CURRICULUM GRADE 10 -12 DIRECTORATE

NCS (CAPS) SUPPORT

LAST PUSH TEACHER GUIDE REVISION DOCUMENT

ECONOMICS: PAPER 1&2

GRADE 12

2024

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 PAPER ONE
MACROECONOMICS AND ECONOMIC PURSUITS

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MACRO-ECONOMICS

CIRCULAR FLOW

ACTIVITY 1

1.1 Various options are provided as answers to the following questions. Choose the answer and write only the letter (A-D)
next to the question number
1.1.1 The figure on expenditure method that is used to correct errors and omissions is….
A. Real figures
B. Residual item. 
C. Fixed item.
D. Nominal figures.

1.1.2 Goods that are used in the production of other goods are referred to as ….
A. Free goods.
B. Final goods.
C. Intermediate goods. 
D. Immediate goods.

1.1.3 The market where currencies are traded is known as...

A. Foreign exchange market. 
B. International market.
C. Import market.
D. Resource market.

1.1.4 Money flows to government from businesses and workers as a compulsory payment is knows as……
A. marginal rate of taxation
B. marginal propensity to consume
C. marginal propensity to invest
D. marginal propensity to save

1.1.5 Addition of the intermediate goods to the national income figures is …

A. Deficit.
B. Residual item.
C. Double counting. 
D. Omission.

1.1.6 The final price paid by the consumers for goods and services is known as …
A. Market price. 
B. Basic market.
C. Factor cost.
D. Goods price.
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1.1.7 The method used to derive total remuneration on factors of production is called the ………. method.
A Production
B Circular
C Expenditure
D Income 

1.1.8 Long-term funds are borrowed or saved on the … market.

A Capital 
B Money
C Foreign exchange
D Goods

1.1.9 An economy that include foreign sector is called a/an … economy.

A. Developed
B Free
C Closed
D Open 

1.1.9 Earnings received from the export of goods and services are called ………..
A Leakages
B Injections 
C Investments
D Taxes

1.1.10 The national aggregate that represents the value added in each phase of productio is called …
A gross domestic expenditure
B gross value added 
C gross national income
D gross domestic income

1.1.11 Accumulation on capital stock by businesses is known as …..

A investment 
B government spending
C exports
D imports (24)

1.2 Choose a description from COLUMN B that matches the item in COLUMN A. Write only the correct letter next to the
question number
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 COLUMN A COLUMN B

1.2.1 Disequilibrium J A. Spending by firms on capital goods.

1.2.2 Gross domestic B income that is available for household to spend after deductions have been
product E made.

1.2.3 Multiplier effect F C. a market for long term investments and borrowings e.g. bonds.

1.2.4 Households I D. movement of income and expenditure between participants in the

economy.

1.2.5 Capital market C  E. Total value of all goods and services produced within the borders of a
country within a specified period.

1.2.6 Marginal propensity to K F. A small initial change in spending produces a proportionately larger
consume increase in national income.

1.2.7 Disposable income B

G. Portion of income not consumed.

1.2.8 Money flows D  H. spending that takes place irrespective of the level of income.

1.1.9 Autonomous H  I. owners of the factors of production.

consumption

1.1.10 Investment A  J. when leakages are more than injections.

K. proportion of disposable income that households spend .

[10x1]

1.3 Provide the economic concept for each of the following descriptions. Write only the term/concept next to the
question number. No abbreviations will be accepted.

1.3.1 The market on which factors of production are traded.

Factor market 
1.3.2 Prices paid by consumers for goods and services including taxes less subsidies.
Market price 
1.3.3 A compulsory payment made to the government.
Taxation

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1.3.4 The market value of all final goods and services produced within the borders of a country in a given period of
time.
Gross domestic product
1.3.5 Goods and services produced locally and then sold to other countries.
Exports
1.3.6 A representation of the economy showing how the economic participants interact with one another.
Circular flow 
1.3.7 The withdrawal of money from the circular flow.
Leakages 
1.3.8 A mechanism that brings buyers and sellers together.
Market 
1.3.9 The portion of income that is not spent.
Marginal propensity to save
1.3.10 Total amount earned by the permanent citizens of a country locally and abroad.
Gross National Income
1.3.11 Payment received without any productive work rendered.
Transfer payments. 
1.3.12 The expenditure that depends on the level of income.
Induced consumption
1.3.13 National income figures that have not taken inflation into account.
Nominal figures

SECTION B
ACTIVITY 2

2.1 Read the diagram below and answer the questions that follow:

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 Source: google/images

2.1.1 Identify the primary economic participant in diagram above diagram. (1)
 Household 
2.1.2 Name one item that could be classified as a real flow. (1)

 Factors of production
 Goods and services
2.1.3 Briefly describe the term factor market. (2)

 Factor market is a market where factors of production are bought and sold. 
2.1.4 Explain the effect of an increase in marginal propensity to consume on the multiplier. (2)
 An increase in the marginal propensity to consume (MPC) means that consumers spend a larger
portion of any additional income. 
 This leads to more induced consumption in the economy, as each round of spending generates more
subsequent spending. 
 The multiplier effect becomes stronger because the initial injection of spending leads to a greater
overall increase in aggregate demand. 
 As a result, an increase in MPC leads to a more significant expansion of the economy in response to
initial spending increases. 
2.1.5 How can households as an important participant in the circular flow model contribute to the economy? (4)

 Consumption: Households drive demand by purchasing goods and services, stimulating production
and economic growth.
 Labor Supply: They provide labor to businesses, enabling production and contributing to the flow of
income within the economy.
 Savings and Investment: Households save and invest money in financial markets, providing capital for
businesses to expand and innovate.
 Tax Contributions: By paying taxes, households support government spending on public services and
infrastructure, further fueling economic activity.

(Accept other relevant answers)

Activity 3

3.1.1 Give any TWO methods of calculating GDP. (2X1) (2)

 Production method
 Income method
 Expenditure method
3.1.2 Why is it important to prepare the national accounts of a country? (1X2) (2)
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  National accounts provide a comprehensive overview of a country's economic performance, helping to gauge growth,
productivity, and overall economic health. 
 Accurate national accounts data is crucial for governments to design effective fiscal and monetary policies that target
economic stability and development. 
 They enable comparisons with other countries, helping assess competitiveness and identify areas for improvement in
the global market. 
 National accounts inform decisions on the allocation of resources, ensuring they are directed towards sectors that
maximize economic efficiency and societal well-being. 
(Accept any other relevant correct answer)
3.2 Study the table below and answer the questions that follow

GROSS VALUE ADDED ACCORDING TO DIFFERENT SECTORS OF ECONOMY

At current prices (R millions) 2022 2023
Consumption expenditure by household(C) 251 862 234 123
Consumption expenditure by government (G) 445 231 342 234
Gross capital formation (I) 456 786 457 774
Residual item 106 521 A
Gross domestic expenditure 1 260 400 1 039 931
[Adapted: SARB Quarterly Bulletin, JUNE 2023]

3.2.1 Name the method that was used in the calculation of the gross domestic product? (1)
 Expenditure method
3.2.2 Which sector contributed the most in GDP? (1)
 Business/Firms
3.2.3 Briefly describe the term real Gross Domestic Product. (2)
 It is GDP at constant prices where prices are adjusted for price changes (effects of inflation are removed)

(Accept any relevant response)
3.2.4 Explain the impact of double counting in the National Income. (2)
 Double counting leads to an overestimation of the Gross Domestic Product (GDP), distorting the true size of
the economy. 
 It results in inaccurate economic indicators, affecting the assessment of economic growth, productivity, and
overall performance. 
 Inflated figures can mislead policymakers, leading to ineffective or harmful economic policies based on
incorrect data. 
 Double counting can skew the allocation of resources, potentially directing investment and government
spending away from more productive or needed areas. 
 It is when a transaction is counted more than once resulting in national accounts being overstated. 
3.2.5 Calculate the value of A. Show all calculations. (4)
Gross domestic expenditure 1 039 931
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 Consumption expenditure by household(C) (234 123)
Consumption expenditure by government (G) (342 234)
Gross capital formation (I) (457 774)
Residual item =5 800

Activity 4

4.1.1 Give any TWO leakages from the basic circular flow of income and spending…… (2x1) (2)

• Savings 
• Imports 
• Taxation 

(Any TWO of the above)

4.1.2 What is the main purpose of subsidies on production? (1 x 2) (2)

 Subsidies lower the production costs for businesses, making it easier for them to produce goods and services at
a competitive price. 
 By reducing costs, subsidies encourage higher production levels, leading to an increased supply of essential
goods and services. 
 Subsidies help stabilize markets by supporting industries that are vital for the economy, preventing market
failures or disruptions. 
 They can promote innovation and development in targeted sectors by providing financial support, encouraging
businesses to invest in new technologies or processes. 
(Accept any other correct relevant answers)

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

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 Source: google/pictures

4.2.1 Identify the value of induced consumption on the graph above. (1)
 0,5Y 
4.2.2 Name the original consumption function on the graph. (1)
 E0= 20 + 0.5y 
4.2.3 Briefly describe the term autonomous consumption. (2)
Autonomous consumption is the level of consumption which is independent on the level of income. 
(Accept any other correct relevant answers)
4.2.4 How does an increase in proportional income tax affect aggregate spending? (2)
 An increase in proportional income tax reduces individuals' disposable income, leaving them with less money to
spend on goods and services. 
 Lower disposable income leads to a decrease in consumer spending, which is a major component of aggregate
demand. 
 As consumer spending declines, overall aggregate demand in the economy falls, potentially slowing down
economic growth. 
 Reduced aggregate spending can lead to lower production, investment, and employment levels, potentially
causing an economic contraction.. 
(Accept any other correct relevant answers)
4.2.5 Calculate the multiplier using the above graph. (Show all calculations) (4)
Multiplier (K) = Δ𝑌/Δ𝐽
= 20/10 
= 2  [10]

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 ACTIVITY 5

5.1 Read the extract below and answer the questions that follow:

5.1.1 Identify fiscal policy instrument from the extract. (1)

Government expenditure 

5.1.2 What is the percentage increase in GDP in 2022. (1)

1.6 % 

5.1.3 Briefly describe the term gross fixed capital formation.

It is measured by the total value of gross fixed capital formation, changes in inventories and acquisitions less disposals
of valuables for a sector. 
(Accept any relevant response)

5.1.4 Explain the importance of financial market in the circular flow? (2)
People save, deposit their savings in financial institutions, which in turn allocate those savings to productive
investments in the economy that fuel overall growth and development. 
Financial intermediaries are, therefore, the crucial link between savers and investors 
(Accept any other correct relevant answers)

5.1.5 Discuss the importance of converting gross domestic product to gross national product. (1X2) (4)
 Converting GDP to GNP accounts for the total income earned by a country’s residents, including income from abroad,
offering a more accurate reflection of national economic performance. 
 GNP includes income earned by residents from investments and work abroad, providing insight into the economic
contributions of international activities. 
 GNP helps policymakers understand the economic well-being of residents, guiding decisions that better address
income distribution and external economic relations. 
 GNP allows for a more precise comparison of a nation’s economic health with other countries, especially those with
significant foreign investments or expatriate populations. 
(Accept any other correct relevant answers)

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ACTIVITY 6

6.1 Study the diagram below and answer the question that follow

Adapted from cartoon SA

6.1.1 Identify any one injection in the above diagram? (1)

Investment
Export
Government Spending
6.1.2 Name one example of income earned by foreigners. (1)

Payments for imports

Dividends
6.1.3 Briefly describe the term induced consumption. (2)

Induced consumption is consumption that depends on the level of income. 

(Accept any relevant response)
6.1.4 How does an increase in government spending affect the size of the multiplier? (2)

 An increase in government spending injects more money into the economy, boosting demand for goods and services
and stimulating economic activity. 
 As government spending increases, the initial boost in demand leads to further rounds of spending by businesses and
households, amplifying the multiplier effect. 
 The increase in income from government spending encourages more consumption, further expanding the size of the
multiplier as each dollar spent circulates through the economy. 
 A larger multiplier effect can lead to greater overall economic growth, as the cumulative impact of increased
government spending results in higher production, employment, and income levels. 
(Accept any other correct relevant answers)

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6.1.5 How can an increase in injections positively affect the growth of an economy? (4)

 Investment spending on machinery and other equipment can lead to an increase in total production of goods and
services. 
 Increased export earnings can allow for foreign exchange to flow into the economy, making possible to pay for
imported inputs. 
 Government spending on services such as education can lead to improved skills and productivity needed in
production. 
(Accept any relevant response)

Activity 7

7.1 Why government expenditure is an injection into the economy?

• Public spending may increase the aggregate demand which further stimulates the economic growth and
employment. 
• Government spending is positively related with economic growth. 
• Government expenditure plays an important role in determining the changes in the level of national
income, providing the right needs for potential output and sustaining the welfare of the economy. 
• Educational expenditure is like investing in the quality of labour for future purposes.  4marks
7.2 Discuss the importance of national account aggregates to a country? (8)
• Economic Measurement: National account aggregates, such as GDP, provide a comprehensive measure of a country's
economic performance, reflecting the total value of goods and services produced. 
• Policy Formulation: Governments use these aggregates to make informed policy decisions, such as setting fiscal and
monetary policies to promote economic stability and growth. 
• International Comparisons: National account aggregates allow for the comparison of economic performance across
different countries, helping to assess relative prosperity and competitiveness. 
• Investment Decisions: Investors rely on these aggregates to evaluate the economic environment and make informed
decisions regarding investments in a country.
• Monitoring Economic Health: National account aggregates are crucial for tracking economic trends, identifying potential
problems, and taking corrective measures to maintain economic health. 
7.3 Briefly discuss taxes on production and taxes on products. 8
• Taxes on Production: These are taxes imposed on the production process itself, such as property taxes, payroll
taxes, and licenses required for production activities. They are levied regardless of the output level.
• Impact on Costs: Taxes on production increase the cost of producing goods and services, which can reduce
profitability and potentially lead to higher prices for consumers.
• Taxes on Products: These are taxes levied directly on the goods and services produced or sold, such as Value-
Added Tax (VAT), excise duties, and sales taxes.
• Revenue Generation: Taxes on products are a significant source of government revenue, directly linked to the
consumption and sale of goods and services.
• Consumer Impact: Taxes on products are typically passed on to consumers in the form of higher prices,
affecting overall demand and consumption patterns.

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7.4 Discuss the multiplier effect on the national income if the marginal propensity to consume (mpc) is 0.6 and
investment increases by 10bn. (8)

• Multiplier Concept: The multiplier effect amplifies the impact of an initial increase in spending (like investment) on
national income, depending on the marginal propensity to consume (MPC).
• Multiplier Calculation: With an MPC of 0.6, the multiplier is calculated as 1 / (1 - MPC), resulting in a multiplier of
2.5.
• Income Increase: A 10 billion increase in investment would lead to a total increase in national income of 25 billion
(10 billion * 2.5).
• Amplification of Spending: This occurs because each round of spending generates further consumption, as
individuals spend 60% of their additional income, fueling further economic activity.
• Economic Growth: The significant increase in national income from the initial investment can boost overall
economic growth, enhancing employment, production, and consumption levels.

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ACTIVITY 8

SECTION C

Essay

8.1 Discuss in detail the markets within the four-sector model. (26)
8.2 Evaluate the contribution/role of firms in growing the economy (10)

• INTRODUCTION

The economy of a country is regarded as an open economy because of the presence of households, producers, government,
the foreign sector and the financial sector as active participants in the economy. Markets link the participants in the economy


BODY: MAIN PART

PRODUCT / GOODS / OUTPUT MARKETS 

• 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

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 FINANCIAL MARKETS

• They are not directly involved in the production of goods 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 market 
• 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 THROUGH THE MARKETS

• 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 (26)
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 8.2 Additional part
POSITIVE ROLE

 Firms employ different factors of production which includes employing workers (labour) to produce goods
and services. 
 By employing labour, firms pay wages creating a flow of income to households, which is spent by
households on goods produced by different firms. 
 Firms develop new products and services to try to respond to consumer preferences and tastes. For
example, in response to increased demand for coffee, firms have opened new stores to cater for the new
demand/ they can also involve offering new services such as home delivery by supermarkets. 
 Firms invest in capital and new technology to improve productivity in the economy and ultimately higher
living standards. 
 Firms provide goods and services for the consumer which has enabled greater specialisation in the
economy. 
 For example, labour saving devices such as washing machines, vacuum cleaners ,childcare have saved
time for ‘household chores’ enabling women to enter the labour force in greater number. 
 Firms pay taxes which contribute to social welfare the government pays to its citizens to ensure economic
development. 

NEGATIVE ROLE

• Production by firms may lead to negative externalities of production, e.g., pollution and loss of natural
resources. 
• Firms with monopoly power can charge excessive prices and cause an inefficient allocation of resources.

 Firms which are publicly owned and supplying essential services may struggle to increase profits which can
lead to regular bailouts from the state. 
CONCLUSION

• Markets are critically important institutions in our economic system, because they regulate supply and
demand and safeguard stable prices and confidence amongst business people. 

(Accept any other relevant higher order conclusion.)

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Activity 9

9.1 Discuss the role of markets in the circular flow. (26)

INTRODUCRION

In the circular flow model of an economy, markets play a crucial role in facilitating the exchange of
goods, services, resources, and money between different economic agents. The circular flow
model illustrates the continuous movement of money, resources, and products within an economy,
involving households, firms, the government, and, in an open economy, the foreign sector. Here’s
how different markets contribute to the circular flow:

MAIN PART

1. Product Market
Role: The product market is where goods and services produced by firms are sold to households,
the government, and the foreign sector. It is the arena in which consumers spend their income to
purchase what they need and want.
Flow Contribution: In the circular flow, households spend their income in the product market to
buy goods and services. This spending provides revenue for firms, which they use to continue
production, pay wages, and earn profits. The product market is thus central to the flow of
consumption expenditure from households to firms and the provision of goods and services back to
households.

2. Factor Market
Role: The factor market is where households supply factors of production—such as labor, land,
and capital—to firms. Firms, in turn, pay wages, rent, interest, and profits to households in
exchange for these resources.
Flow Contribution: In the circular flow, households provide labor and other resources in the factor
market, earning income in return. This income then circulates back to the product market as
households use it to purchase goods and services. The factor market ensures the continuous flow
of resources to firms, enabling production to sustain the economy.

3. Financial Market
Role: The financial market facilitates the flow of savings from households and firms into
investments. It includes institutions such as banks, stock markets, and bond markets that channel
funds into productive uses.
Flow Contribution: In the circular flow, households and firms save part of their income, which is
then loaned out or invested by financial institutions. Firms use these funds to invest in capital,
expand production, and innovate, driving economic growth. This investment ultimately contributes
to higher production and income, reinforcing the circular flow.

5. Foreign Exchange Market

Role: The foreign exchange market is where currencies are traded, enabling international
transactions. This market facilitates the exchange of goods, services, and capital between
countries.

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 Flow Contribution: In the circular flow, the foreign sector interacts with the domestic economy
through exports and imports. Revenue from exports adds to the income of domestic firms, while
spending on imports represents a leakage from the circular flow. The balance between exports and
imports, influenced by the foreign exchange market, affects the overall economic equilibrium and
flow of funds in and out of the economy.

CONCLUSION
Interconnection: Markets are interconnected in the circular flow model, with each playing a distinct
role in maintaining the continuous movement of resources, money, and products. For example,
income earned in the factor market is spent in the product market, which then circulates back as
revenue for firms and wages for households.
Economic Equilibrium: The balance and smooth operation of these markets are essential for
maintaining economic equilibrium. Disruptions in one market, such as a decline in consumer
spending or investment, can have ripple effects across the entire circular flow, leading to economic
instability.
Economic Growth and Stability: Efficient and well-functioning markets are vital for economic growth
and stability. They ensure that resources are allocated effectively, goods and services are
produced and consumed, and savings are channeled into productive investments, all of which
contribute to a robust and growing economy.

9.2 How can the business sector contribute more positively to the economy? (10)

Innovation and Technology Adoption: Businesses can invest in research and development
to innovate and adopt new technologies, improving productivity and driving economic growth.
Sustainable Practices: By adopting environmentally sustainable practices, businesses can
reduce negative externalities, contribute to long-term resource availability, and attract eco-
conscious consumers.
Job Creation and Skill Development: Expanding operations and investing in employee
training can create more jobs and enhance the workforce's skills, leading to higher productivity
and improved standards of living.
Corporate Social Responsibility (CSR): Engaging in CSR initiatives can strengthen
community ties, enhance public trust, and contribute to social welfare, supporting a more
equitable and resilient economy.
Global Expansion and Trade: By expanding into international markets, businesses can
increase exports, attract foreign investment, and improve the country’s trade balance, further
stimulating economic growth.

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BUSINESS CYCLES

Business cycles refer to fluctuations in economic activity or production over several months or years.
Business cycles are successive periods of increasing and decreasing levels of economic activities.
It is a period of expansion (upswing) and contraction (downswing) in the level of economic activity (GDP).

TYPICAL BUSINESS CYCLES

There are two periods in every business cycle, namely: contraction (downswing) and expansion (upswing) which
alternates

Expansion (upswing) is the period during which the level of real GDP (economic activities) increases. It consists of two
phases namely: recovery and prosperity.

Contraction (downswing) is the period of the business cycle during which the level of real GDP (economic activities)
decreases. It has two phases which are recession and depression.

The two periods are separated by two turning points which are peak and trough.

Peak is the upper turning point which indicates the highest level of the business cycle. After the peak the economy starts
to contract.

Trough is the lower turning point and represents the lowest level of economic activity. After trough the economy starts to
improve.

PHASES OF BUSINESS CYCLES

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Recovery:
 This is the first phase after the lower turning point of the cycle.
 The level of economic activity (GDP) starting to increase, slowly at first but gradually increasing in speed.
 There is an increase in employment and income aggregate demand of goods and services increase (due to
increase in jobs opportunities)
 Business confidence increases and this leads to more investment in the economy

Prosperity:
 The level of optimism in the economy is high, entrepreneurs invest more money than before in the economy
 Employment levels is high, and this result in an even more spending on goods and services
 The level of growth in production is very high.
 Inflation gets out of control especially at the boom which is the end of the prosperity phase

Recession
 A recession phase is when there is negative economic growth rate for two consecutive quarters.
 The level of economic activity (GDP) starts to decrease
 The level of employment and production decrease, slowly at first but gradually increasing in speed
 As unemployment increases, a feeling of pessimism starts to grow.

Depression
 Depression of economic activities is at the very lowest level
 Money is in short supply, leading to a further decline in spending
 Many businesses have closed down, impacting negative impact on production and spending
 Cost of production decreases this encourages foreign trade and leads to a recovery.

THE CAUSES OF BUSINESS CYCLES

There are numerous theories as to the causes of business cycles. Among these are the monetarist approach and the
Keynesian approach. The government uses monetary instruments such as interest rates to mediate these business
cycles

1. THE MONETARIST (exogenous) APPROACH

 Exogenous variables are those independent factors that can influence business cycles and originate outside the
economy.
 The monetarist approach believes markets are inherently stable.
 When a disequilibrium occurs (e.g. weather conditions and market shocks), market forces kick in and bring the
market back to its equilibrium route.
 The monetarists believe that governments should not intervene in the market.
 The market is driven by a trend and not cycles towards stability

2. THE KEYNESIAN (endogenous) APPROACH

 Endogenous variables are dependent variables. This follows the belief that economic growth is primarily the
result of endogenous and not external forces.
 The Keynesian approach holds the view that markets are inherently unstable.
 The price mechanism fails to co-ordinate demand and supply in markets.
 Prices are not flexible enough (e.g. wages).
 A business cycle is an inherent feature of a market economy.
 Indirect links or mismatches between demand and supply are normal features of the economy.
 The market is driven by cycles and is inherently unstable.

TYPES OF BUSINESS CYCLES

Kitchen cycles:
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  It last between 3 to 5 years caused by adapting inventory levels in businesses.

Jugler cycles:
 It lasts from 7 to 11 years and are caused by changes in net investments by government and businesses.

Kuznets cycles:
 It last between 15 to 20 years, caused by changes in activity in the building and construction industry.

Kondratieff cycles:
 It last longer than 50 years, caused by technological innovations, wars and discoveries of new deposits of
resources e.g. gold.

GOVERNMENT POLICY AND BUSINESS CYCLES

MONETARY POLICY
 They can be defined as policies used by monetary authorities (SARB-MPC) to change the quantity of money in
circulation as well as the interest rates, with the aim to stabilize prices, reach full employment and higher
economic growth.
Instruments:
Open market transactions
 The SARB can directly reduce/increase supply of money by buying/ selling government securities in the open
market.

Interest rates
 If banks experience a general shortage of funds in the money market, they are accommodated at the SARB,
when they are allowed to borrow money at the Repo system (Repurchase tender system) at a rate known as the
repo rate.
 By increasing this rate, money becomes more expensive for commercial banks, who recover it from their clients
by increasing interest rates on loans. Loans become more expensive to the consumer.

Cash reserve requirements

 The SARB is permitted by the Banks Act to occasionally change the balances the banks are required to
maintain in order to manipulate the money creation activities of the banks.

FISCAL POLICY
 Fiscal policy is the process of shaping taxation and public expenditure in order to even out the swings of the
business cycle. Governments, through their fiscal policy have a powerful weapon of stabilizing / ironing out /
smoothing of cycles, to stop peaks from ending in high inflation and troughs in too high levels of unemployment.
 Fiscal policy is the responsibility of the Minister of finance.
 The two main instruments of fiscal policy are taxation and government spending.
 Changes in taxation and government spending can influence aggregate spending and income distribution.

THE NEW ECONOMIC PARADIGM

- Paradigm- New point of view

1. Description
 Economists believe it is possible to achieve a huge rate of economic growth without experiencing supply
constraints and without causing inflation.
 It is embedded in demand-side and supply-side-policies.

2. Demand-side policies
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  Monetary and fiscal policies focus on aggregate demand.
 Demand-side approach alone does not produce ideal results.
 Often growth must be cut short because of bottlenecks such as inflation, balance of payment deficits and
shortage of skilled labor.
 Supply also needs to be managed.

2.1 Inflation
 If aggregate demand increases without a corresponding increase in aggregate supply, inflation results.
 The figure below shows that AS AD increase to AD1 AS must increase in order to keep prices level at P.
However, supply is often sticky and inflexible in the short run.

THE EFFECTS OF DEMAND SIDE AND SUPPLY SIDE POLICIES ON THE ECONOMY

 Supply-side measures are necessary to make supply more flexible.

Unemployment
 Demand side policies are effective in stimulating economic growth which increases the demand for labor and
consequently reduces unemployment.
 But as unemployment falls, inflation starts to rise.
 The Philip’s curve (PC) illustrates the relationship between unemployment and inflation.

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 PHILLIPS CURVE

PC
PC1
10

8
Inflation rate C
6

4
B
2
D A
0 2 4 6 8 10 12 14
Unemployment rate
-2

 The PC shows an inverse relationship between inflation and unemployment.

 Supply side measures can shift the PC to unemployment (employment rate which does not cause inflation)

Supply-side policies
2.2 Reduction of costs
- Infrastructure services - Add substantially to business costs.
- Administrative costs - e.g., Inspection, reports on application of various laws, tax returns, businesses in SA carry
a heavy burden.
- Cash incentives - reduce business costs.

2.3 Improving the efficiency of inputs

- Tax rates - should not be too high as to be disincentive to work, invest and produce.
- Capital consumption - Regular replacing to keep up with technological development.
-Subtract depreciation allowances before tax to reduce the amount of tax liability.
- Human resources development – improve health care, education, training and the mobility of labor.
- Free advisory services – export opportunities and foreign investment opportunities, research and development,
weather forecasts, statistical services and help for SMMES.

2.4 Improving the efficiency of markets

- Deregulation – Remove laws, regulations and bylaws and other forms of government control and make markets
free.

- Competition – Encourage establishment of new businesses, invite FDI, remove power imbalances and
implement arrangements that increase competition.

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 - Leveling the playing field – private businesses can’t compete with public enterprises due to government
legislative protection.

FEATURES UNDERPINNING BUSINESS CYCLE FORECASTING

Leading indicators
 They are indicators that change before the economy changes.
 They predict/inform how the economy will be in the coming months.
 When they rise, it means the economic activity will rise in the next few months.
 When they decline it also means the level of economic activity will decline in the coming months.
 Examples include number of residential plans passed, Number of job advertisements, number of new companies
registered

Coincident indicators
 They are indicators that change at the same time as the economy changes.
 A downturn is shown by a decrease in these indicators while an upswing is shown an increase in these
indicators.
 Examples of coincident indicators are: usage of capacity in manufacturing, registered unemployment, Retail
sales, real merchandise imports.

Lagging indicators
 They are indicators that change after the economy has already changed.
 They reach the turning point after the business cycle has already turned.
 They are used to confirm the changes predicted by the leading indicators.
 Examples of lagging indicators are: number of commercial vehicle sold, real investment in machinery, unit labour
cost in manufacturing.

Composite indicator
 It is the summary of group of indicators of the same type into a single value.
 This means all the values of the leading indicators are summarised, the same is done with coincident and
lagging indicators.

Extrapolation
 Extrapolation means to estimate something unknown from facts or information that is known.
 For example, 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 few months
Length of the cycle
 It is the time that the economy takes to move from one peak to another peak or one trough to another trough.
 Some business cycles last for a brief time while other can take up to 50 years.
 Shorter cycles represent a weaker cycle and longer lengths represent a stronger cycle.
Trend line
 Trend line shows the general direction in which the economy is moving.
 It usually has a positive slope because the production capacity of a country increases over time.
 Economists look at the performance of the economy over the past few years and then predict a future trend
Amplitude
 It measures the vertical distance between a trough and the trend line or the vertical distance between the peak
and the trend line. It indicates the intensity of the underlying forces and the size of a change.
 High amplitude shows the strong forces in the economy and severe expansion or contraction of economic
activities.
 Low amplitude indicates weak forces in the economy and a more moderate expansion or contraction of
economic activities
Moving averages
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  This is a method of repeatedly calculating a series of different average values along a time series to produce a
smooth curve.
 By using averages, the economists get a clearer picture of the general trends in the business cycle.

ACTIVITY 1
1.1. Various options are provided as possible answers to the following questions. Choose the
correct answer and write only the letter (A-D) next to the question number (1.1.1-1.1.4) in the
ANSWER BOOK, for example 1.1.9. D
1.1.1. Successive periods of expansion and contraction in the level of economic activities is referred to
as ------cycle.
A. Business
B. Economic
C. Productivity
D. Employment
1.1.2. The removal of unnecessary restrictions by legislation is known as -------------
A. Regulation
B. Decentralization
C. Centralization
D. Deregulation
1.1.3. A period when there is a general increase in economic activities is known as a (an) -------------
A. Downswing
B. Upswing
C. Depression
D. Recession
1.1.4. Estimating unknown data based on a pattern of known data is called ----------
A. Amplitude
B. Trend
C. Extrapolation
D. Length
1.1.5. The point where economic contraction is at its lowest is called -------------------------
A. trough
B. peak
C. trend
D. recovery

1.1.6 Action taken by government in respect of taxation and expenditure to influence economic activity

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 is called --------- policy.
A. monetary
B. fiscal
C. exchange
D. credit
1.1.7 Indicators that change at the same time and in the same direction as the economy changes are
known as ------------ indicators.
A. leading
B. lagging
C. composite
D. co- incident
1.1.8 The activity that minimizes the effects of short-term economic fluctuations is called ------.
A. amplitude
B. moving average
C. a trend
D. length

(8×2) 16

1.2. Choose a description from COLUMN B that matches the item in column A. Write only the letter (A-G) next to the
question numbers (1.2.1. – 1.2.6.) in the ANSWER BOOK.

COLUMN A COLUMN B

1.2.1. Moral suasion A Buying and selling of securities and bonds by the G
reserve bank to influence money.

1.2.2. Real business cycle B The lowest turning point of the business cycle. D

1.2.3 Amplitude C Can be caused by the changes in net investment E

by business and the government

1.2.4. Peak D Obtained when the effects of irregular events and F

seasons are removed from time series data

1.2.5 Juglar E The difference in the value of output at the peak C

and the value of output at the trough

1.2.6 Open market F The upper turning point of the business cycle A
transactions

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 G Persuasion of banks by the South African
Reserve Bank ( SARB) to offer credit responsibly

(6×1)6

1.3 Give ONE term for each of the following descriptions. Write only the term next to the question number (1.3.1- 1.3.6.)
in the ANSWER BOOK. Abbreviations, acronyms and examples will NOT be accepted.
1.3.1 Factors that originate outside of the economy that cause business cycles.

Exogenous
1.3.2 A summary of the value of different indicators of the same type into a single value.
Composite indicators
1.3.3 Measures the duration of the business cycle from peak to peak or trough to trough.
Length of the business cycles
1.3.4 It shows the relationship between unemployment and inflation.
Phillips curve
1.3.5 An increase in the capacity of the economy to produce more goods and services.
Economic growth
1.3.6 Cycles that are caused by changes in activity in the building and construction industry.
Kuznets cycle
(6×1) (6)

Activity 2

2.1.1 Name any TWO types of the business cycles. (2×1) (2)

Kitchin cycle /Juglar cycle/ Kuznets cycle/ Kondratieff cycle

2.1.2 What is the purpose of the trend line in the business cycle? (2×1) (2)

The trend line indicates the direction in which indexes that were used in the business cycle move. 

(Accept any other correct relevant response)

2.2. Study the extract and answer the question that follow.

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2.2.1 Identify ONE challenge faced by businesses in local environment. (1)

Cost of doing business/ High lending rates/ Load shedding/ Freight and logistics

2.2.2 Which institutions in South Africa are dealing with lending rates? (1)

Banks. 
Financial institutions. 

2.2.3 Briefly describe the term recession. (2)

Recession occurs when there is negative economic growth for two consecutive quarters. 
(Accept any other correct relevant response)

2.2.4 Explain the negative effect of load shedding in the economy. (2)

 Load shedding disrupts business operations, leading to lower productivity as factories, offices, and other
enterprises cannot function efficiently. 
 Businesses incur higher costs from having to invest in alternative power sources like generators, or from losses
due to downtime and spoiled goods. 
 Persistent load shedding undermines investor confidence, deterring both domestic and foreign investment, which
can stifle economic growth. 
 The economic disruptions caused by load shedding can lead to job losses and reduced incomes, decreasing
consumer spending and further weakening the economy. 
 Load shedding will also result to low productivity and low economic growth due to work stoppages. 

(Accept any other correct and relevant response)

2.2.5 How can government boost business investment in the economy? (4)

 Government should provide infrastructure that is suitable and reliable to make extremely easy for the business to
achieve high level of productivity. 
 Government should subsidies businesses to be assisted on reducing unemployment and export-orientated
manufacturing business is for the costs that they will encounter when entering foreign markets. 
 The equality of labour within the business will have a direct impact on the productivity, efficiency, and
profitability; government should support business by providing labour that is good quality through improved
healthcare, education, and training courses. 

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 (Accept any other correct relevant response)

Activity 3

3.1.1 Name any TWO phases of the business cycle. (2×1) (2)

Recession /Depression  /Recovery /Prosperity 

3.1.2 Why would a decrease in South African exports lead to the depreciation of a Rand? (1X2) (2)

 A decrease in South African exports leads to lower earnings in foreign currencies, reducing the demand for the
Rand as exporters convert less foreign income back to the local currency.
 Lower exports worsen the trade balance, increasing the current account deficit, which puts downward pressure
on the Rand's value.
 A decline in exports may signal economic weakness, reducing investor confidence and leading to capital
outflows, further weakening the Rand.
 With less demand for the Rand from international trade, the supply of Rand in the foreign exchange market
increases relative to demand, causing the currency to depreciate.

3.2. Study the cartoon below and answer the question that follow:

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3.2.1 Identify phenomenon that occurs during the prosperity phase. (1)

Inflation 

3.2.2 Name ONE monetary policy instrument used by the South African Reserve Bank. (1)

Interest rate /Cash reserve requirements/Moral suasion/Open market requirement

3.2.3 Briefly describe the term prime-lending rate. (2)

The interest rate that commercial banks charge to their credit worthy customers. 

(Accept any other correct relevant response)

3.2.4 Explain the importance of using leading indicators in forecasting the economy? (2)

 Leading indicators provide early signals about the direction of the economy, helping to anticipate future
economic trends before they fully develop. 
 Policymakers and businesses use leading indicators to make proactive decisions, allowing them to address
potential economic challenges or seize opportunities in advance. 
 By forecasting economic conditions, leading indicators help in managing risks by enabling adjustments in
strategy to mitigate potential downturns or capitalize on growth. 
 Accurate forecasting using leading indicators can boost market confidence, as investors and businesses feel
more secure in their economic outlook and investment choices. 

(Accept any other correct relevant response)

3.2.5 How can fiscal policy be effectively used during the economic downturn? (4)
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  During an economic downturn, increased government spending on infrastructure, public services, and social
programs can stimulate demand, create jobs, and boost economic activity. 
 Reducing taxes for individuals and businesses can increase disposable income and encourage consumer
spending and investment, helping to support economic growth. 
 Fiscal policy can be tailored to provide targeted support to struggling sectors and vulnerable populations,
ensuring that assistance is directed where it is most needed to stabilize the economy. 
 Strategic use of public debt can finance necessary spending without undermining long-term fiscal health,
supporting economic recovery while planning for future debt sustainability.. 

Accept any other correct relevant response

Activity 4

4.1.1 Name TWO turning points of the business cycle. (2×1) (2)

Peak

Trough

4.1.2 Why is it important to consider economic indicators when making economic decisions? (1x2) (2)

 Economic indicators provide essential data on economic conditions, helping policymakers and businesses make
informed decisions based on current and projected trends.
 They offer insights into future economic performance, enabling proactive adjustments to strategies and policies
to address potential challenges or opportunities.
 By analyzing economic indicators, decision-makers can assess risks and implement measures to mitigate
negative impacts, ensuring more stable economic outcomes.
 Understanding economic indicators helps in the effective allocation of resources by identifying areas of growth or
decline, optimizing investments, and prioritizing interventions. 

(Accept any other relevant correct response)

4.2 Study the information extract and answer questions that follow.

32 | P a g e
4.2.1 Identify the indicator used for business cycles forecasting shown above. (1)

Co-incident indicator

4.2.2 Name any ONE example of exogenous reason business cycles. (1)

Natural disasters / political shocks/ technological discovery/ inappropriate government -policy

4.2.3 Briefly describe the term trough. (2)

Trough is the lowest turning point of the business cycle

4.2.4 What is the negative impact of the economy staying long in a slump (downswing)? (2)

 Prolonged economic slumps lead to sustained high unemployment rates, causing financial hardship for
individuals and reducing overall consumer spending. 
 Businesses may delay or cut back on investments due to uncertain economic conditions, stifling innovation and
long-term growth potential. 
 Extended downturns erode consumer confidence, leading to decreased spending and further exacerbating
economic stagnation. 
 Persistent slumps often require increased government spending on social programs and unemployment benefits,
leading to higher public debt and future fiscal constraints. 
 Long-term economic slumps can widen economic and social disparities, increasing poverty levels and
contributing to social unrest and instability. 

(Accept any other relevant and correct response)

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4.2.5 How can infrastructural development improve the state of the economy? (4)

 Improved infrastructure, such as roads and communication networks, boosts efficiency and productivity for
businesses, leading to higher economic output. 
 High-quality infrastructure attracts both domestic and foreign investment by providing a stable and efficient
environment for business operations. 
 Infrastructure projects generate employment opportunities, both directly through construction and indirectly
through increased economic activity in related sectors. 
 Better infrastructure enhances living standards by improving access to services and amenities, which can lead to
increased consumer spending and economic growth. 

(Accept any other relevant and correct response)

Activity 5

5.1. Study the extract bellow and answer the questions that follow:

DOES THE ECONOMY HAVE ROOM FOR EXPANSION?

An economy’s ability to grow can be constrained by factors that limit its ability to produce goods and services and “supply
side “ factors like poor infrastructure or a lack of education .It can also be constrained by lack of funds to purchase the
goods and services it does produce – demand side factors.

Source: www.wits.ac.za

5.1.1. Identify any one policy in which the new economic paradigm is embedded. (1)

Supply-side policy / demand-side policy

5.1.2 Name the government department that is responsible for controlling government spending. (1)
Department of finance / Treasury

5.1.3 Briefly describe the term business cycle. (2)

The business cycle refers to the natural fluctuations in economic activity over time, characterized by periods of
expansion, peak, contraction, and trough. During expansion, the economy grows with increasing output,
employment, and consumer spending. Contraction, on the other hand, involves declining economic activity,
reduced spending, and higher unemployment, eventually leading to a trough before the cycle begins anew with
another expansion. 

(Accept any other relevant and correct response)

5.1.4 Explain the shortage of skilled workers as a factor that limits supply. (2)
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  A shortage of skilled workers limits the ability of businesses to operate at full capacity, restricting the overall
supply of goods and services. 
 Scarcity of skilled labor drives up wages and costs for businesses, potentially leading to reduced profitability and
higher prices for consumers. 
 Limited access to skilled workers can hinder innovation and the implementation of new technologies, affecting
productivity and growth. 
 Projects and operations may face delays due to the lack of qualified personnel, impacting supply chains and the
timely delivery of products and services. 

(Accept any other relevant and correct response)

5.1.5 How can open market transactions be used to smooth out business cycles? (4)

 Open market transactions, such as buying or selling government securities, allow central banks to adjust the
money supply, influencing interest rates and overall economic activity.
 By purchasing securities, central banks inject money into the economy, lowering interest rates and stimulating
demand during a downturn. Conversely, selling securities can reduce the money supply, cooling demand and
preventing overheating during an expansion.
 Open market operations help manage inflation by controlling the amount of money circulating in the economy,
thus stabilizing prices during different phases of the business cycle.
 By actively managing liquidity and interest rates through open market transactions, central banks can smooth out
economic fluctuations and maintain more stable growth throughout the business cycle. 

(Accept any other relevant and correct response)

Activity 6

6.1. Study the table below and answer the questions that follow.

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6.1.1 Identify the trend shown by GDP growth 2022 and 2023? (1)

Negative/ decreasing / downward

6.1.2 Provide the term that refers to the use of past data to predict the future. (1)

Extrapolation 

6.1.3 Briefly describe the term moving averages. (2)

Moving averages is a method of repeatedly calculating a series of different average values along a time series to
produce a smooth curve. 

(Accept any other relevant and correct response)

6.1.4 Explain the negative impact of prosperity phase on the economy. (2)

 During the prosperity phase, high demand for goods and services can lead to inflation, driving up prices and
eroding purchasing power. 
 Excessive economic growth can cause the economy to overheat, leading to unsustainable levels of investment
and potential asset bubbles. 
 Increased economic activity puts strain on resources, including labor and raw materials, potentially leading to
shortages and higher production costs. 
 Rising wages during prosperity can further fuel inflation, creating a wage-price spiral that can destabilize the
economy and lead to economic imbalances. 

(Accept any other relevant and correct response)

6.1.5 How can monetary policies to be used to smooth-out fluctuations on the business cycles? (4)

 The Reserve Bank can continually change the repo rate as a measure of influencing interest rates in the country
thereby stimulating or restricting the economy through loans. 
 The Reserve Bank can influence the supply of money by changing the compulsory percentage of deposits that
banks must keep as reserves therefore increasing or limiting the supply of money. 

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  The Reserve Bank can buy or sell state securities in the open market so the supply of money can be increased
or decreased. 
 The Reserve Bank can use a free-floating or managed floating to allow market forces or to intervene in the value
of currency. 

(Accept any other relevant and correct response)

Activity 7

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

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7.1.1 Identify the trend shown by the repo rate from 2022 to 2023 (1)

Increasing / positive 

7.1.2 Name the body responsible for setting interest rates. (1)

Monetary Policy Committee / MPC

7.1.3 Briefly describe the term economic forecasting. (2)

Economic forecasting is the process of making predictions about changing conditions and future events that may
affect the economy. 

(Accept any other relevant correct response)

7.1.4 What is the effect of an increase in interest rates on consumers? (2)

 An increase in interest rates raises the cost of borrowing, leading to higher monthly payments on loans and
mortgages for consumers. 
 With more money going towards interest payments, consumers have less disposable income available for
spending on goods and services. 
 Higher borrowing costs and reduced disposable income can lead to lower consumer spending, potentially
slowing economic growth. 
 Higher interest rates can encourage saving by offering better returns on savings accounts and investments,
which may further reduce consumer spending in the short term. 

(Accept any other relevant and correct response)

7.1.5 How can a decrease in aggregate spending affect the economy? (2)
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  A decrease in aggregate spending lowers demand for goods and services, leading to reduced revenue for
businesses and potential cutbacks in production. 
 With lower demand, businesses may cut back on hiring or lay off workers, increasing unemployment rates and
further decreasing consumer spending. 
 Lower aggregate spending can lead to a slowdown in economic growth, potentially causing a recession if the
decrease is significant and prolonged. 
 Reduced consumer spending can lead to decreased business investment in expansion and innovation, further
stifling economic growth and development.

(Accept any relevant correct response)

Activity 8

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

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8.1.1 Provide the term for the business cycle depicted above. (1)
The real business cycle. 
8.1.2 Provide the term for the distance between two peaks or two troughs in a business cycle. (1)
Length
8.1.3. Briefly describe the term real or actual business cycle. (2)
A real business cycle is obtained when the effect of seasons, irregular events and the long-term trend are
removed from the time series data. 
(Accept any relevant correct response)

8.1.4. Why is it important to measure the amplitude of a business cycle? (2)

 Measuring the amplitude of a business cycle helps quantify the extent of economic fluctuations, providing insight
into the severity of expansions and contractions. 
 Accurate measurement of cycle amplitudes enables policymakers to implement appropriate fiscal and monetary
policies to mitigate the effects of economic extremes. 
 Knowing the amplitude helps businesses and investors assess the risks associated with economic volatility,
aiding in strategic planning and risk management. 
 Understanding the amplitude of past cycles improves the accuracy of economic forecasts, helping to anticipate
future economic conditions and adjust strategies accordingly. 
(Accept any relevant correct response)

8.1.5 How will the prosperity phase impact the economy of a country? (4)
 During the prosperity phase, the economy experiences robust growth, characterized by high levels of output,
employment, and consumer spending. 
 Businesses are more likely to invest in expansion and innovation due to optimistic economic conditions and
increased profitability. 
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  Prosperity leads to higher wages and more job opportunities, boosting overall income levels and improving living
standards. 
 The strong demand for goods and services can lead to inflation, driving up prices and potentially eroding
purchasing power if not managed carefully. 

(Accept any relevant correct response)

Activity 9
9.1. Study the picture below and answer the questions that follow.

9.1.1. Which economic phenomenon does the above picture relate to? (1)
The new economic paradigm. 
9.1.2. Identify any one demand-side policy from the picture above. (1)
Fiscal / monetary policy
9.1.3. Briefly describe the term natural rate of unemployment. (2)
The natural rate of unemployment is the level of unemployment (or in the obverse) employment which does
not cause inflation. 
9.1.4. Explain the shortcomings of demand-side policies in achieving economic growth. (2)

 Demand-side policies, such as increased government spending or tax cuts, often provide short-term boosts
to economic activity but may not address underlying structural issues in the economy. 
 Excessive demand stimulation can lead to inflationary pressures, potentially causing price increases that
erode consumer purchasing power and destabilize the economy. 
 Increased government spending can lead to higher interest rates, which may crowd out private investment
by making borrowing more expensive for businesses. 
 Persistent use of demand-side policies can lead to higher public debt and fiscal deficits, creating long-term
budget constraints and potentially limiting future policy options. 

9.1.5. How can reduction of costs be used as a supply-side measure? (4)

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  Reducing costs for businesses through measures like tax incentives or subsidies can increase profitability,
enabling firms to invest more in growth and expansion. 
 Lower operational costs allow businesses to produce more goods and services at a lower price, increasing
overall supply in the economy. 
 Cost reductions can free up resources for reinvestment in technology, research, and development, leading
to improved productivity and innovation. 
 By lowering costs, businesses can offer more competitive prices, potentially capturing a larger market share
and driving economic growth. 

Activity 10
10.1 Study the graph below and answer the questions that follow.

10.1.1 Identify the original equilibrium price. (1)

P1
10.1.2 Give a formula to calculate aggregate demand for closed economy. (1)
C+I+G
10.1.3. Briefly describe the term new economic paradigm. (2)
New economic paradigm is the use of both demand-side and supply-side policies to increase economic growth
without causing inflation. 
10.1.4. Explain the effect of an increase in demand from AD to AD2 on the economy. (2)
An increase in AD will increase price levels and cause inflation. 
AD will exceed AS and therefore prices will increase. 
10.1.5. Redraw the graph in your ANSWER BOOK and complete it to show the effect of demand and supply side
policies in smoothing business cycle. (4)

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Activity 11

11.1 Briefly discuss depression phase and recovery phase as phases of business cycle. (4x2) ( 8)

Depression

The period of depression is a further contraction of economic activity that continues after a recession. 

Depression phase is the last phase of the contraction of economic activity. 

During a period of depression, there is a high degree of pessimism before the economy reaches a trough. 

Little or no investment takes place during a depression phase thereby lowering the production levels, income
and spending. 

When the economic activity is at its lowest, the economy reaches a trough (lowest turning point) 

(Accept any other relevant and correct response)

Recovery

The period of recovery begins after the economy reaches a trough. 

It is the first part of the expansion phase (upswing) where economic activity will start to increase. 

Business confidence increases, business start to invest more and more job opportunities are created. 

Households will receive more income and will thus spend more thereby increasing productivity. 

The real GDP increases, and the country is in an expansion phase. 

(Accept any other relevant and correct response)

11.2 How can aggregate supply be increased in the economy? (8)

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  Increased investment in infrastructure, such as transportation and utilities, enhances production efficiency and
expands the economy's capacity to supply goods and services. 
 Encouraging research and development can lead to technological advancements, improving productivity and
increasing aggregate supply. 
 Investing in education and training improves the skills of the workforce, boosting productivity and expanding the
economy’s productive potential. 
 Implementing policies that reduce regulatory burdens, lower taxes, and provide incentives for investment can
enhance business efficiency and encourage higher levels of production. 

Activity 12 [ESSAY]

12.1 Discuss in detail the new economic paradigm in smoothing of the business cycle. (26)
12.2 How exogenous factors influence the economy? (10)

(REFER TO LAST PUSH REVISION DOCUMENT 2023)

Activity 13 [ESSAY]

13.1 Discuss in detail the features underpinning the forecasting of the business cycle. (26)

(REFER TO WINTER CLASSES REVISION DOCUMENT 2024)

13.2 Analyze the supply-side policies used in South Africa. (10)
 Various industrial development initiatives were developed in South Africa including regional development
endeavours such as SDIs, IDZS and SEZs.
 different kinds of incentives are operational in South Africa to encourage investment and entrepreneurship.
 The government established SETAS to develop a more skilled workforce.
 SAWS provides weather forecasts, CSIR, HSRC and SSA provide research and statistical information to
businesses, reducing their costs and helping them make informed decisions.
 South Africa invited British Airways to compete with SAA and established the competition commission,
tribunal, and appeal court to increase competition and efficiency in the economy.
 Depreciation allowances are subtracted from profits before taxes and capital equipment is written -off
regularly to keep up with new technology.

(10)

[40]

PUBLIC SECTOR

ACTIVITY 1

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1.1 Various options are provided as possible answers to the following questions. Choose the answer and write only
letter (A - D) next to the question numbers (1.1.1 to 1.1.5) in the ANSWER BOOK, e.g. 1.1.6 A
1.1.1 The government selling of more than 50% of the shares of its enterprise to the private sector is called…
A nationalisation
B parastatals
C privatisation 
D tendering
1.1.2 The goods that excludes the free riders by levying fees is called…goods.
A merit
B collective 
C community
D public
1.1.3 The part of the economy that is made up of entities that the government owns and control is called….
A private sector
B primary sector
C public goods
D public sector 
1.1.4 The people in lower income group pay higher tax in proportion to their income than those in higher
income groups.
A regressive tax 
B proportional tax
C progressive tax
D sin tax
1.1.5 It occurs when the public sector is not efficient in the allocation and use of resources.
A ineffectiveness
B efficiency
C inefficiency 
D productive (5x2) (10)

1.2 Choose a description from COLUMN B that matches the item in COLUMN A. Write only the letter (A – F) next to
the question numbers (1.2.1 to 1.2.5) in the ANSWER BOOK, e.g. 1.2.6 H,

COLUMN A COLUMN B
1.2.1 Bureaucracy E A. It is used to promote spending on national
1.2.2 Accountability priorities to compensate provinces for providing

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 1.2.3 Budget C services beyond boundaries.
1.2.4 Conditional grants B. Document showing anticipated revenue and
1.2.5 Free riders B estimated expenditure.
C. The requirement when one give explanation of his
A or her decisions or actions.
D. An individual who enjoys the benefit of a good
D without paying for it.
E. Official rules and procedures at the cost of quality
services.
F. The exploitation of position for personal gain.
(5x1) (5)
1.3 Give ONE term for each of the following descriptions. Write only the term next to the question numbers (1.3.1 to
1.3.5) in the ANSWER BOOK. Abbreviations, acronyms and examples will NOT be accepted.
1.3.1 It occurs when people who are actively looking for work are able to find jobs or create jobs for
themselves,
Full employment 
1.3.2 Goods that are deemed to be socially harmful.
Demerit 
1.3.3 Attempts by interest groups to influence government behaviour to their advantage.
Rent seeking 
1.3.4 A condition when it is impossible to make someone better off without making someone worse off.
Pareto efficiency 
1.3.5 The failure by the government to allocate the resources optimally.
Public sector failure 

SECTION B

ACTIVITY 2
2.1.1 Name any TWO taxes on goods and services. (2x1) (2)
Value Added Tax 
Excise duty 
Import duty 
(Accept any other relevant correct answer)
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2.1.2 How will the eradication of corruption of SOE’s benefit the economy? (2)

 Eradicating corruption in State-Owned Enterprises (SOEs) leads to more efficient operations and better resource
management, enhancing overall productivity. 
 A corruption-free environment attracts both domestic and foreign investors by ensuring that business practices
are transparent and fair. 
 Eliminating corruption reduces the costs associated with bribery and fraud, resulting in more cost-effective
operations and lower prices for consumers. 
 Reducing corruption fosters greater public trust in government and SOEs, leading to more effective policy
implementation and stronger economic stability. 

(Accept any other relevant correct answer)

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

THE PRIVATISATION AND RESTRUCTURING PROGRAMME IN SOUTH AFRICA

The South African approach to privatisation has been one of restructuring of state-owned enterprises
(SOEs). The goals of restructuring have been to reduce government borrowing requirements and to
extend private ownership to historically disadvantaged groups.

However, little has been achieved as manufacturing efforts have been slow and reluctant.
Source: May/June Economics P1

2.2.1 Identify a term that refers to parastatals. (1)

State-owned enterprises (SOEs) 
2.2.2 Give ONE feature of public sector failure. (1)
Ineffectiveness 
Inefficiency 
2.2.3 Briefly describe the term nationalisation. (2)
Transfer of functions and ownership of entities from the private sector to the public sector.
(Accept any other relevant correct answer)

2.2.4 Why is it important for the government to remain in control of key input sectors such as energy and
transport? (2)

 Government control over key input sectors like energy and transport ensures strategic management of
essential resources, maintaining stability and security in the economy.

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  Government oversight helps regulate prices and quality, preventing monopolistic practices and ensuring
fair access and competitive markets.
 Government involvement is crucial for long-term infrastructure planning and investment, which supports
economic growth and development.
 Keeping control of vital sectors allows the government to prioritize public welfare and address societal
needs, such as affordable energy and efficient transportation systems.

(Accept any other relevant correct answer)

2.2.5 How can the South African government benefit from the privatisation of the state-owned enterprises
(SOEs)? (2x2) (4)

 Privatization of SOEs can generate significant revenue for the government through the sale of assets,
which can be used to reduce public debt or invest in other priority areas. 
 Private sector management often leads to increased operational efficiency and profitability, as private
firms are driven by market competition and profit incentives. 
 Privatizing SOEs can reduce the financial burden on the government by transferring the costs and risks
associated with running these enterprises to private entities. 
 Private ownership can lead to improved service quality and innovation as businesses strive to meet
consumer demands and stay competitive in the market.

(Accept any other relevant correct answer)

ACTIVITY 3

3.1 Study the graph below and answer the questions that follow

SA's Taxation system

R20 000
(A)
R10 000
REVENUE
TAX

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O
10% 20% 30%
TAX RATE
3.1.1 Identify the tax rate that will give highest government revenue. (1)
20% 
3.1.2 Name the curve labeled A. (1)
Laffer curve 
3.1.3 Briefly describe the concept parastatals. (2)
Parastatals are state owned enterprises such as ESKOM. 
3.1.4 Explain the impact of an increase in tax on consumers. (2)
 An increase in taxes decreases consumers' disposable income, leaving them with less money to spend on
goods and services.
 With less disposable income, consumer spending declines, which can lead to reduced demand for products and
slower economic growth.
 Higher taxes may lead consumers to adjust their spending habits, prioritizing essential goods and services over
discretionary items.
 If businesses pass on higher taxes to consumers through increased prices, it can lead to inflationary pressures,
further impacting consumers' purchasing power. 
3.1.5 How can taxation be used to stimulate economic growth in South Africa? (4)
Taxation can be used to stimulate economic growth in South Africa by:

Providing tax incentives to export-driven producers to encourage establishment of new businesses for
exports.

Increasing the number of zero-rated products to enhance increased consumption. 

Keeping company tax (corporate tax) at a lower level in order to keep production costs low so that businesses
can produce more goods and services. 
Reducing the import duties on capital goods so that eventually would not impact negatively on domestic
prices. 
Reducing the tax rate for the foreign investors as an incentive of inward investment.

ACTIVITY 4

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

The Government Objective

To bring about faster economic growth, higher investment and greater
49 | P a glabour
e absorption. Focusing on key capabilities of people and the state.
Building a capable and developmental state.
Adapted from: www.google.com
4.1.1 Identify ONE South African government objective from the above extract. (1)

Economic growth 
4.1.2 Name any ONE fiscal policy instrument. (1)

Taxation 

Government Spending 

4.1.3 Briefly describe the term public sector. (2)

It is the body that governs and regulate he functioning of the economy in a country and plays paternal role in
providing its economy with its basic and important needs. 
4.1.4 Explain the necessity of public sector. (2)

 The public sector is essential for providing goods and services that are non-excludable and non-rivalrous, such
as national defense, public health, and education, which might not be efficiently supplied by the private sector.
 It ensures regulatory oversight and enforcement of standards to protect consumers, the environment, and
ensure fair market practices.
 The public sector plays a crucial role in stabilizing the economy through fiscal and monetary policies, helping to
manage economic fluctuations and reduce the impact of recessions.
 It helps address social inequalities by redistributing resources and providing support to disadvantaged and
vulnerable populations, promoting social welfare and cohesion. 

(Accept any relevant correct answer)

4.1.5 How can government improve efficiency of parastatals in South Africa? (4)

 Enforcing accountability from all personnel and stakeholders in the daily operations of the state. 
 Develop human resources through capacity building and training to existing staff as to develop sound work
ethics. 
 Allowing participation from the private sector through fostering Public-Private partnership. 
(Accept any relevant answer)

ACTIVITY 5

5.1 Study the cartoon below and answer the questions that follow:

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 Source: Google images
5.1.1 Identify a main source of government revenue in the cartoon above. (1)

Tax or Taxes

5.1.2 Name the government policy represented by the cartoon above. (1)

Fiscal Policy

5.1.3 Briefly describe the term merit goods. 2)

Are goods that are beneficial to society that every individual should these goods, for example health care. 

(Accept any other correct relevant response)

5.1.4 Why South African government spend the largest amount of budget in Education? (2)

 Investing in education is crucial for developing human capital, equipping individuals with skills and knowledge
essential for economic growth and productivity. 
 Education spending helps address social inequalities by providing equal opportunities for all citizens, promoting
upward mobility, and reducing poverty. 
 By improving education outcomes, the government aims to foster a skilled and innovative workforce, which is
vital for long-term economic development and competitiveness. 
 Adequate funding in education contributes to social stability by enhancing civic engagement and reducing crime
rates, creating a more informed and cohesive society. 

(Accept any other correct relevant response)

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5.1.5 How can public sector failure affect South Africans? (4)

 Public sector failure can lead to a decline in the quality of essential services, such as healthcare and education,
negatively impacting the well-being and opportunities for South Africans.
 Poorly managed public services can exacerbate social and economic inequalities, leaving disadvantaged
communities with inadequate access to vital resources and support.
 Failures in key public sector areas, like infrastructure and regulatory oversight, can disrupt economic activities,
leading to inefficiencies, higher costs, and decreased investor confidence.
 Public sector failures undermine trust in government institutions, leading to reduced civic engagement and
potentially fostering social unrest and political instability. 

(Accept any other correct relevant response)

ACTIVITY 6

6.1 Discuss the necessary of the public sector in the economy. (8)
The public sector provides community goods such as streetlights free-of-charge because free riders cannot be
excluded in their consumption.
The state supplies collective goods such as stadiums and parks for a user fee or charge to discourage abuse of
public goods by free riders.
The state uses subsidies to encourages the production and consumption of merit goods such as education and
healthcare because they are socially beneficial.
The government uses taxes to discourage production and consumption of demerit goods such as alcohol and
cigarettes because they are harmful to society.
The government assumes the role of the protector of the environment by formulating and imposing legislation
that will ensure its sustainability.
The government is responsible for managing the collective interests of its citizens.
Ensures a social and legislative environment in which individuals and businesses can pursue their own interests
to the maximum.
Applies suitable and credible economic policies in order to achieve internationally respected economic
objectives.
Promotes policies that ensure equal opportunities for all citizens.
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 (Accept any other relevant correct answer)

6.2 How does the South African government use fiscal policy to improve the standard of living? (8)
The South African government use fiscal policy to improve the standard of living in the country by:
Using tax revenue to pay social grants such as old age grant, child support grant and disability grants to improve
the standard of living for disadvantaged group.
Using progressive income tax system which aims to redistribute income by levying high tax rates to high income
earners and low tax rates to low-income earners.
Providing benefits in kind such as free basic health care and education to ensure that the standard of living for
the economically marginalised citizens improves.
Addressing the economic challenges of unemployment by extending unemployment grant of R350 to maintain a
better standard of living.
Providing temporary employment and sources of income through the expanded public works programmes,
Paying property subsidies to people earning less than R3500 per month for them to afford housing.
(Accept any other relevant correct answer)

6.3 Evaluate the impact of privatisation on the economy. (8)

Positive effect:
Economic efficiency and performance will improve thereby stimulating economic growth.
Additional income is generated from the sale of public assets which will help to reduce fiscal deficit and state
borrowing.
More foreign investments may be attracted to take over the responsibilities of the government in the
economy.
Economic participation will increase as private investments will be encouraged.
Administrative burden may be reduce allowing the government to focus on other activities such as infrastructure
development to promote economic growth.
The tax base will expand resulting in more tax revenue for the government.
Negative impact:
Privatised companies may charge high prices on goods and services to maximise their profits which may
contribute to high inflation.
Unemployment may increase as some workers may be retrenched during the privatisation process.
The cost of key input services such as energy and communication may increase resulting in high cost of doing
the business.
(Accept any other relevant correct answer)

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6.4 How can the South African government reduce the high unemployment rate? (8)
The government can improve the quality of labour by spending on scarce skills.
Subsidies can be given to producers with the aim of lowering costs and increasing employment.
The state can implement Expanded Public Works Programs with the aim of bringing development while creating
employment opportunities.
The government can source foreign direct investment where foreign companies invest by establishing new
companies in the country.
The government can implement policies such as GEAR which creates employment.
Tertiary industries like the tourism industry can be used to create immediate employment.
(Accept any other relevant correct answer)

6.5 How successful is the South African government in providing services to the public? (8)
The South African government is successful in providing services to the public because:
Investment on infrastructural development project has been made to improve the standard of living for the
citizens.
Provision of clean water, proper sanitation and cleaning services has been made to disadvantaged
communities.
Effort has been made to improve the overall efficiency of state organs and improved accountability so that funds
allocated to provide services will not be lost.
Job creation strategies like EPWP have been implemented while in turn providing for basic needs.
Emergency funds have been provided to bail out state owned enterprises and to improve their overall
efficiency.
Improvement in terms of community participation e.g. people’s parliament, ward committees, etc. are being
implemented.
(Accept any other relevant correct answer)

The South African government is unsuccessful in providing services to the public because:
Infrastructural development project has only covered a fraction of the country at the moment thus leaving some
of the rural areas underdeveloped.
Some areas are without clean water, proper sanitation and cleaning services which opens a development gap in
the country.
Inefficiency caused by incompetent civil servants, corruption, rent seeking, etc. hinder the service delivery by the
state organs.
Job creation strategies like EPWP can only provide jobs for a fraction of the country’s population.
Emergency funds to bail out state owned enterprises with the aim of improving their overall efficiency places a
heavy burden to the government.

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 Platforms for community participation are not open to each and every individual because of bureaucracy.
(Accept any other relevant correct answer)

TOPIC 4: INTERNATIONALA TRADE

BALANCE OF PAYMENT

ACTIVITIES

Activity 1

MULTIPLE CHOICE QUESTIONS

1.1 Various options are provided as possible answers to the following questions. Choose the answer and
write only the letter (A–D) next to the question numbers (1.1.1 to 1.1.5) in the ANSWER BOOK, e.g. 1.1.6
D.

1.1.1. The balance of payments account that record transactions related to exports and imports of goods and services
is known as the … Account. (2)
A. Financial
B. Current
C. Capital Transfer
D. Reserve

1.1.2. Investment contracts that base their value on the underlying assets, such as currencies and commodities, are
known as … (2)
A. other investments.
B. direct investments.
C. financial derivatives. 
D. portfolio investments.

1.1.3. The systematic record of all transactions of a country’s inhabitants with the rest of the world is known as
………… (2)
A. trade balance.
B. circular flow.
C. national budget.
D. balance of payment. 
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1.1.4. An account that record transactions related to assets and liabilities is known as ............. (2)
A. Reserve.
B. Financial 
C. Current
D. Capital Transfer

1.1.5. The buying of financial assets such as shares in companies on the stock exchange of another country is known
as …………. Investment. (2)
A. direct
B. other
C. portfolio
D. capital

1.2. Choose a description from COLUMN B that matches the item in COLUMN A. Write only the letter (A-I) next
to the question number (1.2.1.-1.2.5.) in the ANSWER BOOK.

Column A Answers Column B

1.2.1. Unrecorded transactions D A. buying of financial assets such as shares

on the stock exchange of another country

1.2.2. Direct Investment C B. The removal of government intervention in

trade flows on imports and exports.

1.2.3. Balance of payment F C. Acquisition of more than 10% shares in a

business.

1.2.4. Trade liberalisation B D. an item in the balance of payments that

caters for any omissions and errors

1.2.5. Portfolio investment A E. The type of exchange rate that is

determined by the forces of demand and
supply.

F. The record of all transactions of the

country with the rest of the world.

(5x1)5
1.3. Give ONE term for each of the following descriptions. Write only the term next to the question number
(1.3.1.-1.3.5.) in the ANSWER BOOK. Acronyms and abbreviations will NOT be accepted.

1.3.1 It records transaction that have no return in value from another country.

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 Capital transfer
1.3.2 The value of visible exports minus visible imports.
Trade balance / balance of trade
1.3.3 Visible and tangible goods that are sold to other countries.
Merchandise exports
1.3.4 The withdrawal of capital by company or country in another country.
Disinvestment
1.3.5 A financial instrument distributed among the member countries of the IMF.
Special drawings right (5x1) 5

ACTIVITY 2

2.1 Study the cartoon below and answer the questions that follows

2.1.1 Identify the balance of payment problem in the above cartoon. (1)
Trade deficit
4.1.3 Name the account in the balance of payment that is related to production, income and expenditure.
(1)
Current account
4.1.4 Briefly describe the term trade deficit.
(2)
Trade deficit it occurs when the visible exports are less than visible import. 
(Accept any relevant answer)
4.1.5 Explain the benefit of surplus on the current account of the balance of payment.
(2)
 Importing production inputs will be cheaper due to improved exchange rate.
 Production will be stimulated, and more employment opportunities will be created.
 Public debt to cover balance of payment problems will be reduce.
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 (Accept any relevant answer)

4.1.6 Why is it important to analyze the country’s balance of payment data?

(4)
 To provide detailed information about the supply and demand of the country’s currency.
 It can be used to evaluate the performance of the country in international economic competition.
 Indicate a country international payment gap that must be financed by the governments official reserve
transaction
(Accept any relevant answer)

ACTIVITY 3

3.1 Answer the following questions.

3.1.1. Name any TWO sub-accounts of the balance of payments (2)

Current account
Capital transfer account
Financial account 
3.1.2. What is the purpose of the reserve assets on the BOP? (2)
It is the financial capital held by the monetary authorities such SARB to finance the trading
Disequilibrium. 

3.2. Study the table below and answer the questions that follow
BALANCE OF PAYMENT (BOP)
THE FINANCIAL ACOOUNT
ITEM 2023(R million)
Net direct investment 32 367
Net portfolio investment -4688
Net financial derivatives -3465
Net other investment 9594
Reserve assets (SDR allowance) -35241
Balance on financial account -1433
Memo item:Balance on Financial A
Account ,excluding reserve assets

3.2.1 Identify the item that records an investment made in a specific asset with a fixed future value. (1)
Net financial derivatives
3.2.2 Name the item that caters for omissions and errors in the balance of payment (1)
Unrecorded transaction
3.2.3 Briefly describe the term portfolio investment (2)
The purchasing of financial assets such as shares on the stock exchange 
(Accept any relevant answer)
3.2.4 Explain the purpose of Special Drawing Right (SDR) allowances in BOP. (2)
 SDR allowances provide countries with supplementary international reserves, helping them meet balance of
payments needs without relying solely on foreign exchange reserves or borrowing. 
 They enhance global liquidity by distributing additional resources to member countries, which can be used to
stabilize their economies and support international trade. 

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  SDR allocations help countries adjust their external financial positions by providing a non-inflationary source of
funds that can ease pressure on domestic currencies. 
 By offering a mechanism for distributing reserve assets, SDRs help promote stability and confidence in the
international monetary system, particularly during times of economic stress. 

3.2.5 Use the information in the table above to calculate the balance on financial account(A).
Show ALL calculations (4)

ACTIVITY 3

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

4.1.1 Identify the economic concept that relate to ratio of export and import prices? (1)
Terms of trade 
4.1.2 Name a current account item for recording donations. (1)
Current transfer
4.1.3 Briefly describe the term Direct investment. (2)
An investment in fixed property or the acquisition of a significant (10% or more)
share in a business. 
(Accept any other correct relevant response)

4.1.4 Explain the benefit of surplus on the current account of the balance of payments (2)
 A surplus on the current account often leads to increased demand for the country’s currency, potentially
strengthening it against other currencies. 
 It indicates that a country is exporting more than it is importing, contributing to a positive trade balance, and
fostering domestic industry growth. 
 A current account surplus results in higher foreign exchange earnings, boosting the country’s foreign reserves
and enhancing financial stability. 
 Surpluses help reduce reliance on external borrowing, decreasing the country’s overall debt burden and
improving its creditworthiness and economic resilience. 
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 (Accept any other correct relevant response)
4.1.5 Use the figures in the extract above to calculate the trade balance.
Show ALL calculations. (4)
Trade Balance = merchandise exports + net gold export – merchandise imports
= 178.4bn – 158.3bn
= 20.1bn
ACTIVITY 5

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

Source: [ SARB, Quarterly Bulletin , June 2023]

5.1.1 Identify a quarter in which South Africa experienced a highest trade surplus. (1)
3rd of 2020
5.1.2 Name any other sub-account of the balance of payments. (1)
financial account 
capital account
5.1.3 Briefly describe the term Net gold exports. (2)
It records the income earned from the exportation of gold. 
(Accept any other correct relevant response)
5.1.4 Explain the impact of an increased in imports on economic growth. (2)
 Increased imports can lead to greater availability of goods and services, potentially enhancing consumer choice
and satisfaction, which can support economic growth. 
 A rise in imports relative to exports can lead to a trade deficit, which might negatively impact the country’s
balance of payments and strain economic growth. 
 Higher imports may put pressure on domestic industries by increasing competition, potentially leading to reduced
market share and profitability for local businesses. 
 Increased imports can drive demand for better infrastructure and logistics, prompting investments that may
stimulate economic growth through improved efficiency and productivity. 
(Accept any other correct relevant response)

5.1.5 How can a decrease in interest rates reduce the balance of payments? (4)

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  Lower interest rates make borrowing cheaper, which can increase domestic investment and consumption,
potentially leading to higher imports and worsening the balance of payments.
 Reduced interest rates can lead to depreciation of the domestic currency, increasing the cost of imports and
potentially improving the balance of payments by making exports cheaper and more competitive.
 Lower interest rates may prompt capital outflows as investors seek higher returns elsewhere, leading to a
negative impact on the financial account of the balance of payments.
 With cheaper loans, consumers and businesses might spend more, potentially increasing demand for imported
goods and services, which can negatively affect the balance of payments. 
(Accept any other correct relevant response)
ACTIVITY 6

6.1 Study the table below and answer the questions that follow.

BALANCE OF PAYMENT
Current Account 2023
Merchandise exports 496 235
Net gold exports 31 756
Service receipts 64 524
Income receipts 62 853
Less: Merchandise imports 479 617
Less: Payment for services 88 456
(A) 103 188
Current transfers (net receipts) -11 708
Balance on current account -27 601
Memo item: Trade balance 48 374
Source: SARB Quarterly Bulletin

6.1.1 Identify the sub account that deals with short term credit and loans. (1)
Current account
6.1.2 Name the item (A) missing from the current account in the table above. (1)
Income payment 
6.1.3 Briefly describe the term merchandise imports. (2)
Merchandise imports refer to physical goods that are bought from the rest of the world. 
(Accept any other correct relevant answer)
6.1.4 Explain the reason for South African consumers importing products that are available on domestic markets.
(2)
 Imported products may be of better quality than local products.
 Imported products may be available at lower prices. 
(Accept any other correct relevant response)
6.1.5 How could natural disasters such as drought influence the South African trade balance? (4)
 South African consumers might find imported products cheaper than domestic alternatives due to lower
production costs abroad, making imports more attractive. 
 Imported goods may offer higher quality or a wider variety of products compared to what's available domestically,
appealing to consumers looking for specific features or brands. 
 Some consumers perceive imported products as more prestigious or desirable, leading them to prefer these
items over local options despite the availability of similar products domestically. 

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  The presence of imported goods can drive competition in the domestic market, encouraging local producers to
improve their offerings but also leading consumers to choose imports if they provide better value or innovation.

(Accept any other correct relevant response)

ACTIVITY 7
7.1. Study the extract below and answer the questions that follow

7.1.1 Identify the value of the trade balance deficit for January 2023 (1)
R23,05
7.1.2 Name the main account in the balance of payment that record transaction related to assets and liabilities. (1)
Financial account 
7.1.3 Briefly describe the term trade balance (2)
Trade balance is the difference between the export and import
(Accept any relevant and correct answer)
7.1.4 Explain managed exchange rates as a measure to correct disequilibria in the balance of payments. (2)
 Managed exchange rates involve the central bank intervening to stabilize the currency’s value, helping to correct
imbalances by preventing excessive fluctuations that could harm the balance of payments. 
 By adjusting the exchange rate through buying or selling foreign currencies, the central bank can influence the
competitiveness of exports and imports, addressing trade imbalances. 
 Managed rates help protect the currency from speculative attacks and sharp movements, maintaining investor
confidence and stability in the balance of payments. 
 This approach allows the government to align currency value with broader economic policies, aiding in the
correction of deficits or surpluses in the balance of payments by influencing trade and capital flows.
(Accept any relevant and correct answer)
7.1.5 How can a country gain a favorable trade balance? (4)
 Boosting exports by enhancing the competitiveness of domestic products through innovation, quality
improvements, and market expansion can improve the trade balance. 
 Implementing policies to reduce imports, such as tariffs, quotas, or encouraging the consumption of domestically
produced goods, can help to narrow the trade deficit. 
 Improving productivity and efficiency in key industries can lower production costs, making domestic goods more
competitive internationally and boosting export revenues. 
 Negotiating favorable trade agreements and forming strategic trade partnerships can open new markets for
exports while protecting key domestic industries from unfair competition..
(Accept any relevant and correct answer)

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ACTIVITY 8
8.1 Study the extract and answer the questions that follow

8.1.1 Identify the account of balance of payment in the above extract, (1)
Current Account

8.1.2 Which institution helps countries with balance of payment problem? (1)
International Monetary Fund (IMF) 

8.1.3 Briefly explain the concept exchange rates. (2)

Exchange rate is a price at which one currency is expressed in terms of another currency.
Eg, $1 = R18

8.1.4 Explain the negative effect of deficit in the balance of payment in South African Economy? (2)
 A balance of payments deficit often leads to higher external debt as the country borrows to cover the shortfall,
increasing financial obligations and interest payments. 
 Persistent deficits can weaken the national currency, making imports more expensive and potentially causing
inflationary pressures. 
 A deficit depletes foreign exchange reserves, which can undermine the country’s ability to manage economic
shocks and stabilize the currency. 
 Ongoing balance of payments deficits can erode investor confidence, potentially leading to reduced foreign
investment and further economic instability. 
(Accept any relevant and correct answer)
8.1.5 How can interest rates be used to correct the balance of payment deficit. (4)
 Raising interest rates can attract foreign investment by offering higher returns on investments, improving the
financial account, and helping to offset the deficit. 
 Higher interest rates increase borrowing costs, which can reduce consumer and business spending on imports,
thereby improving the trade balance. 
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  Increased interest rates can lead to an appreciation of the domestic currency, making exports more expensive
but reducing the cost of imports and helping to correct the deficit. 
 Higher interest rates can incentivize domestic savings over consumption, decreasing the need for foreign
borrowing and reducing the deficit in the balance of payments. 
(Accept any relevant and correct response)

ACIVITY 9
9.1 Study the graph below and answer the questions that follow.

9,1,1 Identify the sub-account of the Balance of payment with the highest GDP during 2024. (1)
Capital account
9.1.2 Name one investment on the financial account. (1)
9.1.2.1 Net direct investment/ net financial derivative/ net portfolio investment 
9.1.3 Briefly describe the term Portfolio investments. (2)
 Portfolio investment refers to the purchase of financial assets such as shares on the stock exchange. 
(Accept any other correct relevant response)
9.1.4 Explain how the change in foreign reserves can positively influence the balance of payments (2)
 An increase in foreign reserves provides a buffer against economic shocks and helps stabilize the currency,
positively influencing the balance of payments by reducing volatility. 
 Higher reserves boost investor confidence by demonstrating the country’s ability to meet its international
obligations, potentially attracting more foreign investment. 
 With ample reserves, the central bank can manage and stabilize the currency’s value, making imports less costly
and exports more competitive, which can help correct trade imbalances. 
 Sufficient foreign reserves facilitate easier management of external debt repayments, reducing the need for
additional borrowing and improving the overall balance of payments. 
(Accept any other correct relevant response)

9.1.5 How can a negative Balance of payments affect the country’s economy? (4)
 A negative balance of payments can lead to higher external debt as the country borrows to finance the deficit,
increasing debt servicing costs and financial strain. 
 Persistent deficits can weaken the national currency, raising import costs, fueling inflation, and reducing the
purchasing power of consumers. 
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  A negative balance depletes foreign exchange reserves, limiting the country’s ability to manage economic
shocks and stabilize the currency. 
 A sustained negative balance of payments can erode investor confidence, leading to reduced foreign investment
and potentially worsening economic instability. 
(Accept any other correct relevant response

ACTIVITY 10
10.1 Study the cartoon below and answer the questions that follow.

10.1.1 Identify the statement that records the country’s transactions with the rest of the world (1)
Balance of payment 
10.1.2 Name one item relating outflow of funds from the current account (1)
Merchandise imports
Payment for services 
Income payments
10.1.3 Briefly describe the term Merchandise exports. (2)
Visible and tangible goods that are sold to other countries.
. (Accept any other correct and relevant answer)
10.1.4. Why is the unrecorded transactions entry important in the balance of payment? (2)
 The unrecorded transactions entry, or "errors and omissions" category, helps ensure that discrepancies in the
balance of payments are accounted for, providing a more accurate financial picture.
 It helps identify and correct discrepancies between recorded transactions and actual financial flows, improving
the reliability of the balance of payments data.
 Understanding these unrecorded transactions can provide insights into potential issues such as capital flight or
unreported trade, which can influence economic policy decisions.
 It ensures that the balance of payments adds up to zero, reflecting the fundamental accounting principle that all
transactions should be balanced with appropriate adjustments. 
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 (Accept any other correct and relevant answer)
10.1.5. How can export promotion be used achieve a surplus on the balance of payment? (4)
 Export promotion strategies, such as subsidies or tax incentives for exporters, can boost the volume and value
of goods sold abroad, leading to higher export revenues, and improving the balance of payments.
 By expanding into new international markets and enhancing the competitiveness of domestic products, export
promotion can increase market share and drive growth in export earnings.
 Promoting exports helps diversify the country’s revenue sources, reducing reliance on imports and balancing
the trade account to achieve a surplus.
 Increased export activity can stimulate economic growth by creating jobs, encouraging investment, and
generating additional income, which contributes positively to the balance of payments. 
(Accept any other relevant answers)

ACTIVITY 11
11.1 How can an increase in term of trade influence the South African economy? (8)
 An improvement in the terms of trade comes as a result of an increase in export prices or/and a decrease in
import prices. 
 An increase in export prices would increase economic welfare in the short term, as more revenue is earned with
the same/less expenditure on imports. 
 A decrease in import prices would result in less expenditure or less payments on imports in the short term. 
 An increase in exports will encourage development of the country’s industrial capacity 
 Increased exports may lead to an improvement of the Balance of Payments. 
(Accept any other correct relevant response)

11.2Explain the measures used to reduce a deficit on the balance of payment. (8)
• Borrowing money from the IMF. 
• Import substitution will reduce imports of goods because it will be produced in the country. 
• Export promotion will increase in aggregate supply and reduce prices. Exports are promoted through cheaper
prices. 
• Higher interest rates help to decrease spending on imports. 
• An increase in import tariffs and controls, although SA complies with policies of the WTO to reduce its import
controls. 
• Exchange control allows central banks to ration foreign exchange. 
• Reduction of foreign reserves by SARB to correct deficits if we adopted a managed floating exchange rate. 
• Changes in exchange rate, i.e., Currency depreciation/devaluation makes imports expensive (reduction) and
exports cheaper for foreign countries. 
• An increase in tax reduces disposable income which decreases demand in imports. 
(Accept any other correct relevant response)
11.3 Briefly discuss export promotion and import substitution as measures to reduce balance of payment
disequilibrium. (8)
Export promotion:
 To correct disequilibrium in the balance of payments, it is necessary that export should be increased
 Government may adopt export promotion programmers for this purpose
 Export promotion is applied to encourage the production of goods that can be exported.
 An export promotion programme includes subsidies, tax concessions to exporters, marketing facilities, incentives
for export, loan priories to the export sector under the credit policy of central bank. 
(2x2) 4
Import substitution:
 Import substitution steps may be taken to encourage the production of import substitution
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  Local production is encouraged, rather than importing goods from other countries
 Measures such as tariffs, quotas, physical control and exchange rate control should be taken to limit import. 
(2x2) (4)
(Accept any correct relevant response)
11.4 Briefly discuss direct investment and portfolio investment as sub-accounts of the financial account in the balance
of payment (8)
Direct investment:
 Foreign direct investment refers to investment in real estate (fixed property) and obtaining a mean share (10+) or
control such business. 
 Direct investment occurs when foreign parties invest in South Africa businesses, or when South Africa business
invest in foreign businesses
 When a foreign business invests in a South African business, this result in money flowing into a country. 
 When a South African business person invest in businesses in a foreign country, it results to money flowing out
of the country. 
(2x2) = 4
Portfolio investment:
 Refer to the buying of financial assets such as shares in companies on the stock exchange of another country.

 These investments are highly liquid, and their flows can be reserved at any time. 
 Portfolio investment money is also known as hot money
 The investors are only interested in the financial returns from investing in shares and not in the management of a
business. 
 When foreign people or businesses buy shares on JSE or government bond, this result in money flowing into the
country. (2x2) = 4
(Accept any correct relevant response)

FOREIGN EXCHANGE

ACTIVITY 1
1.1 Give the economic term or concept for each of the following descriptions
1.1.1 An increase in the price of a currency in terms of other currencies through market forces
Appreciation
1.1.2 The market engaged in buying and selling of foreign currencies
Foreign exchange market
1.1.3 Increase in the price of currency in terms another currency due to government intervention
Revaluation
1.1.4 Decrease in the value of currency due to demand and supply
Depreciation
1.1.5 Decrease in the value of the currency due to government

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 Devaluation
(1X5) (5)

ACTIVITY 2
2.1.1 Name any two reasons for the supply of foreign exchange rate. (2x1)
 Exporting goods
 Providing services to foreign countries
 Inflow of capital
 Expenditure on money by foreign tourists
2.1.2 How will appreciation of currency affect the balance of payment account?
 Appreciation of the currency makes domestic goods and services more expensive for foreign buyers,
potentially reducing export volumes and negatively impacting the trade balance.
 A stronger currency lowers the cost of imports, leading to increased import volumes and potentially worsening
the trade balance by widening the trade deficit.
 Appreciation can attract foreign investment by providing better returns for investors, positively impacting the
financial account of the balance of payments.
 While a stronger currency can help reduce import costs and curb inflation, it may also reduce overall economic
competitiveness, influencing the balance of payments in complex ways..
(Accept any other correct relevant response)

2.2 Study the graph and answer the questions that follow.

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2.2.1 Name the exchange rate system in the graph above. (1)
Free floating exchange rate.
2.2.2 Identify the foreign currency used in the market above. (1)
USA dollars 
2.2.3 Briefly describe the term devaluation (2)
It is a decrease in the value of a currency in terms of another due to deliberate action by the government 
(Accept any other correct relevant response)
2.2.4 What could the SARB do to strengthen the value of the rand against the dollar? (2)
 The South African Reserve Bank (SARB) could raise interest rates to attract foreign investment,

increasing demand for the rand and strengthening its value against the dollar. 

 SARB could directly buy rand and sell dollars in the foreign exchange market to increase the rand’s

value and stabilize its exchange rate. 

 Implementing policies that promote economic stability and growth can boost investor confidence,

leading to greater demand for the rand and strengthening its value. 

 Accumulating foreign exchange reserves can provide the SARB with more leverage to support the rand
and manage exchange rate fluctuations more effectively. 
(Accept any other correct relevant response)
2.2.5 Use the above graph to explain the effect of the increase in the supply of US dollars on the R/US$ exchange
rate. (4)
The initial exchange rate was $1 = R11 and the quantity of dollars was 40, An increase in the supply of
dollars from S to S1 led to the new exchange rate $1 = R10 and quantity of dollars at 50. 
The decrease in supply from S to S2 led to a new exchange rate $1 = R12 and quantity of dollars at 30

(Accept any correct relevant response)
ACTIVITY 3

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

USD/ZAR ANNUAL HISTORICAL EXCHANGE RATES

Year Average exchange rate
2019 US$1 = R13,26
2020 US$1= R14,49
2021 US$1= R16,46
2022 US$1= R14,80
2023 US$1 = R16,38
Source: STATS SA
3.1.1. Identify, in the table above, the year in which the value of the rand was the strongest. (1)
2019
3.1.2. Name the exchange rate system used in South Africa (1)
Free floating exchange rate system 
3.1.3. Briefly describe the term depreciation in relation to exchange rates. (2)
A decrease in the value of a currency in terms of another currency due to forces of demand
and supply. 
(Accept any other correct relevant response)
3.1.4. How can the government directly intervene in the foreign exchange market when the local
currency is undervalued? (2)
 The government can buy the undervalued local currency using its foreign exchange reserves,
increasing demand, and driving up its value. 
 By selling foreign currencies, the government reduces their availability, which can help increase
the value of the local currency. 
 The government can establish or adjust exchange rate policies and controls to stabilize and
support the value of the local currency. 
 By implementing economic reforms that improve economic fundamentals and investor confidence,
the government can indirectly support the currency's value and stabilize the foreign exchange
market. 
(Accept any other correct relevant response)

3.1.5. Draw a correctly labelled graph to show the effect of an increase in demand for US dollars in South
Africa. (4)

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 (10)

ACTIVITY 4

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

SOUTH AFRICA: TERMS OF TRADE 2022

Year Index of Index of Terms of trade
import prices export prices
2021 149 150 101
2022 140,7 152,2 108
2023 148.7 156.6 A
Adapted from : SARB Quartely bulletin

4.1.1 Identify from the table above the year in which the index of import prices were the lowest(1)
2022
4.1.2 What is the trend in the index of imports prices between 2021 and 2022 (1).
Decreasing 
4.1.3 Briefly describe the concept terms of trade (2)
Terms of trade refers to the ratio of import prices and export prices in terms of indexes 
4.1.4 How does a waek exchange impact on terms of trade?(2)
 A weak exchange rate makes foreign goods and services more expensive, leading to higher import
costs and worsening the terms of trade.
 The rise in import prices can contribute to domestic inflation, which further erodes purchasing power
and negatively affects the overall terms of trade.
 While a weak currency makes exports cheaper and more competitive abroad, it may not fully offset the
negative impact of higher import costs on the terms of trade.
 The deterioration in terms of trade due to higher import costs and potentially less favorable export
revenues can lead to a negative impact on the trade balance and overall economic stability..
4.1.5 Calculate the terms of trade for March 2023( A). Show all calculations(4)
Terms of trade= index of export/ index of imports x100
156,6/148 X100 
105,3 

ACTIVITY 5
5.1 Study the graph and answer the questions that follow.

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 ,0 3$ &7 2 ) 72 8 5 ,6 0 2 1 7+ ( 5 $ 1 ' ' 2 / / $ 5 ( ; &+ $ 1 * ( 5 $ 7(

5 ' LDJUDP $ 5 ' LDJUDP %

6

6 6

'
' '

4 XDQW
LW
\ RI5 DQG 4 XDQW
LW
\ RI' RO
ODUV
>$ GDSW
HGVRXUFH LQW
HUQHWLP DJHV@

5.1.1 Who manages exchange rate policies in South Africa? (1)

 The central bank / South African reserve Bank 
5.1.2 Which diagram above represents an increase in the number of tourists from the USA to South
Africa? (1)
 Diagram A
5.1.3. Briefly describe the term foreign exchange control (2)
 Foreign exchange control governs control taken by the South African Reserve Bank regarding the
purchase of foreign currency
 Restrictions applied by some governments to ban or limit the sale or purchase of the local
currency by foreigner.
(Accept any other correct relevant response)
5.1.4 How can SARB correct an undervalued currency? (2)
 SARB can raise interest rates to attract foreign investment, increasing demand for the local
currency and helping to correct its undervaluation. 
 The SARB can directly buy the local currency and sell foreign currencies in the forex market to
increase its value and stabilize the exchange rate. 
 Implementing tighter monetary policies can help control inflation and improve economic
fundamentals, which can support a stronger currency. 
 By promoting economic stability and fiscal discipline, SARB can boost investor confidence, leading
to increased demand for the local currency and addressing undervaluation.
5.1.5 Explain the impact on the rand if the number of tourists from South Africa to the USA decreases.
Use the information in the diagrams to prove your answer. (2X2) (4)
 A decrease in the number of tourists from South Africa to the USA will cause a decrease in the
demand for dollars, therefore the USA will decrease the supply of dollars to South Africa.
 The decreased number of tourists will shift the supply curve from S1 to S2.
 Consequently, the equilibrium quantity of the dollar will decrease from 16 to 12.
 The initial exchange rate was $: R16 at quantity 16 dollars, but the decrease in the demand for the
dollar increased the value of the dollar to $: R17 at quantity 12 for the dollar. 
 The exchange rate will rise as the rand depreciates against the dollar. 
(Accept any other correct and relevant response)

ACTIVITY 6

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 6.1 How will an increase in export prices and import prices affect the South African economy?(8)
An increase in export prices will:

Result in terms of trade improving.

Increase economic welfare because more revenue is earned with same expenditure.

However, over the long-term result in a decrease in sales volume depending on the price
elasticity of demand.
 It will result in welfare loss eventually.
An increase in import prices will:
 Result in terms of trade deteriorating.
 Decrease welfare because more resources were used to produce more units to finance the higher
cost of imports.
(Accept other relevant and correct answer)

6.2 Make use of a graph to explain how an increase in exports to the USA will affect the value of the rand.
(8)

 An increase in exports to the USA will lead to an increased demand for rand from D1 to D2
 The quantity of rand demanded increased from 50 to 52 bn.
 The price of rand in terms of dollar increases from .060 dollar per rand to .062 dollar per rand.
(Accept any other relevant and correct response)

ACTIVITY 7
7.1 Discuss in detail the reasons for international trade (Demand and Supply reasons).

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 INTRODUCTION
International trade involves the exchange of goods, services, and capital across international borders or
territories. The reasons behind international trade are rooted in both demand and supply factors, which drive
countries to engage in the exchange of goods and services.

Main Part

Supply-Side Reasons

1. Comparative Advantage:
Countries specialize in producing goods and services that they can produce more efficiently than other nations.
Even if one country is more efficient at producing all goods, it benefits from trading with others by focusing on
the goods it produces most efficiently.
Example: If Country A can produce wine more efficiently than textiles and Country B can produce textiles more
efficiently than wine, it makes sense for Country A to specialize in wine and trade for textiles from Country B.

2. Factor Endowments:
Countries have different natural resources, labor forces, capital, and technology. These differences determine
what a country can produce most efficiently.
Example: Oil-rich countries like Saudi Arabia specialize in the production and export of petroleum products,
while countries with abundant labor, like Bangladesh, focus on labour-intensive goods such as textiles.

3. Economies of Scale:
As production increases, the cost per unit of production decreases. Larger markets, through international trade,
allow producers to achieve economies of scale, lowering costs and increasing efficiency.
Example: A small country might not have a large enough domestic market to produce cars efficiently, but by
exporting, it can achieve the scale needed to make production cost-effective.

4. Technological Innovation:
Countries with advanced technology can produce new or more efficient products. By exporting these
technologies, they can take advantage of markets that do not yet have access to these innovations.
Example: Countries like Germany and Japan export high-tech machinery and automobiles, benefiting from
their technological advancements.

5. Access to Resources:
Some countries lack certain resources that are essential for production. International trade allows them to
import these resources.
Example: Japan imports large quantities of oil and raw materials to fuel its manufacturing sector, as it lacks
these resources domestically.

Demand-Side Reasons

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 1. Consumer Preferences:
Different consumers have different tastes and preferences, which can drive demand for foreign goods that are
not produced domestically.
Example: European consumers may demand tropical fruits like bananas and pineapples, which are not grown
in their climates, thus driving imports from tropical countries.

2. Diverse Product Availability:

Consumers often seek variety in the goods they consume. International trade allows for a greater variety of
products than would be available domestically.
Example: The demand for French wine, Italian cheese, and Japanese electronics in other countries is driven
by the desire for variety.

3. Price Differences:
Differences in production costs and pricing across countries lead to trade, as consumers and businesses seek
the lowest prices.
Example: Companies in the United States may import electronics from China due to lower production costs,
leading to lower retail prices for consumers.

4. Income and Economic Growth:

As countries grow economically and incomes rise, the demand for a wider range of goods and services
increases, including those from abroad.
Example: As China’s middle class has grown, there has been a significant increase in demand for luxury goods
from Europe and North America.

5. Cultural Influence and Branding:

Globalization and cultural exchange often create demand for foreign goods that carry cultural significance or
strong brand identity.
Example: The global popularity of brands like Coca-Cola, McDonald’s, and Apple reflects cultural influences
that drive demand across borders.

Conclusion
International trade is driven by a complex interplay of demand and supply factors. On the supply side,
differences in efficiency, resource availability, and economies of scale encourage countries to specialize and
trade. On the demand side, consumer preferences, income levels, and price differences create a need for
goods and services that may not be available or affordable domestically. Together, these factors ensure that
international trade remains a vital component of the global economy, fostering economic growth and
interdependence among nations.

ECONOMIC [PURSUITS]

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ACTIVITY 1

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

1.1.1 The policy that was introduced to increase employment, promote economic growth, and redistribute of
income is known as...

A. New Growth Path

B. Growth Employment and Redistribution

C. Reconstruction and Development Programme

D. Joint Initiative on Priority Skills Acquisition

1.1.2 The process whereby goods that were previously imported, are now replaced by local
manufacturing.

A. Import substitution
B. Protectionism
C. Monetary policy
D. Export promotion

1.1.3. The application of new scientific knowledge in the form of inventions and innovations is known as …

A. capital.

B. land.

C. labour.

D. technology

1.1.4 A trade protocol where member countries allow for the free movement of factors of production
between member countries is a (n) …

A economic union.
B customs union.
C free trade area.
D common market.

1.1.5 Goods sold in foreign markets at lower prices compared to domestic producers
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 A Economic growth
B Economic development
C Dumping
D Export promotion
1.1.6 An official state ban on trade with a particular country

A. tariffs
B. quota
C import substitute
D physical control

1.1.7 Spatial areas that offer a passageway to mining, manufacturing and other

Businesses are referred to as …

A. gateways.

B. corridors.

C. export processing zones.

D. Industrial development zones

1.1.8 A purpose-built industrial estate which is physically enclosed and linked to an

International port is a/an …

A. industrial development zone.

B Spatial Development Initiatives

C. industrial development community.

D. spatial area

(8X2) (16)

1.2 Choose a description from COLUMN B that matches with COLUMN A.

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Column A Column B

1.2.1 Globalisation I G. Refers to the world’s developed and developing

countries.

1.2.2 Protectionism and free trade K H. Payment of subsidies that are equal to import
duties.

1.2.3 Tariffs L I. The worldwide integration of economies, with

trade as an important element.

1.2.4 Trade neutrality H J. Focuses on using science and technology to

promote and expand industrialisation.

1.2.5 National Research and J K. Industrial development policies.

Development Strategy

1.2.6 Special economic zones H L. Rates paid to discourage imports.

1.2.7 Dumping N M. A geographically designated area that has been

set aside to develop specific economic activities.

1.2.8 Economic development O N. Selling goods in a foreign market at prices

that are below the cost of production in the
country of origin.

O. the process of improving the economic well-being

and quality of life for a community or nation.

(8X1) (8)

1.3 Give ONE term for each of the following descriptions.

1.3.1 A tract of land that forms a passageway which allows access from one area to another to promote regional
development.
Corrido
1.3.2 The processing of natural resources into finished products.
Manufacturing.
1.3.3 Restriction on the quantity of imports allowed into the country.
Import quotas
1.3.4 Policies that are aimed at increasing the economic livelihood of specific areas.
Regional development policies

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1.3.5 The total industrial capacity of an economy that is available for use.
Industrial base
1.3.6 A trade policy that promotes the production of goods domestically rather than importing them.
Import substitution

ACTIVITY 2

2.1 Study the cartoon below and answer the questions that follow

2.1.1 Identify the policy applied by the government on the cartoon above. (1)

Import substitution

2.1.2 Name the organization that promotes free trade. (1)

World trade organization

2.1.3 Briefly describe the term export promotion. (2)

 Export promotion refers to policies and strategies implemented by the government to encourage
production of goods and services with an intention to export.
2.1.4 Why does the government protect infant industries?
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  Protection helps infant industries develop and grow by shielding them from intense foreign
competition until they can achieve economies of scale and become competitive on their own.
 Protecting emerging industries can lead to job creation and stimulate economic activity within the
country, supporting overall economic development.
 It allows for the diversification of the economy by nurturing new sectors, reducing reliance on
established industries, and fostering innovation.
 Infant industries may be crucial for national security or long-term economic strategy, and protection
ensures they have time to become viable and contribute to the country’s strategic goals. Accept any
other correct relevant response)
2.1.5 How can the government use tariffs to correct the balance of payments deficit? (2X4)

 The government must increase tariffs on imported good and this can be done.at ad valorem
(based on the value) or specific to certain goods.

 Prices of imported goods increase for domestic consumers, and they tend to shift demand from
imports to domestic products (goods)

 The number of imports with decrease and this will have a favorable effect on the balance of
payment.

ACTIVITY 3

3.1 Study the cartoon below and answer the questions that follow

ITS TIME WE PUT OUR LOCAL PRODUCS FIRST!!!

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 Adapted from (www.economicscartons.com)

3.1.1 Identify one trade policy mentioned in the above cartoon. (1)

 Protectionism /Import substitution

3.1.2 Name the organization that seeks to promote globalization. (1)

 World trade organization

3.1.3 Briefly describe the term globalization. (2)

 Globalization is the process of increasing interconnectedness and interdependence among countries

through the exchange of goods, services, information, and cultural influences.
(Accept any other relevant answer)

3.1.4 What is the impact of protectionism on the economy? (2X2) (4)

Negative Impacts of Protectionism:

 It decreases the volume of international trade, leading to less variety and higher prices for
consumers.

 Bigger and more powerful countries may respond with their own protectionist measures,
harming exports and international trade relations.

Positive Impacts of Protectionism

 Protectionism can safeguard domestic jobs by protecting industries from foreign competition.

 New or emerging industries develop and grow by shielding them from international
competitors. This protects industries crucial for national security, ensuring they remain viable and
domestically controlled.

3.1.5 Why do developing countries face challenges when trading with developed countries? (2X2) (4)

 Developing countries often face higher tariffs, quotas, and non-tariff barriers imposed by
developed countries, making their goods less competitive.

 : Developed countries have stringent and high standards and regulations that can be difficult
and costly for developing countries to meet.

 Developing countries often lack the infrastructure, technology, and capital needed to compete
effectively with developed countries.

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ACTIVITY 4

4.1 Study the cartoon below and answer the questions that follow

4.1.1 Identify the trade policy implied by the cartoon above. (1)

Protectionism

4.1.2 Name one consequence of trade wars in the cartoon above. (1)

 Unemployment

 Corruption

 Industrial debt

4.1.3 Briefly describe the term free trade. (2)

 When producers and consumers are free to buy goods and services from anywhere in the world
without the interference of government
4.1.4 Explain economies of scale as an argument in favor of free trade. (4)

 Free trade allows businesses to scale up production and achieve economies of scale, leading to lower
average costs per unit as output increases.
 By accessing larger markets, firms can optimize their production processes, reduce waste, and
improve efficiency through specialization and division of labor.
 Exposure to international competition encourages firms to innovate and improve efficiency, further
driving down costs and benefiting consumers.
 Free trade enables firms to reach a wider customer base, allowing them to spread fixed costs over a
larger number of units and leverage their production capabilities more effectively. 

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4.1.5 How will export promotion disadvantage the South Africa’s economy? (2X2) (4)

 Export promotion can lead to a trade imbalance if it significantly increases imports relative to exports,
potentially worsening the balance of payments.
 Heavy reliance on export markets can make the economy vulnerable to global economic fluctuations
and changes in demand, leading to instability.
 Increased export activity may lead to currency appreciation, making domestic goods more expensive
for foreign buyers and potentially reducing competitiveness.
 Focus on export promotion may lead to overexploitation of natural resources and environmental
degradation, impacting long-term sustainability and domestic needs.
(Accept another and relevant response)

ACTIVITY 5

5.1 Study the cartoon below and answer the questions that follow

5.1.1 Identify one of the founding members of BRICS. (1)

 Brazil, Russia, India, China

5.1.1 Name one of the new members of the expanded BRICS nations (1)

 Egypt
 Ethiopia
 Iran,
 Saudi Arabia
 United Arab Emirates

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5.1.3 Briefly describe the term customs unions. (2)

 Customs unions are trade agreements between a group of countries that agree to eliminate tariffs and
other trade barriers on goods traded among them.
5.1.4 Explain the importance of the Southern Africa Development Community (SADC) trade policy. (4)

 The SADC trade policy promotes regional economic integration by reducing trade barriers and
fostering economic cooperation among member countries, enhancing regional stability and growth.
 By creating a larger, integrated market, the policy helps member states access new trading
opportunities and increase economic scale, benefiting businesses and consumers alike.
 The policy supports sustainable development and poverty reduction by encouraging investment,
improving infrastructure, and facilitating trade across borders.
 SADC member countries can collectively negotiate better trade terms and agreements with external
partners, strengthening their position in global trade negotiations.
(Accept any relevant answer)

5.1.5 How can South Africa benefit from being a member of BRICS? (2X2) (4)

 Membership in BRICS provides South Africa with access to new markets and trade opportunities
within a bloc of emerging economies, potentially boosting export revenues and diversifying trade
partners.
 South Africa can attract increased foreign investment from BRICS countries, leading to enhanced
economic growth, infrastructure development, and job creation.
 Participation in BRICS fosters economic collaboration and knowledge sharing, allowing South Africa
to benefit from best practices, technology transfers, and joint development projects.
 Being part of BRICS elevates South Africa's global standing and influence, enabling it to play a more
prominent role in international economic and political discussions.

ACTIVITY 6
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6.1 Study the cartoon below and answer the questions that follow

6.1.1 Identify South Africa’s trade partner in the African Growth and Opportunity in the extract above (1)

 United States of America

6.1.2 Name the international organization that was replaced by the World Trade Organisation(1)

 General agreement on tariffs and trade (GATT)

6.1.3 Briefly describe the term dumping. (2)

 Dumping refers to the practice of exporting goods at prices lower than their normal value or below
production costs in the country of origin.
6.1.4 Why is important for South Africa to protects its strategic industries? (2)

 Protecting strategic industries ensures that critical sectors, such as defense and energy, remain under
national control, safeguarding national security and sovereignty.
 By shielding key industries from foreign competition, South Africa can maintain economic stability
and protect essential services and resources crucial for national interests.
 Protecting strategic industries helps preserve jobs and supports local employment, contributing to
economic stability and social cohesion.
 It allows for the development and growth of strategic industries, fostering innovation and
strengthening the country’s economic foundation and global competitiveness.

6.1.5 How does export promotion benefit South African local industries? (2X2)

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 Successes of Export Promotion on Local Industries in South Africa

 South African businesses have gained entry to international markets, boosting exports, and expanding
their reach beyond domestic boundaries.

 Exposure to global markets has encouraged South African firms to improve quality, efficiency, and
innovation to meet international standards.

Unsuccessful Aspects of Export Promotion on Local Industries in South Africa

 Poor infrastructure and logistical issues have sometimes hampered the effectiveness of export
promotion, leading to delays and increased costs for businesses.

 Local industries often face high production costs due to factors like energy prices and labor costs,
which can make South African exports less competitive on the global stage.

ACTIVITY 7

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

7.1.1 Identify one trade protocol that South Africa is a part of in the above extract. (1)

 European Union
7.1.2 Name one method of import substitute used by the United States in the extract above. (1)

 Imposed tariffs
7.1.3 Briefly describe the term economies of scale. (2)

 Proportionate savings in cost gained by an increase level of production

7.1.4 Why is it important for that the government protect infant industries? (2)

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  Protecting infant industries gives them time to grow and develop without being overwhelmed by
established foreign competitors, allowing them to become competitive and sustainable in the long
term.
 Shielding new industries helps create and sustain jobs, contributing to economic development and
reducing unemployment in emerging sectors.
 Protection provides a stable environment that encourages both domestic and foreign investment,
fostering industry growth and innovation.
 It supports the diversification of the economy by helping new industries establish themselves,
reducing reliance on traditional sectors and promoting a more balanced economic structure.

7.1.5 How can the government improve the competitiveness of the South Africa’s manufacturing sector?
(2X2) (4)

The government can improve the competitiveness of the manufacturing sector by:

 Creating a conducive environment through policy making to attract foreign direct investment
which will diversify the local industrial base so to achieve export led economic growth

 Use financial incentives such as duty-free incentives and tax rebates to attract investors into
the manufacturing sector

 Ensure proper support and establishment of public private partnerships by providing the
adequate social and economic infrastructure to support manufacturing

ACTIVITY 8
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8.1 Study the extract below and answer the questions that follow:

8.1.1 Identify the trade policy that was applied by the national treasury in the extract above. (1)

 Import substitution
8.1.2 Name ONE country that imports cheaper cement into South Africa. (1)

 Pakistan, China, and Vietnam

8.1.3 Briefly describe the term terms of trade. (2)

 Terms of trade refer to the ratio at which one country's goods are exchanged for those of another
country, reflecting the relative value of exports to imports.

 THE TERMS OF TRADE ARE often used to assess the economic health and trade performance
of a country by indicating whether its export prices are rising or falling compared to its import
prices.

8.1.4 Why is import substitution important for the country’s economy? (2X2) (4)

 Import substitution reduces reliance on foreign goods by encouraging the production of domestic
alternatives, enhancing economic self-sufficiency and resilience.
 It stimulates the growth of local industries by protecting them from international competition, fostering
job creation and investment in new sectors.
 By substituting imports with domestic products, the country can improve its trade balance and reduce
the outflow of foreign currency, strengthening the economy.

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  Import substitution encourages innovation and technological advancement as domestic producers seek
to improve quality and efficiency to compete with imported goods.

8.1.5 How successful is South African import substitute trade policy. (2X4) (8)

South African import substitute trade policy has been successful on the following:

 Import substitution has helped diversify the South African economy by encouraging the development
of local industries to reduce dependency on imported goods.

 The policy has created jobs by fostering the growth of domestic manufacturing sectors, although the
quality and sustainability of these jobs vary.

South African import substitute trade policy has been unsuccessful on the following:

 Limited exposure to global competition has sometimes led to stagnation in innovation and
technological advancement within protected industries.
 While initially successful in developing certain industries, import substitution has often resulted in
economic inefficiencies and resource misallocation, hindering long-term economic growth
ACTIVITY 9

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

Source: Stats SA

9.1.1 Identify one industrial development zone from KwaZulu Natal in the above extract. (1)

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  Richards Bay IDZ
9.1.2 Name the industrial development zone that has created most jobs in the picture above. (1)

 Coaga IDZ
9.1.3 Briefly describe the term corridor. (2)

 A corridor is a track of land that forms a passageway allowing access from one area to another and is
developed as part of regional development.
9.1.4 Why are Industrial Development Zones important for economic growth and development?
(2X2) (4)

 Industrial Development Zones create favorable conditions for foreign investors, bringing in capital,
technology, and expertise that boost local industries.

 Industrial Development Zones generate employment opportunities, reducing unemployment and

improving living standards.

 Industrial Development Zones help diversify the economy by encouraging the development of
various industries, reducing reliance on a few sectors.

(Accept any other relevant and correct response)

9.1.5 How can the government promote business activities in the IDZ? (2X2) (4)

 : Provide financial incentives such as tax breaks, grants, and subsidies to attract and support
businesses operating within the Industrial Development Zone (IDZ).

 Invest in essential infrastructure such as transportation, utilities, and communication networks to

enhance the efficiency and attractiveness of the IDZ.

 The government can simplify and expedite regulatory processes to reduce bureaucratic hurdles and
facilitate easier setup and operation of businesses within the IDZ.

(Accept any other relevant and correct response)

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ACTIVITY 10

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

10.1.1 Name the financial incentive that can encourage China to invest in South Africa (1)

 Foreign investment grant

10.1.2. Identify the percentage of China’s funding directed to mining (2)

 7.7%
10.1.3Briefly describe the term industrial development (2)
 Policies that are aimed at the encouragement of industrial investment and greater industrial efficiency
10.1.4 Explain the importance of regional development in South Africa (2)
 Regional development promotes more equitable distribution of economic opportunities and resources
across the country, helping to address disparities between developed and underdeveloped areas.
 It stimulates economic activity in less developed regions, leading to job creation and improved living
standards, which can reduce poverty and inequality.
 Regional development often involves investing in infrastructure such as transport, education, and
healthcare, enhancing overall regional connectivity and quality of life.
 It supports the diversification of local economies by developing new industries and sectors, reducing
dependence on traditional economic activities and fostering sustainable growth.

10.1.5 How can the National research and development strategy promote regional development?
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 (2x2) (4)

 The National research and development strategy gives information on new emerging markets which
improves the competitiveness of the South African manufacturing centre
 The strategy sets out activities aimed at creating a business development strategy by which new products
and new forms of old products are brought into being through technological innovation.
 By creating long term value for the countries manufacturing sector by adapting emerging technology
into future products that capture new customers segments
10.2 Evaluate the potential success of special economic zones (SEZ) in South Africa. (2X4) (8)

 Special Economic Zones (SEZs) in South Africa can attract FDI by offering incentives such as tax
breaks, streamlined regulations, and infrastructure support, drawing in international businesses.

 SEZs can play a crucial role in accelerating industrialization by clustering industries, promoting
economies of scale, and fostering innovation and technological advancement.

 The establishment of SEZs can lead to significant job creation, providing employment opportunities
in various sectors, from manufacturing to services, thus reducing unemployment rates.

 By focusing on export-oriented industries, SEZs can enhance South Africa's export capabilities,
contributing to a positive trade balance and economic growth.

 SEZs can stimulate economic development in less developed regions, reducing regional disparities
and contributing to balanced economic growth across the country. However, challenges such as
infrastructure deficits and policy consistency need to be addressed for sustained success.

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ACTIVITY 11

11.1 Study the extract below and answer the questions that follow

11.1.1 Identify the South African Industrial development policy in the extract above. (1)

 IPAP
11.1.2 Name one benefit of increased investment in industrial development. (1)

 Arrest the decline in manufacturing

 Accelerate employment creation
11.1.3 Briefly describe the term Integrated Manufacturing Strategy (IMS). (2)

 A strategy to strengthen institutional capacity to deliver services that will facilitate development
11.1.4 Why are tax incentives important for industrial development? (2)

 Tax incentives make the country more appealing to investors by reducing the cost of doing business,
thereby attracting both domestic and foreign investment.
 They encourage businesses to expand and invest in new technologies or facilities, which drives
industrial growth and contributes to overall economic development.
 By offering tax breaks for research and development, these incentives promote innovation and
technological advancement within industries.

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  Industrial development supported by tax incentives leads to job creation, which helps reduce
unemployment and stimulate economic activity in the region.

11.1.5 How can IPAP benefit the economy besides job creation? (2X2) (4)

 IPAP (Industrial Policy Action Plan) can improve the competitiveness of local industries by
supporting innovation, upgrading technology, and increasing productivity.
 By promoting various industrial sectors, IPAP helps diversify the economy, reducing reliance on a
few industries and fostering sustainable growth.
 IPAP can boost the export potential of local industries by enhancing product quality and market
access, improving the trade balance and foreign exchange earnings.
 The plan often involves investments in infrastructure and logistics, which can improve overall
economic efficiency and support further industrial and economic development.

ACTIVITY 12

12.1 Study the graph below and answer the questions

12.1.1 Identify the period in which South Africa experienced high growth rate. (1)

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  2021-Q2
12.1.2 Name ONE institution that publishes economic indicators in South Africa. (1)

 South African Reserve Bank (SARB)

12.1.3 Briefly describe the term social indicator. (2)

 Social indicators are set of indicators that measure progress towards the policy objectives designed
for promoting employment, combating poverty, improving living, and working conditions, combating
exclusion, developing human resources, etc.
12.1.4 Explain the impact of negative growth on employment. (2)

 Negative growth often leads to decreased business revenues, causing companies to reduce hiring
or halt it altogether.

 Companies may lay off employees to cut costs, leading to higher unemployment rates.

 Businesses may reduce working hours, cut benefits, or offer lower wages to maintain profitability.

12.1.5 How can the government improve the quality of South African labor force? (2X2) (4)

 Enhance the education system and provide vocational training programs to equip the workforce
with relevant skills.

 Encourage studies in science, technology, engineering, and mathematics to meet the demands of a
modern economy.

 Provide incentives and support for startups and small businesses to create new job opportunities
and foster innovation.

 Implement policies that promote fair labor practices, improve working conditions, and support job
security.

(Accept…

12.2 Briefly discuss subsidies and incentives as methods of export promotion. (2X4 (8)

Subsidies:

 It is a financial assistance given to a producer with an a of increasing production of goods and

services targeted for exports. For example, cash payments to producers such as tax rebates.

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  Subsidies lower production costs for domestic companies, enabling them to offer competitive prices
in international markets.

 Subsidies reducescosts, subsidies help domestic firms enter and expand in foreign markets, increasing
their global market share.

Incentives:

 Incentives is the non-financial assistance given to a producer with an aim of increasing production of
goods and services targeted for exports. For example, concessions on transport charges, export credit
and export credit guarantees, any publicity, etc. .

 Incentives can also include support services like marketing assistance, trade missions, and access to
export information and networks.

12.3 Evaluate South Africa’s regional development policies in terms of the international benchmark
criteria. (4X2) (8)

 South Africa has invested in infrastructure projects in key economic zones, aligning with international
benchmarks for improving accessibility and connectivity.

 The country aims to diversify its economy by promoting various sectors, though challenges remain in
fully achieving this compared to international standards.

 South Africa has implemented policies to support small and medium-sized enterprises (SMEs), like
global best practices, but the effectiveness of these policies can vary.

 : Efforts to improve education and skill development are underway, yet South Africa still behind in
meeting international benchmarks in terms of quality and access.

 While there are policies aimed at reducing inequality and promoting inclusive growth, South Africa
continues to face significant disparities compared to global standards.

13 Evaluate the success of Broad-Based Black Economic Empowerment (BBBEE) in the South African
economy. (2X4) (8)

Successes of Broad-Based Black Economic Empowerment (BBBEE):

 BBBEE has facilitated greater inclusion of previously marginalized black South Africans in the
economy, providing opportunities for ownership and management positions.
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  It has led to increased investment in education and training programs, enhancing the skills and
capabilities of the black workforce.

 BBBEE policies have supported the growth of black-owned businesses through access to finance,
mentorship, and procurement opportunities.

 Encouraged larger corporations to form partnerships and joint ventures with black-owned businesses,
providing market access and growth opportunities.

 : Contributed to social stability and cohesion by addressing historical injustices and promoting a more
equitable distribution of economic resources.

Failures of Broad-Based Black Economic Empowerment (BBBEE):

 Despite the policy, economic inequality remains high, with wealth and opportunities still concentrated
among small elite.

 Inconsistent and sometimes inefficient implementation has led to loopholes and exploitation,
undermining the policy's objectives.

 Benefits have not always reached the intended broader base, often favoring politically connected
individuals and established businesses.

 Some argue that BBBEE has created market distortions, such as "fronting" (misrepresentation of
black ownership) and undue emphasis on compliance over competitiveness.

 Perceived complexity and costs associated with compliance have deterred some potential investors,
potentially impacting economic growth.

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Activity 14

14.1 Study the picture below and answer the questions.

14.1.1 Identify the economic concept representated in the cartoon above

 North –South divide

14.1.2. Name one country that forms part of the G8

 United States of America

 Canada
 France
 Italy
 Germany
 Japan
 United Kingdom
14.1.3 Briefly describe the term land restitution

 Land restitution refers to the return of land to those that were disposed due to apartheid laws
14.1.4 Why is South Africa regarded as one of the world’s biggest polluters?

 South Africa's extensive industrial activities, particularly in mining and manufacturing, contribute
significantly to air and water pollution.
 The country's reliance on coal for energy production results in high carbon emissions, contributing to
global climate change and local air quality issues.
 Historically, weaker environmental regulations and enforcement have allowed higher levels of
pollution from industries and inadequate waste management practices.

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  Rapid economic growth and development pressures often lead to prioritizing economic benefits over
environmental protection, resulting in increased pollution levels.
14.1.5 How do countries in the North contribute to the destruction of the environment? (2X2(4)
 Countries in the Global North have high consumption rates, leading to significant waste generation
and resource depletion, often at unsustainable levels.

 Industrial activities, transportation, and energy production in these countries contribute

disproportionately to global greenhouse gas emissions, driving climate change and environmental
degradation.

 : The demand for natural resources in the Global North leads to overexploitation, often causing
habitat destruction, biodiversity loss, and environmental harm in resource-rich regions, including in
the Global South.

14.2 Briefly discuss industrial development zones (IDZ) as a South Africa’s initiative in regional
development. (4X2) (8)
 South Africa's Industrial Development Zones (IDZs) aim to promote regional development by
attracting investment, boosting exports, and enhancing the competitiveness of designated areas
through targeted infrastructure and incentives.

 IDZs are strategically located near ports and key logistics hubs, facilitating efficient access to
international markets, and reducing transportation costs for businesses.

 Companies operating within IDZs benefit from various incentives, including tax breaks, duty-free
importation of raw materials, and support for infrastructure development, making these zones
attractive for both local and international investors.

 IDZs contribute to economic growth by encouraging industrialization and diversification, creating job
opportunities, and fostering skills development in the regions where they are established.

 : While IDZs have potential, challenges such as bureaucratic hurdles, infrastructure gaps, and
ensuring equitable benefits across local communities must be addressed to maximize their impact on
regional development.

14.3 Analyze the positive impact that globalization will have on the North-South divide? (8)
 Globalization can stimulate economic growth in developing (Southern) countries by opening access to
international markets, leading to increased trade and investment opportunities.

 Through foreign direct investment and partnerships, globalization can facilitate the transfer of
technology and knowledge from developed (Northern) to developing countries, boosting
industrialization and innovation.

 Access to global markets and technologies can lead to better goods and services, improved healthcare,
and education, raising the overall standard of living in Southern countries.

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  Globalization can create job opportunities in developing countries by attracting multinational
corporations and boosting local industries, thereby reducing unemployment rates.

 Increased global interconnectedness promotes cultural exchange and understanding, potentially

leading to greater awareness of social and economic inequalities and fostering international
cooperation to address these issues.

Activity 15
15.1 Analyse the use of incentives in establishing new businesses into IDZ’s (8)
 Incentives like tax breaks, reduced tariffs, and infrastructure support are effective in attracting both
domestic and foreign investors to Industrial Development Zones (IDZs).

 These incentives help promote industrialization by reducing the initial costs and risks associated with
establishing new businesses, thereby encouraging manufacturing and other industries.

 : By making IDZs more attractive, incentives can lead to significant job creation, benefiting local
communities and reducing unemployment.

 The influx of new businesses and industries contributes to the overall economic growth of the region,
enhancing the economic landscape and GDP.

 : However, there is a risk that over-reliance on incentives may lead to dependency, and without
proper management, these incentives can result in reduced government revenue and uneven regional
development.

15.3 How will Special Economic Zones benefit regional development in South Africa? (8)
 Special Economic Zones (SEZs) can stimulate regional economies by attracting diverse industries,
reducing reliance on traditional sectors, and promoting a more balanced economic structure.

 SEZs often come with improved infrastructure, including transportation, energy, and communication
networks, which can enhance overall regional connectivity and efficiency.

 : The establishment of SEZs is expected to create numerous job opportunities and facilitate skills
development, helping to reduce unemployment and uplift the local workforce.

 By offering tax incentives, regulatory support, and other benefits, SEZs can attract foreign direct
investment (FDI), which can bring capital, technology, and expertise to the region.

 : SEZs can serve as hubs for trade and economic activities, fostering greater economic integration
within the region and potentially leading to spillover benefits in surrounding areas.

15.4 Evaluate the success of the expanded public works programme to reduce poverty and unemployment.
(8)
 The Expanded Public Works Programme (EPWP) has been successful in creating short-term job
opportunities, providing work and income to millions of South Africans, particularly in infrastructure
projects and community services.

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  : The program includes training components that enhance participants' skills, making them more
employable in the long run and improving their chances of finding permanent employment.

 : By offering income to unemployed individuals, the EPWP helps alleviate poverty, especially among
the most vulnerable and marginalized communities.

 : Despite its successes, the EPWP has faced challenges, including limited duration of jobs, low wages,
and the temporary nature of the employment, which may not lead to sustainable long-term poverty
reduction.

 While the EPWP has made a positive impact on reducing unemployment and poverty, its effects are
often short-term, and more comprehensive strategies are needed to address the underlying issues of
poverty and unemployment sustainably.

15.6 Why should government focus more on small, medium, and micro-enterprises
(SMMEs) to drive the economy? (8)
 SMMEs are significant drivers of job creation, providing employment opportunities for a large
portion of the workforce and reducing unemployment rates.

 By supporting SMMEs, the government can encourage economic diversification, reducing reliance on
a few large industries and increasing economic resilience.

 SMMEs are often at the forefront of innovation, introducing new products and services to the market,
which can drive economic growth and competitiveness.

 SMMEs are generally more agile and can adapt quickly to changing market conditions, making them
essential for responding to economic shifts and emerging opportunities.

15.7 Analyze the integrated manufacturing strategy used in South Africa. (4 x 2) (8)
 South Africa's integrated manufacturing strategy focuses on leveraging its diverse industrial base,
including sectors like automotive, mining, and food processing, to drive economic growth and
industrialization.

 The strategy emphasizes value addition and beneficiation, particularly in the mining sector, to move
away from raw material exports and increase the value chain in domestic manufacturing.

 The strategy encourages export-oriented growth, targeting global markets for South African
manufactured goods, which helps to boost foreign exchange earnings and create jobs.

 It includes initiatives for skills development and training to build a more skilled workforce, crucial for
supporting advanced manufacturing processes and technologies.

 The strategy promotes public-private partnerships (PPPs) to attract investment, improve

infrastructure, and foster innovation in the manufacturing sector.

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ACTIVITY 16
16.1 Choose the correct answer and write only the letter (A-D) next to the question number.
16.1.1 The industrial development policy that aims at promoting long-term industrialization is called …
A. the Industrial Policy Action Plan.
B. Special Economic Zones.
C. Spatial Development Initiatives
D. Spatial Development areas
16.1.2 Geographical areas that have a wider industrial development objective and which can be located
anywhere to promote cluster development are called…
A. corridors.
B. Special Economic Zones (SEZs).
C. manufacturing zones.
D. development zones
161..3 A piece of land that forms a passageway that allows access from one area to another and is part of
regional development is called a …
A. custom.
B. corridor.
C. freeway.
D. zones
16.1.4 A physically enclosed area next to a harbour or airport where production for exports is encouraged
through incentives, is known as the …
A. spatial development initiatives.
B. industrial development zone.
C. special economic zone.
D. foreign investment grant
16.1.5 The Department of Trade and Industry initiative that focuses on improving competitiveness in
production is called the …
A. National Industrial Policy Framework.
B. National Research and Development Strategy.
C. Integrated Manufacturing Strategy.
D. Small Business Support Programme.

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16.2 Give ONE concept for each of the following descriptions.:
16.2.1 Laws and regulations to enhance manufacturing operations.
Integrated Manufacturing Strategy
16.2.2 Sets out the broad approach to industrialization of government.
Industrial Development Plan
16.2.3 A spatial area that forms a passageway, allowing access from one area to another as part of regional
development.
Corridor.
16.2.4 Encourages investment in manufacturing, agriculture, and mining.
Economic Diversification Incentives
16.2.5 It strengthens institutional capacity and facilitates development.
Institutional Capacity Building
16.2.6 Promotes development in the Southern African region.
SADC
16.2.7 Aims to reduce the centralization of industries.
Regional Development

ACTIVITY 17
17.3 Study the extract below and answer the questions.

17.3.1 Identify the state's role in the implementation of the NDP. (1)
Set out up the framework for private sector function.
17.3.2 Name ONE positive elements of the NDP. (1)
Strategic Vision and Long-Term Goals/ Integrated Approach to Development

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17.3.3 Briefly describe the term globalisation
 It is the world-wide interaction and interfacing of economies with trade as an important element
17.3.4 Explain the negative impact of a shortage of skilled labour force in the country? (2)
 The high rate of unskilled labour force slows down the production process therefore retarding
economic growth rate for the country.
 Unskilled workers can produce goods of inferior quality therefore hampering the competitiveness of
the country in the international market

17.3.5 How does the Black Economic Empowerment Programmes improve the lives of the previously
disadvantaged groups (2X2) (4)
 This program creates a platform which allows the previously disadvantaged groups to gain access to
industries that were previously dominated by the minority groups.
 The Black Economic Empowerment Programmes advance the lives of South Africans by creating
equal opportunities for the previously disadvantaged communities thus allowing them to participate in
the mainstream economy.
 It provides a compelling framework to create employment, skills training and career development of a
workforce that will eventually mirror the demographic and gender composition of the country.
17.4 Analyze the challenges of import substitution in the economy. (8)

 Inefficiency: Import substitution often leads to the development of less competitive domestic industries due
to protection from international competition, which can result in inefficiencies and higher costs.
 Limited Innovation: Without the pressure to compete globally, domestic firms may lack incentives to
innovate, reducing overall industry advancement and technological progress.
 Resource Misallocation: Resources might be diverted from potentially more productive sectors to protected
industries, leading to suboptimal economic outcomes.
 Trade Imbalances: While reducing imports, import substitution may not always lead to an increase in
exports, potentially resulting in persistent trade imbalances.
 Dependence on Domestic Inputs: Local industries may rely heavily on imported raw materials or
components, which can undermine the goal of reducing overall import dependency.
 Consumer Impact: Consumers might face higher prices and reduced variety of goods due to the lack of
competition and efficiency in protected domestic markets.

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ACTIVITY 18

 Discuss in detail South Africa’s initiatives (endeavors) in regional development. (26)

 How would government promote industrial development in South Africa? (10)

[40]
INTRODUCTION
regional development is aimed at increasing the economic livelihood of specific
areas or regions by limiting the negative effects of economic activities in only a few
Areas. ✓✓
Accept any relevant introduction. (Max 2)

BODY: MAIN PART

1. Spatial development initiatives (SDI’S) ✓

 SDI program attracts infrastructure and business investments to underdeveloped areas to create
employment. ✓✓
 Department of trade and industry is the driving force behind industrial and spatial development. ✓✓
 DTI plans together with central, provincial and local government, IDC, parastatals and research
institutions. ✓✓

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. ✓✓
• Example KwaZulu-Natal (ports of Durban and Richards bay); ✓

2. Industrial development zones (IDZS) ✓

• They are purpose-built industrial estates, physically enclosed and linked to a port or airport. ✓✓
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• Industrial development zones are built in duty-free import areas. ✓✓
• This strategy was aimed at making exports internationally competitive. ✓✓
• They focus on creating jobs and promoting exports. ✓✓
• Goods produced in these zones should be exported to foreign countries. ✓✓
• As services are provided from outside, the economy in the areas should be stimulated. ✓✓
• an IDZ offers a world-class infrastructure, enjoys a zero rate of vat on supplies from South African
sources and reduced taxation on some products. ✓✓

Each IDZ is designed to:

• Provide location for establishment of strategic investments. ✓✓
• Promote and develop links between domestic and zone-based industries. ✓✓
• Enable exploitation of resource-intensive industries. special economic zones✓✓

Special Economic Zones

• Geographically demarcated area where specific economic activities have been identified to be
developed. ✓✓
• It creates a basis for a broader range of industrial parks and provide economic infrastructure to
promote employment. ✓✓
• These areas may enjoy incentives such as tax relief and support systems to promote industrial
development. ✓✓
• There are plans to reduce tax to 15% as an incentive to attract new industries.✓✓

The aim of creating sez is to attract:

• New businesses and businesses which are developing a new product line. ✓✓
• Business which are expanding their volume. ✓✓
• The DTI has indicated that the existing IDZS where special tax incentives do not apply would be
graduated into SEZS. ✓✓

. Corridors✓
a corridor is a track of land that forms a passageway allowing access from one area to another and particular
advantages to mining, manufacturing and other businesses. ✓✓
• Example domestic corridor✓✓e.g. lubombo, west coast, fish river ✓
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Benefits of corridors
• Corridors promote South Africa’s regional integration in southern Africa: ✓✓
• They lead to political and stable neighbours. ✓✓
• Corridors create 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. ✓✓
(max.26)
(Accept any other relevant and correct response)

ADDITIONAL PART
How would government promote industrial development in South Africa? (10)
 Invest in key infrastructure such as transportation networks, energy supply, and telecommunications
to support industrial activities and improve connectivity.

 Offer tax breaks, subsidies, and grants to attract investment and reduce operational costs for
businesses in the industrial sector.

 : Promote research and development through funding and partnerships with universities and research
institutions to drive technological advancements and industrial innovation.

 Create special zones with favorable conditions and incentives to attract industrial investment and
foster industry clusters.

 Invest in education and training programs to develop a skilled workforce that meets the demands of
modern industries.

 : Simplify and harmonize regulations to reduce bureaucratic barriers and make it easier for businesses
to set up and operate.

18.2 How successful has the government been in promoting industrial development in South Africa?
(10)
 The government has successfully promoted growth in various industrial sectors, including
automotive, mining, and manufacturing, contributing to increased industrial output and exports.

 Significant investments in infrastructure, such as roads, ports, and energy facilities, have supported
industrial development and improved logistical efficiency.

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  IDZs like Coega and Dube Trade Port have attracted substantial investment, created jobs, and
fostered industrial clusters, demonstrating success in targeted industrial development.

 Financial incentives and tax breaks have successfully attracted both domestic and foreign investment,
leading to the establishment and expansion of various industrial enterprises.

 Despite progress, challenges such as regulatory red tape and bureaucratic inefficiencies have
sometimes hindered the ease of doing business and slowed industrial growth.

 Efforts to balance industrial development across regions have seen mixed results, with some areas
benefiting significantly while others continue to lag behind, highlighting ongoing disparities.

19.1 Evaluate the success of Japan-South Africa Partnership Forum (8)

Agreement has been successful because:
 The investment by Japanese companies in South Africa led to 150 000 jobs being created in 2012.

 There has been significant increase in human resource development in areas of infrastructure
development, industries, science and technology.

 Japan has financed 511 South African youth to teach in Japan through Japan Exchange and Teaching
Programme.

 Japan Bank for International Cooperation has provided loans for to infrastructure projects in South
Africa e.g loan to Eskom for power transmission installation.

 It has also offered export credit line financing RSA companies to promote exports from Japan to
South Africa.

 More than 50 joint researches have been conducted under the bilateral agreement. 

 The joint research mainly focuses on life science and bioscience areas and also include astronomy,
climate change and earthquake.

(Accept any relevant answer

Activity 19
19.1 Discuss in detail South Africa’s initiatives (endeavors) in regional development. (26)
Introduction
**Economic Growth** is the increase in a country’s GDP, reflecting a rise in the output of goods and services over
time. **Economic Development* refers to improvements in living standards, health, education, and income equality.
Essentially, growth is about the quantity of economic output, while development focuses on the quality of life and
societal well-being.
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 1. Monetary Policy
Interest Rate Adjustments:
 Lowering interest rates to stimulate borrowing, investment, and consumption.
 Raising interest rates to control inflation by reducing spending and slowing down the economy.
 South African Reserve Bank purchases of financial assets (e.g., government bonds) to inject liquidity into the economy,
encouraging spending and investment.
Open Market Operations:
Buying or selling government securities in the open market to influence the money supply and short-term interest rates.
Credit Easing:
Providing favorable credit conditions to certain sectors to boost investment in key areas, such as housing or infrastructure.

2. Fiscal Policy
Government Spending:
Increased public spending on infrastructure, education, healthcare, and social services to boost aggregate demand.
Targeted spending on projects that create jobs and stimulate economic activity in specific sectors or regions.

Tax Cuts:
Reducing personal income taxes to increase disposable income and encourage consumer spending.
Lowering corporate taxes to incentivize investment, expansion, and job creation by businesses.

Transfer Payments:
Enhancing social welfare programs (e.g., unemployment benefits, social security) to support vulnerable populations and
stimulate consumption.
Direct cash transfers to households to increase immediate spending and boost demand.

3. Exchange Rate Policy

Currency Devaluation or Depreciation:

Lowering the value of the national currency to make exports cheaper and imports more expensive, stimulating domestic
production and demand for local goods.

Foreign Exchange Interventions:

Central bank actions to influence the exchange rate by buying or selling foreign currencies, aiming to stabilize the economy
or boost export competitiveness.

4. Income Policies
Wage Policies:
Implementing minimum wage laws or wage increases to raise household income, thereby increasing consumer spending.
Wage subsidies to encourage employment and support aggregate demand.

Profit-Sharing Agreements:
Encouraging businesses to share profits with employees, boosting disposable income and consumption.

Social Security and Pensions:

Expanding pension systems and social security benefits to ensure a stable income for retirees, who will then spend,
stimulating demand.

5.Government Incentives and Subsidies

Investment Incentives:

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 Offering tax breaks, grants, or low-interest loans to businesses to encourage investment in key sectors, leading to job
creation and higher demand.

Consumer Subsidies:
Subsidizing essential goods or services (e.g., food, energy, healthcare) to increase affordability and stimulate demand.
R&D and Innovation Grants
Supporting research and development activities through grants or tax incentives to encourage innovation, leading to new
products and services that boost demand.

6. Expansionary Public Investment

Infrastructure Development:
Large-scale investment in infrastructure projects (e.g., roads, bridges, public transport) to create jobs and stimulate
demand for materials and services.

Urban Renewal Programs:

Government-led initiatives to revitalize urban areas, increasing demand for construction and related industries.

Public Housing Projects:

Building affordable housing to address shortages, increase construction activity, and stimulate demand for related goods
and services.

7. Targeted Economic Stimulus Packages

Economic Stimulus Checks:

Direct payments to individuals or households to increase disposable income and boost consumption.

Sectoral Stimulus:
Financial support for specific sectors (e.g., tourism, automotive industry) that are struggling, to preserve jobs and stimulate
demand within those industries.

Infrastructure and Green Economy Stimulus:

Targeted investments in green energy and sustainable infrastructure to drive demand in emerging industries while
addressing environmental goals.

8. Consumption Incentives

Tax Rebates for Consumers:

Offering rebates or deductions on consumer purchases, particularly for big-ticket items like cars or home appliances, to
encourage spending.

Subsidized Financing:
Providing low-interest loans or zero-interest financing options for consumers to purchase homes, cars, or durable goods.
Vouchers and Discounts:
Government-issued vouchers or discounts for purchasing certain goods or services to boost spending in targeted areas.

9. Public-Private Partnerships (PPPs)

Joint Infrastructure Projects:

Collaboration between government and private sector to fund and implement infrastructure projects, stimulating demand
through construction and related industries.

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 Development Zones:
Establishing special economic zones with incentives for businesses, leading to increased investment and economic activity
in those areas.

Innovation Hubs:
Creating technology and innovation hubs through public-private partnerships, fostering new industries and driving demand
for tech-related services and products.

10. Financial Sector Policies

Expansion of Credit Facilities:

Encouraging banks to extend credit to households and businesses by reducing reserve requirements or offering
guarantees.

Mortgage Subsidies:
Providing subsidies or low-interest rates for mortgages to stimulate the housing market and related sectors.
Support for Small and Medium Enterprises (SMEs):
Offering targeted financial assistance, such as low-interest loans or grants, to SMEs to encourage business growth and job
creation.

Conclusion:
Demand-side policies focus on stimulating economic activity by increasing the aggregate demand for goods and services.
These policies can be used in combination to address specific economic challenges, such as unemployment, slow growth,
or recession, by boosting consumption, investment, and overall economic output.

 How successful has the government been in promoting industrial development in South
Africa? (10)
• Government Policies: South Africa has implemented various policies, such as the
Industrial Policy Action Plan (IPAP), to stimulate industrial development and attract
investment.
• Infrastructure Development: Investments in infrastructure, including transportation
and energy, have aimed to support industrial growth, though challenges with
reliability and capacity persist.
• Support for Small and Medium Enterprises (SMEs): Programs and incentives have
been established to support SMEs, fostering innovation and local manufacturing
capabilities.
• Challenges: The industrial sector has faced challenges including energy shortages,
labor unrest, and global economic pressures, which have impeded growth.
• Sector-Specific Successes: Some sectors, like automotive and mining, have seen
significant growth due to targeted government support and foreign investment.

20.1 Study the picture and answer the questions,

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20.3.1 Identify the trade protocol mentioned in the above article. (1)
AGOA
20.3.2 Name any product exported to the US. (1)
Platinum 
Manganese
Titanium ores
(Accept any relevant correct answer}
20.3.3 Briefly describe the term trade neutrality. (2)
It refers to a trade policy in which the incentives given to exports and imports are equal. 
(Accept any relevant answer)
20.3.4 Explain the benefit of South Africa by being a member of the trading bloc. (2)
Employment will increase which will improve standard of living. 
There will be a variety of goods and services produced. 
(Accept any relevant answer)
20.3.5 How can the non-renewal of the AGOA affect the South African economy? (4)
 The revenue generated from exports will decrease which may negatively affect the trade balance. 

 Business profits may decrease which may result in retrenchment of workers. 

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  The South African youth may lose the opportunity to be equipped with skills and knowledge
necessary for economic development. 

 It could lead to a decrease in foreign investment thereby lowering the living standard.

(Accept any relevant answer)

20.4 Discuss the benefits of the Africa Growth Opportunity Act on the economy. (8)
 AGOA helps transform the African countries from being exporters of raw material to products of
finished goods. 

 It can contribute to the diversification of African economies. 

 It could enable countries to produce a wider range of products using abundant minerals, metals, and
agricultural produce. 

 It could encourage the development of value chain across different countries. 

 It could contribute to the creation of jobs and raising foreign exchange earnings. 

 It will help improve Africa’s competitiveness by enhancing skills, knowledge and infrastructure. 

(Accept any relevant answer)

ACTIVITY 21 (Essays)

21.1 Discuss in detail export promotion. (26)

21.2 Discuss arguments in favor of protectionism. (26)
21.3 Discuss in detail South Africa’s growth and development initiatives and endeavors. (26)
21.4 Discuss in detail South Africa’s social indicators. (26)
21.5 Discuss in detail South Africa’s social indicators. (26)

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 PAPER 2
MICROECONOMICS AND CONTEMPORARY ECONOMIC ISSUES

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MICRO-ECONOMICS

Dynamics of markets

PERFECT MARKET

DYNAMICS OF PERFECT AND IMPERFECT MARKETS CONCEPTS

ACTIVITY 1
1.1 Various options are provided as possible answers to the following questions. Choose the correct
answer and write only the correct letter (A-D) next to the answer.
1.1.1 A situation in a monopoly where costs are more than revenue is called … (2) A.
normal profit
B. economic loss
C. economic profit
D. economies of scale
1.1.2 The income earned by a firm from the sale of each unit is referred to as … revenue. (2)
A. average
B. marginal
C. total
D. variable
1.1.3 A monopoly that is created by economic conditions such as high development costs of the business is known as
… monopoly. (2)
A. artificial
B. state
C. legal
D. natural
1.1.4 The actual expenditure of a business on the purchase or hire of the inputs required for the production process is
known as…… (2)
A. explicit cost
B. opportunity cost
C. implicit cost
D. marginal cost
1.1.5 The costs of production that change with the level of output are called … costs. (2)
A. fixed
B. sunk
C. variable
D. Average
1.1.6 An additional cost incurred by the firm when one extra unit is produced is called ... cost.
A. total
B. Marginal
C. Economic
D. production
1.1.7 The demand curve that explains oligopolistic behavior is described by some theorists as …
A. vertical.
B. horizontal.
C. circular.
D. kinked.
1.1.8 When one dominant firm change the price and others follow, it is regarded as price…
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 A. discrimination
B. leadership
C. taking
D. differentiation

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

1.1.1 The period of production where only the variable factors of production can change.
Short-run 
1.1.2 A firm that has no influence over the market price.
Price-taker 
1.1.3 The easily quantifiable and identifiable expenses that are incurred by the business from its production.
Explicit cost 
1.1.4 A mechanism that brings buyers and sellers together to trade goods or services.
Market 
1.1.5 Products that are identical in style, design and quality.
Homogenous products 
1.1.6 A positive difference between the total revenue and total cost.
Economic profit 
1.1.7 The quantity of a particular product or service that producers offer to consumers at a specific price during a
certain period of time.
Supply 
1.1.8 The period of production where all factors can change.
Long-run
1.1.9 The process by which a firm determines the price, input and output levels that would lead to the highest possible
total profit.
Profit maximisation 
1.1.10 The value of inputs owned by entrepreneur and used in the production process.
Implicit cost 
1.1.11 Costs that are incurred by the business and cannot be recovered.
Sunk costs 
1.1.12 The minimum earning required to prevent a firm from leaving the market.
Normal profit 
1.1.13 The quantity of goods or services that consumers are willing and able to buy at a specific price during a certain
period of time.
Demand 
1.1.14 The smallest loss that can be made given existing costs and revenue conditions.
Loss minimisation 
1.1.15 A theoretical market structure that is characterised by high competition.
Perfect market 
1.1.16 Type of a monopoly that exist because of its high development cost.
Artificial monopoly
1.1.17 A market structure that is characterized by a blocked entry.
Monopoly
1.1.18 A market that is dominated by two large firms.
Duopoly

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1.1.19 Agreement done in an oligopoly market where firms limit competition by fixing prices.
Collusion
1.1.20 A distinctive wording or design used to identify a particular product.
Brand
1.1.21 Method of building customer loyalty by choosing one product instead of the other.
brand loyalty
1.1.22 Market structure that have control over the market price
Monpoly
1.1.23 Businesses in the same industry come to an agreement to determine prices and quantities.
Market
1.1.24 The market structure where the market is dominated by large few firms.
Oligopoly
1.1.25 Few firms that manufacture homogenous products.
Pure oligopoly
1.1.26 The marketing strategy whereby firms seek to increase sales through methods such as branding.
Non-price competition

ACTIVITY 2
2.1 Study the graphs below and answer the questions that follow:

Graph A Graph B

Pri D Pric
S
ce e
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R50 R50 F
 2.1.1 Which graph represents the industry from those provided above? (1)
Graph A 
2.1.2 Identify the market price for the individual seller. (1)
R50 
2.1.3 Name the curve labelled ‘F’ in graph B. (1)
D / AR / MR
2.1.4 What is the shape of the demand curve in graph B? (1)
Horizontal
2.1.5 Briefly describe the term industry. (2)
An industry is a group of firms that produce similar or related products. 
(Accept any other relevant and correct response)
2.1.6 Explain the influence of the individual firm on the market price. (2)
 In a perfectly competitive market, an individual firm is a price taker and cannot influence the market
price; it must accept the prevailing price set by market supply and demand.
 The firm’s output is a small fraction of the total market supply, meaning changes in its production levels
have negligible impact on the overall market price.
 The firm sells its products at the market price, which remains constant regardless of the quantity it
produces, due to the competitive nature of the market.
 Since the firm cannot alter the market price, it focuses on maximizing profit by adjusting its output levels
while accepting the market price as given.. 
(Accept any other relevant and correct response)
2.1.7 Why is an individual firm in a perfect market considered to be a price-taker? (4)
 In a perfect market, all firms sell identical products, making it impossible for any single firm to
differentiate its goods and influence the price. 
 There are many buyers and sellers, so no single firm has enough market share to affect the overall
market price. 
 The price is determined by the aggregate supply and demand in the market, and individual firms must
accept this price as given. 
 The market has no barriers to entry or exit, ensuring that firms cannot influence the price because new
firms can enter or exit freely, maintaining market equilibrium. 

(Accept any other relevant correct introduction)

ACTIVITY 3
3.1 Study the table below and answer the questions that follow.

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 REVENUE CALCULATIONS

Q P TR AR MR
1 50 50 50 -
2 50 A 50 50
3 50 150 50 50
4 50 200 50 50
5 50 250 50 50
6 50 300 50 50
7 50 350 50 50

3.1.1 Identify the market price from the table above. (1)
R50 
3.1.2 Give the formula that is used to calculate TR. (1)
PXQ
3.1.3 What is another name for revenue? (1)
Income 
3.1.4 What does the abbreviation AR stand for? (1)
Average revenue 
3.1.5 Briefly describe the term marginal revenue. (2)
Marginal revenue refers to the extra amount of income gained by selling one more
unit of production. 
(Accept any other relevant and correct response)
3.1.6 Why is MR earned by the individual firm equal to AR in a perfect market? (2)
 In a perfect market, individual firms are price takers, meaning they accept the market price as given and cannot
influence it, so the price remains constant. 
 Since the firm can sell any quantity of goods at the market price, the average revenue (AR), which is the price
per unit, is the same for each unit sold. 
 Marginal revenue (MR) is the additional revenue earned from selling one more unit of output. In a perfect
market, this additional revenue is equal to the constant market price. 
 The firm's inability to set prices means that each additional unit sold brings in revenue equal to the price, so MR
equals AR.. 
3.1.7 Use the information given in the table to calculate the value of TR as represented
By letter “A”. Show all calculations including the formula. (4)
TR = P X Q 
50 x 2
100 

ACTIVITY 4
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4.1 Study the graph below and answer the questions that follow.

PROFIT MAXIMISATION

Pric C
e/ TR
Rev
enu
C
e R50

B
R40

R30
R25 D
A
R20

R10

0
100 200 300 400 500
Quantity
4.1.1 Identify profit maximisation from the graph above. (1)
B – D (D – B) 
4.1.2 At what quantity does the business break-even from the given graph. (1)
200 / 500 
4.1.3 What is the market price that provides the firm with the maximum profit? (1)
R40 
4.1.4 Name the curve labelled C in the graph. (1)
Total costs curve 
4.1.5 Briefly describe the term economic profit. (2)
Economic profit refers to a situation where average revenue earned by the firm is greater
than average cost. 
(Accept any other relevant and correct response)
4.1.6 Why does TR always start at zero? (2)
 Total Revenue (TR) starts at zero because when no goods or services are sold, there is no revenue
generated. 
 TR is calculated as the product of price and quantity sold, so if the quantity is zero, TR must also be
zero. 
 TR begins tracking from the point where sales start, which is at zero quantity. 
 Starting at zero ensures that the relationship between sales and revenue is accurately represented from
the beginning. 
4.1.7 Explain the pattern of the total cost curve. (2)
 The Total Cost (TC) curve begins at the level of fixed costs, which are incurred even when output is
zero. 
 As production begins, the TC curve rises slowly due to the spreading of fixed costs over a small number
of units. 
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  As output increases further, the TC curve steepens due to rising variable costs, especially when
diminishing returns set in. 
 The TC curve maintains a continuously upward slope, reflecting that total costs increase with higher
levels of production.
4.1.8 Use the information given in the graph to calculate economic profit. Show all calculations. (4)
Economic profit = TR – TC 
40 – 20 
20 

ACTIVITY 5
5.1 Study the graph below and answer the questions that follow.

EQUILIBRIUM POSITIONS AC3

MC
Cost
/ AC2
Rev
enu
e AC1
F
R35

e
R30 D=MR=AR

R25 D

0
50 Quantity

5.1.1 Identify the AC curve that represents economic profit from the graph above. (1)
AC1 
5.1.2 Which market price yields normal profit in the given graph? (1)
R30 
5.1.3 What is the value of AC where the firm makes economic profit? (1)
R25
5.1.4 Briefly describe the term economic loss. (2)
It refers to a situation where the firm’s average revenue is less than average cost. 
5.1.5 Why would point ‘e’ be referred to as loss minimising in relation to AC3? (2)
In a case where the firm is making a loss, AC lies above AR hence point e represents loss minimisation.

5.1.6 Use the information given to calculate economic loss. Show all calculations. (4)

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ACTIVITY 6
6.1 Study the graph below and answer the questions that follow.

Cos SHUT-DOWN POINT B

t/ MC AVC
Rev
enu
e
R30

e
R25 D=AR=MR

0
50 Quantity
6.1.1 Name the curve labelled B in the graph above. (1)
Average cost / AC 
6.1.2 What type of profit or loss is made by the firm in the above graph? (1)
Economic loss 
6.1.3 Briefly explain the term average variable costs. (2)
It refers to the variable cost per unit incurred by a firm across a given period. 
6.1.4 Why would a firm decide to shut down? (2)
 A firm may decide to shut down if its revenue is not covering its variable costs, meaning it loses money
on each unit produced. 
 Continuing to operate would increase losses, as fixed costs must still be paid even if production
continues. 
 Shutting down is typically a short-term decision when market conditions are unfavorable, allowing the
firm to minimize losses. 
 The firm might shut down temporarily, anticipating better future conditions that would make it profitable
to resume operations. 
6.1.5 How do homogenous products benefit consumers? (4)
 Homogeneous products lead to increased competition among sellers, as they cannot differentiate based
on product features, which often results in lower prices for consumers. 

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  Consumers benefit from easier price comparisons because the products are identical, allowing them to
choose the cheapest option without worrying about quality differences. 
 Homogeneous products ensure a standardized level of quality, giving consumers confidence that any
option they choose will meet their expectations. 
 The availability of homogeneous products promotes market efficiency, as consumers can make quick
purchasing decisions, enhancing overall consumer satisfaction. 
(Accept any other correct and relevant response)
6.2 Differentiate the demand curve of an industry and that of an Individual firm. (8)
Industry Individual firm
 The demand curve is downwards sloping  The demand curve of a firm is horizontal.
from left to right.  The demand curve is the same as average
 The demand curve represents the market revenue and marginal revenue.
demand (D) only.

6.3 Why is competition in the market good for the economy? (8)
 Competition improves efficiency and quality of products. 
 With efficiency businesses will also cut down costs of production and be able to sell at lower prices. 
 Competition gives consumers more choice from where to buy goods and services. 
 It contributes to economic growth through increased production. 
 Competition promotes innovation in terms of production methods. 
 It makes availability of products accessible throughout the country. 
(Accept any other correct and relevant response)
6.3 Evaluate the competition policy of South Africa in promoting a more competitive economy. (8)
The competition policy has been successful because:
 many businesses were recently charged and found guilty on the abuse of economic power. 
 in most cases where fines were imposed they were upheld and this should assist to discourage collusion. 
 the competition commission was able to detect anti-competitive practices during Covid-19 when firms increased
prices of products such as garlic and surgical masks when the demand for these products was high. 
 increase in employment through SMME due to laws that allow new businesses to enter the market. 
 provision is made for new criminal sanctions to be imposed on individuals. 
 cartel behaviour is prohibited by section 4 (1) (b) of the act. The penalty for participation is a fine up to 10% of
the firm’s annual turnover. 
 they prohibited and regulated mergers for example Mass Mart and Wall Mart. 
(Accept any other correct and relevant response)

ACTIVITY 7
Discuss in detail the various equilibrium positions with the aid of graphs. (26)
 Economic profit
 Economic loss
 Normal profit
Why is a perfect market considered to be more efficient when compared to other market structures?
(10)
INTRODUCTION
A perfect competition is a market structure with a large number of buyers and sellers. 
(Accept any other relevant correct introduction)
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BODY (MAIN PART)

Economic Profit

Co MC
st/
Re
ve
nu AC
e

R30 e D=AR=MR
Economic profit MARK ALLOCATION:
Labelling of and on the axis = 1 mark
R25 Correct drawing and labelling of revenue
curves = 1 Mark
Correct drawing and labelling of average
cost curves = 1 Mark
Indication of profit maximisation point =1
Mark
Max. = 4 marks
0
50 Quantity
 Economic profit is the profit made by the business in addition to normal profit where average revenue is greater
than average cost. 
 In the graph above the business is maximising profit at point ‘e’ where MR = MC and the quantities produced is
50 at a market price of R30. 
 The turning point of AC is lower than AR at a market price of R30. 
 Total revenue is equal to R30 x 50 = R1 500 and total cost is equal to R25 x 50 = R1 250. 
 Economic profit is therefore R1 500 – R1 250 = R250. 

 Economic loss happens when total costs are greater than total revenue. 
 In the graph above the business is minimising loss at point ‘e’ where MR = MC and the quantities produced is
100 at a market price of R15. 
 The turning point of AC is higher than AR at a market price of R15. 
 Total revenue is equal to R15 x 100 = R1 500 and total cost is equal to R20 x R100 = R2 000. 
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  The economic loss is therefore R1 500 – R2 000 = - R500. 

 Normal profit is the minimum earnings required to prevent an entrepreneur from leaving the industry. 
 In the graph above the business is maximising profit at point ‘e’ where MR = MC and 150 quantities are
produced at a market price of R50. 
 The turning point of AC is tangent to the AR/MR curves. 
 This means that AC = AR and both total cost and total revenue are equal (R50 X R150 = R7 500). 
ADDITIONAL PART
Why is a perfect market considered to be more efficient when compared to other market structures? (8)
 There are no barriers to entry in the market, aspiring businesses can easily
enter the marker. 
 There is no limit to the number of businesses that can join the market; it increases competition
which is more beneficial to the consumer. 
 A perfect competitor sells large quantities at smaller prices. 
 The nature of a product is similar, product is already known in the market and costs of advertising
are saved. 
 There is no exploitation of consumers since perfect competitors are price takers and sell at a market price. 
 Every individual business owns a small portion of the market share. 

CONCLUSION
Businesses under perfect competition can only make normal profit in the long–run due to the number of businesses who
enter the market to share in the profits being made in the short run. 
(Accept any other relevant correct conclusion)

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MONOPOLY
Activity 1
1.1 Choose the correct answer from the given possible options.
1.1.1 The market structure where firms produce a unique product with no close substitute.
A. Monopolistic
B. Perfect market
C. Monopoly
D. Oligopoly

1.1.2 A monopoly based on laws preventing other firms from competing is called a/an …. Monopoly.
A. Artificial
B. Natural
C. Simple
D. Dominant

1.1.3 In a monopoly the seller faces a ……… demand curve.

A. Positive
B. Horizontal
C. Kinked
D. Negative

1.1.4 The firm’s demand curve lies above the marginal revenue in a/an ……. Market.
A. Oligopoly
B. Monopoly
C. Perfect competition
D. industry
1.1.5 Firms sell their products at different prices under …….
A. Perfect competition
B. Oligopoly
C. Monopoly

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 D. Duopoly
(5X2) (10)

1.2 Give a term for each of the following descriptions.

1.2.1 A market structure that is known for being inefficient. Monopoly.
1.2.2 A monopolist has full control over……… of the product. Price.
1.2.3 In a monopolist firm, prices determination is guided by …… demand curve.
1.2.4 If the monopolist wants to increase the price can reduce the………of a product. Supply.
1.2.5 Deadweight loss is associated with a firm under……. market. monopoly.
(5X1) (5)

Activity 2 (Higher order)

2.1 How do firms under monopoly make economic profit. (4X2) (8)
 A monopoly firm has significant market power, allowing it to set prices higher than in competitive markets, which
leads to higher revenue.
 With no close substitutes and barriers to entry, the firm faces little to no competition, enabling it to maintain
prices above marginal costs.
 The firm can charge a price that exceeds its marginal cost of production, capturing consumer surplus as
economic profit.
 By restricting output to a level where marginal revenue equals marginal cost, the firm maximizes its profit.
 High barriers to entry prevent other firms from entering the market, allowing the monopoly to sustain economic
profits in the long run.
 Monopolies may benefit from economies of scale, reducing average costs and further increasing profit margins.
2.2 Why is the monopoly regarded as inefficient. (4X2) (8)
 Monopolies are allocatively inefficient because they produce less output and charge higher prices than in a
competitive market, leading to a misallocation of resources.
 The higher prices and restricted output reduce consumer surplus, as consumers pay more and receive less than
they would in a competitive market.
 Monopolies create deadweight loss, which represents the loss of economic efficiency when the equilibrium
outcome is not socially optimal.
 Monopolies may not produce at the lowest possible cost, as the lack of competition reduces the incentive to
minimize costs and innovate.
 High barriers to entry prevent potential competitors from entering the market, which could otherwise drive prices
down and increase efficiency.
 Consumers have fewer choices, and the monopoly has less incentive to innovate or improve products, further
contributing to inefficiency.

ACTIVITY 3
3.1 Study the graph below and answer the questions that follow:

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 cost/revenue
MONOPOLY FIRM

MC

AC

D
R68

R60 C

B
R52

A
AR
MR
107 120
Quantity

3.1.1 Identify the loss minimising point from the graph above. (1)
Point A
3.1.2 What is the nature of the product sold by the monopoly firm? (1)
Unique Product
3.1.3 Briefly describe the term average cost. (2)
It is the cost per unit incurred in the production of a firm. 
3.1.4 Explain the benefit of selling a unique product to the monopoly firm. (2)
 Selling a unique product allows the monopoly firm to set prices without concern for competition, maximizing
revenue. 
 The lack of substitutes enables the firm to charge a premium, leading to higher profit margins compared to firms
in competitive markets. 
 The firm can control the entire market for the product, ensuring consistent demand and long-term profitability.


 With no direct competition, the firm can maintain its market position and avoid the need for aggressive pricing or
marketing strategies. 
(Accept any other correct relevant response)
3.1.5 Use the information in the graph to calculate the economic loss made by the firm. Show all calculations.
(4)

ACTIVITY 5
5.1.1 Study the graph below and answer the questions that follow:

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5.1.1 Identify the market price in the graph above. (1)
R16
5.1.2 Name the curve labelled by symbol A in the graph above. (1)
Average revenue (AR)/ demand curve 
5.1.3 Briefly describe the term marginal cost (2)
It is the cost of producing an additional unit or one extra unit 
(Accept any relevant answer)
5.1.4 Why does the demand curve of a monopoly slope downward? (2)
 A monopoly is the sole supplier in the market, so it faces the entire market demand, which slopes downward due
to the law of demand. 
 To sell more units, the monopoly must lower the price, as consumers will only buy more if prices decrease. 
 At higher prices, fewer consumers are willing to purchase, resulting in lower quantities demanded, contributing to
the downward slope. 
 As the monopoly lowers prices to sell additional units, marginal revenue falls faster than price, reinforcing the
downward-sloping demand curve.
(Accept any relevant answer)
5.1.5 Calculate the economic profit or loss of the above firm (Show all your calculations) (4)
Profit or Loss = AR - AC X Q AR X Q – AC X Q
= (16-13) x 1200 = (16 X 1200) – (13 X 1200) 
= 3 x 1200 or = 19 200 – 15 600
= 3600 = 3600 

ACTIVITY 6
6.1 Study the picture below and answer the questions that follow:

BARRIERS TO ENTRY

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6.1.1 What type of monopoly is shown by the above picture? (1)
Artificial monopoly
6.1.2 Name any other legal barrier to entry except those mentioned above. (1)
Copy right
6.1.3 Briefly describe the term economies of scale. (2)
 It is achieved by the firm when costs per unit decrease as output increases.
 (Accept any other correct relevant response)
6.1.4 Why would a monopoly continue to make economic profit in a long-run? (2)
 A monopoly can continue to make economic profit in the long run because high barriers to entry prevent new
competitors from entering the market.
 The monopoly's control over the market allows it to maintain prices above marginal cost, sustaining economic
profits over time.
 With no close substitutes, the monopoly can keep demand inelastic, allowing it to charge higher prices without
losing customers.
 The monopoly may benefit from economies of scale, lowering its average costs and further enhancing long-term
profitability.
(Accept any other correct relevant response)
6.1.5 How can monopolies negatively affect the economy. (2x2) (4)
 Monopolies can charge higher prices than in competitive markets, reducing consumer purchasing power and
overall welfare.
 Monopolies produce less than the socially optimal quantity, leading to a misallocation of resources and creating
deadweight loss in the economy.
 With little to no competitive pressure, monopolies may have less incentive to innovate or improve their products,
slowing technological progress and economic growth.
 Monopolies create high barriers to entry, stifling potential competition, reducing market dynamism, and limiting
opportunities for new businesses.
(Accept any other correct relevant response)

ACTIVITY 7
7.1 With the aid of a well labelled graph explain the long-run equilibrium of a monopoly. (8)

ECONOMIC PROFIT

Cos LMC
131 | P a g e t/
Rev
enu LAC
e
  The LMC curve intersects the LAC curve at its minimum point shown by letter ‘d’.
 Profit maximizing point is achieved at point ‘e’ (LMC = MR) where production level is 100 units. 
 Total revenue is R6000 and average cost is R5000. 
 The monopolist is makes an economic profit of R1000 per unit in the long-run as indicated by AR which lies
above AC.
(Accept any other relevant explanation) (Max 4 marks)

7.2.1 With an aid of a graph, explain the relationship between marginal revenue and the demand curve (AR) of a
monopoly (8)

 The marginal revenue

curve, except for the first unit, will lie below the dd/AR curve 
 The demand curve (AR) is negatively sloping, which results in more goods being sold at a lower price, hence the
additional revenue (MR) will decrease as well. 
 MR curve intersects the horizontal axis at a point halfway between the origin and the AR curve

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  The monopolist will always set a price above point A on the AR curve, because marginal revenue will be positive

(Accept any other correct relevant response)

7.4 How does the inefficiency occur in a monopoly? (8)

 The quantity produced by monopolies tends to be limited which may result to higher prices in the market. 
 The monopoly pricing creates a deadweight loss because there are consumers who may end up not being able
to satisfy their needs due to unaffordability. 
 Monopolies can become inefficient and less innovative over time because they do not have to compete with
other producers in a marketplace. 
 Consumers may not enjoy the freedom of choice as monopolies do not have substitutes and variety.
(Accept any other correct relevant response)

ACTIVITY 8
8.1 Discuss in detail the characteristics of a monopoly. (26)
INTRODUCTION
Monopoly exist where there is only one seller of a unique product, where product has no close substitutes, and where
barriers block entry into the market completely. 
BODY
MAIN PART: Characteristics of a Monopoly (A maximum of eight marks for headings and examples)
Number of firms
 The monopoly consists of one single firm. 
 The monopoly also represents the total industry. e.g De Beers, Eskom etc. 
Demand curve
 Monopolist is also confronted with a demand curve for their product but because there is the only supplier of the
product, they can decide at what point on the demand curve they wish to be. 
 The monopolist is the only supplier of a product in the market. 
 The demand curve of a monopolist is that of a market as a whole. 
 The demand curve slopes downwards from left to right. 
Production level
 Once the monopolist has decided on the price, the quantity sold is determined by demand. 
 The monopolists influence the product-price combination of the product they sell. 
Control over price
 A monopolist is regarded as a price maker. 
 Able to influence price through changing the quantity, buy limited by market demand and the goal of profit
maximisation. 
 Monopolist chooses the combination of price and quantity that suits it the best. 
Marginal revenue curve
 Because the demand curve is downwards sloping price will decrease for each additional unit produced. 
 Therefore, the marginal revenue will be less than the price, thus the demand curve and marginal revenue curve
is not the same. 
 The marginal revenue curve lies below the demand curve. 
Cost of production
 The shape of the cost revenue curve (MC and AC) is the same as any other producer. 
 The MC increases as more is produced. 
 The AC declines, reaches a minimum and then increases. 
 Profit maximisation is where MC = MR

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Profit
 The monopolist can earn economic profit in the short run and in the long run. 
 Because new entries are blocked (no competition) and short-run economic profit cannot be reduced. 
 The monopoly can thus continue to earn economic profit as long as the demand for its product remains intact.

Market entry
 Refers to how easy or difficult for the 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 economies of scale or limited size of the
market or exclusive ownership of raw materials or patents or licensing or sole rights or import restrictions. 
(26)
ADDITIONAL PART
Why do state-owned monopolies in South Africa find it difficult to make an economic profit? (10)
 Some state-owned monopolies in South Africa have a history of corruption and incompetence
which compromises the ability to make profits
 Due to the huge maintenance costs, revenue is not sufficient to cover all expenses
 Non-payment of debt of municipalities, reduces the revenue of State-Owned Enterprises
 Regulation bodies such as NERSA limit high price increases that reduces revenue
 Over-reliance on bailouts leads to inefficiencies in management decision-making processes
 Some state-owned enterprises provide essential goods and services such as water, which makes it difficult to set
very high prices to cover costs
(Accept any other correct relevant response)

8.2 How can collusion negatively affect the economy? (10)

-Higher Prices: Collusion among firms can lead to price-fixing, resulting in higher prices for consumers than
in a competitive market.
-Reduced Competition: Collusive practices reduce competition, which can stifle innovation and limit
consumer choice by keeping inefficient firms in the market.
-Market Distortions: Collusion distorts market dynamics, creating an uneven playing field where firms do not
compete on merit but rather through coordinated efforts.
-Inefficient Allocation of Resources: Resources may be allocated inefficiently as firms collude to maximize
profits rather than to respond to market signals and consumer demand.
-Barrier to Entry: New entrants may be discouraged from entering the market due to the anti-competitive
practices of established firms, reducing market dynamism and innovation.
-Economic Inequality: Collusion can lead to wealth being concentrated among a few firms, exacerbating
economic inequality and reducing overall economic welfare.

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ACTIVITY 9
9.1 Discuss the monopoly in detail with the aid of graphs showing economic loss and economic profit. (26)
INTRODUCTION
Monopoly is a market where a unique product with no close substitutes is sold, and a strong ability to influence a market
price, 
(Accept any relevant introduction)
BODY
MAIN PART:

ECONOMIC PROFIT

Cost LMC
/
Rev
enu LAC
e

R90 d
R70

e
MARK ALLOCATION:
Labelling of and on the axis = 1 mark
Correct drawing and labelling of revenue
curves = 1 Mark
D=AR Correct drawing and labelling of average
MR cost curves = 1 Mark
Indication of profit maximisation point =1
0 Mark
100 Quantity Max. = 4 marks
 In the short- term the monopolist can make economic profit. Economic profit is obtained where AR > AC
 Profit maximization point is at point E where MC = MR. 
 At this production level the average revenue is R90 and average cost is R70
 Therefore, the monopolist is making an economic profit of R20 per unit (total economic profit of R2000). The total
economic profit is represented by the shaded area. 
Profit = AR – AC x Q
= R90– R70 x 100
= R20 x 100
= R2 000 
 Therefore, the firm is making economic profit of R2 000
(Accept any other relevant explanation)

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 ECONOMIC LOSS
Cost MC AC
/
Rev
enu
e R80 d

R60

e MARK ALLOCATION:
Labelling of and on the axis = 1 mark
Correct drawing and labelling of
revenue curves = 1 Mark
Correct drawing and labelling of
D=AR average cost curves = 1 Mark
MR Indication of loss minimisation point =1
Mark
0 Max. = 4 marks
200 Quantity
 In the short- term the monopolist can make economic loss. Economic loss is obtained where AR < AC
 Profit minimization point is at point E where MC = MR. 
 At this production level the average revenue is R60 and average cost is R80
 Therefore, the monopolist is making an economic loss of R20 per unit (total economic loss of R4 000). The total
economic loss is represented by the shaded area. 
Profit = AR – AC x Q
= R60– R80 x 200
= - R20 x 200
= - R4 000
 Therefore, the firm is making economic loss of – R4 000
(Accept any other relevant explanation)
ADDITIONAL PART
9.2 Analyse the barriers that form monopoly markets. (10)
 High development costs prevent new firms from entering the market.
 Government may grant a firm a patent which makes the business to have an exclusive
right to manufacture a product.
 A business may have an advantage over the control of resources that other businesses need.
 Government regulations may prevent other firms from entering the market.
 Licenses protects operators against entry of competitors
(Accept any other correct relevant response)
CONCLUSION
The government should tighten competition policies in order to limit monopolies and achieve efficiency in the economy.
(Accept any other correct relevant conclusion)

Oligopoly
Activity 1

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1.1 Choose the correct answer from the given possible options.

1.1.1 A kinked demand curve is related to…...

A. Monopoly
B. Perfect market
C. Monopolistic
D. Oligopoly
1.1.2 Firms agree to set prices at a certain level rather than competing with each other, which leads to higher prices
for consumers.
A. Cooperation
B. Collusion
C. Price determination
D. Market.
1.1.3 A large, influential firm sets the price, and other smaller firms in the industry adopt this price as their own.
A. Price formation
B. Price determination
C. Price leadership
D. Price following
1.1.4 In an oligopoly a firm will make a/an………. In the long run.
A. Economic profit
B. Normal profit
C. Economic loss
D. Zero profit
1.1.5 The products or services offered by firms imay be similar but are often differentiated in some way.
A. Monopolistic
B. Perfect market
C. Monopoly
D. Oligopoly

1.2 Match COLUMN B with a description in COLUMN B.

Column A Column B

1.2.1 Oligopoly S P. Customers prefer the products even when similar

alternatives are available from other sellers.

1.2.3 Barriers to Entry U Q. a dominant firm sets the price for a product. And
other firms do the same.

1.2.4 Non- price competition W R. Large number of buyers.

1.2.4 Price leadership Q S. The market is dominated by a small number of

large firms, each of which holds a significant
share of the market.

1.2.5 Brand loyalty P T. Industrial development policies.

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 U. high start-up costs, strong brand loyalty, no
access to critical resources and government
regulations.

V. firms are focus on advertising, product

development, and customer service to gain
market share.

(5X1) (5)

1.3 Give a term for each of the following descriptions

’
1.3.1 A formal agreement among competing firms to coordinate their actions to control prices, limit production, or
divide markets.
 Cartel
1.3.2 When companies distinguish their products or services from those of their competitors to make them more
attractive to a specific target market.
 Product differentiation.
1.3.3 The demand curve that combines relatively elastic and relatively inelastic demand curves is known as…
 Kinked demand curve.
1.3.4 Each firm must consider the potential reactions of its competitors when making strategic decisions.
Interdependence.
1.3.5 A theory that is often used to analyze strategic interactions in an oligopoly. Game theory.

ACTIVITY 2
2.1 Study the information below and answer the questions that follow.

OLIGOPOLIES FIBRE WAR IN SOUTH AFRICA HEATS UP

South Africa’s biggest fibre network operators are in a heated battle, cutting prices,
advertising and increasing line speeds to win over customers. Open serve blew the field
wide open with substantial line speed increases and price cuts. Metro Fibre and Vuma
Tel followed and doubled their line speeds and reduced prices on most of their
packages, significantly reducing open serve’s price advantage.

Adapted source: mybroadband.co.za]

2.1.1 Identify the market structure in which the fibre network operators are competing. (1)
Oligopoly 

2.1.2 Name one non-price strategy that is used by firms to win customers according to the extract. (1)
Advertising

2.1.3 Briefly describe the term duopoly. (2)

Duopoly is the market structure that is dominated by two large firms.
(Accept any other correct relevant response)

2.1.4 Explain possible ways in which oligopolies may avoid price wars. (2)
 Firms can use tacit collusion/ price leadership to reduce competition. 

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  Firms could use non price competition such as advertising, door to door delivery to increase their market
share.
(Accept any other correct relevant response)

2.1.5 How can advertising be used to increase the market share in an oligopoly market? 2×2 = (4)
 Advertising provides information about new and existing products of the firm and creates the demand for the
product. 
 Consumers are persuaded to buy the product on offer through advertising to increase the market share. 
 The customers are reminded about the benefits of buying a particular product to ensure brand loyalty. 
(Accept any other correct relevant response)

ACTIVITY 3

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

3.1.1 Identify the inelastic segment of demand curve. (1)

E-D/ bottom part 

3.1.2 What is the market price in the graph above? (1)

R25 

3.1.3 Briefly describe the term tacit collusion. (2)

When a dominant firm increase price in such a way that its rivals will see it as a market signal and increase their
prices.

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3.1.4 Why is it necessary for the firms in oligopoly to always sell at a market price?
 In an oligopoly, firms are highly interdependent; any change in price by one firm can lead to immediate reactions
from competitors, making it risky to deviate from the market price.
 If a firm lowers its price to gain market share, competitors may follow suit, leading to a price war that can erode
profits for all firms involved.
 Selling at the market price helps maintain price stability within the industry, ensuring that firms can sustain their
profit margins without destabilizing the market.
 By adhering to the market price, firms collectively maintain their market power and profitability, avoiding the
negative consequences of aggressive pricing strategies. 
(Accept any relevant and correct answer)

3.1.5 Calculate the total revenue made by the firm from the graph above. Show ALL calculations. (4)
TR = P×Q.
TR = R25 × 400.
TR = R10 000.

ACTIVITY 4

4.1 Study the table below and answer the question that follow.

OLIGOPOLY
MARKET SHARES%
YEAR Vodacom MTN CELL C TELKOM
2020 40 26 9 25
2021 40 26 9 25
2022 43 25 8 24
2023 43 26 8 23
Adapted source: my broadband.co.za

4.1.1 Identify the dominant firm in the market according to the information above. (1)
Vodacom

4.1.2 Name any other firm that compete in this market. (1)
 Rain 
 Virgin mobile
(Accept any other relevant and correct answer)

4.1.3 Briefly describe the term cartel. (2)

A group of firms in the same industry under oligopoly that agree to limit the quantity and fix the price of goods to
limit competition. 
4.1.4 What makes it difficult for new firms to enter an oligopoly market? (2)
 Oligopoly markets often have high entry barriers, such as significant capital requirements, making it difficult
for new firms to enter. 
 Existing firms in an oligopoly typically have strong brand recognition and customer loyalty, which new
entrants find hard to compete with. 
 Dominant firms in an oligopoly benefit from economies of scale, allowing them to produce at lower costs,
making it challenging for new firms to compete on price. 
 New entrants may face aggressive retaliatory actions from established firms, such as price cuts or increased
marketing, discouraging them from entering the market. 
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 (Accept any other correct relevant response)

4.1.5 Why do oligopolies use non-price competition? (2×2) (4)

 Oligopolies use non-price competition to avoid price wars, which can erode profits for all firms in the market. 
 By focusing on product differentiation, branding, and customer service, firms can attract customers without
altering the market price, maintaining stable profit margins. 
 Non-price competition, such as advertising and promotions, helps build brand loyalty, making it harder for
competitors to lure customers away. 
 Through non-price competition, oligopolies can enhance their market power by creating a perception of
uniqueness, reducing the emphasis on price as the primary factor in consumer decisions. 
(Accept any other correct relevant response)

ACTIVITY 5
5.1 Study the cartoon below and answer the questions that follow.

5.1.1 What type of collusion is discussed in the information above? (1)

Tacit collusion/ Implicit collusion/Price leadership

5.1.2 Name the market structure in which banking industry operate in South Africa. (1)
Oligopoly

5.1.3 Briefly describe the term oligopoly. (2)

Oligopoly is a market structure that is dominated by few large sellers. 
(Accept any other correct relevant response)

5.1.4 Why is branding important in the oligopoly market? (2)

 Branding helps firms in an oligopoly differentiate their products from those of competitors, making them stand out
in a market where products are often similar. 
 Strong branding fosters customer loyalty, encouraging repeat purchases and reducing the likelihood of
customers switching to competing brands. 
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  Effective branding can create a perception of higher value, allowing firms to justify premium prices without
engaging in price competition. 
 By building a powerful brand, firms can increase their market power, influencing consumer preferences and
strengthening their position in the market. 

5.1.5 How does price fixing negatively affect consumers? 2×2 = (4)
 Price fixing leads to artificially inflated prices, as firms agree to set prices at a higher level than in a competitive
market, directly increasing costs for consumers. 
 It can limit consumer choice by stifling competition and innovation, as firms are less motivated to differentiate
their products or improve services. 
 Price fixing reduces market efficiency by preventing prices from adjusting to reflect supply and demand, leading
to a misallocation of resources. 
 With reduced competitive pressure, firms may invest less in quality and customer service, negatively impacting
the overall value and satisfaction for consumers.

ACTIVITY 6
6.1 Discuss non-price competition of the firm under oligopoly. (4X2) (8)
 Product Differentiation: Firms in an oligopoly focus on distinguishing their products from competitors through
unique features, quality enhancements, and branding to attract and retain customers.

 Advertising and Marketing: Extensive advertising and marketing campaigns are employed to build brand
recognition and loyalty, emphasizing product superiority, and creating a strong market presence.

 Customer Service: Enhanced customer service offerings, including warranties, after-sales support, and
personalized services, help firms to gain a competitive edge and foster customer loyalty.

 Technological Innovation: Investing in research and development to introduce new technologies and
innovative products allows firms to stay ahead of competitors and meet evolving consumer preferences.

 Loyalty Programs: Implementing loyalty programs and special promotions encourages repeat business and
strengthens the relationship between the firm and its customers.

 Distribution Channels: Expanding and optimizing distribution networks, including online platforms and physical
stores, ensures better product availability and convenience for customers, contributing to competitive advantage.

6.2 Why do firms form cartels in the oligopoly market. (4X2) (8)
 Profit Maximization: Firms form cartels to collectively set higher prices and restrict output, which maximizes
their joint profits compared to competitive pricing.

 Market Control: By coordinating actions, cartel members can exert significant control over the market, reducing
uncertainty and stabilizing their individual positions within the industry.

 Reduction of Competition: Cartels reduce the level of competition among member firms, preventing price wars
and protecting their market shares from aggressive competitors.

 Predictability: Coordinated actions in a cartel create more predictable market conditions, allowing firms to plan
and invest with greater confidence.

 Barriers to Entry: Cartels can create barriers to entry for new firms by controlling prices and output, making it
difficult for new competitors to enter the market and gain a foothold.

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  Cost Sharing: Collaboration within a cartel can lead to shared costs in areas such as marketing, research and
development, and production, resulting in economies of scale and increased efficiency.

6.3 How do firms increase the price under oligopoly. (4X2) (8)
 Collusion: Firms may engage in explicit or tacit collusion, where they agree to set higher prices collectively,
either through formal agreements (illegal in many jurisdictions) or informal understandings.

 Price Leadership: A dominant firm in the oligopoly may act as a price leader, setting higher prices that other
firms follow, creating a coordinated price increase across the market.

 Reducing Output: Firms may deliberately reduce their output, creating artificial scarcity in the market, which
drives up prices due to the reduced supply.

 Product Differentiation: By differentiating their products through quality improvements, unique features, or
branding, firms can justify higher prices and reduce direct price competition.

 Cost Increases: Firms may pass on increased costs of production (e.g., raw materials, labor) to consumers by
raising prices, often using cost-push inflation as a justification.

 Avoiding Price Wars: Firms may avoid aggressive price competition by maintaining higher prices, recognizing
that price wars can erode profits for all players in the market.

ACTIVITY 7

7.1 Discuss the cartel and price leadership as forms of collusion. (2x4) (8)
Cartel
 Occurs when rival firms cooperate collectively in oder to fix prices and limit supply.
 A cartel is a formal agreement formed where members cheat by fixing prices and sell at agreed quotas.
 Cartels are forbidden by law in most countries however they continue to exist.
 An example of overt collusion is OPEC. 

Price leadership
 Occurs when a dominant firm will increase the price of a product in hope that its rivals do the same 
 This is referred to as price leadership since it does not guarantee compliance by other firms
 In a case where rival firms do not comply, this collusion may lead to price war 

7.2 With an aid of a well labelled graph, explain how an oligopoly firm achieve maximum profit. (8)

TITLE

Price
D
R30
e
R25
R20

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D
  To maximise the revenue, price must be set at the equilibrium point where the market price is R25.
 An increase in price (from R25 to R30) will cause a greater decrease in quantity demanded (elastic demand)
400 to 200 because consumers will switch to cheaper products of other firms.
 If the firm lowers the price below R25 (from R25 to R20), there would be a slight increase in the quantity
demanded (inelastic demand) because of brand loyalty.
 The firm should therefore sell at the market price of R25, because increasing or decreasing the price, would not
make more revenue for the firm. 

ACTIVITY 8

8.1. How can collusion negatively affect the economy?

Collusion can result in higher prices for consumers, and they will afford less goods and services.
Firms can be discouraged from investing in new technologies and products as they may be more interested in
maintaining their existing market positions and profits.
 Lower quality products and services may be produced as firms may be less incentivised to invest in quality
improvement technologies.
 Collusion reduces the competitiveness of business in the long run thereby decreasing GDP and
employment. 
 Consumer choice is limited as collusion blocks entry of new firms into the market.
(8)
(Accept any other correct relevant response)

ACTIVITY 9

9.1 Examine in detail the characteristics of an oligopoly market. (26)

INTRODUCTION
An oligopoly exists when a small number of large companies are able to influence the supply of a product or service to a
market
(Accept any other correct relevant introduction)

MAIN PART
Number of businesses
 The market consists of few firms that dominate the market  e.g. banks 
 Each firm is aware of the actions of the others in the market and this has an impact on decision-making 
 This means each producer not only influences others but he also has to consider them
 If there is two firms in the market, it is called a duopoly 

Nature of the product

 Products sold may be homogeneous or heterogeneous
 When product are homogenous, the market is called a pure oligopoly  e.g. petrol 
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  When products are different, the market is referred to as a differentiated oligopoly e.g. motor cars

Entry into the market 

 It is difficult to enter the market due to various barriers
 A large amount of capital is usually required to enter the market 
 It is often difficult to overcome barriers imposed by consumer preferences brands
 Firms usually spend a lot of money on advertising to create brand loyalty
 The existing firms may often be enjoying economies of scale and this may be a further barrier 

Control over price 

 Oligopolists have influenced the price but not as much as the monopolist does 
 Price wars is often a feature when the existing firms want to limit entrance in the market

Demand curve of the oligopoly 

 An oligopoly faces a kinked demand curve. This demand curve consists of two sections
 The top section that relates to high prices has a very elastic slope (i.e. demand is very sensitive to ‘n price
change) 
 The bottom section that relates to lower prices is very inelastic (i.e. demand is not sensitive to a price change)


Collusion
 Firms often cooperate instead of competing with one another 
 This may be by forming cartels (explicit collusion), which are formal agreements for firms to work together 
 At times collusion can be in the form of price leadership, which is an unspoken agreement among firms 
 Price leadership (tacit/implicit collusion) involves one firm serving as a price leader while others follow 
 When the price leader changes its price the other do the same 
 Collusion is illegal in South Africa, may not negotiate agreements that can limit competition. Behaviour is liable to
large fines by the Competition Commission 

Market information
 Buyers and sellers have incomplete information about market conditions 
 Even though the Oligopolists monitor one another’s actions, they do not always know how the competitor will
react to their actions 

Price and profit

 Prices are higher in general than under perfect competition 
 Oligopolists develop brand loyalty among consumers to generate economic profit Price leadership (tacit/implicit
collusion) involves one firm serving as a price leader while others follow 

Mutual dependence
 There are only a few businesses that sell that particular product – each business is influenced by the action of
others  (Max 26)
(Accept other correct relevant response

ADDITIONAL PART
9.2 How can the government reduce collusion amongst businesses? (10)
 Regulation of mergers reducing high concentration ratios of competition amongst businesses. 
 Screen market for suspicious pricing activities and high profitability. 
 Charge high fines and penalties for companies liable for collusion practices. 
 Offer immunity to firms who come clean and give government information about collusive behavior. 
 Lay criminal charges and jail sentences to company executives involved for conducting collusion practices. 

(Max 10)

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(Accept other correct relevant higher order response) (Allocate a maximum of 2 marks for mere listing of facts or
examples)

CONCLUSION
 The correct application of the Competition Policy is crucial for government to reduce collusion. 
(Max (2)
(Accept other correct relevant higher order responses [40]

MONOPOLISTIC COMPETITION
Activity 1
1.1 Choose the correct answer from the given possible options.
1.1.1 The demand curve that is relatively elastic relates to a……... market.
A. Monopoly
B. Perfect
C. Oligopoly
D. Monopolistic
1.1.2 A monopolistic competitor achieves a/an… profit in the long-run.
A. short
B. medium
C. long
D. momentary
1.1.3 Products produced by monopolistic competitive firms are …
A. unique.
B. homogeneous.
C. differentiated.
D. the same.
1.1.4 A characteristic of monopolistic competitors is that they …
A. produce a homogenous product
B. obtain economic profits in the long run.
C. have full control over the price.
D. can easily enter and exit the market.
(4X2) (8)
1.2 Give a term for each of the following descriptions.
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1.1.1 Each firm faces a downward-sloping demand curve, meaning that it must lower its price to
sell more of its product. Monopolistic competition.
1.1.2 When the firm in the long run produces at a level where average total cost is not minimized
is called……Excess capacity.
1.1.3 Each firm in a monopolistically competitive market is a price……. Maker.
1.1.4 Each firm in a monopolistically competitive market faces a downward sloping…. demand
curve.
(4X2) (8)

Activity 2
2.1 Answer the following questions.
2.1.1 Give TWO examples of explicit cost for a firm. (2 x 1) (2)
 rent√
 water and electricity
2.1.2 Why is monopolistic competition regarded as a hybrid structure?
It features characteristics of two market structures.
2.2 Study the extract below and answer the questions that follow.

SOUTH AFRICA’S FAST-FOOD INDUSTRY

The South Africa’s fast-food industry is highly competitive as many sellers of

similar or differentiated products are using measures such as advertising to
outsmart each and gain a larger share of this market. This industry is
responsible for about 40% of the total consumer food-service sales in the
country, e.g. Fishaways selling fish and Steers selling hamburgers. This
market is regarded as a hybrid structure.

[Adapted from The Globe, January 2023]

2.2.1 Identify ONE example of a non-price strategy used by firms in the above-mentioned
industry.
Advertising (1)
2.2.2 Name the market structure under which the fast-food industry
operates. (1)
Monopolistic competition
2.2.3 Briefly describe the term monopolistic competition. (2)

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 Monopolistic competition is the market with hybrid structure where there are many buyers
and sellers of differentiated products.
2.2.4 Why would a firm in a monopolistic competition only make a normal profit in the long run?
(2)
 In the long run, the entry of new firms attracted by short-term profits increases competition,
driving prices down to the level of average costs.
 As new firms enter the market, the demand for each existing firm’s product decreases,
shifting their demand curve leftward.
 Firms adjust their output and prices until they only cover their average costs, including a
normal profit, with no economic profit remaining.
 This adjustment process continues until firms in monopolistic competition earn only a normal
profit, as the market reaches a new equilibrium where total revenue equals total costs.

2.2.5 How does branding play a role in a monopolistic competitive market structure?
 Branding helps firms in monopolistic competition differentiate their products from those of
competitors, making their offerings unique in the eyes of consumers.
 Strong branding fosters customer loyalty by creating a recognizable and trusted image,
which can lead to repeat purchases despite the presence of similar products.
 Effective branding allows firms to have some control over pricing, as consumers may be
willing to pay a premium for a well-branded product.
 Branding enhances a firm's market presence and visibility, helping it stand out in a crowded
market with many competing firms and similar products.
2.4 How do businesses in a monopolistic competitive market compete without using prices?
(8)
 Businesses in monopolistic competition compete by differentiating their products through
unique features, design, or quality, making their offerings distinct from competitors.
 Firms use advertising and promotional strategies to create brand awareness, highlight
product benefits, and attract customers without altering prices.
 High-quality customer service can set a business apart, providing added value and
enhancing customer satisfaction beyond just the product itself.
 Attractive packaging and innovative product design can draw consumer attention and
preference, differentiating products in a visually competitive market.
 Implementing loyalty programs or rewards can build customer retention and incentivize
repeat purchases without changing prices.
 Offering additional conveniences, such as extended store hours, easy returns, or online
shopping options, can attract customers and improve market competitiveness.
3.1 Study the extract below and answer the questions that follow:

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 3.1.1 Identify the non-price strategy shown by the above information. (1)
Door to door
3.1.2 Name ONE example of a monopolistically competitive industry. (1)
Retail industry
3.1.3 Briefly describe the term patent. (2)
Patent is a sole right given to an inventor to be the sole supplier of a product over a
given time period. √√
3.1.4 Why is the demand curve of a monopolistic competitor more elastic than that of a
monopoly?
 In monopolistic competition, firms offer differentiated products, so consumers can easily
switch to close substitutes if prices rise, making demand more elastic.
 The presence of many firms in monopolistic competition increases competitive pressure,
causing firms to be more responsive to price changes.
 Consumers have more alternatives in a monopolistic competitive market, leading to higher
sensitivity to price changes compared to a monopoly where alternatives are limited.
 Firms in monopolistic competition have less market power compared to monopolies, as they
face a downward-sloping demand curve with greater elasticity due to the availability of
similar products.
3.1.5 Why will economic profit made by the monopolistic competitor disappear in the long
run? (4)
 Economic profit attracts new firms to enter the market, increasing competition and shifting
the demand curve faced by existing firms to the left.
 As new firms enter, the demand for each existing firm’s product decreases, reducing their
ability to charge higher prices and earn economic profits.
 The increased competition drives prices down to a level where firms only cover their
average costs, leaving no room for economic profit.
 In the long run, the market reaches an equilibrium where firms earn only a normal profit, as
new entrants continue to enter until economic profits are eliminated.
Activity 4
4.1 Study the information below and answer the questions that follow:

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4.1.1 Identify the nature of product sold in a monopolistic competition. (1)
Differentiated product
4.1.2 Give ONE example of the monopolistic competitor from the information
above. (1)
Restaurants / petrol stations / clothing brands
4.1.3 Briefly describe the term market. (2)
A market is a mechanism that brings buyers and sellers together for the purpose of
exchanging goods with money.
(Accept relevant and correct answer)
4.1.4 Why is it difficult for monopolistic competitors to collude? (2)
 Monopolistic competition involves many firms, making coordination and agreement on
pricing or output strategies more challenging.
 Firms offer differentiated products, leading to varied interests and incentives, which
complicates the formation of a unified strategy for collusion.
 The constant competition and pursuit of market share make it difficult for firms to maintain
agreed-upon collusive arrangements.
 Firms may distrust each other’s commitment to the collusion agreement, fearing that
competitors will undercut prices or deviate to gain a competitive edge.
4.1.5 Why does the monopolistic competition unable to charge excessive prices?
 In monopolistic competition, numerous close substitutes are available, which limits the ability
of firms to set excessively high prices without losing customers.
 The presence of many competing firms ensures that if one firm raises its prices too much,
consumers can easily switch to alternatives, putting pressure on prices to remain
competitive.
 The demand curve for each firm’s product is more elastic due to product differentiation,
meaning that consumers are sensitive to price changes and will avoid firms with excessively
high prices.

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  The potential for new firms to enter the market and offer similar products at lower prices
prevents existing firms from charging excessively high prices, as it would attract new
competitors.

SECTION C

1. Compare and contrast the market structures of monopolistic competition with an oligopoly
detail. (26)

INTRODUCTION
An oligopoly exists when a small number of large companies are able to influence the
supply of a product or service to a market. Monopolistic competition is a combination of
perfect and imperfect competition. 

BODY:
MAIN PART

Number of businesses
 Monopolistic Competitive markets have many sellers with small market share. 
 Only a few suppliers manufacture the same product in an oligopoly. 
 Nature of product in a monopolistic competition is similar or differentiated. 
 In pure oligopoly products are homogeneous and differentiated oligopoly sell
differentiated products

Control over prices

 Producers in oligopoly have considerable control over the price of their products
although not as much as in a monopoly. 
 Businesses in a monopolistic competitive market have limited control over prices not as oligopoly or
monopoly.

Market entry
 Producers in a monopolistic competitive market have no barriers to entry, new firms
can enter the market. 
 Entry is not easy in an oligopolistic market because there are barriers to entry in the market such as
trading licence. . 
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Economic profit/loss
 In the short run both market types can make economic profit, economic loss and
normal profit
 If oligopolies operate as a cartel, firms have an absolute cost advantage over the
rest of the competitors in the industry. Abnormal high profits may be a result of joint
Economic profit/loss
 In the short run both market types can make economic profit, economic loss and
normal profit
 If oligopolies operate as a cartel, firms have an absolute cost advantage over the
rest of the competitors in the industry. Abnormal high profits may be a result of join
decisions in an oligopoly. 
 Only normal profits are possible in the long run for firms in a monopolistic
competitive market. 

Market information 
 In oligopoly firms and monopolistic firms’ information is limited but internet help to
give some of the information about market condition online. 

Collusion
 In oligopoly producers make formal agreements between firms to collude to limit
competition. 
 In oligopoly they form groups of producers whose goal is to form a collective
monopoly to fix prices and limit supply and competition. 
 For a monopolistic competition, secret communication between sellers is
Impossible

Decision making
 An oligopoly is characterized by mutual dependence. The decision of one company
will influence other businesses. 
 The decisions of producers in monopolistic competitive market are influenced by
other competitors. 

Demand curve
 The demand curve of a monopolistic competitive firm is downward sloping but
relatively elastic
 The demand curve of an oligopoly is downward sloping but kinked (relatively inelastic
and elastic

Examples
 An example of a monopolistic competitive firm is fast-food outlets and dress
designers. 
 An example of an oligopoly is Petrol station and network providers (Max. 26)
(Accept any other correct relevant response)
ADDITIONAL PART

NEGATIVE
 Total output of goods produced decreases which lead to profit losses. 
 Trading stock can be spoiled, and this will cost the business more money. 
 Some businesses may then decide to shut down and this can lead to more job
losses
 Electricity also affects s network and businesses that trade on-line will fail to perform
their transactions

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POSITIVE
 Businesses that sell generators, paraffin and petrol will make more profit as the
demand of these products will increase. 
(Accept any other correct relevant response

CONCLUSION
The above discussed markets both use non price competition strategies such as
extending shopping hours and doing free local deliveries to increase market share. 

MARKET FAILURE

ACTIVITY 1
1.1 Various options are provided as possible answers to the following questions. Choose the
correct answer and write only the letter (A-D) next to the question numbers (1.1.1- 1.1.8) in
the ANSWER BOOK, for example 1.1.9. D.
1.1.1 The cost to the society that is not included in the market price is known as…
A. private cost.
B. external cost.
C. internal cost.
D. excessive cost.
1.1.2 A market in which illegal goods are bought and sold is called…
A. product market.
B. perfect market.
C. black market.
D. imperfect market.
1.1.3 The goods that are undersupplied by the market yet are beneficial to the society are called…
A. merit goods
B. demerit goods
C. private goods
D. economic goods
1.1.4 A situation where the market supplies goods that matches the needs of the society is…
A. inefficiencies
B. technological inefficiency
C. productive efficiency
D. allocative efficiency
1.1.5 The value of the next best alternative that is given up when making an economic decision is called…cost
A. economic.
B. production.
C. opportunity.
D. private.
1.1.6 A wage rate set by the government below which no employer may pay his or her workers is called…
A. maximum wage
B. alternative wage
C. minimum wage

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 D. low wage
1.1.7 A cash incentive given to a producer to lower the cost of production is called…
A. subsidy
B. taxation
C. minimum price
D. surplus
1.1.8 Evaluation done by government to weigh costs and benefits of a project to determine whether it should be
carried out is known as …
A. feasibility study
B. profitability analysis
C. external benefit
D. cost-benefit analysis
1.2 Choose a description from COLUMN B that matches the item in COLUMN A. Write only the
letter (A-I) next to the question numbers (1.2.1.to 1.2.8.) in the ANSWER BOOK.

COLUMN A COLUMN B
1.2.1 Imperfect competition A. Allocating resources in such a way that no one can be H
made better off without making someone worse off.
1.2.2 Demerit goods B. Consists of the sum of private and external cost G
1.2.3 Missing markets C. Aims at allocating scarce resources efficiently. I
1.2.4 Free riders D. Selling of goods and services to another country at a F
price that is generally lower than the country of origin
1.2.5 Pareto efficiency E. Goods that are non-rival in consumption A
1.2.6 Production possibility F. Those who enjoy the product without paying for it. C
curve.
1.2.7 Social cost G. Goods that are harmful to the society B
1.2.8 Dumping H. Prevents other businesses from entering the market thus D
market failure.
I. They fail to produce certain goods and services
despite being needed or wanted.

1.3 Give ONE term for each of the following descriptions. Write only the term next to the question
number (1.3.1 – 1.3.6) in the ANSWER BOOK. Abbreviations, acronyms and examples will not
be accepted.
I.3.1 Cost and benefits to a third party who is not directly involved in production process.
Externalities.
I.3.2 Combination of community goods and collective goods.
Public goods
I.3.3 A loss in producer and consumer surplus due to inefficient allocation of resources.
Deadweight loss
I.3.3.1 Inefficiency that occurs because markets fail to produce optimum output at the lowest possible cost.
Productive/ Technical inefficiency
I.3.4 Laws passed by the government to regulate negative externalities caused by businesses.
Direct control
I.3.5 A financial grant by the government to increase production of a particular good.
Producer subsidy
I.3.6
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Activity 2
2.1. Answer the following questions
2.1.1. Name TWO examples of demerit goods (2)
 Alcohol abuse
 Drugs abuse
 Cigarette
2.1.2. Why is cost benefit analysis important for the government? (2)
 Cost benefit analysis assist the government to make an informed decision on whether to carry out the project on
not
(Accept any other correct relevant response)

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

MINIMUM WAGE

Pric
e
S
D

M N
R100 Minimum Wage

R60 e

D
S
0
20 30 40 Quantity

2.2.1. Identify the area that represents surplus of labour above. (1)
MN
2.2.2. What is the value of the market wage in the graph above? (1)
R60
2.2.3. Briefly describe the term unemployment rate. (2)
 Unemployment rate refers to people who are actively looking and able to work but they
cannot find employment
2.2.4. Explain the cause for the increase in labour supply when the minimum wage is introduced. (2)
 The introduction of minimum wage would cause an increase in wages and attract new employees in the labour
market.
(Accept any other correct relevant response)
2.2.5. How could employers respond to high minimum wage set by government? (4)
 Employers may retrench some of the employees in order to reduce the wage bills
 They may not employ new employees which will lead to high rate of unemployment
 They may be capital intensive replacing labourers with technology

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2.2. Distinguish between Merit goods and Demerit goods (8)

Merit Goods Demerit Goods

 Merit goods are goods that are beneficial  Demerit goods are goods that are
to the society harmful to the society
 Provision of these goods by government  As these goods are harmful to the
help to stimulate standard of living of the society government discourages the
people provision of these goods by imposing tax
 These goods are under supplied by the on them
market and government take the  These goods are over-supplied by the
initiative to provide them e.g. education, market while government discouraged
health services consumption of these goods by charging
higher prices

ACTIVITY 3
3.1. Answer the questions that follow
3.1.1 Name TWO Examples of negative externalities (2)
 Pollution
 Natural disasters / climate change
3.1.2 Why taxes are used to restrict negative externalities? (2)
 Taxes are used to restrict negative externalities because firms are discouraged to produce when the tax
rate/company’s tax is too high and thus the pollution may decrease
 Taxes increase state revenue thus if all firms that pollute the environment pay tax additional tax like green tax
the tax revenue will increase
 Higher taxes may encourage firms to look for other ways of producing that will be having less impact on the
environment damage e.g. newer technology that is environmental friendly

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

GOVERNMENT SUBSIDY

Price
S
D
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S1

e
R100
e1
3.2.1. Identify the original market price from the graph above. (1)
R100
3.2.2. Which curve shows the effect of subsidies in the graph above? (1)
S1S1
3.2.3. Briefly describe the term subsidies (2)
Subsidy refers to financial assistance by government to firms that assist to lower the cost of production resulting
in lowering the market price
3.2.4. Why do producer subsidies reduce the price of goods and services? (2)
Producer subsidy leads to less production costs incurred by firms thus lead to firms charging relatively low prices
3.2.5. How do subsidies assist in stimulating the economy of the country? (4)
 Firms are encouraged to produce more quantities when they receive financial assistance from the state as their
cost of production decrease.
 Producer subsidy by government attract more investors which leads to increased supply of goods.
 Less cost of production may influence producers to increase wages for employees that help to stimulate
aggregate demand

3.4. Analyse the impact of minimum wage on the economy (8)

 Setting of minimum wage above the market wage helps to uplift the standard of living of the people as their level
of income increases.
 The supply of labour may also increase as people will be willing to supply their skills at a higher price.
 Aggregate demand of goods and services increase due to more people who are earning higher income.
 Employers may not afford to pay their employees minimum wage as a results it may lead to retrenchments.
(Accept any other correct relevant response)

ACTIVITY 4
4.1. Answer the following questions
4.1.1 Give TWO types of externalities (2)
 Positive externalities
 Negative externalities
4.1.2 Why it is important to ensure that information is complete to avoid market failure? (2)

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  It is important to ensure that the information is complete because producers will not exploit consumers by
charging excessively higher prices.
 Production efficiency will occur which will lead to improved quality and quantity of a product

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

4.1.1. Identify the curve that represents consumer’s preferred combination of goods. (1)
I / Indifference curve
4.1.2. Which point of the PPC curve is impossible to reach due to limited resource? (1)
Point B
4.1.3. Briefly describe the term Pareto efficiency (2)
 Pareto efficiency occurs when resources cannot be distributed to make one consumer better off without making
another consumer worse off
4.1.4. Why higher indifferent curves are preferred than the lower indifferent curves? (2)
 High indifference curves give consumers maximum satisfaction compared to lower indifference curves
 Consumers are able to buy more combination of goods when indifference curves are high
4.1.5. How could producing at point F negatively affect the economy? (4)
 Point E represent under-utilisation of resources which would lead to less goods produced in the economy.
 It may contribute to inflation as cost of production would increase while productivity remains low.
 Less job opportunities would be created causing high unemployment rate in the economy.
(Accept any other correct relevant response)
4.2. Examine taxes and subsidies as ways of government intervention to counter market failures.
Taxes (8)
 Governments intervene in the market by levying taxes to recover the external cost.
 These taxes will increase the price and will result in a decrease in production. This could help to reduce a
negative externality such as pollution.
Providing Producer Subsidies
 The government provides subsidies to producers to encourage them to increase the production of goods
therefore supply increases.
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  Producer subsidies are often given to suppliers of agricultural products such as milk, wheat and maize.
 Subsidies lower the cost of producing goods and thus the market price of these goods is lowered.

Activity 5

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5.1.1 Identify the type of pollution shown by picture 1 above. (1)
 Air pollution
5.1.2 What positive externality is depicted by picture 2? (1)
 Education
5.1.3 Briefly describe the term Externality (2)
 Externalities are cost or benefit to third parties which are not directly included in the market price of goods
5.1.4 Why is consumption of demerit goods discouraged by government? (2)
 Consumption of demerit goods is discouraged by government because these goods are harmful to the society
with lead to diseases and that become a burden to the state
5.1.5 How does government intervene to reduce negative externalities? (4)
 Government charges taxes such as excise duties on cigarette to discourage the use of such products since they
are harmful to society.
 Passing laws and regulations to prevent activities that cause negative externalities such as laws that regulate the
amount of air pollution and waste that firm emit.
5.4 Discus imperfect competition as a reason for market failure (8)
 In market economies, competition is often impaired by power as power often lies to a greater extent with
producers than consumers.
 Most businesses operate under conditions of imperfect competition that allows them to restrict output and raise
prices e.g. monopoly, duopoly, oligopoly
 They can also prevent new businesses from entering the industry using patents, copywrites and licenses as
barriers.
 E.g., Businesses had technology to produce long-life light bulbs for some time before they went on the market
(Accept any other correct relevant response)
5.5 Analyse the impact of minimum price on the economy (8)

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  Minimum price is set by the government above the market price thus encouraging producers’ willingness to
produce more.
 The desired effect is that consumption of the good will fall due to higher price.
 Consumers will find it difficult to buy more because lower income earners will not afford to purchase goods at
higher prices.
 A surplus will be the result because of a decrease in demand while the supply is increased.
 A surplus will end up being destroyed or used as an animal fodder which does not produce the required results
and has negative impact in the economy of decreasing demand.

5.6. Discuss productive and allocative efficiency as consequences of market failure. (8)
Productive inefficiency
 Productive inefficiency happens when the business does not produce at the lowest possible cost of the LAC
curve.
• It’s characterised by a situation where the businesses do not maximise outputs from given inputs
• There is room to reduce cost without producing fewer goods or without producing lower quality goods
(Accept any other relevant answer)
Allocative inefficiency
• When resources are not allocated in the right proportions and the product mix does not meet the consumers' tastes.
• Some goods might be oversupplied, while other goods might be under- supplied.
• Businesses are allocated resources inefficiently and produce goods and services that consumers do not want
(Accept any other relevant answer)

5.7 How would immobility of factors of production cause market failure? (8)
 Labour takes time to move from one job to another, workers sometimes are reluctant to change to another job which
makes labour relatively immobile.
 Machinery and infrastructure take time to move from one destination to another and it makes it difficult to produce enough
goods and services thus declining production level.
 Technology used in production may change, for examples the use of robots rather than labour may takes time for most
industries to adapt,
 Workers may not be flexible as technology changes which requires new skills, and this becomes an impediment in the
production process.
(Accept any other relevant answer)

Accept any other relevant answer)

Activity 6

6.1.1. Mention TWO goods that government impose excise duties on. (2)
 Fuel
 Alcoholic products
 Tobacco
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  Soda
(Accept any other relevant answer)

6.1.2. How would implementation of maximum prices impact negatively on the economy? (2)
 It causes shortage of goods and services resulting in a decline in economic activities.
 Developing of black markets where producers may attempt to sell the goods at higher prices.

(Accept any other relevant answer

6.3 Why are markets reluctant to produce public goods such as roads? (8)
• It requires a huge capital outlay which poses challenges to the private sector as they may
not be able to raise enough capital.
• It is difficult to charge higher prices and therefore profits are compromised.
• The nature of the goods are non-rival which means consumption by one does not reduce the amount
available for somebody else and that affects profitability.
• Some of the goods are non-excludable so it is difficult to prevent people from using them
without paying for them.
(Accept any other correct relevant response)

6.4. How can Cost Benefit Analysis reduce inefficiencies in the public sector? (8)
It can reduce inefficiencies by:
• Ensuring that costs and benefits are taken into account before the government embarks
on a big project for example roads, bridges,dams etc.
• Ascetaining that the new project will be feasible and provide more social benefits than social costs.
• Making objective decisions as it removes subjectivity in decision-making because all decisions
are based on practical facts.
• Ensuring economic efficiency in resource allocation and eliminating unfruitful expenditure. (8)
(Accept any other correct relevant response.)

Activity 7
7.1. Study the picture below and answer the questions that follow

DAM BUILDING PROJECT FOR FAMERS

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7.1.1 Name the economic term depicted by the above picture (1)
 Cost benefit analysis
7.1.2 Which sector uses cost benefit analysis (1)
 Government
7.1.3 Briefly describe the term cost benefit analysis (2)
 An analysis done by government which weighs the costs and benefits of a project to determine
whether it should be carried out.
(Accept any other correct relevant response)
7.1.4 Why should the benefit outweigh cost for government to proceed with the project? (2)
 Benefits should be greater than costs so that government can eliminate wastage of resources and inefficiencies.
7.1.5 Why would it be difficult to apply the cost-benefit analysis? (2)
 Different stakeholders may have different opinions on the appropriate values to assign, leading to potential
biases.
 Assigning present values to future costs and benefits requires discounting, which involves assumptions about
the appropriate discount rate.
 The choice of discount rate can significantly influence the results and may not accurately reflect societal
preferences over time. √√
(Accept any other correct relevant response.)

ACTIVITY 8
SECTION C
8.1 Discuss in detail the state intervention as a consequence of market failures without the use of graphs. (26)
INTRODUCTION
Market failure occurs when the market forces of demand and supply fail to allocate the resources efficiently
(Accept any other correct relevant introduction)
BODY/ MAIN PART
Direct control

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  The state can pass laws or use existing legislative frameworks to control businesses and industries, individuals who
generate negative externalities.
 Thus in South Africa, emissions of potentially dangerous chemicals, air and scenic pollution, environmental preservation
are controlled through carious Acts regulations.
 Advertising by the tobacco industry is prohibited and alcohol may not be sold on Sundays or to persons under the age of
18 years.
Imperfect markets
The government can deal with imperfect competition by:
 Formulating or implementing a competition policy to increase the level of competition.
 Using laws on competition to prevent exorbitant prices charged by firms, to ensure that entry to the market is free, prevent
harmful collusion and encourage foreign competition which helps to keep prices low.
 Granting licences to more business in the case of state monopolies.
 Imposing price controls to decrease prices of goods and services.
Levying of taxes
 The government will intervene in the market by levying taxes to recover external costs.
 These taxes will increase the price and will result in a decrease in production of a certain good.
 Levying taxes could be used as a strategy of reducing production and consumption of demerit goods as well as generating
revenue for the state.
 Firms and consumers will then be allocating resources in a more efficient way.
Providing producer subsidies
 The government provides subsidies to producers to encourage them to produce more goods and services.
 Subsidies increase supply of specific goods and services such as milk, wheat and maize.
 Subsidies lower the cost of producing goods and thus the market price of these goods is lowered, increasing consumption.

Minimum wages
 A minimum wage is the lowest remuneration that employers are required by law to pay their workers.
 Income for the workers will increase and as a result their standard of living will improve (improve welfare and ensure basic
needs are met).
 If a minimum wage is set above the equilibrium market wage, supply of labour will exceed the demand for labour.
 This will increase the cost of labour, resulting in higher cost of production for Businesses.
 Some workers may be retrenched and increase unemployment and while production decreases.
 Minimum wages will lead to more bargaining power of workers.
Minimum prices
 The government is obliged to intervene to ensure sufficient supplies of staple food in the market.
 The approach of setting minimum prices or price floors will be used so that it will be worthwhile for producers (to make a
comfortable profit) to produce essential goods in desired quantities.
 These are prices that are set above the market price by the government
 Minimum prices however have unwanted side-effects as they cause a surplus in the market.
 Surplus products become a challenge to dispose as they should rather be sold at lower costs, dumped to other countries
which is prohibited by the WTO or be destroyed.
Maximum prices
 The government will set a maximum price if the price is deemed to be too high for essential goods (basic goods).
 The maximum price that is set by the government below the market price is known as a price ceiling or maximum price.
 The government will intervene in the market by passing law that suppliers may not charge more than a maximum price.
 The immediate effect of maximum prices in the market is that the quantity supplied drops thus causing shortages.
 Shortages in supply for certain goods in the market will result to the establishment of the 'black markets'.
Additional part

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8.2 How can the government deal with lack of information as a cause of market failure? (10)

The government should tighten laws that regulate health, safety and quality standards as implemented by SABS.

Information about products should be included on the packaging to enable consumers to make informed decisions as
whether or not the product would be suitable for them.
 Regulations for advertising standards should be strengthened to prevent false claims and deceptive advertising.
 Government should educate consumers about rights such as access to information so that they can request product
information where it is not available.
 Consumer protection laws should be implemeted to protect consumers from fraudulent business practices that concele or
distort information.
CONCLUSION
Market failures can have devastating effects on the economy which requires government to intervene to reduce their
consequences.
ACTIVITY 9
9.1 Discuss in detail how the following factors lead to the misallocation of resources in the market.
Externalities (10)
Imperfect competition (8)
Imperfect distribution of income and wealth (8)
(26)
9.2 How successful is the South African government in solving income inequality? (10)
INTRODUCTION
Market failure refers to a situation where the market has not achieved optimal resource allocation and production
outcome.
Main body:
Externalities
Externalities are costs not included in the pricing of goods/services, and consequently there is a difference
between the private costs/benefits and the social costs/benefits of production.
 Private costs: the cost of producing the good or service which translates into the prices that consumers pay and
is also called internal costs.
 Private benefits: Internal benefits that accrue to those who produce goods and buy these goods, e.g. producing
a bicycle (for producer) and using the bicycle (consumer).
 Social costs: these are total costs incurred by society as a whole.
 For example the social cost of electricity includes the cost of capital, labour, inputs and the cost of the
externalities such as dirty water and air. Social cost = private costs plus external costs.
 Social benefits: this includes the total benefit experienced by society as a whole. For example, municipalities
provide clean water to society which results in fewer illnesses. Social benefits = private benefits plus external
benefits
Imperfect competition
 Most businesses operate under conditions of imperfect competition – this allows them to restrict output, raise
prices and produce at levels where price exceeds marginal cost. 
 Imperfect markets cause inadequate allocation of resources, as only those that can afford to pay gain access to
certain goods and services.
 Modern markets do not cater for price negotiations and that means consumers have to pay the prices that
producers ask for.
 The introduction of new and improved products is delayed, for example the technology to produce cars not
powered by fossil fuels is already available but the oil-producers and lack of capital delay the process.
 Market failure occurs because imperfect markets fail to achieve technical and allocative efficiency.
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Imperfect distribution of income and wealth
 The market system tends to distribute income and wealth unevenly.
 Since the market is interested only in producing goods for those who can afford it, the unequal distribution of
income leads to the fact that few people have too many goods and many have too few goods.
 Due to a lack of skills, education and imperfect information, certain individuals are unable to earn incomes that
are necessary to achieve a decent living standard.
 Low incomes lead to an inability to accumulate wealth.
 If the initial distribution is unequal, the final distribution will be unequal too.
 The market fails to ensure that everyone in society gets equal access to the output of the economy.
 Too many resources are used to produce output for the rich members of society, and too few for those that are
poor.
ADDITIONAL PART
How successful is the South African government in solving income inequality?
The South African government has been successful in the following:
 Transferring income directly to the poor through the implementation of child support grants,
unemployment benefits etc. thus providing the poor with access to basic needs
 Implementing a progressive tax system which reduces the gap between high and low income earners by
charging a high tax rate for those with high income brackets. ✓✓
 Providing free primary health care in provincials hospitals and clinics to curb diseases and investing in a healthy
society. ✓✓
 Offering free basic education to those who cannot afford to pay schools fees to ensure skills acquisition. ✓✓
 Excluding VAT in basic items that the poor often consumes such maize so that consumers can afford them.
✓✓
Accept any relevant correct argument. (10)
CONCLUSION
 It is important for the government to intervene, when markets fail, for the benefit of the society. ✓✓
Accept any relevant conclusion. (2)

CONTEMPORARY ECONOMIC ISSUES

INFLATION

Activity 1

1.1 Various options are provided as possible answers to the following questions. Choose the answer and write only
the letter (A-D) next to the question numbers (1.1.1 to 1.1.5)
1.1.1 The rate at which the Reserve Bank lend money to commercial banks is called the…………. rate
A. Prime lending
B. Interest.
C. Repo. 
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 D. Inflation.

1.1.2 The phenomenon of prices of goods and services increasing sharply, but economic growth being very low is
known as...
A. Stagflation 
B. Headline inflation
C. Hyper inflation
D. Core inflation

1.1.3 The prices set or controlled by government are called……...... prices.

A. Infiltrated
B. Administered. 
C. Circulated.
D. Directed.

1.1.4. A sustained and significant increase in the general price level of goods and services over a period of time, is called
………….
A. Hyperinflation
B. Deflation.
C. All-inclusive inflation
D. Inflation . 

1.1.5 An inflation that excludes items with highly volatile prices is called ……. inflation.
A. Core. 
B. Producer price index.
C. Consumer price index.
D. Headline (5X2)10

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1.2. Choose a description from COLUMN B that matches the item in COLUMN A.
Write only the letter (A-I) next to the question numbers (1.2.1. to 1.2.5) in the ANSWER BOOK.

COLUMN A ANSWE COLUMN B

R
1.2.1. Monitory Policy Committee C A. Takes into account the effects of inflation on
gross domestic product.
1.2.2. Inflation target F B. Actual expenditure of a business on the purchase or hire of
inputs required for the production process.
1.2.3. Producer Price Index E C. Authorities that gather on regular basis to monitor
inflation and to implement policy to control inflation.
1.2.4. Constant prices A D. Type of inflation where there is an increase in cost of
production.
1.2.5. Cost-push inflation D E. Measured where imported goods enter the country and
manufactured goods leave the factory.
F. Policy of the reserve bank to keep inflation within the
range.
(5x1)5

1.3 Give ONE term for EACH of the following descriptions. Write only the term next to the question
numbers (1.3.1. to 1.3.5.).
1.3.1 Price of goods and services decrease continuously over a long period of time. (1)
Deflation ✓
1.3.2 Increase in salaries that results in workers paying a higher income tax rate. (1)
Bracket creep ✓
1.3.3 Securities issued by the government in exchange for a loan which redeemable at some
future date in long term. (1)
Government bond ✓
1.3.4 A policy of linking prices of items such as wages, pensions and mortgage bond interest
rate. (1)

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 Indexation ✓
1.3.5 Indicator that measures cost of living excluding mortgage bond is … (1)
Consumer Price Inflation Index ✓
1.3.6 The indicator (index) that is used to calculate the all-inclusive inflation where nominal
prices are converted to real prices. (1)
GDP deflator/implicit GDP ✓ (6 x 1) (6)

SECTION B
ACTIVITY 1

1.1. Study the graph below and answer the questions that follow:

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 Object 2

Source: StatsSA April 2023

1.1.1 Identify the province with the highest cost of living. (1)
 Free state √
1.1.2 What type of consumer inflation is shown on the above data? (1)
 Consumer Price Index√
1.1.3 Briefly describe the term demand –pull inflation. (2)
 It is when aggregate demand exceeds aggregate supply of goods and services in the
economy. √√
1.1.4 Explain the importance of inflation target policy. (2)
It is important to measure inflation because:
 Inflation statistics form the basis of government policy which is used for purposes of budgeting.
√√
 Affect the planning of firms and individuals in the production of goods and service, and
households on their spending.√√
(accept any other relevant correct answer)

1.1.5 How key inputs contributes to high inflation rate? (4)

 When the prices of imported key inputs increases, the domestic costs of production will
increase. √√
 Higher cost of production lead to an increase in prices for consumer goods and service. √√
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  Unfavorable weather conditions may lead higher prices of agricultural produce products due to
shortage in supply. √√
(Accept any other relevant response)
ACTIVITY: 2
2.1. Read the extract below and answer the questions that follow
THE IMPACT OF INFLATION ON HOUSE PRICES
Housing & utilities recorded an annual inflation rate of 5,5% in June, lower than 5,8% in May.
Housing rentals are surveyed quarterly. Actual rentals increased by 0,8% in the second quarter
of 2024 compared with the first quarter. Imputed rentals edged higher by 0,7% over the same
period. Townhouses recorded the highest quarterly change at 1,5% (actual rentals) and 1,2%
(imputed rentals). Domestic worker wages registered a quarterly rise of 1,6%.
Source: www Mailandguidern.com

2.1.1 What is the trend of inflation in housing and utilities in the extract above? (1)
 Decreasing / declining√
2.1.2 Which institution is responsible for monitoring inflation in South Africa? (1)
 South African Reserve Bank√
2.1.3 Briefly describe the term deflation (2)
 It is a decrease in the general price level of goods and services over a period. √√
2.1.4 Explain the effect of inflation on the value of properties. (2)
 As inflation rate increases the value of properties may also rise due to an increase in interest
rates. √√
(Accept any other relevant correct answer)
2.1.5 How can an increase in wages cause inflation? (4)
 Higher cost of production caused by increase in wages will be covered by increasing prices of
goods and services as entrepreneurs may protect their profit margin. √√
 A wage increase that is not accompanied by an increase in the level of productivity will results
in the increased costs of production. √√
 An increase in wages for consumers without a corresponding increase in the supply of goods
will cause inflation. √√
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 (Accept any relevant response)

ACTIVITY:3
3.1. Study the picture below and answer the questions that follow
PETROL HIKE

Source: stats SA May 2024

3.1.1 What message is depicted by the picture above? (1)
 Increase in petrol price√
3.1.2 Which type of consumer inflation is presented by the picture above? (1)
 Administered price inflation√
3.1.3 Briefly describe the term cost push inflation. (2)
 It is the inflation that is triggered by an increase in the cost of production, which push up the
general price level of goods and services. √√
3.1.4 Explain the role of trade unions in causing inflation? (2)
 When trade unions expect an increase in inflation, they tend to demand more during the wage
bargaining process, which further increases the cost of producing √√
 Wage bargaining is mostly accompanied by destruction in industrial piece which delays
production and increases cost. √√
3.1.5 How does inflation target of affects the economy? (4)
Inflation targeting will:
 Leads to stable prices that will help the poor to afford their basic needs. √√
 It brings transparency and accountability which guides the central making interest rate
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 decisions. √√
 Tourists will be attracted to visit our country due to better affordability and this will increase the
standard of living for local people. √√
(Accept any relevant response)

ACTIVITY: 4
4.1. Study the cartoon below and answer the questions that follow.

INFLATION RATE EXCEEDS 50 PERCENT!!!!!

Source: www.mailandguirden.com

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4.1.1 Identify the type of inflation referred to in the cartoon above? (1)
 Hyperinflation√
4.1.2. Name the main instrument available to the reserve bank to curb inflation? (1)
 Interest rate√
4.1.3. Briefly describe the term inflation. (2)
 It is sustained and significant increase in the general price level of goods and services over a
period. √√
4.1.4 Explain the effect of inflation on debtors in the economy. (2X2) (4)
 Debtors benefit from inflation because they borrow when money has more value, by the time
they repay the loan money has lost its purchasing power. √ √
(Accept any relevant response)

4.1.5. How can taxation be used to combat inflation? (4)

 Increasing direct taxation such as income tax will reduce the disposable income of consumers
and fewer goods will be demanded in the economy. √√
 Increasing indirect taxes such as VAT and levy on fuel will make goods more expensive and
this may curb the demand and spending. √√
 The government may implement the surcharge on imported goods making them to be more
expensive and demand for such goods will be reduced. √√
(Accept any relevant response)

ACTIVITY: 5
5.1. Study the picture below and answer the questions that will follow:
THE IMPACT OF INFLATION ON STANDARD OF LIVING

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 Source: www pinterest.ph

5.1.1 Which economic phenomenon is conveyed by the picture above? (1)

 Inflation √
5.1.2 Name ANY group of people that are mostly affected by an increase in prices. (1)
 Poor people√
 Pensioners√
 Retired people√
 Low-income earners√

5.1.3 Briefly describe the term core inflation. (2)

 It is the inflation that excludes items from the basket that have highly volatile prices and items
with prices that are affected by government intervention and policy. √√
5.1.4 Explain the effect of inflation on the balance of payment? (2)
 A high inflation rate will lead to expensive exports and cheaper imports, thereby increasing the
deficit in the balance of payment. √√
(Accept any relevant response)
5.1.5 How does impact load shedding on producer price index? (4)
 Load shedding increases the cost of production which leads to the increase in general price
level of goods and services as electricity is needed for production. √√
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  Business production and sales decrease during load shedding and firms will try to cover the
costs lost during load shedding by increasing the price of their products. √√
(Accept any other relevant response)

ACTIVITY: 8
8.1. Discuss the characteristics of demand-pull inflation (8)
Demand pull inflation
 Aggregate demand rises more than aggregate supply, causing an increase in the general price
level. √√
 when trading or neighboring countries experience economic growth, it may further increase
the demand for our goods and services through an increase in exports. √√
 When personal income tax decreases it increases disposable income leading to more money
available for private consumption expenditure. √√
 easily available consumer credit (credit cards) encourages credit creation which results in the
increase in aggregate demand and consumption. √√
 when government spending increases through investment in infrastructure projects, it creates
job opportunities, increase income levels so as aggregate demand
(Accept any other relevant response)
8.2 Evaluate the effects of inflation on taxpayers. (8)
 Taxes are levied on nominal income and not on real incomes and as a result it causes a
negative impact on the affordability. √√
 Therefore, if the income schedule remain unchanged inflation increases the personal income
tax rate of the taxpayer and thus reduces their disposable income. √√
 Taxpayers now must pay higher taxes even if they are no better off than before the impact of
the inflation rate. √√
 Income is taken from taxpayers to government through the tax system and this may contribute
to discouragement and voluntary layoffs. √√
(Accept any other relevant response)

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8.3. Evaluate the inflation problem in South Africa. (8)
 South African reserve bank set inflation target of between 3%-6% as part of its monetary
policy. √√
 The inflation rate in South Africa is currently higher than the inflation of its trading partners. √√
 It makes South African goods more expensive than other countries, thus South Africa is less
competitive. √√
 The higher price has negative effect on exports (they become expensive) therefore the country
will have negative balance of payment (deficit)√√
 The weakening value of the Rand against its trading partner’s currencies also contribute to the
high cost of imports. √√
(Accepts any other relevant response)

ACTIVITY: 9
 Discuss in detail the measures to combat inflation. (26)
 Evaluate the impact of inflation targeting policy in South Africa. (10)

INTRODUCTION
Demand pull inflation occurs when aggregate demand in an economy outpaces aggregate supply,
even though gross domestic product rises and unemployment falls. 

Main body:

• Policy makers can use various policy measures to fight inflation when it gets too high.
Fiscal measures
Fiscal measures are measures taken by the Minister of Finance regarding taxation and expenditure.
Examples of measures that can be taken include:

• An increase in direct taxation (personal income tax) which will help to decrease demand. 
• An increase in indirect taxation (VAT) causes spending to decrease because goods become more
expensive. 
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• A loan levy. Reduces the disposable income of consumers. 
• The state cuts back on expenditure by canceling government projects like roads, hospitals and
schools. 
• The country’s finance budget deficit is non-inflationary (the government uses loans from the non-
banking sector to limit inflation). 
• The state imposes surcharges on imported goods. This increases the price of these imported
goods, resulting in many people being unable to afford to buy these goods. 

Monetary measures
The South African Reserve Bank (SARB) and the government apply certain monetary measures to
curb inflation:

• The SARB adjusts the quantity of money to the needs of the economy, (e.g. through open-market
policy, thus maintaining a fine balance) between the supply of goods and services and money
supply. 
• The SARB curbs inflation caused by excess demand by reducing the money supply. 
• The bank rate of the central bank (SARB) affects the interest rates in the economy (repo rate). The
bank rate can be raised to encourage savings. 
• Excessive credit can be reduced by restricting the granting of credit by banks. 
• The SARB can apply moral pressure (moral suasion) on financial institutions to be more careful
when granting credit

Other measures
Additional measures that can be taken to combat inflation include:

• Increase productivity: This is a long-term measure generated through improved education and
training which allows more people to be employed and ensures they are more productive. 
• Price control: By fixing the price of certain essential goods, the government assures they remain
affordable. 
• Wage policy: The government takes a decision to break the inflationary spiral of increased wages
and prices by keeping the increase in wages below or at the level of inflation. 
• Stricter conditions for consumer credit: The government makes it harder for consumers to get credit
in order to restrict their spending. 
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• Encourage personal savings: The government implements measures to encourage savings, e.g. by
cutting taxes on savings. The imbalance between demand and supply is corrected by increased
savings, as people save more and spend less. 
• Import controls are relaxed.
• Floating exchange rate: Prices are automatically adjusted to international conditions. 
• Indexation: A policy of linking prices of items such as wages, pensions and mortgage bond interest
rates to price indices to eliminate the effects of inflation. 

• Evaluate the negative impact of inflation targeting policy in South Africa.

Negative impact of inflation
 The SARB monetary policy sets the inflation target between 3% to 6%.If the inflation target
range is exceeded the monetary authorities (SARB) acts to reduce the demand for money, such
as increasing interest rates. 
 If inflation levels increase beyond the inflation target it leads to wage-push inflation and possible
strike action. 
 Wage demands are often accompanied by violent strikes. Employers will give in to workers’
demands but put their prices up to compensate for increased labour cost / increased cost of living.

 If the targets are exceeded the countries credit rating can be negatively affected
 The control of inflation levels prevents South African citizens from living on too much credit from
commercial banks. [‘;
 Inflation targeting negatively affects people on a fixed incomes, because they are reliant on an
income that does not increase at the rate at which inflation increases
 Headline inflation includes all the volatile products such as fuel and electricity, which are not
considered as part of the inflation targeting policy; so people are paying more for certain goods
and services but it is not taken into account(Accept any other correct negative or positive
arguments.)
Conclusion
• While the resources are not being fully used, production and income will increase. However, when
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there is no excess capacity, the prices will increase. As long as consumers are able to borrow from
commercial banks, they are able to increase their demand output. Demand inflation is often described
as ‘too much money chasing too few goods. 

ACTIVITY:10
 Discuss in detail the consequences of inflation (26)
 How does foreign direct investment influence inflation in the economy? (10)
(40)
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 other relevant response)

Wage and Salary earners

• Price increases affect people whose incomes are relatively fixed (in other words, people whose
incomes remain 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
globalized 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 

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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 an individual's income, the greater the percentage of income he or she has to pay in 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 

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Industrial stability
• 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 
Unemployment /poverty
 Higher prices will result in decrease in demand which decrease in demand which decrease
production levels which will increase unemployment
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% 

Balance of payments problems

• 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 competitiveness can also increase unemployment Inflation affects the
redistribution of income in a country 
• The effects of inflation are uneven 
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• 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 
(Allocate a maximum of 8 marks for headings / sub-headings) (Max. 26)

Additional Part

Foreign direct investment influences the inflation in the economy by:

 Increasing the production of goods and services which will increase aggregate supply while
stabilising prices.
 Bringing more efficient production techniques that will reduce production costs, slowing down
cost push inflation.
 Increasing competition in local market which will keep local prices low.
 Strengthening the rand through higher exports volumes which helps to reduce the cost of
importing production input such as crude oil.
 Creating more employment opportunities thereby stimulating consumer spending which
contribute to demand pull inflation.
 Increasing expenditure on capital goods such as machinery and equipment resulting in
increased aggregate demand.
(Accept any other relevant response)

Conclusion
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. 

ACTIVITY 11
 Discuss in detail measures to combat demand pull and cost push inflation. (26)

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Tourism
SECTION A
ACTIVITY 1
1.1 Choose the correct answer from the give possible options.
1.1.1 The type of tourism which includes visiting natural areas, wilderness and enjoying climate is called….tourism.
A. ecotourism
B. cultural
C. business
D. domestic
1.1.2 A tourist that travels through a country to get to another country as a destination is called a,,,,,,,,,, tourist.
A, domestic
B. international
C. natural
D. Transit
1.1.3 South African citizens travelling within the borders of a country are called………tourists.
A. International
B. Domestic
C, National
D. Natural
1.1.4 Religious events are classified under……. Tourism,
A. eco-
B. medical
C. Cultural
B. Business
1.1.5 A landmark or area which is selected by the United Nations as having cultural, historical or another form of
significance is called,,,,,,,,,,,
A. Business sites
B. Historic sites
C. Religious sites
D. World Heritage sites

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1.2 Give ONE term for each of the following descriptions. Write only the term next to the question number
(1.3.1-1.3.4) in the ANSWER BOOK. No abbreviations or acronyms will be accepted.
1.2.1 South African citizens travelling within the borders of South Africa.
Domestic tourist
1.2.2 The activities of tourists who visit museums, art galleries and architectural attractions.
Cultural tourism
1.2.3 Activities of people travelling to and staying in places outside of their usual environment for no more than one
year. Tourism
1.2.4 The traditional practices, heritage, cultural ceremonies and way of life that makes a country unique. Indigenous
Knowledge System.
1.2.5 The basic physical systems of a business, region, or nation and often involves the production of public goods
and services
Infrastructure
1.2.6 Costs or benefits that results from the production of a goods and services for which no compensation is
paid
Externalities
(6 x 1) (6)

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ACTIVITY 2
2.1 Study the extract below and answer the questions that follow:

2.1.1 Identify any ONE cultural heritage site from the extract above. (1)
Mapungubwe Landscape/ Robben Island
2.1.2 Give ONE type of tourism . (1)
 Leisure and recreation
 Business tourism
(Accept any other correct and relevant answer)
2.1.3 Briefly describe the term indigenous knowledge system. (2)
Indigenous Knowledge System refers to local knowledge or traditional way of doing things that is unique to a
given society.
(Accept any other correct and relevant answer)
2.1.4 Briefly describe the term transit tourist. (2)
A transit tourist is when a tourist passes through one country before he reaches his final destination.
(Accept any other correct and relevant response)
2.1.5 How would world heritage sites benefit local communities? (2)
 The community will gain international recognition and this will therefore lead to their properties gaining value.
 The people earn salaries and wages because additional of job opportunities offered by the heritage site.
 Infrastructure built for tourists will be available for use by both tourists and local community.
(Accept any other correct relevant answer)
2.1.6 Why would there be an increase in the level of tourism in South Africa? (4)
 Individuals have more leisure time and disposable income, and this allow them to be engaged in travel
activities.
 Better, cheaper, and more diverse transport facilities make it easier for tourist to travel to desired destinations.
 The constant development in media technology, such as television, smartphones, the internet and social media
brings information on various issues including tourism.
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 (Any other correct and relevant answer)

ACTIVITY 3
3.1.1 Briefly describe the term domestic tourism. (2)
Domestic tourism is when people travel from one place to another within the borders of their
Country.
3.1.2 Why is infrastructure development important in promoting tourism? (2)
 Visitors enjoy adequate and well maintained physical and basic services infrastructure which enhances their
stay in a country.
 A well-developed infrastructure will attract more tourists in the country that can result in an increase in national
income.
(Accept any other correct and relevant answer)
3.1.3 Why is tourism regarded as a labor-intensive industry? (2)
 Many of jobs it offers are all about working with people, they are often low skilled so they are ideal for less
developed countries where lack of formal education holds many people back.
 Most of jobs created by tourism require human resources more than the use of machinery and equipment in its
operation.
(Accept any other relevant answer)

3.1.4 How could the government benefit from tourism? (4)

 Tourism makes direct and indirect contributions to the government revenue through levies on tourists e.g
tickets
 It creates jobs at no costs to the government especially in the informal sector, which relieves a burden and
dependancy on the government.
 Enables government to achieve its socio-economic objectives of black economic empowerment and SMME
development
(Any other correct relevant response)
3.2 Discuss the effects of tourism on externalities. (8)
EXTERNALITIES
Externalities are costs or benefits that results from a specific activity. Tourism results in both:
POSITIVE EXTERNALITIES
 Tourism attracts large amount of revenue which increases the level of income in the economy.
 Tourism leads to an improvement in infrastructure development which contributes to increased production
capacity.
 Tourism can stimulate employment directly and indirectly which improves the standard of living of the
population.
NEGATIVE EXTERNALITIES
 Tourism can cause environmental damage if not managed correctly which leads to the destruction of tourism
attraction sites.
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  Tourism can result in a lot of waste and damage to sensitive areas which becomes detrimental to the economy
of a country.
 Tourism can lead to increased prices for locals, making them unable to afford basic goods and services for
survival.
(Accept any other correct relevant answer)

3.3 Why is investment in tourism important for the economy? (8)

Tourism investment is important to the economy because:
 It links markets to rural areas where production takes place, due to the upgrading of transport infrastructure to
tourist sites in rural areas
 It improves the efficiency to conduct business by supplying effective communication infrastructure at hotels, for
example telephone lines and internet access
 It provides a reliable energy infrastructure, for example light and hot water to improve the quality and comfort of
the tourists stay which will grow tourism further
 It leads to the establishment of businesses near tourist sites such as a general dealer, chemists, a spa which
will increase GDP
 It allows the tourist to enjoy a unique experience of the country, through a variety of recreational activities such
as game drives and hikes.
 Small and Medium Tourism Enterprises (SMTES)are hindered by lack of skills and relevant qualifications in the
business management. Education and acquisition of requisite qualifications are required to produce stable
managers.
(Accept any other correct relevant response)

SECTION C
ACTIVITY 4
 Examine, in detail, the benefits of tourism. (26)
 How can domestic tourists’ attractions be effectively distributed across South Africa? (10)
Please note: for the main part refer to May/June 2021 senior certificate examinations/ national senior certificate.

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Additional part:
 Creation of representative bodies where industries are linked to a tourism attraction which would represent in
wider tourism industry circles.
 Improve marketing where tourist receive accurate description and information about competitive prices.
 Improve accessibility of tourist locations by grading roads and adding more exciting tours.
 Extending supporting services through adopting the mix of services to the needs of market expectations.
 Increasing the range of services and facilities, e.g security and refueling facilities in poorly provided areas.
 Provide ancillary services to tourist and the industry through networking and information centres.

ACTIVITY 5
 Discuss in detail the effects of tourism. (26)
 How can South Africa’s tourism profile be used to promote tourism in South Africa? (10)
Please note: for the main part please refer to KZN September 2022,2023 and November 2023
Additional part:
 Tourism profile can be used to promote the tourism industry through marketing and advertising of tourism
destinations.
 Improve infrastructure such as communication and transport can attract tourist in rural areas where tourist sites
are situated.
 Developing new torusit attraction sites and properly maintain the existing ones w2ill improve South Africa’s
tourist profile and thereby attract more tourist.
 Recognizing and rewarding businesses and individuals who improve the quality of services given to tourists so
that they return.
 Effectively managed tourists’ sites and other attractions to improve the tourism profile of the country.
 Enhancing efficiency of tourist information outlets that supply pamphlet and information about a specific area.
 Promoting special holiday packages to make it possible for domestic tourist to enjoy cheaper holidays.
(Accept any other correct and relevant response)

Activity 6

 Discuss in detail the benefits of tourism. (26)

ENVIRONMENTAL SUSTAINABILITY

ACTIVITY:1

1.1 Various options are provided as possible answers to the following questions. Choose the answer
and write only the letter (A-D) next to the question numbers (1.1.1 to 1.1.5).
1.1.1 The ability of the environment to survive its use for economic activity is called….
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 A Preservation
B Development sustainability
C Deforestation
D Environmental sustainability
1.1.2 A toxic substance into the environment which is dangerous to human health and damaging to
the ecosystem.
A Water Pollution.
B Soil erosion.
C Pollution. 
D hazardous waste

1.1.3 A significant and sustained change in the normal weather patterns is referred to as ...
A weathering
B Conservation
C Natural disaster
D Climate change. 

1.1.4 A process of converting wasted material into economic good is known as….
A. Inventing
B. Recycling. 
C. Degradation
D. Re-using

1.1.5 A variety of plant and animal life in an ecosystem is …

A. Biodiversity
B. Loss of indigenous Knowledge
C. Biodiversity loss
D. Species (5 x 1) (5)
1.2 Choose a description from COLUMN B that matches the item in COLUMN A. Write only the letter (A-I)
next to the question numbers (1.2.1 to 1.2.8).
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 COLUMN A Answer COLUMN B
1.1.1 Deforestation D A. Obtained from the use of water, tides, the sun and wind.
1.1.2 Noise pollution F B. Resources that can be replaced or regenerated.
1.1.3 Green energy A C. Involves setting maximum permitted levels of resource use.
1.1.4 Conservation E D. Where trees and forests are removed from the land
1.1.5 Command and control C and no replaced.
1.1.6 Soil erosion G E. The careful and sustainable management of natural resources.
F. Unwanted sounds that disturb humans and other living
organism.
G. The wearing away of the land’s top layer due to water
and wind.

(8x1) (8)

1.3 Give ONE term for each of the following descriptions. Write ONLY the term next to the question number.
Abbreviations, acronyms and examples will NOT be accepted.
1.3.1 Any strategy undertaken to safeguard the environment and keep it intact.
Preservation 
1.3.2 A granting of a licence to businesses that allow them to pollute up to a certain degree.
Marketable permit 

1.3.3 Types of animals and plants living in a particular region or habitat.

Flora and Fauna 

1.3.4 A tax that government can levy on environmental polluters.

Green Tax 
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ACTIVITY: 2
2.1 Study the picture below and answer the questions that follow.

Environmental Problems

Source: Google pictures

2.1.1 State the economic phenomenon depicted by the picture above. (1)
Environmental pollution. √
2.1.2 Name ONE type of pollution shown from the above picture. (1)
Water pollution. √
Air pollution. √
Land pollution. √
2.1.3 Briefly describe the concept environmental sustainability. (2)
It is the ability of the environment to survive its use for economic activities. √√
(accept any other relevant correct answer)
2.1.4 What is the impact of over usage of land have on agricultural output? (2)
Agricultural output will be affected negatively since land became exhausted which results to decrease
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in the level of out for businesses. √√
(accept any other relevant correct answer)
2.1.5 How can government subsidies be used to ensure sustainable development? (4)
 Subsidies can be granted to businesses to reduce environmental damage. √√
 The government can subsidise new technology that save energy such as energy saving light
bulbs. √√
(accept any other relevant correct answer)

ACTIVITY: 3
3.1. Study the cartoon below and answer the questions that follow.

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Source:www.wikipedia,2023
3.1.1 Identify ONE environmental problem in the cartoon above. (1)
Hazardous waste. √
Chemical waste. √
3.1.2. Name the protocol that limit the production of greenhouse gases (1)
Kyoto Protocol. √
3.1.3 Briefly describe the term preservation. (2)
It is the process of keeping the environment on its original state. √√
3.1.4 What impact will environmental problems have on food security? (2)
 Limiting production due to extreme drought and floods that might cause heat waves and veld
fires. √√
 Hazardous waste and chemical waste will reduce quality, limit quantities and contaminate food.
√√
(Accept any other relevant correct answer)

3.1.5 Why is the hazardous and chemical waste regarded as harmful to the environment?
 Kill living organisms, therefore causing an imbalance in the ecosystem. √√
 Cause infertility in people, animals and plants. √√
(accept any other relevant correct answer)
(2x2) (4)
ACTIVITY: 4
4.1. Study the extract below and answer the questions that follow.

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 3.1.1
Identify
the type of
pollution in the
picture above.

(1)
Air
pollution√
Carbon dioxide, a greenhouse gas, is the main pollutant that is warming the Earth. Through living things
emit carbon dioxide when they breathe, carbon dioxide is widely considered to be a pollutant when
4.1.2
associated with cars, planes, power plants and other human activities that involve the burning of fossil fuels Name the
such gasoline and natural gas. mineral used
[Source: Climate, May 2024] in South Africa
in burning of fossil fuel. (1)
Coal√
4.1.3 Briefly describe the term pollution. (2)
It is a toxic substance into the environment which is dangerous to human health and damaging
to the ecosystem. √√
4.1.4 How can education be used to combat pollution. (2)
Educating people and businesses on their attitudes towards the environment. √√
(Accept any other relevant correct answer)
4.1.5 Why do markets fail ensure environmental sustainability? (4)
The market sees the environment as a common resource to be used for its benefit to maximise
their profit. √√
Businesses lack knowledge as a result they cause damage without realising it. √√
Market continues with harmful practices and leave future generations to worry about the
consequences. √√
(Accept any other relevant correct answer)

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ACTIVITY: 5
5.1. Study the extract below and answer the questions that follow.

5.1.1 Identify ONE effect of global warming from the above extract. (1)
Melting of glaciers. √
5.1.2 Name the main cause of global warming. (1)
Economic activities. √
5.1.3 Briefly describe the concept deforestation. (2)
It is a permanent destruction of indigenous forestry and woodlands. √√
(Accept any other relevant correct answer)
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 5.1.4 Why human activity can negatively affect environmental sustainability. (2)
 Human activity causes environmental degradation, which causes depletion on resources √√
 Directly or indirectly overpopulation increases damage to the environment through actions taken by
human such as the burning and destructions of forests damage the environment. √√
(Accept any other relevant correct answer)
4.1.5 How is the environment negatively impacted by hazardous waste? (4)
 Hazardous waste poses a threat to human health and environment. √√
 Affect productivity by polluting ground water resources and endangers plant and animal life. √√
(Accept any other relevant correct answer)

ACTIVITY: 6
6.1. Study the graph below and answer the questions that follow.

Source : StatsSA

6.1.1 What is the message depicted by the picture above? (1)

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 Rhino poaching across Africa.
6.1.2 Which year did South Africa experience its worst year in Rhino poaching? (1)
2014. √
6.1.3 Briefly describe term Biodiversity. (2)
It is the variety of plants and animals that inhabit the earth. √√
6.1.4 Explain the benefits of conservation on people living near the game reserves? (2)
Local people will benefit from all the spin – offs from the development of wildlife reserves by:
 Using a variety of infrastructure like roads, water, transport and shopping facilities. √√
 Enjoying more job opportunities that will lead to an increase in the standard of living. √√
 Improving entrepreneurial abilities through manufacturing of handcrafts. √√
 Enjoying social benefits like clinics and community activities. √√
(accept any other relevant correct answer)

6.1.5 How do consumers as key market role players fail to protect the environment? (2)
 As a result of lack of knowledge consumers actions often have a negative impact on the
environment e.g consumers not aware of recycling. √√
 By using certain products such as aerosol, they cause environmental damage without realising it.
√√
 Due to a fact that some resources are not privately owned, they have an element of non-
excludability, therefore these resources are often overused. √√
(Accept any other relevant correct answer)

ACTIVITY: 7

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 7.1. Study the table below and answer the questions that follow.

7.1.1
Identify the
term that
refers to the
variety of
plant and
animal life in
ecosystem.
(1)

Biodiversity. √
7.1.2
Which
Source: Google
international
measure prevent the endangered species? (1)
Convention on International Trade in Endangered Species. √
(Accept any other relevant correct answer)
7.1.3 Briefly describe the term climate change. (2)
It is the gradual overall increase in temperature of the earth’s atmosphere due to the increase
of pollution into the atmosphere. √√
7.1.4 Explain the positive contribution of producers to environmental sustainability. (2)
The producers can contribute to the environmental sustainability by:
 Developing new technology and equipment that are using environmental energy. √√
 Producing environmentally friendly substances such as unleaded petrol. √√
(Accept any other relevant correct answer)

7.1.5 How can the government conserve the resources to ensure a sustainable environment?
(2)
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South African government can ensure a sustainable environment by:
 Bringing a balance in the ecosystem as animals and plant interact and depends on one another for
continued survival. √√
 Protecting forests, as they are important for producing oxygen and absorbing greenhouse gases.
√√
 Reducing the amount of greenhouse gases that reach the atmosphere thereby decreasing global
warming. √√
 Using water wisely, as it is basic to plant and animal existence. √√
(Accept any other relevant correct answer)
(4)

ACTIVITY: 8
8.1. Study the extract below and answer the questions that follow.

8.1.1 Identify the type of pollution depicted by the extract above. (1)
Water/ land pollution. √
8.1.2 Which international agreement is referred to in the extract? (1)
World Climate Summit/Cancun Summit in Mexico. √
8.1.3 Briefly describe the concept erosion. (2)
It is when soil is removed at a greater rate than it is formed through the action of wind and
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 water. √√
8.1.4 What is the effect natural disasters on renewable resources? (2)
Natural disasters limit their availability due to the rate at which they can be produced. √√
8.1.5 What are the negative effect of soil erosion on the environment? (4)
 Soil erosion leads to increased pollution in streams and rivers. √√
 It is a measure environmental threat to sustainability and productivity as it affects soil fertility
and food security.
 erosion may result in the destruction of water sources such dams. √√
(Accept any other relevant correct answer)

ACTIVITY: 9
9.1. Briefly discuss conservation and preservation. (8)
Conservation
 It is the management of the environment in a way that prevent it from being damaged. √√
 E.g. Game parks are used to keep certain endangered species. √
 It is a creative continuity of the environment to ensure the quality of life for both present and
future generations. √√
 Conservation in needed due to pollution and utilization of the environment. √√
 Ensure economical use of renewable and non-renewable resources. √√
Preservation
 It is the process of keeping the environment on its present state. √√
 It is often applied where elements of the environment are threatened extinction. √√
 E.g. Rhinoceros species/heritage sites have cultural significance/ecosystems. √

8.2 Differentiate between renewable and non-renewable resources. (8)

Renewable Resources Non Renewable Resources

 Resources that can be generated,  Once these materials are extracted they
replaced or replenished. √√ are gone forever. √√

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  Limiting factor of the availability is the rate  Once used they cannot be replaced. √√
that which they can be produced. √√ E.g.  E.g. Mineral resources, fossil fuel, such
Timber, forest products, agricultural as soil, petrol, copper, gold and coal. √
products. √

ACTIVITY: 10
10.1 Discuss in detail the measures used by the government to ensure environmental sustainability.
(26)
10.2 Evaluate the success of international agreement in reducing climate change. (10)

INTRODUCTION
Environmental sustainability means meeting the needs of the present generation without
compromising the needs of future generations. 
(Any other correct relevant response) (Max. 2)
BODY: MAIN PART

Granting property rights 

 Property rights are legal titles to the ownership, use and disposal of factors of production and
goods and services. 
 Property rights have a conservationist effect whereby people will take care of resources that
belong to them. 
 Property rights promote collective responsibility towards the environment while at the same
time preventing overexploitation. 
 To prevent fauna and flora species from becoming extinct, people are granted property rights if
they agree to preserve the flora and fauna. 
 Property rights can be expanded to common resources such as clean air. 

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Charging for the use of the environment 
 The government levies fees for waste produced and disposed of in the environment. 
 In South Africa, local authorities levy charges on rubbish collection and sewage disposal. 
 The best results are achieved when charges are proportional (related to) to waste produced.

 Emission charges are used when the government sets a price per unit of pollution. 

Levying environmental taxes 

 Environmental taxes are taxes imposed on the output of goods that generate external
environmental costs (pollution). 
 When environmental taxes are levied it ensures that practices that are harmful to the
environment are reduced. 
 The government can use the income generated through environmental taxes to plough back
into environmental issues. 
 In South Africa, carbon tax is levied on carbon dioxide emissions from industrial process, fuel
burning and vehicle tyres. 
 The rate of environmental tax should be equal to the marginal external cost. 

Paying environmental subsidies 

 Environmental subsidies refer to the payment made by the government to businesses to
reduce activities that negatively affect the environment. 
 Subsidies are granted to; -
encourage businesses to develop new technologies or equipment such as LED light bulbs and solar
geysers. 
-Promote production of environmentally-friendly substitutes such as reusable shopping bags and
rechargeable batteries. 
₋ Encourage recycling waste material such as bottles and cans. 
₋ Encourage businesses to use environmentally-friendly sources of energy such as solar and wind.

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  Environmental subsidies can be recovered from the levying of taxation. 

Issuing marketable permits 

 Marketable permits are licenses that are sold by the government to businesses which allow
them to pollute to a certain degree. 
 The government decides on a maximum desired level of pollution in a particular area. 
 When businesses managed to reduce pollution below their maximum allocated quota, they can
sell the remaining part to other businesses that pollute more than their allocated quotas. 
 In South Africa, marketable permits are granted by the Department of Mineral Resources and
Energy. 

Command and Control (CAC) 

 CAC refers to regulations set by the government to enforce environmental limits and standards.

 The government enforces policy by setting maximum levels of the emission of pollution. 
 The Department of Environmental Affairs assigns inspectors to monitor the environmental
activities of businesses and impose fines if the legal limits are not adhered to. 
 Most developed countries have regulations that control air and water pollution. 
 There are 3 approaches in CAC systems:
Quantity standards: These focus on the amount of pollution emitted. 
Quality standards: These focus on the environmental impact of the pollution emitted. 
Social impact standards: These focus on the effect on people of the pollution emitted. 

Voluntary agreements 
 Voluntary agreements refer to formal and informal arrangements, rather than imposing
regulations, between the government and businesses to reduce pollution. 
 The government may conclude agreements with businesses on a voluntary basis to cut
pollution. 
 These agreements often work well because businesses are empowered to negotiate
arrangements that suit their own circumstances and create better platform for planning. 
 This ensures commitment by businesses as they uphold to agreements that they have
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 negotiated since they are directly involved. 

Education 
 This refers to methods used to create awareness and change people’s attitudes towards the
environment. 
 Education is used to try to change people’s attitudes towards the environment. 
 When the society is made aware of environmental issues and how their actions impact on the
environment, it will ensure that better decisions are made. 
 When children are educated to be conscious of the effects of their actions on the environment,
they will become more environmentally aware and empowered adults. 
 Innovative approaches have been tried in the developing countries to educate people.  e.g.
setting up community wildlife reserves. 
(Accept any other correct relevant response)
(A maximum of 8 marks may be allocated for mere listing of facts/examples)
(Max. 26)
ADDITIONAL PART
 United Nations Framework Convention on Climate Change (UNFCCC) was established to
reduce greenhouse gas emissions in the atmosphere. 
 Most countries agree on taking measures to protect the environment, but they differ on who is
most responsible for the damage and how to set emissions-reduction goals. 
 The UNFCCC did not succeed because it was voluntary for individual countries. 
 Kyoto Protocol was an improvement on the UNFCCC as it attempted to get developed
countries to commit to reducing their emission of greenhouse gases. 
 Kyoto protocol established binding targets whereby industrialised countries agreed to reduce
their emissions. 
 The major shortcoming of Kyoto protocol was its focus on developed countries only and
developing countries were excluded from the agreement. 
 Kyoto protocol failed as countries that did not meet targets were not penalised. 
 Major polluters like the USA pulled out and this impacted negatively on the success of the
agreement. 
 The Paris Agreement was an improvement on the Kyoto protocol as its goal is to limit global
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 warming to well below 2, preferably to 1,5 degrees Celsius, compared to pre-industrial levels.

 Assistance in the form of subsidies was pledged to developing countries to reduce greenhouse
emissions 
 The success of Paris Agreement will be determined by the financial, technical, and capacity
building support offered to countries who need it. 
 Although international agreements had limited success thus far, it has created an awareness to
address the problem seriously. 
 Global warming targets are not met as we are fast approaching an increase in global
temperatures of 2 degrees Celsius. 
 Poorer countries still rely on coal to produce energy because using more environmentally
friendly methods of production are too expensive. 
 Emission targets are not met, and the effects of climate change is more visible than before,
leading to a loss in GDP and a decrease in employment. 
 It is difficult to identify organisations responsible and holding these countries responsible for
their actions. 
 There is a lack of strict law enforcement where penalties were not imposed on those who did
not meet the targets. 
 Big polluters (like the USA) failed to meet the targets set by Kyoto protocol and still contribute
to global warming and are less interested in solving the crises due to expensive technology to
reduce pollution. 
(Accept any other correct relevant response)
(A maximum of 2 marks may be allocated for mere listing of
facts/examples)
(Max. 10)
CONCLUSION
 People continue to damage the environment (with or without their knowledge) and leaving the
future generations to suffer the consequences. 
(Accept any other correct relevant high order conclusion) (Max. 2)
[40]
Activity 11
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  Discuss the problems and measures taken to ensure sustainable development. (26)
 Evaluate the success the international measures adopted to address the environmental
problems. (10)

INTRODUCTION

The existence of the environment is under threat due to many problems which intensify as time moves
along. 

BODY

MAINT PART

1. Biodiversity loss 
• Biodiversity is the variety of species of plants and animals in a particular area. 
• It is concerned with the genetic variety among individuals within the same species and the
number of species within a community of organisms. 
• The diversity of species in the world decreases rapidly due to the extinction which is an
irreversible process. 
• Modern techniques such as gene transplant can help to limit the loss of species. 
• The United Nations’ Convention on International Trade in Endangered Species (CITES)
prohibits trade in endangered plant and animal species. 
• Monitoring and regulation of trade in endangered species is carried out using permits and
quotas. 
• In South Africa, a permit is needed for one to import plants and animals. 

2. Chemical waste 
• Chemical waste is toxic and their effect on an organism can be death or infertility 
• Chemical waste needs to be carefully managed to ensure that it does not leak into the
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 ground water. 
• The Stockholm Protocol bans the 12 of the deadliest manufactured chemicals.
• The Rotterdam Convention protects countries that lack adequate infrastructure to monitor the
import and export of dangerous chemicals. 

3. Hazardous waste 
• Hazardous waste is more than a chemical waste and it includes toxic metal waste such as
lead. 
• Hazardous waste has a slow decomposition rate (it stays poisonous for a long term) 
• Hazardous waste can endanger all life forms and entire ecosystem. 
• The Basel Convention on the control of Trans boundary Movement of Hazardous waste
allows trade between countries that have signed the convention. 
• Hazardous waste is dumped illegally because it is convenient and cheap

4. Climate change
• Climate change is the change in the composition of the atmosphere that is related to human activity.

• A build-up of certain gases such as carbon dioxide in the atmosphere causes the heat to be
captured into the atmosphere, which leads to global warming. 
• Effects of climate change include change in temperature and weather patterns. 

• The United Nations’ Framework Convention on Climate Change (UNFCCC) sets objectives to
reduce greenhouse gases. 
• Kyoto Protocol was signed as an agreement in which greenhouse gases emission level for
developed countries were agreed upon. 
• The objectives of the agreement were not achieved. 

5. Loss of Indigenous Knowledge

• Indigenous people have knowledge about the natural environment, which they often use to
make a living. 
• Indigenous people use organic methods and natural processes in dealing with the

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environment. 
• Local capacity building is important as it can help indigenous people to learn more of the
environment beyond their traditional lifestyles and experiences. 
• UNESCO’s management of social transformation programme (MOST) is a global effort to
document local / indigenous knowledge before it is lost forever. 

ADDITIONAL PART

The international measures to address the environmental problems have been successful because:
 the United Nations' Convention on Climate Change and the Kyoto Protocol has created an
awareness and formulated measures to address climate change PP
 the Kyoto protocol was signed by 186 countries, and binding emission targets (5.2%) was set
PP
 the Convention on International Trade in Endangered Species (CITES) has regulated the trade
in endangered animals and plants to address biodiversity loss PP whereby control is carried
out through the issuing of permits and quotas to reduce the possibility of extinction PP
 one needs a permit to import plants and animals to South Africa PP
 the United Nations facilitated a number of agreements such as the Stockholm Protocol on
Persistent Organic Pollutants to address a problem of toxic wastes world wide PP
 the protocol bans twelve of the most dangerous manufactured substances such as the DDT PP
 the Basel Convention agreed to manage nuclear waste 

The international measures to address the environmental problems have not been successful
because:
 the rate at which greenhouse gases are produced keep on increasing, despite many climate
change conventions (UNFCCC) and protocols (Kyoto) PP
 countries still experience the negative effects of climate change in recent year's 
 extreme natural disasters such as cyclones that caused damage in Mozambique in 2019 PP
 the Paris agreement of climate change (2012) was undermined by the withdrawal by powerful
countries such as the USA which has influence in other countries and also is a major polluter
PP
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  endangered species such as rhinoceros are still being killed for their horns in spite of the
measures put in place by CITES PP
 developing countries allow dumping of hazardous waste which encourages the rich
industrialized countries to contribute to the problem PP (Max. 10)

(Accept any other correct relevant higher order response)

CONCLUSION

The success of the efforts in addressing environmental problems is dependent on whether the
stakeholders around the world take such measures seriously. 

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