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Economic Essays Grade 12

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Grade 12 Economic Essays for the Next

Three-Year Cycle (2021-2023)

 Macroeconomics - Paper 1
1. Discuss in detail the markets within the FOUR-SECTOR model (Circular Flow)
 2. Discuss in detail 'The new economic paradigm'/Explain the 'smoothing of cycles
(Business Cycles)
3. Discuss in detail the features underpinning forecasting (Business Cycles)
4. Discuss in detail the main objectives of the public sector in the economy (Public
Sector)
5. Discuss in detail the reason(s) for public sector failure (link them to typical
problems experienced through public sector provisioning) (Public Sector)
6. Discuss in detail the reasons for international trade (Foreign Exchange Markets)
 Economic Pursuits - Paper 1
1. Discuss in detail export promotion (Protectionism and FreeTrade)
2. Discuss in detail the arguments in favour of protectionism (Protectionism and
Free Trade)
3. Discuss in detail the demand-side approach in promoting growth and
development in South Africa (Growth and development)
4. Discuss in detail the following South African growth and development policies
and strategic initiatives (Growth and development)
5. Discuss in detail South Africa's initiaties (endeavours) in regional development
(Industrial Development Policies)
6. Discuss in detail the following economic indicators (Economic and Social
Performance Indicators
7. Discuss in detail the following social indicators (Economic and Social
Performance Indicators)
 Microeconomics - Paper 2
1. Discuss in detail the various equilibrium positions with the aid of graphs-
PERFECT MARKET (Perfect Market)
2. Discuss the monopoly in detail (with/without the aid of graphs) (Imperfect Market)
3. Examine the oligopoly in detail (Imperfect Market)
4. Compare and contrast any TWO types of market structures
5. Discuss in detail how the following factors lead to the misallocation of resources
in the market (Market Failures)
6. Discuss in detail state intervention as a consequence of market failures, with the
aid of relevant graphs (Market Failures)
 Contemporary Economic Issues - Paper 2
1. Discuss in detail the consequences of inflation (Inflation)
2. Discuss in detail the measures to combat demand-pull and/or cost-push inflation
(Inflation)
3. Examine in detail the effects of tourism (Tourism)
4. Examine in detail the benefits of tourism (Tourism)
5. Discuss in detail how the government can ensure sustainable development
(Environmental Sustainability)
6. Discuss in detail the following problems and the international measures taken to
ensure sustainable development (Environmental Sustainability)

ESSAYS FOR THE NEXT THREE-YEAR

CYCLE (2021-2023)
MACROECONOMICS- PAPER1
Discuss in detail the markets within the FOUR-SECTOR model (Circular Flow)
INTRODUCTION
The economy of a country is regarded as an open economy because of the presence of
households, producers, government, foreign sector and financial
sector as active participants in the economy. Markets link the participants in the economy
🗸🗸 [Max 2]
BODY: MAIN PART
PRODUCT / GOODS/ OUTPUT MARKET🗸

 These are the markets for consumer goods and services🗸🗸

 Goods are defined as tangible items, like food, clothes, cars, etc. that satisfies some
human wants or needs🗸🗸
 Buying and selling of goods that are produced in markets e.g. 🗸🗸
 Capital Goods market for trading of buildings and machinery🗸🗸
 Consumer goods market for trading of durable consumer goods, semi-durable consumer
goods and non-durable consumer goods. 🗸🗸
 Services are defined as non-tangible actions and include wholesale and retail, transport
and financial markets. 🗸🗸

FACTOR / RESOURCE/ INPUT MARKETS🗸

 Households sell factors of production on the markets: rent for natural resources, wages
for labour interest for capital and profit for entrepreneurship🗸🗸
 The factor market includes the labour, property and financial markets. 🗸🗸
 The market where services of factors of production are traded e.g. labour is hired and
capital is borrowed – these services earn wages, interest, rent and profits🗸🗸

FINANCIAL MARKETS🗸

 They are not directly involved in the production of good and services, but act as a link
between households , the business sector and other participants with surplus finds🗸🗸
 E.g. banks, insurance companies and pension funds🗸

MONEY MARKETS🗸

 In the money markets short term loans, and very short term funds are saved and
borrowed by consumers and business enterprises 🗸🗸
 Products sold in the market are bank debentures, treasury bills and government bonds
🗸🗸
 The simplest form exists when parties make demand and short-term deposits and borrow
on short term 🗸🗸
 The SARB is the key institution in the money market🗸🗸

CAPITAL MARKETS🗸

 In the capital markets long term funds are borrowed and saved by consumers and the
business sector🗸🗸
 The Johannesburg Security Exchange (JSE) is a key institution in the capital 🗸🗸
 Products sold in this market are mortgage bonds and shares🗸🗸

FOREIGN EXCHANGE MARKETS🗸

 On the foreign exchange markets businesses buy/ sell foreign currency to pay for
imported goods and services🗸🗸
 These transactions occur in banks and consists of electronic money transfers from one
account to another🗸🗸
 The leading centres/ most important foreign exchange markets are in London, New York
and Tokyo 🗸🗸
 e.g. traveller’s cheques to travel abroad🗸

FLOWS🗸
  Flows of private and public goods and services are real flows and they are accompanied
by counter flows of expenditure and taxes on the product market🗸🗸
 Factor services are real flows and they are accompanied by counter flows of income on
the factor market🗸🗸
 Imports and exports are real flows and are accompanied by counter flows of expenditure
and revenue on the foreign exchange market🗸🗸[Max 26]

BODY: ADDITIONAL PART

 A change in investment of R 10m will result in a change in income of R 20m🗸🗸

 An increase in investment causes the expenditure function to shift upwards from C1 to
C2 so that C1 is parallel to C2🗸🗸
 The effect of the increase in investment is that the total expenditure will increase from R
20m to R 30m🗸🗸
 The increase in the value of output (Y) is greater than the increase in the expenditure (E)
🗸🗸
(Explanation must comply with the figures supplied in the graphical presentation)
[Max 4]
[Max 10]

CONCLUSION
The circular flow ensures continued interdependence and coordination of the economic activities
in the economy / markets are critically important institutions in our economic system, because
they regulate the supply and demand and safeguard price stability and general business
confidence. 🗸
[Any other relevant conclusion]
[Max 2]
Discuss in detail 'The new economic paradigm'/Explain the 'smoothing of cycles
(Business Cycles)
INTRODUCTION
The new economic paradigm in terms of the smoothing of business cycles discourages monetary
policy makers from using monetary and fiscal policies to fine tune the economy but rather
encourages achieving stability through sound long term decisions relating to demand and supply
in the economy/smoothing out the painful part of economic down-fall that is part of the market
economy🗸
(Accept other relevant definition/description of smoothing/new economic paradigm).
[Max 2]
BODY: MAIN PART
The new economic paradigm is embedded in the demand and supply side policies. 🗸🗸
Demand-side policies

 It focuses on aggregate demand in the economy🗸🗸

 When households, firms and the government spend more, demand in the economy
increases. 🗸🗸
 This makes the economy grow but lead to inflation.🗸🗸

Inflation:

 Aggregate demand increases more quickly than aggregate supply and this causes price
increases. 🗸🗸
 If the supply does not react to the increase in demand, prices will increase. 🗸🗸
 This will lead to inflation (a sustained and considerable in the general price level) 🗸🗸

Unemployment:

 Demand-side policies are effective in stimulating economic growth. 🗸🗸

 Economic growth can lead to an increase in demand for labour. 🗸🗸
 As a result more people will be employed and unemployment will increase. 🗸🗸
 As unemployment decreases inflation is likely to increase. 🗸🗸
 This relationship between unemployment and inflation is illustrated in the Phillips curve.
🗸🗸
 The PC curve shows the initial situation. A is the point of intersection of the PC curve with
the x- axis. It shows the natural rate of unemployment, for instance 14%🗸🗸
 At point A inflation rate is zero. 🗸🗸
 If unemployment falls to C for instance, 8%, inflation caused by wage increases is at
6%.🗸🗸
 If unemployment increases from C to B to A, inflation falls from 6% to 2% to 0%.🗸🗸

Phillips curve (PC)

Heading - 1
Labelling of axes - 1
Drawing of correct 2 curves - 1
Point A - 1
Max 4 marks
Supply-side policies
Reduction of costs 🗸

 Infrastructural services: reasonable charge and efficient transport, communication, water

 services and energy supply. 🗸🗸
 Administrative costs: these costs include inspection, reports on applications
 of various laws, regulations and by-laws, tax returns and returns providing statistical
  information.
 It adds to costs and businesses carry a heavy burden 🗸🗸
 Cash incentives: it includes subsidies for businesses to locate in neglected areas where
unemployment is high and compensation to exporters for certain costs they
 incurred in development of export markets. 🗸🗸

Improving the efficiency of inputs 🗸

 Tax rates: low tax rates can serve as an incentive to workers. It will improve the
productivity and output. 🗸🗸
 Capital consumption: replacing capital goods regularly creates opportunities for
businesses to keep up with technological development and better outputs🗸🗸
 Human resource development: to improve the quality of manpower by improving health
care, education and training. 🗸🗸
 Free advisory service: these promote opportunities to export. 🗸🗸

Improving the efficiency of markets 🗸

 Deregulation: removal of laws, regulations and by-laws and other forms of government
controls makes the market free. 🗸🗸
 Competition: encourages the establishment of new businesses 🗸🗸
 Levelling the play field: private businesses cannot compete with public enterprises 🗸🗸
Answers must be in full sentences and well described with examples to be able to obtain
2 marks per fact.
Learners should be awarded 1 mark per heading or sub-heading to a maximum of 8
marks.
(8 x 1) (8)
[Max 26]

BODY: ADDITIONAL PART

Explanation:
The above graph shows:

 Aggregate demand (AD) and aggregate supply (AS) are in equilibrium at point C. 🗸🗸
 If aggregate demand is stimulated so that it moves to AD1 and aggregate supply
responds promptly and relocates at AS1; a larger real output becomes available without
any price increases. 🗸🗸
 Supply is often sticky and fixed in the short term. 🗸🗸
 Therefore, if aggregate demand increases to AD1 and aggregate supply does not
respond, intersection is at point F. Real production increases but so does the price, in
other words, with more inflation. 🗸🗸
 The aggregate demand locates at any position to the left of AS1 inflation prevails. 🗸🗸
 The solution is to create conditions that ensure supply is more flexible. 🗸🗸
  If the cost of increasing production is completely flexible, a great real output can be
supplied at any given price level. 🗸🗸
[Max 10]

CONCLUSION
It is clear from the discussion above that it is critically important to manage the aggregate supply
and demand to ensure stability in the economy. 🗸
[Accept any relevant higher order conclusion]
[Max 2]
Discuss in detail the features underpinning forecasting (Business Cycles)
INTRODUCTION
Accurate prediction is not possible in Economics. The best the economists can do is to try and
forecast what might happen. There are a number of techniques available to help economists to
forecast business cycles, e.g. economic indicators 🗸🗸
OR
Successive periods of contraction and expansion of economic activities 🗸
[Accept any other relevant introduction]
[Max 2]
BODY: MAIN PART
Business cycle indicators
Leading economic indicators 🗸

 These are indicators that change before the economy changes / coincide with the
reference turning point 🗸🗸
 They give consumers, business leaders and policy makers a glimpse (advance warnings)
of where the economy might be heading. 🗸🗸
 Peak before a peak in aggregate economic activity is reached.
 Most important type of indicator in helping economists to predict what the economy will
be like in the future 🗸🗸
 When these indicators rise, the level of economic activities will also rise in a few months'
time/an upswing 🗸🗸
 E.g. job advertising space/inventory/sales ratio🗸

Coincident economic indicators🗸

 They move at the same time as the economy / if the turning point of a specific time series
variable coincides with the reference turning point🗸🗸
 It indicates the actual state of the economy🗸🗸
 E.g. value of retail sales. 🗸
 If the business cycle reaches a peak and then begins to decline, the value of retail sales
will reach a peak and then begin to decline at same time🗸🗸

Lagging economic indicators🗸

 They do not change direction until after the business cycle has changed its direction🗸🗸
 They serve to confirm the behaviour of co-incident indicators🗸🗸
 E.g. the value of wholesalers' sales of machinery🗸
 If the business cycle reaches a peak and begins to decline, we are able to predict the
value of new machinery sold🗸🗸

Composite indicator🗸

 It is a summary of the various indicators of the same type into a single value🗸🗸
  Their values are consolidated into a single value , if this is done we find a value of a
composite leading , coincident and lagging indicator🗸🗸
Accept ONE example from the table below:

LEADING INDICATORS CO-INCIDENT LAGGING

INDICATORS INDICATORS
 Net new companies  Registered unemployed  Employment in non-
registered  Physical volume of agricultural sectors.
 Number of new vehicles manufacturing  Hours worked in
sold production construction
 Net gold and other  Real retail sales  Cement sales in tons
foreign reserves  Real merchandise  Number of
 Number of residential imports commercial vehicles
building plans passed  Utilization of capacity sold
 Share prices in manufacturing  Real investment in
 Real export of goods  Gross value added at machinery and
(gold excluded) constant prices equipment
 Gross operating surplus excluding agriculture,  Unit labour cost in
as % of GDP forestry and fishing manufacturing
 Labour productivity in  Industrial production  Wholesale sales of
manufacturing index metals, machinery
 Job advertisements in  Value of wholesale, and equipment
newspapers retail and new vehicle  Prime overdraft rate
 Commodity prices in US sales at constant prices of banks
$ for a basket of SA  Total formal non-  Value of non-
export commodities agricultural residential buildings
 Opinion survey of the employment completed at
average hours of work constant price
per factory worker in the
manufacturing sector
 Opinion survey on stocks
in relation to demand:
manufacturing and trade
 Opinion of business
confidence of
manufacturing,
construction and trade
 Opinion survey of
volume of orders in
manufacturing

Length 🗸

 This is the time that it takes for a business cycle to move through one complete cycle
(measured from peak to peak) 🗸🗸
 It is useful to know the length because the length tends to remain relatively constant over
time.🗸🗸
 If a business cycle has the length of 10 years it can be predicted that 10 years will pass
between successive peaks or troughs in the economy. 🗸🗸
 Longer cycles show strength. 🗸🗸
 Cycles can overshoot. 🗸🗸
Ways to measure lengths:

 Crisis to crisis 🗸🗸
 Historical records 🗸🗸
 Consensus on businesses experience 🗸🗸

Amplitude 🗸

 It is the difference between the total output between a peak and a trough. 🗸🗸
 It measures the distance of the oscillation of a variable from the trend line / It is the
intensity (height) of the upswing and downswing (contraction and expansion) in economic
activity 🗸🗸
 A large amplitude during an upswing indicates strong underlying forces – which result in
longer cycles 🗸🗸
 The larger the amplitude the more extreme the changes that may occur / extent of
change 🗸🗸
 E.g. During the upswing inflation may increase from 5% to 10%. (100% increase) 🗸🗸

Trend 🗸

 A trend is the movement of the economy in a general direction. 🗸🗸

 It usually has a positive slope because the production capacity of the economy increases
over time 🗸🗸
 Also known as the long term growth potential of the economy. 🗸🗸
 The diagram above illustrates an economy which is growing – thus an upward trend
(positive slope) 🗸🗸
 Trends are useful because they indicate the general direction in which the economy is
moving – it indicates the rate of increase or decrease in the level of output🗸🗸

Extrapolation 🗸

 Forecasters use past data e.g. trends and by assuming that this trend will continue, they
make predictions about the future🗸🗸
 Means to estimate something unknown from facts or information that are known 🗸🗸
 if it becomes clear that the business cycle has passed through a trough and has entered
a boom phase, forecasters might predict that the economy will grow in the months that
follow 🗸🗸
 It is also used to make economic predictions in other settings e.g. prediction of future
share prices🗸🗸

Moving average 🗸

 It is a statistical analytical tool that is used to analyse the changes that occur in a series
of data over a certain period of time / repeatedly calculating a series of different average
values along a time series to produce a smooth curve 🗸🗸
 The moving average could be calculated for the past three months in order to smooth out
any minor fluctuations 🗸🗸
 It is calculated to iron out (minimize) small fluctuations and reveal long-term trends in the
business cycle🗸🗸
Answers must be in full sentences and well described with examples to be able to obtain
2 marks per fact.
Learners should be awarded 1 mark per 8 headings and examples. [8 x 1=8]
[Max 26]

BODY: ADDITIONAL PART

  An expansionary monetary policy is implemented when the economy is in recession in
order to stimulate economic activities. 🗸🗸
 Interest rates can be reduced to encourage spending. 🗸🗸
 Households and firms can borrow more and spend more. 🗸🗸
 The increased spending increases the level of economic activity. 🗸🗸
 Investment will increase and more factors of production will be employed. 🗸🗸
 Higher levels of production, income and expenditure will be achieved. 🗸🗸
 If the supply of goods and services does not increase in line with an increase in demand,
inflation will increase. 🗸🗸
 Inflation can be curbed by reducing money supply and availability of credit. 🗸🗸
 To dampen demand at the peak the government will be able to reduce the money supply
by increasing interest rates. 🗸🗸
 Selling government bonds and securities (open market transactions) and reduce the
supply of money in circulation. 🗸🗸
 Increase the cash reserve requirements to manipulate money creation activities of banks.
🗸🗸
 Persuade banks to decrease lending (moral suasion) 🗸🗸
 To devaluate the exchange rate (exchange rate policy) 🗸🗸
[Max 10]

CONCLUSION
It remain clear that business cycles must be clearly monitored through the indicators available,
policy makers must act quickly by using monetary and fiscal instruments in order to prevent
instability in the economy. 🗸
[Accept any other relevant conclusion]
[Max 2]
Discuss in detail the main objectives of the public sector in the economy (Public Sector)
INTRODUCTION:
The government provides goods and services that are under supplied by the market and
therefore plays a major role in regulating economic activity and guiding and shaping
the economy. 🗸
[Max 2]
BODY: MAIN PART
Objectives:
Economic growth 🗸

 Refer to an increase in the production of goods and services 🗸🗸

 Measured in terms of Real GDP 🗸🗸
 For economic growth to occur, the economic growth rate must be higher than Population
growth 🗸🗸
 Growth and development in a country benefit its citizens because it often leads to a
higher standard of living 🗸🗸

Full employment 🗸

 It is when all the people who want to work, who are looking for a job must be able to get a
job 🗸🗸
 High levels of employment is the most important economic objective of the government
🗸🗸
 The unemployment rate increased over the past few years 🗸🗸
 Informal sector activities must be promoted because it is an area where employment
increase 🗸🗸
Exchange rate stability 🗸

 The economy must be manage effectively and effective Fiscal and monetary policy must
be used to keep the exchange rate relatively stable 🗸🗸
 Depreciation and Appreciation of the currency create uncertainties for producers and
traders and should be limited. These uncertainties must be limited 🗸🗸
 The SARB changed the Exchange rate from a Managed floating to a free floating
exchange rate 🗸🗸

Price stability 🗸

 Stable price causes better results in terms of job creation and economic growth 🗸🗸
 The SARB inflation target is 3% - 6% and they are successful in keeping inflation within
this target 🗸🗸
 Interest Rates, based on the Repo Rate are the main instruments used in the
stabilisation policy 🗸🗸
 The stable budget deficit also has a stabilizing effect on the inflation rate 🗸🗸

Economic equity 🗸

 Redistribution of income and wealth is essential 🗸🗸

 South Africa uses a progressive income tax system – taxation on profits, taxation on
wealth, capital gains tax and taxation on spending, are used to finance free services 🗸🗸
 Free social services are basic education; primary health and to finance basic economic
services 🗸🗸
 E.g. Cash Grant to the poor, e.g. child grants and cash grants to vulnerable people, e.g.
disability grants 🗸
 Progressive taxation means that the higher income earners pay higher/more taxation 🗸🗸
[Max 26]

BODY: ADDITIONAL PART

 Learner responses can be positive or negative.

 Follow the argument and see if the learner can produce enough evidence to support
his/her answer.

Economic Growth:

 SA targets 4–5% economic growth. Previously SA had a 5% growth rate 🗸🗸

 In recent years the growth rate decreased steadily (presently below 3%) 🗸🗸

Full Employment:

 Compared to foreign countries unemployment is very high. (Expanded – over 30%) 🗸🗸

 Efforts by SA government to reduce these figures includes the GEAR strategy, focus on
small business enterprises, Public Works Programme 🗸🗸

Exchange rate stability:

 SA now operates on a free floating exchange rate system in line with international
benchmarks 🗸🗸
 Unfortunately our currency has lost its value, with a general trend of depreciation over the
last few years 🗸🗸

Price stability:
  For the past few years South Africa has managed to remain within the 3–6% target 🗸🗸
 The current increase in the repo rate has put constraints on the inflation rate 🗸🗸

Economic equity:

 Economic equity has improved (BEE, affirmative action, gender equity) and led to an
improvement in economic equity 🗸🗸
[Any 5 x 2]
[Max 10]

CONCLUSION:
While some successes have been achieved by government, the fulfilling of some of the
objectives are compromised by factors like lack of accountability, corruption, budgeting, nepotism
and incompetence. 🗸
[Any relevant conclusion]
[Max 2]
Discuss in detail the reason(s) for public sector failure (link them to typical problems
experienced through public sector provisioning) (Public Sector)
INTRODUCTION
The government responds to market failures by establishing and maintaining state owned
enterprises to provide public goods and services 🗸🗸
[Any other relevant introduction]
[Max 2]
BODY: MAIN PART

1. Accountability 🗸
 It is required to give an explanation of one's decisions, actions and expenditures
over a period of time 🗸🗸
 There are mechanisms for evaluating government's economic and financial
performance 🗸🗸
 That the desired quantities and quality of goods and services for which taxes are
raised are delivered 🗸🗸
 That monopolies, corruption, nepotism, incompetence and apathy does not occur
🗸🗸
 Two important elements of accountability is participation and transparency🗸🗸
 Ministerial responsibilities, i.e. the ministers of government departments are
responsible for decisions and actions and expenditures 🗸🗸
 Parliamentary questioning arises and members of the government departments
have to respond 🗸🗸
 The national treasury is responsible for treasury control 🗸🗸
 The auditor-general reports annually in writing on each government
department🗸🗸
2. Efficiency 🗸
 Public goods are efficiently provided if Pareto efficiency is achieved 🗸🗸
 That is if resources are allocated in such a way that no one can be made better
off without making someone else worse off 🗸🗸
 Bureaucracy the official rules and procedures. 🗸🗸/insensitivity to the needs of
their clients 🗸🗸
 Incompetence- the lack of skill or ability to do a task successfully🗸🗸/May have
improper qualifications/or an attitude of apathy 🗸🗸
 Corruption- the exploitation of a person's position for private gain /taking bribes,
committing fraud, nepotism 🗸🗸
3. The problem of assessing needs 🗸
  State-owned enterprises do not operate according to the forces of supply and
demand 🗸🗸
 It becomes thus very difficult for state-owned enterprises to assess needs and
they are thus prone to under- or over-supplying public goods and services 🗸🗸
 The census and other household surveys as well as local government structures
provide this type of information 🗸🗸
 Since resources are scarce, government must then decide which needs and
whose needs are to be satisfied 🗸🗸
 In the private sector houses are built according to the price that people are able
and willing to pay 🗸🗸
 In the public sector housing is regarded as a social responsibility and authorities
supply them according to the needs of people 🗸🗸
4. Pricing policy 🗸
 In a market economy prices are determined by supply and demand 🗸🗸
 The objectives of firms are to maximise their profits and they usually set prices to
achieve this objective 🗸🗸
 Government does not pursue the profit maximisation objective 🗸🗸
 Government takes into account certain social, economic, political and
environmental conditions as well as public opinion 🗸🗸
 Free-of-charge services- this is met from taxes 🗸🗸 and applies to most
community goods and collective goods 🗸🗸 (e.g.) defence, police whereby
charges and toll fees are levied 🗸
 User-charges 🗸 option to charge depends on technical reasons 🗸🗸 (e.g.) cost of
providing a double lane road could be recovered by toll charges 🗸 Economic
reasons 🗸 such as services like water and electricity 🗸 that have a zero price 🗸
political reasons 🗸 where income distribution is significantly unequal,
administrative rationing according to need takes place 🗸🗸 (e.g.) public health and
education 🗸
 Direct and indirect subsidies direct subsidies are used to cover part of the costs
🗸🗸 (e.g.) urban bus service 🗸 and an indirect subsidy is used to write off
accumulated losses or deficits 🗸🗸
 Standing charges -called availability charges 🗸🗸 (e.g.) water and electricity 🗸
standing charges goes to meet fixed costs and the price per unit consumed
covers variable costs 🗸🗸
 Price discrimination - different users have different elastic ties of demand for a
good 🗸🗸 (e.g.) commercial and manufacturing businesses pay higher rates than
households and they pay on a sliding scale🗸🗸
5. Parastatals 🗸
 State-owned enterprises that either render a service or when an existing
enterprise is nationalised 🗸🗸
 They focus on making a profit and maximizing cost at the expense of the needs
of some groups 🗸🗸 (e.g.) Iscor 🗸 SABC, 🗸SAA, Spoornet 🗸
6. Privatisation 🗸
 refers to the process whereby state-owned enterprises and state-owned assets
are handed over or sold to private individuals 🗸🗸
 cost of maintaining and managing state-owned enterprises are high which can
lead to higher taxes and larger public debt 🗸🗸
 State-owned enterprises are not run as efficiently as private enterprises 🗸🗸
 Nationalisation is the process whereby the state takes control and ownership of
privately owned assets and private enterprises 🗸🗸
 It includes contracting of services, public-private partnerships, increasing
competitiveness🗸🗸
[Max 26]

ADDITIONAL PART
Possible problems in your community or elsewhere
  Lack of drinking water due to burst pipes 🗸🗸
 Lack of electricity due to lack of infrastructure (load shedding) 🗸🗸
 Lack of schooling – no buildings available – lack of maintenance 🗸🗸
 Lack of health services due to lack of staff, infrastructure, strikes 🗸🗸
 Lack of adequate housing (RDP) 🗸🗸
[Max 10 marks - List of examples max 5 marks]
[Accept any other relevant answer]

CONCLUSION
If the above problems are not dealt with timeously by government, government will continue to
fail its people in terms of service delivery, seeing many protests occurring regularly 🗸🗸
[Any other relevant higher order conclusion]
[Max 2]
Discuss in detail the reasons for international trade (Foreign Exchange Markets)
INTRODUCTION
International trade can be defined as the exchange of goods and services between countries
globally. 🗸🗸 These trade agreements are negotiated by protocols and agreement due to the
uneven distribution of natural resources globally. 🗸🗸
BODY-MAIN PART
The main reasons for international trade.
Demand reasons
The size of the population impacts demand.

 If there is an increase in population growth, it causes an increase in demand, as more

people’s needs must be satisfied. 🗸🗸
 Local suppliers may not be able to satisfy this demand. 🗸🗸

The population’s income levels effect demand.

 Changes in income cause a change in the demand for goods and services. 🗸🗸
• An increase in the per capita income of people in more disposable income that can be
spent on local goods and services, some of which may then have to be imported. 🗸🗸

An increase in the wealth of the population leads to greater demand for goods.

 People have access to loans and can spend more on luxury goods, many of which are
produced in other countries. 🗸🗸

Preferences and tastes can play a part in the determining of prices,

 E.g. customers in Australia have a preference for a specific product which they do not
produce and need to import and it will have a higher value than in other countries. 🗸🗸

The difference in consumption patterns is determined

 By the level of economic development in the country, e.g. a poorly developed country will
have a high demand for basic goods and services but a lower demand for luxury goods.
🗸🗸

Supply reasons
Natural resources are not evenly distributed
  Across all countries of the world. 🗸🗸
 They vary from country to country and can only be exploited in places where these
resources exist. 🗸🗸

Climatic conditions

 Make it possible for some countries to produce certain goods at a lower price than other
countries, e.g. Brazil is the biggest producer of coffee. 🗸🗸

Labour resources

 Differ in quantity, quality and cost between countries. 🗸🗸

 Some countries have highly skilled, well-paid workers with high productivity levels, e.g.
Switzerland. 🗸🗸

Technological resources

 Are available in some countries that enable them to produce certain goods and services
at a low unit cost, e.g. Japan. 🗸🗸

Specialisation in the production

 Certain goods and services allows some countries to produce them at a lower cost than
others, e.g. Japan produces electronic goods and sells these at a lower price. 🗸🗸

Capital allows developed countries

 Enjoy an advantage over underdeveloped countries. 🗸🗸

 Due to a lack of capital, some countries cannot produce all the goods they require
themselves. 🗸🗸

ADDITIONAL PART

 Buying and selling goods and services from other countries: 🗸🗸

 The purchase of goods and services from abroad that leads to an outflow of currency
from SA- Imports (M). 🗸🗸
 The of goods and services to buyers from other countries leading to an inflow of currency
to SA – Exports (X) 🗸🗸
 Different factor endowments mean some countries can produce goods and services
more efficiently than others- specialisation is therefore possible: 🗸🗸

Absolute Advantage:

 Where one country can produce goods with fewer resources than other. 🗸🗸

Comparative Advantage:

 Where one country can produce goods at a lower opportunity cost it sacrifices less
resources in production. 🗸🗸

CONCLUSION
International trade is important of countries to survive economically, as barriers to trade would
disadvantage all countries, due to their interdependency globally. 🗸
[Any other relevant higher order conclusion]
[Max 2]

ECONOMIC PURSUITS-PAPER 1
Discuss in detail export promotion (Protectionism and Free Trade)
INTRODUCTION
Export promotion refers to measures taken by governments increase production of goods and
services that can be exported. The government provides incentives to encourage production 🗸
[Max 2]
BODY: MAIN PART REASONS:

 Export promotion measures lower cost of production which makes it easier to compete
on the international market 🗸🗸
 Achieve significant export-led economic growth🗸🗸
 Export enlarges production capacity of country because more and larger manufacturing
industries are established. 🗸🗸
 The first step to export-led economic growth is to implement policies that encourage the
establishment of industries to produce goods and services for export markets🗸🗸

METHODS:
Exports are promoted through:
Incentives🗸

 Export incentives include information on export markets, research with regard to new
markets, concessions on transport charges, export credit and export credit guarantees
and publicity commending successful exporters🗸🗸
 This will encourage manufacturers to export an increased volume of their production🗸🗸
 Trade missions help to market SA products abroad🗸🗸and supply SA companies with
information about potential markets 🗸🗸

Direct Subsidies🗸

 Described as direct because it involves government expenditure. 🗸🗸

 Include cash payments to exporters, refunds on import tariffs and employment subsidies.
 The aim is to increase the competitiveness of exporting company🗸🗸 reduce cost of
production🗸🗸and explore and establish overseas markets🗸🗸

Indirect subsidies

 Regarded as indirect because it results in the government receiving less revenue🗸🗸 e.g.
general tax rebates,
 Tax concessions on profits earned from exports or on capital invested to produce export
goods, refunding
 Of certain taxes e.g. custom duties on imported goods used in the manufacturing
process🗸🗸
 Allows companies to lower their prices and enables them to compete in international
markets🗸🗸
 Challenge for governments to design incentives and subsidies in such a way that prices
of export goods can't be viewed as dumping prices🗸🗸

Trade neutrality 🗸

 Can be achieved if incentives in favour of export production are introduced

  Up to point that neutralises the impact of protectionist measures in place🗸🗸
 E.g. subsidies equal to magnitude of import duties can be paid🗸

Export processing zones (EPZs) 🗸

 Is free-trade enclave within a protected area –

 Is fenced and controlled industrial park that falls outside
 Domestic customs area, and usually located near harbour or airport 🗸🗸
NOTE: For the response with regard to the effectiveness of export promotion methods, a
maximum of 5 marks can be allocated.

ADVANTAGES

 No limitations on size and scale since world market is very large🗸🗸

 Cost and efficiency of production based on this and organised along lines of comparative
advantage🗸🗸
 Increased domestic production will expand exports to permit more imports and may result
in backward linkage effects that stimulate domestic production in related industries🗸🗸
 Exchange rates are realistic and there is no need for exchange control and quantitative
restrictions🗸🗸
 Value can be added to natural resources of the country 🗸🗸
 Creates employment opportunities 🗸🗸
 Increase in exports has positive effect on balance of payments 🗸🗸
 Increase in production leads to lower domestic prices, which benefit local consumers🗸🗸

DISADVANTAGES

 Real cost of production 🗸 subsidies and incentives reduce total cost of production which
must be met from sales🗸🗸 real cost is thus concealed by subsidies🗸🗸products cannot
compete in open market 🗸🗸
 Lack of competition 🗸 businesses charge prices that are so low that they force
competitors out of the market 🗸🗸
 Increased tariffs and quotas 🗸can be against spirit of provisions of WTO🗸🗸overseas
competitors retaliate with tariffs and quotas🗸🗸 goods are sold domestically below their
real cost of production (export subsidies and dumping) 🗸🗸
 Protection of labour-intensive industries 🗸 developed countries maintain high levels of
effective protection for their industries that produce labour-intensive goods in which
developing countries already have or can achieve comparative advantage 🗸🗸
 Withdrawal of incentives often leads to closure of effected companies. 🗸🗸
 Incentives often lead to inefficiencies in the production process, since companies don't
have to do their best to compete🗸🗸
 Can be seen as dumping 🗸🗸 [Max 26]

BODY: ADDITIONAL PART

How successful is South Africa in protecting the local textile industry against foreign competition?

 Not successful: 🗸
Many domestic textile manufacturers closed down due to unfair international competition
🗸🗸
Many wholesalers make use of suppliers from abroad 🗸🗸 e.g. Woolworths/Walmart🗸
 Dumping still occurs – European manufacturers still dump clothing in Africa out of season
at prices below cost 🗸🗸
Job losses due to a lack of protection in this industry 🗸🗸
[Accept any motivation relating to success indicators]
[Max 10]
CONCLUSION
South Africa's international trade policy facilitates globalisation thereby impacting positively on
the balance of payment. 🗸
[Accept any other relevant conclusion]
[Max 2]
Discuss in detail the arguments in favour of protectionism (Protectionism and Free Trade)
INTRODUCTION
Protectionism refers to a deliberate policy on the part of the government to erect trade barriers,
such as tariffs and quotas, in order to protect domestic industries against
international competition. 🗸
[Accept any other relevant definition]
[Max 2]
BODY-MAIN PART
Raising revenue for the government

 Import tariffs raise revenue for the government. 🗸🗸

 In smaller countries the tax base is often small due to low incomes of individuals and
businesses. 🗸🗸
 Low incomes do not provide much in the form of income taxes and therefore custom
duties on imports is a significant source of income or revenue. 🗸🗸

Protecting the whole industrial base

 Maintaining domestic employment. 🗸🗸

 Countries with high unemployment are continuously pressured to stimulate employment
creation and therefore resort to protectionism in order to stimulate industrialisation. 🗸🗸
 It is thought that using protectionism the country’s citizens would purchase more
domestic products and raise domestic employment. 🗸🗸
 These measures on domestic employment creation at the expense of other countries, led
to such measures as “beggar-my-neighbour” policies. 🗸🗸
 Applying import policies is likely to reduce other countries ability to buy country’s exports
and may provoke retaliation. 🗸🗸

Protecting workers

 It is argued that imports from other countries with relatively low wages represent unfair
competition and threaten the standard of living of the more highly paid workers of the
local industries. 🗸🗸
 Local industries would therefore be unable to compete because of higher wages pushing
up the price levels of goods. 🗸🗸
 Protection is thus necessary to prevent local wage levels from falling or even to prevent
local businesses from closing down due to becoming unprofitable. 🗸🗸
 Competition from low-wage countries may also reflect the fact that those countries have
a comparative advantage in low-skilled labour-intensive industries. 🗸🗸

Diversifying the industrial base

 Overtime countries need to develop diversified industries to prevent overspecialisation.

🗸🗸
 A country relying too heavily on the export of one or a few products is very vulnerable. 🗸🗸
 If a developing country’s employment and income is dependent on only one or two
industries, there is the risk that world fluctuations in prices and demand and supply-side
problems could results in significant fluctuations in domestic economic activity. 🗸🗸
  Import restrictions may be imposed on a range of products in order to ensure that a
number of domestic industries develop. 🗸🗸

Develop strategic industries

 Some industries such as the iron-ore and steel, agriculture, (basic foodstuffs, such as
maize), energy (fuels) and electronics (communication) among others, are regarded as
strategic industries. 🗸🗸
 Developing countries may feel that they need to develop these industries in order to
become self-sufficient . 🗸🗸

Protecting specific industries

Dumping

 Foreign industries may engage in dumping because government subsidies permit them
to sell at very low prices or because they are seeking to raise profits through price
discrimination. 🗸🗸
 The reason for selling products at lower prices may be to dispose of accumulate stocks
Of the goods and as a result consumers in the importing country stand to benefit
however,
 Their long term objective may be to drive out domestic producers and gain control of the
market and consumers
 Are likely to lose out in the reduction in choice and higher prices that the exporters will be
able to charge. 🗸🗸

Infant industries

 Usually newly established and find it difficult to survive due to their average costs being
higher than that of their well-established foreign competitors. 🗸🗸
 However, if they are given protection in their early years they may be able to grow and
Thereby take advantage lower their average costs and become competitive and at this
point protection can be removed. 🗸🗸

Declining industries/sunset industries

 Structural changes in the demand and supply of a good may severely hit an industry
such industries should be permitted to go out of business gradually declining industries
 Are likely to be industries that no longer have a comparative advantage and however, if
they go out of business quickly there may be a sudden and large increase in
unemployment. 🗸🗸
 Protection may enable an industry to decline gradually thereby allowing time for
resources including labour to move to other industries. 🗸🗸
 Protecting domestic standards domestic regulations of food safety human rights and
environmental standards have been increasingly acting as trade restrictions. 🗸🗸
[Accept any other relevant fact]
[Max 26]

ADDITIONAL PART
South Africa promotes exports through subsidies
Direct Subsidies

 Strict screening measures should be put in place when companies apply for financial
assistance. Government expenditure can provide direct financial support to domestic
producers for their exports e.g. 🗸🗸
  Cash grants offered to South African exhibitors to exhibit their products at exhibitions
overseas. To explore new markets. 🗸🗸
 Foreign trade missions to explore new markets imposition of tariffs on imports. 🗸🗸
 Funds for the formation of formal export councils. 🗸🗸
 Subsidies for training or employing personnel. 🗸🗸
 Funds for the export market research. 🗸🗸
 Product registration and foreign patent registrations. 🗸🗸

Indirect subsidies

 Government can refund companies certain taxes to promote exports.

 These types of indirect subsidies are:
 General tax rebates (Part of the cost of production can be subtracted from the tax that
has been paid) 🗸🗸
 Tax concessions on profits earned from exports or on capital invested to produce export
goods. 🗸🗸
 Refunds on import tariffs in the manufacturing process of exported goods companies
often use custom duties are paid on these goods and the government refunds them. 🗸🗸
[Max 10]

CONCLUSION
Most countries agree that protectionism is harmful to the economy if not well managed.
Protectionism is needed especially where industries are young and need expansion or
development. 🗸
[Any other relevant higher order conclusion]
[Max 2]
Discuss in detail the demand-side approach in promoting growth and development in
South Africa (Growth and development)
INTRODUCTION
Economic growth is responsible for the overall growth of the economy, in order to enhance the
well being of the economy as a whole. Whereas economic development would focus on the
individual well being of the citizens of a country.
[Any other relevant higher order conclusion]
[Max 2]
BODY-MAIN PART
Growth and Development
A demand-side approach includes discretionary changes in monetary and fiscal policies with the
aim of changing the level of aggregate demand. 🗸🗸
Monetary policy

 Is driven by the South African Reserve Bank (SARB). 🗸🗸

 It aims to stabilise prices by managing inflation. 🗸🗸

Fiscal policy

 Is driven by the Department of Finance. 🗸🗸

 It aims to facilitate government, political and economic objectives. 🗸🗸
 A demand-side approach to economic growth and development does not only depend on
fiscal and monetary policy. 🗸🗸
 It is dependent on all components of aggregate demand, that is, C, I, X and G. 🗸🗸

South African approach

  The South African approach uses both monetary and fiscal measures to influence
aggregate demand in the economy. 🗸🗸

Monetary policy

 The South African Reserve Bank (SARB) as the central bank in South Africa formulates
the monetary policy. 🗸🗸
 They use the following instruments:

Interest rate changes

 It is used to influence credit creation by making credit more expensive or cheaper. 🗸🗸

 The exchange rate is stabilised by encouraging inflow or outflows. 🗸🗸

Open market transactions

 To restrict credit the SARB sells securities. When banks buy these securities money
flows from banks to the SARB. 🗸🗸
 The banks have less money to lend and cannot extend as much credit as before. 🗸🗸
 To encourage credit creation the SARB buys securities. Money flows into the banking
system.🗸🗸

Moral suasion

 The SARB consults with banks to act in a responsible manner based on the prevailing
economic conditions. 🗸🗸

Cash Reserve Requirements

 Banks are required to hold a certain minimum cash reserve in the central bank. 🗸🗸
 Banks have a limited amount to give out as credit. 🗸🗸

Fiscal policy

 South Africa’s fiscal policy is put into practice through the budgetary process. 🗸🗸
 The main purpose of fiscal policy is to stimulate macroeconomic growth and employment,
and ensure redistribution of wealth. 🗸🗸
 The following instruments are used:

Progressive personal income tax

 Higher income earners are taxed at higher tax rates. 🗸🗸

 These taxes are used to finance social development. 🗸🗸
 The poor benefit more than those with higher incomes. 🗸🗸

Wealth taxes

 Properties are levied (taxed) according to their market values. 🗸🗸

 Transfer duties are paid when properties are bought. 🗸🗸
 Securities (shares and bonds) are taxed when traded. 🗸🗸
 Capital gains tax is levied on gains on the sale of capital goods (e.g. properties, shares).
🗸🗸
 Estate duties are paid on the estates of the deceased. 🗸🗸
  These taxes are used to finance development expenditures which benefit the poor more
often. 🗸🗸

Cash benefits

 Old age pensions, disability grants, child support and unemployment insurance are cash
grants. These are also known as social security payments. 🗸🗸
 Benefits in kind (natura benefits) 🗸🗸
 These include the provision of healthcare, education, school meals, protection etc. 🗸🗸
 When user fees are charged, poor or low income earners pay less or nothing. 🗸🗸
 Limited quantities of free electricity and water are provided. 🗸🗸

Other redistribution

 Public works programmes, e.g. the Strategic Integrated Projects (SIP) provides
employment subsidies and other cash and financial benefits such as training, financing
and export incentives.🗸🗸

Land restitution and land redistribution

 Land restitution is the return of land to those that have lost it due to discriminatory laws in
the past. 🗸🗸
 Land redistribution focuses on land for residential (town) and production (farm) for
previously disadvantaged groups. 🗸🗸
 The money for these programmes is provided in the main budget. 🗸🗸

Subsidies on properties

 It helps people to acquire ownership of fixed residential properties. 🗸🗸

 E.g. government’s housing subsidy scheme provides funding to all people earning less
than R3 500 per month🗸🗸

CONCLUSION
The demand-side approach focuses on the expansion of the demand for goods and services
produced in the economy. 🗸🗸
OR
To ensure economic growth, there should be an adequate and growing demand for goods and
services produced in the economy. 🗸🗸
[Any other relevant higher order conclusion]
[Max 2]
Discuss in detail the following South African growth and development policies and
strategic initiatives (Growth and development)
INTRODUCTION
Different growth and development strategies have been implemented in South Africa since 1994,
each aimed at addressing particular needs at the time of introduction. 🗸
[Any other relevant introduction]
[Max 2]
BODY-MAIN PART
The Reconstruction and Development Programme (RDP)

 The RDP was an integrated, coherent socio-economic policy framework that was
implemented directly after our first democratic elections in 1994. 🗸🗸
  It seeked to mobilise all our people and our country’s resources toward the final
eradication of apartheid and the building of a democratic, non-racial and non-sexist
future. 🗸🗸

The RDP was based on six principles.

1. an integrated and sustainable programme. 🗸🗸

2. a people-driven process focusing on the needs of the population. 🗸🗸
3. peace and security for all, aimed at a non-violent society that respects all human rights.
🗸🗸
4. nation-building, focusing on the needs of all members of society. 🗸🗸
5. linking reconstruction and development. 🗸🗸
6. democratisation of South Africa in all aspects, including decision-making processes on all
levels. 🗸🗸
 The RDP consisted of many proposals, strategies and policy programmes.
 All of these could, however be grouped into five major policy programmes that
were linked to each other.

The five key programmes were:

1. meeting basic needs. 🗸🗸

2. developing our human resources. 🗸🗸
3. building the economy. 🗸🗸
4. democratising the state and society. 🗸🗸
5. implementing the RDP. 🗸🗸

The Growth, Employment and Redistribution Programme (GEAR)

 The GEAR built upon the strategic vision set out in the RDP, i.e. 🗸🗸
 The importance of all the objectives of the RDP was reaffirmed but it recognized the
implementation and macroeconomic problems that the government had been
experiencing in implementing the RDP. 🗸🗸
 The RDP placed much more emphasis on disciplined economic policy. 🗸🗸
 While still recognizing that there were very serious needs that had to be addressed. 🗸🗸

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

 AsgiSA resulted from government’s commitment to halve unemployment and poverty by

2014. 🗸🗸
 The Joint Initiative on Priority Skills Acquisition (Jipsa) was established to address the
scarce and critical skills needed to meet AsgiSA’s objectives. 🗸🗸

AsgiSA identified six important factors that prevented growth:

1. the relative volatility of the currency. 🗸🗸

2. the cost, efficiency and capacity of the national logistics system. 🗸🗸
3. shortages of suitably skilled labour, and the spatial distortions of apartheid affecting low-
skilled labour costs. 🗸🗸
4. barriers to entry, limits to competition and limited new investment opportunities. 🗸🗸
5. the regulatory environment and the burden on small and medium enterprises (SME’s). 🗸🗸
6. deficiencies in state organisation, capacity and leadership. 🗸🗸
 AsgiSA was not intended to be a government programme. 🗸🗸
 But rather a national initiative supported by all the key groups in the economy. 🗸🗸
 Namely business, labour, entrepreneurs and government and semi-government
departments and institutions. 🗸🗸
Joint Initiative on Priority Skills Acquisitions (JIPSA)

 It is the skills development arm of ASGISA. Focus is on skills development, especially

through the SETAS. 🗸🗸

Expanded Public Works Programme (EPWP)

 It is a nationwide government intervention to create employment using labour-intensive

methods, and to give people skills they can use to find jobs when their work in the EPWP
is done. 🗸🗸

The New Growth Path (NGP)

 The New Growth Path (NGP) was released in November 2011. 🗸🗸

 This plan is designed to serve as a framework for economic policy, and to be the driver of
the country’s job strategy. 🗸🗸

The New Growth Path therefore proposes certain strategies to ensure adequate demand:

 Deepening the domestic and regional market by growing employment. 🗸🗸

 Increasing incomes and undertaking other measures to equity and income distribution.
🗸🗸
 Widening the market for South African goods and services through a stronger focus on
exports to the region and other rapidly growing economies. 🗸🗸
 On a macroeconomic level the NGP entails accommodating or looser monetary policy
combined with stricter fiscal policy to limit inflationary pressures and enhance
competitiveness. 🗸🗸
 Government spending will be prioritised with the objective of long-term sustainable
employment opportunities. 🗸🗸

The microeconomic measures to control inflationary pressures include the following:

 A competition policy to supervise monopoly pricing on products and services. 🗸🗸

 A review of administered prices to ensure that they do not increase above inflation
without compelling reasons. 🗸🗸
 Interventions in the case of rapidly rising prices of essential products and services such
as private🗸🗸
 Healthcare and basic food items. 🗸🗸
 The microeconomic package involves ten programmes to control inflationary pressures
and inefficiencies combined with more proactive strategies to support an inclusive
economy:
1. Active industrial policy. 🗸🗸
2. Rural development policy. 🗸🗸
3. Competition policy. 🗸🗸
4. Stepping up education and skills development. 🗸🗸
5. Enterprise development: promoting small business and entrepreneurship;
eliminating unnecessary red tape. 🗸🗸
6. Broad-based Black Economic Empowerment (BBBEE). 🗸🗸
7. Labour practices. 🗸🗸
8. Technology policy. 🗸🗸
9. Developmental trade policies. 🗸🗸
10. Policies for African development. 🗸🗸

CONCLUSION
  The different growth and development strategies that have been implemented in South
Africa since 1994. 🗸🗸
 Have all contributed to making our country more prosperous and to address problems
created by inequalities of the past. 🗸🗸
 However, problems such as a low level of education, unemployment and unequal
distribution of income persist. 🗸🗸
 The current NGP is a comprehensive policy that is focused on addressing all of these
problems.
[Any other relevant higher order conclusion]
[Max 2]

Discuss in detail South Africa's initiaties (endeavours) in regional development (Industrial

Development Policies)
INTRODUCTION
South Africa’s overall objective of Industrial Development Policy is to ensure international
competitiveness in its nine provinces.
OR
Regional development is aimed at increasing the economic livelihood of specific areas or
regions.
OR
Regional development attempts to limit the negative effects of economic activities in only a few
areas.
OR
It attempts to promote the advantages of a more even regional development by using labour and
other natural resources and infrastructure in neglected areas.
[Accept any relevant introduction]
[Max 2]
BODY-MAIN PART
SPATIAL DEVELOPMENT INITIATIVES

 SDI Programme attracts infrastructure and business investments to underdeveloped

areas to create employment. 🗸🗸
 Department of Trade and Industry is driving force behind industrial and spatial
development. 🗸🗸
 DTI plans together with central, provincial and local government, IDC, parastatals and
research institutions. 🗸🗸
 Industrial Development Policy Programme (Spatial Development) has 2 focus points
spatial development initiative (SDI) and financial incentives. 🗸🗸
 SDI refers to government’s initiative and economic development potential of certain
specific spatial locations in SA. 🗸🗸

Key Objectives:

 Stimulate economic activity in selected strategic locations. 🗸🗸

 Generate economic growth and foster sustainable industrial development. 🗸🗸
 Develop projects of infrastructure in certain areas and finance them through lending and
private sector investment. 🗸🗸
 Establish private-public partnerships (PPP’s). 🗸🗸

In areas with high poverty and unemployment, SDI focuses on:

 High level support in areas where socio-economic conditions require concentrated

government assistance. 🗸🗸
 Where inherent economic potential exists. 🗸🗸
  The approach is towards international competitiveness, regional cooperation and a more
diversified ownership base. 🗸🗸

Some of the main focus points of the SDI Programme are:

 Lubombo Corridor (agro-tourism, education, craft, commercial and agricultural sectors);

🗸🗸
 KwaZulu-Natal (Ports of Durban and Richards Bay); 🗸🗸
 West Coast SDI (fishing and industrial ports); 🗸🗸
 Coast-2-Coast Corridor with agro-tourism. 🗸🗸
 It also makes it possible for private sector businesses to take advantage of the economic
potential of underdeveloped areas in private-public partnerships (PPP’s) 🗸🗸
 In PPP a private business may provide the capital to build the factory and to buy raw
materials and employ labour, while the government provides the capital for the
infrastructure such as roads and water and electricity. 🗸🗸
 The business benefits from profits and the government benefits from taxes, levies and
employment opportunities. 🗸🗸

There are TWO types of PPP’s which are compensated differently:

Unitary payments:

 Private sector builds and runs a project (it performs the function on behalf of the public
sector); the payment provides an acceptable return on the total investment (building cost,
maintenance, operational expenses). 🗸🗸

User-fees:

 Private sector constructs the project and then is given the right to change a toll fee (e.g.
public road); 🗸🗸
 The toll covers costs of construction, maintenance, operation. 🗸🗸
 The above options can be combined: E.g. hospital (cost of building is an annual payment
and a user fee is also charged). 🗸🗸

Corridors

 A track of land that forms a passageway allowing access from one area to another and
particular advantages to mining, manufacturing and other businesses. 🗸🗸

Two Types:

 Domestic Corridor: e.g. Lubombo, West Coast, Fish River. 🗸🗸

 Corridors beyond the South African Borders (SADC) e.g. Maputo Development Corridor
Mozambique. 🗸🗸
 Reasons in support of South Africa’s regional integration in Southern Africa: have political
and stable neighbours have important export markets and a future source of water and
energy supplies integration may be a precondition for support from foreign investors,
donors and multilateral institutions. 🗸🗸
 A robust regional transport system and a solid infrastructure base hold the key to
attracting investment into the SADC region – improving competitiveness and promoting
trade. 🗸🗸

Advantages from Corridor development:

 Greater levels of economic efficiency and productivity compact urban form corridor urban
form. 🗸🗸
  Corridor developments will often occur due to private investment. 🗸🗸
 Intergration of land use and transport planning will lead to generally efficient integration.
🗸🗸
 Efficient urbanisation leads to efficient use of land and promotion of an efficient transport
system. 🗸🗸

INDUSTRIAL DEVELOPMENT ZONES (IDZ’s)

 Geographically designed, purpose-built industrial sites providing services tailored for

export- orientated industries. 🗸🗸
 Physically enclosed and linked to an international port or airport. 🗸🗸
 Specifically designed to attract new investment in export-driven industries. 🗸🗸
 Falls outside domestic customs zones and able to import items free of customs and trade
restrictions, add value and then export their goods. 🗸🗸
 Development and management done by private sector. 🗸🗸
 Government IDZ policy designed to boost exports and jobs. 🗸🗸
 IDZ’s aim to encourage economic growth –attract foreign investment in industrial
development – facilitate international competitiveness regarding manufacturing. 🗸🗸
[Max 26]

ADDITIONAL PART FINANCIAL INCENTIVES

Small and Medium Enterprise Development Programme (SMEDP)
• This incentive has provided a tax-free cash grant for investment in industries in

 South Africa. 🗸🗸
 E.g. manufacturing, agricultural, processing, aquaculture and tourism. 🗸🗸

Critical Infrastructure Fund Programme (CIF)

 A tax-free cash grant incentive for projects has improved critical infrastructure in South
Africa. 🗸🗸
 E.g. for installation, construction of infrastructure, payment of employees, materials
directly consumed during installation. 🗸🗸

Duty Free Incentives (for businesses operating in the IDZ’s)

 This has encouraged export-orientated manufacturing to increase their competitiveness

🗸🗸
 And helped to promote foreign and local direct investment. 🗸🗸

Foreign Investment Grant (FIG)

 This has assisted foreign investors to invest in new manufacturing businesses in SA. 🗸🗸
 Benefited in terms of the cost of relocating new machinery and equipment from abroad.
🗸🗸

Strategic Investment Projects (SIP)

 This has attracted investment from local and foreign entrepreneurs in manufacturing,
computer, research and engineering sectors. 🗸🗸

Skills Support Programme (SIP)

 This cash grant for skills development has encouraged greater investment 🗸🗸
 In training in general and stimulated the development of new advanced skills. 🗸🗸
Black Businesses Supplier Development Programme (BBSDP)

 This 80 % cash grant has provided black-owned enterprises with access to 🗸🗸

 Training which has improved management of their enterprises. 🗸🗸

Special Economic Zones (SEZ)

 It is an extention to the current financial incetives to further promoted regional

development. 🗸🗸
 The major incentive is a tax reduction of 15 % for businesses settling in this area. 🗸🗸
 This does not mean that existing businesses in the IDZ can relocate to take advantage of
this incentive. 🗸🗸
 If a current business in the IDZ wants to expand they are allowed. 🗸🗸
[Max 10]

CONCLUSION
From the above discussion it is clear that different initiatives form part of South Africa’s Regional
Industrial Development Programme.
[Max 2]
Discuss in detail the following economic indicators (Economic and Social Performance
Indicators
INTRODUCTION
Economic indicators are used to evaluate the economic performance of an economic unit. This
unit can be a company, an industry, a country or a region.
Macro-economic indicators, measures the economic performance of a country as a whole. 🗸🗸
BODY-MAIN PART
Such indicators can provide an indication of:

 Changes taking place in a country. 🗸🗸

 How a country compares to other countries. 🗸🗸

Inflation Rate

 This is the general increase in the price level of goods and services in the economy over
a certain period in time. E.g. one year. 🗸🗸
 This is therefore an indicator of the health of the economy and it is monitored in two ways
that is at the production wholesale level producer price level (PPI) and at the retail or
consumer level consumer price index (CPI) 🗸🗸

The Consumer Price Index (CPI)

 Shows the price increases of a representative (weighted) basket of goods and services
that consumers buy. 🗸🗸
 It is abbreviated as CPI this cover all the urban areas. 🗸🗸
 It is an overall index and weights are obtained from expenditures of different income
categories of households. 🗸🗸
 It is the most comprehensive indicator measuring consumer inflation in the country. 🗸🗸
 It shows changes in the general purchasing power of the rand and it is used for inflation
targeting 🗸🗸
 Is compiled by Stats SA and measures the change in the price level of a basket of
consumer goods and services. 🗸🗸
 The goods and services included in the basket are chosen to represent the goods and
services purchased by an average household. 🗸🗸
 This basket is adjusted from time to time as consumption patterns change. 🗸🗸
  The inflation rate is the percentage change in the CPI from the previous year and can be
calculated as follows:
 Change in CPI x 100 🗸🗸
CPI

The Production Price Index (PPI)

 Used to measure the price of goods that are produced domestically when they leave the
factory year. 🗸🗸
 The goods that are imported when they enter the country (at a port) and both of these are
before consumers become involved. 🗸🗸
 PPI consists of three baskets that are domestically manufactured outputs, e.g. changes
in the PPI can be made monthly or quarterly or yearly. 🗸🗸
 While changes in the imported products and exported commodities are given separately
in the same report. 🗸🗸
 PPI includes capital and intermediate goods but not services. 🗸🗸
 It is based on a completely different type of a basket of items in the CPI. 🗸🗸
 It measures the cost of production rather than the cost of living. 🗸🗸
 It is used to predict consumer goods inflation (CPI) 🗸🗸
 Which is also estimated and published on a monthly basis by Stats SA, is similar to the
CPI, 🗸🗸
 Except that it also includes the prices of raw materials and intermediary goods 🗸🗸 (i.e.
goods that will be finished in the production process), excludes VAT and excludes
services. 🗸🗸
 Manufactured goods included in the PPI are priced when they leave the factory, not when
they are sold to consumers. 🗸🗸
 Unlike the CPI, the PPI therefore cannot be related directly to consumers’ living
standards. 🗸🗸
 The PPI is nevertheless very useful in the analysis of inflation because it measures the
cost of production. 🗸🗸
 A significant change in the rate of increase in the PPI is usually an indication that the rate
of increase in the CPI will also change a few months later. 🗸🗸

The GDP Deflator

Is a ratio that indicates the relationship of the GDP at nominal prices to the GDP at real prices.
GDP deflator = Normal GDP x 100 🗸🗸
Real GDP
Nominal GDP

 Is the value of total gross domestic product measured at current prices. 🗸🗸

 While the real GDP is the value of total gross domestic product measured at constant
prices.🗸🗸
 So, the GDP deflator includes changes in the prices of exports but not of imports. 🗸🗸
 In a small open economy, like that of South Africa where both, imports and exports are
significant in relation to the total size of the economy. 🗸🗸
 The exclusion of import prices is an important shortcoming. 🗸🗸

Unemployment rate

 In terms of economic development, employment is a very important indicator. 🗸🗸

 Employment is, however, not very easy to measure as so many people are employed in
the informal sector which is not recorded. 🗸🗸
 The concept of underemployment is also important. 🗸🗸
 This is when someone is employed in a position that requires less skill than their ability.
🗸🗸
  For example when a qualified accountant works as a delivery person because he or she
cannot find employment as an accountant. 🗸🗸
 Someone may also be employed on a part-time basis but would prefer to work full time.
🗸🗸
 A labour force survey is published quarterly by Stats SA. 🗸🗸
 This publication contains information and statistics concerning a variety of issues related
to the labour market, including the official unemployment rate. 🗸🗸
 It is a comprehensive survey and provides information on changes in employment in
different provinces and industries. 🗸🗸
 Employment in the informal sector, and even reasons for changes in employment figures.
🗸🗸
 The unemployment rate is a percentage of the total labour force. 🗸🗸
 The total labour force includes all employed people and unemployed people who are
looking for work. 🗸🗸
 The unemployment rate is a lagging indicator, which means that it will only change a few
periods after the trend in the economy has changed. 🗸🗸
 For example if the economy starts growing at a faster pace. 🗸🗸
 The unemployment rate will only react to the growth after two or three quarters. 🗸🗸

Interest rates

 Interest rates are important indicators of future economic activity, as the interest rate
level is usually an important determinant when economic decisions are being taken. 🗸🗸
 Both the general interest rate level and the structure of interest rates are important
indicators.🗸🗸
 There are many interest rates in the economy. 🗸🗸
 Some are short term rates, such as the repo rate, which is the interest rates at which
South Africa banks borrow from the Reserve Bank to finance their liquidity deficit. 🗸🗸
 The difference between the short term interest rates and long term interest rates: 🗸🗸
 Is called the interest rate spread and the term structure of interest rates provides an
indication of the interest rates levels on loans or investments of different maturities. 🗸🗸
 Usually we can expect the interest rates level in a developing country to be higher than
the interest rate in a developed economy. 🗸🗸
 This is due to the higher risk attached to the developing economy. 🗸🗸
 Factors such as political and economic uncertainty cause this higher risk. 🗸🗸
 Developing economies also need to attract foreign investment to their country to finance
growth. 🗸🗸
 Investors’ funds will move towards the highest yield and thereof. 🗸🗸
 Developing countries cannot allow interest rates in their countries to become too low. 🗸🗸

Money Supply

 The increase in the M3 money supply is an important economic indicator. 🗸🗸

 If M, the money supply increases, this means that either (P) prices or Y (output) has to
respond to the increase in M. 🗸🗸
 Therefore, an increase in the money supply is an important indicator showing that output
will increase. 🗸🗸
 Whether this will translate to an increase in real production or the price level will depend
on factors like production within the economy. 🗸🗸

Employment

 In addition to economic growth the employment of people of working age (15 -64 years)
is a majot economic objective. 🗸🗸
 We need to know more than this; we need to know who the people are that need to be
employed. 🗸🗸
  The numbers are determined, not only by age, but also by people’s willingness to work.
🗸🗸

The Economically Active Population (EAP)

 The EAP is also known as the labour force. 🗸🗸

 It consists of people between the age of 15 and 64 who are willing to work for income in
cash or in kind and includes: 🗸🗸
 Workers in the formal sector- workers in the informal sector. 🗸🗸
 Employers any one 🗸🗸
 Self employed persons. 🗸🗸

Related Items
 BBR or BSR - Economics Grade 12 Study Guides and Notes
 Economic Essays Grade 12
 SOUTH AFRICA'S ECONOMIC AND SOCIAL INDICATORS QUESTIONS AND
ANSWERS
 ENVIRONMENTAL SUSTAINABILITY QUESTIONS AND ANSWERS GRADE 12
 TOURISM INFLATION QUESTIONS AND ANSWERS GRADE 12
 INFLATION QUESTIONS AND ANSWERS GRADE 12
 SOUTH AFRICA'S INDUSTRIAL POLICIES AND THEIR SUITABILITY IN TERMS OF
INTERNATIONAL BEST PRACTICE QUESTIONS AND ANSWERS GRADE 12
 ECONOMIC GROWTH AND DEVELOPMENT QUESTIONS AND ANSWERS GRADE
12
 THE REASONS AND CONSEQUENCES OF MARKET FAILURES QUESTIONS AND
ANSWERS GRADE 12
 THE DYNAMICS OF IMPERFECT MARKETS QUESTIONS AND ANSWERS GRADE 12

Unemployed Persons

 The 2021 estimate of the South African population was million people. 🗸🗸
 The EAP numbered million ( % of the population). 🗸🗸

The Employment Rate

 The number of employed persons expressed as a percentage of the EAP gives the
employment rate. 🗸🗸
 The employment rate can also be converted into an index. 🗸🗸
 The SA employment rate was % in 2011. 🗸🗸
 This is low, compared to rates in developed and even some developing countries such as
Argentina and Pakistan. 🗸🗸
 In SA the growth in the economy is not accompanied by the similar growth in
employment numbers. 🗸🗸

Employment indicators are used for:

 To calculate trends in employment in different sectors or industries. 🗸🗸

 This indicates structural changes in the economy. 🗸🗸
 To calculate productivity. 🗸🗸
 To show the success of the economy in utilizing its full potential. 🗸🗸

Unemployment Rate
  Statistics SA (SSA) obtains its labour data each year from Quarterly Labour
Surveys (QLFS). 🗸🗸
 It uses the standard definition of the International Labour Office (ILO) to calculate
unemployment. 🗸🗸
 The strict definition of unemployment is used to calculate the unemployment rate. 🗸🗸
 The unemployment rate those people within the economically active population who:
 Did not work during the seven days prior to the interview. 🗸🗸
 Want to work and are available to start work within a week of the week of the
interview. 🗸🗸
 Have taken active steps to look for work or to start some form of self-employment
in four week prior to the interview. 🗸🗸
 In SA the official unemployment rate was % in 2021. 🗸🗸
 In developed countries, change in the unemployment rate trigger responses. 🗸🗸
 From governments to fine-tune the economy. 🗸🗸
 Increases require more funds for unemployment insurance (UIF) drawings. 🗸🗸
 In developing countries, unemployment is the most important cause of poverty. 🗸🗸
[Accept current statistical data]
[Max 16]

ADDITIONAL PART

 To give a policy direction in the country. 🗸🗸

 To develop mechanism to caution the most affected sectors of the economy promptly
 e.g.during the 2019-2020 recession/pandemic some companies required a bail out from
the government. 🗸🗸
 Develop some economic stabilisers to defuse the huge impact that may result from
the unexpected economic downturn. 🗸🗸
 Open some other alternative markets for their goods and services. 🗸🗸
 To do research and advice the business community before the actual moment hits. 🗸🗸
 It can be used to stimulate thinking and growth in a number of sectors in the Economy.
🗸🗸
[Accept any relevant consideration]
[Max 10]

CONCLUSION
Countries cannot survive and grow their economies if they do not pay attention to economic
indicators for their planning processes.
[Accept any relevant consideration]
[Max 2]
Discuss in detail the following social indicators (Economic and Social Performance
Indicators)
INTRODUCTION
Social indicators also called human development indicators as they promote improvement in the
standard of living. 🗸
[Any other relevant definition]
[Max 2]
BODY-MAIN PART
Demographics

 This is the description of the physical population and its composition.

 To get this a census is done regularly to obtain this information. 🗸🗸

Human development Index (HDI)

  This is a measure of people’s ability to live long and healthy lives, to communicate, 🗸🗸
 To participate in the community and to have sufficient income to experience a decent
lifestyle. 🗸🗸

Human poverty index (HPI)

 It measures life expectancy is measured by the percentage of newborns not expected to

survive to age 40. 🗸🗸
 Lack of education is measured by the percentage of adults who are ill- educated. 🗸🗸

Health and nutrition

 Life expectancy birth. 🗸🗸

 Infant mortality rate. 🗸🗸

Nutrition indicators

 Daily calorie intake per person. 🗸🗸

 The number of children who go hungry. 🗸🗸
 These measures are important to government as they are supplying healthcare and
sometime have to include legislation such as adding vitamin A to basic foodstuffs such as
bread. 🗸🗸

Education

 The standard of living of people is directly connected to their education. 🗸🗸

 Educated people are employable and can earn an income and provide for their own
wants and needs. 🗸🗸

Two important measures are:

 Secondary enrolment percemtage-how many children that start Grade 1 get to Grade 8
and finish Grade 12. 🗸🗸
 Adult literacy- People over the age of 15 that can read and write. 🗸🗸
 A large percentage of the annual budget is allocated to education. 🗸🗸

Services

 Because of our constitution certain basic services must be supplied by the government.
🗸🗸
 These services have a direct effect on people’s living standards. 🗸🗸
 These basic services differ from rural to urban areas.
a. Electricity 🗸🗸
b. Refuse disposal🗸🗸
c. Water supply🗸🗸
d. Sanitation🗸🗸

Housing and urbanisation

 Urbanisation the process by which an increasing proportion of a country’s population is

concentrated in its urban areas as a result of natural increase and migration from rural
areas. 🗸🗸
 This measures is important as more people come to live in urban areas the greater the
demand for housing, services, education, health care etc. 🗸🗸
  Housing the percentage of the population living in a permanent dwelling or house. 🗸🗸
 The government issue housing subsidies to help poor people to own a house South
African citizens or permanent residents earning R3 500 or less a month could apply for
this subsidy. 🗸🗸

International comparisons

 Figures collected by the World Bank, International Monetary Fund (IMF) and United
Nations provide the best data for comparison purpose. 🗸🗸

Other measures used:

 Purchasing power parity (PPP) The number of units of one country’s currency that give
the holder the same purchasing power as one unit of another country’s currency. 🗸🗸
 The Big Mac Index, The index is based on the price of the Big Mac around the world as
compared to its price in the United States. 🗸🗸
[Max 40]

CONCLUSION
From the above discussion it is clear that social indicators play a significant role in South Africa.
It is, therefore, of the utmost importance that we should study their uses in depth.
[Max 2]

MICROECONOMICS-PAPER 2
Discuss in detail the various equilibrium positions with the aid of graphs-PERFECT
MARKET (Perfect Market)
INTRODUCTION
A perfect market is a market structure which has a large number of buyers and sellers.
OR
The market price is determined by the industry (demand and supply curves).
OR
This means that individual businesses are price takers, i.e. they are not able to influence prices.
OR
Perfect competition is an imaginary situation, whereas monopolistic competition is a reality. 🗸
[Accept any other relevant introduction]
[Max 2]
BODY-MAIN PART

 The indicating of the equilibrium positions on the perfect market structure is of utmost
importance because from this point where MC = MR
 The dotted lines will be drawn to show economic profit or economics loss.
 Where the dotted lines intersect the AC and AR curves either normal profit or economic
profit or economic loss will be indicated and shadowed.
ECONOMIC PROFIT

Mark allocation for graph:

 Position / shape of MC curve = 1 mark

 MR curve = 1 mark
 Position / shape of AC curve = 2 marks
 Equilibrium point = 1 mark
 Indication of price / quantity = 1 mark
 Shading of economic loss = 2 marks
MAX MARKS = (8)

Allocate marks on the graph according to the rubric provided and if facts are duplicated again in
writing, do not allocate marks. Max of 8 marks.

 Equilibrium is at E1 i.e. where MC = MR

 At this point Q1 goods are produced at a price of P1
 The averages cost for Q1 units is point R on the AC curve
 Price / AR is greater than AC ( TR > TC)
 Therefore economic profit is represented by the area P1SRE1

NORMAL PROFIT

Mark allocation for graph:

 Position / shape of MC curve = 1 mark

 MR curve = 1 mark
 Position / shape of AC curve = 2 marks
 Equilibrium point = 1 mark
  Indication of price / quantity = 1 mark
 Shading of economic loss = 2 marks
MAX MARKS = (8)

Allocate marks on the graph according to the rubric provided and if facts are duplicated again in
writing, do not allocate marks. Max of 8 marks.

 Equilibrium is at E1 i.e. where MC = MR

 At this point Q1 goods are produced at a price of P1
 At equilibrium (point E1) average cost is equal to price
 The AC curve is tangent to the demand curve which means that P/AR = AC (TR = TC)
 The business makes normal profit which is the minimum earnings required to prevent the
entrepreneur from leaving the industry.

ECONOMIC LOSS

Mark allocation for graph:

 Position / shape of MC curve = 1 mark

 MR curve = 1 mark
 Position / shape of AC curve = 2 marks
 Equilibrium point = 1 mark
 Indication of price / quantity = 1 mark
 Shading of economic loss = 2 marks
MAX MARKS = (8)

Allocate marks on the graph according to the rubric provided and if facts are duplicated again in
writing, do not allocate marks. Max of 8 marks.

 Equilibrium is at E1, i.e. where MC = MR

 At this point Q1 goods are produced at a price of P1
 At equilibrium (point E1) price/AR is less than average cost/the AC curve is lies above
the demand curve which means that P/AR < AC (TR < TC)
 The business makes an economic loss
A maximum of 24 marks will be allocated for graph illustration and analysis:
8 marks max per graph illustration - (Max 26 marks)

ADDITIONAL PART CONDITIONS

For a market to successfully operate under perfect competition, the following conditions should
prevail at the same time:

 No firm can influence the market price (price takers) due to a large number of buyers and
sellers
 Products are identical (homogeneous)
  There are no barriers of entry, meaning that there is freedom of entry and exit
 Buyers and sellers act independently - no collusion between sellers
 No government interference to influence the market – the market is unregulated
 Free movement between markets - all factors of production are completely mobile
 Both buyers and sellers have full knowledge of all the prevailing market conditions
(perfect information)
 If any of the above conditions are not met, the market is regarded as an imperfect market
Any 5 x 2 = [Max 10 marks]

CONCLUSION
Freedom of entry and exit into the perfect market alter the supply of goods on the market. This
will result in changes in price which influences the profit or loss of a business. If price falls to a
level where it is equal to the AVC then the firm will shut-down. [Max 2]

Discuss the monopoly in detail (with/without the aid of graphs) (Imperfect Market)
INTRODUCTION
A firm is regarded as a monopolist when it owns or controls the total supply of a scarce factor of
production. Monopoly is a market structure where only one seller operates. 🗸🗸
BODY: MAIN PART
The characteristics of a monopoly
Number of firms

 The monopoly consists out of one single firm. 🗸🗸

 The monopoly is also the industry. 🗸🗸
 Example: Eskom or De Beers – diamond-selling 🗸🗸
[Accept any other relevant example]

Nature of product

 The product is unique with no close substitute. 🗸🗸

 Example: Diamonds are unique. 🗸🗸

Market entry

 Refers to how easy or difficult it is for businesses to enter or to leave the market 🗸🗸
 Is entirely/completely blocked. 🗸🗸
 A number of barriers to entry that may give rise to monopoly can be:
o Economies of scale 🗸🗸
o Limited size of the market 🗸🗸
o Exclusive ownership of raw materials 🗸🗸
o Patents 🗸🗸
o Licensing 🗸🗸
o Sole rights 🗸🗸
o Import restrictions 🗸🗸

They decide on their production level

 The monopolist cannot set the level of output and the price independently of each other.
🗸🗸
 If a monopolist wants to charge a higher price, it has to sell fewer units of goods. 🗸🗸
Alternatively, a reduction in price will result in a higher output sold. 🗸🗸
 A monopolist is confronted with a normal market demand curve 🗸🗸
 The demand curve slopes downwards from left to right 🗸🗸
  Any point on the monopolist’s demand curve (D) is an indication of the quantity of the
product that can be sold and the price at which it will trade. 🗸🗸

They are exposed to market forces

 Consumers have limited budgets and a monopoly can therefore not demand excessive
prices for its product. 🗸🗸
 The monopolist’s product has to compete for the consumer’s favour and money with all
other products available in the economy. 🗸🗸

They face substitutes

 There are few products that have no close substitutes. 🗸🗸

 For example, cell phones can compete with telephone services. 🗸🗸

They may enjoy favourable circumstances

 Sometimes an entrepreneur may enjoy favourable circumstances in a certain

geographical area. 🗸🗸
 For example, there may be only one supplier of milk in a particular town. 🗸🗸

They may exploit consumers

 Because a monopolist is the only supplier of a product, there is always the possibility of
consumer exploitation. 🗸🗸
 However, most governments continually take steps to guard against such practices. 🗸🗸

Market Information

 All information on market conditions is available to both buyers and sellers. 🗸🗸

 This means that there are no uncertainties. 🗸🗸

Control over price

 In the case of a monopoly there are considerable price control, but limited by market
demand and the goal of profit maximisation. 🗸🗸

Long-run economic profit

Can be positive

 Because new entries are blocked and short-run economic profit therefore cannot be
reduced by new competing firms entering the industry 🗸🗸
 The monopoly can thus continue to earn economic profit as long as the demand for its
product remains intact 🗸🗸
Body: Additional part
Long run equilibrium of a monopoly

Heading = 1 mark
AC = 1 mark
DD/AR = 1 mark
MC = 1 mark
Profit maximisation point =1 mark
Labelling of the axis = 1 mark
Labelling on the axis = 1 mark
Long run equilibrium of a perfect competitor

Heading = 1 mark
AC = 1 mark
DD/AR = 1 mark
MC = 1 mark
Profit maximisation point =1 mark
Labelling of the axis = 1 mark
Labelling on the axis = 1 mark
MAX = 5 marks
CONCLUSION
A monopoly does not always make economic profit in the short run; it can also make economic
loss in the short run if the total cost exceeds total revenue. 🗸🗸
Examine the oligopoly in detail (Imperfect Market)
INTRODUCTION
  The oligopoly is a type of imperfect market in which only a few large producers dominate
the market. 🗸🗸
[Accept any other relevant and correct response]

MAIN PART
Nature of product

 The product may be homogeneous in a pure oligopoly. 🗸🗸

 If the product is differentiated, it is known as a differentiated oligopoly. 🗸🗸

Market information

 There is incomplete information on the product and the prices. 🗸🗸

Market entry

 Market entry is not easy, it is limited in the sense that huge capital outlay might be
necessary. 🗸🗸

Control over price

 Oligopolists have considerable control over price, it can influence price, but not as much
as the monopolist. 🗸🗸
 Oligopolies can frequently change their prices in order to increase their market share and
this result in price wars. 🗸🗸

Mutual dependence

 The decision of one firm will influence and be influenced by the decisions of the other
competitors. 🗸🗸
 Mutual dependence (interdependence) exists amongst these businesses.
 A change in the price or change in the market share by one firm is reflected in the sales
of the others. 🗸🗸

Non-price competition

 Non - price competition can be through advertising, packaging, after-sales services. 🗸🗸

 Since price competition can result in destructive price wars, oligopolies prefer to compete
on a different basis. 🗸🗸
 Participants observe one another carefully- when one oligopolist launches an advertising
campaign, its competitors soon follow suite. 🗸🗸
 If oligopolies operate as a cartel, firms have an absolute cost advantage over the rest of
the other competitors in the industry. 🗸🗸

Collusion

 Collusion is a strategy used by firms to eliminate competition amongst each other. 🗸🗸

 It can be in a form of overt collusion where firms can work together to form a cartel and
tacit collusion where a dominating business controls the price. 🗸🗸

Limited competition

 There are only a few suppliers manufacturing the same product. 🗸🗸

Economic profit

 Oligopolies can make an economic profit over the long term. 🗸🗸

 Abnormal profits may result to joint decision-making in an oligopoly. 🗸🗸

Demand curve

 Slope from left down to the right. 🗸🗸

 It is known as the kinked demand since it contains the upper relatively elastic slope and
the lower relatively inelastic slope. 🗸🗸
[Accept any other relevant and correct response]
[Max. 26]

ADDITIONAL PART
Oligopolist may increase their market share using non-price competition strategies by:

 branding their product to create an impression that its product is for a particular age
group or income group. 🗸🗸
 aggressive advertising which inform customers about the business or product it
provides.🗸🗸
 Using appealing packaging to bring out important features of their product.
 improving their customer service in order to ensure that they return to their
businesses.🗸🗸
 providing relevant and precise information, which is crucial to the customers, since there
are competitors in the market, customers will patronize the businesses that provides
relevant information. 🗸🗸
 extending shopping hours to the convenience of customers.
 Offering loyalty rewards to customers which will encourage their return to spend
accumulated rewards. 🗸🗸
[Accept any other relevant response]
[Max.10]

CONCLUSION

 In South Africa, oligopolists have been found to be illegally manipulating prices to their
benefit, yet to the detriment of consumers and have been penalized for such action. 🗸🗸
[Accept any other relevant response]

Compare and contrast any TWO types of market structures (perfect to imperfect/imperfect
to imperfect) in detail in terms of the following. - Number of businesses - Nature of
product - Entrance - Control over prices - Information - Examples - Demand curve -
Economic profit/loss - Decision-making - Collusion - Productive/Technical efficiency -
Allocative efficiency (Perfect Market and Imperfect Market)
‘’Market structures are classified under Perfect Competition, Monopolistic Competition, Oligopoly
and Monopoly’’ Compare all FOUR market structures in a tabular form.
NB: Learners should write in full sentences even if the comparison is done in a tabular format).
(Marks depend on the combination of market structures to be examined)

Criteria Perfect Monopolistic Competition Oligopoly Monopoly

Competition
Number of So many that no So many that each firm So few that One seller and
firms firm can influence thinks others will not detect each firm must there is no
the market price its actions consider the competition. Th
others’ actions e seller is the
 and reactions price maker.
Nature of Homogeneous/i Heterogeneous / Homogeneous Only one
product dentical in terms of differentiated or product with no
the heterogeneous close substitutes
physical appearanc
e
Entry Completely Free. There are no barriers Varies from Completely
free/easy to to enter free to blocked by legal
enter. There are no restricted restrictions and
barriers to enter cost
advantages e.g.
natural
and artificial
monopolies
Informatio Complete Incomplete Incomplete Complete/
n Incomplete
Collusion Impossible Impossible Possible Unnecessary
Firm’s None. Prices Some Considerable, Considerable,
control are determined but less that in but limited by
over the by demand and monopoly goal of profit
price of the supply maximisation
product
Demand Horizontal Downward- sloping Downward- Equals market
curve for (perfectly elastic) sloping, may be demand curve:
the firm’s kinked downward-
product sloping
Long run Zero/normal profit Zero/normal profit Can be Can be
economic positive/econo positive/econom
profit m ic profit i c profit
PLEASE NOTE: THE ABOVE TABLE SHOULD BE VERBALLY WRITTEN AS PER ESSAY
INSTRUCTION
Discuss in detail how the following factors lead to the misallocation of resources in the
market (Market Failures)
INTRODUCTION
Market failure is when the forces of supply and demand fail to allocate resources efficiently /
when markets fail to allocate goods and services efficiently. 🗸
[Accept any other correct introduction]
[Max 2]
BODY: MAIN PART
1. Missing Markets

 Markets are often incomplete in the sense that they cannot meet the demand for certain
goods. 🗸🗸
 Public goods:
 They are not provided by the price mechanism because producers cannot withhold the
goods from non-payment and there is often no way of measuring how much a person
consumes. 🗸🗸
Public goods have the following features:
Non-rivalry:

 The consumption by one person does not reduce the consumption of another person e.g.
a lighthouse. 🗸🗸

Non-excludability:

 Consumption cannot be confined to those who have paid, so there are free riders e.g.
radio and TV in South Africa. 🗸🗸

Merit goods

 These are goods/services that are deemed necessary or beneficial to the society, e.g.
education, health care etc. 🗸🗸
 These goods are highly desirable for general welfare but not highly rated by the market,
therefore provide inadequate output/supply. 🗸🗸
 If people had to pay market prices for them relatively too little would be consumed – the
market will fail. 🗸🗸
 The reason for undersupply of merit goods is that the market only takes the private costs
and benefits into account and not the social costs and benefits. 🗸🗸

Demerit goods

 These are goods/services that are regarded as bad or harmful for consumption hence we
should use less of these e.g. alcohol, cigarettes, etc. 🗸🗸
 Demerit goods lead to a lot of social costs, therefore, the government charges sin tax /
excise duties to discourage the consumption of such goods. 🗸🗸
 While the market is willing to supply demerit goods, it tends to oversupply demerit goods.
🗸🗸
 Some consumers may be unaware of the true cost of consuming them. 🗸🗸

2 Lack of information

 Technical and allocative efficiency require that both producers and consumers have
complete and accurate information about the costs and benefits of the goods and
services produced and consumed in the market. Producers and consumers make
production and consumption decisions based on the information they have. 🗸🗸
 When information is incomplete or inaccurate, it leads to wrong decisions about what to
produce, how to produce and for whom to produce, and a waste of resources occurs. 🗸🗸
 Producers might not know all the different technologies and production techniques that
are available and the different resources that can best be used to produce
goods/services more efficiently. 🗸🗸
 Consumers might not know that the price of a product is lower from some other suppliers
or about the harmful effects of a product since they might just base their decisions to
consume on the information from a misleading suppliers. 🗸🗸

3. Immobility of factors of production

 Markets do not respond to changes in consumer demand if resources cannot be easily

reallocated or due to a lack of information🗸🗸
 Labour takes time to move to into new occupations and geographically to meet the
changes in consumer demand. 🗸🗸
 Physical capital e.g. equipment, buildings, land and raw materials can only move from
one place to another at a high cost, but cannot be moved to fit a change in demand. 🗸🗸
  Technological applications change production methods e.g. use of robots rather than
physical labour. It takes time for most industries to adapt. 🗸🗸
 With greater technological change there is an increasing need for workers to become
flexible, to update skills, change employment, occupations and work patterns. 🗸🗸
[Max 26]

ADDITIONAL PART

 Motivate why government has implemented a national minimum wage in the labour
market. 🗸🗸
 Pressure was put on the South African government to introduce labour laws which
require employers to pay minimum wages. 🗸🗸
 The application of minimum wage laws is needed to improve a redistribution of income.
🗸🗸

The main objectives were:

 To redress inequality (Gap between wealthy and poor) 🗸🗸

 To improve the standard of living. 🗸🗸
 Government tried to protect domestic workers and farm workers — thus preventing
exploitation. 🗸🗸
[Max 10]
[Accept any other correct relevant response]

CONCLUSION
Governments intervene in the market when market forces cannot achieve the desired output.
[Max 2]
[Accept any other relevant conclusion]
Discuss in detail state intervention as a consequence of market failures, with the aid of
relevant graphs (Market Failures)
INTRODUCTION
The purpose of government intervention is to ensure that the right quantity of resources is
allocated to the production of output so that society as a whole
[Accept any other relevant introduction]
[Max 2] maximizes its benefits. 🗸🗸
BODY: MAIN PART

 Sometimes government will set the price of a good or service at a maximum level that
is below the market price 🗸🗸
  The government intervene and passes a law that suppliers may not charge more than the
maximum price 🗸🗸
 The immediate effect is that quantity supply will drop 🗸🗸
 The original market equilibrium price and quantity is P and Q respectively 🗸🗸
 The price set by the government is P1, at this price the demand will increase to Q1 and
the supply will decrease to Q2 🗸🗸
 The difference between Q1 and Q2 is the shortfall that will be created on the market 🗸🗸
 The shortage caused by the price ceiling creates a problem of how to allocate the good
since the demand has increased 🗸🗸
 Black markets start to develop
[Mark allocation: Graph 6 and discussion max. 10 marks]

 The appropriate way to intervene in the market by government is by levying taxes as a

method to recover external cost 🗸🗸
 The original market equilibrium at e, with P as the equilibrium price and Q as the
equilibrium quantity 🗸🗸
 The tax increase will shift the supply curve to the left 🗸🗸
 New equilibrium at E1 🗸🗸
 A tax would raise the price from P to P1 🗸🗸
 The production will decrease from Q to Q1 🗸🗸
[Mark allocation: Graph total 6 marks and discussion max 10 marks]

ADDITIONAL PART

 Explain the supply of undesirable goods in South Africa and how the government can
deal with it. 🗸🗸
 Items such as cigarettes, alcohol and non-prescription drugs are examples of demerit or
undesirable goods. 🗸🗸
 These goods are often over supplied in the market, due to the fact that the external cost
is not added to the market price. 🗸🗸
 Some consumers may be unaware of the true cost of consuming them, their negative
externalities. 🗸🗸
 Government can ban their consumption or reduce it by means of taxation. 🗸🗸
 Taxation on these products will increase the market price and hopefully the demand for
these products will drop. 🗸🗸
[10 marks]
[Accept any other correct relevant response]
CONCLUSION
The intervention of government ensures that inefficiencies is eliminated and that the market is
operating effectively 🗸🗸 [Accept any other relevant conclusion]
[Max 2]

CONTEMPORARY ECONOMIC ISSUES-PAPER 2

Discuss in detail the consequences of inflation (Inflation)
INTRODUCTION

 This is a constant and significant increase in the general price level of goods and
services in the country over a certain period of time, e.g. a year. 🗸🗸
[Max 2]
[Accept any relevant introduction]

BODY-MAIN PART
Creditors and Debtors

 Whereas borrowers (debtors) benefit from price increases, lenders (creditors) suffer due
to price increases. 🗸🗸
 This is because borrowers receive money with a relatively high purchasing power and
they repay their loans with money with low purchasing power, unless interest rates are
sufficient to prevent this occurrence. 🗸🗸

Salary and Wage Earners

 Price increases affect people whose incomes are relatively fixed (in other words, people
whose incomes remains constant or do not increase at the same rate as prices do. 🗸🗸
 This group includes retired people, pensioners and the poor. 🗸🗸
 As prices increase, their almost fixed incomes purchase less and less. 🗸🗸
 However there are individuals and entrepreneurs whose incomes often increase at a rate
that is higher than the inflation rate and they do not suffer but gain from inflation. 🗸🗸
 Globalization results in increased employment opportunities in the economy due to
increased productivity, the need to produce more goods both for local and international
markets rises in globalised economies. 🗸🗸
 The demand for increased skilled labour becomes a need as a result, this demand for
labour benefits the local labour market in increased employment opportunities and
growth. 🗸🗸

Investors and Savers

 Different types of investments are affected by inflation: Assets with fixed nominal values.
🗸🗸
 These assets have a fixed nominal value and give a return if they are held until maturity.
🗸🗸
 When they are paid, because their nominal values remain constant, the purchasing
power of the nominal values decreases as prices increase (that is, their real value
decreases). 🗸🗸

Assets with Flexible Market Values

 The holders of shares and fixed property usually gain by price increases because the
nominal values of these assets tend to increase at least proportionately to the rate of
inflation (that is, their market values are flexible). 🗸🗸
  Often the prices of these assets increase more rapidly than increases in the general price
level.🗸🗸
 In this case, inflation creates wealth to the advantage of those holding such assets. 🗸🗸

Tax Payers

 South Africa has a progressive personal income tax system. 🗸🗸

 This means that marginal and average tax rates increase in harmony with the income
level. 🗸🗸
 The higher level an individual’s income, the greater the percentage of income he or she
has to pay tax. 🗸🗸
 With inflation, taxpayers’ nominal income (wages and salaries) rise even when their real
income remain unchanged. 🗸🗸

Taxes are levied on nominal income and not on real income.

 Therefore if the income tax schedule remains unchanged inflation increases the average
rate of personal income tax. 🗸🗸
 Individuals will have to pay higher taxes even if they are actually no better off than
before. 🗸🗸
 This phenomenon known as bracket creep, lads to a redistribution of income from
taxpayers to the government. 🗸🗸
 Bracket deep results from a combination of inflation and progressive income tax. 🗸🗸
 It has the same effect as an increase in the tax rate. 🗸🗸

Industrial Peace

 Wage bargaining is often accompanied by strikes and mass action. 🗸🗸

 These actions can sometimes spill over into violence, which affects society at large. 🗸🗸
 In extreme situations in the presence of exceptionally high inflation together with a
government that is determined not to yield to wage increase demands (which can push
inflation to even higher levels), widespread civil unrest follows. 🗸🗸

Inflation has a negative effect on economic growth

 Inflation leads to increased uncertainty in the economy. 🗸🗸

 This uncertainty discourages savings and investments especially in the long term. 🗸🗸
 Which are necessary for economic growth –result reduced economic growth. 🗸🗸

Inflation affects the real money value and savings

 Because inflation reduces the real value of money, it affects the real value of money
saved in particular. 🗸🗸
 This means that inflation, the rand buys fewer goods and services than before. 🗸🗸
 It also means that the real money value saved is worth less at the end of the savings
period than when the money was saved. 🗸🗸
 e.g. if a consumer receives 5 % interest on his/her savings account while the inflation
rate is 8%, then the real rate of interest on the consumer’s savings is -3%.🗸🗸

Inflation has an adverse effect on a country’s balance of payments (BOP).

 If a country’s rate of inflation is higher than that of its trading partners the prices of
exported goods increase while the prices of imported goods decrease. 🗸🗸
 This leads to loss of competitiveness in the export market, which in turn leads to
decreased exports. 🗸🗸
This has a negative effect on the country’s balance of payments (BOP).

 The loss of export competiveness can also increase unemployment inflation affects the
redistribution of income in a country. 🗸🗸

The effects of inflation are uneven.

 While it does not clearly benefit anyone and certainly harms most, it also harms some
less than others. 🗸🗸
 Inflation also tends to redistribute income from low-income groups to higher income
groups. 🗸🗸
 This is because people in the low income groups do not have assets than can rise in
value faster than the rate of inflation to help them overcome the effects of inflation. 🗸🗸
 Powerful groups such as trade unions large companies and the wealthy people, are able
to increase their share of national income at the expense of disadvantaged people such
as pensioners the unemployed and the welfare recipients. 🗸🗸

Inflation has social and political costs

 When inflation continually causes rising prices it makes people unhappy and can disturb
relations between employers and the employees and between customers and traders or
service providers. 🗸🗸
 People in lower-income brackets feel severe effects of increases in the price of essential
items such as bread, maize meal rental and transport costs. 🗸🗸
 This can lead to social unrest and political unrest. 🗸🗸

Inflation feeds on itself and causes further inflation

 This is called the inflation spiral. 🗸🗸 e.g. higher wage demands cause producers to
increase their prices to maintain their profits.
 This happens again and again pushing prices further every time. 🗸🗸
 If the government does not keep this wage price spiral in check, inflation may get out of
control and become hyperinflation. 🗸🗸
[Max 26]

ADDITIONAL PART
Debate the merits (benefits) of administered prices by the government

 These are prices regulated by the government e.g. home owner’s costs on
water/household fuel (paraffin and electricity) medical care (public hospitals)
communication (telephone calls, telephone rentals and installations/postage cell
communications /transport (petrol). 🗸🗸
 Most of the administered prices are adjusted once a year which brings price stability. 🗸🗸
 Regulated prices are restricted as to the extent to which prices may vary, depending on
the government’s objectives. 🗸🗸
 Administered prices provide additional revenue to national treasury. 🗸🗸
 It appears that some of these prices remain extremely robust over the short term. 🗸🗸
[Accept any other relevant response]
[Max 10]

CONCLUSION

 If inflation is not controlled by the proper and effective instruments, it can have
challenging problems to the economy in general. 🗸🗸
Discuss in detail the measures to combat demand-pull and/or cost-push inflation (Inflation)
INTRODUCTION
COST PUSH
Inflation is a sustained and significant increase in general price level over a period of time and a
simultaneous decrease in the purchasing power of money.
Accept any other relevant introduction. 🗸
[Max 2]
BODY: MAIN PART
Causes of cost-push inflation
Increase in Wages:

 In South Africa, increase in wages constitute more than 50% of Gross Value Added at
basic prices 🗸🗸
 If the increase in wages is not accompanied by an increase in production, the cost of
production will rise 🗸🗸
 Producers will increase the prices of their products to offset the high cost of production
strikes and stay-aways / labour union activities 🗸🗸

Key inputs/ increase in prices of imported capital goods

 When the prices of key inputs that are imported increase, domestic cost of production 🗸🗸
 increases especially in the manufacturing sector 🗸🗸
 Supply shocks e.g. sudden increase of oil causes a knock-off effect 🗸🗸

Exchange rate depreciation

 A decrease in the value of the rand will result in an increase in prices of imports 🗸🗸

Profit margins

 When firms increase profit margins, the prices that consumers pay also increase 🗸🗸
 Sometimes firms use their market power to push up prices 🗸🗸

Productivity

 Less productive factors of production will lead to increased cost per unit 🗸🗸
 Strikes and stay-aways often reduce production output and can result in price increases
🗸🗸

Natural disasters

 Natural disasters such as drought, flood and global warming can impact on the cost of
production 🗸🗸
 This is often the case in relation to food prices 🗸🗸

Interest rates

 An increase in interest rates results businesses paying more money for capital loaned
firms recover these costs by increasing the prices of their products 🗸🗸

Increase in taxation
  Increase in direct tax like company income tax may lead to businesses increasing their
prices to offset the extra burden 🗸🗸
 Increase in indirect tax such as custom duty will lead to increase in costs of supplying a
particular product, therefore the price will increase 🗸🗸
 Administered prices increase e.g. fuel prices
 Shoplifting and losses caused by employees are added to the prices of products 🗸
[Accept any other relevant fact. Maximum 8 marks for headings]
[Max. 26]

DEMAND PULL INFLATION

Total spending on domestic goods and services in the economy consists of the spending by
households, firms, the government and the foreign sector.

 Total spending = C + I + G + (X-M). 🗸🗸

Causes of demand inflation

Increase in consumption [C] – consumers expenditure will increase mainly for three
reasons:

 a. If consumers save less & spend more🗸🗸

 b. Decrease in personal income tax. 🗸🗸
 c. A greater availability of consumer credit, because of decrease in interest rate. 🗸🗸

Investment [I] –When business invest this increase demand for labour, cement, sand and
bricks. 🗸🗸

 Supply cannot keep up with the increase in demand and this will increase prices. 🗸🗸
 Lower interest rates may result in an improvement in the sentiment and profit
expectations of businesses. 🗸🗸
 Businesses invest more and this may lead to an increase in the demand of goods and
services that are part of the investment (for example, a new building requires cement
bricks and labour).🗸🗸
 If aggregate demand increases at a faster rate than aggregate supply, price increases
will follow.🗸🗸

Government Spending [G] – Three main reasons.

 a. New capital projects🗸🗸

 b. Consumption expenditure on education, health, and protection. 🗸🗸
 c. Social expenditure on public work programme to create jobs and increase in social
allowances. 🗸🗸

Export earnings [X]

 a. When economy of trading country improve. 🗸🗸

 b. When global economy expands. 🗸🗸

Access to credit

 There is greater availability of consumer credit (by means of credit cards) of the
availability of cheaper credit as a result of decreases in lending rates. As new credit is
extended the credit multiplier kicks in and more credit is created. 🗸🗸

Consumption spending
  Most governments will at times increase expenditures on education, health, protection
and safety (for example, military equipment such as bomber jets and submarines). 🗸🗸

Social spending

 Governments sometimes feel they have to do something substantive about

unemployment and poverty. 🗸🗸
 They borrow money and spend it on public works programmes or raise the level of social
grants year after year at a higher rate than the inflation rate. 🗸🗸
 Such expenditures invariably lead to inflation because they add to aggregate demand
without adding anything to aggregate supply. 🗸🗸

Commodities demand

 The world’s demand for commodities expands and contracts like business cycles do.
During an expansionary period, foreign demand increases and this leads to greater
volumes of exports. The income earned from these exports adds to aggregate demand
and prices increase. 🗸🗸

BODY: ADDITIONAL PART YES / NO

 Inflation targeting is when a particular percentage is set as an acceptable level for an

increase in general price levels 🗸🗸
 The SARB's inflation target is a range of 3% and 6% 🗸🗸
 The aim of inflation targeting policy is to achieve and maintain price stability 🗸🗸
 The implementation of the inflation target is easy to understand – expressed in numbers
which makes it very clear and transparent 🗸🗸
 It reduces uncertainty and promotes sound planning in the public and private sectors 🗸🗸
 It provides an explicit yardstick that serves to discipline monetary policy and improves the
accountability of the central banks 🗸🗸
 The SARB make use of monetary policy, specifically the repo rate to keep the inflation
within the target range 🗸🗸
 The government make use of fiscal policy regarding public sector revenue and
expenditure 🗸🗸

Positive effects

 Where demand is higher than supply an increase in interest rates help to bring the
demand down 🗸🗸
 The policy can helps businesses to make economic plans without worrying about the
effects of high inflation 🗸🗸
 South Africa's price level has been fairly stable since the introduction of the inflation
targeting policy in 2000 🗸🗸

Negative effects

 Inflation targeting can cause a reduction in economic growth 🗸🗸

 This is because the raising of interest rates, result in a decrease in total spending which
is needed for production to increase 🗸🗸
 Decreased economic growth can increase unemployment 🗸🗸
 South Africa has been experiencing an increase in unemployment since the
implementation of the policy in 2000 🗸🗸
 Inflation targeting is difficult to implement when the cause of inflation is supply shocks 🗸🗸
[Max. 10]
CONCLUSION

 Any relevant higher order conclusion that should include:

o A summary of what has been discussed without repeating facts already
mentioned in the body. 🗸🗸
o An opinion or valued judgement on the facts discussed. 🗸🗸
o Additional support information to strengthen the discussion. 🗸🗸
o A contradictory viewpoint with motivation. 🗸🗸
o Recommendations. 🗸🗸
o E.g. Inflation can be a threat to the normal functioning of the economy; therefore,
measures like monetary and fiscal are vital to keep the phenomenon under
control. 🗸🗸

Examine in detail the effects of tourism (Tourism)

INTRODUCTION

 This is the activities of people travelling to and staying in places outside their usual
environment for a period not longer than one consecutive year for leisure, business and
other purposes and not related to a remunerative activity from within the place visited 🗸🗸
[Max 2]

BODY - MAIN PART

Gross domestic product (GDP)

 Tourism impacts mostly on the services industry than on agriculture or manufacturing

although there are upstream effects when agriculture provides foodstuffs to restaurants
and manufacturing provides vehicles for transport 🗸🗸

Direct contribution on GDP

 Statistics South Africa (SSA) shows that in 2020 inbound tourists contributed R69 billion
and domestic tourists R billion, amounting to R billion - about % of South Africa's GDP 🗸🗸

Indirect contribution on GDP

 If the indirect contribution is added, tourism add about % to GDP 🗸🗸

 The WTTC estimated that tourism contributed % to the GDP of the world economy in
2020🗸🗸
 In developing economies the service sector is responsible for around % of GDP, while it
is responsible for more than % of GDP in developed economies 🗸🗸
 South Africa is similar to that of developed economies and services contributed more
than % of GDP in 2020. 🗸🗸

Employment

 Tourism has a major effect on employment and this amounted to million workers in
2020🗸🗸
 Tourism is the world’s largest generator of jobs 🗸🗸

Reasons:

 Tourism is labour intensive 🗸🗸

 More jobs can be created with every unit of capital invested in tourism than elsewhere
 Tourism employs many skills 🗸🗸
  It ranges from accountants and hairdressers to tour guides and trackers, 🗸🗸
 the tourism industry draws upon numerous skills 🗸🗸
 Tourism can provide immediate employment 🗸🗸
 If one quarter of tourists’ accommodation establishment in South Africa starts to offer live
entertainment to quests, thousands of entertainers could be employed within days 🗸🗸
 Tourism provides entrepreneurship opportunities 🗸🗸
 The tourism industry accommodates informal sector enterprises, from craft and fruit
vendors to pavement vendors, chair rentals 🗸🗸

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 🗸🗸
 Tourism provides an alternative to urbanisation, permitting women and youth to continue
a rural family lifestyle while giving them business opportunities 🗸🗸
 E.g. to start and operate small-scale tourism businesses around community asserts
(forests, parks and rivers) 🗸🗸

Externalities

 The rapidly expanding tourism industry could have both positive and negative impacts
that extend well into the future 🗸🗸
 While tourism attracts large amount of revenue, it can also cause undue environmental
damage that can harm the very foundation on which it depends 🗸🗸
 All other economic resources, tourism uses resources and produces wastes and also
creates environmental costs (pollution) and benefits in the process 🗸🗸
 Rapid growth in tourism aiming at short-term benefits usually results in more negative
effects and these includes the degeneration of traditions and cultural values and
environmental damage to sites and setting 🗸🗸

Environment
Tourism activities create environmental stress:

 Permanent environmental restructuring which includes major infrastructure 🗸🗸

 Waste product generation such as biological and non-biological waste that damages fish
production 🗸🗸
 Direct environmental stress caused by tourist activities, e.g. the destruction of vegetation
and dunes 🗸🗸
 Effects on population dynamics such as migration and increased urban densities 🗸🗸

Investment

 An adequate physical, economic and basic services infrastructure is essential for tourist
destinations which means they invest in the following:
o Transport infrastructure, e.g. roads, airports 🗸🗸
o Communication and infrastructure including telephone lines, electronic signal
stations and radio, TVs’ 🗸🗸
o Energy infrastructure such electricity and liquid fuel 🗸🗸
o Basic service infrastructure such as clean water and sewerage systems 🗸🗸
[Max. 26]

ADDITIONAL PART
How can Indigenous Knowledge Systems be used to promote tourism in South Africa?
  More cultural villages can be improved to facilitate and promote tourism e.g. Shangana in
Mpumalanga, Basotho in the Free State and Simunye Zulu Lodge in Kwazulu-Natal. 🗸🗸
 Where guides explain and demonstrate storytelling and indigenous knowledge practices.
🗸🗸
 Advertising campaigns domestically and internationally by travel agencies, hotels and B
& B, lodges and SA Tourism can focus on promoting these heritage sites in brochures
and fliers, social media. 🗸🗸
 These actions will make tourists more aware of these attractions 🗸🗸
 Encourage tourists to experience different cultures and townships - experience life at
home with a household and eat at a shebeen or township restaurant 🗸🗸
 World Heritage Sites of South Africa can be promoted for their cultural significance e.g.
the Fossil Hominid Sites of Sterkfontein, Mapungubwe Cultural Landscape, Richtersveld
Cultural and Botanical Landscape, Vredefort Dome and Robben Island 🗸🗸
 Environmental World Heritage Sites of South Africa selected for their natural importance
namely the Cape Floral Region Protected Areas, Isimangaliso Wetlands Park as well as
uKhahlamba/Drakensberg Park which has been selected for its mixed significance 🗸🗸
 Arts and culture festivals e.g. the National Arts Festival, the Hermanus Festival,
Awesome Africa Music Festival and Macufe African Cultural Festival should more widely
be advertised to encourage tourists to attend 🗸🗸
 According to the World Health Organisation, a large majority of the African population
make use of traditional medicines for health, social-cultural and economic reasons and
forms part of the unique experience tourists experience when visiting local villages 🗸🗸
 In South Africa tourists are made more aware of the important role traditional medicine
plays in poverty reduction and employment creation 🗸🗸
 Relaxation of restrictive tourist visa laws to facilitate easier entry into South Africa 🗸🗸
[Accept any other relevant answers]
[Max. 10]

CONCLUSION

 South Africa attracted over million tourists in 2020 /For every 8.1 additional tourist to
South Africa, one new job is created/one per cent increase in tourism adds R million
annually to the SA economy. 🗸🗸
[Accept any other relevant higher order conclusion]
[Max. 2]

Examine in detail the benefits of tourism (Tourism)

INTRODUCTION

 Tourism is the activities of people travelling to and staying in places outside their usual
environment for no more than one consecutive year for leisure, business or other
purposes PP 🗸🗸
[Accept any other correct relevant response]
[Max 2]

MAIN PART
Business sector

 Tourism stimulates business in areas such as accommodation and entertainment 🗸🗸

 The construction industry, in private-public partnership with the government to provide
the infrastructure, manufacturing sector and recreation sector all benefits from increased
demand due to tourism 🗸🗸
 The previously disadvantaged communities get entrepreneurial opportunities through the
black economic empowerment schemes 🗸🗸
  A large number of people get business opportunities in the informal sector e.g. selling of
artefacts 🗸🗸
 Local retailers may have an increase in sales (and profits) because of increased demand
from tourists 🗸🗸
 Private businesses and government work in partnership to provide the infrastructure
needed for tourism 🗸🗸
 This increases the market share of and income of the these businesses 🗸🗸
 Allow existing businesses to improve the quality and variety of their products PP 🗸🗸
 Allow natural monopolies e.g. Table Mountain Cableway to achieve abnormal profits PP
🗸🗸
 The public sector also provides a range of financial incentives for private sector tourism
investment (grants, subsidies, loans, tax rebates) PP 🗸🗸
[Max 10]

Infrastructure development

 Adequate and well-maintained infrastructure is essential for tourist destinations PP. 🗸🗸

 Locals share this infrastructure with tourists 🗸🗸
 Government often prioritises economic infrastructure such as ports and beaches 🗸🗸
 In addition to physical and basic infrastructure, social infrastructure is also important for
the growth of tourism🗸🗸
 Most of the SDIs and development corridors also have tourism as an important focus PP
🗸🗸
[Max 8]

Households

 Members of households earn income from the tourism sector as tour operators, travel
agents etc. 🗸🗸
 Many households are indirectly involved in tourism as employees e.g. in hotels, transport
sector. 🗸🗸
 Entrepreneurs from households that operate as curio producers or musicians can earn
income from tourism . 🗸🗸
 A large number of households acquire skills in the tourism industry. 🗸🗸
 School curriculum and learnership offer opportunities to acquire these skills . 🗸🗸
 Encourages rural development because many tourist attractions are located in rural
areas PP 🗸🗸
[Accept any other correct relevant response]
[Max. 26]

ADDITIONAL PART
Tourism can be successfully marketed in less popular destinations by:

 advertising the firms' attractions in a variety of media including social media and internet
which may reach both local and international potential tourists. 🗸🗸
 focusing on a clear message that concentrates on the strength of the attraction/
uniqueness of the destination. 🗸🗸
 using the indigenous knowledge systems of that particular area where possible PP. 🗸🗸
 describing the service offered in the best possible way to catch the interest of the likely
tourist PP E.g. the use of slogans. 🗸🗸
 charging a price that is competitive and money well spent for the service offered. 🗸🗸
 helping the tourist to view the entire service as value for money – deliver a worldclass
visitor experience 🗸🗸
 highlighting other places of interest in the vicinity of the attraction as part of a package 🗸🗸
 focusing on proudly South African products/services / Sho’t Left campaign PP 🗸🗸
  help disadvantaged South Africans to benefit from tourist attractions in the less popular
destinations PP 🗸🗸
[Accept any other correct relevant response]
[Max. 10]

CONCLUSION
A weaker exchange rate has been a major contributing factor to South Africa's tourism industry
growth over many years. 🗸
[Accept any correct relevant response]
[Max 2]
Discuss in detail how the government can ensure sustainable development
(Environmental Sustainability)
INTRODUCTION
Environmental sustainability can be defined as development that meets the need of the present
without compromising the ability of future generations to meet their own needs. 🗸🗸
BODY: MAIN PART
Public sector intervention
Because it is difficult to enforce measures to ensure sustainability the government has to
intervene. 🗸🗸
Environmental taxes
Environmental taxes (green taxes) can be added to the cost of goods and services for the
negative impact they have on the environment. 🗸🗸
The government uses the income generated through these taxes to protect the environment. 🗸🗸
Taxes can be imposed on petrol, paper, emission gases etc. 🗸🗸
In 2003 the government has legislated the use of biodegradable plastic bags which consumers
had to pay for🗸🗸
The hope is that they will use fewer bags and ensure a litter free environment. 🗸🗸
Charging for dumping of waste
A monthly fee as part of municipal accounts is charged for collection of waste, sewage and
garbage. 🗸🗸
Households already pay for the collection of rubbish. 🗸🗸
The factory owner might clean up his waste if it cost him to dump it. 🗸🗸
Industries might also pay for emitting gases that can be harmful to people and the environment.
🗸🗸
Subsidies
Subsidies can be awarded to businesses that are willing to reduce pollution and waste. 🗸🗸
Waste can also be reduced by using new techniques or equipment such as solar energy. 🗸🗸
Emission gases from factories can be reduced using new technology. 🗸🗸
Granting property rights
Normally owners of properties tend to be more protective over their resources than users who
are only interested in the profits the resources offer. 🗸🗸
For this reason the government might grant property rights over a specific area. 🗸🗸
Property rights empowers owners to negotiate contracts with businesses who wish to exploit the
area’s resources. 🗸🗸
Marketable permits
A government can decide on the maximum desired level of pollution in an area. 🗸🗸
It then distribute pollution rights (marketable permits) to factories within that area. 🗸🗸
This means that each factory can pollute to a certain limit. 🗸🗸
It means that marketable permits are licenses that polluters can buy or sell to meet the control
levels set by government. 🗸🗸
Education
Incorporating topics into the curriculum of school fosters awareness. 🗸🗸
The public is gradually been made aware of this rising problem. 🗸🗸
Plastic, bottles and cartons can be recycled or made biodegradable. 🗸🗸
Public sector control
If the government’s intervention does not attain the desired results, then it has to intervene more
directly by setting and enforcing limits. 🗸🗸
Environmental Impact Assessment
In SA every projected construction, mining or similar development has to undergo an
assessment by qualified environmental professionals. 🗸🗸
To prove that it will not cause unwarranted environmental damage and that the damage can be
repaired after construction. 🗸🗸
The cost if built into the project. 🗸🗸
Command and Control
Regulations that are set and enforce environmental limits or standards. 🗸🗸
Quantity: e.g. set the limit to the amount of fish to catch, or limit the season catching certain
species of fish. 🗸🗸
Quality: e.g. drinking water quality is carefully monitored and controlled. 🗸🗸
Air quality in workplace is subject to minimum standards. 🗸🗸
Social effect: e.g. noxious fumes from factories, dumping of medical waste near settlements, and
noise pollution. 🗸🗸
Voluntary agreements
Agreements between government and businesses voluntarily to address negative environmental
impacts of industries. 🗸🗸
Businesses voluntary agree to decrease the emissions of pollutants. 🗸🗸
Most prefer negotiations so that they can tailor their specific needs and include it into their
planning🗸🗸
Agreements can be formal, which is legally binding contract or informal. 🗸
[Max 26]
ADDITIONAL PART
Government does not exercise effective control over the continuous dumping of waste because
of a lack of coordination between departments. 🗸🗸
The fines imposed on industries that dump waste are too lenient and they continue polluting the
environment. 🗸🗸
The minimum standards set for hazardous gas and fuel emissions are not enforced or adjusted.
🗸🗸
The recycling of waste materials are not widely encouraged and promoted and landfill sites are
overflowing. 🗸🗸
Government has various laws that is not really effectively implemented. 🗸🗸
Poor service delivery also adds to the problem in certain areas. 🗸
[Accept any other relevant answer]
[Max 10]
CONCLUSION
Each and every individual, business and government needs to stand together to save our planet.
[Accept any other relevant conclusion]
[Max 2]

Discuss in detail the following problems and the international measures taken to ensure
sustainable development (Environmental Sustainability)
INTRODUCTION
Environment refers to the physical surroundings and physical conditions that affect people’s
lives. 🗸🗸
The ever-increasing pressure on our environment originates from increasing population numbers
and excessive consumption🗸🗸
Our air, land, and water are under constant assault from the ever-growing ravages of man-made
pollution generated chiefly by industrialized societies. 🗸
[Accept any appropriate introduction]
[Max 2]
BODY-MAIN PART
Conservation

 Conservation is necessary because human actions cause pollution and over-utilisation

of resources. 🗸🗸
 Conservation is a strategy aimed at achieving the sustainable use and management of
natural resources. 🗸🗸
 Conservation seeks a creative continuity of the environment while ensuring that change
is sympathetic to the quality of life for both present and future generations. 🗸🗸
 Certain aspects of conservation need to be taken into account.
 Firstly, there is an opportunity cost. 🗸🗸
 Secondly, externalities are often present. 🗸🗸
 Lastly, self-interest has a short term horizon – meaning that decisions cannot be left
entirely to market forces. 🗸🗸
 Over utilization of resources causes a reduction in supply, increase in prices,
contradiction of demand and a search for substitutes. 🗸🗸
 This necessitates conservation of both renewable and non-renewable resources. 🗸🗸
 Conservation has to be concerned with limiting what is harvested in order to maintain a
stable stock at least at the minimum level. 🗸🗸
 Government can use permits and quotas as two possible direct control methods in order
to maintain the stock of resources at the minimum level. 🗸🗸

Preservation

 Preservation involves any strategy undertaken to safeguard the environment, maintain its
current condition and keep it as habitable as possible for people and animals. 🗸🗸
 Heritage sites, indigenous forests, specifies of animals etc. that have special cultural or
environmental significance, are often targeted preservation. 🗸🗸
 Preservation is not likely to work as a private enterprise because the benefit to society is
much bigger than the income of the producer. 🗸🗸
 It may be possible to use cost-benefit analysis to calculate the social benefits of
preservation of the environment.
 The weaknesses in market solutions require the government to intervene in order to
preserve environment assets. 🗸🗸
 Government could do any of the following:
 Buy or expropriate – Environmental assets are simply closed for human use. 🗸🗸
 Subsidise-A subsidy would increase net benefits to the owner and raise the property’s
present value. 🗸🗸
 Controls – The government can compel the owner to apply control measures like
restricting the quantities exploited or number of visitors allowed per day. 🗸🗸
[26 Max]

ADDITIONAL PART
Stockholm Conference (1972)

 The Stockholm Conference was the first major large scale international meeting on the
environment convened with the support of the United Nations. 🗸🗸
 The meeting agreed upon a declaration containing 26 principles concerning the
environment and development, an action plan with 109 recommendations and a
resolution. 🗸🗸
 The meeting directly impacted on the environmental policies of many countries. 🗸🗸
Rio de Janeiro Earth Summit (1992)

 This meeting acknowledged the importance of cooperation in addressing environmental

concerns that threaten sustainability. 🗸🗸
 The conference helped to make countries around the world aware of the dangers of
unsustainable development. 🗸🗸
 Unfortunately the principles outlined and accepted at the summit were not binding and
subsequently many countries did not confirm to them. 🗸🗸

Rio + 5 (1997)

 This conference noted that globalization made some countries poorer – 🗸🗸

 In particular African countries and the least developed countries showed a low level of
growth or even declined. 🗸🗸

Kyoto Protocol for Climate Change (1997)

 Countries committed themselves to reducing their total emissions of greenhouse by 5

%.🗸🗸
 Unfortunately, China was excluded from this agreement and the USA withdrew. 🗸🗸

World Summit on Sustainable Development (2002)

 The objective of this summit held in Johannesburg was to conserve natural resources in
a world that is growing in population. 🗸🗸
 The meeting focused on issues like poverty eradication, water and sanitation, energy,
health agriculture and biodiversity. 🗸🗸

COP 17 (2011)

 The main goal of the conference held in Durban was to establish a treaty to limit carbon
emissions and plan strategies to keep global temperature rise to less than 2 degree
Celsius in the 21st Century. 🗸🗸
 Although the framework for this treaty was established it was not finalised. 🗸🗸

CONCLUSION

 The solution to our environmental problems will depend on our ability to make sound
economic decisions that take account of the natural environment and to change our
individual behaviour and attitudes. 🗸🗸
[Accept any other relevant conclusion]
[Max 2]

Last modified on Wednesday, 08 February 2023 08:39

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