ECONOMICS
PAPER TWO (P2)
GRADE 12
NSC PAST PAPERS AND MEMOS
SEPTEMBER 2016

MEMORANDUM

SECTION A (COMPULSORY) 
QUESTION 1 
1.1 MULTIPLE-CHOICE QUESTIONS 

1.1.1 B quantity demanded is equal to quantity supplied. ✔✔
1.1.2 B advertising. ✔✔
1.1.3 A public ✔✔
1.1.4 C service ✔✔
1.1.5 C core-inflation.✔✔
1.1.6 A economic profit ✔✔
1.1.7 B a negative ✔✔
1.1.8 A water ✔✔ (8 x 2) (16)

1.2 MATCHING ITEMS 

1.2.1 G costs or benefits that affect a party that was not involved in an  economic activity ✔
1.2.2 F occurs where marginal costs intersect with marginal revenue ✔
1.2.3 I authorise or prohibit large mergers ✔
1.2.4 H entry is restricted through licensing ✔
1.2.5 A measure of the changes in prices of all final goods and  services produced in a particular year ✔
1.2.6 C foreigners visiting South Africa ✔
1.2.7 B introduce waste matter into the environment ✔
1.2.8 D activities of tourists who visit art galleries, museums, and also  attend festivals ✔ (8 x 1) (8) 

1.3 GIVE ONE TERM 

1.3.1 Renewable resource ✔
1.3.2 Domestic tourism ✔
1.3.3 Deflation ✔
1.3.4 Pareto efficiency ✔
1.3.5 Price maker/Monopoly ✔
1.3.6 Homogeneous ✔ (6 x 1) (6)

TOTAL SECTION A: 30

SECTION B 
QUESTION 2: MICROECONOMICS  
2.1

2.1.1

• • Cash grants ✔
  • Interest free loans✔
• • Depreciation written off✔
  • Rent rebates✔
  • Can be direct or indirect✔
    (Accept any other correct relevant response (1 x 2) (2) 

2.1.2 No matter how much the supplier supplies in the market, it cannot  change the market price, it is a price taker, and the demand curve is  perfectly elastic. ✔✔
(Accept any other correct relevant response) (1 x 2) (2)

2.2 Data Response 

2.2.1 P1✔ (1)
2.2.2 Q1 ✔ (1) 
2.2.3

• • The government makes use of traditional methods to redistribute  wealth ✔✔ e.g. levying of taxes and providing free services✔
  • Implement redress methods to enforce redistribution✔✔ e.g.  BEE and affirmative action ✔
    (Accept any other correct relevant response) (Max 4) (4) 

2.2.4 

• • Maximum prices allow the poor greater access to certain goods  and services. ✔✔
  • Sellers will not be willing to sell at the maximum price as a result  less of that particular good will be supplied ✔✔
  • A black market can be formed where sellers offer their goods or  services at a price that is higher than the maximum price. ✔✔
    (Accept any other correct relevant response) (Any 2 x 2) (4)

2.3 Data Response 

2.3.1

Costs: 
high capital costs, ✔ fuel prices, ✔fuel use patterns ✔ (Any 1)
Benefits: 
Energy efficiency, ✔ low cost housing, ✔ solar water heaters ✔
(Any 1) (2) 

2.3.2 CBA – is a tool that is used to evaluate an investment project by  weighing total social costs against total social benefits. ✔✔
          (Accept any other correct relevant response) (2)

2.3.3

• • To make decision on whether to undertake a project ✔✔
  • To assess whether a project will be a feasible investment ✔✔
  • Determine whether the project will benefit the country as a  whole ✔✔
    (Accept any other correct relevant response) (Any 1 x 2) (2) 

2.3.4

• • Market fails because of inappropriate allocation of resources ✔✔
  • CBA seeks to correct project appraisal for market failure ✔✔
  • A need for cost benefit analysis arises in cases of market failure  where government seeks to provide services needed ✔✔
    (Accept any other correct relevant response) (Any 2 x 2) (4) 

2.4 Cartel ✔

• A cartel is a group of producers whose goal is to form a collective  monopoly in order to fix prices and limit supply and competition. ✔✔
• In general, cartels are economically unstable because there is a great  incentive for members not to stick to the agreement, to cheat by cutting  prices illegally and to sell more than the quotas set by the cartel. ✔✔
• Some well-known cartels are the Organisation of Petroleum Exporting  Countries (OPEC) and De Beers diamonds in South Africa. ✔✔
• Cartels are generally forbidden by law in most countries. However, they  continue to exist nationally and internationally. ✔✔
  (Accept any relevant explanation) (Max 4) 

Price leadership ✔ 

• A dominant firm will increase the price of a product in the hope that its  rivals will see this as a signal to do the same. ✔✔
• It is an example of a tacit collusion. ✔✔
• Examples of price leadership are in steel and food industries. ✔
  (Accept any relevant explanation) (Max 4) (8) 

2.5

• Due to the fact that monopolies decide on production levels and determine  their own prices, consumers (demand) do not influence the price or  supply. ✔✔
• The monopoly is however influenced by the limited budget of consumers  as they decide how much they will spend on a particular product. ✔✔
• Even though the monopoly is the only supplier of the product consumers  may decide not to buy the product. ✔✔
• In as much as there are no close substitutes consumers may still  substitute the product of a monopolist ✔✔ e.g. paraffin for electricity (Accept any other correct relevant response) (Max 8) (8)

[40]

QUESTION 3: CONTEMPORARY ECONOMIC ISSUES 
3.1

3.1.1

• • Increases in advertising and promotion ✔
  • Ease of obtaining foreign exchange and making payments ✔
  • More awareness of leisure and recreation ✔
  • Domestic tourism ✔
  • Increase in disposable income ✔
  • Reduced working hours ✔
  • Improved transport, communication and accommodation  facilities ✔
  • Effect of the internet ✔
    (Accept any other correct relevant response) (2 x 1) (2) 

3.1.2 When the prices of key input goods that are imported increase (oil,  energy, capital goods and intermediate goods), the domestic costs of  production are pushed upwards leading to cost push inflation. ✔✔
(Accept any other correct relevant response) (2)

3.2 Data Response 

3.2.1 2010 ✔ (1)
3.2.2 Decrease ✔ (1) 
3.2.3 CPI is an index that measures price of a fixed basket of consumer  goods and services✔✔ (2)
3.2.4

• • Prices increase at a very high rate, more than 50% ✔✔
  • The currency of the country loses power as people could not  afford basic goods and services ✔✔
    (Accept any other correct relevant response) (Any 1 x 2) (2) 

3.2.5 CPI₂₀₁₂ = Price of basket in current year ₍₂₀₁₄₎ 
                         Price of the basket in the base year ₍₂₀₁₀₎ x 100 ✔
                       = 248,10 
                              200   x 100 ✔
                       = 124,1 ✔✔ (4)

3.3 Data Response 

3.3.1

• • Sho’t left campaign ✔
  • Its Here Vaya Mzantsi ✔ (2 x 1) (2) 

3.3.2 The activities of people who travel for various purposes, such as  conferences, meetings, leisure, health etc. ✔✔
(Accept any other correct relevant response) (2) 

3.3.3

• • Advertise tourist attraction destination ✔✔
  • To offer a complete tourism package, ✔✔ i.e. safe and reliable  transport/comfortable accommodation ✔
    (Accept any other correct relevant response) (Max 2) (2)

3.3.4

• • Tourism can stimulate the business environment in areas such  as food, entertainment and other services ✔✔
  • Offer entrepreneurial opportunities for the informal sector ✔✔
  • Construction industry, manufacturing sector and transport sector  benefit from increased demand in tourism ✔✔
  • Businesses benefit when the government develops  infrastructure ✔✔ for example, upgrading of roads, bridges and  airports✔
    (Accept any other correct relevant response) (Max 4) (4) 

3.4

• Increase in household consumption due to easily available credit ✔✔
  Decline in savings causes consumers to have more money to spend ✔✔
• Investors expenditure may lead to higher profit expectations of  businesses ✔✔
  They will invest more, this might lead to an increase in the demand for  goods and services ✔✔
• An increase in government spending leads to an increase in prices ✔✔
  More money comes into circulation due to an increase in spending on  infrastructure, consumption spending and social spending ✔✔
• Export earnings will grow due to an increased demand for locally  produced goods in foreign countries without an increase in production✔✔
  this might lead to higher prices ✔✔
• Reduction in individual tax rebates that leave consumers with more  disposable income✔✔
  this might lead to luxurious spending patterns by  consumers ✔✔ (Any 2 x 4) (8)
  (Candidates can earn a maximum of 2 marks for listing of facts) 

3.5

• Tourists visit countries for different reasons, but mainly, they seek  authenticity. ✔✔
• Cultural villages can be improved to facilitate and promote tourism ✔✔
• Advertising campaigns domestically and internationally can focus on  promoting heritage sites- this will make tourists more aware of these  attraction ✔✔
• Tourists can be encouraged to experience different cultures and  townships- experience life at home with a household and eat at a  shebeen ✔✔
• Arts and culture festivals e.g. the National Arts Festival, Macufe African  Cultural Festival should be widely advertised to encourage tourists to  attend ✔✔
  (Accept any other correct relevant response) (Any 4 x 2) (8)

[40]

QUESTION 4: MICROECONOMICS AND CONTEMPORARY ECONOMIC ISSUES 
4.1

4.1.1

• • Products are differentiated ✔
  • It is a hybrid structure ✔
  • Little control over price ✔
  • Exit and entry are relatively easy ✔
  • Buyers and sellers have incomplete information ✔
  • Absence of a firms interdependence ✔
  • Non-price competition ✔
    (Accept any other correct relevant response) (Any 2 x 1) (2) 

4.1.2

• • To ensure our environment is unharmed e.g. our beaches and all  organisms living in it. ✔✔
  • To foster respect for different cultures and human rights ✔✔
  • Promotion of recycling, energy efficiency, water conservation. ✔✔
    (Accept any other correct relevant response) (2) 

4.2 Data Response 

4.2.1 The country is basic ✔ and unspoilt ✔ (2 x 1) (2) 
4.2.2

• • Tourists pollute the environment ✔✔
  • Tourists exploit nature, ✔✔
    (Accept any relevant response) (Any 1 x 2) (2) 

4.2.3 

• • Tourists may benefit by using a strong currency from their country  of origin to enjoy a luxurious holiday ✔✔
  • Tourists will be able to buy cheap products ✔✔
    (Accept any other correct relevant response) (Any 1 x 2) (2) 

4.2.4 

• • South Africa gains more foreign earnings because of cheap  products ✔✔
  • The country is a cheap holiday destination where tourists spend  more and enjoy longer holidays due to the low value of the  rand ✔✔
  • The demand for locally produced products will increase creating  jobs in various sectors ✔✔
  • South African businesses enjoy bigger exposure to the demands  of foreigners and try to fulfil their needs ✔✔
    (Accept any other correct relevant response) (Any 2 x 2) (4)

4.3

4.3.1 An oligopoly ✔ (1)
4.3.2 Price – 10 ✔ (1) 
4.3.3

• • An oligopoly has little to gain from reducing prices and much to  lose from raising prices✔✔
  • The demand curve has two segments, one for higher prices that  is elastic and one for lower prices that is inelastic.✔✔
  • The demand curve is kinked ✔✔
    (Accept any relevant response) (Any 2 x 2) (4)

4.3.4

• • Firms practice product differentiation (physical appearance of the  product) when each firm produces a product that is slightly  different from the product produced by others ✔✔
  • A product is given a particular image which is appealing to  consumers ✔✔
  • Firms use advertising and marketing to build brand loyalty ✔✔
  • Loyalty rewards and door to door deliveries are examples of non price competition ✔✔
  • Product are differentiated in terms of packaging ✔✔
    (Accept any other correct relevant response) (Any 2 x 2) (4) 

4.4

• Salary and wage earners ✔ – affects people whose incomes are  relatively fixed, incomes that do not change as prices in the market  increase ✔✔ e.g. pensioners and the poor. ✔
• Investors and savers ✔ – investors tend to benefit if they invest in  assets with a flexible market value✔✔ but they will be negatively affected  if they invested in assets with fixed nominal values✔✔On the other hand  savers who invested in fixed deposits tend lose, cause a decline in the  real value of money. ✔✔
• Creditors and debtors✔ – debtors benefit from price increases because  they pay their debts back with money with a low purchasing power. ✔✔ Creditors tend to lose because when they receive money back overtime  when it has lost its value or purchasing power. ✔✔
• Industrial peace ✔– wage bargaining is sometimes accompanied by  strikes and mass action ✔✔which sometimes run into violence which  might affect the society at large. ✔✔
• Taxpayers✔ – taxpayers tend to be pushed in a higher income tax bracket  because they are taxed on their nominal wages ✔✔ the standard of living  is however determined by their real wage (they earn more, pay more tax  and buy less) this is called bracket creep ✔✔
  (Accept any other correct relevant response) (Any 2 x 4) (8) 

4.5

• The government can reduce negative externalities ✔✔
• The government has carried out campaigns in order to change/persuade  people from causing negative externalities. ✔✔ 
• Levying taxes on goods that cause negative externalities ✔✔ e.g. taxes  are levied on cigarettes and alcohol. ✔ 
• Passing laws and regulations to prevent activities that cause negative  externalities ✔✔ e.g. tobacco companies are not allowed to advertise.✔
• The government introduced laws that regulate the amount of air pollution  and waste. ✔✔
  (Accept any other correct relevant response) (Max 4)
• The government encourages positive externalities by: ✔✔
• Advertising on the radio or television encouraging South African citizens  to use scarce resources supplied by government in a specific way ✔✔ 
• Providing education, health care and other services at a low cost or free  to previously disadvantaged communities ✔✔ 
• Providing consumer subsidies to poor communities ✔✔ 
  (Accept any other correct relevant response) (Max 4) (8)

(40) 

SECTION C

QUESTION 5: MICROECONOMICS 
Discuss the three equilibrium positions in the short run under perfect markets  with the aid of well labelled graphs. 
Why are equilibrium positions in the short-term not sustainable in the long run? 
INTRODUCTION 
The individual business can make an economic profit, economic loss or normal  profit in the short run. They are referred to as short run equilibrium positions.✔✔ (Accept any other correct relevant response) (2) 
BODY 

Economic profit✔
A firm makes economic profit when average revenue is greater than average  cost.✔✔

Given a market price of P₃, profit is maximised where MR = MC = P₃.✔✔

• This occurs at a quantity of Q₃.✔
• At Q₃ the firm’s average revenue (AR) per unit of production is P₃. ✔
• The average cost per unit is C₁ which is lower than the price of P₃.✔
• The firm is making an economic profit per unit of production of P₃ – C₁. ✔
  Another explanation 
• Total revenue equals P₃ × Q₃, therefore total revenue is represented by the area  0P₃E₃Q₃. ✔✔
• Total cost equals C₁ × Q₃, this is represented by the area 0C₁MQ₃. ✔✔
• The difference between these two areas is the economic profit which is  represented by the light grey shaded area C₁P₃E₃M. ✔✔ (Max 4 for explanation)

Economic loss✔ 
A firm makes economic loss when average revenue is less than average cost.✔✔

• Given a market price of P₃, profit is maximised where MR = MC at point E₃. ✔✔
• This occurs at a quantity of Q₃. ✔
• At Q₃ the firm’s average revenue (AR) per unit of production is P₃. ✔
• The average cost per unit is C₃ which is higher than the price of P₃. ✔
• The firm is making an economic loss per unit of production which is equal to the  difference between C₃ and P₃. ✔✔
  Another explanation. 
•  Total revenue equals P₃ × Q₃, therefore total revenue is represented by the  area 0P₃E₃Q_3. ✔✔
• Total cost equals C₃ × Q₃, this is represented by the area 0C₃MQ₃. ✔✔
• The difference between these two areas is the economic loss which is  represented by the light grey shaded area C₃P₃E₃M. ✔✔
• Whether the firm should continue production would depend on the level of AR  (that is P₃) relative to the firm’s average variable cost. ✔✔ (Max 4 for explanation)
  Normal Profit ✔
  A firm makes normal profits when total revenue (TR) equals total costs or 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. ✔✔
  

• Given a market price of P₂, profit is maximised where MR = MC = P_2. ✔✔
• This occurs at a quantity of Q₂. ✔
• At Q₂ the firm’s average revenue (AR) per unit of production is P₂, which is also  equal to the average cost per unit C₂ (AC). ✔
• Since AR = AC, the firm earns a normal profit since all its costs are fully  covered. ✔✔
• Point E₂ is usually called the break-even point. ✔✔
  Another explanation 
• Total revenue equals P₂ x Q₂, therefore total revenue is represented by the  area 0P₂E₂Q_2. ✔✔
• Total cost equals C₂ × Q₂, this is represented by the area 0P₂E₂Q₂. ✔✔
• Since Total revenue equals Total Cost the producer makes a normal profit. ✔✔ (Max 4 for explanation) (26)
  ADDITIONAL PART 
• Profits are signals for the entry of new businesses and extension of current  businesses ✔✔
• New technology develops daily leading to increased supply in the market✔✔
• The quantity offered by businesses in the market increases (indicating mass  production) ✔✔
• The increase in the supply leads to a decrease in price due to lower cost per  unit ✔✔
• All businesses in the industry will make normal profit and produce at the  minimum of the long term average cost curve ✔✔
• The economic loss will lead to some businesses leaving the market and the  supply will decrease. ✔✔
• The decrease in supply will lead to an increase in price until it is at the same  level as the long run average cost.✔✔
• If businesses are able to turn their losses to profits they will make normal profits  over the long run ✔✔ (Max 10)

(10) 

CONCLUSION 
In reality there are few perfect markets in some sectors such as mining and  agriculture where conditions are met. These sectors illustrate the way in which the  market mechanism works.✔✔
(Accept any relevant conclusion.) (2)

[40]

QUESTION 6: CONTEMPORARY ECONOMICS 

• Discuss public sector control as measures to ensure environmental  sustainability. 
•  How effective are the South African government’s interventions with regard  to environmental sustainability? 

INTRODUCTION 
The environment brings life to every living organism, it is important that we take care  of it making sure that we keep it safe for future generations.✔✔
(Accept any other relevant introduction) (2)
BODY 
Granting property rights✔

• This means that the government gives people rights to own certain areas i.e.  portions of streams, forests etc. this has positive conservation effects, because  it ensures that people take care of the property they own. ✔✔

Charging for the use of the environment✔

• Consumers and producers are charged for using and abusing the  environment. ✔✔
• They are charged a monthly fee to the government for the waste they produce,  such as municipal charges. ✔✔
• The government also levies emission charges on industries and vehicle  owners. ✔✔

Environmental taxes✔

• These are also known as green taxes or eco taxes. ✔✔
• The government imposes these taxes on consumption of a good that has a  negative effect on the environment and is not for the good of the  environment ✔✔e.g. the levy on plastic bags. ✔

Environmental subsidies✔

• The government subsidises activities that reduce environmental damage. ✔✔
• These activities include improving techniques and equipment such as solar  energy, and wind power to reduce air pollution✔✔
• Producing environmentally friendly substitutes, such as unleaded petrol supporting and encouraging recycling of waste ✔✔

Command and Control (CAC)✔

• The government enforces policy by setting maximum levels of the emission of  pollution. ✔✔
• Most developed countries have regulations that control air and water  pollution.✔✔
  There are 3 approaches in CAC systems: 
• Quantity standards: These focus on the amount of pollution emitted. ✔✔
• Quality standards: These focus on the environmental impact of the pollution  emitted. ✔✔
• Social impact standards: These focus on the effect on people of the pollution  emitted. ✔✔

Education ✔

• People need to be made aware of environmental issues and the consequences  of their actions education plays an important role in improving people’s ability to  manage the environment. ✔✔
• It can be done by taking it to schools, and re-energising traditional agricultural  systems. ✔✔

Voluntary measures ✔

• Government tries to enter into voluntary agreements with businesses to cut  pollution, rather than imposing laws and regulations ✔✔
• The agreements include formal contracts or informal commitments that  businesses negotiate to suite their own circumstances ✔✔
  A maximum of 8 marks for headings. (Max 26)

(26)

ADDITIONAL PART 
How successful has the South African government been in addressing  environmental issues? 

• In an attempt to control the environmental problems posed by plastic shopping  bags, the South Africa government introduced a levy per bag to discourage  consumers in their use thereof ✔✔
• The levy charged had only short run success. The effectiveness of the levy has  continued declining despite its comprehensive application at checkout points as  there are many plastic bags that are polluting the environment.✔✔
• A tyre levy was introduced to encourage reuse, recycling and recovery of waste  due to South Africa generating millions of waste each year ✔✔
• Electric filament lamps (i.e. non energy-saving light bulbs✔) are subjected to the  payment of an Environmental Levy if used in the RSA ✔✔
• To encourage use of energy saving light bulbs the government subsidized  residents in rural areas by exchanging their non-saving light bulbs with free  energy saving bulbs ✔✔
• A motor vehicle CO₂ emission levy was introduced where new passenger  vehicles are taxed based on their certified CO₂ emissions.✔✔
• The objective of the levy is to influence the composition of South Africa's (SA)  vehicle fleet to become more energy efficient and environmentally friendly.✔✔
  (Accept any relevant response) (Any 5 x 2) (10) 

CONCLUSION 
It is obvious that the environment is a precious resource, and the government is  doing all it can to take care of it, therefore all man should follow suit. ✔✔ (Accept any relevant conclusion) (2)

[40] 
TOTAL SECTION C: 40 
GRAND TOTAL: 150