MARKS: 150 

TIME: 2 hours 

INSTRUCTIONS AND INFORMATION 

1. Answer FOUR questions as follows in the ANSWER BOOK:  

• • SECTION A: COMPULSORY 
  • SECTION B: Answer TWO of the three questions. 
  • SECTION C: Answer ONE of the two questions. 

1. Number the answers correctly according to the numbering system used in  this question paper. 
2. Write the number of the question above each answer.  
3. Read the questions carefully and start each question on a NEW page. 5. Leave 2–3 lines between subsections of questions. 
4. Answer the questions in full sentences and ensure that the format, content  and context of your responses comply with the cognitive requirements of the  questions. 
5. Answer only the required number of questions. Answers in excess of the  required number will NOT be marked. Use only black or blue ink.  
6. You may use a non-programmable pocket calculator. 
7. Write neatly and legibly.

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–D) next to the question numbers (1.1.1 to 1.1.8) in the ANSWER BOOK, for example 1.1.9 D. 

1.1.1 In a perfect market, normal profit is also known as the … point. 

A maximum 
B zero 
C break-even 
D minimum 

1.1.2 A firm that has no control over prices, and adheres to market prices,  is called a … 

A price war. 
B price-taker. 
C price-maker. 
D monopoly. 

1.1.3 The … promotes and maintains competition in South Africa. 

A Competition Commission 
B Competition Tribunal 
C Competition Appeal Court 
D Competition Act  

1.1.4 A market that consists of one seller of a unique product. 

A Monopoly 
B Oligopoly 
C Monopolistic competition 
D Duopoly 

1.1.5 The price set by the government that is above the market price. 

A Minimum wages 
B Maximum prices 
C Minimum prices 
D Subsidies

1.1.6 CBA is a method used to assess ... 

A externalities. 
B public sector projects. 
C market failure. 
D private sector projects. 

1.1.7 When perfect competitive businesses are in the long-run equilibrium  they maximise … 

A profits. 
B marginal cost. 
C variable cost. 
D average cost. 

1.1.8 A tax that the government imposes to discourage the consumption  of demerit goods. 

A Customs duty 
B VAT 
C Personal income 
D Sin tax  (8 x 2) (16)

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 numbers (1.2.1 to 1.2.8) in the  ANSWER BOOK, for example 1.2.9 J. 

(8 x 1) (8) 

1.3 Give ONE term for each the following descriptions. Write only the term next  to the question numbers (1.3.1 to 1.3.6.) in the ANSWER BOOK. Abbreviations, acronyms and examples will NOT be accepted. 

1.3.1 Products that are identical in style, design and quality 

1.3.2 The amount of money received from the sales of a product 

1.3.3 A situation where one firm fixes a price and others accept it as the  market price 

1.3.4 The period of production where all factors can change 

1.3.5 It occurs when a business or economy does not produce products  at the lowest possible cost 

1.3.6 Grant or support given to business by government. (6 x 1) (6)

TOTAL SECTION A: 30

SECTION B 

Answer any TWO of the three questions from this section in your ANSWER BOOK.

QUESTION 2: MICROECONOMICS 40 MARKS – 30 MINUTES

2.1 Answer the following questions. 

2.1.1 Name any TWO types of profit in a perfect market. (2 x 1) (2)

2.1.2 Why do firms make an economic loss in the short-run? (1 x 2) (2)

2.2 Study the graph below and answer the questions that follow. 

2.2.1 Identify a break-even point on the graph above. (1) 

2.2.2 Name ONE curve that can be used to illustrate the profit maximisation  point of a perfectly competitive firm. (1) 

2.2.3 Briefly describe the term profit maximisation. (2)

2.2.4 Why is the firm above maximising profit when output produced is 40? (2) 

2.2.5 How does the total revenue (TR) curve of a perfectly competitive firm  differ from the one of an imperfectly competitive firm. (2 x 2) (4)

2.3 Study the information below and answer the questions that follow.

2.3.1 Identify ONE non-price competition method that chain stores use to  compete, from the extract above. (1) 

2.3.2 Name the market structure associated with chain stores. (1) 2.3.3 Briefly describe the term collusion. (2) 

2.3.4 Why would a monopolistic competitor not gain a larger market share  if they decrease their prices? (2) 

2.3.5 What negative consequences could the closing down of chain stores  have on employees? (2 x 2) (4) 

2.4 Briefly describe the objectives of the competition policy in South Africa.   (4 x 2) (8) 

2.5 How would the implementation of minimum wages impact negatively on the  economy? (4 x 2) (8) [40]

QUESTION 3: MICROECONOMICS 40 MARKS – 30 MINUTES

3.1 Answer the following questions. 

3.1.1 Name any TWO features of public goods. (2 x 1) (2) 

3.1.2 How would the reducing of wealth and income gaps affect consumers  positively? (2 x 1) (2) 

3.2 Study the information below and answer the questions that follow.

3.2.1 Identify the market wage on the graph above. (1)

3.2.2 Name the curve in the graph that represents the employers. (1)

3.2.3 Briefly describe the term maximum price. (2)

3.2.4 Why does the government levy indirect taxes on demerit goods? (2)

3.2.5 Why is competition in the market good for the economy? (2 x 2) (4)

3.3 Study the extract below and answer the questions that follow.

3.3.1 Identify the number of houses the market will provide if all resources  were spent on houses. (1) 

3.3.2 How many schools should the government provide to reach the  socially optimum allocation? (1) 

3.3.3 Briefly describe the term market failure. (2)

3.3.4 Why are markets reluctant to provide public goods such as roads? (2)

3.3.5 How can the government encourage positive externalities? (2 x 2) (4) 

3.4 Briefly discuss non-price competition and market entry as characteristics of  monopolistic competition. (4 x 2) (8) 

3.5 Why are negative externalities considered a consequence of market failure?  (4 x 2) (8) [40]

QUESTION 4: MICROECONOMICS 40 MARKS – 30 MINUTES

4.1 Answer the following questions. 

4.1.1 Name any TWO examples of explicit cost. (2 x 1) (2) 

4.1.2 Why is the private sector reluctant to provide community goods?   (2 x 1) (2) 

4.2 Study the graph below and answer the questions that follow. 

4.2.1 Identify the market price from the graph above. (1)

4.2.2 Which part of the demand curve is elastic on the graph above? (1)

4.2.3 Briefly describe the term oligopoly. (2)

4.2.4 Why is the demand curve of an oligopoly kinked? (2) 

4.2.5 How can the government correct allocative distortions caused by  oligopolies? (2 x 2) (4)

4.3 Study the extract below and answer the questions that follow. 

4.3.1 Identify an institution that is responsible for investigating anti competitive behaviour in the extract above. 

4.3.2 Which institution rules on the cases submitted by businesses that are not satisfied with the rulings made by the Competition Tribunal? (1)

4.3.3 Briefly describe the term implicit costs. (2) 

4.3.4 Explain the way in which dominant businesses can abuse their market  powers. (2) 

4.3.5 How can small, medium and micro enterprises (SMME) contribute to  the goals of the competition policy? (2 x 2) (4) 

4.4 Briefly discuss overt collusion and tacit collusion. (4 x 2) (8) 

4.5 Examine the conditions under which perfect competition successfully  operates. (4 x 2) (8) [40] 

TOTAL SECTION B: 80

SECTION C 

Answer any ONE question of the TWO questions in the ANSWER BOOK. Your answer will be assessed as follows: 

QUESTION 5: MICROECONOMICS 40 MARKS – 40 MINUTES 

• With the aid of graphs discuss in detail the various equilibrium positions under  perfect market conditions. (26 marks)
• Why are South African state monopolies unable to achieve economic profit?   (10 marks) [40] 

QUESTION 6: CONTEMPORARY ECONOMIC ISSUES 40 MARKS – 40 MINUTES 

• Discuss in detail the factors that lead to the misallocation of resources in the market under the following subheadings: 
• Missing markets (10 marks) o Lack of information (8 marks) o Immobility of factors of production (8 marks) [40] 
• How effective is the government’s intervention strategy on the redistribution of  wealth in South Africa? (10 marks) 

MARKING GUIDELINE

SECTION A (COMPULSORY) 

QUESTION 1  

1.1 MULTIPLE-CHOICE QUESTIONS 

1.1.1 C ✓✓ (break-even) 

1.1.2 B ✓✓ (price-taker) 

1.1.3 D ✓✓ (Competition Act) 

1.1.4 A ✓✓ (monopoly) 

1.1.5 C ✓✓ (minimum prices) 

1.1.6 B ✓✓ (public sector projects) 

1.1.7 A ✓✓ (profits) 

1.1.8 D ✓✓ (sin tax) (8 x 2) (16) 

1.2 MATCHING ITEMS 

1.2.1 E ✓ – Actual expenditure of businesses 

1.2.2 A ✓ – An institution that investigates restrictive business  practices 

1.2.3 F ✓ – A market structure in which there are many buyers and  sellers 

1.2.4 B ✓ – A group of producers who form a collective monopoly

1.2.5 G ✓ – Costs paid by the consumer when goods are purchased

1.2.6 H ✓ – An illegal market in which goods are bought and sold

1.2.7 C ✓ – Goods that are beneficial to society 

1.2.8 D ✓ – Refers to the extra amount of income gained by selling one  more unit of production (8 x 1) (8)

1.3 GIVE ONE TERM 

1.3.1 Homogenous ✓ 

1.3.2 Total revenue ✓ 

1.3.3 Price leadership ✓ 

1.3.4 Long-run ✓ 

1.3.5 Productive inefficacy ✓ 

1.3.6 Subsidies ✓ (6 x 1) (6) 

TOTAL SECTION A: 30

SECTION B  

Answer any TWO of the three questions from this section in your ANSWER BOOK.

QUESTION 2: MICROECONOMICS 

2.1

2.1.1 Name any TWO types of profit in a perfect market.

• • Normal profit ✓
  • Economic profit ✓/ supernormal profit ✓ / abnormal profit ✓  (2 x 1) (2) 

2.1.2 Why do firms make an economic loss in the short-run? 

• • When a business opens, it will be faced with high costs  associated with starting a business ✓✓ 
  • A business can experience a loss of market share, leading to a  reduction in total revenue ✓✓ 
  • A business may experience an increase in total cost ✓✓
    (Accept any other correct relevant response.) (1 x 2) (2)

2.2 DATA RESPONSE 

2.2.1 Identify a break-even point in the graph above. 

• • A or B ✓ (1) 

2.2.2 Name ONE curve that can be used to illustrate the profit  maximisation point of a perfectly competitive firm. 

• • MR ✓ / MC ✓ 
  • Marginal revenue curve ✓ / marginal cost curve ✓ 
  • TR (Total revenue curve) ✓/ TC (Total cost curve) ✓ (2) 

2.2.3 Briefly describe the term profit maximisation. 

• • Profit maximisation is the short-run or long-run process by which  a firm may determine the price, input and output levels that may lead to the highest possible total profits. ✓✓ (2) 

2.2.4 Why is the firm above maximising profit when output produced  is 40? 

• • The gap between TR and TC is the greatest. ✓✓ (2) 

2.2.5 How does the total revenue (TR) curve of a perfectly competitive  firm differ from the one of an imperfectly competitive firm? 

• • The TR curve of a perfectly competitive firm is positively sloped  (upward sloping from left to right). ✓✓ 
  • The one of an imperfectly competitive is hump-shaped (starting  by rising, reaching the peak and then declines). ✓✓  (2 x 2) (4)

2.3 DATA RESPONSE 

2.3.1 Identify ONE non-price competition method that chain stores use  to compete from the extract. 

Online shopping ✓ (1) 

2.3.2 Name the market structure associated with chain stores.

Monopolistic competition ✓ (1) 

2.3.3 Briefly describe the term collusion. 

An arrangement between businesses with the aim of limiting  competition between them by fixing prices. ✓✓ 
(Accept any other correct relevant response.) (2) 

2.3.4 Why would a monopolistic competitor not gain a larger market  share if they decrease their prices?  

• • Monopolistic competitors use non-price competition strategies to  compete; they do not compete using prices. ✓✓ 
  • Many customers enjoy other benefits that their favourite store  offers, therefore they remain loyal (brand loyalty) to Spar even if Shoprite decreases their prices. ✓✓ (2) 

2.3.5 What negative consequences could the closing down of chain  store have on employees? 

• • It could result in the retrenchment of workers ✓✓ 
  • It contributes to less physical interaction and this may lead to anti social behaviour and less work satisfaction ✓✓ 
  • Older employees will be retrenched, and they will become  unemployable ✓✓ 
  • Employees will earn no income and that will decrease their  standard of living ✓✓ 
    (Accept any other correct and relevant response.) (2 x 2) (4)

2.4 Briefly describe the objectives of the competition policy in South Africa.

• To help prevent the abuse of economic power, for example by a monopolist ✓✓ 
• To regulate the growth of market power by means of takeovers and  mergers ✓✓ 
• To prevent restrictive business practices, especially by oligopolies, such as  fixing of selling prices, collusion in respect of tenders or price discrimination ✓✓ 
• Contribute to the development of the five macroeconomic objectives of the  state such as price stability and economic equity ✓✓ 
• To improve efficiency of markets through legislation such as the competition  act. ✓✓ 
• To improve equity in markets by implementing redress methods e.g., Employment Equity Act, BBBEE etc. ✓✓ 
• To protect the consumer against unfair prices and inferior products e.g., Competition Act ✓✓ 
• To prevent price fixing usually practiced by oligopolistic firms. ✓✓
  
  (Accept any other correct and relevant response.)
  (Allocate a maximum of 4 marks for mere listing of facts.) (Max. 8) (4 x 2) (8) 

2.5 How would the implementation of minimum wages impact negatively on  the economy?  

• Minimum wages will enable citizens to afford basic needs, ✓ leading to an  improvement in the standard of living ✓ 
• Affordability will improve as a result of the imposition of minimum wages ✓✓ 
• Minimum wages can also increase productivity as workers will become more  motivated, and work much harder ✓✓ 
• Minimum wages also increase the cost of production; hence employers  would want to have some way to recover them ✓✓ 
• The increasing costs will offset the profits of businesses ✓✓ 
• Some entrepreneurs may opt to hike prices, which may provoke inflation and  make it difficult to consumers to afford ✓✓ 
• Others may scale down their production which may lead to job losses ✓✓ 
  (Accept any other correct relevant response.) 
  (Allocate a maximum of 2 marks for mere listing of facts.) (Max. 8) (4 x 2) (8) [40]

QUESTION 3: MICROECONOMICS 

3.1

3.1.1 Name any TWO features of public goods.  

• • Non-rivalry ✓ 
  • Non-excludability ✓ 
  • Non-rejectability 
  • Social benefits outstrip social costs ✓ 
  • Continuous consumption (Any 2 x 1) (2) 

3.1.2 How would the reducing of wealth and income gaps affect  consumers positively?  

• • Taxes on wealth will help the government to redistribute to the poor ✓✓ 
  • More money can be spent on education and improving people’s lives to overcome poverty ✓✓ 
  • Laws can also be used to reduce inequality ✓✓ 
  • The standard of living of citizens will be improved ✓✓
    (Accept any correct relevant response.) (Any 2 x 1) (2)

3.2 DATA RESPONSE 

3.2.1 Identify the market wage on the graph above.

2 500 ✓ (1) 

3.2.2 Name the curve in the graph that represents the employers.

DD ✓ / Demand curve ✓ (1) 

3.2.3 Briefly describe the term maximum price. 

It refers to a price set below the market price to accommodate  economically marginalised individuals who could not have been able to afford the good or service. ✓✓
(Accept any other correct relevant response.) (2) 

3.2.4 Why does the government levy indirect taxes on demerit goods?

• • They aim to reduce consumption of demerit goods as they are  considered harmful to society. ✓✓ 
  • Taxation helps internalise the external cost (negative externalities)  making consumers pay for the full social cost of their consumption choice. ✓✓ 
  • Indirect taxes generate substantial government revenue, which  can be used to fund public services. ✓✓
    (Accept any other relevant correct response.) (2 x 1) (2)

3.2.5 Why is competition in the market good for the economy?
Competition is good for the economy because: 

• • it pushes prices down and enables consumers to afford goods  and services ✓✓ 
  • when firms compete consumers will benefit from the variety of  products available in the market ✓✓ 
  • companies will operate efficiently because they need to stay  competitive ✓✓ 
  • competition enables economic growth and promotes global  competitiveness ✓✓
    (Accept any other correct relevant response.) (Max. 4) (2 x 2) (4)

3.3 DATA RESPONSE 

3.3.1 Identify the number of houses the market will provide if all  resources were spent on houses. 

12 000 ✓ (1) 

3.3.2 How many schools should the government provide to reach the  socially optimum allocation? 

13 000 ✓ (1) 

3.3.3 Briefly describe the term market failure. 

Market failure occurs when the forces of demand and supply fail  to allocate resources efficiently. ✓✓ 
(Accept any other correct relevant description.) (2) 

3.3.4 Why are markets reluctant to provide public goods such as  roads? 

• • It requires a huge capital outlay which is challenging for the  private sector. ✓✓ 
  • It is difficult to charge higher prices and therefore profits are  compromised. ✓✓  
  • The nature of the goods is non-rival (consumption by one does  not reduce the amount available for somebody else). ✓✓  
  • Some of the goods are non-excludable (difficult to prevent people  from using the good). ✓✓ 
  • The cost to produce it is too high, and the profit margin is too low. ✓✓
    (Accept any other correct relevant response.)(2)

3.3.5 How can the government encourage positive externalities?

• • The government can provide subsidies who create products or  services with positive externalities. ✓✓ 
  • For example, subsidising the production of clean energy  technologies to encourage the adoption of environmentally friendly practices, leading to reduced pollution and improved public health. ✓✓ 
  • Subsidies to consumers can make goods or services with positive  externalities more affordable. ✓✓ 
  • The government can provide goods and services that generate  positive externalities when private markets underproduce them. ✓✓ 
  • Provide tax breaks or credits to individuals or businesses  engaged in activities that generate positive externalities. ✓✓
    (Accept any other relevant correct answer.) (2 x 2) (4) 

3.4 Briefly discuss non-price competition and market entry as  characteristics of monopolistic competition.  

Non-price competition 

• Advertising can be used to attract customers. ✓✓ 
• Products differentiation makes goods different from those of competitors. ✓✓ 
• Extended shopping hours make shopping convenient for customers. ✓✓ 

Market entry 

• Entry is free and easy, ✓ because there are no barriers like licences,  permits or patents that restrict entry. ✓✓ 
• It is also easy for businesses that want to leave the market to do so. ✓✓
  (Accept any other correct relevant response.)
  (A maximum of 4 marks will be given for mere listing.) (4 x 2) (8) 

3.5 Why are negative externalities considered a consequence of market  failure? 

• Negative externalities are considered as a consequence of market failure  because they represent a situation in which the market does not allocate  resources efficiently. ✓✓ 
• This creates a situation of market failure where the market is not  achieving optimal outcome from the perspective of society as a whole. ✓✓ 
• Markets are often imperfect and there may be a divergence between  private and social costs. ✓✓  
• The market price does not reflect the full cost of production, and some  costs are covered by third parties who are not involved in the transaction. ✓✓ 
• The market price does not reflect the full cost of production; the market  will tend to produce too much of the good or service that generates the  negative externality, leading to an inefficient allocation of resource. ✓✓
  (Accept any other relevant correct response.)
  (Allocate a maximum of 2 marks for a mere listing of facts/examples.)  (4 x 2) (8) [40]

QUESTION 4: MICROECONOMICS 

4.1

4.1.1 Name any TWO examples of explicit cost. 

• • Wages ✓ 
  • Interest ✓ 
  • Leasing of land ✓ 
  • Expenditure on raw materials ✓
    (Accept any other relevant correct response.) (Any 2 x 1) (2) 

4.1.2 Why is the private sector reluctant to provide community goods?

Producers cannot withhold the goods for non-payment and are  much more driven by the economic motive in the endeavour. ✓✓ 
(Accept any other correct relevant response.) (2 x 1) (2)

4.2 DATA RESPONSE 

4.2.1 Identify the market price from the graph above. 

P ✓ (1) 

4.2.2 Which part of the demand curve is elastic on the graph above?

BC ✓ / Bottom segment ✓ / Lower segment ✓ (1) 

4.2.3 Briefly describe the term oligopoly. 

It is a market structure dominated by few sellers selling a  differentiated or homogeneous product. ✓✓ (2) 

4.2.4 Why is the demand curve of an oligopoly kinked? 

• • Oligopolies behave differently when the prices increase or  decrease. ✓✓ 
  • The demand curve of an oligopolist is kinked, because it has two  elasticities, the upper part is relatively inelastic while the bottom part is relatively elastic. ✓✓
    (Accept any other correct relevant response.) (2) 

4.2.5 How can the government correct allocative distortions caused  by oligopolies? 

• • They can invite competition from abroad to restrain harmful  practices of local oligopolies ✓✓ 
  • The government strengthen the implementation of the Competition  Act 89 of 1998 to promote competition and erase exploitation and allocative distortions caused by oligopolies. ✓✓ 
  • The government has established the Competition Commission,  Competition Tribunal and Competition Appeal Court to enhance the level of competition in the economy. ✓✓
    (Accept any other correct relevant response.) (2 x 2) (4)

4.3 DATA RESPONSE 

4.3.1 Identify an institution that is responsible for investigating anti competitive behaviour in the extract above. 

The Competition Commission ✓ (1) 

4.3.2 Which institution rules on the cases submitted by businesses  that are not satisfied with the rulings made by the Competition  Tribunal?

The Competition Appeal Court / CAC ✓ (1) 

4.3.3 Briefly describe the term implicit costs. 

The value of skills owned by the entrepreneur and used in the  production process. ✓✓ 
(Accept any other correct relevant response.) (2) 

4.3.4 Explain the way in which dominant businesses can abuse their  market powers. 
Business can abuse their market power by:  

• • excessive pricing of goods or service, denying competition access  to an essential facility, price discrimination (unjustifiably charging customers different prices for the same goods or services). ✓✓ 
  • refusal to supply scarce resources to a competitor. ✓✓ 
  • inducing suppliers or customers not to deal with a competitor. ✓✓ 
  • charging prices that are below cost so as to exclude rivals. 
  • bundling of goods or services and buying up a scarce input  required by a competitor. ✓✓
    (Accept any other correct relevant response.) (2) 

4.3.5 How can small, medium and micro enterprises (SMME)  contribute to the goals of the competition policy?  

• • They provide more competition which will prevent monopolies from  abusing their power/prevent some firms from using restrictive practices like price fixing. ✓✓ 
  • SMME`s are an indication that all South African businesses, small  and big are provided with equal opportunities to participate in the economy. ✓✓ 
  • The labour-absorptive capacity of small businesses sector is  higher than that of other sizes. ✓✓ 
  • The average capital cost of the job created in the SMME sector is  lower than in the big businesses sector. ✓✓ 
  • They provide opportunities for aspiring entrepreneurs, especially  those who are unemployed, under employed or retrenched. ✓✓ 
  • Workers at the smaller end of the scale often require limited or no  skills or training, they learn on the job. ✓✓
    (Accept any other correct relevant response.) (2 x 2) (4)

4.4 Briefly discuss overt collusion and tacit collusion. 

Overt collusion 

• It is an organisation of oligopolistic business that comes into existence in  an industry with the specific aim of forming a collective monopoly. ✓✓ • It is when oligopolies collude openly and formally. ✓✓ 
• Cartels control the production of goods and this influences the prices of  products ✓✓ e.g., OPEC (oil). ✓ (Max. 4) Tacit collusion  
• The behaviour by firms is motivated by an arrangement that is not  formal. ✓✓ 
• Price signals are frequently the key element to tacit collusion. ✓✓ • One business increases its price in the hope that the rivals will increase  their prices – a firm like this is known as a price leader. ✓✓ 
• When the other businesses follow with the increase, they are known as  price followers. ✓✓ 
• Price leaders are usually the strongest and most dominant business  whose production cost is the lowest, e.g. steel industry, transport industry. ✓✓
  
  (Accept any other correct relevant response.)
  (A maximum of 4 marks must be allocated for mere listing of facts.)   (Max. 4) (8) 

4.5 Examine the conditions under which perfect competition successfully  operates.  

• The costs of production are lower due to allocative efficiency. ✓✓
• There are no barriers to entry in the market, aspiring businesses can  easily enter the market. ✓✓ 
• Perfect market increases competition which lowers the prices for the  consumer. ✓✓ 
• Perfect competitor produces large quantities and sell at lower prices  which benefits the consumer. ✓✓ 
• Products are already known in the market therefore producers save on  advertising. ✓✓ 
• Consumers are not exploited since competitors are price-takers and sell  at a market price. ✓✓ 
• The costs of production are lower as the firms produce at the lowest point  of the average cost curve. ✓✓
  
  (Accept any other correct relevant response.)
  (A maximum of 2 marks may be allocated for mere listing of facts.) (4 x 2) (8)  

TOTAL SECTION B: 80

SECTION C 

Answer ONE of the two questions from this section in the ANSWER BOOK.  QUESTION 5: MICROECONOMICS 

• With the aid of a graph discuss in detail the various equilibrium positions  under perfect market conditions. (26 marks)
• Why are South African state monopolies unable to achieve economic  profit? (10 marks) 

INTRODUCTION 

• A perfect market is a market structure that consists of many sellers of  homogenous products. ✓✓/ A market is an institution or mechanism that brings  together buyers and sellers of goods and services. ✓✓/ A market structure is how  markets are organised. ✓✓ 

(Accept any other correct relevant response.) (2)

BODY: MAIN PART 

• The minimum point of the short-term average cost curve is lower than the market  price. ✓✓ 
• The business is in equilibrium (maximising profits) at point e where MR = MC. ✓✓ • Total revenue is equal to OQ1 x OP1 (50 x 10) and total cost is equal to  OQ1 x OC (40 x 10). ✓✓ 
• The economic profit is represented by area CP1EB (R100). ✓✓

At point e where MC = MR the business will produce Q1 and at market price P1 ✓✓

• The lowest point of AC is tangent to the AR/MR ✓✓ 
• This implies that AC=AR and local total cost (50 x 10) = total revenue (50 x 10) ✓✓
• Normal profit is the minimum earnings required to prevent the entrepreneur from  leaving the market. ✓✓ 

• The minimum point of the short-term average cost curve (AC) is above the market  price. ✓✓ 
• The business is in equilibrium (minimising loss) at point e where MR=MC and the business will produce at quantity Q1 and market price P1. ✓✓ 
• Total revenue is equal to OQ1 x OP1 (10 x 40) and total cost is equal to  OC x OQ1. ✓✓ 
• The loss is represented by the area P1CBE (100). ✓✓ (Max. 26) (26)

ADDITIONAL PART 

Why are the South African state monopolies unable to achieve economic profit? 

• Monopoly firms in South Africa supply goods and services to the whole country and find it difficult to set very high prices to achieve profits. ✓✓ 
• They are subjected to regulations which determine the selling price of their  product to be affordable to the poor. ✓✓ 
• They experience high maintenance costs due to the destruction of their  infrastructure which compromises their profits. ✓✓ 
• Revenue seems to be less than costs due to corruption and theft and non payment by large number of users. ✓✓ 
• Monopolies cannot manipulate their quantities to increase the price but fail to provide adequate quantities. ✓✓ 
• Most of monopolies are parastatals which lack accountability and poor management. ✓✓
  
  (Allocate a maximum of 2 marks for mere listing of facts.) (5 x 2) (10)

CONCLUSION 

It is important to note that the industry demand curve in perfect markets, like all other  market structures, slopes downwards from left to right. ✓✓ 
(Accept any other correct relevant and higher order response.) (2) [40]

QUESTION 6: MICROECONOMICS 

• Discuss in detail, that lead to the misallocation of resources in the market under the following headings: 
  • Missing markets (10 marks)
  • Lack of information (8 marks)
  • Immobility of factors of production (8 marks) 
• How effective is the government`s intervention strategy on the  redistribution of wealth in South Africa? (10 marks) 

INTRODUCTION 

Market failure is when the forces of demand and supply fail to allocate resources  efficiently. ✓✓ 
(Accept any other correct relevant introduction.) (2)

BODY: MAIN PART 

Missing markets 

• Markets are incomplete because they cannot meet the demand for certain  goods. ✓✓ 
• Public goods (community and collective goods) are in high demand but are not  supplied by the market because of the low profit gained from them and the cost  of capital needed to supply. ✓✓ 
• Since private producers cannot withhold these goods for non-payment, they are  reluctant to provide these goods. ✓✓ 
• The government thus provides these goods and services. ✓✓ 

Public goods ✓ 

• This includes community and collective goods and has two features: • Non-rivalry: Consumption by one person does not reduce consumption by  another individual ✓✓ for example, a lighthouse. ✓ 
• Non-excludability: Consumption cannot be confined to those who pay for it (free riders can use them) ✓✓ e.g., radio and television ✓ 
• Social benefits outstrip private benefits for example health care and  education. ✓✓ 
• Non-rejectability: Individuals are not able to abstain from consumption ✓✓, e.g.  streetlighting. ✓ 
• Continuous consumption for example, traffic lights. ✓ 

Community goods ✓ 

• These are goods such as defence, police services, prison services, street  lighting, flood control, storm water drainage and lighthouses. ✓✓ 

Collective goods ✓ 

• These are goods such as parks, beach facilities and streets. ✓✓ 
• Markets are incomplete and cannot meet the demand for these goods. ✓✓
• The government provides public goods which consist of lighthouses, parks,  roads, bridges etc. ✓✓

Merit goods ✓ 

• These are highly desirable for general welfare, but not highly rated by the market  e.g., health care, education and safety. ✓✓ 
• If people had to pay the market price for them, very little would be  consumed. ✓✓ 
• The market will fail because the market produces less than the desired  quantity. ✓✓ 

Demerit goods✓ 

• These are over-consumed goods for example, cigarettes and alcohol thus more  goods are produced than is socially desirable. ✓✓ 
• The government bans or reduces consumption of these products through  taxation and provides information to the population on their harmful effects. ✓✓  (Max. 10) (10) 

Lack of information 

• Consumers, workers and entrepreneurs do not have necessary information to  make rational decisions. ✓✓ 
• This results in resources not being allocated efficiently. ✓✓ 
• For consumers to maximise their benefits, they need detailed information about  goods and services. ✓✓ 
• Although technology offers this to the consumer, they obviously do have perfect  information. ✓✓ 
• Workers are often unaware of job opportunities. ✓✓ 
• Entrepreneurs lack information on costs, availability and productivity of factors  of production, which impacts their effectiveness. ✓✓ (Max. 8 marks) (8) 

Immobility of factors of production 

• Labour takes time to move from one area to another and it takes time to change  as the training of labour is costly. ✓✓ 
• The supply of skilled labour cannot be increased because of the time it takes to  be trained or educated. ✓✓ 
• Physical capital such as factory buildings or infrastructure such as telephone  lines cannot be reallocated easily. ✓✓ 
• Structural changes such as a change from producing plastic packets to paper  packets or shifting from labour-intensive production to computer-based  production requires a change in labourers’ skills, employment and work  patterns. ✓✓ 
  
  (Maximum of 8 marks for mere listing of facts/examples.) (Max. 8 marks) (8) (Max. 26) (26)

ADDITIONAL PART 

How effective is the government`s intervention strategy on the redistribution  of wealth in South Africa? 

The government was effective in redistributing wealth 

• South Africa has one of the most unequal wealth distributions in the world. ✓✓
• The government used transfers, social spending and BBBEE to reduce  Inequalities created by apartheid. ✓✓ 
• The government has made limited use of wealth taxation / a wealth tax could  reduce wealth inequality while also providing additional revenue. ✓✓ 
• Government failed to promote significant inclusive economic growth. ✓✓
• Government successfully used the education policy to create opportunities for the  disadvantaged to obtain qualifications and earn higher incomes. ✓✓ 
• Despite some positive measures overall, government was ineffective in reducing  the wealth gap as it continues to widen. ✓✓
  
  (Accept any other correct relevant high order response.)
  (A maximum of 4 marks will be allocated for mere listing/facts.) (Max. 10) (10)

CONCLUSION 

The government should intervene to help these markets function better and promote  a more equitable distribution of wealth and income to improve the standard of living  in the country. ✓✓ 

(Accept any other correct relevant high-order conclusion.) (Max. 2) (2) [40]