ECONOMICS PAPER 2
GRADE 12
NATIONAL SENIOR CERTIFICATE
MEMORANDUM
SEPTEMBER 2018

SECTION A (COMPULSORY)
QUESTION 1
1.1 MULTIPLE-CHOICE QUESTIONS
1.1.1 C ✓✓ P < AC.
1.1.2 C ✓✓ kinked
1.1.3 A ✓✓ lack of information
1.1.4 D ✓✓ low growth and high unemployment
1.1.5 B ✓✓ the Isimangaliso Wetland Park
1.1.6 B ✓✓ non-renewable
1.1.7 C ✓✓ increase
1.1.8 B ✓✓ average revenue (8 x 2)
(16)
1.2 MATCHING ITEMS
1.2.1 D ✓ licence to pollute to a certain degree
1.2.2 E ✓ resources are allocated such that one party benefits at the disadvantage of the other
1.2.3 F ✓ a world heritage site
1.2.4 B ✓ changes with changes in production
1.2.5 I ✓ maximum permitted level of emission
1.2.6 G ✓ cannot be retrieved if businesses exit the industry
1.2.7 C ✓ direct regulation of an industry through laws that state what is allowed and legal
1.2.8 A ✓ investigate and evaluate restrictive business practices
(8 x 1) (8)
1.3 GIVE ONE TERM
1.3.1 Diseconomies ✓
1.3.2 Cultural tourism ✓
1.3.3 Deflation ✓
1.3.4 Preservation ✓
1.3.5 Externalities ✓
1.3.6 Monopolistic competition ✓
(6 x 1) (6)
TOTAL SECTION A: 30

SECTION B
Answer TWO of the three questions from this section in your ANSWER BOOK.
QUESTION 2: MICROECONOMICS
2.1 Answer the following questions.
2.1.1 Name any TWO methods of non-price competition in monopolistic competition.

• Product differentiation ✓
• Advertising ✓
• Branding ✓
  (Accept any other correct relevant response.) (2 x 1) (2)

2.1.2 Why do businesses in an oligopolistic market collude with one another?
They collude to remove uncertainty of what the competitors may be doing in the market. ✓✓
Maximise profits. ✓✓ (Any 1 x 2) (2)
2.2
2.2.1 Identify the equilibrium point of an individual firm above.
A ✓ (1)
2.2.2 Which time period is depicted in the graph above?
Short run  (1)
2.2.3 What is the reason for the downward sloping demand curve of the industry?

• The law of demand – the higher the price the lower the quantity demanded and vice versa. ✓✓
• Substitution effect ✓✓
• Income effect ✓✓
  (Accept any other correct relevant response.) (1 x 2) (2)

2.2.4 Why are businesses in this industry referred to as price takers?
There are many small businesses in the industry and none of them can influence the price. ✓✓
(Accept any relevant response.) (2)
2.2.5 How will new entrants (businesses) affect the perfect market?
New entrants will affect the perfect market by:

• Shifting the industry’s supply to the right leading to an increase in quantity supplied and the price will drop ✓✓
• Applying a lower price from the industry and produce at the lowest turning point of the long-term average cost curve ✓✓
  (Accept any other relevant correct response.) (2 x 2) (4)

2.3 DATA RESPONSE
2.3.1 Give ONE form of barrier to entry in a monopoly.

• Patents ✓
• Exclusive rights ✓
• Licences ✓
  (Accept any other correct relevant response.) (1)

2.3.2 What is the nature of the products sold by monopolies?
Unique  (1)
2.3.3 Briefly describe the term natural monopoly.

• Natural monopolies have high development costs. ✓✓
• This type of business is frequently owned or regulated by the government. ✓✓
  (Accept any other relevant correct response.) (1 x 2) (2)

2.3.4 Why would it be necessary to break Multichoice’s monopoly?

• Breaking up of monopolies will increase competition as more businesses will enter the market. ✓✓
• The prices will be competitive and more consumers will be able to afford the product. ✓✓
• Consumers will be exposed to a variety of products. ✓✓
• The quality of services provided will improve because each business will be aiming at increasing its market share. ✓✓
  (Accept any other relevant correct response.) (1 x 2) (2)

2.3.5 How would demerit goods contribute to market failure?

• Demerit goods are goods which are deemed to be socially undesirable, and which are likely to be over-produced and over-consumed through the market mechanism. ✓✓
• The consumption of demerit goods imposes considerable negative externalities on society as a whole. ✓✓
• The private costs incurred by the individual consumer are less than the social costs experienced by society in general. ✓✓ (Accept any other correct relevant response.) (2 x 2) (4)

2.4 With the aid of a graph, explain the supply curve of a business in a perfect market.

(Max. 4)
The short run supply curve of an individual producer is part of the marginal cost curve that is above the minimum average variable cost. ✓✓
This starts from point E1 (shutdown point) and moves upwards (E2; E3.) ✓✓
Below the shutdown point the firm will not sell any goods because the price is below the average variable cost. ✓✓
A firm will sell goods if the price is above shutdown price level. ✓✓ (Max 4) (8)
2.5 Evaluate the effects of monopolies on an economy.
Positive effects
Monopolies are effective because:

• Some products are dangerous and need to be handled with caution, e.g. electricity by Eskom and water by local municipalities. ✓✓
• Critical products and services are handled by one company which should be held accountable when something goes wrong.
• Quality is maintained in that it is handled by an experienced service provider.

Negative effects

• Because it is the only producer, products and services tend to be expensive. ✓✓
• Quantity tends to be limited. ✓✓
• Products are produced at high cost and welfare tends to be reduced. ✓✓
• Lack of competition, which means choice for consumers is limited. ✓✓

(Accept any other correct relevant response)
(A learner can focus on one side or both sides.) (4 x 2) (8)
[40]

QUESTION 3: CONTEMPORARY ECONOMIC ISSUES
3.1
3.1.1 List any TWO goods where prices are administered by the government.

• Petrol ✓
• Bread ✓
• Dairy products ✓(2 x 1) (2)

3.1.2 Why do countries engage in deforestation?

• Some industries use trees for production of goods for example furniture, paper. ✓✓
• Areas with forests are cleared to make space for the construction of industries, housing and roads. ✓✓
• As a result, employment opportunities are created for many people. ✓✓
  (Accept any other correct relevant response.) (1 x 2) (2)

3.2 DATA RESPONSE
3.2.1 List any example of a good or service on which CPI’s are based.

• Food ✓
• Clothing ✓
• Shelter ✓
• Transportation ✓
• Doctors ✓
• And other goods✓ (Any 1 x 1) (1)

3.2.2 How is the Consumer Price Index calculated?
Price changes for various items are aggregated using weights. ✓ (1)
3.2.3 Briefly describe the term hyperinflation.
An inflation rate above 50% per month and it is also called run-away inflation. ✓✓
(Accept any other relevant correct response.) (2)
3.2.4 Briefly explain consumer spending as a cause of demand pull inflation.
The increase in consumer spending due to less savings, reduction in taxes and access to credit will lead to a decrease in aggregate supply and as a result prices will increase. ✓✓
(Accept any relevant response.) (2)
3.2.5 Why are products with volatile prices excluded from the consumer price index?

• To determine core inflation ✓✓
• To exclude variation in food prices so that core inflation rates are more stable ✓✓
• The excluded products can have temporal price shocks which may give a false measure of inflation. ✓✓
  (Accept any other relevant response) (2 x 2) (4)

3.3 DATA RESPONSE
3.3.1 Give any country that is part of the G-8 nations.

• France ✓
• Germany ✓
• Italy ✓
• The United Kingdom ✓
• Japan ✓
• The United States ✓
• Canada✓
• Russia ✓ (1)

3.3.2 According to the extract, what are the G-8 nations known for? (1)
Pollution✓
3.3.3 Briefly describe the term environmental sustainability.
It is the environment’s ability to survive its use for future economic activities. ✓✓
(Accept any other correct relevant response.)(2)
3.3.4 Explain the effect of greenhouse gases on the environment.

• CO₂ creates a blanket in the atmosphere that traps the heat and causes a greenhouse effect, leading to global warming.✓✓
• Global warming results in climate change.✓✓
  (Accept any other correct relevant response.) (2)

3.3.5 How can the economy be developed without harming the environment?
This could take place by:

• Living within the limits of what the environment can provide ✓✓
• Understanding the links between the economy, society and the environment ✓✓
• Distributing of resources and opportunities evenly ✓✓
  (Accept any correct relevant response.) (2 x 2) (4)

3.4 Explain fiscal and monetary policies as measures to combat inflation.
Fiscal measures:

• The measures are aimed at discouraging consumer spending. ✓✓
• Taxes are increased to reduce disposable income and curb excessive demand. ✓✓
• Reduce government spending to reduce disposable income. ✓✓
• Implementing measures to improve productivity, such as tax rebates, to improve the supply position. ✓✓ (Max. 4)

Monetary measures:

• These steps are taken by SARB and the National Treasury. ✓✓
• Increase the repo rate to banks, to reduce the availability of credit by banks.✓✓
• Increase interest rates to the same effect as above. ✓✓
• Decrease money supply by means of open market transactions. ✓✓
• Increase banks cash reserve requirements to reduce the availability to customers. ✓✓
• Introduce exchange and credit control. ✓✓ (Max. 4)

(Accept any other correct relevant response.)
(A maximum of 4 marks may be allocated for mere listing and examples.) (8)
3.5 How successful has the South African government been to support a green economy?
The South African government has been successful in:

• Educating society about the disadvantages of deforestation in order to assist in reducing the effects of global warming. ✓✓
• Encouraging the planting of trees and the necessity to take care of our natural vegetation. ✓✓e.g. National Arbor Week in South Africa is a time when South Africans are encouraged to celebrate the beauty and importance of trees. ✓✓
• Encouraging the use of solar energy because it is very safe and environmentally friendly,✓✓ fewer fossil fuels will be burnt, reducing the amount of pollution in the air. ✓✓
• Rekindling old subsistence farming methods and gardening in general, including the indigenous methods of sustaining our natural
  vegetation. ✓✓
• Providing incentives to technology that emit less pollution, this includes government intervention methods i.e. subsidising technology that emits less pollution, command and control systems etc. ✓✓

(Accept any other correct response)
(A maximum of 2 marks may be allocated for mere listing and examples.) (8)
[40]

QUESTION 4:
MICROECONOMICS AND CONTEMPORARY ECONOMIC ISSUES
4.1
4.1.1 Name any TWO features of public goods.

• No rivalry ✓
• Non-rejectable ✓
• Non-excludable ✓
• Social benefit outstrips private benefit ✓
• Continuous consumption ✓ (2 x 1) (2)

4.1.2 What positive effect will the granting of property rights have on the environment?
The environment will be well taken care of and will have a balanced ecosystem because people granted with property rights will play their part in ensuring that natural resources are well taken care of. ✓✓
(Accept any correct relevant response.) (1 x 2) (2)
4.2 DATA RESPONSE
4.2.1 Give an example of a basic food item that is exempted from VAT.

• Maize meal;✓ Rice; ✓ Brown bread; ✓ Dried beans; ✓ Vegetables; ✓ Fruit; ✓ Samp; ✓ Vegetable oil ✓ Mielie Rice; ✓ Legume; ✓ Pilchards;✓Eggs; ✓ Dried mealies; ✓ Milk; ✓ Cultured milk; ✓ Dairy Powdered Blend; ✓ Milk powder; ✓Lentils; ✓ Brown Wheaten Meal✓
  (Accept any other correct relevant response.) (1)

4.2.2 Which type of inflation is depicted in the extract above?
Cost push ✓ (1)
4.2.3 Briefly describe inflation targeting in South Africa.
A monetary policy framework in which the South African Reserve Bank announced an explicit inflation target of 3%–6% and implements policy to achieve this target directly. ✓✓ (2)
4.2.4 How are creditors affected by inflation?
They suffer during inflation because they receive money with a low purchasing power. ✓✓
(Accept any correct relevant response.) (2)
4.2.5 How can the effect of an increase in VAT be combated?

• The increase in VAT should be accompanied by an increase in wages and salaries. ✓✓
• Wage increases should be accompanied by productivity increases. ✓✓
• Government subsidies to producers should be implemented to lower the cost of production.✓✓
• More goods should be exempted from VAT. ✓✓

(Accept any other correct relevant response) (2 x 2) (4)
4.3 DATA RESPONSE
4.3.1 Give ONE type of non-price competition that exists in oligopolies.

• Advertising ✓
• Extended shopping hours ✓
• After sales services ✓
• Product differentiation ✓
• Brand loyalty✓
• Product proliferation ✓

(Accept any other correct relevant response.) (1)
4.3.2 What characterises the products sold by oligopolies?
Product sold can be homogenous or differentiated. ✓ (1)
4.3.3 Briefly explain the term duopoly.
A duopoly is a market structure dominated by two large firms. ✓✓ (2)
4.3.4 What makes it difficult for new businesses to enter into an oligopoly?

• There are high costs in starting up a business ✓✓
• Firms that are already in the market use branding to crowd-out new competition. ✓✓
• Advertising extensively may be costly for new firms. ✓✓

(Accept any other correct relevant response.) (2)
4.3.5 How is the economy negatively affected by oligopolistic tendencies?

• Collusion affects consumers negatively in that firms charge high prices which consumers cannot afford. ✓✓
• Consumers do not have access to and cannot freely select the quality and variety of goods and services they desire. ✓✓

(Accept any relevant response.) (2 x 2) (4)
4.4 Explain biodiversity loss and chemical waste as problems in sustaining the environment.
Biodiversity:
Biodiversity is the number of different species and subspecies which are found within an area. ✓✓
The depletion of natural resources could cause the extinction of species, and in so doing decrease biodiversity. ✓✓ (Max. 4)
Chemical waste:
Chemical waste is toxic (it has a negative effect on living beings and can cause infertility or death). ✓✓
It needs to be carefully managed to ensure it does not seep into the ground water. ✓✓ (Max. 4)
(Accept any other correct relevant response)
(A maximum of 4 marks may be allocated for mere listing and examples.) (8)
4.5 What does the South African government hope to achieve through competition policies?
Competition policies should be achieved by:

• Preventing unfair methods of achieving market power ✓✓
• Increasing fair competition among firms ✓✓
• Improving efficiency in markets where producers produce according to the needs of consumers✓✓
• Discouraging the existence of monopolies created by take-overs and mergers ✓✓
• Preventing price fixing and collusion by oligopolies ✓✓
• Promoting SMMEs for the development of our economy ✓✓
• Using the Competition Authorities (Competition Commission, Competition Tribunal and Competition Appeal Court) effectively ✓✓

(Accept any correct relevant response.)
(A maximum of 2 marks for mere listing and examples.) (8)
[40]
TOTAL SECTION B: 80

SECTION C
Answer ONE of the two questions from this section in the ANSWER BOOK.
Your answer will be assessed as follows.

QUESTION 5

• With the aid of graphs, discuss in detail state intervention as a consequence of market failures under the following headings:
• Minimum wages (13 marks)
• Subsidies on goods and services (13 marks) (26 marks)
• How can cost benefit analysis reduce market failure? (10 marks)

INTRODUCTION
Participants in the economy, at times, engage in activities that are not aligned with market forces. As a result, there are shortages here and there, and therefore, government is required to take action. ✓✓
(Accept any other correct relevant introduction.) (2)

MAIN PART
MINIMUM WAGE

A minimum wage is a wage rate set by the government, below which no employer can pay their workers. ✓✓
Point E is the market equilibrium price where workers receive an income at W, and the amount of workers available is at Q. ✓✓
The government intervenes by setting the minimum wage rate at W1 ✓✓ above market equilibrium price (W). ✓✓At the new wage level, the supply of workers is at Q2, while the demand of workers is at Q1. ✓✓
Therefore the introduction of minimum wage leads to an excess supply of labour. ✓✓ (Max. 9)

SUBSIDIES ON GOODS AND SERVICES

A subsidy is a form of financial grant to support production of goods and services or the consumption of goods and services. ✓✓
The original equilibrium is at point E; at price P and quantity Q. ✓✓
When a subsidy is introduced:
The supply shifts from SS to S1S1 and the new equilibrium is formed at point E1,
at a price of P1 and quantity Q1
The price for the producer increases from P to P2 ✓✓
The price for the consumer decreases from P to P1 ✓✓
Subsidy amounts to P1P2 C E1 ✓✓
The introduction of a subsidy benefits the producer in that the producer is able to make a profit of PP2 C E ✓✓
It also benefits the consumers by saving PEE1P1 ✓✓ (Max 9.)
(26)

ADDITIONAL PART- How can Cost Benefit Analysis reduce market failure?
The South African government hopes to achieve this by:

• Ensuring that costs and benefits are taken into account before the government embarks on a big project✓✓ for example roads, bridges, etc.✓
• Assessing whether the new project will be feasible, ✓✓ considering that social benefits are more than social costs. ✓✓
• Making objective decisions ✓✓ as it removes subjectivity in decision-making because all decisions are based on practical facts. ✓✓
• Ensuring economic efficiency in resource allocation ✓✓ and eliminating unfruitful expenditure. ✓✓
• (Accept any other correct relevant response.) (10)

CONCLUSION
The government is trying its best to safeguard the interests of the poor but still more needs to be done. ✓✓
(Accept any other high order conclusion.) (2)
[40]

QUESTION 6

• Examine in detail the effects of tourism. (26 marks)
• How can government sustain the positive impacts of tourism? (10 marks)

INTRODUCTION
Tourism is the activities of people travelling to places outside their usual environment. It may be for leisure or business as long as one is not going to be remunerated. ✓✓
(Any other correct relevant introduction.) (2)

BODY
MAIN PART – EFFECTS OF TOURISM
GROSS DOMESTIC PRODUCT (GDP) ✓
Tourism is a service-based industry. It is responsible for 65% of the GDP in developed countries and 40% of the GDP in developing countries. ✓✓
Tourism can influence the GDP both directly and indirectly. ✓✓
A direct impact on the GDP comes from services tendered to tourists✓✓ which may be 7–9% of the GDP in South Africa. ✓✓
An indirect contribution would be products sold to businesses involved in tourist industry. ✓✓ For example, wholesalers supply ingredients to hotels which sell the final meal to tourists. ✓ (Max. 4)

EMPLOYMENT ✓
Tourism industry employs 7% of South Africa’s workforce. ✓✓
Tourism is the largest provider of jobs because it is:

• Labour intensive ✓✓
• Employs many different kinds of skills ✓✓
• Provides immediate employment ✓✓
• Provides entrepreneurial opportunities ✓✓ (Max. 4)

POVERTY ✓
Poverty is most evident in rural areas due to lack of job opportunities. ✓✓
Tourism can alleviate poverty in the following ways:

• Tourism is a fast and effective mechanism for distributing resources to rural areas to develop them as tourist sites. ✓✓
• Many prime attractions are located in rural areas. ✓✓

Tourist developments in rural areas increase the number of available jobs. ✓✓
Tourism promotes a balanced and sustainable form of development. ✓✓ People are able to earn a living in their home areas resulting in a reduction in urbanisation. ✓✓
(Max. 4)

EXTERNALITIES ✓
Externalities are costs and benefits that result from a specific activity. ✓✓ Tourism results in both. ✓✓
Positive externalities ✓
Tourism: Attracts large amounts of revenue ✓✓
Leads to an improvement in infrastructure development ✓✓
Stimulates employment indirectly ✓✓
Can help conserve natural and cultural assets and alleviate poverty ✓✓
Negative externalities 

• Tourism can cause environmental damage if not managed correctly. ✓✓
• It can result into a lot of waste and damage to sensitive tourist sites. ✓✓
• The infrastructure of tourist sites can come under pressure in catering for increased tourist numbers.✓✓
• It leads to increased prices of tourist goods. ✓✓ (Max. 6)

THE ENVIRONMENT ✓

• Tourism can result in environmental stress. ✓✓
• It can result in:
• Permanent restructuring of the landscape e.g. construction work on highways✓✓
• Additional waste products, e.g. biological (sewerage) and non-biological (litter) waste ✓✓
• Direct environmental stress e.g. the loss of wildlife species due to safari hunting ✓✓
• Effects on population dynamics, e.g. migration and changes in population density in response to the needs of tourist sites ✓✓(Max. 4)

INVESTMENT ✓
Tourist destinations require adequate physical (hotel rooms), economic (ATM’S) and basic (water and electricity) services infrastructure. ✓✓
This includes:

• Transport infrastructure, e.g. improved roads are needed to access tourist sites ✓✓
• Communication infrastructure, e.g. hotels need telephone lines to take bookings at tourist sites ✓✓
• Energy infrastructure, e.g. tourists need electricity at tourist sites ✓✓ (Max. 4)
• (Accept any other correct relevant response)
  (Max. 8 marks for mere listing and examples) (26)

ADDITIONAL PART
The government can sustain the positive impacts of tourism by:

• Maintaining infrastructure and keeping it in a good condition so that the needs of the tourists are well catered for ✓✓
• Implementing policies around safeguarding and maintaining tourist sites and keeping them attractive ✓✓
• Expanding and creating new tourist attraction sites to cater for the potentially increasing volume of tourists ✓✓
• Promoting domestic tourism because it has the potential of increasing tourism ✓✓
• Decreasing the crime rate so that tourists can move freely and safely; tourists will then have a feeling of being home away from home, so they can keep coming ✓✓
• Maintaining our indigenous knowledge and culture because tourists want to see what is new and authentic. ✓✓
• (Accept any other correct higher order relevant response.) (10)

CONCLUSION
South Africa is a very beautiful country. It has the potential of being the number one tourist destination, so government should do more to enhance it. ✓✓
(Accept any other correct relevant higher order conclusion.) (2)
[40]
TOTAL SECTION C: 40
GRAND TOTAL: 150