Microeconomics and Contemporary Issues

Grade 12 Economics Exam

September 2014

Paper 2

(Microeconomics and Contemporary Issues)

Time: 90 Minutes Marks: 150

INSTRUCTIONS

1 Answer FOUR questions as follows:

SECTION A: COMPULSORY QUESTION (+/- 10 minutes)

SECTION B: TWO QUESTIONS OUT OF THREE OPTIONS (+/- 45 minutes)

SECTION C: ONE QUESTION OUT OF TWO OPTIONS (+/- 35 minutes)

2 Write the number of the question next to each answer.

3 Number the answers according to the system used in this question paper.

4 Start each question on a NEW PAGE. Leave one to two lines open between sub-sections of each question.

5 Read each question carefully.

6 A neat and systematic presentation of facts is required.

7 Answer in full sentences.

8 Do not answer more than the required number of questions. Only the required number of questions, in the order in which they have been handed in, will be marked.

9 Use only a black or blue pen (graphs / diagrams may be done in pencil).

10 Non – programmable pocket calculators may be used.

THIS QUESTION PAPER CONSISTS OF 8 PAGES AND ONE ANSWER SHEET

SECTION A (COMPULSORY)

QUESTION 1 30 MARKS – 15 MINUTES

1.1 For each question there are three possible answers, A, B and C. Choose the one you consider correct and record your choice in the appropriate space on the ANSWER SHEET attached to the question paper.

1.1.1 The firm in a perfectly competitive market is a price taker. This designation as a price taker is based primarily on the assumption that

A. there are so many buyers and sellers in the market that any individual firm cannot affect the market.

B. each firm produces a homogeneous product.

C. there is easy entry into or exit from the market place.

1.1.2 Which characteristic would make it easier for firms in an industry to collude?

A. greater product similarity

B. low barriers to entry

C. rapid technological change

1.1.3 The diagram shows the cost and revenue curves of a profit-maximising monopolist.

Which area measures the deadweight loss arising from the exercise of monopoly power?

A. x + y B. y C. y + z + w

1.1.4 Which one of the following is not a characteristic of long-term equilibrium in the case of monopolistic competition?

MR = LMC
MC = LAC
normal profit is made

1.1.5 If the marginal social benefit of a good is greater than its marginal private benefit, there are likely to be ...

A. positive externalities in consumption.

B. positive externalities in production.

C. negative externalities in consumption.

1.1.6 Tourism could lead to socio-economic problems such as …

pollution.
unemployment.
poverty

1.1.7 If the rand depreciates, the rate of inflation is likely to …

decrease.
increase.
remain the same.

1.1.8 Monetary policy used to reduce the rate of inflation involves increasing …

the money supply.
taxes.
interest rates. (8 x 2 = 16)

1.2 Choose a description from COLUMN B that matches an item in COLUMN A. Write only the letter (A – J) next to the question number (1.2.1 – 1.2.8) on your ANSWER SHEET.

COLUMN A / COLUMN B
1.2.1 / Non-rivalry / A / consumption by one person does not in any way reduce the consumption by someone else
1.2.2 / Market failure / B / the umbrella tourism body whose core function is to grow the tourism economy
1.2.3 / Marginal cost / C / change in the CPI excluding god with volatile prices
1.2.4 / CITES / D / use or management of something in order to keep it intact or to prevent damage
1.2.5 / Allocative efficiency / E / bans the commercial international trade of endangered species
1.2.6 / Core inflation / F / cost incurred when production increases by an additional unit
1.2.7 / Conservation / G / the socially optimum level of production has not been achieved
1.2.8 / TBCSA / H / occurs when the rate of inflation becomes very high
I / production of goods and services at the lowest factor cost
J / where society produces the correct quantity of goods and services that are demanded by consumers

(8 x 1 = 8)

1.3 Complete the following statements by using the words provided in the list below. Write only the word next to the question number (1.3.1 – 1.3.6) on your ANSWER SHEET.

PPI; urban; stagflation; CPI; public goods and services; cartel; perfect market; monopoly; inflation; hyperinflation; merit goods; rural; duopoly; global warming

1.3.1 Consumers may undervalue these goods but the government believes they are ‘good’ for consumers.

1.3.2 Most of the indigenous tourist attractions are situated in these areas.

1.3.3 Increased temperatures as a result of the depletion of the ozone layer.

1.3.4 Collusion between oligopolies to form a collective monopoly.

1.3.5 Only one producer who can therefore determine the market price on its own.

1.3.6 Measures increases in the cost of consumption. (6 x 1 = 6)

TOTAL SECTION A: 30

SECTION B (ANSWER TWO QUESTIONS FROM THREE)

QUESTION 2 (Microeconomics) 40 MARKS – 20 MINUTES

2.1 List TWO characteristics of perfectly competitive firms. (2 x 2 = 4)

2.2 Study the following diagram of a firm’s cost and revenue curves and answer the questions that follow:

2.2.1 Identify the curves labelled A – D. (2)

2.2.2 What type of market structure is this firm operating in? (2)

2.2.3 At what level of output and price will this firm be maximising profits? (2)

2.2.4 What is the total profit earned by this firm? (4)

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

Johannesburg - Fifteen of the construction firms which were fined R1.46bn over a collusion racket will be facing a host of civil damages claims, reported City Press on Sunday.
Last year the Competition Commission fined the major construction firms a collective R1.46bn for anti-competitive behaviour and inclusive tendering relating to projects concluded between 2006 and 2011.
Now, some of the largest construction companies in the country are set to be slammed with civil damages claims.
The hardest hit appears to be WBHO, which has 27 claim certificates issued against it by the competition tribunal.

Source: Fin24.com

2.3.1 What is the role of the Competition Commission? (2)

2.3.2 According to the article, the major construction firms were fined for “anti-competitive behaviour and inclusive tendering”. Explain. (4)

2.3.3 Explain who would be claiming “civil damages” against the construction firms and why they would be doing so. (4)

2.4 Identify the steps involved in a cost-benefit analysis. (8)

2.5 Explain the concept “shut-down point”. Draw a diagram to assist you in your explanation. (4 x 2 = 8)

[40]

QUESTION 3 (Contemporary Issues) 40 MARKS – 20 MINUTES

3.1 Name any TWO World Heritage Sites in South Africa (2 x 2 = 4)

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

Targeted Inflation Forecast (June 2014)

Source: SARB June 2014

3.2.1 What is “Targeted Inflation”? (2)

3.2.2 What is the SARB expecting to happen to “Targeted Inflation” over the next two years? Justify your answer. (4)

3.2.3 Given your answer to 3.2.2, what sort of Monetary Policy actions can we expect to see for the same period? (4)

3.3 Study the article below and answer the questions that follow:

Nearly one million tourists visited South Africa in December 2013, with most of the tourists coming from the SADC region. SA Government News Agency reported that a total of 937 792 tourists visited South Africa during December 2013, making it the highest ever recorded number of tourists in the country in any one month. According to Stats SA, this was an increase of 7.6% from the 871 774 tourists recorded in December 2012.
Statistician-General Pali Lehohla said that over two-thirds of all tourists to South Africa came from the Southern African Development Community (SADC) region, followed by those from overseas at 28% and about 2% from other countries on the continent. Zimbabwe led the top 10 list of SADC countries’ tourists visiting South Africa at 30.3%, followed by Lesotho at 18.9% and Mozambique at 15.8%.

Source: News24.com (April 2014)

3.3.1 Where do the majority of tourists to South Africa originate? (2)

3.3.2 What is the main motivation for these tourists to be visiting South Africa? (4)

3.3.3 What do you think could explain the 7.6% increase in tourist numbers to South Africa? (4)

3.4 Identify and very briefly discuss FOUR consequences of inflation. (4 x 2 = 8)

3.5 Identify and briefly discuss TWO policies that have been implemented by the South African government to ensure environmental sustainability. (2 x 4 = 8)

[40]

QUESTION 4 (Microeconomics & Contemporary Issues) 40 MARKS – 20 MINUTES

4.1 Identify TWO potential “barriers to entry”. (2 x 2 = 4)

4.2 Study the table below and answer the questions that follow:

Output / Price / Total Cost / Marginal Cost
0 / 5 / 5
1 / 5 / 9
2 / 5 / 12
3 / 5 / 14
4 / 5 / 18
5 / 5 / 24
6 / 5 / 31
7 / 5 / 40

4.2.1 Identify the market structure in which this firm is operating. Explain your answer. (4)

4.2.2 What are the firm’s total fixed costs? (2)

4.2.3 What is the profit maximising level of output? Explain your answer. (4)

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

Beijing - The wild Chinese sturgeon is at risk of extinction, state media reported, after none of the rare fish were detected reproducing naturally in the polluted and crowded Yangtze river last year. One of the world's oldest living species, the wild Chinese sturgeon are thought to have existed for more than 140 million years but have seen their numbers crash as China's economic boom brings with it pollution, dams and boat traffic along the world's third-longest river.
For the first time since researchers began keeping records 32 years ago, there was no natural reproduction of wild Chinese sturgeon in 2013, according to a report published by the Chinese Academy of Fishery Sciences.
Animal populations in many of China's ecosystems have plummeted during the country's decades of development and urbanisation, the World Wildlife Fund (WWF) said in a 2012 study. According to findings compiled by WWF from various sources, the Yangtze river dolphin population crashed by 99.4% from 1980 to 2006, while that of the Chinese alligator fell by 97% from 1955 to 2010.

Source: News24.com

4.3.1 What has caused the numbers of wild Chinese sturgeon to “crash” in the Yangtze river? (2)

4.3.2 Explain how the answer to 3.3.1 can be viewed as a market failure. (4)

4.3.3 Do you think environmental degradation is an inevitable consequence of development and urbanization? Explain. (4)

4.4 Using a table, compare monopolistic competition and oligopoly with reference to: number of firms; nature of the product; barriers to entry; and control over price. (4 x 2 = 8)

4.5 Identify and briefly explain TWO reasons for the South African government to develop policies to grow the tourism industry in South Africa. (2 x 4 = 8)

[40]

TOTAL SECTION B: 80

SECTION C (ANSWER ONE ESSAY QUESTION FROM TWO)

Your answer will be assessed as follows:

STRUCTURE OF THE ESSAY: / MARK ALLOCATION:
Introduction / Max. 2
Body:
Main part: Discuss in detail/In-depth discussion/Examine/ Critically discuss/Analyse/Compare/Evaluate/Distinguish/ Explain/Assess/Debate
Additional part: Give own opinion/Critically discuss/Evaluate/ Critically evaluate/Draw a graph and explain/Use the graph given and explain/Complete the given graph/Calculate/Deduce/ Compare/Explain/Distinguish/Interpret/Briefly debate / Max. 26
Max. 10
Conclusion / Max. 2
TOTAL / 40

QUESTION 5 (Microeconomics) 40 MARKS – 35 MINUTES

“The extent to which supplies of goods are matched to demands for goods or services in a particular market. The notion of economic efficiency implies the possibility of an ideal market in which no value is lost due to waste, unneeded surpluses, unmet demand, or other misallocations of resources.”

§ Compare the long run equilibrium position of a perfectly competitive industry with that of a monopoly, paying particular attention to the issues of productive and allocative efficiency. Your answers should include well labelled and relevant diagrams. (26)

§ Is it always the case that perfect completion provides the most efficient outcome in a market? (10)

[40]

QUESTION 6 (Contemporary Issues) 40 MARKS – 35 MINUTES

“A state in which the demands placed on the environment can be met without reducing its capacity to allow all people to live well, now and in the future.”

· Discuss the measures used to ensure environmental sustainability under the following headings:

§ Market-related policies

§ Public-sector intervention

§ Public-sector control (26)

· In your opinion, to what extent are international protocols and agreements successful? (10)

[40]

TOTAL SECTION C: 40

Grade 12 Economics Exam

September 2014

Paper 2 (Microeconomics and Contemporary Issues)

ANSWER SHEET

NAME: ______TEACHER: SH / CCS / WHS

A / B / C / D / 1.3.1
1.1.1 / 1.3.2
1.1.2 / 1.3.3
1.1.3 / 1.3.4
1.1.4 / 1.3.5
1.1.5 / 1.3.6
1.1.6
1.1.7
1.1.8
1.2.1
1.2.2
1.2.3
1.2.4
1.2.5
1.2.6
1.2.7
1.2.8