Grade 12 Economics Exam
June 2013
MEMORANDUM
Name: ______________________________
A
B
1.1.1
1.1.2
1.1.3
Teacher: OFH / SH / WHS
C
1.3.1
N
X
1.3.2
E
1.3.3
B
1.3.4
G
X
X
1.1.4
X
1.3.5
A
1.1.5
X
1.3.6
K
1.3.7
H
1.3.8
L
1.1.6
1.1.7
X
X
1.1.8
X
1.1.9
X
1.1.10
X
1.1.11
X
1.1.12
X
1.2.1
Merit / public?
1.2.2
Social security grants
1.2.3
AR curve
1.2.4
Homogeneous
1.2.5
Cost-push
PTO...
SECTION B: Answer ALLTHREE questions from this section.
START EACH QUESTION ON A NEW PAGE.
QUESTION 2: (LO1 Macroeconomics)
2.1
Choose the correct word(s) from those given in brackets. Write only the word(s)
next to the question number (2.1.1 – 2.1.4)
2.1.1
2.1.2
2.1.3
2.1.4
opposite
progressive
prosperity
fixed
2.2
GDP at factor cost, GDP at basic prices and GDP at market prices are associated
with which methods of National Income accounting respectively?
(3 x 2 = (6)
GDP @ factor cost – Income
GDP @ Basic prices – Production (Value added)
GDP @ market prices - Expenditure
(4 x 2 = 8)
2.3.1 Name the two sectors involved in deriving the multiplier.
Households / Consumers & Business / Firms / Producers
(2)
2.3.2 What is represented by the line E=Y?
(2)
It shows all the possible levels of expenditure and output at which the
economy is in equilibrium, where AE=AY.
2.3.3 Use the formula, k=Y/J, to calculate the value of the multiplier. Show your
calculations.
(4)
k
= 20/10
=2
2.3.4 Explain the relationship between the mpc and the multiplier.
The bigger the mpc, the bigger the multiplier (and vice versa)
(2)
2.4.1 Differentiate between “official definition of unemployment” and the “expanded
definition of unemployment”.
(2)
“StatsSA ‘s official definition of unemployment is someone aged between 15 and 64 who is
without work in the week preceding the interview, but who looks for work and is available to
take up employment or open a business.” AND “In the expanded definition of unemployment,
which includes people who have stopped looking for work.”
2.4.2 In terms of the business cycle. At what stage of the cycle would one experience
“the lowest level of employment in the 3rd quarter of 2010”?
(2)
DEPRESSION (TROUGH)
2.4.3 Calculate the Economic Active Population (EAP) by making use of the following
formula: [EAP = # of unemployed / unemployment rate (%)]
(2)
EAP = 13 600 000 / 63.3% = 21,484,992
Grade 12 Economics: June 2013
2
2.4.4
Briefly explain the relationship between unemployment and the inflation by making
use of a graph.
(4)
Graph:
The relationship between unemployment and inflation is illustrated by the
Phillips Curve.
The curve indicates the inverse relationship (trade-off) between
unemployment and inflation.
Implies government can decide how much unemployment they will accept for
less inflation.
2.5
Discuss how the Balance on the Current Account is calculated.
(8)
Merchandise exports + Net gold reserves + Service receipts + Income receipts
– Merchandise imports – Payments for services – Income payments + Current
transfers (net receipts) = Balance on the Current account
2.6
Discuss the Monetarist approach as a cause of Business cycles.
(8)
Monetarists believe that markets are inherently stable.
They believe that market fluctuations result from government intervention.
Departures from the equilibrium are caused by exogenous factors, eg.
Inappropriate government policies; undesirable increase or decrease in the
supply of money; weather conditions; shocks (war, etc.)
[50]
Grade 12 Economics: June 2013
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QUESTION 3 (LO2: Microeconomics)
3.1.1.
3.1.2
3.1.3
3.1.4
False
False
True
False
(4 x 2 = 8)
3.2
Advertising
Packaging
Product uniqueness
Customer service
Branding
Product differentiation
After sales service
(3 x 2 = 6)
3.3.1
What type of market structure is illustrated above?
Perfect Market
(2)
3.3.2
Is the firm making a profit or loss? Calculate it and show your working.
Loss.
(AC-AR) * Q
(8-6)*60 = R120
(4)
3.3.3
Will this firm continue to produce in the SHORT RUN? Explain your answer.
Yes. Shutdown rule, when P is greater or equal to AVC in the short run the
firm will still produce.
(4)
3.4.1 What market failure is represented by the diagram above?
Negative externality
(2)
3.4.2 What is the equilibrium level of output and prices in this market (without government
intervention)?
(2)
P3 & Q2
3.4.3 What is the socially optimum level of output and price?
P2 & Q1
(2)
3.4.4 Explain how government could correct the market failure shown.
Persuasion – public relations campaigns by government
The price mechanism – levying a tax
Direct controls – government can pass laws to constraint behavior of
business
(4)
3.5
Explain why a firm’s short-run average cost curve is usually drawn as a U shape
and explain the link between the short-run average cost curve and the long-run
average cost curve of a firm.
(8)
Explanation
of
increasing/diminishing
returns,
explanation
of
economies/diseconomies of scale and derivation of long-run curve from
successive short-run curves.
L4 – For a sound discussion with good explanation of the analysis and a clear
understanding with a conclusion
[7–8]
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L3 – For a thorough explanation but with limited development of the analysis
and a weaker conclusion.
[5–6]
L2 – For a brief explanation and with a weak explanatory link between short
run and long run or with a concentration on either the short run or on
economies of scale
[3–4]
L1 – For an answer which has some basic correct facts but includes
irrelevancies. Errors of theory or omissions of analysis will be substantial. [1–
2]
3.6
Discuss whether an economy would benefit from its government intervening to
regulate an industry.
(8)
In favour:
• establish fixed (minimum or maximum) prices to support an industry
• may be able to maintain employment levels.
Against:
• goes against free market forces
• could mean that a government is supporting an inefficient industry.
A one-sided answer can gain no more than 5 marks.
[50]
Grade 12 Economics: June 2013
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QUESTION 4 (LO4: Contemporary Issues)
4.1.1
4.1.2
4.1.3
4.1.4
nominal
limited.
hospitality
service
(4 x 2 = 8)
4.2
Accomodation policy
Open market operations
Inflation targeting
(3 x 2 = 6)
4.3.1 AD-AS model
(2)
4.3.2 Any increase in C, I, G, (X-Z)
(2)
4.3.3 Full employment – economy is at maximum capacity and cannot produce
anymore. In effect on the PPC
(4)
4.3.4 Demand-pull
4.4
(2)
Study the extract below and answer the questions that follow.
4.4.1 Define the concept “tourism”.
People moving from usual place of residence to a destination where they
make use of facilities or take part in activities.
(2)
4.4.2 Which region is the source of most tourists to South Africa?
Africa
(2)
4.4.3 Which region is the source of most tourist spending in South Africa?
Europe
(2)
4.4.4 Identify TWO reasons highlighted in the article that explain why tourism has recently
grown in South Africa
(4)
Marketing partnerships, value for money, investments, accessibility
4.5
Briefly discuss the monetarist explanation of inflation (MV = PQ)
(8)
This is based on the “Equation of Exchange” identified by Irving Fisher:
An identity:
where:
MV = PQ
M = quantity of money
V = velocity of circulation
P = average (general) price level
Q = physical quantity of goods and services produced
(GDP).
The velocity of circulation (V) is an indication of the number of times the
average rand changes hands in the form of cash or demand deposits.
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Monetarists convert the equation of exchange into a theory (The Quantity
Theory of Money) by making certain assumptions:
V is stable
M is determined by the monetary authorities and is not affected by P or Q.
If M changes, PQ has to change by the same proportion or percentage.
Thus the Monetarists believe that changes in M affect output PQ (Y)
DIRECTLY.
Monetarists believe that changes in M will impact on P only (and not Q) in the
long run since Q is determined by the quality and quantity of the factors of
production.  M will have inflationary effects only in the long run. In the
short run however, M may impact on both P and Q.
(8)
4.6
Briefly discuss FOUR reasons/purposes why tourists visit South Africa.
(8)
Leisure and recreation:


Cultural tourism
Ecotourism
Business and professional
Other


Medical
Studies
TOTAL SECTION B: [150]
Grade 12 Economics: June 2013
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MARK ALLOCATION FOR ESSAY RESPONSES
STRUCTURE OF ESSAY
Introduction
Body:
• Main part:
• Additional part:
For example discuss/distinguish/differentiate/
explain/analyse/evaluate/assess
For example draw a graph or diagram/deduce/
outline/briefly explain/expand on/your own
opinion/support
Conclusion
Interpretation
TOTAL
MARK
ALLOCATION
Max 3
Max 30
Max 10
Max 2
Max 5
50
QUESTION 5 (LO1: Macroeconomics)
Start this question on a NEW and SEPARATE SHEET OF PAPER.
Failure by the public sector to produce public goods and services causes higher prices in
the market.
Discuss the characteristics, reasons and effects of the public sector failures when
providing goods and services.
[50]
REASONS FOR PUBLIC SECTOR FAILURE
Public sector failure occurs when government is unable to manage the economy and
resources under its control effectively.
FEATURES
Although the lives of many have improved since 1994, there are still many cases of public
sector failure. This can be seen in the slow delivery of housing, the long queues at various
government departments (e.g. home affairs and clinics) and the lack of response from
government officials to complaints.
REASONS
There are many reasons for failure. Some common examples include:
> Management and Accountability
There is often a lack of leadership and because state owned businesses are not directly
accountable to tax payers, personal objectives are often put before the welfare of the
people.
> Pricing and market forces
Demand and supply are not the controlling factors in state owned enterprises which makes
it difficult to determine the needs of the consumers and the market price.
> Long term motivation
Business success is often determined by long term effectiveness, productivity and
strategies. Corruption, change in leadership, lack of competence and motivation often
leads to the failure of state owned businesses.
There are three groups that contribute to the failure:
> Politicians
Grade 12 Economics: June 2013
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They are interested in vote-maximising in order to get re-elected. They engage in
strategies to please the voters and this often leads to an oversupply of resources.
> Bureaucrats (public servants)
They on the other hand are trying to maximise their income, reputation and the size of their
budget allocation. They therefore do not always act in the interest of the public.
> Rent-seeking interest groups
These are enterprises, unions and individuals that try to influence government to act in a
way that benefits them. They can lobby or bribe government officials to obtain direct
subsidies, special tax treatment, profitable contracts or favourable regulations.
Other factors contributing to the failure include:
Apathy, lack of motivation and lack of capacity. These are caused by, amongst other
things, the lack of training, lack of experience, low salaries and lack of incentives for
successful delivery.
QUESTION 6: (LO2: Microeconomics)
Start this question on a NEW and SEPARATE SHEET OF PAPER.
Explain, with the aid of graphs, how short and long-term equilibrium for the individual
producer is achieved under conditions of perfect competition. In your explanation, ensure
that you make reference to: market supply and demand; normal profit; economic profit and
economic loss.
[50]
Establishing price and output in the short run under perfect competition
A perfectly competitive industry is made up of a large number of small independent
firms each selling homogeneous products to a large number of buyers.
The firm’s demand curve is perfectly price elastic because any firm that raises its
price sees demand fall to zero as consumers, with perfect knowledge switch to
other producers offering an identical product.
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The previous diagram shows the short run equilibrium for perfect competition. In
the short run, the twin forces of market demand and market supply determine the
equilibrium “market-clearing” price for the industry. A market price P1 is
established and output Q1 is produced. This price is taken by each of the firms. The
average revenue curve (AR) is their individual demand curve. Since the market price
is constant for each unit sold, the AR curve also becomes the Marginal Revenue
curve (MR).
For the firm, the profit maximising output is at Q2 where MC=MR. This output
generates a total revenue (P1 x Q2). The total cost of producing this output can be
calculated by multiplying the average cost of a unit of output (AC1) and the output
produced. Since total revenue exceeds total cost, the firm in this example is making
abnormal (economic) profits. This is not necessarily the case for all firms. It
depends on their short run cost curves. Some firms may be experiencing losses if
average costs exceed the market price. For these firms, total costs will be greater
than total revenue.
Short run losses
In the situation below, a firm is making losses in the short run
The adjustment to the long-run equilibrium
If most firms are making abnormal (or supernormal) profits, this encourages the
entry of new firms into the industry, which if it happens will cause an outward shift
in market supply forcing down the ruling market price.
The increase in supply will eventually reduce the market price until price = long run
average cost. At this point, each firm in the industry is making normal profit. Other
things remaining the same, there is no further incentive for movement of firms in
and out of the industry and a long-run equilibrium has been established. This is
shown in the next diagram.
Grade 12 Economics: June 2013
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if firms are making losses in the short run ,then the opposite occurs – firms leave
the industry, the market supply falls and market price is driven up until all firms are
earning normal profit once again.
QUESTION 7: (LO3: Contemporary Issues)
Start this question on a NEW and SEPARATE SHEET OF PAPER.
Tourism can be an engine of growth, capable of dynamiting and rejuvenating other sectors
of the economy. We must see tourism as a means for a better life for all. Tourism is the
world's largest industry and every year it pumps millions of dollars into some of the poorest
countries.
Discuss the effects of tourism on the South African economy, highlighting its impact on
GDP, employment, poverty, externalities, the environment and infrastructure.
[50]
GROSS DOMESTIC PRODUCT (GDP)
 One economic fact about tourism is certain, is the fact that it impacts more on the
service industry than on agriculture or manufacturing.

Its contribution is directly and indirectly :
Direct contribution:
 Economic developments of the tourism sector is important, its total direct contribution
to the economy is estimated at R93,6 bn for 2004,
 when GDP amounted to R1 387 bn (according to the World Travel and Tourism
Council - WTTC) This means that tourism contributes 6.8 % in total.
Indirect contribution:
 Tourism is basically a service based industry partly responsible for the service sectors
growth in South Africa.
 In developing countries the sector is responsible for around 40 % of GDP,
 while it is responsible for more then 65 % of GDP in developed economies.
Grade 12 Economics: June 2013
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
In South Africa it is similar to that of developed countries. Services contributed more
then 65 % of GDP in 2004.
EMPLOYMENT:
 The WTTC estimated that tourism in South Africa created 1.12 million jobs in 2004.
 Tourism is the world largest generator of jobs for the following reasons:

Its labour intensive

It employs many skills

It can provide immediate employment

It provide entrepreneurial opportunities
POVERTY:
 Tourism is widely recognized as one of the fastest and more effective redistribution
mechanisms in development.
 It brings development to the poor in rural areas.
 Many of the prime tourism attractions are located in the rural areas and not in the city
centers.
 It offers opportunities in to diversity sources of income for poor people by:
 Allowing them a stake to operate small scale tourism.
 Empowering them to exploit opportunities on the job and other training
 Creating partnership with mainstream tourism businesses supplying goods or services.
EXTERNALITIES:
 Both positive and negative impacts.

Positive:
 Large amounts of revenue
 Transportation growth

Negative:
 Undue environmental damage
 Uses resources and produces waste
 Short term benefits – negative long-term effects
 Pollution
ENVIRONMENT:
 Any form of industrial development impact upon the physical environment in which it
takes place.
 Tourists have to visit the places of production in order to consume the output which
created environmental stress.
 The following are four main categories of stressor activities:

Permanent environmental restructuring

Waste product generation

Direct environmental stress

Effects on population dynamics
INFRASTRUCTURE:
Grade 12 Economics: June 2013
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
An adequate, physical, economic and basic services infrastructure is essential for
tourist destination areas which includes:

Transport infrastructure

Communication infrastructure

Energy infrastructure

Basic services infrastructure
TOTAL SECTION C: [100]
GRAND TOTAL: [300]
Grade 12 Economics: June 2013
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