THE REASONS AND CONSEQUENCES OF MARKET FAILURES QUESTIONS AND ANSWERS GRADE 12

Activity 1
Study Figure 8.8 and answer the questions that follow.

What economic technique for enumerating and evaluating is depicted in the illustration? (2)
Give TWO recent examples of potential ‘operations’ in South Africa that will fit into the illustration. (2)
List ONE social benefit of each of the above projects. (4)
[8]

Answers to activity 1

Cost benefit analysis (2)
Gautrain Coega (2)
Any other relevant fact.
Gautrain: Better infrastructure 33More effective transport
Coega: Job creation/increased standard of living Any other relevant fact. (any 2 × 2) (4)
[8]

Activity 2
Distinguish between merit and demerit goods. [8]

Answer to activity 2

Taxation, subsidies and legislation are used to control merit and
demerit goods.
Merit goods: higher consumption of goods is regarded as good for
society government makes use of subsidies (distribute
condoms).
Demerit goods: government imposes taxes to discourage
consumption (cigarettes).
[8]

Activity 3
Discuss the features of collective goods. [8]

Answer to activity 3

Non-rivalry: Consumption by one person does not reduce
consumption by another individual e.g. a lighthouse
Non-excludability: Consumption can’t be confined to those
who pay for it (free riders can use it) e.g. radio and television
[8]

Activity 4
Discuss the distribution of wealth and income as a consequence of market failure. [8]

Answer to activity 4

Through the national budget and taxation
Change the distribution of income by: Subsidies, transferring
payments to poor households, providing goods and services free
of charge, implementing job creation programmes
Regulatory measures: Land reform, labour legislation,
preferential access to government procurement contracts, black
economic empowerment policies
[8]

Activity 5
Study the following illustration and answer the questions that follow:

Identify the negative externality depicted in the illustration. (2)
List TWO measures that can be applied by government to reduce
this externality. (2)
What is the liability of the factory in this regard? (2)
What effect will this have on consumer prices? (2)
[8]

Answers to activity 5

Last modified on Tuesday, 24 August 2021 06:25