and import prices / It expresses a country’s export prices in terms of its import prices
4.2.4 Briefly explain why an increase in the terms of trade will have a positive effect on the welfare of the country.
- There will be increasing economic welfare because more revenue is earned with the same expenditure
4.2.5 Calculate the terms of trade for 2011 (A). Show ALL calculations. Round off your answer to ONE decimal place.
- 191/153 x 100 = 124,8
4.3 Study the graph below and answer the questions that follow.
- 4.3.1 Which curve is depicted in the graph above? (2)
- 4.3.2 What tax rate will generate maximum revenue for the government? (2)
- 4.3.3 What is the correlation between a tax rate of zero and a tax rate of 100% for the government? (2)
- 4.3.4 Explain the implication of a tax rate of 60% on the taxpayer. (4)
- 4.4 Differentiate between the devaluation and appreciation of a currency. (2 x 4) (8)
- 4.5 How can the South African government improve the efficiency of service delivery? (4 x 2) (8)
4.3.1 Which curve is depicted in the graph above?
- Laffer curve (2)
4.3.2 What tax rate will generate maximum revenue for the government?
- 40% (2)
4.3.3 What is the correlation between a tax rate of zero and a tax rate of 100 % for the government?
- In both scenarios government will receive no income (2)
4.3.4 Explain the implication of a tax rate of 60% on the taxpayer.
- Tax evasion or tax avoidance will occur because too much tax is levied on the taxpayer
- Taxpayer's burden will increase (by 20%)
- Some of the tax payers will stop working due to the increased tax load (2 x 2) (4)
4.4 Differentiate between devaluation and appreciation of a currency. Devaluation:
- A decrease in the value of a currency by authorities (government)
- Refers to a fixed exchange rate system
- The government might devalue a currency to improve exports
- The government can change the rate from $1 = R10 changes to $1 = 12 (Max 4)
Appreciation:
- An increase in the value of a currency due to market forces
- Typical of a floating exchange rate system
- $1 = R10 changes to $1 = 8 (Max 4) (8)
4.5 How can the South African government improve efficiency in service delivery?
- Goods and services should be provided in the desired quantity and quality
- Public goods can be efficiently provided if pareto efficiency is achieved
- Minimising red tape / avoid bureaucracy rules and procedures should be streamlined to minimize the negative impact on the delivery of services
- Increase training effective training must be provided for government officials e.g. in-service training, reskilling
- Improve motivation by providing awards to productive workers, financially or payment in kind
- Eliminate corruption put effective monitoring measures in place
SECTION C
Answer any ONE of the two questions in this section in the ANSWER BOOK. Your answer will be assessed as follows:
QUESTION 5: MACROECONOMICS 40 MARKS – 40 MINUTES
The new economic paradigm is embedded (rooted) in demand-and-supply-side policies to influence the economy.
- Discuss the use of monetary and fiscal policies to influence demand and supply in the smoothing of business cycles. (26 marks)
- How has the Keynesian (endogenous) school of thought influenced business cycles? (10 marks) [40]
INTRODUCTION
- Theories by the Monetarists (Friedman) and Keynesians (Keynes) are extreme and only true under specific circumstances /
- Under real circumstances, government pursues economic growth irrespective of being inherently stable or unstable market conditions prevalent /
- According to the New Economic paradigm, it is possible for output rise over extended periods of time without being hampered by supply constraints and inflationary pressures/-does not render ideal policies /
- Smoothing of the business cycle is when policy is used to prevent dramatic peaks and troughs /
- Consecutive periods of increasing and decreasing economic activities (Accept any other relevant introduction) (Max 2)
BODY
- Governments’ aim with business cycle policies is to achieve the best possible growth rates
- They need to apply policies to smooth out cyclical movements, so that peaks do not end up in high inflation and troughs do not result in high unemployment
- Governments use monetary and fiscal policies to do this
- Fiscal policy - more successful in stimulating a depressed economy
- Monetary policy is more effective when ‘dampening’ an overheated economy that has inflation rising
Monetary policies
When the level of economic activity changes the SARB can use expansionary and contractionary measures reduce fluctuation of such economic activities.
- An expansionary monetary policy is implemented when the economy is in recession in order to stimulate economic activities
- Interest rates can be reduced to encourage spending
- Household and firms can therefore borrow more and spend more
- The increased spending increases the level of economic activity. Investment will increase and more factors of production will be employed
- Higher levels of production and income and expenditure will be achieved
- If the supply of goods and services does not increase in line with increase in demand inflation will increase. This means that demand will be greater than supply
- Inflation can be curbed by reducing money supply and availability of credit
- To dampen the demand at the peak the government will be able to reduce money supply by increasing interest rates selling government bonds and securities (open market transactions) and reduce the supply of money in circulation increase the cash reserve requirements to manipulate money creation activities of banks persuade banks to decrease lending (moral suasion) and to devaluate the exchange rate (exchange rate policy)
Fiscal policy
When the level of economic activity changes the Minister of Finance can use expansionary and contractionary measures reduce fluctuation of such economic activities
- An expansionary fiscal policy can be implemented when the economy is in recession in order to stimulate economic activities
- An increase in government expenditure will increase aggregate demand
- This serves as an injection into the economy as production will increases, more factors of production will be employed
- This will lead to higher income and higher expenditure
- Taxes can be reduced, which will lead to an increase in disposable income
- This serves as an injection into the economy and eventually aggregate demand will increase
- When the economy grows too fast government can reduce its spending and increase taxes
- This will lead to a decrease in aggregate demand which will reduce production as fewer goods and services will be needed
Demand-side policies:
- Traditional monetary and fiscal policies focus on aggregate demand
A demand-side approach only – does not render ideal results, often growth has to be cut due to problems in inflation, balance of payments and shortages of skilled labour
- Aggregate supply needs to be managed as well - focus on increased flexibility of supply components
- If the costs of increasing production is completely flexible, a greater output can be supplied at any given price level
Supply-side policies governments can arrange things in the economy in a way that is cooperative to changes in demand.
- Reduction of costs Greater output supplied at any given price level. AS shifts to AS1 and AD to AD1 output expands from Q to Q1 with prices stable
- Government measures that can reduce costs
- - Infrastructural services like communication, transport and energy costs
- - Administrative costs like inspections and regulations - add to overall costs
- - Cash incentives like subsidies and compensation to exporters
- Measures to improve efficiency of inputs
- - Tax rates
- - high rates of personal income tax are disincentives and shifts AS to the right
- - usually achieved with incentive schemes and measures such as tax rates
- - Capital consumption by replacing capital goods on a regular basis that will create opportunities for businesses to keep up with technological development
- - Human resources development where the quality of labour can be improved by improving health care, education and training which will increase the efficiency of businesses
- - Free advisory services to promote opportunities to export and establish business activities in foreign countries which includes weather forecasts, veterinary services and research
- Improving efficiency of markets
Measures to improve efficiency include
- - Deregulation where laws and regulations are removed to make markets free
- - Competition are encouraged to establish new businesses, invite foreign direct investment and remove power imbalances
- - Levelling the economic playing fields because private businesses cannot compete with public enterprises due to legislative protection
AGGREGATE DEMAND AND SUPPLY
The effects of demand-side and supply-side policies:
- Inflation Aggregate demand and supply are in equilibrium at point C Aggregate demand is stimulated and moves to AD1, supply responds and relocates at AS1 larger real output without price increases
- Supply often sticky and fixed in short term with increase in demand to AD1, supply stays constant - intersects at point F - real production and prices increase (inflation) - creates conditions where supply is more flexible - through the use of supply-side measures
- Unemployment Demand-side policies effective in stimulating economic growth increases demand for labour reduces unemployment then inflation rises (Max 26)
ADDITIONAL PART
How has the Keynesian (endogenous) school of thought influenced business cycles?
- The Keynesian (endogenous) view is that markets are inherently unstable, therefore government intervention is necessary to stabilise the economy
- They argue that changes in value of total expenditure bring about changes in demand
- Government can intervene through fiscal policy which includes taxes and government spending
- During a recession, government can increase its spending and reduce taxes. (stimulate)
- This will increase the level of economic activity e.g. production, employment, income and demand
- During a peak the government can increase taxes and reduce government spending
- This will result in reduced income, reduced demand for factors of production, and expenditure (Max. 10)
CONCLUSION
It remains critical that business cycles must be clearly monitored through the indicators available, policy makers must act quickly by using monetary and fiscal instruments in order to prevent instability in the economy
QUESTION 6: ECONOMIC PURSUITS 40 MARKS – 40 MINUTES
Economists use different indicators to help with decision-making.
- Discuss, in detail, the following economic indicators that are used to assess the
performance of the economy:
- - Inflation rate
- - Employment (26 marks)
- How successful is the South African Reserve Bank in stabilising prices on the different markets as its main objective? (10 marks) [40]
INTRODUCTION
Governments use different statistical data to predict economic trends and formulate suitable developmental strategies toward influencing the direction that the economy should take
BODY
THE INFLATION RATE
- Inflation can be described as an increase in the general level of prices in an economy that is sustained over a period of time SARB aims to keep the inflation rate stable between 3 and 6%
The following instruments are used to measure inflation:
- Consumer Price Index (CPI) / Headline inflation
- - This is the weighted average of the prices of a general basket of goods and services likely to be bought by consumers
- - The weights are obtained from expenditure of different income categories of households
- - Decides on a base year for calculating the CPI which is similar for all SNA items
- - Decides on a formula for calculating the CPI
- - Decides on the collection of prices – in SA it is obtained by means of surveys
- - It shows changes in the general purchases of a currency (e.g. rand)
- - It is also used for inflation targeting
- - Pertains to cost of living
- - Capital and intermediate goods are excluded
- - Prices include VAT
- - Interest rates are taken into account
- - Prices of imported goods are not shown explicitly
- Producer Price Index (PPI)
- - PPI measured prices of locally produced goods when they leave the factory gate and imported goods when they enter the country
- - It consist of a basket of local, exported and imported goods
- - It includes capital and intermediate goods, but not services
- - Prices exclude VAT
- - Interest rates are excluded
- - It measures the cost of production and not the cost of living
- - It also serves as an indicator to predict consumer inflation (CPI)
- GDP deflator
- - The GDP deflator is ratio that indicates the relationship of the GDP at nominal prices to the GDP at real prices (formula)
- - The GDP deflator is calculated for all goods produced in a country for a certain year and is not based on a certain basket of goods
- - GDP at constant prices is used to measure economic growth and inflation
EMPLOYMENT
- Employment
- - The number of employed persons expressed as percentage of the EAP gives the employment rate
- - The South African employment rate was 75% during 2014 and is not accompanied by a similar growth in employment numbers
- - Employment indicators are important and used to calculate trends in employment in different sectors or industries that indicates structural changes in the economy to calculate productivity or to show the success of the economy in utilising its full potential
- - Full employment or high levels of employment is an indicator of a strong economy with high levels of growth and development
- - High levels of unemployment are normally a sign of deep-seated problems in an economy lack of domestic and foreign direct investment, low levels of labour productivity and rigid labour laws or high levels of poverty
- - Employment indicators are used to calculate: (1) trends in different sectors or industries (2) productivity and (3) successes of the economy in utilising its full potential
There are various employment indicators that are used to monitor employment progress:
- The economically active population (EAP / labour force)
- - The official employment ages in South Africa are between (15 - 65) who are willing to work
- - It includes workers in the formal sector, informal sector, employers, selfemployed persons and unemployed persons
Unemployment
- - Strict definition - the unemployed are those people within the economically active population who; did not work during the seven days prior to the interview, want to work are available to start work within two weeks of the interview and have taken active steps to look for work or start some form of self-employment in the four weeks prior to the interview
- - Expanded definition includes everyone who desires employment, irrespective of whether or not they actively tried to obtain one
- - The unemployment rate is expressed as the percentage of unemployed persons out of the total number of people willing and able to work, in other words the labour force
- - StatsSA obtains labour data from the Quarterly Labour Force Surveys to calculate unemployment
- - In South Africa the official unemployment rate was 25% in 2014 and is the most important cause of poverty
There are various methods of calculating the number of unemployed:
- Census questionnaires are distributed to respondents and included in the questionnaires are questions relating to the work status of people
- Surveys Every year Statistics South Africa undertakes a workforce survey to calculate the unemployment rate
- Registration The unemployed can register with the Department of Labour - registered unemployed persons may receive payments from the unemployment insurance fund and registration is the most accurate method of calculating the unemployment rate because not all unemployed persons are registered
- Employment
- - The employed are those who performed work for pay, profit or family gain in the seven days prior to the survey interview for at least one hour, or who were absent from work during these seven days but did not have some form of work to return to
- - Data linked to employment is an important indicator used to determine labour productivity, the rate of employment in different economic sectors, the income per worker and the success of a country’s economy
- - If employment is compared with the EAP the unemployment rate can be calculated
- - StatsSA publishes the Labour Force Survey in March and September every year and contains information such as the employment rate, the unemployment rate and the levels of employment in the formal and informal sectors
ADDITIONAL PART
- - The CPI breached the upper range of the inflation target during 2014. SARB has increased interest rates to bring the inflation rate back into lower ranges, thus stabilising prices.
- - Setting the inflation target of 3 – 6% was a major initiative by the state that helped SARB to stabilize prices
- - A decline in international crude oil prices in recent months suppressed global inflationary pressures. This contributed largely to lower domestic inflation - favourably affecting Producer price inflation. Due to this the Reserve Bank were able to keep the repo rate unchanged PPI for intermediate manufactured goods has a positive impact on the stabilising of prices
- - Although the Reserve Bank has been very successful in stabilizing prices, certain external factors which influenced the global economy like the World recession has impacted negatively on the SARB efforts in stabilizing prices
- - Other factors like disinvestment due to poor governance led to a sharp decline in stability which hampered the stabilizing effects of SARB
- - The poor value of the Rand on international markets is a major negative contributing factor on the inflation rate due to a major dependency on imports
CONCLUSION
Economic indicators are some of the most important and powerful tools that the government can use to influence the direction that the economy should take as against other countries (Max. 2) [40]
SENIOR CERTIFICATE
ECONOMICS P1 FEBRUARY/MARCH 2014
MARKS: 300
TIME: 3 hours
SECTION A (COMPULSORY)
QUESTION 1 50 MARKS – 25 MINUTES
1.1 Various options are given as possible answers to the following questions. Choose the answer and write only the letter (A–C) next to the question number (1.1.1–1.1.12) in the ANSWER BOOK.
1.1.1 In microeconomics we study the behaviour of ...
- A individuals.
- B migrants.
- C groups.
1.1.2 Business cycle diagrams are drawn in the shape of …
- A bar graphs.
- B waves.
- C circles.
1.1.3 The systematic record of all the transactions of a country's inhabitants with the rest of the world, is known as the …
- A international budget.
- B quarterly bulletin.
- C balance of payments.
1.1.4 In a perfect market the individual firm is a price …
- A leader.
- B maker.
- C taker.
1.1.5 Internal costs are known as … costs.
- A private
- B social
- C public
1.1.6 A key feature of public goods is their …
- A rivalry.
- B non-excludability.
- C limited consumption.
1.1.7 Many developing countries do not have the … to sustain largescale manufacturing operations.
- A land
- B unskilled labour
- C capital
1.1.8 An indicator that is related to inflation is the …
- A consumer price index (CPI).
- B economically active population (EAP).
- C gross domestic product (GDP).
1.1.9 Exports can be promoted through …
- A labour unrest.
- B incentives and subsidies.
- C restrictions on free trade.
1.1.10 If the rand appreciates, prices and the rate of inflation will …
- A decrease.
- B increase.
- C remain the same.
1.1.11 When tourists visit South African game farms, it is referred to as … tourism.
- A international
- B eco-
- C community
1.1.12 Gold as a resource is ...
- A renewable.
- B non-existent.
- C non-renewable. (12 x 2) (24)
- 1.1.1 A (individuals)
- 1.1.2 B (waves)
- 1.1.3 C (balance of payments)
- 1.1.4 C (taker)
- 1.1.5 A (private)
- 1.1.6 B (non-excludability)
- 1.1.7 C (capital)
- 1.1.8 A (consumer price index – CPI)
- 1.1.9 B (incentives and subsidies)
- 1.1.10 A (decrease)
- 1.1.11 B (eco)
- 1.1.12 C (non-renewable)
1.2 Give ONE term for each of the following descriptions. Write only the term next to the question number (1.2.1–1.2.5) in the ANSWER BOOK.
- 1.2.1 Successive periods of increasing or decreasing economic activity
- 1.2.2 A technique used to evaluate the economic costs and benefits of a project
- 1.2.3 A mechanism that brings together buyers and sellers of a good or service
- 1.2.4 An increase in the productive capacity of a country to produce goods and services
- 1.2.5 An increase in the general price level caused by an increase in the cost of production (5 x 2) (10)
- 1.2.1 Business cycle
- 1.2.2 Cost-benefit analysis
- 1.2.3 Market
- 1.2.4 Economic growth
- 1.2.5 Cost-push/ cost inflation
1.3 Choose a description from COLUMN B that matches an item in COLUMN A. Write only the letter (A–I) next to the question number (1.3.1–1.3.8) in the ANSWER BOOK
COLUMN A | COLUMN B |
---|---|
1.3.1 Terms of trade 1.3.2 Lorenz curve 1.3.3 Marginal cost 1.3.4 Competition Tribunal 1.3.5 Globalisation 1.3.6 Corridor 1.3.7 Global warming 1.3.8 Kyoto Protocol |
A authorises and prohibits large merger sand takeovers B expresses a country's export prices in terms of its import prices C the distribution of income among sections of the population D the process by which the whole world becomes a single market E heat trapped within the atmosphere F a conference focusing on climate change G the change in total cost when production is increased by one more unit H spatial areas that link one area to another and offers advantages to mining, manufacturing and other businesses I excess government spending |
- 1.3.1 B (expresses a country's export prices in terms of its import prices)
- 1.3.2 C (the distribution of income amongst sections of the population)
- 1.3.3 G (the change in total cost when production is increased by one more unit)
- 1.3.4 A (authorises and prohibits large mergers and takeovers)
- 1.3.5 D (the process by which the whole world becomes a single market)
- 1.3.6 H (spatial areas that link one area to another and offers advantages to mining, manufacturing and other businesses)
- 1.3.7 E (heat trapped within the atmosphere)
- 1.3.8 F (a conference focusing on climate change) (8 x 2) (16)
SECTION B
Answer any THREE of the five questions in this section in the ANSWER BOOK.
QUESTION 2: MACROECONOMICS 50 MARKS – 25 MINUTES
2.1 Choose the correct word from those given in brackets. Write only the word next to the question number (2.1.1–2.1.4) in the ANSWER BOOK.
- 2.1.1 To calculate GDP at basic prices, we use the (expenditure/ production) method.
- 2.1.2 The highest turning point in the business cycle is known as the (peak/trough).
- 2.1.3 The medium-term expenditure framework shows income and expenditure estimates for a (one/three)-year period.
- 2.1.4 Market failure results in (higher/lower) market prices. (4 x 2) (8)
2.2 List any THREE indicators underpinning forecasting in business cycles. (3 x 2) (6)
- 2.1.1 Production
- 2.1.2 Peak
- 2.1.3 Three
- 2.1.4 Higher
2.3 Study the extract and graph below and answer the questions that follow
EXCHANGE RATE PROBLEMS FOR SOUTH AFRICA
The wide-spread strikes in the country will not only affect mining and transport companies, but consumers too. The weak rand affects the average South African the most. The three expenses that interest workers most are petrol, food and electricity. The weak rand can, however, be more positive for exporters. The strikes caused the mining industry to produce less than they were supposed to export, resulting in more imports and fewer exports. The chances that the rand will recover remain slim.
[Adapted from Beeld, October 2012]
- 2.3.1 Define the term exchange rate. (2)
- 2.3.2 Explain the negative impact of strikes on the South African economy. (4)
- 2.3.3 Do you think South Africa attracted more direct foreign investment during April 2011? Motivate your answer. (4)
2.3.1 Define the term exchange rate.
- The price of one currency in terms of another country's currency e.g. $1 = R9,00 (2)
2.3.2 Explain the negative impact of strikes on the South African economy.
- Loss of labour hours
- Loss of production
- Loss of income
- Decrease in exports/Balance of Payment problems
- Job losses
2.3.3 Do you think South Africa will attract more direct foreign investment during March 2011? Motivate your answer.
- No The exchange rate is not favourable / rand is stronger and therefore you get less value for their currency.
2.4 Study the cartoon below and answer the questions that follow.
- 2.4.1 What is the purpose of the annual budget? (2)
- 2.4.2 Government has spent considerable amounts of money on the implementation of e-tolls in South Africa. What can government do to recover this money? (2)
- 2.4.3 What can employers do to reduce the negative impact of strikes on production? (2)
- 2.4.4 Do you think that the minister of finance can stop the rocket that is heading his way? Motivate your answer. (4)
- 2.5 Discuss privatisation as a problem of public-sector provisioning. (4 x 2) (8)
- 2.6 Explain the Laffer curve with the aid of a graph. (8)
2.4.1 What is the purpose of the annual budget?
- Gives effect to the government's fiscal policy. Guides government to achieve its macroeconomic objectives.
2.4.2 Government has spent considerable amounts of money on the implementation of e-tolls in South Africa. Suggest ways in which government can recoup this money spent.
- e-toll fees
- increase in license fees
- portion of the road accident fund
- increase in road fines
- increase in fuel levies
2.4.3 What can employers do to reduce the negative impact of strikes on production?
- Offer wage increases
- Better working conditions
- Better services
- Promotions
2.4.4 Do you think that the minister can stop the rocket that is headed his way? Motivate your answer
- No , the expenditure of the government (rocket) is far greater than the revenue (little shield). The minister says that he has his people coveredbut the rocket is far bigger than his protection.
- Yes the minister can use the MTEF to address the economic challenges
2.5 Discuss privatisation as a problem of public sector provisioning.
- Privatisation refers to the transfer of functions and ownership from the public to the private sector
- Privatisation leads to higher prices which excludes people from its consumption
- State-owned enterprises are sometimes bureaucratic, inefficient, and unresponsive to consumer needs and therefore often a burden on the taxpayer
- Public enterprises do not pay tax; privatised enterprises must pay tax – therefore privatization will broaden the tax base
- Privatised enterprises will have greater access to investment, be more innovative and be able to adapt more easily to changing economic conditions
- Privatisation will give more people a share in the economy and general welfare and can serve as an instrument of black economic empowerment
- The proceeds will make funds available for spending on housing, education, health care and assistance to the poor
- The aim of privatisation is to reduce the relative size of the public sector
- Advantages of privatisation: privatization stimulates growth and improves the overall efficiency and performance of the economy
- Privatisation provides additional funds to the government
- Privatisation attracts foreign investment (4 x 2) (8)
QUESTION 3: MICROECONOMICS 50 MARKS – 25 MINUTES
3.1 Choose the correct word from those given in brackets. Write only the word next to the question number (3.1.1–3.1.4) in the ANSWER BOOK.
- 3.1.1 The marginal (cost/revenue) curve will always intersect the average cost curve at its minimum point.
- 3.1.2 The number of participants in an oligopoly implies that businesses are (independent/interdependent).
- 3.1.3 Increased product differentiation means that the demand for the product will be (more/less) price elastic.
- 3.1.4 Entry into a monopolistic competitive market is (free/restricted). (4 x 2) (8)
- 3.2 Give THREE examples of non-price competition in monopolistic competition. (3 x 2) (6)
3.1 Choose the correct word from those given in brackets:
- 3.1.1 Cost
- 3.1.2 Interdependent
- 3.1.3 More
- 3.1.4 Free
3.2 List THREE examples of non-price competition for a monopolistic competitor.
- Product differentiation
- Advertising
- Branding
- Extended shopping hours
- Doing business over the internet
- After-sales service
- Loyalty rewards
3.3 Study the illustrations below and answer the questions that follow.
- 3.3.1 Define the term market failure. (2)
- 3.3.2 Identify the cause of market failure as depicted in C. (2)
- 3.3.3 Explain how negative externalities (pollution) lead to market failure. (4)
- 3.3.4 What measure can government take to deal with the negative impact of demerit goods? (2)
3.3.1 Define the term market failure
- When firm do not produce the correct quantities of good as desired by the consumer/when resources are under-utilised or over-utilised in the production process/firms not achieving productive and allocative efficiency.
3.3.2 Identify the cause of market failure as depicted in C
- Imperfect markets (2)
3.3.3 Explain how negative externalities (pollution) lead to market failure.
- Pollution involves a social cost which is not included in the market price.
- Therefore goods are often over-produced than is desired by the community. (2 x 2) (4) 3.3.4 What measure can government take to deal with the negative impact of demerit goods?
- Ban consumption
- Increase taxation
- Provide information about their harmful effects (1x2) (2)
3.4 Study the graph below and answer the questions that follow.
- 3.4.1 What quantity of goods will be produced by the individual firm? Give a reason for your answer. (4)
- 3.4.2 Identify the profit depicted by point A. (2)
- 3.4.3 Explain the importance of point B in relation to production and costs.(4)
- 3.5 Discuss TWO aims of South Africa's competition policy. (2 x 4) (8)
- 3.6 Explain how collusion can influence an oligopoly market. (4 x 2) (8)
3.4.1 What quantity of goods will the individual firm produce? Give a reason for your answer.
- Q2 Because Marginal Cost = Marginal revenue which ensures profit maximization (4)
3.4.2 Identify the profit depicted by A.
- Normal Profit (2)
3.4.3 Explain the importance of point B in relation to production and costs
- Point B is referred to as shutdown point
- The firm will stop production because it will be unable to cover its average variable cost (4)
3.5 Discuss TWO aims South Africa's competition policy.
- Improve the efficiency of markets efficiency is important since resources are scarce and needs are unlimited only efficient producers will survive in a competitive market – those who make losses will be forced to leave the market
- Improve equity in markets by ensuring access to those people who were previously denied an equal opportunity to participate in the economy
- Contribute to developmental objectives
- Prevent the abuse of economic power (e.g. the monopolist)
- Regulate the growth of market power by means of takeovers and mergers
- Prevent restrictive practices, especially by oligopolists, such as fixing of selling prices, collusion or price discrimination (Any 2 x 4) (8)
3.6 Explain how collusion can influence an oligopoly market.
- No business is ever sure about the policy of competitors and function in an uncertain environment
- To reduce uncertainty, oligopolists collude – they agree on prices and quantities they are going to produce – higher profits
- Two forms: cartels: where collusion occurs openly and formally their aim is a collective monopoly frequent problems are members cheating by cutting prices and selling more than its quota
- Price leadership: where collusion is forbidden by law the one business fixes the price and other act as price followers the price leader is usually the largest or dominant business in the industry with the lowest production costs
- Collusion is more successful when a small number of firms are involved, which makes communication more effective it firms face more or less the same cost of production if the product is homogeneous if there are barriers to entry if the government does not interfere (8)
QUESTION 4: ECONOMIC PURSUITS 50 MARKS – 25 MINUTES
4.1 Choose the correct word(s) from those given in brackets. Write only the word(s) next to the question number (4.1.1–4.1.4) in the ANSWER BOOK.
- 4.1.1 Redistribution of income in South Africa is effected through the (banking/taxation) system.
- 4.1.2 Investment in physical and human capital is regarded as crucial for attracting global business and ensuring (short/long)-term economic growth.
- 4.1.3 The (World Bank/World Trade Organisation) monitors and liberalises international trade.
- 4.1.4 Developed countries experience (high/low) birth rates. (4 x 2) (8)
- 4.2 Name THREE policies used by the South African government to redress the inequalities of the past. (3 x 2) (6)
- 4.1.1 Taxation
- 4.1.2 Long
- 4.1.3 Trade Organisation
- 4.1.4 Low (4 x 2) (8)
4.2 List any THREE policies used by the South African government to redress the inequalities of the past as.
- Land redistribution
- Land restitution
- Affirmative action
- BEE
- Employment equity
4.3 Study the graph and extract below and answer the questions that follow.
EMERGING MARKETS
[Source: Thomson Reuters]
Of the top ten targeted emerging market nations, South Africa comes in last with $7,3 bn in real value. China's targets are the most favoured with a real value of $115,3 bn.
- 4.3.1 Explain the term emerging market. (2)
- 4.3.2 In your opinion, why is investors' confidence in South Africa weak? (4)
- 4.3.3 Give ONE possible reason why China is so successful among all emerging markets. (2)
- 4.3.4 Name the recently established association of emerging economies consisting of five member-countries. (2)
4.3.1 Explain the term emerging market
- Developing economies that succeed in attracting investments from developed economies because of their potential to grow. (Any relevant explanation) (2)
4.3.2 In your opinion why is investor's confidence in SA weak?
- Political instability
- Strikes which affect production
- Talks of nationalization
4.3.3 Give one possible reason why China is so successful amongst all emerging markets.
- Advanced manufacturing technology
- They able to increase the world market share due to competitive prices
- Cheap labour
4.3.4 Name the recently established association of emerging economies consisting of five member-countries.
- BRICS (2)
4.4 Study the table below and answer the questions that follow
- 4.4.1 Define the term per capita real gross domestic product. (2)
- 4.4.2 What measures can the South African government take to reverse the increase in unemployment? (4)
- 4.4.3 Why is the GDP indicator expressed in real values instead of nominal values? (4)
- 4.5 Explain spatial development initiatives in South Africa. (4 x 2) (8)
- 4.6 Briefly discuss the uses of per capita figures. (2 x 4) (8)
4.4.1 Define the term Per Capita Real Gross Domestic Product.
- The average amount of goods and services produced per person in a country /
- To calculate this figure, the Real GDP figure is divided by the population number (2)
4.4.2 What measures can the South African government take to reverse the increase in unemployment?
- create jobs
- develop skills
- provide public works programmes
- initiate youth wage subsidies
4.4.3 Why is the GDP indicator expressed in real values instead of nominal values?
- Real values take into account inflation which will give more accurate growth rate.
- Expressing the GDP figures in nominal values will give a skewed interpretation of production in the economy.
- This can influence growth policies in the wrong direction
4.5 Explain Spatial Development Initiatives in South Africa.
- SDI Programme attracts infrastructure and business investments to underdeveloped areas with the primary aim of creating employment.
- Department of Trade and Industry is driving force behind industrial and spatial development .
- DTI plans together with central, provincial and local government, IDC, parastatals and research institutions.
- Industrial Development Policy Programme (Spatial Development) has 2 focus points: spatial development initiative (SDI) and financial incentives
- SDI refers to national government initiative programme aimed at unlocking inherent and under-utilized economic development potential of certain specific spatial locations in SA.
- Key objectives stimulate economic activity in selected strategic locations. generate economic growth and sustainable industrial development; develop projects of infrastructure in certain areas and finance them through lending and private sector investment establish private-public partnerships (PPP's)
- In areas with high poverty and unemployment, SDI focuses on: high-level support in areas where socio-economic conditions require concentrated government assistance where inherent economic potential exists.
- The approach is towards international competitiveness, regional cooperation and a more diversified ownership base.
- Some of the main focus points of the SDI Programme are: Lubombo Corridor (agro-tourism, education, craft, commercial and agricultural sectors); KwaZulu-Natal (ports of Durban and Richards Bay); West Coast SDI (fishing and industrial ports); Coast-2-Coast Corridor with agro-tourism. (Any 4 x 2) (8)
4.6 Briefly discuss the uses of per capita figures.
- indicate economic development countries in which economic development is important need to increase their per capita real income
- compare living standards it is customary to compare living standards of countries in terms of per capita GNI – figures for comparison are converted to the US Dollar
- indicate living standards it expresses the income accruing to the residents of a country irrespective of geographical boundaries
QUESTION 5: CONTEMPORARY ECONOMIC ISSUES 50 MARKS – 25 MINUTES
5.1 Choose the correct word(s) from those given in brackets. Write only the word(s) next to the question number (5.1.1–5.1.4) in the ANSWER BOOK.
- 5.1.1 When consumers gain access to large amounts of credit which enable them to buy more goods and services, it refers to (demand/cost) inflation.
- 5.1.2 The CPI is constructed and calculated by (Statistics South Africa/ the South African Development Bank).
- 5.1.3 Travelling or the movement of people from one place to another within the borders of the country refers to (domestic/foreign) tourism.
- 5.1.4 Increased industrial waste dumping leads to land (pollution/reform). (4 x 2) (8)
- 5.2 Give THREE examples of administered prices, goods and services. (3 x 2) (6)
- 5.1.1 Demand
- 5.1.2 Statistics South Africa
- 5.1.3 Domestic
- 5.1.4 Pollution (4 x 2) (8)
5.2 List any THREE examples of administered prices goods and services.
- Electricity
- Fuels
- Paraffin
- Medicines
- Public hospitals
- Telephone and cell phone call rates
- Telephone line rental
- Telephone installations
- Postage
- Television and radio licenses
- Bus fares
- Train fares
- Licenses
- Registration of transport
- School and university boarding fees
- Assessment rates and property taxes
- Sanitary services
- Refuse removal
- Water (Any 3 x 2) (6)
5.3 Study the extract below and answer the questions that follow
NEW INFLATION HIGHER
The official inflation rate will most probably rise when the CPI basket is adapted in January 2013 to include more products currently being used by most South African households, for example bread rolls, vodka, lawn mowers, washing machines and tablets (electronic devices), and to exclude products such as mustard, calculators, fish paste and viennas.
An increase in the official rate of inflation may lead to more claims from workers to increase their wage and salary levels. Increased salaries in the public service will place an even greater burden on the budget deficit. This may even have serious consequences for interest rates in future.
[Source: Sheneman, Tribune Media Services]
- 5.3.1 Give another term for the unadjusted CPI inflation rate. (2)
- 5.3.2 Sometimes certain goods are excluded when calculating a certain type of inflation. Name ONE good that will be excluded from the CPI basket in future. (2)
- 5.3.3 Why will workers tend to claim higher wages when the official rate of inflation goes up? (2)
- 5.3.4 Why do you think it was necessary to adapt the CPI basket? (4)
5.3 Study the extract and answer the questions that follow.
5.3.1 Give another term for the unadjusted CPI inflation rate.
- Headline inflation (2)
5.3.2 Sometimes certain goods are excluded from calculating a certain type of inflation. Name ONE good that will be excluded from the CPI basket in future.
- Mustard
- Calculators
- Fish paste
- Viennas (2)
5.3.3 Why will workers tend to claim higher wages when the official rate of inflation goes up?
- To enjoy the same standard of living
5.3.4 Why do you think it was necessary to adapt the CPI-basket?
- These are products currently being used by households
- Most SA households are using the newly added products
5.4 Study the extract below and answer the questions that follow.
THE LOST CITY
South Africa's very own lost city of gold, Mapungubwe, in the northern part of Limpopo, has a mesmerizing energy and calming aura that continues to fascinate historians and tourists alike. The site was discovered in 1933 and is said to be the remains of an Iron Age metropolis that flourished almost 1 000 years ago. The site has been extensively excavated since its discovery, revealing the incredible wealth of the people of Mapungubwe that included a little golden rhinoceros, a golden sceptre and a golden bowl discovered in the same grave.
[Source: Limpopo Tourism and Leisure, 2013]
- 5.4.1 In which province is Mapungubwe situated? (2)
- 5.4.2 Name any ONE valuable golden item found at Mapungubwe. (2)
- 5.4.3 How can Mapungubwe contribute to a better tourism industry? (4)
- 5.4.4 Name any other World Heritage Site found in South Africa. (1 x 2) (2)
- 5.5 Distinguish between the consumer price index and the producer price index. (2 x 4) (8)
- 5.6 Discuss the South African government's policy on the preservation of environmental assets. (4 x 2) (8)
5.4.1 In which province is Mapungubwe situated?
- Limpopo (2)
5.4.2 List any ONE valuable golden item found at Mapungubwe.
- golden rhino
- golden sceptre
- golden bowl (Any 1 x 2) (2)
5.4.3 How can households benefit from this World Heritage Site (Mapungubwe)?
- Income: Job creation in surrounding villages or at the site
- Infrastructure: tourists and local people will benefit from better roads, hotels, telephones and water
- Skills: learners have the advantage to be taught Tourism as subject
5.4.4 Name any other World Heritage Site to be found in South Africa.
- Isimangaliso
- Cape Fynbos Region
- uKhahlamba Drakensberg Park
- Richtersveld (1 x 2) (2)
5.5 Distinguish between the consumer and producer price index.
Consumer Price Index
- Pertains to cost of living
- Basket consists of consumer goods and services
- Capital and intermediate goods are excluded
- Prices include VAT
- Interest rates are taken into account
- Prices of imported goods are not shown explicitly
Producer Price Index
- Pertains to cost of production
- Basket consists of goods only
- Capital and intermediate goods are included
- Prices exclude VAT
- Interest rates are excluded
- Prices of imported goods are shown explicitly
5.6 Discuss the South African government's policy on the preservation of environmental assets.
- Weaknesses in the market solutions required that the government intervenes in order to preserve environmental assets
- Government can buy or expropriate under government control social welfare may be costly – in some instances such assets are simply closed for human use e.g. indigenous forests
- Government can subsidize river mouth ecosystems can be left to private ownership by subsidizing through maintenance grants
- Government controls government can compel the owner to apply control measures e.g. number of visitors allowed per day
QUESTION 6: MACRO AND MICROECONOMICS 50 MARKS – 25 MINUTES
6.1 Choose the correct word(s) from those given in brackets. Write only the word(s) next to the question number (6.1.1–6.1.4) in the ANSWER BOOK.
- 6.1.1 Selling goods in a foreign market at prices that are below the cost of production in the country of origin is known as (pollution/dumping).
- 6.1.2 Non-rival goods are provided by the (public/private) sector.
- 6.1.3 The market demand curve for a perfect market is (horizontal/negative sloping).
- 6.1.4 The setting of maximum prices benefits the (consumer/producer). (4 x 2) (8)
- 6.2 List the THREE main features of fiscal policy. (3 x 2) (6)
6.1 Choose the correct word from those given in brackets:
- 6.1.1 Dumping
- 6.1.2 Public
- 6.1.3 Negative sloping
- 6.1.4 Consumer (4x2) (8)
- 6.2 List the THREE main characteristics of fiscal policy.
- Biased
- Cyclical
- Demand-based (3x2) (6)
6.3 Study the graph below and answer the questions that follow.
- 6.3.1 Define the term balance of trade. (2)
- 6.3.2 Describe the general trend of the balance on the current account between 2006 and 2011. (2)
- 6.3.3 Name ONE item that appears in the financial account of the balance of payments. (2)
- 6.3.4 Suggest TWO methods to improve the balance on the current account. (2 x 2) (4)
6.3.1 Define the term Balance of Trade.
- Difference between merchandise exports and imports. (2)
6.3.2 Describe the general trend of the balance on the current account between 2006 and 2011.
- Every year indicates a deficit. (2)
6.3.3 Name ONE item that appears in the financial account of the balance of payments.
- Direct investments
- Portfolio investments
- Other investments
6.3.4 Suggest TWO methods to improve the balance on the current account.
- A weaker rand
- Exchange rate
- Lending and borrowing from the IMF
- Change in demand
- Export promotion
- Import substitution
- Interest rates
- Import controls
6.4 Study the logos below and answer the questions that follow.
- 6.4.1 What market structure is depicted by the logos above? (2)
- 6.4.2 Describe the slope of a typical demand curve for the market above. (2)
- 6.4.3 Explain why firms in this industry do not compete with regard to the price of the product. (4)
- 6.4.4 What can the above manufacturers do to increase their market share? (2)
- 6.5 Distinguish between productive inefficiency and allocative inefficiency. (2 x 4) (8)
- 6.6 Discuss the reasons for public sector failure in South Africa. (2 x 4) (8)
6.4.1 What market structure is depicted by the above logos?
- Oligopoly
6.4.2 Describe the slope of a typical demand curve for the above market.
- Downward sloping from left to right (2)
6.4.3 Explain why firms in this industry do not compete in terms of the price of the product.
- They compete on the basis of product differentiation and efficient service, underscored by advertising. (4)
6.4.4 What can the above manufacturers do to increase their market share?
- After sales service
- Branding
- Advertising
- Door-to-door sales
- Internet sales
6.5 Differentiate between productive and allocative Inefficiency Productive inefficiency
- In terms of cost it means that a business does not produce goods at the lowest possible cost.
- There is room to reduce costs without producing fewer goods or without producing a lower quality good.
- In terms of marginal cost it means that one producer can produce an additional unit of a good at a lower extra(marginal) cost than others in the economy.
Allocative inefficiency
- This kind of inefficiency means that the product mix does not reflect consumers' and therefore resources are not allocated in the right proportions.
- The quantities preferred by consumers are not available. (Any 2 x 4)
6.6 Discuss the reasons for public sector failure in South Africa
- Management failure ignorance, lack of leadership, training and experience are behaviours that improve the welfare of someone at the expense of someone else.
- Apathy Successful public production relies on long-term accountability.In developing countries accountability often does not work, clients are voiceless.
- Lack of motivation frontline workers rarely receive incentives for successful service delivery. There is little stipulation for service quality and quantity, no measurement of effectiveness or productivity and few rewards or penalties. (Any 2 x 4)
SECTION C
Answer any TWO of the four questions in this section in the ANSWER BOOK
QUESTION 7: MACROECONOMICS 50 MARKS – 40 MINUTES
There is a constant flow of money, goods and services in the economy.
- Discuss the interaction between the participants in an open economy. (30)
- Construct a fully labelled diagram to illustrate the open economy circular flow model.
INTRODUCTION
The circular flow model of the economy is a simplification showing how the economy works and the relationship between income and spending in the economy as a whole. The circular flow model of an open economy shows the workings of an economy that is open to foreign trade. It is different to a closed economy because it includes the foreign sector.
BODY
There is a flow of money and goods and services between the household sector and business sector Households earn income in the form of wages by selling their factors of production to businesses. Businesses use factors of production to produce goods and services on which the household sector spends Thus the business will receive income.
There is a flow of money and goods and services between the household sector and State. Household sector provides the state with labour and receive income. The state provides the household with public goods and services (e.g.) parks, hospitals for which they pay taxes. This is income for the state. There is a flow of money and goods and services between the business sector and State. The business sector provides the state with goods and services for which the state pays. The state provides the business sector with public goods and services for which they pay taxes.
There is a flow of goods (imports) to the business from the foreign sector which the business pays for. This will be regarded as expenditure for the business There is also a flow of goods from the business to the foreign sector. This will be income for the business.
The financial sector consists of banks, insurance companies and pension funds. They act as a link between households and firms who have surplus money and others in the economy who require funds.The money which households and firms provide to the financial sector is known as savings. The spending on capital equipment by firms is regarded as investment. (Max 30)
CONCLUSION
In South Africa individual and company income tax rates were reduced over the last decade (Max 2)
QUESTION 8: MICROECONOMICS 50 MARKS – 40 MINUTES
Pure monopolies seldom exist, although we often find characteristics of a monopoly present in businesses.
- Discuss the monopoly as a market structure. (30)
- Draw a fully labelled graph to illustrate economic profit for the monopolist. (10) [50]
INTRODUCTION
The monopoly is a market structure where only one seller (producer) operates. Entry is blocked and the product has no close substitutes
BODY
STRUCTURE OF THE MONOPOLY
Number of businesses
- The number of businesses is not as important as their conduct particularly as concerns the question as to whether an individual business could influence the selling price of the product
- The monopoly is a price-maker that have an influence on the price of their products
Nature of the product
- The goods offered by a monopoly are unique in nature
- Entry It refers to how easy or difficult it is for businesses to enter or leave the market Entry under monopolistic conditions is entirely blocked
- The control of businesses over the price of the product
- The monopoly is the only businesses on the market and has considerable control over the prices of their products they are price-makers or price determiners
- Information All information on market conditions should be available to both buyers and sellers a monopoly experiences no uncertainty regarding market information
- Demand curve The demand curve of a monopoly is downward-sloping and equals the market demand curve because the producer reflects the total supply on the market
- Long term economic profit
- Due to the fact that there are no competitors entering the market over the long run, the economic profit remains over the long term
- Seller market power Many – the monopoly is a price-maker
- Technical efficiency Is possible for the monopoly
- Allocative efficiency No allocative efficiency regarding the monopoly
CONCLUSION
We found that a monopolist produces less in the long term, demands a higher price for the product, makes economic profit and does not produce at the lowest possible cost.
QUESTION 9: ECONOMIC PURSUITS 50 MARKS – 40 MINUTES
South Africa's international trade policy consists of export promotion and import substitution.
- Discuss import substitution as part of the South African international trade policy. (30)
- In your opinion how can a policy of free trade benefit South Africa? (10) [50]
INTRODUCTION
Import substitution is the replacement by domestic production of goods that were previously imported. The aim is to develop local industries, increase employment opportunities and improve South Africa's balance of payments
BODY
STAGES OF IMPLEMENTATION:
- Imports of simple consumer goods e.g. textiles and shoes, are replaced with domestic production
- Domestic industries are created to replace a wider range of more sophisticated manufactured items
FORMS OF IMPORT SUBSTITUTION:
- Voluntary import substitution attempts by countries to develop their own industries as part of an economic development strategy e.g. Iscor
- Forced import substitution certain countries are forced to produce certain goods because they are excluded from taking part in international trade through trade sanctions (countries prohibit trade with a certain country) boycotts (voluntary measures not to trade with a certain country) disinvestment (foreign countries withdraw their investments from a country)
REASONS FOR IMPORT SUBSTITUTION:
- Diversification is known as the expansion of manufacturing that will make countries less dependent on foreign countries and give them more control over their economies the infant industry argument is used to justify protection measures, to be able to become internationally independent and independent of protection as they expand their scale of operation
- Trade developing countries rely on natural resources as basis for economic growth and development and export mainly minerals and agricultural produce growth could however accelerate if developing countries produce manufactured goods themselves
METHODS OF IMPORT SUBSTITUTION:
- Tariffs are customs duties taxes on imported goods that may be ad valorem (percentage) of specific (an amount per unit) prices of imported goods will rise and shift the local demand to domestic production
- Quotas limit the supply of a good or service it places a restriction on imports and reduce supply (prices go up)
- Subsidies to domestic enterprises that export goods may protect them
- Exchange control governments or free trade areas may limit the amount of foreign exchange made available for imports, investment or traveling abroad
- Physical control in the form of a complete ban or embargo on the imports of certain goods e.g. arms and drugs
- Diverting trade measures that make it difficult to import from abroad are import deposits, time consuming customs procedures and quality standards
ADVANTAGES OF IMPORT SUBSTITUTION:
- Easy to implement through the imposition of tariffs and quotas
- Industrial development is encouraged
- Employment opportunities increase
- A decrease in imports has a positive effect on the balance of payments
DISADVANTAGES OF IMPORT SUBSTITUTION:
- It does not necessarily lead to an overall reduction in imports South Africa had to import capital and intermediate goods to manufacture consumer goods
- Inefficient local production because local producers are shielded from international competition
- Domestic consumers are forced to buy goods at higher prices on the international market
- Costly and uneconomical projects are established e.g. Mossgas
SCEPTICISM - REASONS:
- Protection means high profits to protected industries, isolating them from competition and lower their efficiency and development
- Protection does not advance industrialization – backward linkages do not materialize
- Consumers often have to pay higher prices for goods of inferior quality from nonessential industries (Max 30)
How a policy of free trade can benefit South Africa:
- Specialisation leads to comparative advantage to a country in what they are relatively best at producing
- Economies of scale are created through trace by reducing unit costs
- Choice of consumers are increased because they can choose what they prefer to buy
- Innovation free trade implies competition, better methods of production, cutting costs and improving quality and reliability of goods (Max 10)
CONCLUSION
From the above discussion it is obvious that import substitution implies that countries try to become more self-supporting and independent. By implementing tariff protection, South Africa introduced an inward-looking policy. The World Wars stimulated manufacturing further due to isolation from foreign countries. (Max 2) Any other relevant conclusion
QUESTION 10: CONTEMPORARY ECONOMIC ISSUES 50 MARKS – 40 MINUTES
Tourism plays a vital role in the global economy.
- Discuss the effects of tourism on the South African economy. (30)
- Suggest ways in which tax revenue can be used to promote tourism. (10) [50]
INTRODUCTION
Tourism represents a unique industry in an economy because its effects extend far beyond the tourism industry itself. Tourism is an industry that provides a substantial economic stimulus to other industries Any other relevant introduction (Max 3)
BODY
DISCUSS THE EFFECTS OF TOURISM ON SOUTH AFRICAN ECONOMY
1. Gross Domestic Product (GDP) / Economic growth / Direct foreign spending by tourists
- Direct impact amount to 3.9% of GDP in 2005
- Indirect impact is about 9.0% in real terms – more than gold mining
- Differs from country to country – Mauritius gets about 1/3 of its National Income from this sector
- Biggest impact on services industry than on agriculture or manufacturing
2. Employment / Entrepreneurial opportunities and the informal sector
- World Travel and Tourism Council (WTTC) estimates ½ million jobs directly created by tourism in 2002 – 1/3 of economy's workforce
- Largest provider of jobs and earner of foreign exchange, due to: tourism is labour intensive employs many skills can provide immediate employment provides entrepreneurial opportunities
- Indirectly 6.9% of workforce involved with tourism in SA
- Significant part of tourist expenditure goes towards informal sector activities
- Tourism contributes equally to GDP and job-creation – indicates how labour intensive the sector is
- DEAT shows current focus of government on sector's potential to create entrepreneurial and employment opportunities for historically disadvantaged
3. Poverty relief
- Tourism makes a substantial contribution to economic growth and job creation – not sufficient to eradicate poverty – affect lives of the poor in many ways / fast and effective distribution mechanism in development of rural areas
- Sensible policy guidelines can counteract the potentially negative effects of tourism
- Prime tourism attractions located in rural areas
- Promote balanced and sustainable development
- Provides alternative to urbanization, permitting people to continue – enfranchising both women and youth
- Offers diversity of income sources to poor people: allowing them a stake, empowering them, creating partnerships
4. Externalities
- Benefits that arise from economic activities that are not reflected in the actual prices of transactions – referred to as economic side-effects of certain transactions
- Tourism strategy will maximize external benefits and minimize external costs of various externalities
- Such benefits are normally measured in terms of an impact or cost-benefit analysis
- Attracts large amounts of revenue, but cause undue environmental damage
- Rapid growth aimed at short-term benefits
- Global tourism will grow due to increased population and increased living standards
- Potential: attract revenue to country, alleviate poverty, conserve cultural and natural assets – needs conscious planning
- Needs to achieve ethical and sustainable tourism must respect tradition and customs of area, plough back earnings into local community – area must be protected as attractive tourist resort
5. Environmental effects
- People have become more aware of the negative environmental consequences and implications for consumption and waste
- Tourism's relationship with environment is complex – involves many activities that have adverse environmental effects
- Led to emphasis on ecotourism development - involves guidelines for managing social, economic and environmental impact of tourism
- Objective is to achieve an equitable spread of benefits across the entire population
- Local communities engaged in tourism to achieve local empowerment
- Ecotourism development embraces principles of ecological preservation
- Permanent environmental restructuring e.g. highways, airports
6. Infrastructure
- SA has modern, world-class infrastructure, sophisticated transport system lowcost and widely available energy and advanced telecommunication system
- Quality infrastructure will increase volume of tourism – need good travel facilities, well-maintained road network and excellent tourist accommodation, such as hotels and lodges
- Most centres have good transport lines, superior road and highway infrastructure
- Proper infrastructure planning needed to accommodate growth in tourism
- Development of infrastructure is seen as public investment
7. Measuring tourism
- There should be a purpose for the visit and activity
- No remuneration should be earned
- The minimum length of stay is one night
- The maximum length of stay is one year
- The travelling distance should be more than 160 km
8. Foreign exchange generator
- Every time money is spent locally, it helps to ensure the balance of payments equilibrium
SUGGEST WAYS IN WHICH TAX REVENUE CAN BE USED TO PROMOTE TOURISM:
- Special and imaginative tax incentives could be offered to accomplish certain socioeconomic objectives in the South African tourism industry
- Government could target specific objectives for special favourable tax treatment in the form of tax holidays or rebates and tax credit schemes
- E.g. by encouraging ecotourism / encouraging tourism to selected regions / SMME involvement with an emphasis on the informal sector Black Empowerment initiatives
- Special tax policies could also be applied to education and training programmes designed to overcome the human capacity constraint at various levels of the industry
- THETA is responsible for education and training in the tourism industry (Max 10)
CONCLUSION
From the above discussion it is clear that tourism plays a very important role in any economy, but that certain effects of tourist activities can be harmful to the community as such and how the government can play a role through taxation that might lead to growth in the tourism industry
SENIOR CERTIFICATE
ECONOMICS P1 NOVEMBER 2014
MARKS: 150
TIME: 11/2 hours
SECTION A (COMPULSORY)
QUESTION 1 30 MARKS – 15 MINUTES
1.1 Various options are provided as possible answers to the following questions. Choose the answer and write only the letter (A–C) next to the question number (1.1.1–1.1.8) in the ANSWER BOOK, for example 1.1.9 B.
1.1.1 The flow of money from the financial sector into the economy is called a/an …
- A injection.
- B expense.
- C leakage.
1.1.2 The transfer of ownership from the public to the private sector is known as …
- A decentralisation.
- B nationalisation.
- C privatisation.
1.1.3 Government income and expenditure estimates for a three-year period are reflected in the ...
- A provincial budget.
- B main budget.
- C medium-term expenditure framework (MTEF).
1.1.4 A definite course of action which is adopted by a group or organisation in an effort to promote best practice is known as …
- A policy.
- B strategy.
- C initiative.
1.1.5 When the state uses tariffs to discourage imports it is called …
- A export promotion.
- B protectionism.
- C monetary policy.
1.1.6 Geographical areas that have a wider industrial development objective and which can be located anywhere to promote cluster development are called …
- A corridors.
- B Special Economic Zones (SEZs).
- C manufacturing zones.
1.1.7 Aggregate supply can be stimulated through a government policy of …
- A reducing production costs.
- B limiting the efficiency of inputs.
- C lowering the productivity of factors of production.
1.1.8 The institution that monitors empowerment and transformation through a code of good practice is known as the …
- A South African Reserve Bank.
- B Industrial Development Corporation.
- C Department of Trade and Industry. (8 x 2) (16)
- 1.1.1 A injection
- 1.1.2 C privatisation
- 1.1.3 C medium-term expenditure framework (MTEF)
- 1.1.4 A policy
- 1.1.5 B protectionism
- 1.1.6 B Special Economic Zones (SEZs)
- 1.1.7 A reducing production costs
- 1.1.8 C Department of Trade and Industry
COLUMN A | COLUMN B |
---|---|
1.2.1 Real flows 1.2.2 Recession 1.2.3 Public goods 1.2.4 Terms of trade 1.2.5 World Bank 1.2.6 Integrated manufacturing strategy 1.2.7 Development Bank of Southern Africa 1.2.8 Consumer priceindex |
A provided by the state and used by all members of society B measures changes in prices of goods and services C it strengthens institutional capacity and facilitates development D the flow of goods and services E promotes development in the Southern African region F the international institution that promotes economic recovery and development G a negative economic growth for at least two consecutive quarters H the flow of income and expenditure I the ratio between export prices and import prices |
- 1.2.1 D the flow of goods and services
- 1.2.2 G a negative economic growth for at least two consecutive quarters
- 1.2.3 A provided by the state for use by all the members of a society
- 1.2.4 I the ratio between export prices and import prices.
- 1.2.5 F the international institution which promotes economic recovery and development
- 1.2.6 C it strengthens institutional capacity and facilitate development
- 1.2.7 E promotes development in the Southern African region
- 1.2.8 B measures changes in prices of goods and services (8 x 1) (8)
1.3 Give ONE term for each of the following descriptions. Write only the term next to the question number (1.3.1–1.3.6) in the ANSWER BOOK.
- 1.3.1 An economy that includes the foreign sector
- 1.3.2 The short-term and very short-term market for savings and loans
- 1.3.3 A curve that shows the relationship between tax rates and taxable income
- 1.3.4 The worldwide interaction of economies, with trade as a key element
- 1.3.5 The rate at which banks borrow money from the Reserve Bank
- 1.3.6 The removal of unnecessary regulations that inhibit the free operation of markets (6 x 1) (6)
- 1.3.1 Open economy / four sector economy
- 1.3.2 Money market
- 1.3.3 Laffer curve
- 1.3.4 Globalisation / free trade / international trade / foreign trade
- 1.3.5 Repo rate / repurchase rate
- 1.3.6 Deregulation (6 x 1) (6)
SECTION B
Answer TWO of the three questions in this section in the ANSWER BOOK.
QUESTION 2: MACROECONOMICS 40 MARKS – 20 MINUTES
2.1 Answer the following questions.
- 2.1.1 State TWO methods that are used to calculate national income aggregates. (2 x 1) (2)
- 2.1.2 How will the contraction phase of a business cycle influence the economy through interest rates? (1 x 2) (2
2.1.1 List TWO methods used to calculate national income aggregates.
- Production method / Value Added / GDP (P)
- Income method / GDP (I)
- Expenditure method / GDP (E) (Any 2 x 1) (2)
2.1.2 How will the contraction phase of a business cycle influence the economy through interest rates?
- In the latter stage of a downswing interest rates will decrease more people will borrow money to stimulate the economy In the early stage of a downswing interest rates will increase to dampen the economy - people will borrow less money
ECONOMIC INDICATORSh4>
Economic indicators are statistics used to measure some aspect of the economy which helps to forecast business cycles, for example unemployment rates, retail sales and job advertising space. Besides economic indicators the length and amplitude of a business cycle are other factors that underpin the forecasting of business cycles. The Reserve Bank also compiles composite indicators to reflect the performance of the economy.
[Adapted from the Internet 2013]
- 2.2.1 Identify a leading economic indicator from the above data. (2)
- 2.2.2 Define the term composite indicator. (2)
- 2.2.3 What does the amplitude of a business cycle demonstrate? (2)
- 2.2.4 Explain the length of a business cycle as a feature that underpins forecasting. (4)
2.2.1 Identify a leading economic indicator from the above data.
- Job advertising space (1 x 2) (2)
2.2.2 Define the term composite indicator.
- It is a summary of various indicators of the same type into one single index.
- The three composite indicators are often used to calculate a single composite indicator to benchmark a country’s economic performance
- A composite indicator measures multi-dimensional concepts e.g. competitiveness, e-trade or environmental quality, which cannot be captured by a single indicator
- Ideally a composite indicator should be based on theoretical framework which allows individual indicators to be selected, combined and weighted in a manner which reflects the dimensions or structure of the economy being measured
2.2.3 What does the amplitude of a business cycle demonstrate?
- It demonstrates the power of underlying forces.
- It demonstrates the extent of change.
- A large amplitude shows the strength (severity) of underlying forces
- The larger the amplitude the more extreme the changes that might occur
- It shows how deep and how high the recession goes
- The amplitude demonstrates the distance of the peaks and troughs measured from the trend line
- It indicates the effect of economic activity
Accept a graphical demonstration (maximum 2 marks)
2.2.4 Explain the length of a business cycle as a feature that underpins forecasting.
- Is measured from peak to peak or from trough to trough / It's the time used to move through a complete cycle
- If the length is 10 years it can be predicted that it will take 10 years for the economy to move through another complete cycle
- Cycles may overshoot
- Longer cycles are stronger / Shorter cycles are weak
- The strength of the underpinning forces
2.3 Study the table below and answer the questions that follow.
- 2.3.1 Which item captures a South African business that purchases property in the United States of America? (1)
- 2.3.2 Define the term balance of payments. (2)
- 2.3.3 What is the purpose of the item 'Unrecorded transactions'? (2)
- 2.3.4 If the balance on the current account was –R164 548, calculate the value for 'Changes in Net Gold and other Foreign Reserves'. Show ALL calculations. (5)
- 2.4 Compare a free floating exchange rate system with a managed floating exchange rate system. (2 x 4) (8)
- 2.5 Discuss the multiplier and its effect on the national income if the marginal propensity to consume (mpc) is 0,6 and investment increases by R10 bn.
2.3.1 Which item captures a South African business that purchases property in the United States of America?
- (Net) direct investment (1)
2.3.2 Define the term balance of payments.
- A systematic record of all transactions between one country and other countries (and the rest of the world) for a specific period e.g. one year
2.3.3 What is the purpose of the item unrecorded transactions?
- To capture the effects of errors / omissions / and timing differences Incorrect explanation (to balance the BOP) should NOT be taken as correct
2.3.4 If the balance on the current account was –R164 548, calculate the value for Changes in Net Gold and other Foreign Reserves. Show all
- calculations.2.3.4 If the balance on the current account was –R164 548, calculate the value for Changes in Net Gold and other Foreign Reserves. Show all calculations.
2.4 Compare a free floating exchange rate system with a managed floating exchange rate system.
- Free floating exchange rate system:
- − Free floating can be defined as exchange rates which are determined by the market forces of demand and supply
- − They work automatically If imports increase, the demand for foreign exchange increases. The currency depreciates as the result of the working of market forces
- − Depreciation makes a country's imports more expensive and exports cheaper
- − Imports decrease and exports increase, and the currency appreciates as the result of the working of market forces / exchange rate fluctuates as the market conditions change
- − South Africa has a free floating exchange rate system
- − Disequilibria are automatically corrected (2 x 2) (4)
- Managed floating exchange rate system:
- − A system where central banks intervene in the exchange rate markets stabilising the currency
- − Central banks use their reserves to influence the exchange rates
- − E.g. When the value of the currency declines/depreciate the central bank will sell currency in the market to increase the demand and price/exchange rate
- − Over the long term currencies have to find their equilibrium levels
2.5 Discuss the multiplier and its aggregate effect on the economy, if the marginal propensity to consume (mpc) is 0,6 and investment increases by R10bn.
- Def: A relative small investment produces a proportionately larger increase in national income
- Therefore an investment of R10bn will produce a R25bn increase in national income
- If the candidate shows a graphical representation of the effect, the graph should indicate the change in investment of R10 bn. and the change in national income of R25 bn.
- Accept if a candidate explains the effect based on one person’s spending becomes another person’s income (4 x 2)
QUESTION 3: ECONOMIC PURSUITS 40 MARKS – 20 MINUTES
3.1 Answer the following questions.
- 3.1.1 Name any TWO monetary policy instruments used by the Reserve Bank. (2 x 1) (2)
- 3.1.2 Why are economic indicators important to the government? (1 x 2) (2)
3.1.1 List any TWO monetary policy instruments used by the Reserve Bank.
- Interest rates / repo rate
- Open market transactions
- Moral suasion / persuasion
- Cash reserve requirements
- Exchange rate policy (Any 2 x 1) (2)
3.1.2 Why are economic indicators important to government?
- Government use it for budgetary (and planning) purposes
- Economic indicators are used in strategic policy planning and development
- They are used to assess current economic conditions
3.2 Study the extract below and answer the questions that follow.
BUY BACK SOUTH AFRICA
This campaign is an initiative of the Department of Trade and Industry (DTI), Manufacturing Circle and Proudly South African. It is directed towards the purchase of South African-manufactured products. It forms part of the government strategy of growing the economy. It is important to strengthen and diversify the country's industrial base to develop export markets.
However, the European Union has banned the import of contaminated citrus fruit from South Africa.
[Adapted from Business Report, November 2013]
- 3.2.1 Which government department initiated the Buy Back SA Campaign? (1)
- 3.2.2 What does the government intend to achieve through this campaign? (1)
- 3.2.3 How can the government benefit from diversifying the country's industrial base? (2 x 2) (4)
- 3.2.4 What negative effect might the banning of citrus imports by the European Union have on local citrus producers? (2 x 2) (4)
3.2.1 Which government department initiated the Buy Back SA campaign?
- Department of Trade and Industry (DTI) (1)
3.2.2 What does the government intend to achieve through this campaign?
- Strengthening and diversifying the countries industrial base
- Raising competitive value-added exports to the rest of the continent
- Growing the economy
- Developing of the traditional export market
- Promote the purchase of South African manufactured products (1)
3.2.3 How can the government benefit from diversifying the country's industrial base?
- Producing a greater variety of goods and services will increase government revenue
- Improve infrastructure delivery
- The government will be able to meet its objectives of growth employment and price stability
3.2.4 What negative effect might the banning of citrus imports by the European Union have on the local citrus producers?
- Loss in production
- Lay-off employees / unemployment
- Decrease in income / sales decrease
- Down scaling of business
- Increase in poverty
3.3 Study the cartoon and extract below and answer the questions that follow.
- 3.3.1 What is the aim of black economic empowerment? (2)
- 3.3.2 What challenges does the BEE policy currently face? (2 x 1) (2)
- 3.3.3 Explain the message depicted in the cartoon. (2)
- 3.3.4 In your opinion, why do we still experience a serious shortage of black industrialists in the country? (2 x 2)
- 3.4 Briefly discuss the aims of regional development. (4 x 2) (8)
- 3.5 Analyse population growth and life expectancy as social indicators relating to demographics.
3.3.1 What is the aim of Black Economic Empowerment?
- Redress the inequalities of the past
- Empower the black people
3.3.2 What challenges does the BEE policy currently face?
- Verifying the BEE levels of companies
- Fronting / corruption / nepotism
- Still a shortage of black industrialists
3.3.3 Explain the message depicted in the cartoon.
- Some individuals misused the benefits of BEE for their own greed
- Before democracy Chinese were classified as ‘Asians; after democracy Chinese were classified as ‘Blacks'
3.3.4 In your opinion why do we still experience a serious shortage of black industrialists in South Africa?
- Lack of capital
- Lack of training and grooming of more black industrialists
- Access to capital
- Lack of exposure and awareness to opportunities
3.4 Briefly discuss the aims of regional development?
- It refers to policies which are aimed at increasing the economic livelihood of specific areas or regions
- To limit the effects of economic centralisation, reduce the unequal development of economic activities
- To promote the advantage of more regional development by using labour, other natural recourses and infrastructure in neglected areas
- Stimulate development in poor rural areas to prevent new imbalances from emerging
- To implement and coordinate the implementation of national and regional industrial policies
3.5 Analyse population growth and life expectancy as social indicators under demographics.
Population growth:
- This is determined by the birth rate, deaths and migration of people
- South Africa's population numbered 50.5 million in 2011
- It is estimated that it will grow to 55 million by 2021
- The growth rate slowed to only 1.19% in 2011 (from 2.3% in the 1990) (2 x 2) (4)
Life expectancy:
- This expresses the number of years a new born infant will live if the prevailing patterns of mortality remain the same throughout this person's life
- In South Africa, life expectancy went down from 62 years in 1991 to 47 years in 2005
- Since then it has increased again to 52 years in 2011 (2 x 2) (4)
QUESTION 4: MACROECONOMICS AND ECONOMIC PURSUITS 40 MARKS – 20 MINUTES
4.1 Answer the following questions.
- 4.1.1 Give TWO supply reasons for international trade. (2 x 1) (2)
- 4.1.2 What is the main purpose of the expanded public works
4.1.1 List TWO supply reasons for international trade.
'- Natural resources
- Climatic conditions
- Labour resources
- Technological resources
- Specialisation
- Capital
4.1.2 What is the main purpose of the Expanded Public Works Programme (EPWP)?
- Create employment using labour intensive methods / Give people skills that they can use to find jobs (1 x 2) (2)
4.2 Study the cartoon below and answer the questions that follow.
- 4.2.1 Define the term trade protocol. (2)
- 4.2.2 Explain the message depicted in the cartoon. (2)
- 4.2.3 Why is South Africa regarded as the gateway to Africa? (2)
- 4.2.4 How will South Africa benefit from its BRICS membership? (4)
4.2.1 Define the term trade protocol.
- An agreement (trade rules or guidelines) between countries on how to trade with each other (2)
.2.2 Explain the message depicted by the cartoon.
- The other members of BRICS are using SA to exploit the resources of Africa
4.2.3 Why is South Africa regarded as the gateway to Africa?
- South Africa's developed infrastructure
- South Africa's political stability
- Financially and economically stable
- The largest / second-largest economy in Sub-Saharan Africa
- Investment in South Africa will give countries access to markets in Africa
4.2.4 How will South Africa benefit from its BRICS membership?
- to advance its national interests
- to promote its regional integration programme and related continental infrastructure programmes
- to partner with key players of the South on issues related to global governance and reform.
- South Africa's membership of this body has expanded BRICS' geographic and intercontinental reach
4.3 Study the table below and answer the questions that follow.
- 4.3.1 Name the missing item labelled (A). (2)
- 4.3.2 Define the term gross domestic product (GDP). (2)
- 4.3.3 Explain the item 'Consumption of fixed capital'. (2)
- 4.3.4 Calculate the 'Gross Domestic Product @ Market Prices' labelled (B). Show ALL calculations. (4)
- 4.4 Discuss the economic indicators relating to productivity. (2 x 4) (8)
- 4.5 Argue how free trade rather than protectionism will favour countries. (2 x 4) (8)
4.3.1 Name the missing item labelled (A).
- Gross Value Added / GDP at basic prices (1 x 2) (2)
4.3.2 Define the term Gross Domestic Product (GDP)
- The total value of all final goods and services produced within the boundaries of the country for a specific period, e.g. a year (2)
4.3.3 Explain the item Consumption of fixed capital
- Cost of using capital e.g. machinery/equipment used in production / Depreciation on the use of fixed assets / Diminishing value of an asset
4.3.4 Calculate Gross Domestic Product @ Market Prices labelled (B). Show ALL calculations.
4.4 Discuss the economic indicators relating to productivity
- Labour productivity
- - To measure labour productivity real GDP should be divided by the number of workers employed for a number of years to construct an index number for each year
- - Changes in the index indicate changes in labour productivity
- - Productivity is the ratio between output and input of resources in the economy (2 x 2) (4)
- Capital productivity
- - Refers to a change in output in relation to an increase in capital investment (2 x 2) (4)
- Multi-factor productivity
- Remuneration per worker
- - If labour productivity increases by less than wages, inflationary pressure will occur and the business cycle may turn unfavourable, e.g. unemployment may increase
- - The relationship between productivity and wages is crucial for employers and workers, and they are therefore important indicators
- - For workers it relates to improvement in their standard of living for those who are able to remain employed
4.5 Argue how free trade rather than protectionism will favour countries.
- Under free trade economies of scale will exist due to increased trade and lower unit cost whereas in protectionism decreased trade and higher unit cost might lead to diseconomies of scale
- Under free trade countries will benefit from comparative advantage through specialization while protectionism will reduce the ability of other countries to enter the local markets
- Free trade promotes innovation through competition Protectionism limits competition and thus reduces innovation
- Free trade helps to satisfy a greater variety of wants by increasing the choice of consumers while protectionism limits the choices of consumers, thereby reducing welfare Accept if in tabular form.
SECTION C
Answer only ONE of the two questions in this section in the ANSWER BOOK.
QUESTION 5: MACROECONOMICS 40 MARKS – 35 MINUTES
Government is constantly trying to achieve specific objectives to improve the standard of living of the nation.
- Discuss the macroeconomic objectives of the state in South Africa's economy.
- In your opinion, to what extent has the South African government achieved these objectives?
INTRODUCTION:
The government provides goods and services that are under supplied by the market and therefore plays a major role in regulating economic activity and guiding and shaping the economy (Max. 2)
BODY: MAIN PART
Objectives:
- Economic growth
- − Refer to an increase in the production of goods and services
- − Measured in terms of Real GDP
- − For economic growth to occur, the economic growth rate must be higher than population growth
- − Growth and development in a country benefit its citizens because it often leads to a higher standard of living
- − Formula used:
- Real GDP = Real GDP current year – Real GDP previous year / Real GDP previous year x 100
- Full employment
- − It is when all the people who want to work, who are looking for a job must be able to get a job
- − High levels of employment is the most important economic objective of the government
- − The unemployment rate increased over the past few years
- − Disabled persons have disadvantaged status in South Africa
- − Informal sector activities must be promoted because it is an area where employment increase
- Exchange rate stability
- − The economy must be managed effectively and effective fiscal and monetary policy must be used to keep the exchange rate relatively stable
- − Depreciation and appreciation of the currency create uncertainties for producers and traders and should be limited
- − The SARB changed the exchange rate system from a managed floating to a free floating exchange rate system
- Price stability
- − Stable prices cause better results in terms of job creation and economic growth
- − The SARB inflation target is 3 - 6%
- − Interest rates, based on the repo rate are the main instruments used in the stabilisation policy
- − The stable budget deficit also has a stabilizing effect on the inflation rate
- Economic equity / Economic fairness
- − Redistribution of income and wealth is essential
- − South Africa uses a progressive income tax system – taxation on profits, taxation on wealth, capital gains tax and taxation on spending, are used to finance free services
- − Free social services are basic education; primary health and to finance basic economic services
- − E.g. cash grants to the poor, e.g. child grants and cash grants to vulnerable people, e.g. disability grants
- − Progressive taxation means that the higher income earners pay higher/more taxation
- Balance of Payments equilibrium:
- − The surplus or deficit on the trade balance should be minimised by limiting imports and promoting exports
- − It can be done by a foreign trade policy which focuses on export promotion, import substitution and protection
- − Domestic industries, with special focus on the secondary sector, must also be developed (Max. 26)
- Learner responses can be positive or negative
- Follow the argument and see if the learner can produce enough evidence to support his/her answer
Economic Growth:
- − SA targets 4 – 5% economic growth. Previously SA had a 5% growth rate
- − In recent years the growth rate decreased steadily
- − Presently the economic growth rate is 1.4%
Full Employment:
CONCLUSION:
While some successes have been achieved by government, the fulfilling of some of the objectives are compromised by factors like a lack of accountability, corruption, budgeting, nepotism and incompetence.
QUESTION 6: ECONOMIC PURSUITS 40 MARKS – 35 MINUTES
Since 1994 the South African government has developed different strategies to transform the economy.
- Discuss the following South African growth and development strategies in detail:
- → National Skills Development Strategy (NSDS)
- → The New Growth Path (NGP)
- → National Development Plan (NDP)
- Evaluate the strategies used in South Africa.
INTRODUCTION
Almost 30% of the South African population is absolutely poor, therefore poverty is a serious policy matter for the government
BODY: MAIN PART
NATIONAL SKILLS DEVELOMENT STRATEGY (NSDS)
- − This policy provides the framework for skills development in the workplace.
- − JIPSA is a short- to medium term mechanism to fast track the objectives of the NSDS
- − and to prioritise the acquisition of skills necessary for accelerated and shared growth
Three processes for implementation:
- − It focuses on productive citizens
- − Focuses on equity quality training and skills development in workplace
- − Focuses on institutional learning
THE NEW GROWTH PATH
- − It aims to enhance growth create employment and greater equity
- − It was announced in October 2010 and the main focus was to create 5 million jobs over the next 10 years
Key areas where jobs can be created:
- − Infrastructure expansion with investments in five key physical and social infrastructure areas namely energy, transport, communication, water and housing
- − The agricultural value chain by addressing the high costs of fertilisers and other inputs and by promoting processing and export marketing
- − The mining value chain by increasing mineral extraction improving infrastructure and skills development and supporting the beneficiation on the final manufacture of consumers and capital goods whereby minerals are processed into higher value products locally rather than exporting raw minerals to be processed abroad, thus creating employment and generating wealth
- − The green economy by expanding construction and production of technologies for solar energy, wind energy and biofuels
- − Manufacturing sectors through innovation strong skills development reduced input costs and increased research and development investment
- − Tourism and certain high level services
NATIONAL DEVELOPMENT PLAN (NDP)
Aims to eliminate poverty and reduce inequality by 2030 Goals are:
- − To reduce poverty
- − Economic growth/grow an inclusive economy – build capabilities
- − Economic transformation/enhancing the capability of the state and leaders working together to solve complex problems
- − Job creation/reduce unemployment to 14 % by 2020 and 6% by 2030 The process in the implementation of the plan includes the following:
- − The NDP and its proposal will need to be implemented in the right order over the next 17 years, it will shape the budget allocation during the period.
- − Government has already started a process to align the long term plans of the departments with the NDP and to identify areas where policy change is required for smooth implementation.
- − Government will also engage with all sectors to understand how they are contributing to the implementation process.
- − The President and the Deputy President will be the lead champions of the plan with the cabinet, in government and throughout the country, Premiers and Mayors will be active champions of the plan with their offices driving implementation at provincial and municipal levels.
- − The plan identifies the task of improving the quality of public services as critical to achieving transformation.
- − Planning and implementation should be informed by evidence-based monitoring and evaluation.
Critical actions:
- - A social compact to reduce poverty and inequality and raise employment and investment
- - A strategy to address poverty and its impacts by broadening access to employment, strengthening the social wage, improving public transport and raising rural incomes
- - Steps by the state to professionalise the public service, strengthen accountability, improve coordination and prosecute corruption
- - Boost private investment in labour-intensive areas, competitiveness and exports with adjustments to lower the risk of hiring younger workers
- - An education accountability chain with lines of responsibility from state to classroom
- - Phase in national health insurance, with a focus on upgrading public health facilities, producing more health professionals and reducing the relative cost of
private health care
- - Public infrastructure investment at 10% of GDP financed through tariffs, publicprivate partnerships, taxes and loans and focused on transport, energy and water
- - Interventions to ensure environmental sustainability and resilience to future shocks
- - New spatial norms and standards – densifying cities, improving transport, locating jobs where people live, upgrading informal settlements and fixing housing market gaps
- - Reduce crime by strengthening criminal justice and improving community environments (Max.26)
ADDITIONAL PART
Positive outcomes of strategies:
- − South Africa's public finances were stabilised, with public debt to GDP ratio brought down to 32%. World Bank recommends a ratio of 60%
- − The inflation rate was brought down to a stable average of between 3–6%
- − The country's international reserves increased, supporting a stable exchange rate
- − South Africa has a floating foreign exchange system with little government intervention and meets the international benchmark in this regard
- − Infrastructure development driven by the public sector has produced meaningful growth in gross fixed capital formation
- − South Africa ranks 74th in the 2011 Index of Economic Freedom with a score of 62.7 in terms of economic freedom
Negative outcomes of strategies:
- − Economic growth of South Africa has slowed down dramatically (below 2% currently)
- − The skills development system as a whole has not yet achieved its aims and the economy remains constrained by this lack of skills
- − Many jobs were lost in manufacturing and agricultural sectors – unemployment has continued to rise between 23% to 27%
- − South Africa struggles to attract foreign direct investments due to wage levels relative to worker productivity are significantly higher than those of other countries
OR CAN BE PRESENTED IN THE FOLLOWING WAY:
Since 1994, several plans aimed at encouraging growth and development in South Africa have been implemented. These include the:
GEAR: 1996 – 2001 designed to:
- - It was built on the strategic vision set out in the RDP
- - It was also committed government to specific macro objectives/targets
- - Continue service delivery to the poor, and to increase spending on this
- - Improve infrastructure to improve service delivery
- - Stabilise inflation through monetary policy
- - Reduce national budget deficit through a more effective fiscal policy
ASGISA: launched in 2006
- - it is committed to halve unemployment and poverty by 2014
- - improve economic development
- - overcome constraints to economic growth
JIPSA:
- - it is the skills empowerment arm of AsgiSA
- - the initiative was launched in 2006 to address the country’s chronic problem
areas: unemployment and the skills shortage
EPWP:
- - it is a nationwide government intervention to create employment using labourintensive methods, and to give people the skills they can use to find jobs when their work in the EPWP is done Accept any other relevant fact
CONCLUSION
It is debatable whether the new strategies implemented will be successful in addressing the various economic objectives because past policies have failed to meet their targets, e.g. Asgisa (Max. 2)
SENIOR CERTIFICATE
ECONOMICS P2 FEBRUARY/MARCH 2017
MARKS: 150
TIME: 2 hours
QUESTION 1 30 MARKS – 20 MINUTES
1.1 Various options are provided as possible answers to the following questions. Write down the question number (1.1.1–1.1.8), choose the answer and make a cross (X) over the letter (A–C) of your choice in the ANSWER BOOK.
1.1.1 In the long run, an individual business in perfect competition will be in equilibrium when marginal …
- A revenue equals total cost.
- B cost equals average variable cost.
- C cost equals marginal revenue.
1.1.2 An imperfect market where information is complete:
- A Monopoly
- B Monopolistic competition
- O ligopoly
1.1.3 The demand curve of a monopolistic competitor is …
- positively sloped.
- negatively sloped.
- horizontal.
1.1.4 An example of a fixed-cost item:
- A Electricity
- B Rent
- C Telephone
1.1.5 Headline inflation is used by the SARB to decide on the level of …
- A employment.
- B the interest rate.
- C production.
1.1.6 Foreigners travelling to South Africa are regarded as … tourists.
- A domestic
- B outbound
- C inbound
1.1.7 Attending a sports event is an example of … tourism.
- A cultural
- B eco
- B business
1.1.8 Core inflation excludes items with … prices.
- A high
- B stable
- C volatile
- 1.1.1 C – cost equals marginal revenue
- 1.1.2 A – monopoly
- 1.1.3 B – negatively sloped
- 1.1.4 B – rent
- 1.1.5 B – interest rate
- 1.1.6 C – inbound
- 1.1.7 A – cultural
- 1.1.8 C – volatile
1.2 Choose a description from COLUMN B that matches the item in COLUMN A. Write only the letter (A–I) next to the question number (1.2.1–1.2.8) in the ANSWER BOOK, for example 1.2.9 J.
COLUMN A | COLUMN B |
---|---|
|
A the minimum earnings required to prevent an entrepreneur from leaving the business B government sets regulations which enforce environmental standards C the additional cost when producing an extra unit D dumping waste on the earth's surface E an arrangement between businesses with the aim of limiting competition amongst them F economic profit G intervention by government to recover external cost H shows the relative importance of an item in a basket of goods and services that are used to calculate inflation I an increase in the general price level in a particular year |
1.2.1 C the additional cost when producing an extra unit
1.2.2 E an arrangement between businesses with the aim of limiting competition amongst them
1.2.3 G intervention by government to recover external cost
1.2.4 A the minimum earnings required to prevent an entrepreneur from leaving the business
1.2.5 I an increase in the general price level in a particular year
1.2.6 B government sets regulations which enforce environmental standards
1.2.7 H shows the relative importance of an item in a basket of goods and services that are used to calculate inflation
1.2.8 D dumping waste on the earth's surface
1.3 Give ONE term for each of the following descriptions. Write only the term next to the question number (1.3.1–1.3.6) in the ANSWER BOOK.
- 1.3.1 A market structure where only two businesses dominate the market
- 1.3.2 Products that are identical and standardised
- 1.3.3 A monopoly that exists because of high development costs
- 1.3.4 An inflation rate of more than 50%
- 1.3.5 The process of managing the environment in such a way that it remains intact
- 1.3.6 The provision of goods and services such as roads, telephone lines, radio and television services
- 1.3.1 Duopoly
- 1.3.2 Homogeneous
- 1.3.3 Natural
- 1.3.4 Hyperinflation
- 1.3.5 Preservation
- 1.3.6 Infrastructure / public goods
SECTION B Answer any TWO of the three questions in this section in the ANSWER BOOK.
QUESTION 2: MICROECONOMICS 40 MARKS – 30 MINUTES
2.1 Answer the following questions.
- 2.1.1 Name TWO kinds of inefficiencies that can exist in the imperfect market. (2 x 1) (2)
- 2.1.2 What would happen if firms in an oligopolistic market compete on prices? (1 x 2) (2)
2.1.1 Name TWO kinds of inefficiencies that can exist in the imperfect market.
- Productive/technical inefficiencies
- Allocative inefficiencies (2 x 1) (2)
2.1.2 What would happen if firms in an oligopolistic market compete on prices?
It can lead to a price war which will lower profits which might lead to
certain firms leaving the market in the long run
(Accept any other correct relevant response)
2.2 Study the graph below and answer the questions that follow.
2.2.1 What is the selling price for the monopolist? (1)
2.2.2 Does the equilibrium position above represent a short run or a long run? (1)
2.2.3Why will a monopolist always make economic profit in the long run?(2)
2.2.4What is the requirement for this monopoly to be classified as an artificial monopoly?(2)
2.2.5 Calculate the total profit that this monopolist is making. Show ALL calculations. (4)
2.2.1 What is the selling price for the monopolist?
Selling price is R60 (1)
2.2.2 Does the equilibrium position above represent a short run or a long run?
Short run (1)
2.2.3 Why will a monopolist always make economic profit in the long run?
- It is possible to manipulate prices to ensure a profit because there is no competitors
- There is a deliberate decline in produce – less than the market demand, therefore higher prices are charged
- Sell a unique product without any competition
(Accept any other correct relevant response) (2
2.2.4 What is the requirement for this monopoly be classified as an artificial monopoly?
If entry is restricted by factors such as legal requirement e.g.
licencing, patents and copyrights
(Accept any other correct relevant answer)
2.2.5 Calculate the total profit this monopolist is making. Show all calculations.
- Total Profit = Total revenue – Total Cost
- = (60 x 50) – (30 x 50)
- = 3 000 – 1 500
- = 1 500
OR
- Total Profit = Unit profit x quantity
= (60-30) x 50
= R1 500
Max 2 marks if only the correct answer is given. If the formula is given, a mark can be awarded if the calculations are incorrect. (4)
2.3 Study the cartoon below and answer the questions that follow.
2.3.1 Which cause of market failure is illustrated above? (2)
2.3.2 Briefly describe the term market failure. (2)
2.3.3 How can labour as a factor of production become more mobile? (2)
2.3.4 How does the South African government attempt to solve the problem of income inequality? (2 x 2) (4)
2.4 Compare monopolistic competition with perfect competition. (4 x 2) (8)
2.5 Explain why governments sometimes proceed with a project even if the private costs exceed the private benefits in a cost-benefit analysis. (8)
2.3.1 Which cause for market failure is illustrated above?
Incomplete information/lack of information (2)
2.3.2 Briefly describe the concept market failure.
The best available (optimal) production outcome has not been achieved / misallocation of resources
(Accept any other correct relevant response) (2)
2.3.3 How can labour as a factor of production become more mobile?
Training/attaining skills/increased wages/travelling facilities or infrastructure/technology
(Accept any other correct relevant response) (2)
2.3.4 How does the South African government attempt to solve the problem of income inequality?
The government can attempt to solve the problem of income inequality by:
- implementing a progressive tax system which has reduced the income gap between income earners
- levying indirect taxes on consumption (e.g. VAT), while certain basic items that the poor often consumes, were excluded
- providing free primary health care in provincial hospitals and clinics
- making provision for those who cannot afford to pay by offering a free basic education
- making transfer payments and subsidies payable to the poor and previously disadvantaged
- implementing minimum wages
- implement job creation programmes
- implementing BBBEE and labour laws
(Accept any other correct relevant response) (Any 2 x 2) (4)
2.4 Compare monopolistic competition with perfect competition.
- Under monopolistic competition less will be produced at a higher price than the perfect competitor
- The perfect competitor produces at the minimum point on the LAC curve, whereas this is not the case under monopolistic competition
- Both the perfect competitor and monopolistic competitor will make a normal profit in the long run
- It is easier for the perfect competitor to enter the market, compared to the monopolistic competition
(Accept any other correct relevant answer)
(Accept tabular format)
(Accept comparison in terms of other characteristics) (4 x 2)
(Allocate a maximum of 4 marks for mere listing of facts / examples) (8)
2.5 Explain why governments sometimes proceed with a project even if the private costs exceed the private benefits in a Cost-Benefit Analysis?
Governments might proceed with a project when:
- the primary objective is to provide public goods and services.
- social costs and social benefits are also taken into account when deciding on a project.
- a service is vital to the existence of the community.
- when a need for infrastructure is necessary but might not have any benefits in terms of profit, e.g. the building of a community centre or a bridge
- funding of these projects are mainly financed through tax revenue and does not impoverish any individual as such.
- this infrastructure adds to the welfare of the community at large and is
non-excludable to anyone using it.
(Allocate a maximum of 2 marks for mere listing of facts / examples) (8)
QUESTION 3: CONTEMPORARY ECONOMIC ISSUES 40 MARKS – 30 MINUTES
3.1 Answer the following questions.
3.1.1 Name TWO causes of cost-push inflation. (2 x 1) (2)
3.1.2 What effect will green tax have on the production output of a business that generates a negative externality? (1 x 2) (2)
3.1.1 Name TWO causes of cost push inflation.
- Higher Wages
- Increase in input costs
- Increase in price of imports
- Exchange rate depreciation
- High profit margins
- Low productivity
- Limited natural resources
- Increase in interest rates
- Supply shock
- Natural disasters (Any 2 x 1) (2)
3.1.2 What effect will green tax have on the production output of a business that generates a negative externality?
The levying of taxes will reduce the output of those products
(Accept any other correct relevant response) (1 x 2) (2)
3.2 Study the table below and answer the questions that follow.
3.2.1 Identify TWO markets in the table that contributed the most to tourism in South Africa during 2015. (2 x 1) (2)
3.2.2 Suggest possible reasons that have led to a general decline in international tourism in 2015. (2 x 2) (4)
3.2.3 Calculate the percentage decline in total tourist arrivals in South Africa between 2014 and 2015. Show ALL calculations. (4)
3.2.1 Identify TWO markets in the table that contributed the most to tourism in South Africa during 2015?
- Africa land
- Europe (2 x 1) (2)
3.2.2 Suggest possible reasons that have led to a general decline in international tourism in 2015?
- Dampening of the world economy (Recession)
- Legislation governing international traveling e.g. VISA regulation
- Increase in crime in some areas (Safety issues)
- Poor electricity supply / poor infrastructure
(Accept any other correct relevant response) (Any 2 x 2) (4)
3.2.3 Calculate the percentage decline in total tourist arrivals in South Africa between 2014 and 2015. Show all calculation
143 172/2 435 341 x 100 = = 5,8 / 5.9 / 6 %
3.3 Study the information below and answer the questions that follow.
3.3.1 What is the effect of the emission of greenhouse gases on the environment? (2)
3.3.2 What is the message conveyed by the cartoon? (2)
3.3.3 Name the international agreement that was formed to deal with global warming and climate change. (2)
3.3.4 How can the world stop the global warming trend? (2 x 2) (4)
3.4 Differentiate between producer price index and consumer price index. (2 x 4) (8)
3.5 Why is South Africa regarded as a major air polluter in the world? (8)
3.3.1 What is the effect of the emission of greenhouse gases on the environment?
It can lead to increased temperatures/global warming/climate
change
(Accept any other correct relevant response) (2)
3.3.2 What is the message conveyed by the cartoon?
Despite numerous summits on environmental issues, climate
change is still a problem
(Accept any other correct relevant response) (2)
3.3.3 Name the international agreement that was formed to deal with global warming and climate change.
Kyoto Protocol (2)
3.3.4 How can the world stop the global warming trend?
- Reduce the emission of greenhouse gases into the atmosphere by using environmentally friendly technology such as solar energy
- Planting of trees that produces oxygen which is important for
cleaner air
(Accept any other correct relevant response) (2 x 2) (4)
3.4 Differentiate between Production Price Index and Consumer Price Index
Production price index
- Measures the cost of production
- Basket consist of goods only
- Include capital and intermediate goods
- Prices exclude VAT
- It excludes interest rates
- Prices of imported goods are shown explicitly
Consumer Price Index
- Measures cost of living
- Basket consists of consumer goods and services
- Capital and intermediate goods are excluded
- Prices include VAT
- Interest rates are included
- Prices of imported goods are not shown explicitly
(Allocate a maximum of 4 marks for mere listing of facts / examples)
3.5 Why is South Africa regarded as a major air polluter in the world?
- Industries such as SASOL and ESKOM (Medupi) burn a larger quantity of coal and this produces CO2 into the atmosphere / The country has the world's largest single CO2 emitter which is at SASOL in Secunda
- Mining activities such as extraction and refining creates a large amount of air pollution
- South Africa is the biggest CO2 polluter in Africa (40%) and rated the world's 13th largest producer of greenhouse gases. Top 6 in the developing world for Greenhouse gasses
- The use of non-environmentally friendly energy sources
(Accept reference to the candidate’s local environment)
(Accept any other correct relevant response)
(Allocate a maximum of 2 marks for mere listing of facts / examples) (8)
QUESTION 4: MICROECONOMICS AND CONTEMPORARY ECONOMIC ISSUES 40 MARKS – 30 MINUTES
4.1 Answer the following questions.
4.1.1 Name TWO methods of non-price competition. (2 x 1) (2)
4.1.2 How can a decline in savings influence the economy negatively? (1 x 2) (2)
4.1.1 Name TWO methods of non-price competition.
- Advertising
- Loyalty points
- After sales services
- Packaging
- Branding
- Door-to-door sales
(Accept any other correct relevant response) (2 x 1) (2)
4.1.2 How can a decline in savings influence the economy negatively?
When people save less, they often spend more which can lead to higher prices.
(Accept any other correct relevant response) (1 x 2) (2)
4.2 Study the information below and answer the questions that follow.
4.2.1 Identify any TWO sectors in South Africa where minimum wages are applied in the extract above. (2 x 1) (2)
4.2.2 Briefly describe the term minimum wage. (2)
4.2.3 What is the advantage of having a national minimum wage instead of a minimum wage per sector? (2)
4.2.4 Refer to the graph above and explain the implication of the R3 500 minimum wage imposed by the government. (2 x 2) (4)
4.2.1 Identify any TWO sectors in South Africa where minimum wages are applied in the extract above.
- Civil Engineering
- Contract Cleaning services
- Domestic Workers
- Farm Workers
- Forestry
- Hospitality
- Leadership Allowance
- Private Security
- Wholesale and Retail
- Taxi
- Bargaining Council Minimum Wages (Any 2 x 1) (2)
4.2.2 Briefly describe the term minimum wage.
It is the minimum remuneration a worker should earn legally per
hour, day or week for work done
(Accept any other correct relevant response) (2)
4.2.3 What is the advantage of having a national minimum wage instead of a minimum wage per sector?
- Prevent discrimination among workers in the different sectors
- That national minimum wage could be higher which will
improve the standard of living
(Accept any other correct relevant response) (1 x 2) (2)
4.2.4 Refer to the above graph and explain the implication of the R3 500 minimum wage imposed by the government.
- The wage rate will be higher than the market rate of R2 500
- At this rate more people will avail themselves, therefore the supply of labour will increase from 200 to 300
- On the other side, the demand for labour will decrease from 200 to100
- This will create an oversupply of workers, supply exceeds
demand / unemployment will increase
(Accept any other correct relevant response) (2 x 2) (4)
4.3 Read the extract below and answer the questions that follow.
INFLATION AND ECONOMIC GROWTH
Inflation has never been good to the economy. However, whenever there is expected inflation, governments around the world take appropriate steps to minimise inflation to a certain extent. Inflation and economic growth are parallel lines and can never meet. Inflation reduces the value of money and makes it difficult for the common people to survive. Inflation and economic growth are incompatible because the former affects all sectors.
4.3.1 What, according to the extract, is the effect of inflation on money? (2)
4.3.2 Briefly describe the term stagflation. (2)
4.3.3 Explain the effect of an increase in interest rates on inflation. (1 x 2) (2)
4.3.4 What are the negative effects of inflation on economic growth? (2 x 2) (4)
4.4 Explain the roles played by any TWO key institutions that monitor competition in South Africa. (2 x 4) (8)
4.5 To what extent is inflation targeting beneficial to the economy? (8)
4.3.1 What, according to the extract, is the effect of inflation on money?
It reduces the value of money (2)
4.3.2 Briefly describe the term stagflation.
Stagflation can be described as low economic growth, high unemployment and high rates of inflation (2)
4.3.3 Explain the effect of an increase in interest rates on inflation.
An increase in interest rates makes buying on credit more expensive. This often results in a decrease in aggregate demand which will lead to a lower inflation rate
(Accept other correct relevant response) (2)
4.3.4 What are the negative effects of inflation on economic growth?
- High inflation creates uncertainty of the economic environment and reflects negatively on production
- Uncertainty discourages investment which in turn leads to reduced economic growth
- Reduced growth has a knock on effect on all sectors of the economy which can lead to a recession
- May lead to unemployment
(Accept any other correct relevant response) (Any 2 x 2) (4)
4.4 Explain the roles played by any TWO key institutions that monitor competition in South Africa.
- Competition Commission
- - Investigate restrictive business practices
- - Grant permission in cases of mergers and take-overs
- - Makes recommendations about penalties for businesses that it finds guilty of uncompetitive behaviour
- Competition Tribunal
- - Accept or reject recommendations made by the Competition Commission
- - Has jurisdiction throughout the Republic
- - It is a tribunal of record and independent from the other competition institutions
- - Grant exemption, authorise or prohibit large mergers, adjudicate if misconduct takes place
- Competition Appeal Court
- - Make final rulings on disputed matters/Considers appeals made against decisions made by the Competition Tribunal
- - Has a status similar to High Court
- - It has jurisdiction throughout the Republic and is a Court of Record
(Accept any other correct relevant response) (2 x 4)
(Allocate a maximum of 4 marks for mere listing of facts / examples) (8)
4.5 To what extent is inflation targeting beneficial to the economy?
- It helps to keep prices at a lower level
- It increases people's expectation that prices will be stable in the medium term
- It is useful in controlling demand pull inflation because the concept is simple and easy to understand
- It enhances producers' confidence in the economy as it enable them to make investments knowing that inflation will be under control
- It reduces uncertainty and promotes sound planning in public and private sectors
- It provides a yardstick that serves to discipline monetary policy and
improves the accountability of the central bank
(Accept any other correct relevant response) (4 x 2)
(Allocate a maximum of 2 marks for mere listing of facts / examples) (8)
SECTION C
Answer any ONE of the two questions in this section in the ANSWER BOOK. Your answer will be assessed as follows:
QUESTION 5: MICROECONOMICS 40 MARKS – 40 MINUTES
In a perfect market the industry influences the behaviour of an individual business to a certain extent.
- With the aid of graphs, explain the following about an individual business under
conditions of perfect competition:
- o The effect on price if the individual producer increases or decreases his output (supply)
- o The derivation of the supply curve from cost curves for the individual producer (26)
- Without using a graph, explain why the price of a product under perfect competition will be equal to the lowest point on the long-run average cost curve. (10)
INTRODUCTION
Perfect competition is a market structure where the market price is determined by the interaction between demand and supply. (Max 2)
MAIN PART
The effect on price if the individual producer increases or decreases his output (supply)
- The demand curve for the individual business is a horizontal line because he is a price taker
- If the individual producer increases its supply, the supply curve will shift to the right from SS to S1S1
- At this point the equilibrium quantity has increased from Q to Q1, but the equilibrium price has remained at P1
- If the individual producer decreases its supply, the supply curve will shift from SS to S2S2
- The equilibrium quantity has decreased but the equilibrium price has remained constant at P1
- The individual producer is not able to influence the equilibrium or market price by
manipulating its supply
(Graphs max 6 marks and discussion max 8 marks) (Max 14)
The derivation of the supply curve from cost curves for the individual producer
- The individual supply is derived by taking different market prices and determining how much the business should produce at each price
- The individual firm maximizes profit where the marginal revenue (MR) is equal to marginal cost (MC) - Point B
- Provided that the average income (AR) is enough to cover the average variable cost (AVC)
- Average variable costs comprise costs like labour cost, material costs and fuel and electricity costs
- Under perfect conditions, the producer will produce where P=MR=MC, if AR=P>AVC
- Thus we derive that the supply curve of the firm is the section of the MC curve above the intersection with the AVC curve
- The supply curve therefore is ABC on the graph
- At P1, no production will take place
- At P2, the AR=AVC, the firm will consider shutting down
- At P3, the AR=AC, the breakeven point, where normal profits are made
- At P4, where AR > AC - at this point abnormal (economic profits) are made
(Graphs max 6 marks and discussion max 8 marks) (Max 14) Max body (26)
Without using a graph, explain why the price of a product under perfect competition will be equal to the lowest point on the long-run average cost curve. (10)
- If the firm is making economic profit, it could adapt its production capacity by building a bigger production plant
- The industry can expand because new businesses could enter the market
- The increased production will push the market supply curve to the right thus lowering the market price
- Economic profits will eventually disappear due to falling average revenue
- Long run equilibrium is achieved where the lowest point of the AC curve is tangent to the Demand/AR curve.(Which is the price)
- If the business is making an economic loss then firms will leave the business or cut back on production
- This will shift the market supply curve to the left thus increasing prices
- Economic loss will eventually disappear due to increasing average revenue
- This price will eventually be equal to the minimum point on the LAC curve i.e. Normal profit
- Large scale production makes lower unit cost possible as a result of specialisation, and improved technology (Max 10)
CONCLUSION
The supply curve of the firm under perfect competition is the section of the MC curve
above the intersection with the AVC curve
(Accept any other correct relevant conclusion) (Max. 2) [40]
QUESTION 6: CONTEMPORARY ECONOMIC ISSUES 40 MARKS – 40 MINUTES
Tourism plays an important role and can affect the economy negatively or positively.
- Examine the effects of tourism on the following:
- Poverty
- Employment
- Externalities (26)
- How can South Africa promote domestic tourism? (10)
INTRODUCTION
Tourism is the activities of people travelling to places outside their usual environment for not more than one consecutive year, for leisure, business and other purposes (Max. 2)
Poverty
- Tourism is one of the fastest and most efficient redistribution mechanisms in development
- Tourism stimulates economic growth and brings development to the poor in rural areas
- Tourism offers opportunities to diversify sources of income for poor people
- Allowing them a stake for example, to start and operate small-scale tourism businesses around community assets and to establish SMMEs to provide services
- Empowerment for example, to exploit opportunities of on-the-job and other training
- Creating partnerships linking up with mainstream tourism businesses supplying goods and services (Max 10)
Employment
- Tourism sector directly and indirectly employ people
- The sector is the largest creator of jobs (employs 7% of the workforce in SA) for the following reasons:
- Tourism is labour intensive It has the lowest ratio of investment to employment creation This means that more jobs can be created with every unit of capital invested in tourism Many tourist activities are therefore within the reach of small tour operators
- Tourism employ many skills Various skills are employed in the tourism sector for example, tour guides, hairdressers, accountant It also offers a huge potential for on-the-job training
- Tourism provides immediate employment If it is properly organised and focused, the tourism sector can create many jobs within a short period of time
- Tourism provides entrepreneurial opportunities The tourism industry accommodates informal sector enterprises from craft and fruit vendors to pavement vendors, chair rentals and others (Max 10)
Externalities
- Attracts large amounts of revenue, but can cause undue environmental damage (uses resources and produces waste)
- Rapid growth aimed at short-term benefits has more negative than positive effects: degeneration of traditions and cultural values, environmental damage to sites and natural settings – pollution and waste
- Global tourism will grow due to increased population, improved living standards, increased free time and expansion of transportation systems, but put unnecessary pressure on tourist sites
- Economic effect on individuals: new transport systems, recreation, shops and increase in property value compared to an increased inflation rate
- Economic effect on government: more direct and indirect tax compared to conservation of infrastructure and tourist attractions
- Social effect on individuals: improved health care and education compared to traffic congestion, crime
- Social effect on government: an increased value put on culture, less migration
compared to policing, sanitation, and health services (Max 10)
(Accept any other correct relevant response) (Max 26)
(Allocate a maximum of 8 marks for mere listing of facts / examples)
The rapidly expanding tourism industry could have both positive and negative impacts that extend well into the future:
South Africa can promote domestic tourism by
- Improving its marketing and advertising
- - Domestic tourism is encouraged through increased advertising
- - TV magazine programmes like Shot'left inform people about local places of interest
- Promoting special holiday packages
- - Special off-season rates make it possible to enjoy cheaper holidays
- Enhancing efficiency of tourist information outlets
- - Many towns have information outlets that supply pamphlets and information about a specific area.
- Distributing information booklets (awareness) and offer transport to visit places of interest. This is mostly done by hotels and other accommodation resorts
- Improving infrastructure a greater variety, using new technology to provide reliable infrastructure
- Government effectively managing its tourist sites and other tourist
attractions e.g. maintenance, upgrading, security etc.
(Accept any other correct relevant response) (Max.10)
CONCLUSION
Tourist expenditure is as real as any other consumer expenditure and international tourism can in addition be seen as an invisible export product (Max. 2) [40]
SENIOR CERTIFICATE
ECONOMICS P2 FEBRUARY/MARCH 2016
MARKS: 150
TIME: 2 hours
SECTION A (COMPULSORY)
QUESTION 1 30 MARKS – 20 MINUTES
1.1 Various options are provided as possible answers to the following questions. Choose the answer and write only the letter (A–C) next to the question number (1.1.1–1.1.8) in the ANSWER BOOK, for example 1.1.9 C.
1.1.1 The supply curve of a perfect competitor is represented by that part of the MC curve that is above the … curve.
- A total cost
- B average variable cost
- C average cost
1.1.2 The most likely barrier for a firm wanting to compete with firms in the cellphone industry, such as Vodacom, is …
- A licensing.
- B capital.
- C technical superiority.
1.1.3 Oligopolies do not have as much control over prices as monopolies because of …
- A policies.
- B advertising.
- C competition.
1.1.4 The perfect competitor charges a price that is equal to the …
- A average cost.
- B marginal revenue.
- C average variable curve.
1.1.5 A combination of high inflation and high unemployment is known as …
- A deflation.
- B hyperinflation.
- C stagflation.
1.1.6 The index that refers to headline inflation is called the …
- A consumer price index.
- B index of export prices.
- C producer price index.
1.1.7 Which ONE of the following is an example of a negative effect of tourism?
- A Poverty
- B Unemployment
- C Pollution
1.1.8 The main focus of the Johannesburg Summit was on …
- A hazardous waste.
- B sustainable development.
- C pollution.
1.1.7 Which ONE of the following is an example of a negative effect of tourism?
- A Poverty
- B Unemployment
- C Pollution
1.1.8 The main focus of the Johannesburg Summit was on …
- A hazardous waste.
- B sustainable development.
- C pollution.
- 1.1.1 B (average variable cost)
- 1.1.2 A (licensing)
- 1.1.3 C (competition)
- 1.1.4 B (marginal revenue)
- 1.1.5 C (stagflation)
- 1.1.6 A (consumer price index)
- 1.1.7 C (pollution)
- 1.1.8 B (sustainable development)
1.2 Choose a description from COLUMN B that matches the item in COLUMN A. Write only the letter (A–I) next to the question number (1.2.1–1.2.8) in the ANSWER BOOK.
COLUMN A | COLUMN B |
---|---|
1.2.1 Economic loss 1.2.2 Duopoly 1.2.3 Community goods 1.2.4 Heterogeneous 1.2.5 Inflation targeting 1.2.6 Cultural tourism 1.2.7 Marketable permit 1.2.8 Conservation |
A police and defence B a licence to pollute to a certain degree C taking care of the environment so that present and future generations will benefit D average revenue is less than average cost E two firms that dominate an industry F products that are not the same G excludes items with high volatile prices H a policy used by the Reserve Bank to stabilise prices I visiting museums and art galleries |
- 1.2.1 D - average revenue is less than average cost
- 1.2.2 E - two firms that dominate an industry
- 1.2.3 A - police and defence
- 1.2.4 F - products that are not the same
- 1.2.5 H - a policy used by the Reserve Bank to stabilise prices
- 1.2.6 I - visiting museums and art galleries
- 1.2.7 B - a licence to pollute to a certain degree
- 1.2.8 C - taking care of the environment so that present and future generations will benefit
1.3 Give ONE term for each of the following descriptions. Write only the term next to the question number (1.3.1–1.3.6) in the ANSWER BOOK.
- 1.3.1 A wage rate set by the government below which no employer may pay his/her workers
- 1.3.2 The period of production where only the variable factors of production can change
- 1.3.3 The value of the next best alternative
- 1.3.4 Causes damage to the environment by dumping waste material
- 1.3.5 Worldwide interfacing and interaction of economies with trade as the main aim
- 1.3.6 Tourists travelling within their own countries (6 x 1)
- 1.3.1 Minimum wage
- 1.3.2 Short run
- 1.3.3 Opportunity cost
- 1.3.4 Pollution
- 1.3.5 Globalisation
- 1.3.6 Domestic tourism
SECTION B
Answer any TWO of the three questions in this section in the ANSWER BOOK.
QUESTION 2: MICROECONOMICS 40 MARKS – 30 MINUTES
2.1 Answer the following questions.
- 2.1.1 Name TWO characteristics of monopolistic competition. (2 x 1) (2)
- 2.1.2 What will the effect be if one firm in a perfect market decides to increase the price of a product? (1 x 2) (2)
2.1.1 Name TWO characteristics of monopolistic competition.
- Existence of large number of firms
- Product differentiation
- Price setter
- Downward sloping demand curve
- Firms are acting independently
- Non-price competition (exploited largely by advertising)
- Free entry and exit from the market
2.1.2 What will the effect be if one firm in a perfect market decides to increase the price of a product?
- Firm will make a loss, because all firms in the perfect market are price takers and cannot influence the market price
2.2 Study the pictures below and answer the questions that follow.
- 2.2.1 Name the causes of market failure as depicted in pictures 2 and 3.(2 x 1) (2)
- 2.2.2 Explain the term market failure. (2)
- 2.2.3 How will a lack of information as a cause of market failure influence consumers? (2)
- 2.2.4 Explain how government can intervene in markets that are affected by externalities (pictures 1 and 4). (2 x 2) (4)
2.2.1 Name the cause of market failure as depicted in pictures 2 and 3
- Picture 2 - Unequal distribution of income – Unemployment
- Picture 3 - Demerit goods – Cigarettes (2 x 1) (2)
2.2.2 Explain the concept market failure.
- A situation where market equilibrium fails resulting in the ineffective allocation of resources (2)
2.2.3 How will a lack of information as a cause of market failure influence consumers?
- They would not know where to access certain goods and where those goods and services are affordable
2.2.4 Explain how government can intervene in markets that are affected by externalities (pictures 1 and 4).
- Picture 1: Subsidise financially disadvantaged students
- Picture 4: Charge environmental taxes
2.3 Study the graph below and answer the questions that follow.
- 2.3.1 To which market structure is the kinked curve related? (1)
- 2.3.2 What is the output level in the graph above? (1)
- 2.3.3 What would the effect be on total revenue if the oligopolist increased his price from R50 to R60? Show calculations. (4)
- 2.3.4 Advise the oligopolist on how to increase his market share in this particular industry. (4)
- 2.4 Distinguish between price leadership and cartels as forms of collusion. (2 x 4) (8)
- 2.5 Analyse productive inefficiency with the aid of a production possibility curve. (4 x 2) (8)
2.3.1 Which market structure is the kinked curve related to?
- Oligopoly/imperfect market (1)
2.3.2 What is the output level in the graph above?
- 50 (1)
2.3.3 What would the effect be on total revenue if the oligopolist increased his price from R50 to R60? Show calculations.
- At the price of R50 and quantity 50, the total revenue will be
- R2 500 (50 x 50 = 2 500)
- At the price of R60 and quantity 20, the total revenue will be
- R1 200 (60 x 20 = 1 200)
- The net effect on income = R2 500 – R1 200 = R1 300 (4)
2.3.4 Advise the oligopolist on how he can increase his market share in this particular industry.
The oligopolist should consider using the following:
- Non-price measures to attract customers increase their market share
- Build brand loyalty, product recognition and product differentiation
- Advertising and marketing
Examples of non-price competition include:
- extended shopping and business hours
- doing business over the internet
- after-sales services
- offering additional services
- loyalty rewards for customers
- door-to-door deliveries
2.4 Distinguish between price leadership and cartels as forms of collusion Cartel
- When collusion occurs openly it is referred to as a cartel
- A cartel can be defined as an organisation of oligolistic businesses that comes into existence in an industry with the specific aim of forming a collective monopoly (2 x 2)
Price leadership
- This type of price determination is tacitly
- A firm will announces its intention to increase prices and hope it's rivals will follow
- The price leader is usually the largest or dominant business in the industry
2.5 Analyse productive inefficiency with the aid of a production possibility curve.
PRODUCTIVE INEFFICIENCY
Production possibility curve (AA), above, shows a combination of goods that can be produced using all the available resources.
- Any point on the curve shows a combination of goods where resources will be used efficiently (B).
- Therefore any point on the curve indicates productive efficiency.
- Any point within the curve shows combinations of goods where resources are used inefficiently (D)
QUESTION 3: CONTEMPORARY ECONOMIC ISSUES 40 MARKS – 30 MINUTES
3.1 Answer the following questions.
- 3.1.1 Give TWO examples of prices that are controlled by the South African government. (2 x 1) (2)
- 3.1.2 What is the effect of climate change on weather patterns? (1 x 2) (2)
3.1.1 Give TWO examples of prices that are controlled by the South African government.
- Fuel prices
- Assessment rates
- Property taxes
- Sanitation levies
- Refuse removal levies
- Water levies
- Electricity tariffs
- Postal stamps
3.1.2 What is the effect of climate change on weather patterns?
- It can cause irregular weather patterns: floods/droughts (2)
3.2 Study the picture below and answer the questions that follow.
- 3.2.1 What has happened to the fuel price since 2010? (1)
- 3.2.2 What will happen to employment when the cost of production increases? (1)
- 3.2.3 What is meant by 'Fuel, the foundation of all costs'? (2 x 2) (4)
- 3.2.4 Why is inflation regarded as a never-ending process? (2 x 2) (4)
3.2.1 What happened with the fuel price since 2010?
- It increased from R5 per litre to R12 per litre (1)
3.2.2 What will happen to employment when the cost of production increases?
- Employment will decline (1)
3.2.3 What is meant by 'Fuel, the foundation of all costs'?
- Transport is the bloodline of all economic activities
- If the petrol price increase, than all other products are likely to increase
- Business will off-set this extra cost by increasing the price
3.2.4 Why is inflation regarded as a never-ending process?
- When consumers/workers feel that their earnings are not enough to sustain their livelihood, they will demand higher wages
- If their demand are successful, wages will increase
- Businesses will increase their prices to compensate for the higher input cost
- This will result in higher prices
- Once prices increase, workers will be in the same financial predicament and will demand higher wages once again
3.3 Read the extract below and answer the questions that follow
BETTER MEDICAL FACILITIES IN SOUTH AFRICA CONTINUE TO INFLUENCE MEDICAL TOURISM GROWTH
There is a general increase being recorded in the number of people visiting South Africa in search of medical treatment from the country's many healthcare institutions, which are considered to have superior facilities and high levels of medical expertise.
Medical tourists are received mostly from other African countries which may lack the appropriate medical facilities with proper equipment to perform challenging surgical procedures. Inbound medical tourists from overseas often travel to South Africa for surgical procedures which are considered relatively expensive in other countries such as the USA and the UK.
[Source: www.euromonitor.com]
- 3.3.1 What, according to the extract, is the reason for the growth in the tourism industry? (2)
- 3.3.2 Explain the term tourism. (2)
- 3.3.3 Why is South Africa such a popular holiday destination? (2 x 1) (2)
- 3.3.4 How will the economy benefit from an increase in the number of medical tourists coming to South Africa? (2 x 2) (4)
- 3.4 Explain how wages and exchange rates can lead to cost-push inflation. (2 x 4) (8)
- 3.5 What is the impact of indigenous knowledge within the South African context on tourism?
3.3.1 What, according to the extract, is the reason for the growth in the tourism industry?
- Tourist are flocking for medical treatment in South Africa (2)
3.3.2 Explain the term tourism.
- Activities of people travelling to and staying in places outside their usual environment for no more than one year for leisure, business and other purposes. It does not relate to any work done for money in the place visited.
3.3.3 Why is South Africa such a popular holiday destination?
- Higher disposable income
- Favourable exchange rates
- Improved transportation
- Improved communication
- Marketing campaigns
3.3.4 How will the economy benefit from an increase in the number of medical tourists coming to South Africa?
- Increased tourists stimulate these services as well as other related industries.
- They normally stay for a few weeks after the procedure to recover and for treatment.
3.4 Explain how wages and exchange rates can lead to cost push inflation. Wages
- Trade unions (workers) is successful in negotiation better wages, the wages will increase leading to an increase in production cost
- Businesses will increase the selling price to compensate for the higher input cost (2 x 2)
Exchange rate depreciation
- If the Rand depreciates against the dollar, all imported goods and services become more expensive
- It cost more to import goods and this will increase the price of the imported goods (2 x 2) (8)
3.5 What is the impact of indigenous knowledge within the South African context on tourism?
- Tourists seek authenticity and uniqueness when they visit places
- To understand the indigenous culture, history and environment
- In South Africa, several World Heritage sites are attractions for tourists and they want to know how local people live and work
- The wide range of indigenous cultural groups offer a wide variety of activities which can be developed through the country to ensure a positive impact on tourism
- More foreign tourists are attracted to visit and experience South Africa's indigenous sites
QUESTION 4: MICROECONOMICS AND CONTEMPORARY ECONOMIC ISSUES 40 MARKS – 30 MINUTES
4.1 Answer the following questions.
- 4.1.1 Name TWO World Heritage Sites in South Africa. (2 x 1) (2)
- 4.1.2 What is the effect on a business if the average cost is more than the average revenue? (1 x 2) (2)
4.1.1 Name TWO world heritage sites in South Africa.
- Mapungubwe
- Sterkfontein Caves
- Robben Island
- Vredefort Dome
- Richtersveld and Botanical Landscape (Any 2 x 1) (2)
4.1.2 What is the effect on a business if the average cost is more than the average revenue?
- The business will suffer losses (economic losses) (1 x 2) (2)
4.2 Study the data below and answer the questions that follow.
- 4.2.1 Identify ONE private cost and ONE external benefit from the data above. (2 x 1) (2)
- 4.2.2 Explain the term cost-benefit analysis. (2)
- 4.2.3 What alternative measure could the government consider instead of building a new road? (2)
- 4.2.4 Should the government proceed with the building of this road? Motivate your answer. (4)
4.2.1 Identify ONE private cost and ONE external benefit from the data above.
- Private cost: road construction equipment
- External benefit: establishment of new businesses (2 x 1) (2)
4.2.2 Explain the term cost-benefit analysis.
- Project evaluation that need to be done in order to find conclusive answers/procedure used to measure total cost of a project against its total benefits
4.2.3 What alternative measure could the government consider instead of building a new road?
- Maintenance of existing roads
- Measures to prevent flooding in future e.g. dams
4.2.4 Should the government proceed with the building of this road? Motivate your answer.
- Flooding will not be a problem for road users, tourists and the local community (farmers)
- Income derived from toll gates will ensure future maintenance, and will cover the investment made in the construction of toll roads
- The final decision will be determined by the positive difference between total benefits from this project over total costs
- Floods only exist during the rainy season and other measures could be taken to prevent flooding e.g. dams
- Pollution will harm the local community (especially farmers and the environment) on a permanent basis
- Social cost will exceed social benefits due to temporary job creation
Yes
No
4.3 Study the extract below and answer the questions that follow.
INFLATION TARGETING IN SOUTH AFRICA
South Africa has successfully pursued an inflation targeting monetary policy since February 2000. The policy has ensured a stable and sustainable economy.
It is important to understand that the South African Reserve Bank was created as an autonomous body, but this independent body has been mandated to keep inflation within a target range to encourage long-term growth in the economy.
With the inflation rate breaching the upper end of the range in 2014, a generally unpopular interest rate hike has placed the Reserve Bank's governor and the Monetary Policy Committee under increased pressure. Unions advocate the abandonment of inflation targets for the sake of shortterm job creation.
[Source: Limpopo Tourism and Leisure, 2013]
- 4.3.1 What is the current inflation target range? (2)
- 4.3.2 What is the main purpose of the South African inflation targeting policy? (2)
- 4.3.3 How can lower interest rates benefit the South African economy in the short term? (2)
- 4.3.4 How successful, in your opinion, was the Reserve Bank in meeting its inflation target?
- 4.4 Distinguish between economic profit and normal profit in the perfect market. (2 x 4) (8)
- 4.5 What is the impact of inflation on investors and savers? (4 x 2) (8)
4.3.1 What is the current inflation target range?
- 3%–6 % (2)
4.3.2 What is the main purpose of the South Africa's inflation targeting policy?
- To ensure a stable and sustainable economy (Any 1 x 2) (2)
4.3.3 How successful, in your opinion, was the Reserve bank in meeting its inflation target?
- Increase consumer expenditure
- Increase production
- Lead to new job opportunities
- Lead to a higher standard of living for more people
4.3.4 How in your opinion can the Reserve Bank reduce the inflation rate?
- The Reserve Bank was successful – The bank manage to pin down inflation between the target range of 3%–6%
- They has successfully increase the repo rate at the right time to prevent inflation to increase above the 6% target range
4.4 Distinguish between economic profit and normal profit in the perfect market.
Normal Profit:
- A firm makes normal profits when total revenue (TR) equals total costs/when average revenue (AR) equals average cost (AC)
- Normal profit is the maximum return the owner of a firm expects to receive to keep on operating in the industry
- The minimum earnings required to prevent an entrepreneur from leaving the industry
- When average revenue equals average cost the firm makes a normal profit (2 x 2)
Economic profit:
- Profit that is made in addition to normal profit
- When average revenue is greater than average cost the firm makes an economic profit
- When the average cost per unit is lower than the price
4.5 What is the impact of inflation on investors and savers?
- Assets with fixed nominal values remain constant, the purchasing power of the nominal values increase, the real value decrease
- Assets with flexible market value: The holders of shares and fixed property usually gain by price increases because the nominal value of these assets tend to increase at least proportionately to the rate of inflation
- Often the prices of these assets increase more rapidly than the increase in the general price level
- In this case, inflation creates wealth, to the advantage of the share holders
- People who save are disadvantaged by inflation due to the fact that interest earned will be less than the current inflation rate
SECTION C
Answer any ONE of the two questions in this section in the ANSWER BOOK. Your answer will be assessed as follows:
QUESTION 5: MICROECONOMICS 40 MARKS – 40 MINUTES
The existence and survival of any business depend on how they are conducting themselves.
- Compare the market structure of a monopoly with that of a perfect competitor. (26 marks)
- Draw a clearly labelled graph indicating the shut-down point for the perfect competitor. Briefly explain why a business will stop producing goods at this point.
INTRODUCTION
A perfect competitor has many sellers while a monopolist only has one seller.
BODY MAIN PART
Perfect Competitor | Monopoly | |
---|---|---|
Price: | - Price taker - The market determines the price for the individual firm |
- Is regarded as a price maker - Have some control over price - Prices not determined by market forces of supply and demand but by the business itself |
Output: | -The demand curve for the perfect competitor is horizontal |
-The demand curve for monopolist is downward sloping |
Profit: | - The perfect competitor can realise economic profits in the short term - Abnormal profits will attract new entrants into the market for both structures - Both perfect and monopoly can only realise normal profits in the long term -The price for the product for both market structures equals the average cost - The perfect competitor does produce the ideal production quantity and has no surplus capacity |
- The monopolist also realise economic profits in the short term - The monopolist will charge a higher price than the perfect competitor - The monopolist will not produce at the lowest point of the LAC, like the perfect competitor, the output will be less than the perfect competitor - Both perfect and monopoly can only realise normal profits in the long term - The monopolist's production will be less than the ideal production quantity where LAC is the minimum and has surplus capacity |
Number of businesses |
So many that no single business can influence the market price |
One business |
Nature of product |
Homogeneous e.g. maize | Unique product without any close substitutes |
Information | Complete | Complete |
Entry | Completely free | Blocked |
ADDITIONAL PART
Briefly explain why a business will stop producing goods at this point.
'- A firm will shut down if it cannot meet its average or total variable costs
- The firm will not produce here because AR AVC
- The firm will not keep on producing from the shut-down point down because the firm cannot meet its operational cost
- Below the shut-down point, the firm will not sell any goods. A firm will sell goods if the price is above the shutdown price level(supply curve) (Max 10)
CONCLUSION
Although it is not completely possible to compare the monopoly market with the free market, a comparison can give us insightful information about the profit maximising quantity and price
QUESTION 6: CONTEMPORARY ECONOMIC ISSUES 40 MARKS – 40 MINUTES
The current levels of pollution and environmental degradation are too high. This affects the ability of the environment to survive its use for economic activities.
- Discuss government's attempts (interventions and control) to ensure the sustainability of our environment. (26 marks)
- In your opinion, how effective are pollution control measures in South Africa?
INTRODUCTION
Environmental sustainability can be defined as development that meets the need of the present without compromising the ability of future generations to meet their own needs. (Max. 2)
BODY : MAIN PART
Public sector intervention
- Because it is difficult to enforce measures to ensure sustainability the government has to intervene
- Environmental taxes
- - Environmental taxes (green taxes) can be added to the cost of goods and services for the negative impact they have on the environment
- - The government uses the income generated through these taxes to protect the environment
- - Taxes can be imposed on petrol, paper, emission gases etc.
- - In 2003 the government has legislated the use of biodegradable plastic bags which consumers had to pay for
- - The hope is that they will use fewer bags and ensure a litter free environment
- Charging for dumping of waste
- - A monthly fee as part of municipal accounts is charged for collection of waste, sewage and garbage.
- - Households already pay for the collection of rubbish
- - The factory owner might clean up his waste if it cost him to dump it
- - Industries might also pay for emitting gases that can be harmful to people and the environment
- Subsidies
- - Subsidies can be awarded to businesses that are willing to reduce pollution and waste.
- - Waste can also be reduce by using new techniques or equipment such as solar energy
- - Emission gases from factories can be reduced using new technology.
- Granting property rights
- - Normally owners of properties tend to be more protective over their resources than users who are only interested in the profits the resources offer
- - For this reason the government might grant property rights over a specific area.
- - Property rights empowers owners to negotiate contracts with businesses who wish to exploit the area's resources
- Marketable permits
- - A government can decide on the maximum desired level of pollution in an area
- - It then distribute pollution rights (marketable permits) to factories within that area
- - This means that each factory can pollute to a certain limit
- - It means that marketable permits are licenses that polluters can buy or sell to meet the control levels set by government
Education
- - Incorporating topics into the curriculum of school fosters awareness
- - The public is gradually been made aware of this rising problem
- - Plastic, bottles and cartons can be recycled or made biodegradable (13)
Public sector control
- If the government's intervention does not attain the desired results, then it has to intervene more directly by setting and enforcing limits
- Environmental Impact Assessment
- - In SA every projected construction, mining or similar development has to undergo an assessment by qualified environmental professionals
- - To prove that it will not cause unwarranted environmental damage and that the damage can be repaired after construction
- - The cost is built into the project
- Command and control
- - Regulations that are set and enforce environmental limits or standards
- - Quantity: e.g. set the limit to the amount of fish to catch, or limit the season catching certain species of fish
- - Quality: e.g. drinking water quality is carefully monitored and controlled
- - Air quality in workplace is subject to minimum standards
- - Social effect: e.g. noxious fumes from factories, dumping of medical waste near settlements, and noise pollution
- Voluntary agreements
- - Agreements between government and businesses voluntarily to address negative environmental impacts of industries
- - Businesses voluntary agree to decrease the emissions of pollutants
- - Most prefer negotiations so that they can tailor their specific needs and include it into their planning
- - Agreements can be formal, which is legally binding contract or informal
ADDITIONAL PART
In your opinion, how effective are pollution control measures in South Africa?
- Government does not exercise effective control over the continuous dumping of waste because of a lack of coordination between departments
- The fines imposed on industries that dump waste are too lenient and they continue polluting the environment
- The minimum standards set for hazardous gas and fuel emissions are not enforced or adjusted
- The recycling of waste materials are not widely encouraged and promoted and landfill sites are overflowing
- Government has various laws that is not really effectively implemented
- Poor service delivery also adds to the problem in certain areas
CONCLUSION
Each and every individual, business and government needs to stand together to save our planet.
SENIOR CERTIFICATE
ECONOMICS P2 NOVEMBER 2015
MARKS: 150
TIME: 2 hours
SECTION A (COMPULSORY)
QUESTION 1 30 MARKS – 20 MINUTES
1.1 Various options are provided as possible answers to the following questions. Choose the answer and write only the letter (A–C) next to the question number (1.1.1–1.1.8) in the ANSWER BOOK, for example 1.1.9 C.
1.1.1 A business that CANNOT influence the price:
- A Price-taker
- B Price-maker
- C Monopolist
1.1.2 A perfect competitor will make … in the long run.
- A economic profit
- B economic loss
- C normal profit
1.1.3 Product differentiation and … play an important role in non-price competition.
- A price
- B advertising
- C government policy
1.1.4 Goods highly desirable for the general welfare of people, but often not highly rated by the market, are called ... goods.
- A demerit
- B merit
- C non-durable
1.1.5 People's disposable incomes tend to …during periods of inflation.
- A decrease
- B increase
- C remain constant
1.1.6 An inflation rate that excludes interest rates on mortgage bonds:
- A Administered-price inflation
- B Food inflation
- C CPIX
1.1.7 The setting of maximum permitted levels of emissions such as carbon dioxide is called … measures.
- A education
- B government
- C command and control (CAC)
1.1.8 The potential for tourism growth is much greater in … countries.
- A developing
- B developed
- C European (8 x 2) (16)
- 1.1.1 A (price taker)
- 1.1.2 C (normal profit)
- 1.1.3 B (advertising)
- 1.1.4 B (merit)
- 1.1.5 A / B / C (decrease / increase / remain constant)
- 1.1.6 C (CPIX)
- 1.1.7 B / C (government / command and control - CAC)
- 1.1.8 A (developing)
1.2 Choose a description from COLUMN B that matches an item in COLUMN A. Write only the letter (A–I) next to the question number (1.2.1–1.2.8) in the ANSWER BOOK, for example 1.2.9 J.
COLUMN A | COLUMN B |
---|---|
1.2.1 Oligopoly 1.2.2 World Heritage Site 1.2.3 Implicit costs 1.2.4 Duopoly 1.2.5 Non-renewable resources 1.2.6 Market structure 1.2.7 Kyoto Protocol 1.2.8 Deflation |
A organisational features of markets B a period of sustained decreases in price C international agreements aimed at reducing greenhouse gases D a market controlled by a small group of businesses E a place with special cultural or physical significance F value of inputs owned by the entrepreneur and used in production G a market controlled by two businesses H may become depleted if used repeatedly I a period when prices increase |
- 1.2.1 D – A market controlled by a small group of businesses
- 1.2.2 E – A place that is listed as having special cultural or physical significance
- 1.2.3 F – Value of inputs owned by the entrepreneur and used in production
- 1.2.4 G – A market controlled by two businesses
- 1.2.5 H – May become depleted if used repeatedly
- 1.2.6 A – The organisational features of markets
- 1.2.7 C – International agreements aimed at reducing greenhouse gases
- 1.2.8 B – A period when prices decrease persistently
1.3 Give ONE term for each of the following descriptions. Write only the term next to the question number (1.3.1–1.3.6) in the ANSWER BOOK.
- 1.3.1 The additional cost incurred when production increases by one more unit
- 1.3.2 Prices that are set by authorities above the equilibrium price to benefit the producer
- 1.3.3 Businesses working together in an oligopoly market to fix prices
- 1.3.4 A market that lacks optimum resource allocation and is unable to produce the quantity of goods that people want
- 1.3.5 A tax charged on goods that harm the environment
- 1.3.6 An increase in prices of goods due to an increase in input costs (6 x 1) (6)
- 1.3.1 Marginal
- 1.3.2 Minimum / floor prices
- 1.3.3 Collusion / cartel
- 1.3.4 Imperfect market / monopoly / oligopoly / monopolistic competition / inefficient market
- 1.3.5 Environmental / Green / Carbon / Eco
- 1.3.6 Cost-push inflation / cost inflation / producer price inflation (6 x 1) (6)
SECTION B
Answer any TWO of the three questions in this section in the ANSWER BOOK.
QUESTION 2: MICROECONOMICS 40 MARKS – 30 MINUTES
2.1 Answer the following questions.
- 2.1.1 Give TWO characteristics of public goods. (2 x 1) (2)
- 2.1.2 Why are oligopolists reluctant to compete with each other on price in order to get a greater share of the market? (1 x 2) (2)
2.1.1 Give TWO characteristics of public goods.
- Non-excludable
- Non-competitive / Non-rivalry
- Social benefits outstrip private benefits
- Infinite consumption
- Non-rejectability / cannot refrain from consuming even if they want to (2 x 1) (2)
2.1.2 Why are oligopolists reluctant to compete with each other on price in order to get a greater share of the market?
- They act on the behaviour of others: if one business increases its price it looses its market share. When the firm decrease their price, others will follow and a price war might arise
2.2 Study the extract below and answer the questions that follow
THE CHALLENGING TASK OF THE COMPETITION COMMISSION
The Competition Commission is a statutory body constituted in terms of the Competition Act, 1998 (Act 89 of 1998) by the government of South Africa and mandated to investigate, control and evaluate restrictive business practices, abuse of dominant positions and mergers in order to achieve equity and efficiency in the South African economy. .
Since it is responsible for investigating all complaints of anticompetitive practices across the entire economy, it receives vast numbers of complaints about different types of anticompetitive behaviour relating to all markets/sectors. If found guilty, a fine is imposed which is endorsed by the Competition Tribunal.
[Adapted from the website of the Competition Commission]
- 2.2.1 Identify TWO examples of anticompetitive behaviour in the extract above. (2 x 1) (2)
- 2.2.2 What is the role of the Competition Commission? (2)
- 2.2.3 What can businesses do if they are not happy with the fine imposed on them by the Competition Commission? (2)
- 2.2.4 How can consumers benefit from increased competition in the economy? (2 x 2) (4)
2.2.1 Identify TWO examples of anti-competitive behaviour in the extract above.
- Abuse of dominant positions
- Mergers
- Restrictive business practices (2 x 1) (2)
2.2.2 What is the role of the Competition Commission?
- To investigate, control and evaluate restrictive business practices, abuse of dominant positions and mergers in order to achieve equity and efficiency in the SA economy /
- Tries to give all South Africans equal opportunities to participate fairly in economic activities to make the economy more efficient (2)
2.2.3 What can businesses do if they are not happy with the fine imposed on them by the Competition Commission?
- They can approach the Competition Appeal Court (2)
2.2.4 How can consumers benefit from increased competition in the economy?
- It provide all South Africans with equal opportunities to participate fairly in the South African economy
- It will provide for markets in which consumers have access to
- It will ensure good quality of service delivery
- It will ensure good quality of products
- Consumers’ choices will be improved
- Consumers will reap the benefits of lower prices
2.3 Study the graph below and answer the questions that follow.
- 2.3.1 What type of externality is shown in the graph above? (2)
- 2.3.2 Explain the term externality. (2)
- 2.3.3 What is indicated in the shaded area on the graph? (2)
- 2.3.4 How can the above externality cause market failure? (2 x 2) (4)
- 2.4 Briefly discuss the number of businesses and the nature of the product as characteristics of a perfect market structure. (2 x 4) (8)
- 2.5 Motivate why the government implements minimum wages in the labour market. (4 x 2) (8)
2.3.1 What type of externality is shown in the graph above?
- Negative (2)
2.3.2 Explain the term externality.
- Costs or benefits to third parties which are not included in the market price of a good / spill-over effect / third party effects (2)
2.3.3 What is indicated by the shaded area on the graph?
- External cost / welfare loss / dead weight (2)
2.3.4 How can the above externality cause market failure?
- If the cost of the externality was included in the price the firm will produce less
- The market is producing at Q which is more than what is socially desirable at Q1
- The market has failed to allocate resources properly
2.4 Briefly discuss the number of businesses and nature of the product as characteristics of a perfect market structure.
Number of businesses
- There are a large number of sellers
- It should not be possible for one seller to influence the price / When there are many sellers the share of each seller in the market is so small that the seller cannot influence the price
- Sellers are price takers; they accept the prevailing market price
- If they increase prices above the market price, they will lose customers
Nature of product
- Products are homogenous (i.e. identical / same)
- There is no differences in style, design and quality
- In this way products compete solely on the basis of price and can be purchased anywhere
2.5 Motivate why the government implements minimum wages in the labour market.
- Pressure was put on the South African government to introduce labour laws which require employers to pay minimum wages
- The application of minimum wage laws is needed to improve a redistribution of income
- To redress inequality (Gap between wealthy and poor)
- To improve the standard of living
- Government tried to protect domestic workers and farm workers – thus preventing exploitation
QUESTION 3: CONTEMPORARY ECONOMIC ISSUES 40 MARKS – 30 MINUTES
3.1 Answer the following questions.
- 3.1.1 Name any TWO ways to measure inflation. (2 x 1) (2)
- 3.1.2 How can climate change influence agricultural production? (1 x 2) (2)
3.1.1 Name any TWO ways to measure inflation.
- Price index / CPI / PPI
- Weighting
- Inflation rate Any (2 x 1) (2)
3.1.2 How can climate change influence agricultural production?
- Climate change may have a positive effect, increasing agricultural production (of certain products)
- Climate change might have a negative effect, where a decrease in agricultural products is experienced due to lower rainfall, increased heat
- Adaptation in the production of agricultural products due to climate change. Extreme heat, drought, floods, will definitely influence the type of agricultural activities allowed to take place
3.2.1 Which ONE of the two types of inflation is the official inflation rate?
- CPI Headline (1)
3.2.2 What is the inflation target range set by the SARB?
- The inflation target is between 3% and 6% (1)
3.2.3 What effect will an increase in interest rates have on the trend of the CPI curve?
- There will be a fall/drop in the trend line due to a decrease in the demand for goods and services (less demand for credit, less savings)
- There could be an increase in the trend line because interest on mortgage bonds are part of the basket (2)
3.2.4 What negative influence will inflation have on the balance of payments?
- South African exports will become expensive therefore the country will sell less
- Imports will be higher than exports, as such the balance of payment will have a deficit (1 x 2) (2)
3.2.5 Why is core inflation lower than the CPI?
- Products with highly volatile prices are excluded
- E.g. fresh vegetables / fish / and fresh meat are excluded
- The CPI headline inflation is calculated by using a selection basket of goods and services that the average household use
- The reason is that these high volatile price changes will distort the real changes in prices
3.3 Study the extract and illustration below and answer the questions that follow
Shale gas extraction by hydraulic fracturing (fracking) of rock formations has transformed the energy outlook. Countries become self-sufficient in natural gas and could become big exporters, boosting the economy while gas as substitution for coal in electricity generation has decreased carbon emissions. Opponents of fracking claim that it and other consequences of extracting shale gas harm the environment through poor practice, leading to water pollution.
[Adapted from The Economist, January 2015]
- 3.3.1 What is fracking according to the extract above? (1)
- 3.3.2 Name any ONE non-renewable resource. (1)
- 3.3.3 Name TWO economic benefits of fracking for the South African economy. (2 x 2) (4)
- 3.3.4 In your opinion, what impact will fracking have on the environment? (2 x 2) (4)
- 3.4 Briefly discuss the term producer price index. (4 x 2) (8)
- 3.5 What are the benefits of using technology in sustaining the environment? (4 x 2) (8)
3.3.1 What is fracking according to the extract above?
- Shale gas extraction by hydraulic fracturing (1)
3.3.2 Name any ONE non-renewable resource.
- Coal
- Natural gas
3.3.3 Name TWO economic benefits of fracking for the South African economy.
- South Africa becomes self-sufficient in natural gas
- and can become big exporters of gas
- Earner of foreign exchange
- Boost local economy
- Less reliance on coal as energy
- Creation of jobs
- New entrepreneurial opportunities
- Lead to economic growth
3.3.4 In your opinion, what impact will fracking have on the environment?
- It could cause water contamination
- Animals could die of drinking contaminated water
- Could have an effect on people's health when eating these animals
- Could cause air pollution
- Can have a more environmentally friendly impact than coal
- It can be uitilised as a cheaper energy resource
3.4 Briefly discuss the term producer price index.
- PPI is very useful in the analysis of inflation, due to the fact that PPI measures the cost of production
- PPI measures prices at the level of first significant commercial transaction / Prices of imported goods are measured at the point where they enter the country and manufactured goods are priced when they leave the factory
- The basket consists of goods only (no services)
- Capital and intermediate goods are included
- Prices exclude VAT
- Interest rates are excluded
- Prices of imported goods are shown explicitly (4 x 2) (8)
3.5 What are the benefits of using technology in sustaining the environment?
- Technology can facilitate a solution to environmental problems by providing alternative production techniques
- The development of clean technologies can have lower levels of toxic emissions and stop the existence of high risk chemical waste in the environment
- It makes it possible for developing countries to comply with emissions targets / Substituting products that are more environmentally friendly e.g. paper bags instead of plastic bags; unleaded petrol
- Although the production of platinum causes pollution, the use of the platinum reduces pollution
- Technology facilitates the development of new techniques or equipment to save energy and replace coal and oil with greener energy resources such as wind or sun
- It enables the recycling of waste material such as bottles, cans, cardboard to ensure a cleaner environment
- The on-site treatment and controlled disposal of waste can be achieved by using technology
QUESTION 4: MICROECONOMICS AND CONTEMPORARY ECONOMIC ISSUES 40 MARKS – 30 MINUTES
4.1 Answer the following questions.
- 4.1.1 Name TWO kinds of inefficiencies related to market failures. (2 x 1) (2)
- 4.1.2 What effect will the overexploitation of land have on agricultural output in South Africa? (1 x 2) (2)
4.1.1 Name TWO kinds of inefficiencies related to market failures.
- Productive / technical inefficiencies
- Allocative inefficiencies (2 x 1) (2)
4.1.2 What effect will the overexploitation of land have on agricultural output in South Africa?
- The agricultural output will be affected negatively/reduced output
4.2 Study the graph below and answer the questions that follow.
- 4.2.1 Which point (label) on the graph indicates profit maximisation? (1)
- 4.2.2 Name the curve labelled L. (1)
- 4.2.3 What is depicted by the shaded area? (2)
- 4.2.4 Briefly explain the term short run. (2)
- 4.2.5 Explain why this equilibrium position will NOT remain fixed. (2 x 2) (4)
4.2.1 Which point (label) on the graph indicates profit maximisation?
- N (1)
4.2.2 Name the curve labelled L.
- Average Cost / AC / ATC / SAC (1)
4.2.3 What is depicted by the shaded area?
- Economic Profit (2)
4.2.4 Briefly explain the term short run.
- Period where only variable factors of production can change / there is at least ONE fixed input / fixed cost remains constant (Accept any other relevant response) (2)
4.2.5 Explain why this equilibrium position will NOT remain fixed.
- Profits will attract more entrants into the market, which will lead to an increase in supply
- This will drive prices down towards average costs and profits will decrease
- The new equilibrium position will be a normal profit
4.3 Read the extract below and answer the questions that follow.
PENSIONERS URGED TO USE INVESTMENT TOOLS TO PROTECT RETIREMENT SAVINGS FROM INFLATION
Factors such as inflation hikes and market volatility could have a significant impact on South African pension funds. In order to protect their retirement lump sums from these potentially erosive factors, local pensioners are urged to use specialised investment tools to safeguard their future.
[Source: www.fanews.co.za]
- 4.3.1 State TWO factors from the extract above that will have an impact on retirement savings. (2 x 1) (2)
- 4.3.2 Explain the term retirement lump sum. (2)
- 4.3.3 How can the government use fiscal policy to combat inflation? (2)
- 4.3.4 How can pensioners safeguard themselves against the eroding effect of inflation? (2 x 2) (4)
- 4.4 Explain the uses of cost-benefit analysis (CBA). (4 x 2) (8)
- 4.5 In your opinion, how is the environment as a common resource responsible for market failure? (4 x 2) (8)
4.3.1 State TWO factors from the extract above that will have an impact on retirement savings.
- Inflation hikes
- Market volatility (2)
4.3.2 Explain the term retirement lump sum.
- A cash payment / money that you receive on retirement
4.3.3 How can the government use fiscal policy to combat inflation?
- Increase in direct tax
- Increase in indirect taxation
- Reduction in government expenditure
4.3.4 How can pensioners safeguard themselves against the eroding effect of inflation?
- The retirement fund should be invested in high yield returning investment/portfolios
- Purchasing of property
- Purchasing of blue chip shares
- Specialized investment tools (Accept if specified)
4.4 Explain the uses of the cost-benefit analysis (CBA).
- The cost-benefit analyses is generally used in the public sector when evaluating large-scale public investment projects
- E.g. New highways, railway lines, airports, dams, ports and public transport
- The CBA is used to assess the net social benefit that will accrue to the population from these projects
- CBA requires careful definitions of the projects, accurate estimation of projects lives, and comprehensive consideration of externalities
- Essentially, CBA concentrates on the economic efficiency benefits from a project
- Calculations in a CBA should be done by using market prices or shadow prices to correct distortions which cripple market prices
- Due to the fact that costs and benefits occur at different points in time their future value need to be converted to present value
- The CBA can be used to redistribute income, by making payments to the losers and expect payment from the gainers through a levy or indirect tax
- If the benefits exceeds the costs, acceptance of the project is recommended regardless of who benefits and who bears the costs
- However where decision makers feel that the redistribution of income associated with a project is unacceptable, they may reject the project despite its benefits
- The CBA is a tool/technique that seeks to bring greater objectivity to decision-making Any (4 x 2) (8)
4.5 In your opinion, how is the environment as a common resource responsible for market failure?
- Many parts of the environment are not privately owned therefore the efficiency of these resources are compromised
- The environment forms part of global community goods and thus have the characteristics of non-excludability
- Many of the services provided by the environment do not have a price and as a result there is no incentive to economise in their use
- Most environmental resources are increasingly scarce and at zero price therefore the resources will be overused
SECTION C
Answer any ONE of the two questions in this section in the ANSWER BOOK. Your answer will be assessed as follows:
QUESTION 5: MICROECONOMICS
A monopoly is the extreme opposite of a perfect competitive market.
- Examine the monopoly as a market structure. (26 marks)
- With the aid of a neatly labelled graph, explain long-run equilibrium of the monopolist. (10 marks) [40]
INTRODUCTION
Monopoly exists when there is only one seller of a product, when the product has no close substitutes, and when barriers block entry into the market completely (Max. 2)
BODY MAIN PART
- Number of producers
- - The monopolist has full control over the supply of a product, because it is the only seller
- - The monopoly also represents the total industry e.g. De Beers, Eskom
- Nature of the product
- - The product is unique and has no close substitutes
- - E.g. electricity and rail transport
- Economic profit
- - The monopoly makes a short-term loss or profit
- Technical superiority
- - A monopoly has technical advantage over potential competitors and their access to resources and technical superiority make it difficult for others to compete
- Access to scarce resources
- - A single firm owns and controls a specific scarce resources and excludes other companies from entering the market
- Demand curve
- - Monopolists are also confronted with a demand curve for their product but because they are the only supplier of the product they can decide at what point on the demand curve they wish to be
- - The monopolist is the only supplier of the product in the market - the demand curve that confronts the monopolist is that of the market as a whole
- - The market demand curve which slopes downwards from left to right / graph
- Production level
- - Once the monopolist has decided on a price, the quantity sold is determined by market demand - by reducing the price, monopolists can sell more units of the product and vice versa
- - Monopolists influence the product-price combination of the product they sell without any reaction from other market participants
- - Other participants cannot act because a basic requirement for the existence of a monopoly is that entry to the market is blocked
- Market forces
- - Although the monopolist is the only supplier of a product, the product is still influenced by market forces in the economy
- - Consumers have limited budgets and a monopoly can therefore not demand excessive prices for the product and the monopolist product has to compete for consumer’s favour with all the other products available in the economy
- - E.g. Transnet competes road, air etc. means of transport
- Control over the price
- - A monopolist has considerable control over the market price – but demand limits it
- - A monopoly does not have control over demand, so demand will influence the final market price
- - A monopoly can only decide at which point on the demand curve it wants to produce
- Substitutes
- - There are few products that have no close substitutes whatsoever
- - For many years even though there was no competition for telephone services in South Africa, consumers could still use alternative forms of communication such as letters and telegrams
- Favourable circumstances
- - Sometimes entrepreneur may enjoy favourable circumstances in a certain geographic area
- - E.g. there may be only one supplier of milk in a particular town, a hardware store or hotel
- - There may even be laws that protect them, e.g. Post Offices in South Africa
- - Pure monopolies are a common rarity in South Africa
- - Not only are substitutes available, but there is often nothing to prevent other entrepreneurs from entering the market hence what may be called a quasimonopoly
- Market information
- - All buyers and the single seller have full knowledge of all the current market conditions
- Exploitation of consumers
- - The monopolist may produce fewer products at a higher price compared to businesses under perfect competition
- - E.g. De Beers, because the monopolist is the only producer of the product in the market, there is always the possibility of consumer exploitation. Most governments take steps to guard against such practices and new and existing monopolies are usually well monitored
- Market entry
- - The barriers prevent other producers from entering the market to supply the same type of product Natural monopolies
- - High development cost are frequently a reason - the provision of electricity is often used as an example
- - To build a nuclear power station and transmission lines to distribute electricity costs billions of rands
- - E.g. Eskom as a single business in the country that supplies electricity operates as a natural monopoly and is frequently owned and regulated by the government
Artificial monopolies
- - The barriers to entry are not economic in nature but artificial like patent rights which are legal and exclusive rights of a patent holder to manufacture a product using his or her unique invention
- - Patents are also frequently encountered in the pharmaceutical industry
- - Licensing is another way in which artificial monopoly is applied, e.g. TV and radio licenses
- - licences protect operators against entry of other competitors
Economies of scale
- - These give advantages to large existing companies
- - Occur when the cost per unit decreases when the output increases
- - Large businesses production costs per unit are lower than those of small businesses, e.g. Eskom
The geographical area
- - This can cause a natural barrier as well, e.g. only one holiday resort can fit on the seafront as an exclusive beach
Size of the market
- - Sometimes a business enjoys favourable circumstances in a certain small market
- - E.g. there may be only one hardware store in a particular small town
ADDITIONAL PART
- - In the long term the monopolist makes economic profit
- - The LMC curve intersects the LAC curve at its minimum point
- - Profit maximising point is at point E (LMC = MR) where production is Q1 at a price of P1 per unit/The monopolist will produce at Q1 (100) (profit maximisation point E) at a price of P1 (10)
- - At this production level the average revenue is R10 and average cost is R7
- - Therefore the monopolist is making a profit of R3 per unit (total economic profit of
R300). The total economic profit is represented by the shaded area
CONCLUSION
The monopolist is a price maker but cannot set a price independently of output. A higher price will always result in less quantity.
QUESTION 6: CONTEMPORARY ECONOMIC ISSUES
Tourism is the fastest growing industry in the world.
- Examine in detail the effects of tourism on the South African economy. (26 marks)
- How can indigenous knowledge systems be used to promote tourism in South Africa? (10 marks) [40]
INTRODUCTION
This is the activities of people travelling to and staying in places outside their usual environment for a period not longer than one consecutive year for leisure, business and other purposes and not related to a remunerative activity from within the place visited (Max. 2)
BODY : MAIN PART
Gross domestic product (GDP)
- Direct contribution on GDP
- - Statistics South Africa (SSA) shows that in 2010 inbound tourists contributed R69 billion and domestic tourists R99 billion, amounting to R168 billion - about 3% of South Africa's GDP
- Indirect contribution on GDP
- - If the indirect contribution is added, tourism add about 7% to GDP
- - The WTTC estimated that tourism contributed 9% to the GDP of the world economy in 2011
- - In developing economies the service sector is responsible for around 40% of GDP, while it is responsible for more than 65% of GDP in developed economies
- - South Africa is similar to that of developed economies and services contributed more than 67 % of GDP in 2011
- Employment
- - Tourism has a major effect on employment and this amounted to 1.18 million workers in 2011
- - Tourism is the world’s largest generator of jobs Reasons: Tourism is labour intensive More jobs can be created with every unit of capital invested in tourism than elsewhere
Tourism impacts mostly on the services industry than on agriculture or manufacturing although there are upstream effects when agriculture provides foodstuffs to restaurants and manufacturing provides vehicles for transport
Tourism employs many skills
It ranges from accountants and hairdressers to tour guides and trackers, the tourism industry draws upon numerous skills
Tourism can provide immediate employment
If one quarter of tourists accommodation establishment in South Africa starts to offer live entertainment to quests, thousands of entertainers could be employed within days
Tourism provides entrepreneurship opportunities
The tourism industry accommodates informal sector enterprises, from craft and fruit vendors to pavement vendors, chair rentals
Poverty
- - Tourism is widely recognised as one of the fastest and more effective redistribution mechanisms in development
- - It brings development to the poor in rural areas
- - Tourism provides an alternative to urbanisation, permitting women and youth to continue a rural family lifestyle while giving them business opportunities
- - E.g. to start and operate small-scale tourism businesses around community asserts (forests, parks and rivers)
Externalities
- - The rapidly expanding tourism industry could have both positive and negative impacts that extend well into the future
- - While tourism attracts large amount of revenue, it can also cause undue environmental damage that can harm the very foundation on which it depend
- - All other economic resources, tourism uses resources and produces wastes and also creates environmental costs (pollution) and benefits in the process
- - Rapid growth in tourism aiming at short-term benefits usually results in more negative effects and these includes the degeneration of traditions and cultural values and environmental damage to sites and setting
Environment
Tourism activities create environmental stress:
- - Permanent environmental restructuring which includes major infrastructure
- - Waste product generation such as biological and non-biological waste that damages fish production
- - Direct environmental stress caused by tourist activities, e.g. the destruction of vegetation and dunes
- - Effects on population dynamics such as migration and increased urban densities
Investment
An adequate physical, economic and basic services infrastructure is essential for tourist destinations which means they invest in the following:
- - Transport infrastructure, e.g. roads, airports
- - Communication and infrastructure including telephone lines, electronic signal stations and radio, TVs’
- - Energy infrastructure such electricity and liquid fuel
- - Basic service infrastructure such as clean water and sewerage systems (Max. 26)
ADDITIONAL PART
How can Indigenous Knowledge Systems be used to promote tourism in South Africa?
- More cultural villages can be improved to facilitate and promote tourism e.g. Shangana in Mpumalanga, Basotho in the Free State and Simunye Zulu Lodge in Kwazulu-Natal where guides explain and demonstrate storytelling and indigenous knowledge practices
- Advertising campaigns domestically and internationally by travel agencies, hotels and B & B, lodges and SA Tourism can focus on promoting these heritage sites in brochures and fliers, social media. These actions will make tourists more aware of these attractions
- Encourage tourists to experience different cultures and townships - experience life at home with a household and eat at a shebeen or township restaurant
- World Heritage Sites of South Africa can be promoted for their cultural significance e.g. the Fossil Hominid Sites of Sterkfontein, Mapungubwe Cultural Landscape, Richtersveld Cultural and Botanical Landscape, Vredefort Dome and Robben Island
- Environmental World Heritage Sites of South Africa selected for their natural importance namely the Cape Floral Region Protected Areas, Isimangaliso Wetlands Park as well as uKhahlamba/Drakensberg Park which has been selected for its mixed significance
- Arts and culture festivals e.g. the National Arts Festival, the Hermanus Festival, Awesome Africa Music Festival and Macufe African Cultural Festival should more widely be advertised to encourage tourists to attend
- According to the World Health Organisation, a large majority of the African population make use of traditional medicines for health, social-cultural and economic reasons and forms part of the unique experience tourists experience when visiting local villages
- In South Africa tourists are made more aware of the important role traditional medicine plays in poverty reduction and employment creation
- Relaxation of restrictive tourist visa laws to facilitate easier entry into South Africa
Conclusion
South Africa attracted over 7,8 million tourists in 2011/For every 8.1 additional tourist to South Africa, one new job is created/one per cent increase in tourism adds R532 million annually to the SA economy.
SENIOR CERTIFICATE
ECONOMICS P2 NOVEMBER 2014
MARKS: 150
TIME: 112 hours
SECTION A (COMPULSORY)
QUESTION 1 30 MARKS – 15 MINUTES
1.1 Various options are provided as possible answers to the following questions. Choose the answer and write only the letter (A–C) next to the question number (1.1.1–1.1.8) in the ANSWER BOOK, for example 1.1.9 C.
1.1.1 In economics the term 'short run' refers to a period where … factors of production can change.
- A only variable
- B all fixed
- C both variable and fixed
1.1.2 In a perfectly competitive market products are …
- A heterogeneous.
- B homogeneous.
- C differentiated.
1.1.3 Which ONE of the following is a characteristic of a monopoly?
- A Goods are homogeneous.
- B Monopolists are price takers.
- C There are no close substitutes.
1.1.4 Government intervention in the market ensures sufficient staple food for the poor by setting … prices.
- A maximum
- B minimum
- C limited
1.1.5 The agreement reached in 2002 which focused on environmental sustainability is known as the …
- A Johannesburg Summit.
- B Rio+20 Summit.
- C Kyoto Protocol.
1.1.6 South Africans who travel overseas are called … tourists.
- A inbound
- B outbound
- C domestic
1.1.7 The sustainable use of natural resources is known as …
- A pollution.
- B conservation.
- C preservation.
1.1.8 The promotion of South Africa as an international tourist destination is the responsibility of …
- A the private sector.
- B international organisations like Green Peace.
- C South African Tourism (SAT). (8 x 2) (16)
- 1.1.1 A only variable
- 1.1.2 B homogeneous
- 1.1.3 C there are no close substitutes
- 1.1.4 A maximum
- 1.1.5 A Johannesburg Summit
- 1.1.6 B outbound
- 1.1.7 B conservation
- 1.1.8 C South African Tourism
1.2 Choose a description from COLUMN B that matches an item in COLUMN A. Write only the letter (A–I) next to the question number (1.2.1–1.2.8) in the ANSWER BOOK.
COLUMN A | COLUMN B |
---|---|
1.2.1 Explicit cost 1.2.2 Shut-down point 1.2.3 Cartel 1.2.4 Perfect market 1.2.5 Higher disposable income 1.2.6 Negative externality 1.2.7 Domestic tourism 1.2.8 Administered prices |
A leads to growth in tourism B aircraft noise C where MC = AVC D,when a group of producers form a collective monopoly E controlled by government-appointed authorities F market price = marginal revenue G people travelling within their own countries H visiting museums and art galleries I actual expenditure of a business, for example wages and interest |
- 1.2.1 I actual expenditure of a business, for example wages and interest
- 1.2.2 C where MC = AVC
- 1.2.3 D when a group of producers form a collective monopoly
- 1.2.4 F market price = marginal revenue
- 1.2.5 A leads to a growth in tourism
- 1.2.6 B aircraft noise
- 1.2.7 G people travelling within their own countries
- 1.2.8 E controlled by government-appointed authorities (8 x 1) (8)
1.3 Give ONE term for each of the following descriptions. Write only the term next to the question number (1.3.1–1.3.6) in the ANSWER BOOK.
- 1.3.1 The minimum profit required to prevent an entrepreneur from leaving the industry
- 1.3.2 The amount by which the total cost increases when an extra unit is produced
- 1.3.3 A situation where it is impossible to increase the welfare of one person without making another one worse off
- 1.3.4 A sustained and significant increase in the general price level
- 1.3.5 Traditional knowledge that has a practical application for the daily survival of local communities
- 1.3.6 Runaway inflationary conditions where the general price level increases by more than 50% per month (6 x 1) (6)
- 1.3.1 Normal profit
- 1.3.2 Marginal cost
- 1.3.3 Pareto efficiency / Pareto optimal / Pareto
- 1.3.4 Inflation
- 1.3.5 Indigenous Knowledge Systems / IKS
- 1.3.6 Hyperinflation (6 x 1) (6)
SECTION B
Answer any TWO of the three questions in this section in the ANSWER BOOK.
QUESTION 2: MICROECONOMICS 40 MARKS – 20 MINUTES
2.1 Answer the following questions.
- 2.1.1 State TWO characteristics of monopolistic competition. (2 x 1) (2)
- 2.1.2 What will happen if one firm in the perfect market decides to increase its selling price? (1 x 2) (2)
2.1.1 State TWO characteristics of monopolistic competition.
- A large number of producers (sellers) are active in the market
- The nature of the product is differentiated
- Entry and exit into the market is free (relatively easy)
- Businesses have little control over the price of the product
- Information for both buyers and sellers is incomplete
- Non price competition and branding play an important role in monopolistic competition (2 x 1)
2.1.2 What will happen if one firm in the perfect market decides to increase its selling price?
- This firm will not be able to sell any units due to high levels of competition / the market price will remain unchanged / the firm will go out of business
2.2 Study the extract below and answer the questions that follow.
TOLL ROADS – WAS THIS THE BEST DECISION?
There are major debates surrounding toll roads in South Africa, with many consumers unhappy and undecided whether it will really benefit the economy. The major question is whether the government has examined all the positives and negatives regarding toll roads.
[Adapted from Business Times, May 2013]
- 2.2.1 Explain the term toll. (2)
- 2.2.2 What method can the government use to ensure that the introduction of toll roads is the best decision? (2)
- 2.2.3 How can toll roads lead to market failure? (2)
- 2.2.4 Argue in favour of the implementation of toll roads. (2 x 2) (4)
2.2.1 Explain the term toll.
- Tolling is an billing system used on certain highways / roads or parking bays / fee / tax (2)
2.2.2 What method can the government use to ensure that the introduction of toll roads is the best decision?
- Cost Benefit Analysis / CBA / market research / survey / SWOT analysis / impact studies / environmental studies / positive and negative aspects / needs broad public participation (public was not consulted)
2.2.3 How can toll roads lead to market failure?
- Companies can pass the additional cost onto consumers / higher production cost
- It could lead to a reduction in output / supply
- Mass action against e-tolling can disturb the free flow of goods and people - disturbing the economy
2.2.4 Argue in favour of the implementation of toll roads.
- Source of income for the province (government)
- Money needed to maintain roads and infrastructure
- Job creation
Accept any other positive response with regard to the consumer, business, government and foreign investors (2 x 2) (4)
2.3 Study the graph below and answer the questions that follow.
- 2.3.1 Indicate the profit maximisation point of the monopolist. (1)
- 2.3.2 How many units will be produced at the maximisation point? (1)
- 2.3.3 Determine whether the business is making an economic profit or an economic loss. Show ALL calculations. (4)
- 2.3.4 What favourable conditions may the monopolist enjoy in comparison to other market structures? (4)
- 2.4 Explain how the immobility of factors of production can cause market failure. (4 x 2) (8)
- 2.5 Explain how SASOL can compete in an oligopolistic market with other petrol-selling companies in South Africa. (4 x 2) (8)
2.3.1 Indicate the profit maximisation point of the monopolist.
- MR=MC / c
2.3.2 How many units will be produced at the maximisation point?
- 100
2.3.3 Determine whether the business is making an economic profit or an economic loss. Show all calculations.
- Total Revenue: 6 x 100 = 600
- Total Cost: 4 x 100 = 400
- Profit = Total Revenue – Total Cost
- = 600 - 400
- = 200
The business is making economic profit
Indicate the profit maximisation point of the monopolist.
- MR=MC / c
How many units will be produced at the maximisation point?
- 100
Determine whether the business is making an economic profit or an economic loss. Show all calculations.
- Total Revenue: 6 x 100 = 600
- Total Cost: 4 x 100 = 400
- Profit = Total Revenue – Total Cost
- = 600 - 400
- = 200
The business is making economic profit
What favourable conditions may the monopolist enjoy in comparison to other market structures?
- The monopoly is the only supplier of that particular product
- At liberty to set own prices / charges higher prices
- Decide on production levels / restrict its output
- Laws protection
- Protected by barriers of entry
- Favourable geographical area
- Does not produce at the lowest possible cost
- The monopoly is least efficient at allocating resources and perfect competition is the most efficient at allocating resources
2.4 Explain how the immobility of factors of production can cause market failure.
- Markets may not be able to respond to consumer demand immediately if factors of production cannot respond and move around easily
- Resources tend not to be very mobile and do not adjust easily to consumer demand
- Labour may take time to move into new occupations and geographical areas e.g. family ties, friends, convenience, schools
- Unskilled labour are not able, willing or do not always have the time or money to gain the skills they need – this causes unemployment or employment at low salaries
- Physical capital, cannot easily be moved to places where they are needed e.g. factory buildings and other infrastructure
- It takes time for industries to adapt to new technological changes / structural changes e.g. computer-assisted production
2.5 Explain how SASOL can compete in an oligopolistic market with other petrol-selling companies in South Africa.
They will engage in non-price competition by focusing on some of the following:
- Advertising and marketing e.g. television and radio
- Additional services e.g. convenience stores
- Branding SASOL logo e.g. fuel for cleaner engine
- Friendly staff e.g. offer additional services such as tyre pressure check
- Clean sanitary facilities cleaned regularly / additional services e.g. a baby room
- Competitions e.g. win a car
- Loyalty rewards for customers e.g. fill-up to a certain amount, getting a free engine wash
- Collaborate with businesses e.g. fast-selling food outlets
- Advertise with and in conjunction with other businesses
- Account holders certain companies filling, only pay month-end
QUESTION 3: CONTEMPORARY ECONOMIC ISSUES 40 MARKS – 20 MINUTES
3.1 Answer the following questions.
- 3.1.1 Give TWO examples of World Heritage Sites in South Africa. (2 x 1) (2)
- 3.1.2 How can tourism influence the lives of poor people near tourist destinations? (1 x 2) (2)
3.1.1 Give TWO examples of World Heritage Sites in South Africa.
- Mapungubwe
- The Vredefort Dome
- The Sterkfontein Caves / Cradle of Humankind
- Robben Island
- Richtersveld Cultural and Botanical landscapes
- ISimangaliso Wetland Park / Greater St Lucia Wetland Park
- The Cape Fynbos region/ Table Mountain / Agulhas National Park
- Ukhahlamba Drakensberg Park (Any 2 x 1)
3.1.2 How can tourism influence the lives of poor people near tourist destinations?
- Get employed
- Sell goods and services to the tourists
Any other positive or negative arguments e.g. drug trafficking and prostitution, increased crime rates, pollution, led to increased prices for locals. (Any 1 x 2)
3.2 Study the extract below and answer the questions that follow.
SOUTH AFRICA SWITCHES OFF LIGHTS FOR THE EARTH
On the last Saturday of March South Africa and the world at large switched off their lights for an hour in celebration of 'Earth Hour'.
In clarifying the reasons behind the event, the World Wide Fund for Nature South Africa (WWFSA) highlighted that in South Africa electricity and fuel were produced mainly from 'dirty' non-renewable resources like coal, oil and gas. It therefore urged people to be aware of the kind of destruction brought about by such kinds of energy.
More importantly, the organisation explained that South Africa should change to renewable solar energy and also reduce transport energy consumption. If humans could embrace the power of nature rather than working against it, sustainable energy supply could be ensured.
[Adapted from www.wwf.org.za, October 2013]
3.2.1 What are resources that can be replaced called?
- Renewable resources (2)
3.2.2 What do you think is the aim of celebrating ‘earth hour’?
- To make people aware of the role played by the production of electricity and fuel to environmental damage / saving energy / make people aware of the destruction of oil, coal and gas
3.2.3 How can people reduce transport fuel consumption in order to sustain the environment?
- Using means of transport that carry a large number of passengers such as trains and buses
- Using lift clubs/ travelling in groups
- Walking
- Using bicycles
- Using energy efficient vehicles e.g. hybrid cars
3.2.4 In your opinion, why are non-renewable resources referred to as 'dirty'?
- When burnt, they produce greenhouse gases
- Non-renewable resources cause pollution
- This will cause damage to the ozone layer / environment
- Which will lead to global warming
- Which will cause climate change (Any 2 x 2)
3.3 Study the table below and answer the questions that follow.
- 3.3.1 What are unadjusted CPI figures called? (2)
- 3.3.2 Why is the weighting of items in the basket of goods important? (2)
- 3.3.3 Why would you exclude food from the CPI basket when calculating core inflation? (2)
- 3.3.4 Comment on the impact that the overall CPI index has on the consumer. (4)
- 3.4 Discuss the economic benefits of tourism for the government and infrastructure development. (2 x 4) (8)
- 3.5 Why are industries often accused of contributing to land and water pollution? (4 x 2) (8)
3.3.1 What are unadjusted CPI figures called?
- Headline inflation
3.3.2 Why is the weighting of items in the basket of goods important?
- To indicate the relative share / importance of the total consumer spending on the various items / it is clear that food and beverages, housing and utilities and transport’s relative importance in total spending exceed that of the other
3.3.3 Why would you exclude food from the CPI basket when calculating core inflation?
- Core inflation excludes items that have prices that are highly volatile (substantive increase and decrease in prices) / affected by government intervention (2)
3.3.4 Comment on the impact that the overall CPI index has on the consumer.
- Generally CPI increased / Overall CPI index increased from 5.5 in June to 6.3 in July
- Consumers paid more in July than they did in June for the same items/the cost of living increased / June’s figure is within the inflation target range, but July lies outside the target range affecting the cost of living in a negative way
- Measures inflation and economic growth
3.4 Discuss the economic benefits of tourism for the government and infrastructure development.
Government
- To raise revenue: Tourism makes a direct and indirect contribution to the government revenue through taxes e.g. airport departure taxes, air tickets, VAT, excise duty
- Advertise the economy: delivers excellent service to tourists and create a good image of the country
- Create jobs and relieve poverty: especially in the informal sector e.g. musicians
- It earns foreign exchange for the country thereby increasing its foreign reserves e.g. casino's, accommodation and transport form a very profitable source of foreign reserves
- To recover external cost: It helps the government to recover from tourists a portion that serves as a compensation for providing the infrastructure
- With excellent service, tourism can create a good image for the country e.g. public amenities such as showers and toilets on beaches
- Achieve socio-economic objectives: e.g. black economic empowerment and SMME development (Max 4) Infrastructure development
- All infrastructure built to support tourism become assets to the country e.g. information services
- Residents and tourists enjoy adequate and well maintained physical and basic infrastructure / social infrastructure such as ambulances, medical clinics, information
- Security services and police services that are provided for use by tourists are important for use by residents
- Economic infrastructure is prioritised by government to support tourism growth e.g. ports, beaches, rivers and lakes
- Most economic corridors have tourism as an important focus
- PPP’s are sometimes used for the development of infrastructure
3.5 Why are industries often accused of contributing to land and water pollution?
- Production process often causes pollution when people introduce foreign matter into the environment.
- Firms often release chemical and physical materials on land and in water.
- Water pollution kills the organisms that live in water.
- Land pollution reduces the fertility of soil.
- Extraction of natural resources through mining often results in the damage to land.
- Deforestation often takes place when firms cut trees in preparation for construction of industrial sites.
QUESTION 4: MICROECONOMICS AND CONTEMPORARY ECONOMIC ISSUES 40 MARKS – 20 MINUTES
4.1 Answer the following questions.
- 4.1.1 Give TWO examples of the preservation of the environment. (2 x 1) (2)
- 4.1.2 How can the consumer benefit from competition? (1 x 2) (2)
4.1.1 Give TWO examples of the preservation of the environment.
- Ecological system
- Heritage site
- Indigenous forest
- Wetland
- River mouth system
- Taxation / subsidies / private ownership / reserves / land expropriation / e.g. West Coast nature reserve Any other relevant fact. (Any 2 x 1)
4.1.2 How can the consumer benefit from competition?
- Will pay lower prices
- Equal opportunities
- Better quality services
- Higher standard of living
4.2 Study the extract below and answer the questions that follow
SOUTH AFRICA TO BE ONE OF THE WORLD'S TOP 20 TRAVEL DESTINATIONS BY 2020
South African tourism has been growing since 1994. The international tourist arrivals increased by 10,2% in 2012. In 2012 tourism contributed 3% to the country's GDP compared to 9% worldwide. The country has also sharpened its focus on increasing domestic tourism. It re-launched its Sho't Left tourism marketing campaign targeting young and trendy South Africans and encouraging them to explore their own country.
[Adapted from www.thesouthafrican.com, October 2013]
- 4.2.1 Identify the type of tourism illustrated in the photograph above. (1)
- 4.2.2 What is meant when South Africans are encouraged to explore their own country? (1)
- 4.2.3 How would you ensure that South Africa becomes a world top 20 travel destination by 2020? (4)
- 4.2.4 Why is tourism viewed as a major job creator? Give examples from your own community to support your answer. (2 x 2) (4)
4.2.1 Identify the type of tourism illustrated in the photograph above
- Cultural tourism
4.2.2 What is meant when South Africans are encouraged to explore their own country?
- South Africans are encouraged to travel/be tourist in their own country e.g. Sho’t-left campaign
4.2.3 How would you ensure that SA becomes a world Top 20 travel destination by 2020?
- International tourism should increase even more than the 10,2% in 2012
- Tourism as an industry should contribute more to the GDP
- Focusing even more on domestic tourism
- Encouraging South Africans to explore their own country
- Reduce crime / marketing / natural exhibitions / infrastructure / build on a tourist and friendly environment / upmarket technology
4.2.4 Why is tourism viewed as a major job creator? Give examples from your own community to support your answer.
- Tourism is labour intensive implying that a large number of jobs are created with every unit of capital invested e.g. local population using beads and wood to create jewellery
- Tourism employs many skills from hairdressers next to the road / tour guides offering various tours to tourists
- Provide immediate employment to local people e.g. live entertainment at Gold Reef City or Table Mountain
- Provide entrepreneurial opportunities to many individuals with a small capital outlay
4.3 Study the graph below and answer the questions that follow.
- 4.3.1 Which imperfect market structure is illustrated above? (1)
- 4.3.2 Name the downward sloping demand curve above. (1)
- 4.3.3 Explain how price leadership works in this type of market. (4)
- 4.3.4 Assume that the current selling price is R90. Explain why this business will not lower prices to improve its sales. (4)
- 4.4 Explain environmental taxes and marketable permits as intervention strategies to achieve environmental sustainability. (2 x 4) (8)
- 4.5 What are the effects of the implementation of minimum wages in South Africa? (4 x 2) (8)
4.3.1 Which imperfect market structure is illustrated above?
- Oligopoly (1)
4.3.2 Name the above downward sloping demand curve above.
- Kinked demand curve (1)
4.3.3 Explain how price leadership works in this type of market.
- The dominant firm will initiate a change in price, e.g. increase. They will realise economic profits (abnormal profits)
- Other competitors will also increase their prices
OR
- Dominant firm will decrease prices, luring customers away from other firms in the market
- Other competitors will decrease price not to lose their market share (Any 2 x 2) (4)
4.3.4 Assume that the current selling price is R90. Explain why this business will not lower prices to improve its sales.
- Below price of R90, the firm sees the demand curve as being relative price inelastic, the firm thinks that if it reduces the price of its product, other firms will follow its lead.
- As a result all the other firms will sell a bit more output, but the firms will no longer be producing their profit maximisation output.
- If the firm lowers its prices to R50 the total income will be R9 500 (50 X 190) compared to the original income of R13 500 (90 x 150) The firm suffers a loss of R4 000 (2 x 2) (4)
4.4 Explain environmental taxes and marketable permits as intervention strategies to achieve environmental sustainability.
Levying environmental taxes
- Environmental taxes are taxes that are imposed on output of goods that generates external environmental costs (pollution)
- These taxes are called green taxes / eco taxes
- Carbon dioxide from wineries and vehicle tyres are taxed.
- The tax rate is equal to the external marginal costs. (2 x 2) (4)
Marketable permits
- Government gives each business a licence to pollute to a certain extent.
- Businesses can sell their licences to other businesses that has a larger or increased pollution level.
- In South Africa marketable permits are granted by the Department of Minerals and Energy. (2 x 2) (4)
4.5 What are the effects of the implementation of minimum wages in South Africa?
- The market fails to pay fair increases in salaries of people who are not in a strong enough bargaining position with their employers
- As a result, they are unable to secure real wage increases and their wages remain low and therefore unfair income takes place
- A minimum wage will increase the wage rate, however less workers will be demanded (over supply) in the labour market
- This will lead to an increase in unemployment
- Examples of workers that minimum wages are applied: farm workers, domestic workers (Any 4 x 2)
DISCUSSION:
- Minimum wages improve the distribution of income from W to W1
- However quantity of labour demanded will decrease from Q to Q1
- The quantity supply of labour will increase from Q to Q2
- Therefore, an oversupply of labour (increase in unemployment) will occur with the new minimum wage at W1
SECTION C
Answer any ONE of the two questions in this section in the ANSWER BOOK. Your answer will be assessed as follows:
QUESTION 5: MICROECONOMICS 40 MARKS – 35 MINUTES
Under perfect market conditions the market price of products is determined through the interaction of supply and demand.
- Discuss perfect competition under the following headings:
- → A comparison of the demand curve of the individual producer and industry
- → Profit maximisation
Make use of graphs to support your discussion. (26)
- In your opinion, does the Competition Act of South Africa promote fair competition? (10)
INTRODUCTION
An industry consists of all the firms that produce the same product where the output of an industry is the sum of the output of its individual firms.
BODY: MAIN PART
- In a perfectly competitive market the price of a product is determined by the interaction between market demand and market supply for the product.
- The market demand curve is represented by DD which is downward sloping and the supply curve (SS) is upward sloping.
- As a result of the interaction between market demand and market supply, the equilibrium is established at P1.
- Extending this price the graph of the individual produce. The demand curve for the firm is horizontal that indicates that the individual producer is a price taker.
2. Profit maximisation
- Marginal cost/marginal revenue approach
- The firm produces maximum profits if it produces the quantity where the marginal revenue is equal to marginal cost (MR=MC)
- As long as marginal revenue is greater than marginal cost, the marginal revenue contributes towards total profits
- By producing an additional unit, the producer gains the additional unit and his profit increases more than it cost to produce. MR>MC: profits increase
- When the marginal revenue is less than marginal cost, total profits will decline / MR < MC: profits decline
- It cost the firm more to produce an additional unit than it gets from selling the additional unit it is therefore not in the interest of the firm to produce the extra unit
- If the marginal cost of producing an extra unit is higher than the marginal revenue received, the firm will make a loss
- For the producer to maximise profits, it should expand production to the point where marginal revenue is equal to marginal cost
ADDITIONAL PART
Yes
Arguments in favour:
- o The aim of the Competition Act is to increase efficiencies in the market
- o Improve equity in markets by ensuring access to people who were previously disadvantaged to participate in the economy
- o Contribute to developmental objectives
- o Provide consumers with competitive prices and product choices
- o Ensure that small and medium sized enterprises have an equitable opportunity to participate in the economy
- o Promotes the spread of ownership
Three institutions were created to achieve these objectives:
- Competition Commission: to investigate, control and evaluate restrictive business practices, abuse of dominant positions and mergers to achieve equity and efficiency in the South African economy.
- Competition Tribunal: grant exemptions, authorise or prohibit large mergers, adjudicate, grant an order for costs on matters refers by the Commission
- Competition Appeal Court: consider any appeal from or review a decision of the Competition Commission; confirm, amend or set aside a decision by the Competition Tribunal confirm an order for the disinvestment of assets of parties that merged without following the Act.
Examples of cases investigated by the Competition Commission and/or Competition Tribune or Appeal Court:
- BMW over-pricing cars (outcome fined)
- Tyre industry collusion amongst tyre manufacturers (outcome fined)
- Construction industry collusion of bidding prices for building stadiums in 2010 (outcome fined)
- Bread (Tiger Brands) collusion of bread companies to fixing prices (outcome fined)
- Cell phone companies (rates) as well as interconnection rates (outcome reducing interconnection fees over a few years
- Telkom monopolising communication towers (outcome fined)
Effects of these investigations:
- Install good business practices, deterred for other companies that wanted to apply inappropriate business practices (accept any other relevant example) Any cases investigated by the Competition Commission. The candidate has to mention the parties involved and the outcome of such investigation.
CONCLUSION
Any relevant higher order conclusion that should include:
- A summary of what has been discussed without repeating facts already mentioned in the body /
- An opinion or valued judgement on the facts discussed /
- Additional support information to strengthen the discussion /
- A contradictory viewpoint with motivation /
- Recommendations.
E.g. It is critically important to protect the market mechanism of supply and demand by enhancing fair and vibrant competition in the economy; therefore the role of the Competition Act cannot be underestimated.
QUESTION 6: CONTEMPORARY ECONOMIC ISSUES 40 MARKS – 35 MINUTES
Inflation is a phenomenon that many countries in the world have to deal with.
- Examine in detail the causes of cost-push inflation. (26)
- Has South Africa's inflation-targeting policy been beneficial to the economy? Motivate your response. (10)
INTRODUCTION
Inflation is a sustained and significant increase in general price level over a period of time and a simultaneous decrease in the purchasing power of money.
BODY: MAIN PART
Causes of cost-push inflation
- Increase in Wages:
- In South Africa, increase in wages constitute more than 50% of Gross Value Added at basic prices
- If the increase in wages is not accompanied by an increase in production, the cost of production will rise
- Producers will increase the prices of their products to offset the high cost of production
- Strikes and stay-aways / labour union activities
- Key inputs/ increase in prices of imported capital goods
- When the prices of key inputs that are imported increase, domestic cost of production increases especially in the manufacturing sector
- Supply shocks e.g. sudden increase of oil causes a knock-off effect
- Exchange rate depreciation
- A decrease in the value of the rand will result in an increase in prices of imports
- Profit margins
- When firms increase profit margins, the prices that consumers pay also increase
- Sometimes firms use their market power to push up prices
- Productivity
- Less productive factors of production will lead to increased cost per unit
- Strikes and stay-aways often reduce production output and can result in price increases
- Natural disasters
- Natural disasters such as drought, flood and global warming can impact on the cost of production
- This is often the case in relation to food prices Interest rates
- An increase in interest rates results businesses paying more money for capital loaned
- Firms recover these costs by increasing the prices of their products
- Increase in taxation
- Increase in direct tax like company income tax may lead to businesses increasing their prices to offset the extra burden
- Increase in indirect tax such as custom duty will lead to increase in costs of supplying a particular product, therefore the price will increase
- Administered prices increase e.g. fuel prices
- Shoplifting and losses caused by employees are added to the prices of products
YES / NO
- Inflation targeting is when a particular percentage is set as an acceptable level for an increase in general price levels
- The SARB's inflation target is a range of 3% and 6%
- The aim of inflation targeting policy is to achieve and maintain price stability
- The implementation of the inflation target is easy to understand – expressed in numbers which makes it very clear and transparent
- It reduces uncertainty and promotes sound planning in the public and private sectors
- It provides an explicit yardstick that serves to discipline monetary policy and improves the accountability of the central banks
- The SARB make use of monetary policy, specifically the repo rate to keep the inflation within the target range
- The government make use of fiscal policy regarding public sector revenue and expenditure
Positive effects
- Where demand is higher than supply an increase in interest rates help to bring the demand down
- The policy can helps businesses to make economic plans without worrying about the effects of high inflation
- South Africa's price level has been fairly stable since the introduction of the inflation targeting policy in 2000
Negative effects
- Inflation targeting can cause a reduction in economic growth
- This is because the raising of interest rates, result in a decrease in total spending which is needed for production to increase
- Decreased economic growth can increase unemployment
- South Africa has been experiencing an increase in unemployment since the implementation of the policy in 2000
- Inflation targeting is difficult to implement when the cause of inflation is supply shocks
CONCLUSION
Any relevant higher order conclusion that should include:
- A summary of what has been discussed without repeating facts already mentioned in the body.
- An opinion or valued judgement on the facts discussed.
- Additional support information to strengthen the discussion.
- A contradictory viewpoint with motivation.
- Recommendations.
E.g. Inflation can be a threat to the normal functioning of the economy; therefore measures like monetary and fiscal are vital to keep the phenomenon under control.