SECTION A: TYPICAL EXAM QUESTIONS - Hoerskool Birchleighhoerskoolbirchleigh.co.za/images/lockdown/gr12econ... · Web viewLEARNER NOTES (Page 1 of 51) TABLE OF CONTENTS TOPIC PAGE

SECONDARY SCHOOL IMPROVEMENT PROGRAMME (SSIP) 2018

GRADE 12

SUBJECT: ECONOMICS

LEARNER NOTES

(Page 1 of 51)

TABLE OF CONTENTS

TOPIC

PAGE

6

Micro-Economics: Dynamics of markets: perfect market

3 -14

7 - 8

Micro-Economics: Dynamics of markets: imperfect markets

15 - 25

9

Micro-Economics: market failures and cost benefit analysis

26 - 30

10

Consolidation and Revision- Paper 1

31 – 35

11

Consolidation and Revision- Paper 2

36 - 39

12

Economic Growth and Development

40 - 51

session 6: Dynamics of markets: Perfect markets

Learner Note: Economic systems around the world struggle to answer the THREE questions: What to produce? How to produce? and For whom to produce? The interaction between demand and supply will always ensure that the most efficient decisions are made.

SECTION A: TYPICAL EXAM QUESTIONS

QUESTION 1:5 minutesSection A(Taken from various sources)

1.1 Market price in a perfect competitive market is determined by the interaction between …

A. consumers and buyers

B. demand and buyers

C. producers and sellers

D. demand and supply

1.2 The revenue derived from the sale of an additional unit is … revenue.

A.marginal

B.additional

C.average

D. total

1.3 Under conditions of perfect competition, the market demand curve...

A.slopes upwards from left to right.

B.slopes downwards from left to right.

C.slopes downwards from right to left.

D. is a horizontal line

1.4 An example of perfect competition is the …

A.crude-oil market.

B.JSE Securities Exchange.

C.International Diamond Exchange.

D. Standard bank

1.5 Products of a perfect competitor are …

A.unique.

B.differentiated.

C.homogenous.

D. heterogeneous (5 x 2) (10)

QUESTION 2: 5 minutesSection A(taken from various sources)

Give one concept for each of the following descriptions. Write only the term next to the question number. No abbreviations are allowed.

2.1The additional cost incurred when production increases by one more unit

2.2The costs that remain the same even if the output changes

2.3The mechanism that brings together buyers and sellers of goods and services

(1 x 3) (3)

QUESTION 3.1: 5 minutes Section B (Taken from prelim exam September 2011)

Study the graph below and answer the questions that follow.

Individual business in perfect competition

Price

P AR = MR

0 Q1 Q2 Q3

Quantity

3.1.1How do businesses determine the market price under perfect competition?(2)

3.1.2Briefly explain why an individual business cannot influence the market price.(4)

3.1.3What kind of a profit can the seller in perfect competition get in the long run? Motivate your answer.(4)

QUESTION 3.2: 5 minutes Section B (Taken from DBE- Nov 2016)

Study the graph below and answer the questions that follow

3.2.1Identify the market structure in the graph above.(1)

3.2.2Give the value of the market price depicted above.(1)

3.2.3How will this equilibrium position change in the long run (long term)?

(2)

3.2.4What conditions must exist for this firm to shut down?(2)

3.2.5Calculate the economic loss faced by this firm.(4)

QUESTION 4:10 minutes Section B(Taken from DBE past papers)

4.1What will happen if one firm in the perfect market decides to increase its selling price?(1 x 2) (2)

4.2Why is a perfect competitor unable to influence the market price? (1 x 2) (2)

4.3Draw a fully labelled graph to illustrate the shut-down point in a perfect

market.(8)

4.4Explain the goals of the South African competition policy.(8)

QUESTION 5:40 minutes Section C(Taken from DBE/November 2013)

STRUCTURE OF THE ESSAY:

MARK ALLOCATION

Introduction

The introduction is a lower-order response.

· A good starting point would be to determine the main concept related to the question topic

· Do not include any part of the question in your introduction

· Do not repeat any part of the introduction in the body

· Avoid saying in the introduction what you going to discuss in the body

Max. 2

Body:

Main part: Discuss in detail/In-depth discussion/Examine/

Critically discuss/Analyse/Compare/Evaluate/Distinguish/

Explain

Additional part: Give own opinion/Critically discuss/Evaluate/ Critically evaluate/Draw a graph and explain/Use the graph given and explain/Complete the given graph/Calculate/Deduce/ Compare/Explain/Distinguish/Interpret/Briefly debate/How/Suggest

Max. 26

Max. 10

Conclusion

Any higher-order conclusion should include

· A brief summary of what has been discussed without repeating facts already mentioned

· Any opinion or value judgement on the facts discussed

· Additional support information to strengthen the discussion analysis

· A contradictory viewpoint with motivation, if required

· Recommendations

Max. 2

TOTAL

40

• With the aid of graphs, analyse the different equilibrium positions (normal profit, economic profit and loss) of the individual firm under perfect competition. (26 marks)

• Examine the conditions under which perfect competition successfully operates.

(10 marks)

[40]

PERFECT MARKETS: ADDITIONAL CONTENT NOTES

DYNAMICS OF MARKETS: PERFECT MARKETS

Introduction

Markets play a vital role in determining prices and are a mechanism that brings together buyers and sellers of goods and services.

Perfect competition

The theoretical market form, perfect competition, exists when no individual participant (buyer or seller) has the ability to influence the market price of a product or service. The contribution made by the participants is too small for the market as a whole. The market forces of supply and demand exclusively determine the market price and both the buyers and sellers in the market have to accept the price; participants in a perfectly competitive market are referred to as price takers.

The characteristics of a perfect market

· No single seller can influence the market – all sellers are selling a homogenous product.

· There are a large number of buyers and it makes no difference who they buy from - buyers have perfect knowledge.

· All buyers have the same access to the market.

· All buyers have freedom of choice (free competition between buyers and buyers and sellers and sellers).

· All producers are free to enter and leave the market when they wish to do so.

· Perfect mobility of the factors of production – the costs of moving the factors of production from one location to another is the same for all producers.

The demand for a product of a firm in a perfect market

· In a perfect market, the market price of a product is determined by supply and demand, the individual firm is a price taker and can sell as many of the products as it chooses to at the market price. None of the firms will sell the same product at a higher price than the current market price, as they will lose customers to competitors. Firms will not lower the price of the product below the current market price either, as they can sell as many of the product as they want to at the higher market price. The demand curve for the individual firm will run horizontally.

Price

D S

P1

Quantity

The individual firm

Price

P1

Quantity

The cost concept

Economists determine the cost of production by taking both implicit and explicit costs into account.

Explicit cost is the actual expenditure incurred by the enterprise to buy or hire inputs.

Implicit cost refers to the value of inputs owned by the enterprise itself utilised in the production process.

Short run

In the short run refers to a period of time that is so short that the enterprise is not able to alter the size, but only the utilization of its production plant. Though the capacity of the firm remains unchanged, production is easily increased (decreased) by altering the amount of labour and raw material used in the production process.

Fixed and variable costs The costs incurred by a firm comprise both fixed and variable costs.The quantity of fixed inputs utilised in the production process cannot be changed in the short run. The price of rent for the land is fixed and represents the opportunity cost of the land. The quantity variable inputs utilised in the production can be changed in the short run. The price per labour unit is given and represents the opportunity cost of labour. The cost of labour for a firm is calculated by multiplying the price per labour unit by the quantity of labour units employed. Although the price per labour unit is fixed, the quantity of labour can easily be changed and, therefore, the cost of labour is variable.

The total fixed cost curve is represented through a straight line parallel to the x-axis. The fixed cost remains constant, regardless of the level of production.

The total variable cost curve has a reverse s-shape that starts from the origin and increases with a decreasing rate up to a point, from where it will decrease at an increasing rate.

The total cost curve has the same shape as that of the total variable cost curve, except that it does not start form the origin of the curve but from the same point on the y-axis as the fixed cost curve.

Thus the vertical distance between the fixed total cost curve and the total variable cost curve will always be equal to the fixed cost.

Long run costs

The long run refers to a period of time that is long enough for enterprises to change the quantities of all their inputs utilized in the production process. This means that the capacity of the plant can be altered in the long run.

In the long run, all inputs are variable. This means that all of the inputs utilised in the production process can be altered. Businesses can expand their capacity with the purchase of new equipment or bigger premises. There will be no fixed cost, total fixed cost and average fixed cost in the long run.

Revenue

The primary objective of all enterprises is to maximise their profit.

Total revenue (TR)

Businesses earn money by selling their output. Total revenue is calculated by: the number of products sold (Q) multiplied by the price of the product (P).

TR = P x Q

Average revenue (AR)

Average revenue is the amount that is earned by the firm for every unit of output sold and is calculated by dividing the total revenue (TR) by the quantity of output.Marginal revenue (MR)Marginal revenue is the extra income earned from selling one additional unit. It is calculated in the same way as marginal cost: the change in total revenue divided by the change in output.

Profit and lossDifferent perspectives on calculating profit - Simply stated, profit is equal to revenue minus cost. The enterprise makes a profit when revenue exceeds cost and incurs a loss when cost exceeds profit.

We can also express profit as average revenue (AR) minus average costs (AC).

The formulae for profit are

TR – TC and AR- AC

Profit/Economic profit

MC

A firm making a profit (as shown by grey rectangle) under perfect competition when the price of the product is above the total average cost curve.

Normal Profit

Normal profit: This occurs when AC = AR

Explanation: Please note normal profit is the amount that the business must make in order to keep its doors open. Once all costs such as the running costs and fixed costs are covered the business can keep its doors open.

In this instance the firm makes zero profit because the average total cost is equal to total revenue. The firm breaks even. Point e.

Loss

In this case the firm is making a loss because the price is below the total average cost. The loss is P1eBc – grey area.

Competition policies

The main objective of the Competition Commission is to investigate and evaluate restrictive business practices

The main aim:

· To prevent abuse of monopoly power.

· To regulate the market through mergers and takeovers.

· To prevent price fixing and collusion.

The Competition Act of 1998 makes provision for the Competition Commission and the Competition Tribunal. The Competition Tribunal accepts or rejects the investigation and recommendation of the Competition Commission. The Competition Appeal Court accepts or rejects the recommendation of The Competition Tribunal.

SECTION B: HOMEWORK

DYNAMICS OF MARKETS: PERFECT MARKETS

QUESTION 1:10 minutes (Source: Via Africa)

An individual business manufactures tracksuits that are sold at a market price of R400 each. Copy and complete the table provided below by calculating the missing numbers.

Quantity produced

Total revenue

Average revenue

Marginal revenue

0

-

-

1

2

3

4

5

1.1 Study your completed table and answer the following questions:

1.1.1What happens to TR when additional units are sold?(2)

1.1.2What happens to MR when additional units are sold?(2)

1.1.3What happens to AR when additional units are sold?(2)

1.1.4Compare MR and AR to the price of the product, what do you observe?(2)

[8]

QUESTION 2:15 minutes (Source: various sources)

2.1.1 Why do you think it is in the interest of producers to try to limit the level of competition in an industry or market?(2)

2.1.2 Explain why the demand curve for the individual producer is horizontal.(2)

2.1.3 Explain why the price equals the marginal revenue for the individual producer(2)

2.1.4 How can the consumer benefit from competition?(2)

2.1.5 Differentiate between a normal profit and an economic profit.(4)

2.1.6 Explain, by means of a neatly labelled graph, the relationship between the shut-down point and the supply curve (MC) of the individual business in the perfect market. (2 x 4) (8)

QUESTION 3:10 minutes (Taken from DBE Feb/March 2015)

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

3.1.1 Provide the above graph with an appropriate heading.(2)

3.1.2 Which point indicates profit maximisation?(2)

3.1.3 How will price and quantity in this market structure change in the long run? (2)

3.1.4 Determine the total profit/loss made by this firm. Show ALL calculations.(4)

3.2

Study the extract below and answer the questions that follow.

AB INBEV AND SA MILLER MERGER

Johannesburg: The Competition Commission has given the green light for the merger between AB Inbev and SA Miller to create the world’s biggest brewer. However, it approved the deal with strict conditions to be considered by the Competition Tribunal.

The Competition found the deal raises several competition and public interest concerns and has moved to deal with these.

It says AB Inbev has undertaken that it will not retrench any employee in South Africa as a result of the merger. But there are concerns that transactions will have the negative impact on the ability of small beer producers, such as craft brewers, to compete effectively.

[Source: Adapted from http: ewn.co.za]

3.2.1

1.

2.

3.

Identify the non-South African company in the extract that was part of the merger.

(1)

3.2.2

4.

5.

6.

Name the act under which the competition commission was established.

(1)

3.2.3

Which institution can consumers approach to reverse the decision by the Competition Tribunal?

(2)

3.2.4

How will the merger affect beer consumers?

(2)

3.2.5

In your opinion, why would South African employees be concerned about this merger? (2 x 2)

(4)

QUESTION 4: MICROECONOMICS 40 MARKS – 40 MINUTES


MARK ALLOCATION

Introduction






Max. 2

Body:

Main part: Discuss in detail/In-depth discussion/Examine/ Critically discuss/Analyse/Compare/Evaluate/Distinguish/ Explain


Max. 26

Max. 10

Conclusion






· Recommendations

Max. 2

TOTAL

40

· Discuss perfect competition under the following headings:

· A comparison of the demand curve of the individual producer and industry

· Profit maximisation

Make use of graphs to support your discussion. (26)

· In your opinion, does the Competition Act of South Africa promote fair competition? (10)

[40]

SESSION 7 and 8:DYNAMICS OF MARKETS: IMPERFECT MARKETS(monopoly, oligopoly and monopolistic competition)

Learner Note: Competition is not perfect, it is limited. This leads to imperfect markets, some more severe like Monopolies, some less severe like Oligopolies and Monopolistic Competitions.

Section A: Typical Exam Questions

DYNAMICS OF MARKETS: IMPERFECT MARKETS

QUESTION 1:5 minutesSection A(Taken from various sources)

1.1 A monopolist will get … in the long term.

A. losses

B. Economic loss

C. Normal profit

D. Economic profit

1.2 The goods of a monopolistic competitor are ........

A. similar.

B. differentiated.

C. unique

D. homogenous

1.3 This is an example of an oligopoly market in South Africa.

A. Eskom

B. Johannesburg Securities Exchange

C. Cellphone industry

D. SABC

1.4 The demand curve of a monopolist is the same as the … curve.

A. average revenue

B. total cost

C. marginal revenue

D. marginal cost

1.5 "I don't meet competition, I crush it." This statement was probably made by a …

A. perfect competitor.

B. monetarist.

C. industry

D. monopolist. (5 x 2) (10)

QUESTION 2: 5 minutesSection A(taken from various sources)

Give one concept for each of the following descriptions. Write only the term next to the question number. No abbreviations are allowed.

2.1Oligopolistic competition that is based on product differentiation and efficient

Service

2.2.An arrangement between businesses with the aim of limiting competition

2.3.The minimum profit required to prevent an entrepreneur from leaving the industry

2.4.Businesses working together in an oligopoly market to fix prices

(1 x 4 ) (4)

QUESTION 3:5 minutesSection B(Taken from DBE/Feb.–Mar. 2013)

Study the graph below and answer the questions that follow.

ECONOMIC PROFIT OF THE MONOPOLIST

R16

R11

D

f

500

a

b

c

R20

R9

MR

MC

Price

800

3.1At which point is maximum profit made? (2)

3.2Identify the curve marked f. (2)

3.3What unit price will the monopolist charge to maximise profit? (2)

3.4Calculate the economic profit that this monopolist makes. Show ALL calculations. (4)

QUESTION 4: 10 minutes (taken from DBE June 2015)

Study the extract below and answer the questions that follow

4.1 Which type of industries mentioned in the extract are said to be oligopolistic? (2)

4.2 Define the term oligopoly. (2)

4.3 Why it is important for these companies to have trademarks for their products?(2)

4.4 How do cartels and price leadership differ in terms of the way prices are manipulated.(2 x 2) (4)

Your answer for the following essays will be assessed as follows:


MARK ALLOCATION

Introduction






Max. 2

Body:


Critically discuss/Analyse/Compare/Evaluate/Distinguish/ Explain


Max. 26

Max. 10

Conclusion






· Recommendations

Max. 2

TOTAL

40


• Discuss in detail the characteristics of a monopoly. (26)

• Draw the long run equilibrium graphs of a monopoly and a perfect competitor. (10)


• Examine the oligopoly in detail. (26)

• Briefly compare an oligopoly and a perfect competitor in terms of the demand curves, products, prices, output and equilibrium positions. (10)

2

© Gauteng Department of Education

IMPERFECT MARKETS: ADDITIONAL CONTENT NOTES


Summary of market structures

Criteria

Perfect Competition

Monopolistic Competition

Oligopoly

Monopoly

Number of firms

So many that no firm can influence the market price

So many that each firm thinks others will not detect its actions

So few that each firm must consider the others’ actions and reactions

One

Nature of product

Homogeneous

Heterogeneous / differentiated

Homogeneous or heterogeneous

Only one product with no close substitutes

Entry

Completely free

Free

Varies from free to restricted

Completely blocked

Information

Complete

Incomplete

Incomplete

Complete

Collusion

Impossible

Impossible

Possible

Unnecessary

Firm’s control over the product’s price

None

Some

Considerable, but less that in monopoly

Considerable, but limited by goal of profit maximisation

Demand curve for the firm’s product

Horizontal (perfectly elastic)

Downward-sloping

Downward-sloping, may be kinked

Equals market demand curve: downward-sloping

Long run economic profit

Zero

Zero

Can be positive

Can be positive

Monopolies

A pure monopoly exists when a single firm is the sole producer of a product for which there are no close substitutes.

Types of monopolies

· Legal monopoly – It is based on laws preventing other companies from competing (State monopoly).

· Local monopoly – A local monopoly will control the market in a particular area or town, e.g. if there is only one petrol station.

· Natural monopoly – This arises in industries where economies of scale are so large that a single business can supply the entire market, e.g. electricity.

· Horizontal monopoly – This occurs when a parent company takes control over several smaller companies, e.g. Naspers in the printing business.

· Vertical monopoly – This occurs when 1 firm will supply and produce the product, e.g. Eskom.

· Coercive monopoly – This occurs as a result of any activity that violates the principles of a market economy.

Characteristics of a monopoly

· No competition – one business controls the supply of goods or service.

· No substitutes – no substitutes on the market for the consumer to choose from.

· Price makers – one business controls the price of the goods or services.

· Barriers to entry – e.g. technology or patents, may keep new companies out.

· Imperfect information – the consumer doesn’t have all the information, e.g. profit margin.

· No homogenous products – they will produce only one product or different varieties.

· Large amount of starting capital is needed.

· Legal considerations – new inventions are protected by patent rights.

· Examples: Eskom, Transnet

Revenues

Any point on the demand curve (D) represents the amount of the unique product that will be sold and at what price it will be sold. Therefore, the monopolist’s demand curve is also his average revenue curve (AR). Total revenue (TR) is calculated by repeatedly multiplying the price (P) by the amount (Q). Marginal revenue (MR) reflects the changes in total revenue that result from selling one additional unit of the product.

Short-run profits and losses

· If a monopolist wants to sell more goods, he would have to lower his prices.

· In the short-run, the monopoly firm can make economic profits, normal profits or economic losses. It is possible but unlikely that a monopoly makes an economic loss.

Long-run equilibrium

· The monopolist strives to make a maximum profit, like any other business, and will therefore increase his output until MR = MC. It will charge the highest price per unit at which this quantity of output can be sold.

· In the long-run, a monopoly can make economic or normal profits only.

· Example of things changing is consumers’ tastes and that reduces the demand. This results in a fall in:

· The price

· The profit maximising output

· The monopoly’s profit

A long-run equilibrium only exists when there are no changes in the demand for the product or in the cost of production.

Comparison with perfect markets

The crucial difference between a pure monopolist and a purely competitive seller lies on the demand side of the market.

· The purely competitive seller faces a perfectly elastic demand at the price determined by market supply and demand.

· Because the pure monopolist is the industry, its demand curve is the market demand curve. Because market demand is not perfectly elastic, the monopolist’s demand curve slopes downwards. The quantity demanded increases as the price decreases, as the typical supply curve you know declines from the top of the left-hand side to the bottom of the right-hand side.

Oligopolies

An oligopoly is a market dominated by a few large producers of a homogeneous or differential product.

Characteristics of an oligopoly

· Limited competition – Only a few suppliers of the same product dominate the market.

· Interactivity – If one company makes a decision, it influence the decisions the other companies make.

· Price changes – They will more frequently change their prices in order to increase their market share.

· Cost advantage – They have an absolute cost advantage over the rest of the competitors.

· Joint decision making – It is a key instrument to make decisions together in order to dominate the market.

· Difficult entry – New firms will experience high barriers to enter.

· High profits – Abnormal high profits may be result of joint decisions.

· Examples: Cell phone industry, Banking industry

Non-price competition

The oligopolist often uses methods other than price wars to win a market for his products.

Non-price competition includes the following:

· Product differentiation: product is slightly different from the others.

· Product proliferation: different range of products to cater for many different markets.

· Advertising: oligopoly firms advertise their products heavily.

Collusion

Collusion means co-operation with rivals. Suppose an industry consists of only two businesses. One way of increasing profits is to lower prices in order to acquire a larger share of the market. The alternative is to enter into an agreement with your competitor so that both businesses follow a high pricing strategy

Prices and production levels

Kinked-demand theory (non-collusive).

The behavioural assumption in this theory is that if a single firm lowers its price, other firms will do the same. But if a single firm raises its price, others will not do the same. Suppose there are five firms in an industry, A, B, C, D, and E. If firm A raises its price, the other firms maintain their prices. If firm A cuts its price, the other firms match the price cut.

Interdependence

Another key characteristic of oligopoly firms is that they are interdependent.

The decisions that an oligopoly firm makes with respect to quantity, marketing strategies and location, for example, depend largely on what it thinks the other firm in the industry will do in response to its actions.


· Contrary to the perfect market, the oligopolist can also make an economic profit in the long run.

· The consumers do not get their products at the lowest possible prices as in the case of perfect competition, because the oligopolist will probably stop producing before his long-run average cost curve (LAC) reaches its lowest point.

· The price of a product in an oligopoly is higher than the marginal cost (P>MC). The community therefore adds more value to an additional unit than to the resources necessary to produce it. Resources are therefore not applied as effectively as possible.

Monopolistic competition:

Characteristics of a Monopolistic competition

There are a large number of firms in the market.

· Each firm produces a different product, though similar to products of other firms.

· There are no restrictions that hinder entry to, or exit from, the market.

· Examples: McDonalds, Steers, Sterns


· There are homogeneous products found in perfect competition, while there are heterogeneous products in monopolistic competition.

· The information in the perfect market is complete in perfect competition, while it is incomplete in monopolistic competition.

· The demand curve for the perfect competitor is horizontal (perfectly elastic), while it is downward sloping for the monopolistic competitor.

SECTION B: HOMEWORK


QUESTION 1:10 minutes (TAKEN FROM VARIOUS SOURCES)

1.1Use a table to compare the demand and revenue curves of a monopoly with those of a business under perfect competition.(8)

1.2Explain why a monopoly has the same cost curve as a business in perfect competition.(2)

1.3Why are oligopolists reluctant to compete with each other on price in order to get a greater share of the market?(2)

1.4Complete the following table which represents the revenue of a monopoly:

Quantity (q)

Price (P)

Total revenue (TR)

Marginal revenue (MR)

Average revenue (AR)

1

50

50

50

50

2

40

A

B

40

3

30

90

10

C

(6)

QUESTION 2:45 minutes (taken from various sources))

2.1Calculate the economic profit made by the following competitor:

· Price = R10

· Optimum production quantity = 80

· Average explicit cost = R5,50

· Average implicit cost = R2,50

Show all calculations(10)

2.2 Study the graph below and answer the questions that follow

2.2.1Indicate the profit maximisation point of the monopolist.(1)

2.2.2How many units will be produced at the maximisation point?(1)

2.2.3Determine whether the business is making an economic profit or an economic loss. Show ALL calculations.(4)

2.2.4What favourable conditions may the monopolist enjoy in comparison to other market structures?(4)

2.3 Explain the role of advertising in a monopolistic competitive market.(6)

2.4Study the graph below and answer the questions that follow

2.4.1Which imperfect market structure is illustrated above?(1)

2.4.2Name the downward sloping demand curve above.(1)

2.4.3Explain how price leadership works in this type of market.(4)

2.4.4Assume that the current selling price is R90. Explain why this business will not lower prices to improve its sales.(4)

2.5Study the information below and answer the questions that follow.

2.5.1 Which market structure do the above business enterprises represent? (1)

2.5.2How many firms dominate this type of market? (1)

2.5.3What is the nature of the products offered in this market? (2)

2.5.4Identify the kind of profit that these business enterprises will make in the long

term. (2)

2.5.5Explain how the business enterprises above can use non-price competition to increase their market share. (2 x 2) (4)

[10]

SESSION 9 : Market Failures

Definition: Market failure occurs when the market fails to distribute and allocate resources efficiently or in any given market; the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers.

Types of market failure

· The problem of externalities – When a market trade affects a “third party” it is called an externality since it is “external” to the market participants,the market in certain instances don’t reflect the true price of goods and services.

· The lack of competition in the market - the problem of monopolies.

· Missing markets - the inability of the private sector to supply certain public goods & services.

· Factor immobility - causes unemployment and productive inefficiency.

· Inequality - market generates unequal distribution of income and social exclusion.

The reasons for market failures

1. Externalities

· Negative Externalities exist when a market trade imposes extra costs on third parties. Important classes of negative externalities are various forms of pollution.

· Positive Externalities exist when a third party benefits from a market transaction.

· Private cost (internal cost) - This is the cost consumers incur to buy their goods or the accounting cost producers incur to produce their products.

· Private benefits (internal benefits) - These are the benefits that are due to consumers for buying an article or service, or the benefits that are due to the producer for producing an article or service.

· Social cost - This is the private cost plus negative externalities (external costs). Social cost therefore includes the cost of the person’s producing or using the goods and services, as well as the cost to the community as a whole.

· Social benefits - These include private and external benefits. Social benefits consist of the direct benefits of producers and consumers, as well as the benefits for third parties or the benefits to the community as a whole.

Public goods

· Non–rivalry (non–depletable) goods: If one person has a public good it is also available for others.

· Non-excludable by price – once produced, others get the same benefits without having to pay.

Merit and demerit goods

Merit goods – a good that is underprovided by the market mechanisms or goods that the government or society deem good for people, something they should have, e.g. education, health services.

Demerit goods - a good that is overprovided by the market mechanisms or goods that the government or society deem bad for people, something they should not have, e.g. drugs, alcohol, tobacco.

In order to solve the problem of externalities the government generally taxes goods with negative externalities to pay for merit goods, which have positive externalities.

COST BENEFIT ANALYSIS (CBA)

CBA is a technique for enumerating and evaluating the total social costs and total social benefits associated with an economic project.

Cost benefit analysis involves six stages:

• To identify and quantify private costs

• To identify and quantify external costs

• To calculate social costs

• To identify and quantify private benefits

• To identify and quantify external benefits

• To calculate social benefits

Question 1

1.1Study the picture below and answer the questions that follow

1.1.1What message is depicted in the picture?(2)

1.1.2Name any private cost associated with the provisioning of solar energy.(1 x 2) (2)

1.1.3Why is South Africa suitable for the generation of solar energy?(1 x 2) (2)

1.1.4How would the use of solar energy benefit South Africa?(2 x 2) (4)

1.2Study the information below and answer the questions that follow.

1.2.1 In the information above, who is more likely to use a CBA when making

decisions? (1)

1.2.2 Identify ONE project in the data above that the government is considering for

this community.(1)

1.2.3 Give a reason why a CBA will NOT be of use to the mechanic in the cartoon. (2)

1.2.4 According to the data above, which project would be best for the community? (2)

1.2.5 Why do you think it is important to do a CBA when deciding about large projects? (2 x 2) (4)

[10]

QUESTION 2: 10 minutes per question(Taken from various sources)

2.1Explain with examples what is meant by positive and negative externalities. (8)

2.2What do we mean by the “free-rider problem” and why is it considered a problem?(8)

2.3Give three reasons why lack of mobility of factors of production may lead to market failure.(8)

2.4Explain how SASOL can compete in an oligopolistic market with other petrol-selling companies in South Africa. (4 x 2) (8)

2.5What are the objectives of the Competition Act, 1998 (Act 89 of 1998) in South Africa?(4 x 2) (8)

2.6Motivate why the government implements minimum wages in the labour market. (4 x 2) (8)

3.1 Study the graph below and answer the questions that follow:

3.1.1 What is the original market price?(1)

3.1.2 What will be the new market equilibrium point after external costs are added? (1)

3.1.3 What is depicted by the shaded triangle E1CE?(2)

3.1.4 Briefly describe the externality that is shown in the graph above. (2)

3.1.5 What can the government do to reduce negative externalities? (4)

3.2 Study the graph below and answer the questions that follow:

3.2.1 Identify the type of externality depicted.(1)

3.2.2 What is the original equilibrium point? (1)

3.2.3 Briefly describe the impact this type of externality has on the broader society(4)

3.2.4 How can this type of externality lead to market failure? (4)

[10]

QUESTION 4 to 6: MICROECONOMICS-40 MARKS – 40 MINUTES


MARK ALLOCATION

Introduction






Max. 2

Body:

Main part: Discuss in detail/ In-depth discussion/ Examine/ Critically discuss/ Analyse/ Compare/ Evaluate/ Distinguish/ Explain


Max. 26

Max. 10

Conclusion






· Recommendations

Max. 2

TOTAL

40


• Discuss the causes of market failure in detail. (26)

• With the aid of a graph (Production Possibility Curve) explain how productive

efficiency can be achieved in the market. (10) [40]


• Discuss the causes of market failure. (26)

• Use a graph to illustrate how a negative externality influences price and quantity.

(10)

[40]


· Discuss in detail state intervention as a consequence of market failures.

· With the aid of a graph discuss minimum wages and its impact on the Economy.

(26)

(10)

[40]

session 10:CONSOLIDATION AND REVISION Paper 1

Learner Note: Session 10 will be tested in Paper 1 and Session 11 will be tested in Paper 2.


PAPER 1

SECTION A10 minutes(Taken from various sources)

Question 1

1.1Various options are provided as possible answers to the following questions. Choose the answer and write only the letter (A–D) next to the question number (1.1.1–1.1.12) in the ANSWER BOOK.

1.1.1

Successive periods of increasing and decreasing economic activity is known as a/an …

A

circular flow.

B

economic cycle.

C

D

business cycle.

poverty cycle

(2)

1.1.2

The three levels of the government together with the SOEs are collectively known as the … sector.

A

private

B

public

C

D

primary

PPP

(2)

1.1.3

The ratio between export prices and import prices expressed as an index is known as …

A

quantile ratio.

B

balance of trade.

C

D

surplus trade.

terms of trade

(2)

1.1.4

When there are no restrictions to trade such as taxes on goods or bans on imports, it is called …

A

dumping.

B

protectionism.

C

D

Import substitution.

free trade

(2)

1.1.5 When import duties are imposed as a percentage of the value of

the imported product, it is known as … duties.

A ad valorem

B specific

C composite

Dimport (2)

1.2Give the economic term/concept for each of the following descriptions. Write only the term/concept next to the question number (1.2.1–1.2.5) in the ANSWER BOOK. No abbreviations are allowed.

1.2.1The group of economists that believe markets are inherently unstable.

1.2.2Money taken from the economy, for example savings, taxes and imports.

1.2.3An initial change in spending results in a much bigger change in national income.

1.2.4 International transactions in portfolio investments are recorded in

the ... account.

1.2.5 The exchange rate system where exchange rates are determined by the

market forces of supply and demand.

( 5 x 1 ) (5)

1.3. Choose a description from COLUMN B that matches the item in COLUMN A.

Write only the letter (A–F) next to the question number (1.3.1–1.3.5) in the

ANSWER BOOK.

COLUMN A

COLUMN B

1.3.1 Factors of production

1.3.2 Laffer curve

1.3.3 Public goods

1.3.4 Taxes

1.3.5 Deregulation

A Characterised by non-excludability and non-rivalry in consumption

B Removal of restrictive laws and regulations

C Incentives to increase sales abroad

D inputs into the production of goods and services

E Direct or indirect compulsory payments to the government

F Shows the relationship between tax rate and tax revenue

( 5 x 1 ) (5)

Section B

QUESTION 2: MACROECONOMICS 40 MARKS – 20 MINUTES

(Taken from various sources)

2.1

Answer the following questions:

2.1.1

2.1.2

Name any TWO participants in a closed economy. (2)

Which curve measures the relationship between unemployment and inflation? (2)

(2)

2.2

Parastatals unprofitable: survey

Five out of nine SOEs recorded profits in the 2009/10 financial year, the SA

Institute of Race Relations has revealed. Transnet was the most profitable

parastatal, while Eskom recorded the biggest loss in 2009/10, according to

the latest South Africa Survey.

The Pebble Bed Modular Reactor, SA Airways, SA Express, and the SA

Forestry Company all made a profit in 2009/10.

“The least profitable parastatal for the 2009/10 financial year was Eskom,

which posted a loss of over R9,7 billion, although it has since turned around

its fortunes and posted a profit of R13 billion for 2010/11.”

“The biggest concern with these results is that the government will have to

support loss-making entities at taxpayers’ expense,” said a researcher at the

institute.

[Adapted from City Press 2012-01-17]

Study the following extract and answer the questions that follow.

2.2.1

Which parastatal recorded the biggest loss in 2009/10?

(2)

2.2.2

Define the term ‘restructuring’ of an enterprise.

(2)

2.2.3

Provide any TWO reasons for privatisation.

(4)

2.2.4

What is the biggest concern for the government when the

parastatals are making losses?

(2)

2.3

Study the following image and answer the questions that follow.

2.3.1

List any TWO features of public goods.

(2)

2.3.2

Differentiate between ‘community goods’ and ‘collective goods’.

(4)

2.3.3

Public goods are provided by the government free of charge. Elaborate on this statement.

(4)

2.4

Discuss TWO methods of ‘export promotion’. (4x2)

(8)

2.5

How is the gross domestic product (GDP) at market prices derived by using the expenditure method – GDP (E)?(4x2)

(8)


MARK ALLOCATION

Introduction






Max. 2

Body:

Main part: Discuss in detail/ In-depth discussion/ Examine/ Critically discuss /Analyse/ Compare/ Evaluate/ Distinguish/ Explain


Max. 26

Max. 10

Conclusion






· Recommendations

Max. 2

TOTAL

40

QUESTION 3 MACROECONOMICS 40 MARKS –20 MINUTES

· Discuss the indicators - Leading, Lagging, Co-incident, Length and Amplitude.

(26 marks)

· In addition draw a fully labelled “business cycle”. (10 marks)

[40]

Session 11:CONSOLIDATION AND REVISION Paper 2

Consolidation and Revision – Paper 2

PAPER 2

SECTION A10 minutes(Taken from various sources)

QUESTION 1

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 number (1.1.1–1.1.5) in the ANSWER BOOK.

1.1.1 Under conditions of perfect competition, the market demand curve...

A slopes upwards from left to right.

B slopes downwards from left to right.

C slopes downwards from right to left

Dis a horizontal line. (2)

1.1.2 Goods and services that are highly desirable for the general welfare of the

people are called ... goods.

A community

B merit

C public

Ddemerit(2)

1.1.3 This is an example of an oligopoly market in South Africa.

A Eskom

B Johannesburg Securities Exchange

C Cellphone industry

DSABC(2)

1.1.4 Cost-benefit analysis is a method used for calculating and evaluating the total

social cost and total social … associated with an economic project.

A expenditure

Bbenefit

C consumption

Dincome(2)

1.1.5 Formal collusion between oligopolists is referred to as a …

A cartel.

B take over.

C merger.

Dshareholding(2)

1.2 Give the economic term/concept for each of the following descriptions. Write only the term/concept next to the question number (1.2.1–1.2.3) in the ANSWER BOOK. No abbreviations allowed.

1.2.1 The technique used to evaluate the total social cost and total social benefit associated with an economic project.

1.2.2 The additional cost incurred when production increases by one more unit.

1.2.3The mechanism that brings together buyers and sellers of goods and services.

( 3 x 1 ) (3)

1.3 Choose a description from COLUMN B that matches the item in COLUMN A. Write only the letter (A-F) next to the question number (1.3.1–1.3.5) in the ANSWER BOOK.

COLUMN A

COLUMN B

1.3.1 Competition policy

1.3.2 Demerit goods

1.3.3 Perfect competition

1.3.4 Externality

1.3.5 Pareto efficiency

A Cost or benefit to third parties

B These are over consumed in a free

market economy

C It is impossible to make someone

better off without making someone else worse off

D To prevent the abuse of economic

power e.g. monopoly

E ad valorem or specific taxes on

imported goods

F Unregulated market

(5 x 1) (5)

SECTION B

QUESTION 2 MICROECONOMICS 40 MARKS – 20 MINUTES

(Taken from various sources)

2.1.1List the TWO aims of the competition policy in South Africa.2 x 1 (2)

2.1.2What is the function of the Competition Tribunal?1 x 2(2)

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

SAC

2.2.1What does the above graph represent?(2)

2.2.2What happens when the minimum point of the SAC is lower than

the market price ‘P’?(2)

2.2.3At what point does the firm maximise its profit?(2)

2.2.4Briefly explain ‘explicit cost’.(4)

2.3 Study the extract given below and answer the questions that follow.

Sipho operates a manufacturing firm and various types of by-products are

produced during the production process. He now has to make arrangements

to dispose of the waste. This means burning it, dumping it in landfills or

flushing it into the ocean. But people in the surrounding area will suffer the

consequences of the pollution created by his disposal methods.

2.3.1Define the term ‘externalities’.(2)

2.3.2Briefly explain ‘social costs’.(4)

2.3.3Differentiate between ‘private costs’ and ‘private benefits’.(4)

2.4Briefly explain ‘collusion’ by oligopolies.(8)

2.5How is ‘allocative inefficiency’ an effect of market failure?(8)


MARK ALLOCATION

Introduction






Max. 2

Body:


Critically discuss/Analyse/Compare/Evaluate/Distinguish/

Explain


Max. 26

Max. 10

Conclusion






· Recommendations

Max. 2

TOTAL

40

QUESTION 3 MICROECONOMICS 40 MARKS –40 MINUTES

· Discuss in detail, the characteristics of a monopoly as a market structure.(26)

· Show the short-term equilibrium of a monopolist with the aid of a graph.(10)

Session 12:ECONOMIC GROWTH AND DEVELOPMENT

Learner Note: All countries want economic growth and development. Growth leads to an increase in the capacity to produce more final goods and services. Development leads to an improvement in the standard of living of people. Growth focus on goods and services and development focus on people.


QUESTION 1:5 minutes Section A – Short Questions

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 number.

1.1 The policy that was introduced to increase employment, promote economic

growth and redistribute income.

A. Asgisa

B. GEAR

C. RDP

D. JIPSA(2)

1.2 Many developing countries do not have the … to sustain large-scale

manufacturing operations.

A. salaries

B. wages

C. industrial policies

D. capital(2)

1.3 The application of new scientific knowledge in the form of inventions and

innovations is known as …

A. capital.

B. land.

C. labour.

D. technology(2)

1.4 The scorecard used to measure progress with Black Economic

Empowerment (BEE) is published by the …

A. Amalgamated Banks of South Africa (ABSA).

B. Development Bank of Southern Africa (DBSA).

C. Department of Trade and Industry (DTI).

D. World trade organisation (WTO) (2)

1.5 Economic development impacts mainly on …

A. the standard of living.

B. the real gross domestic product.

C. aggregate supply.

D. production(2)

5 x 2 (10)

QUESTION 2:5 minutesSection B(Taken from DBE/Feb.–Mar. 2013)

Study the extract below and answer the questions that follow.

DEEP THINKING

South Africa is one of the world's, and Africa's, most important mining countries in terms of the variety of minerals mined. It has the world's largest reserves of chrome, gold, vanadium and manganese. Combined, this represents 6,5% of the country's GDP. In fact, the gold industry remains the largest employer, responsible for more than 50% of total employment in this sector.

The move towards black economic empowerment in this industry is progressing, but not fast enough. There is also a move within government towards accommodating small mining companies, creating opportunities for junior operations to start up.

[Source: Adapted from Skyways, 2012]

2.1Define the term economic growth. (2)

2.2Give reasons why the gold industry is of economic importance to South Africa.

(2 x 2)(4)

2.3.Why is black economic empowerment necessary in South Africa's mining

industry? (4)

QUESTION 3: 10 minutes(Taken from DBE June 2015)


3.1According to the extract, what is the misconception regarding the BEE policy?

(1)

3.2What is the focus of the BEE policy instrument?(1)

3.3How can broad-based growth be achieved?(2 x 2) (4)

3.4Do you think that BEE is successful as a measure to redress inequalities of the past? Motivate your answer.(2 x 2) (4)

QUESTION 4:10 minutes Section B(Taken from Easter Cape Prelim Sept 2011)

Discuss any TWO South African approaches to improve business efficiency. (2 x 4) (8)

QUESTION 5: 40 minutes Section C(Taken from DoE/Feb.– March 2009)


MARK

ALLOCATION

Introduction






Max. 2

Body:

Main part: Discuss in detail/In-depth discussion/Examine/ Critically discuss/Analyse/Compare/Evaluate/Distinguish/ Explain


Max. 26

Max. 10

Conclusion






· Recommendations

Max. 2

TOTAL

40

· Discuss the supply-side approach used in South Africa to promote growth and development in detail under the following headings:

(1)Effectiveness and efficiency of markets

(2)Business efficiency

(3)Cost of doing business (26 marks)

· Evaluate competitiveness as a development policy in South Africa. (10 marks)

ECONOMIC GROWTH & DEVELOPMENT: ADDITIONAL CONTENT NOTES

ECONOMIC GROWTH AND DEVELOPMENT

Economic Growth

Consists of growth in the REAL GDP and implies an increase in the CAPACITY of the ECONOMY to produce more goods and services. It requires policies that empower the economy.

Economic development

Consists of growth of PER CAPITA REAL GDP and implies an increase in the CAPACITY of the POPULATION to PRODUCE more goods and services. It requires policies that EMPOWER people.

The demand-side approach

An increase in domestic demand for a product or service will cause an increase in the level of its production, this increase in the quantity of goods and services will lead to economic growth.

C + I + G + X – M

DEMAND SIDE POLICIES TO STIMULATE GROWTH(SOUTH AFRICA’S APPROACH

1. MONETARY POLICY

Instruments used:

a. Interest rate changes it is a rate to stabilise the exchange rate by encouraging capital inflows or outflows.

b. Open market transaction-the SARB sells securities to restrict bank credit. (when banks buy these securities money flows from the bank to the SARB ) (the banks then have less money to lend and cannot extend its credit as before), to encourage credit creation the SARB buys securities in the open market (money the flows into the banking system)

c. Moral persuasion-the SARB consults with banks and persuade them to consider current economic conditions in the country, such as recessions. The SARB can see security papers, such as treasury bills and government bonds, which will drain excess liquidity and banks will have less money to lend.

2. FISCAL POLICY

Involves the government expenditure and taxation to stimulate growth.

a. Progressive personal income tax higher income earners are taxed at higher rates than lower income earners. The taxes are used to finance social development, such as wage subsidies and grants.

b. Wealth taxes-Properties such as houses, offices and buildings are taxed on the value of the property. Transfer duties are paid when properties are bought and securities (shares and bonds) are taxed when they are traded. Capital gains tax (CGT) is levied on the gains earned on the sale of capital goods such as properties and shares. Estate duties are levied on the estates of deceased with a value of more than R3.5 million (2012)

c. Cash benefits-old age pensions, disability grants, child support grants.

d. Benefits in kind these include the provision of healthcare, education and school meals, protection, municipal services and infrastructure.

e. Other redistributions-public works programmes provide employment and Strategic Integrated Projects (SIPs) provide employment subsidies and cash benefits, such as for training, financing and export incentives to SMMEs.

f. Land redistribution and restitution-the purpose of land restitution is to return land to those who lost it due to apartheid laws. Land redistribution focuses on land for residential (town) and productive (farm) use. The main aim is to redistribute 50% of the country’s agriculture to the HDIs.

SUPPLY SIDE POLICIES TO STIMULATE ECONOMIC GROWTH

(South African approach)

1. THE EFFECTIVENESS AND EFFICIENCY OF MARKETS

a. Effective-government demands that markets operate in a manner that ensures that more black people are absorbed into the mainstream of the economy.

-Two Acts were introduced to enforce a preference for black workers and HDI:

The Employment Equity Act this act prohibits discrimination and requires that the workforce reflects the racial and gender profile of the population. Enterprises have to file an employment equity plan with the Department of Labour and inspectors from the department will business sites to ensure compliance.

Broad Based Black Economic Empowerment (BBBEE)-this Act provides the legal basis for the transformation of the South African economy. It requires redress so that the number of black people who own, manage and control businesses in the country increases significantly.

b. Efficiency-this includes productive and allocative efficiency in the workplace competition

c. Deregulation-private sector power imbalances that inhibit the free operation of markets have been revised and some were even abolished in the mid-1990s. exchange control measures were occasionally relaxed to encourage FDIs

2. Business efficiency

a. Taxes- Company tax is 28% on the profits of a firm. (Very high for developing economy). Small and micro enterprises pay lower tax rates, depending on their income levels. The effect of bracket creeping (PAYE) for individuals has been reduced over the past few years. Capital Gains Tax (CGT) was slowly introduced since 2012. (Taxes on capital gains.) Value Added Tax (VAT) has been steady at 14% but the poor are negatively affected.

b. Capital formation-depreciation of capital goods used by businesses is designed to encourage investments. Government, though the DTI and the IDC also provides capital and loans to SMMEs and larger businesses.

c. Human resources-education receives the largest portion of the national budget expenditure. Sector Education and Training Authorities (SETAs) must accommodate the Labour Relations Act states that it promotes economic development, social justice and peaceful labour relations.

d. Free advisory service –examples include the development of export markets, managing and running SMMEs, agricultural production weather forecasts and preventing animal diseases.

3. Cost of doing business

a. Transport costs-transport options are air, rail and sea, while government controls air and rail. A large amount of cargo is still moved by road, causing many problems and delays. Transport costs within South Africa are expensive, due to long distances travelled.

b. Communication costs-communication options are cable, signal and mail. Government controls cable (land and fixed line) and mail communication services. The high costs makes IT services for businesses and individuals expensive and reduces global competitiveness.

c. Energy costs- the forms of energy in South Africa are electricity capacity and liquid fuels. Eskom is a monopoly electricity supplier, and its rates has escalated recently to meet local demands. Government is continually investing in new electricity capacity, such as solar power, wind farms, etc. Government regulates petrol and paraffin prices, controlled by NERSA (National Electricity Regulator OF South Africa). The prices of crude oil are linked to international market prices, which is increased by the weaker rand.

EVALUATION OF GROWTH AND DEVELOPMENT POLICIES UESD IN SOUTH AFRICA

a. The New Growth path(NGP)

This policy was announced in October 2010 and implemented in 2011. The aim is to enhance growth, create employment and create greater equity.

The key areas where jobs can be created are:

· Infrastructure expansion

· Agricultural value chain

· Mining value chain

· Green economy

· Manufacturing sector

· Tourism

b. National Development Plan(NDP)

To expand economic opportunities through investment in infrastructure, more innovation, private investment and entrepreneurship.

c. National Skills Development Strategy(NSDS)

-The NSDS provides a framework for skills development in the workplace.

-The first phase focus on productive citizenship.

-The second phase on equity, equality, quality training and skills development.

-The third phase focus on institutional learning

PREVIOUS PLANS AND STRATEGIES AIMED AT GROWTH AND DEVELOPMENT

d. Reconstruction and Development Programme (RDP)

The RDP was implemented in 1994 and was aimed at improving living standards among South Africans.

RDP AIMS:

A.MEETING BASIC NEEDS

1. Many people live below the poverty level

2. There is a shortage of houses

3. Houses don’t have electricity

Providing the following needs

Jobs, Land, Housing, Water, Telephones, Transport, Food, Health care, Environment, Social security and welfare

B.DEVELOPING OUR HUMAN RESOURCES

Aims to develop a culture of teaching and learning. All have equal access to education. Important areas to be developed include:

· Education and training

· Literacy

· Arts and culture

· Sport and recreation

· Youth development

C.BUILDING THE ECONOMY

RDP’s goals for the economy

· End poverty

· Create jobs

· Build the SA economy and integrate it into the world economy

· End discrimination

The three keys to building the economy:

1. Reconstruction

2. Restructuring

3. Development

D.TO DEMOCRATISE THE ECONOMY

E.IMPLEMENTING THE RDP AT ALL SECTORS

EVALUATION:

The public works programme were mostly labour intensive, this helped alleviate unemployment and poverty slightly’

Some achievements in building house and providing clean water.

e. Growth, Employment and Redistribution Programme (GEAR)

GEAR is a macroeconomic strategy adopted by the Department of Finance in June 1996 as a five year plan.

Aims

· Strengthening economic development

· Broadening of employment

· Redistribution of income and socioeconomic opportunities in favour of the poor

· GEAR remains government macroeconomic policy

EVALUATION:

• Mixed outcomes.

• Brought greater financial discipline and macroeconomic stability.

• Real reduction in fiscal deficit (less than 3% in terms of international benchmarks). • Inflation has dropped mostly to within inflation targets.

• Foreign exchange reserves increased in most regards.

• Failure to create sustainable job opportunities.

• Failure to redistribute wealth more evenly.

f. Accelerated and Shared Growth Initiative for South Africa (AsgiSA)

This plan consists of the following components:

· The challenge (aim): To halve poverty and unemployment by 2014. Aim seen as feasible if economic growth rate is maintained.

· Consultation: Local governments and provincial governments consulted.

· Targets of accelerated and shared growth: Between 5 and 6% growth rate and achievement of a more balanced and sustainable growth.

· Binding constraints: Include currency volatility (rand exchange rate varies considerably), backlogs in infrastructure and investment, shortage of suitably skilled labour, barriers to entry, limits to competition and limited new investment opportunities, many state regulations on small businesses and deficiencies in state organisation, capacity and leadership.

The programme plans to achieve these objectives by concentrating its affords on the following six areas:

1. Infrastructure investment

2. Sector investment strategies

3. Education and skills development

4. Eliminating the Second economy

5. Macroeconomic issues

6. Governance and institutional interventions

EVALUATION:

• Growth in infrastructure investment, especially in the public sector.

• Employment growth has lagged behind economic growth – reason real wage increases are higher than productivity.

• The second economic strategy helped slightly to reduce unemployment through the Expanded public Works Programme.

• Poor economic growth and high unemployment for the youth.

OTHER POLICIES TO be EVALUATED

g. Joint Initiative on Priority Skills Acquisition(JIPSA)

h. Expanded Public Works Programme(EPWP)

i. Small Business Development Promotion Programme

j. Black Economic Empowerment Programmes

EVALUATION OF GROWTH AND DEVELOPMENT IN SOUTH AFRICA USING DIFFERENT INDICATORS

1.GROWTH POLICIES

a. Economic growth

Performance of the economy has to be measured and economic indicators are used for this purpose. The following indicators are used:

· Percentage annual change in GDP at market price Percentage annual change in GDP at constant 2005 prices

· GDP per capita at constant 2005 prices

· Income distribution

· Standard of living

· The GEAR policy(phased out by 2010) reduced the budget deficit to less than 3% of the GDP in the years out by 2009

b. Inflation

· The SARB adopted an inflation targeting, in a 3% to 6% range in order to control inflation

· The interest rate, based on the repo rate, is the main instrument used in stabilising inflation

· The consistently low, relatively low budget deficit, also stabilise the inflation rate

c. Employment

· Employment in non-agricultural sectors of the economy increased at a low rate.

· The global recession between 2008 and 2009 made the average growth rate even worse.

· The result is that the unemployment rate increased from 14% (1994) to 25% in 2012.

· Public sector employment increased during and after the global recession, reducing the total effect on unemployment.

d. Exchange rate stability

· The South African currency depreciates considerably from one year to the other.

· The SARB uses a free-floating exchange rate system

· South Africa uses the market forces to determine its real exchange value, with minimal intervention

THE NORTH/SOUTH DIVIDE

Teacher Note: Be careful to refer to hemispheres- rather talk about developed and developing. The developed countries include countries like Australia that is in the Southern hemisphere and the developing countries include countries like India that is in the Northern hemisphere. The developed countries are MOSTLY in the Northern hemisphere and the developing countries are MOSTLY in the Southern hemisphere. A table work the best to explain the differences between developed and developing. Always be careful when using stats – stats become out dated, rather stick to theory.

Characteristics of developed countries:

· Well-developed infrastructure

· Relatively high standard of living

· High productivity

· Low population growth

· Rapid capital development

· Normal distribution of income

· Diversified economic structure

Characteristics of developing countries:

· Low standard of living

· Low productivity

· High population growth

· Unemployment

· Defective economic structure

· Weaker position in international relations

· Climate, soil and terrain restrictions

THE DIVIDE RELATES TO THREE AREAS, SUCH AS:

A. Unequal standard of living :

-per capita income

-life expectancy

-education

B. Globalisation challenges

-poverty

-growth

-trade

C. Environment

-northern countries

-southern countries

SECTION B: HOMEWORK

ECONOMIC GROWTH AND DEVELOPMENT

QUESTION 1

Give ONE term for each of the following descriptions by choosing a term from the list below. Write only the term next to the question number. NO abbreviations are allowed

1.1The aim of this initiative is to halve poverty and unemployment in South Africa by 2014

1.2An increase in the productive capacity of a country to produce goods and services

1.3The policy implemented in 1994 in South Africa to redress inequalities of the past. (1 X 3) (3)

QUESTION 2:10 minutes (taken from various sources)

2.1What is the main purpose of the expanded public works programme (EPWP)? (2)

2.2What is the main aim of South Africa's National Development Plan (NDP)? (2)

2.3How does economic growth relate to economic development?(1 x 2) (2)

2.4Differentiate between economic growth and economic development. (8)

2.5Briefly discuss the demand-side policy used in promoting growth and development. (8)

2.6Explain Black Economic Empowerment (BEE) as a development initiative.

(4 x 2) (8)

QUESTION 3:10 minutes (Taken from DBE November.2013)


3.1 What portfolio was Trevor Manuel responsible for as mentioned in the extract?(1)

3.2 Which economic indicator from the extract can be used to compare standards of living?(1)

3.3 How can the National Development Plan assist the promotion of small and medium enterprises (SMEs)?(4)

3.4How can the economy achieve an average growth rate of 5,4% per year?(4)

QUESTION 4: 10 Minutes(Taken from DBE November 2015)

4.1What is the difference in the per capita income between countries in the North and countries in the South?(2)

4.2What message is conveyed in the cartoon above?(2)

4.3Why will the subsidising of agricultural produce by wealthy countries make it difficult for developing countries to participate?(2)

4.4How do countries in the North contribute to the destruction of the environment?(2 x 2) (4)

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Documents

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