1
SECONDARY SCHOOL IMPROVEMENT
PROGRAMME (SSIP) 2015
GRADE 12
SUBJECT:
ECONOMICS
LEARNER NOTES
(Page 1 of 69)
© Gauteng Department of Education
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TABLE OF CONTENTS
SESSION
5
6
TOPIC
Economic Systems: Protection and free
Trade (Globalisation)
Trade
taxed
Micro-Economics:
Dynamics of markets:
Perfect markets
PAGE
3 - 14
15 - 27
7
Micro-Economics: Dynamics of markets:
Imperfect markets & Market failures
28 - 39
8
Consolidation: Revision Term1 & 2
40 - 50
9
Economic Pursuit: Economic growth and
development
51 - 60
10
Economic Pursuit: Economic growth and
development: industrial development policies
61 - 69
© Gauteng Department of Education
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SESSION 5: ECONOMIC SYSTEMS: PROTECTION AND FREE TRADE
(GLOBALISATION)
Learner Note: Globalisation is leading to an increased decline in trade and
investment barriers across the world. This supports economic growth and poverty
reduction.
SECTION A: TYPICAL EXAM QUESTIONS
QUESTION 1:
5 minutes Section A – Short Questions
Various options are provided as possible answers to the following questions.
Choose the answer and write only the letter (A–C) next to the question
number.
1.1
When there are no restrictions to trade such as taxes on goods or bans on
imports, it is called …
A. dumping
B. protectionism
C. free trade
1.2.
Interfacing and interaction of economies, with trade as a key element, is
known as …
A. free trade
B. globalisation
C. industrialisation
1.3
As from 1995, General Agreement on Tariffs and Trade was replaced
by the ...
A. Southern African Customs Union.
B. Free Trade Area.
C. World Trade Organisation.
1.4
To reap the benefits of efficient markets, countries rely on the principle
of … advantage.
A. comparative
B. competitive
C. relative
1.5
An argument in favour of the protection of local industries is ...
A. unstable wage levels.
B. the prevention of dumping.
C. fewer job opportunities.
5 x 2 (10)
© Gauteng Department of Education
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QUESTION 2:
paper Sept 2012)
5 minutes
Section B
(Taken from Eastern Cape prelim
Read the following extract and answer the following questions.
As early as the 1920s, there were deliberate attempts by the South African
government to put policies in place to encourage industrialisation through import
replacement. To promote South African industries were further strengthened with the
establishment of the IDC in 1940. Iscor, Sasol and Armscor were all established to
encourage import substitution.
[Adapted from, “Economics for all”]
2.1
Define the term “import substitution”.
(2)
2.2
What does the acronym IDC stands for?
(2)
2.3
List ONE enterprise that was established (according to the extract) to produce
goods locally.
(2)
2.4
Mention TWO aims of import substitution.
QUESTION 3:
10 minutes Section B
(Taken from DBE/November 2012)
Discuss dumping as an argument in favour of protectionism. 

QUESTION 4:
20 minutes
(4)
[10]
4 x 2 (8)
[8]
Section C (Taken from DBE/Feb.–Mar. 2013)
It is essential for developing countries to protect their local industries against unfair
foreign competition.
• Discuss the arguments in favour of protection.
(26)
• Explain how successful South Africa is in protecting the local textile industry
against foreign competition.
(10)
[40]
© Gauteng Department of Education
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SECTION B: ADDITIONAL CONTENT NOTES
ECONOMIC SYSTEMS: PROTECTION AND FREE TRADE (GLOBALISATION)
1. Export promotion
When government pays incentives to encourage the production of goods that can be
exported. Export promotion means that the government actively assists and encourages
local firms to sell goods and services in international markets.
Reasons:
 Achieve export-led economic growth.
 Enlarge the production capacity of a country.
 Export-markets are much bigger than domestic markets.
 Leads to reduced prices due to large volumes.
 Improving international competitiveness of South African producers.
 Improving performance of manufacturing, service industries.
 Ensuring optimal use of resources.
 Job creation.
 Improves Balance of Payments.
Methods:
 Incentives - Export incentives include information on export markets, research
with regard to new markets, concessions on transport charges, export credit /
grants.
 Subsidies -Direct and indirect subsidies: Direct subsidies result in government
expenditure, to reduce the cost of production, establish overseas markets. Indirect subsidies help companies by not allowing them to pay certain taxes that
may result in government having not do without some of revenue e.g. tax
rebates. Cash payments for exporters, refund of import tariffs, general tax
rebates / tax exemptions, tax concessions on profits.
 Trade neutrality - export processing zones.
Advantages:
 No limitations on size and scale since world market is very large.
 Cost and efficiency of production based on this and organised along lines of
comparative advantage.
 Increased domestic production will expand exports to permit more imports and
may result in backward linkage effects that stimulate domestic production in
related industries.
 Exchange rates are realistic and there is no need for exchange control and
quantitative restrictions.
 Value can be added to natural resources of the country.
 Creates employment opportunities.
 Increase in exports has positive effect on balance of payments.
 Increase in production leads to lower domestic prices, which benefit local
consumers.
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Disadvantages:
 The real cost of production is concealed by the subsidies. Product may thus
never compete in an open market.
 Lack of competition Total potential trade is less with subsidies than without
subsidies.
 Increased tariffs and quotas Powerful overseas businesses can afford similar
products at much lower prices.
 Protection of labour-intensive industries Developed countries often maintain
high levels of effective protection for their industries that produce labour intensive
goods in which developing countries already have or can achieve comparative
advantage.
 Withdrawal of incentives may lead to the closure of effected companies
 Can be seen as dumping - Can be against the spirit of the provision of WTO.
2. Import Substitution
When countries introduce policies to local encourage the production of goods that are
usually imported. Import substitution occurs when the government of a country
encourages the use of local goods and services rather than imported ones.
Reasons:
 Diversification Expansion of manufacturing makes economies less dependent on
foreign countries.
 Trade Developing countries rely on their natural resources as a basis for
economic growth and development Increase employment opportunities.
 To establish domestic industries.
 To replace imports by encouraging local economic growth.
 Correct BOP problems.
 Create national independence.
Methods:
 Tariffs customs duties or import duties are taxes on imported goods. They can
be ad valorem (Tariff is levied on a good based on a percentage of that good’s
value) or specific (Tariff can vary according to the type of good imported.)
 Quotas limit the supply of goods or services.
 Subsidies to domestic enterprises that export goods may be used as an indirect
way of protecting them.
 Exchange control A government or free trade area may seek to reduce imports
by limiting the amount of foreign exchange made available.
 Physical control takes the form of a complete ban or embargo on the import of
certain goods.
 Diverting trade Import deposits. Time-consuming customs procedures. Quality
standards.
 Voluntary import substitution Where a country decides of its own free will to
replace goods that are imported.
 Forced import substitution When a country is forced to produce certain goods
because they are excluded from taking part in international trade / boycotts
sanctions, disinvestment.
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Advantages:
 Increased employment stimulates the economy and GDP increases. More
workers will be employed to produce goods that substitute foreign goods.
 Bigger variety of products produced/Diversification/Broader industrial base.
Because goods are locally produced, more foreign exchange will be available for
importing other goods.
 Decrease in imports will have a positive effect on BOP.
 Industrial development encouraged Contributes revenue to the treasury.
 Easy to implement through the imposition of tariffs and quotas /Method of
restricting imports.
 More choice because goods are locally produced. The foreign exchange that
becomes available can be used for other imports, thereby increasing the choices
made available to consumers.
Disadvantages:
 Capital and entrepreneurial talent are drawn away from the areas of comparative
advantage.
 Technology is often borrowed from abroad where capital is relatively abundant.
 It lowers the competitiveness of sectors where a comparative advantage exists.
 It often leads to demands for protection to industries that provide inputs.
 Policy often causes exchange rates to be overvalued – discourage exports.
 Does not necessarily lead to an overall reduction in imports – SA imports capital
and intermediate goods.
 Local production can be inefficient.
 Domestic consumers are forced to buy goods at prices that are higher than
prices of goods on international market.
 Costly and uneconomical projects – e.g. Moss Gas.
3. Protectionism
Arguments in favour of protectionism
i. Raising revenue for the government.
- In developing countries the tax base is more often limited because of low
incomes of individuals and businesses.
- Low incomes do not provide much in form of income taxes.
- Customs duties on imports – significant source of revenue.
ii. Protecting the whole industrial base.
 Maintaining domestic employment/reduce unemployment and provide more job
opportunities.
- Countries with high levels of unemployment – pressurised to stimulate
employment creation.
- Protectionist policies used to stimulate industrialization.
- Domestic employment encouraged through imposing import restrictions
 Protecting workers
- Countries with low wages represent unfair competition and threaten the standard
of living of more highly paid workers.
- Protection necessary to prevent local wage levels from falling.
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

-
Helps protect local businesses from closing down or becoming unprofitable.
Diversifying the industrial base
Protectionism helps countries not to over-specialize.
Import restrictions may be imposed on range of products in order to ensure that
more domestic industries develop.
Developing strategic industries
Certain industries of strategic importance e.g. minerals and energy.
Developing countries need to develop these industries to become more selfSufficient.
iii. Protecting particular industries:
 Dumping
- Due to government subsidies enterprises are permitted to sell at very low prices –
leads to price discrimination.
- Products can be exported to dispose of accumulated stocks – importing country
will benefit.
- Objective can also be to drive out domestic producers and gain strong market
position – consumers will lose out due to reduction in choice.
 Infant industries/Industrial development
- Newly established industries suffer to survive due to higher average costs.
- Competition in the early days makes growth possible, they can take advantage of
economies of scale, lower average costs and become more competitive –
protection can now be removed.
 Declining industries
- Structural changes in demand and supply may influence industry negatively.
- These businesses must leave the industry gradually – possible if protection is
granted – gives factors of production time to move to other industries.
- They lost their comparative advantage – may lead to large-scale unemployment
iv. Protecting domestic standards.
 Trade restrictions like food safety, human rights and environmental standards.
 Stabilizing exchange rate and balance of payments.
 Protecting natural resources from being exploited.
 Economic self-sufficiency.
 Greater economic stability.
 Natural resources not depleted
4. Free trade
ARGUMENTS IN FAVOUR OF FREE TRADE
 Specialisation.
- The theory of comparative advantage shows that output can be increased
using specialisation.
- World trade and consumption can be maximised if countries specialise in what
they can best produce.
 Economies of scale.
- It allows economies of scale to be maximised and unit costs to be reduced.
- Economies of scale lead to comparative advantage.
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

-
Choice.
It allows consumers the choice of goods and service.
Consumer’s welfare can be improved because of the choice of goods available
to them.
Innovation.
It leads to competition which provides incentive to innovate.
Innovation leads to the production of new goods and services.
It can also reduce costs and improve the quality and reliability of goods.
5. A desirable mix



Free trade cannot operate without being controlled. However, there is no watch
dog system to control international trade. Problems such as the following arise
when there are no control measures:
Products imported from abroad are inspected, but consumers do not always
know if the workers who produced them were paid a reasonable wage and
worked in safe conditions. The FAIR TRADE system will help with this.
- Fair pay and working conditions.
- Sustainable practices.
- Crafts are often handmade.
- Farmers are involved in the entire production process and crops are grown and
harvested in smaller quantities.
- Integrated farm management system that improve soil fertility and preserve
valuable ecosystems are used.
- Fairtrade artisans and small farmers are able to invest Fairtrade earnings in
their communities, improving housing, healthcare and schools.
The World Trade Organisation (WTO) is the only international organisation that
deals with the global rules of trade between nations.
The WTO aims to ensure that trade flows as smoothly, predictable and freely as
possible.
6. South Africa’s international trade policies
Southern African Customs Union (SACU)





SA part of customs union since 1910 – various protocols now replaced by
SADC protocol – progress made towards strengthening bilateral ties with main
trading partners – has taken form of free trade area (FTA) protocols.
South African Customs Union – members currently jointly negotiate FTAs with
the rest of the world like European Free Trade Association.
The Southern African Customs Union, abbreviated as SACU, is the oldest
customs union in the world.
Countries such as South Africa, Botswana, Swaziland, and Namibia have
participated in the programme since 1985
The programme makes provision for a standardized tariff on the goods passing
between the borders of member countries. SACU further renders administrative
and support services and has a dispute settlement mechanism at the aid of
member countries.
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South African Development Community (SADC)



South African Development Community (SADC) presently has status of FTA –
97% qualifies for duty-free access to SA – should be fully liberalized by 2010.
African Union is developing continent into economic and monetary union –
adopted Nepad as strategy – first phase to develop 5 regional FTAs – SADC is
one of the FTAs.
The SADC vision is one of a common future, within a regional community that will
ensure economic well-being, improvement of the standards of living and quality of
life, freedom and social justice; peace and security for the peoples of Southern
Africa. This shared vision is anchored on the common values and principles and
the historical and cultural affinities that exist amongst the peoples of Southern
Africa.
African Union (AU)


The AU was established in 2001 and consists out of fifty three African states.
The purpose of the organization is to help secure Africa’s democracy, human
rights and sustainable development through the ending of the intra-Africa
conflict and the creation of a common market. The whole of the Africa except
for Morocco is covered by the Africa Union.
The Common Market for Eastern and Southern Africa
 The Common Market for Eastern and southern Africa, referred to as COMESA,
is a preferential trading agreement between twenty member states.
 COMESA is one of the pillars of the African economic community and the current
members are Angola, Burundi, Comoros, Democratic Republic of the Congo,
Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius,
Rwanda, Seychelles, Sudan Swaziland, Uganda, Zambia and Zimbabwe.
New Partnership for Africa’s development (NEPAD)
 NEPAD is a vision and strategic framework for Africa’s renewal and is designed
to address the current challenges that face our continent.
 Spearheaded by African leaders, issues such as poverty, unemployment and the
continuous marginalization of the continent are addressed through this initiative.
European Union (EU)

European Union-SA FTA entails freeing of tariffs – 95 % of EU imports from SA
by 2010 and 86 % free of tariffs on imports from EU over 12 year period. Trade,
Development and Cooperation Agreement implemented in 2000 established free
trade between SA and EU.
Mercusor
 Mercusor – SA signed a Framework Agreement with Mercusor in 2000, to
expand trade and create free trade area between parties (Latin America) –
eventually FTA will include all SACU members.
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BRICS

BRICS is a grouping of five countries, Brazil, Russia, India, China and South
Africa, which are all emerging industrial countries and are at roughly the same
level of economic development.
SECTION C: HOMEWORK
ECONOMIC SYSTEMS: PROTECTION AND FREE TRADE (GLOBALISATION)
QUESTION 1:
10 minutes
(Source: Via Afrika Economics)
1.1
Explain why it is unlikely that a free international trade policy will be successful
in South Africa.
(3)
1.2
What non-economic benefits does an international trade policy of
protectionism offer to countries involved in international trade?
1.3
(2)
What do you regard as the correct mix between trade and protectionism?
Motivate your answer.
(10)
QUESTION 2:
10 minutes (Source: Oxford Successful Economics)
2.1
What does the hand represent? Give THREE reasons for your answer.
(6)
2.2
Name the man on the chopsticks. Explain why he looks so happy.
(2)
2.3
What is the message of the cartoon?
(2)
© Gauteng Department of Education
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QUESTION 3:
20 minutes
(Source: Clever Economics)
3.1 Complete the following sentences:
3.1.1 International trade is regulated by the ......
3.1.2 South Africa’s economic policy is in favour of ......
3.1.3 MERCOSUR is a trade agreement between ..... countries.
3.1.4 South Africa is seen as the .... to Africa.
3.1.5 .... was the dominant trade strategy in South Africa in the 1950s and 1960s.(5)
3.2 Discuss the following protocols that South Africa has signed since 1994:
3.2.1 The Southern African Customs Union (SACU).
3.2.2 The South African Development Community (SADC).
3.2.3 The African Union (AU).
(2)
(2)
(2)
3.3 What is the major benefit of the AGOA agreement for South Africa?
(3)
3.4 What effect has the South African trade agreement with the European Union had
on South African economy?
(3)
SECTION D: SOLUTIONS AND HINTS TO SECTION A
ECONOMIC SYSTEMS: PROTECTION AND FREE TRADE (GLOBALISATION)
QUESTION 1:
5 minutes Section A
1.1
C Free trade 
1.2
B Globalisation
1.3
C World Trade Organisation
1.4. A comparative
1.5
B prevention of dumping

QUESTION 2:
5 minutes Section B
Sep 2012)
(Taken from various sources)
(10)
(Taken from Eastern Cape Prelim
2.1
The replacement of goods that was previously imported. (2)
2.2

2.3
Industrial Development Corporation. (2)



Iscor 
Sasol 
Armscor 
(any 1) (2)
2.4



To develop local industries
To increase job opportunities
To improve the balance of payments(any 2) (4)
© Gauteng Department of Education
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QUESTION 3:





10 minutes Section B
(Taken from DBE/November 2012)
Dumping occurs when a firm sells its goods in a foreign country at a lower
price that in the market of origin 
Firm gains market share and pushes local producers out of the market 
Firms can do this when they receive government subsidies 
They can also ask a higher price in the domestic market and subsidise export
prices with increased profits – this leads to unfair competition 
Countries are allowed by a WTO agreement to take protective measures to
counter dumping  (8)
QUESTION 4:
20 minutes Section C
(Taken from DBE/Feb.–Mar. 2013)
INTRODUCTION
Protectionism is one leg of the South African International Trade Policy 
Accept any other relevant introduction
(Max 2 marks)
BODY
Arguments in favour of protectionism:
1. Raising revenue for the government: 
In developing countries the tax base is more often limited because of low incomes
of individuals and businesses 
Low incomes do not provide much in form of income taxes 
Customs duties on imports – significant source of revenue 
2. Protecting the whole industrial base: 
FOUR considerations relevant for protecting industrial base of country:
 Maintaining domestic employment/reduce unemployment and provide more
job opportunities 
- countries with high levels of unemployment – pressurised to stimulate
employment creation 
- protectionist policies used to stimulate industrialisation 
- domestic employment encouraged through imposing import restrictions 
 Protecting workers 
- countries with low wages represent unfair competition and threaten the
standard of living of more highly paid workers 
- protection necessary to prevent local wage levels from falling 
- helps protect local businesses from closing down or becoming unprofitable 
 Diversifying the industrial base 
- protectionism helps countries not to over-specialize 
- import restrictions may be imposed on range of products in order to
ensure that more domestic industries develop 
 Developing strategic industries 
- certain industries of strategic importance e.g. minerals and energy 
- developing countries need to develop these industries to become more selfsufficient 

© Gauteng Department of Education
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3. Protecting particular industries: 
Dumping 
- due to government subsidies enterprises are permitted to sell at very low prices –
leads to price discrimination 
- products can be exported to dispose of accumulated stocks – importing country will
benefit 
- objective can also be to drive out domestic producers and gain strong market
position – consumers will lose out due to reduction in choice 
Infant industries/Industrial development 
- newly established industries suffer to survive due to higher average costs
- competition in the early days makes growth possible, they can take advantage of
economies of scale, lower average costs and become more competitive – protection
can now be removed 
Declining industries 
- structural changes in demand and supply may influence industry
- negatively 
- these businesses must leave the industry gradually – possible if protection is
granted – gives factors of production time to move to other industries
- they lost their comparative advantage – may lead to large-scale unemployment


4. Protecting domestic standards: 
• Trade restrictions like food safety, human rights and environmental standards 
Stabilising exchange rate and balance of payments 
Protecting natural resources from being exploited 
Economic self-sufficiency 
Greater economic stability 
Natural resources not depleted (Max 26 marks)
How successful is South Africa in protecting the local textile industry against
foreign competition?
• Not successful: many domestic textile manufacturers closed down due to
unfair international competition 
Many wholesalers make use of suppliers from abroad e.g.
Woolworths/Walmart
Dumping still occurs – European manufacturers still dump clothing in Africa out of
season at prices below cost 
Job losses due to a lack of protection in this industry 
Any other relevant fact
(Max 10 marks)
CONCLUSION
South Africa's international trade policy facilitates globalisation.
Accept any other relevant conclusion
(Max 2 marks)
___________________________________________________________________
© Gauteng Department of Education
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SESSION 6: Dynamics of markets: Perfect markets
Learner Note: Economic systems around the world struggle to answer the THREE
questions: What to produce? How to produce? and For whom to produce? The
interaction between demand and supply will always ensure that the most efficient
decisions are made.
SECTION A: TYPICAL EXAM QUESTIONS
QUESTION 1:
5 minutes
Section A
(Taken from various sources)
1.1 Market price in a perfect competitive market is determined by the interaction
between …
A. consumers and buyers
B. demand and supply
C. producers and sellers
1.2 The revenue derived from the sale of an additional unit is … revenue.
A. marginal
B. additional
C. average
1.3 Under conditions of perfect competition, the market demand curve...
A. slopes upwards from left to right.
B. slopes downwards from left to right.
C. is a horizontal line.
1.4 An example of perfect competition is the …
A. crude-oil market.
B. JSE Securities Exchange.
C. International Diamond Exchange.
1.5 Products of a perfect competitor are …
A. unique.
B. differentiated.
C. homogenous.
(5 x 2) (10)
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QUESTION 2: 5 minutes
Section B (Taken from prelim exam September 2011)
Study the graph below and answer the questions that follow.
Individual business in perfect competition
Price
P
AR = MR
0
Q1
Q2
Q3
Quantity
2.1
2.2
2.3
How do businesses determine the market price under perfect competition? (2)
Briefly explain why an individual business cannot influence the market price.
(6)
What kind of a profit can the seller in perfect competition get in the long run?
(2)
QUESTION 3:
5 minutes
Section B
(Taken from DBE/Feb.–Mar. 2012)
Draw a fully labelled graph to illustrate the shut-down point in a perfect
market.
QUESTION 4:
20 minutes Section C
(8)
(Taken from DBE/November 2013)
Markets are at the centre of economic activities.
• With the aid of graphs, analyse the different equilibrium positions (normal profit,
economic profit and loss) of the individual firm under perfect competition. (30 marks)
• Examine the conditions under which perfect competition successfully operates.
(10 marks)
[40]
© Gauteng Department of Education
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SECTION B: ADDITIONAL CONTENT NOTES
DYNAMICS OF MARKETS: PERFECT MARKETS
Introduction
Markets play a vital role in determining prices and are a mechanism that brings
together buyers and sellers of goods and services.
Perfect competition
The theoretical market form, perfect competition, exists when no individual participant
(buyer or seller) has the ability to influence the market price of a product or service.
The contribution made by the participants is too small for the market as a whole. The
market forces of supply and demand exclusively determine the market price and both
the buyers and sellers in the market have to accept the price; participants in a
perfectly competitive market are referred to as price takers.
The characteristics of a perfect market
• No single seller can influence the market – all sellers are selling a
homogenous product.
• There are a large number of buyers and it makes no difference who they buy
from - buyers have perfect knowledge.
• All buyers have the same access to the market.
• All buyers have freedom of choice (free competition between buyers and
buyers and sellers and sellers).
• All producers are free to enter and leave the market when they wish to do so.
• Perfect mobility of the factors of production – the costs of moving the factors of
production from one location to another is the same for all producers.
The demand for a product of a firm in a perfect market
• In a perfect market, the market price of a product is determined by supply and
demand, the individual firm is a price taker and can sell as many of the
products as it chooses to at the market price. None of the firms will sell the
same product at a higher price than the current market price, as they will lose
customers to competitors. Firms will not lower the price of the product below
the current market price either, as they can sell as many of the product as they
want to at the higher market price. The demand curve for the individual firm
will run horizontally.
Price
D
S
P1
Quantity
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The individual firm
Price
P1
Quantity
The cost concept
Economists determine the cost of production by taking both implicit and explicit costs
into account.
Explicit cost is the actual expenditure incurred by the enterprise to buy or hire inputs.
Implicit cost refers to the value of inputs owned by the enterprise itself utilised in the
production process.
Short run
In the short run refers to a period of time that is so short that the enterprise is not
able to alter the size, but only the utilization of its production plant. Though the
capacity of the firm remains unchanged, production is easily increased (decreased)
by altering the amount of labour and raw material used in the production process.
Fixed and variable costs
The costs incurred by a firm comprise both fixed and variable costs.
The quantity of fixed inputs utilised in the production process cannot be changed in
the short run. The price of rent for the land is fixed and represents the opportunity
cost of the land.
The quantity variable inputs utilised in the production can be changed in the short
run. The price per labour unit is given and represents the opportunity cost of labour.
The cost of labour for a firm is calculated by multiplying the price per labour unit by
the quantity of labour units employed. Although the price per labour unit is fixed, the
quantity of labour can easily be changed and, therefore, the cost of labour is variable
The total fixed cost curve is represented through a straight line parallel to the x-axis.
The fixed cost remains constant, regardless of the level of production.
The total variable cost curve has a reverse s-shape that starts from the origin and
increases with a decreasing rate up to a point, from where it will decrease at an
increasing rate.
The total cost curve has the same shape as that of the total variable cost curve,
except that it does not start form the origin of the curve but from the same point on
the y-axis as the fixed cost curve.
Thus the vertical distance between the fixed total cost curve and the total variable
cost curve will always be equal to the fixed cost.
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Long run costs
The long run refers to a period of time that is long enough for enterprises to change
the quantities of all their inputs utilized in the production process. This means that the
capacity of the plant can be altered in the long run.
In the long run, all inputs are variable. This means that all of the inputs utilised in the
production process can be altered. Businesses can expand their capacity with the
purchase of new equipment or bigger premises. There will be no fixed cost, total
fixed cost and average fixed cost in the long run.
Revenue
The primary objective of all enterprises is to maximise their profit.
Total revenue (TR)
Businesses earn money by selling their output. Total revenue is calculated by: the
number of products sold (Q) multiplied by the price of the product (P).
TR = P x Q
Average revenue (AR)
Average revenue is the amount that is earned by the firm for every unit of output sold
and is calculated by dividing the total revenue (TR) by the quantity of output.
TR
AR 
Q
Marginal revenue (MR)
Marginal revenue is the extra income earned from selling one additional unit. It is
calculated in the same way as marginal cost: the change in total revenue divided by
the change in output.
MR 
ΔTR
ΔQ
Profit and loss
Different perspectives on calculating profit - Simply stated, profit is equal to revenue
minus cost. The enterprise makes a profit when revenue exceeds cost and incurs a
loss when cost exceeds profit.
We can also express profit as average revenue (AR) minus average costs (AC).
The formulae for profit are
TR – TC and AR- AC
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Profit/Economic profit
MC
A firm making a profit (as shown by grey rectangle) under perfect competition when
the price of the product is above the total average cost curve.
Normal Profit
Normal profit: This occurs when AC = AR
Explanation: Please note normal profit is the amount that the business must make
in order to keep its doors open. Once all costs such as the running costs and fixed
costs are covered the business can keep its doors open.
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In this instance the firm makes zero profit because the average total cost is equal to
total revenue. The firm breaks even. Point e.
Loss
In this case the firm is making a loss because the price is below the total average
cost. The loss is P1eBc – grey area.
Competition policies
The main objective of the Competition Commission is to investigate and evaluate
restrictive business practices
The main aim:
 To prevent abuse of monopoly power.
 To regulate the market through mergers and takeovers.
 To prevent price fixing and collusion.
The Competition Act of 1998 makes provision for the Competition Commission and the
Competition Tribunal. The Competition Tribunal accepts or rejects the investigation
and recommendation of the Competition Commission. The Competition Appeal Court
accepts or rejects the recommendation of The Competition Tribunal.
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SECTION C: HOMEWORK
DYNAMICS OF MARKETS: PERFECT MARKETS
QUESTION 1:
10 minutes
(Source: Via Africa)
An individual business manufactures tracksuits that are sold at a market price of
R400 each. Copy and complete the table provided below by calculating the missing
numbers.
Quantity
produced
0
1
2
3
4
5
1.1
1.1.1
1.1.2
1.1.3
1.1.4
Total revenue
Average revenue
Marginal revenue
-
-
Study your completed table and answer the following questions:
What happens to TR when additional units are sold?
What happens to MR when additional units are sold?
What happens to AR when additional units are sold?
Compare MR and AR to the price of the product, what do you observe?
[8]
QUESTION 2:
6 minutes
(2)
(2)
(2)
(2)
(Source: Oxford Successful Economics)
2. Choose the correct word between the brackets.
2.1 A firm makes a(n) (economic/normal) profit when it covers the explicit costs
of production and the implicit costs.
2.2 Break-even point and (economic/normal) profit is the same concept in a
perfect market.
2.3 The maximising-output point is where (MR=MC/MR=AR).
2.4 If the market supply increases, it will cause a(n) (increase/decrease) in the
market price.
2.5 The production-efficient place for a perfect market will be if every seller in
the industry makes a(n) (economic/normal) profit.
2.6 The perfect competitor will make an economic profit if the AC is
(below/above) the MR curve.
1 x 6 (6)
2.7 Differentiate between a normal profit and an economic profit.
(4)
[10]
QUESTION 3:
16 minutes
(Source: Solution for all Economics)
3.1 Why do you think it is in the interest of producers to try to limit the level of
competition in an industry or market?
3.2 Explain why the demand curve for the individual producer is horizontal.
© Gauteng Department of Education
(2)
(2)
23
3.3 Explain why the price equals the marginal revenue for the individual producer.
(2)
3.4 Complete the following sentence.
(2)
An individual firm maximises profits where marginal revenue is equal to ..... or
where the positive difference between total revenue and total cost is at its .......
3.5 Given the following information and assuming that the market price is R7,
determine the level of output where the firm will maximise its profits by using the
marginal cost-marginal revenue rule.
Quantity
0
1
2
3
4
5
6
7
3.6
price
7
7
7
7
7
7
7
7
Total cost
4
7
11
16
22
29
37
46
(10)
Use the data to draw a diagram to show whether the firm makes an economic
profit, normal profit or a loss. (Hint: You need to calculate the average cost of
production)
(10)
[28]
SECTION D: SOLUTIONS AND HINTS TO SECTION A
DYNAMICS OF MARKETS: PERFECT MARKETS
QUESTION 1:
5 minutes
(Taken from various sources)
1.1
B demand and supply
1.2
A marginal
1.3
B slopes downwards from left to right.
1.4
B JSE Securities Exchange.
1.5
C homogenous. (5 x 2) (10)
QUESTION 2: 5 minutes (Taken from Eastern Cape prelim exams Sept 2011)
2.1
By the interaction of demand and supply 



(2)
2.2
 Each business produces only a small portion of the total production. 
 If the business charges a higher price, buyers will obtain the goods elsewhere.

 The business can sell all the production at the market price, so they will not
reduce the price.







(3 x 2) (6)
2.3
Normal profit 







(2)
QUESTION 3:
5 minutes
(Taken from DBE/Feb.–Mar. 2012)
Fully labelled graph to illustrate shut-down point in a perfect market
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Labelling of axes = 2 marks
Labelling of curves = 3 marks
Profit maximising point = 1 mark
Shut-down point (e1) = 2 marks
TOTAL = 8 MARKS
Price
MC
AC
TVC
E
AR
P
MR
Shut down
Quantity
0
QUESTION 4:
20 minutes
(Taken from DBE/November 2013)
INTRODUCTION
A perfect market is a market structure which has a large number of buyers and
sellers.
The market price is determined by the industry (demand and supply curves). 
This means that individual businesses are price takers, i.e. they are not able to
influence prices. 
Accept any relevant definition of perfect markets.
(Max 2 marks)
BODY
ECONOMIC PROFIT
NOTE: The above response should be marked in relation to the explanation to
graphs. Do not credit twice if it is repeated in the explanation for each equilibrium
position.
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Mark allocation for graph:
• Position/shape of MC curve = 1 mark
• MR curve = 1mark
• Position of AC curve = 2 marks
• Equilibrium = 1 mark
• Indication of price/quantity = 1 mark
• Suitable heading = 1 mark
• Labelling (shading) of profit = 2 marks
MAMAX MARKS = 6





Equilibrium is at E1 i.e. where MC = MR 
At this point Q1 goods are produced at a price of P1 
The averages cost for Q1 units is point R on the AC curve 
Price /AR is greater than AC ( TR > TC) 
Therefore economic profit is represented by the area P 1SRE1 
NORMAL PROFIT 
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Mark allocation for graph:
• MC curve = 1 mark
• MR curve = 1mark
• Position of AC curve = 2 marks
• Equilibrium = 1 mark
• Indication of price/quantity = 1 mark
• Suitable heading = 1 mark
MAX MARKS = 6
• Equilibrium is at E1 i.e. where MC = MR 
• At this point Q1 goods are produced at a price of P1 
• At equilibrium (point E1) average cost is equal to price 
/ the AC curve is tangent to the demand curve which means that P/AR = AC (TR =
TC) 
• The business makes normal profit which is the minimum earnings required to
prevent the entrepreneur from leaving 

ECONOMIC LOSS 
Mark allocation for graph:
• MC curve = 1 mark
• MR curve = 1mark
• Position of AC curve = 2 marks
• Equilibrium = 1 mark
• Indication of price/quantity = 1 mark
• Shading of economic loss = 2 marks
TOTAL MAX 6 MARKS



Equilibrium is at E1, i.e. where MC = MR 
At this point Q1 goods are produced at a price of P1 
At equilibrium (point E1) price/AR is less than average cost/the AC curve is lies
above the demand curve which means that P/AR < AC (TR < TC) 
The business makes an economic loss. 


A maximum of 18 marks will be allocated for graphs / analysis.
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(Max 26 marks)
CONDITIONS:
For a market to successfully operate under perfect competition, the following
conditions should prevail at the same time 
 No firm can influence the market price (price takers) due to a large number of
buyers and sellers 
 Products are identical (homogeneous) 
 There are no barriers of entry, meaning that there is freedom of entry and exit

 Buyers and sellers act independently - no collusion between sellers 
 No government interference to influence the market – the market is
unregulated 
 Free movement between markets - all factors of production are completely
mobile 
 Both buyers and sellers have full knowledge of all the prevailing market
conditions (perfect information) 
 If any of the above conditions are not met, the market is regarded as an
imperfect market (Max 10 marks)
If the conditions are only listed, a learner can obtain a maximum of 5 marks.
If the conditions are discussed, a maximum of 8 marks can be allocated.
The final 2 marks can only be obtained if a learner examined the conditions (the
underlined.
CONCLUSION
Freedom of entry and exit into the perfect market alter the supply of goods on the
market. This result in changes in price which influences the profit or loss of a
business. 
If price falls to a level where it is equal to the AVC then the firm will shutdown. 










(Max 2) [40]
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SESSION 7: DYNAMICS OF MARKETS: IMPERFECT MARKETS & MARKET
FAILURES
Learner Note: Competition is not perfect, it is limited. This leads to imperfect
markets, some more severe like Monopolies, some less severe like Oligopolies and
Monopolistic Competitions.
Section A: Typical Exam Questions
DYNAMICS OF MARKETS: IMPERFECT MARKETS & MARKET FAILURES
QUESTION 1:
1.1
5 minutes
Section A
(Taken from various sources)
A monopolist will get … in the long term.
A. Economic profit
B. Economic loss
C. Normal profit
1.2
The goods of a monopolistic competitor are ........
A. similar.
B. differentiated.
C. unique
1.3
This is an example of an oligopoly market in South Africa.
A. Eskom
B. Johannesburg Securities Exchange
C. Cellphone industry
1.4
The demand curve of a monopolist is the same as the … curve.
A. average revenue
B. total cost
C. marginal revenue
1.5
"I don't meet competition, I crush it." This statement was probably made by a …
A. perfect competitor.
B. monetarist.
C. monopolist.
(5 x 2) (10)
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QUESTION 2:
5 minutes
Section B
(Taken from DBE/Feb.–Mar. 2013)
Study the graph below and answer the questions that follow.
ECONOMIC PROFIT OF THE MONOPOLIST
Price
MC
f
c
R20
b
R16
R11
a
R9
D
MR
500
2.1
2.2
2.3
2.4
800
At which point is maximum profit made?
(2)
Identify the curve marked f.
(2)
What unit price will the monopolist charge to maximise profit?
(2)
Calculate the economic profit that this monopolist makes. Show ALL calculations.
(4)
[10]
QUESTION 3:
2013)
5 minutes
Section B
(Taken from Easter Cape prelim Sep
Briefly explain ‘collusion’ by oligopolies.
QUESTION 4:
20 minutes Section C
(8)
(Taken from DBE/Feb.–Mar. 2013)
Market failures commonly occur in a free market system.
• Discuss the causes of market failure.
(30)
• Use a graph to illustrate how a negative externality influences price and quantity.
(10)
[40]
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SECTION B: ADDITIONAL CONTENT NOTES
DYNAMICS OF MARKETS: IMPERFECT MARKETS & MARKET FAILURES
Introduction
Summary of market structures
Criteria
Perfect
Competition
Number of
So many that
firms
no firm can
influence the
market price
Monopolistic
Competition
So many that
each firm
thinks others
will not detect
its actions
Heterogeneous
/ differentiated
Oligopoly
So few that
each firm must
consider the
others’ actions
and reactions
Homogeneous
or
heterogeneous
Nature of
product
Homogeneous
Entry
Completely
free
Free
Information
Collusion
Firm’s control
over the price
of the product
Complete
Impossible
None
Incomplete
Impossible
Some
Demand
curve for the
firm’s product
Horizontal
(perfectly
elastic)
Downwardsloping
Downwardsloping, may
be kinked
Long run
economic
profit
Zero
Zero
Can be
positive
Varies from
free to
restricted
Incomplete
Possible
Considerable,
but less that in
monopoly
Monopoly
One
Only one
product with no
close
substitutes
Completely
blocked
Complete
Unnecessary
Considerable,
but limited by
goal of profit
maximisation
Equals market
demand curve:
downwardsloping
Can be
positive
Monopolies
A pure monopoly exists when a single firm is the sole producer of a product for which
there are no close substitutes.
Types of monopolies
 Legal monopoly – It is based on laws preventing other companies from competing
(State monopoly).
 Local monopoly – A local monopoly will control the market in a particular area or
town, e.g. if there is only one petrol station.
 Natural monopoly – This arises in industries where economies of scale are so
large that a single business can supply the entire market, e.g. electricity.
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


Horizontal monopoly – This occurs when a parent company takes control over
several smaller companies, e.g. Naspers in the printing business.
Vertical monopoly – This occurs when 1 firm will supply and produce the product,
e.g. Eskom.
Coercive monopoly – This occurs as a result of any activity that violates the
principles of a market economy.
Characteristics of a monopoly
 No competition – one business controls the supply of goods or service.
 No substitutes – no substitutes on the market for the consumer to choose from.
 Price makers – one business controls the price of the goods or services.
 Barriers to entry – e.g. technology or patents, may keep new companies out.
 Imperfect information – the consumer doesn’t have all the information, e.g. profit
margin.
 No homogenous products – they will produce only one product or different
varieties.
 Large amount of starting capital is needed.
 Legal considerations – new inventions are protected by patent rights.
 Examples: Eskom, Transnet
Revenues
Any point on the demand curve (D) represents the amount of the unique product that
will be sold and at what price it will be sold. Therefore, the monopolist’s demand
curve is also his average revenue curve (AR). Total revenue (TR) is calculated by
repeatedly multiplying the price (P) by the amount (Q). Marginal revenue (MR)
reflects the changes in total revenue that result from selling one additional unit of the
product.
Short-run profits and losses
 If a monopolist wants to sell more goods, he would have to lower his prices.
 In the short-run, the monopoly firm can make economic profits, normal profits or
economic losses. It is possible but unlikely that a monopoly makes an economic
loss.
Long-run equilibrium
 The monopolist strives to make a maximum profit, like any other business, and
will therefore increase his output until MR = MC. It will charge the highest price
per unit at which this quantity of output can be sold.
 In the long-run, a monopoly can make economic or normal profits only.
 Example of things changing is consumers’ tastes and that reduces the
demand. This results in a fall in:
 The price
 The profit maximising output
 The monopoly’s profit
A long-run equilibrium only exists when there are no changes in the demand for the
product or in the cost of production.
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Comparison with perfect markets
The crucial difference between a pure monopolist and a purely competitive seller lies
on the demand side of the market.
 The purely competitive seller faces a perfectly elastic demand at the price
determined by market supply and demand.
 Because the pure monopolist is the industry, its demand curve is the market
demand curve. Because market demand is not perfectly elastic, the
monopolist’s demand curve slopes downwards. The quantity demanded
increases as the price decreases, as the typical supply curve you know
declines from the top of the left-hand side to the bottom of the right-hand side.
Oligopolies
An oligopoly is a market dominated by a few large producers of a homogeneous or
differential product.
Characteristics of an oligopoly
 Limited competition – Only a few suppliers of the same product dominate the
market.
 Interactivity – If one company makes a decision, it influence the decisions the
other companies make.
 Price changes – They will more frequently change their prices in order to
increase their market share.
 Cost advantage – They have an absolute cost advantage over the rest of the
competitors.
 Joint decision making – It is a key instrument to make decisions together in
order to dominate the market.
 Difficult entry – New firms will experience high barriers to enter.
 High profits – Abnormal high profits may be result of joint decisions.
 Examples: Cell phone industry, Banking industry
Non-price competition
The oligopolist often uses methods other than price wars to win a market for his
products.
Non-price competition includes the following:
 Product differentiation: product is slightly different from the others.
 Product proliferation: different range of products to cater for many different
markets.
 Advertising: oligopoly firms advertise their products heavily.
Collusion
Collusion means co-operation with rivals. Suppose an industry consists of only two
businesses. One way of increasing profits is to lower prices in order to acquire a
larger share of the market. The alternative is to enter into an agreement with your
competitor so that both businesses follow a high pricing strategy
Prices and production levels
Kinked-demand theory (non-collusive).
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The behavioural assumption in this theory is that if a single firm lowers its price, other
firms will do the same. But if a single firm raises its price, others will not do the same.
Suppose there are five firms in an industry, A, B, C, D, and E. If firm A raises its price,
the other firms maintain their prices. If firm A cuts its price, the other firms match the
price cut.
Interdependence
Another key characteristic of oligopoly firms is that they are interdependent.
The decisions that an oligopoly firm makes with respect to quantity, marketing
strategies and location, for example, depend largely on what it thinks the other firm in
the industry will do in response to its actions.
Comparison with perfect markets
 Contrary to the perfect market, the oligopolist can also make an economic
profit in the long run.
 The consumers do not get their products at the lowest possible prices as in
the case of perfect competition, because the oligopolist will probably stop
producing before his long-run average cost curve (LAC) reaches its lowest
point.
 The price of a product in an oligopoly is higher than the marginal cost (P>MC).
The community therefore adds more value to an additional unit than to the
resources necessary to produce it. Resources are therefore not applied as
effectively as possible.
Monopolistic competition:
Characteristics of a Monopolistic competition
There are a large number of firms in the market.
 Each firm produces a different product, though similar to products of other
firms.
 There are no restrictions that hinder entry to, or exit from, the market.
 Examples: McDonalds, Steers, Sterns
Market Failure
Definition: Market failure occurs when the market fails to distribute and allocate
resources efficiently or in any given market; the quantity of a product demanded by
consumers does not equate to the quantity supplied by suppliers.
Types of market failure
 The problem of externalities – When a market trade affects a “third party” it
is called an externality since it is “external” to the market participants,the
market in certain instances don’t reflect the true price of goods and services.
 The lack of competition in the market - the problem of monopolies.
 Missing markets - the inability of the private sector to supply certain public
goods & services.
 Factor immobility - causes unemployment and productive inefficiency.
 Inequality - market generates unequal distribution of income and social
exclusion.
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The reasons for market failures
1. Externalities
 Negative Externalities exist when a market trade imposes extra costs on third
parties. Important classes of negative externalities are various forms of
pollution.
 Positive Externalities exist when a third party benefits from a market
transaction.
 Private cost (internal cost) - This is the cost consumers incur to buy their
goods or the accounting cost producers incur to produce their products.
 Private benefits (internal benefits) - These are the benefits that are due to
consumers for buying an article or service, or the benefits that are due to the
producer for producing an article or service.
 Social cost - This is the private cost plus negative externalities (external
costs). Social cost therefore includes the cost of the person’s producing or
using the goods and services, as well as the cost to the community as a whole.
 Social benefits - These include private and external benefits. Social benefits
consist of the direct benefits of producers and consumers, as well as the
benefits for third parties or the benefits to the community as a whole.
Public goods
 Non–rivalry (non–depletable) goods: If one person has a public good it is
also available for others.
 Non-excludable by price – once produced, others get the same benefits
without having to pay.
Merit and demerit goods
Merit goods – a good that is underprovided by the market mechanisms or
goods that the government or society deem good for people, something they
should have, e.g. education, health services.
Demerit goods - a good that is overprovided by the market mechanisms or
goods that the government or society deem bad for people, something they
should not have, e.g. drugs, alcohol, tobacco.
In order to solve the problem of externalities the government generally taxes
goods with negative externalities to pay for merit goods, which have positive
externalities.
COST BENEFIT ANALYSIS (CBA)
CBA is a technique for enumerating and evaluating the total social costs and total
social benefits associated with an economic project.
Cost benefit analysis involves six stages:
• To identify and quantify private costs
• To identify and quantify external costs
• To calculate social costs
• To identify and quantify private benefits
• To identify and quantify external benefits
• To calculate social benefits
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SECTION C: HOMEWORK
DYNAMICS OF MARKETS: IMPERFECT MARKETS & MARKET FAILURES
QUESTION 1:
1.1
1.2
1.3
2.2
(Source: Clever Economics)
Use a table to compare the demand and revenue curves of a monopoly with
those of a business under perfect competition.
(6)
Explain why a monopoly has the same cost curve as a business in perfect
competition.
(2)
Complete the following table, which represents the revenue of a monopoly:
Quantity (q)
Price (P)
1
2
3
50
40
30
QUESTION 2:
2.1
10 minutes
10 minutes
Total revenue
(TR)
50
A
90
Marginal
revenue (MR)
50
B
10
Average
revenue (AR)
50
40
C
(6)
[14]
(Source: Oxford Successful Economics)
Calculate the economic profit made by the following competitor:
 Price = R10
 Optimum production quantity = 80
 Average explicit cost = R5,50
 Average implicit cost = R2,50
Show all calculations
Explain the role of advertising in a monopolistic competitive market.
(10)
(6)
[16]
QUESTION 3:
3.1
3.2
3.3
10 minutes
(Source: Solution for all Economics)
Explain with examples what is meant by positive and negative externalities.
(12)
What do we mean by the “free-rider problem” and why is it considered a
problem?
(6)
Give three reasons why lack of mobility of factors of production may lead to
market failure.
(6)
[24]
© Gauteng Department of Education
36
SECTION D: SOLUTIONS AND HINTS TO SECTION A
DYNAMICS OF MARKETS: IMPERFECT MARKETS & MARKET FAILURES
QUESTION 1:
1.1
1.2
1.3
1.4
1.5
A
B
C
A 
C
5 minutes
economic profit
differentiated
Cellphone industry
average revenue
monopolist.
QUESTION 2:
5 minutes
Section A
(Taken from various sources)
(10)
Section B
(Taken from DBE/Feb.–Mar. 2013)
a/MR = MC 
(2)
Average cost/AC/ATC






(2)
R20
(2)
R20 – R11 = R9 (Unit profit)
R9 x 500 
R4 500 
TR–TC
R10 000 – R5 500 
R4 500 
Award a maximum 2 marks for any relevant step preceding the final answer.(4)
2.1
2.2
2.3
2.4
QUESTION 3:
2013)





5 minutes
Section B
(Taken from Easter Cape prelim Sep
Oligopolies collude through formal or informal agreement
When they reach a formal agreement, it is called a cartel. 
This is to limit competition and maintain high profitability. 
There are different forms – overt collusion, tacit collusion, etc. 
A good example of collusion is OPEC. (10)
QUESTION 4:
20 minutes Section C
(Taken from DBE/Feb.–Mar. 2013)
INTRODUCTION
Market failures occur when the market is not efficient. Sometimes free markets fail to
produce maximum of goods and services from a given set of resources./The market
also fails to produce the optimal mix of goods and services desired by consumers
Accept any other relevant introduction  



(Max 2)
© Gauteng Department of Education
37
BODY
REASONS
1. Externalities 
 Known as spill-over effects 
 Sometimes in ideal market conditions some people gain or suffer due to the
existence of externalities/cost and benefits to third parties which are not
included in the market price
 Private costs (internal costs) and benefits are determined by the market
mechanism
 Externalities do not go through the market mechanism and thus do not have a
price attached to them
 Externalities converts private costs and benefits to social costs and benefits
/Externalities are differences between social costs and benefits and private
costs and benefits 
 Negative externality e.g. pollution, disposing waste products, decreasing
appeal of area etcMore of these goods are produced than is socially
desirable 
 Positive externality: e.g. Supply of clean water which leads to less illness,
education Less is produced than is socially desirable.
 Market fails because output is based on private costs and benefits.
2. Public goods 
 Markets are incomplete –they do not meet demand for certain goods – public
sector provides these goods known as public goods
 Private people are reluctant to produce these goods due to the large capital
outlay and a low return on investment
 Divided into community (police and street lighting) which is nonexcludableand collective goods (parks, community swimming pool)
which can be excludable if a fee is charged
 Public goods are not provided via the price mechanism – producer cannot
withhold goods for non-payment 
 State finance public goods through taxation and provide it themselves 
 In RSA – most goods and services private goods – have rivalry in
consumption and excludability 
 Features of public goods:
- non-rivalry consumption by one person does not reduce consumption by
another individual e.g. lighthouse 
- non-excludability consumption of public goods cannot be confined to those
who pay for it (free riders e.g. radio ) 
- social benefits outstrip private benefits large social benefits relative to private
benefits e.g. health care and education 
- infinite consumption once provided, marginal cost of supplying one more
individual is zero (traffic lights) 
- non-excludable individuals may not be able to abstain from consuming them
even if they want to (e.g. street lighting) 
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3. Merit and demerit goods 
MERIT GOODS (/ )
 Some goods highly desirable for general welfare – not highly rated by market
– leads to too little consumed – market fails 
 E.g. health care and education, safety – merit goods – special form of private
goods 
 Few people would pay for education if they had to meet full cost – results in
market failure 
 In pure market system – consumers' spending on merit goods determined by
private benefits 
 Merit goods have positive externalities – social benefits derived from their
consumption exceed private benefits 
DEMERIT GOODS (/ )
 E.g. cigarettes, alcohol and non-prescription drugs – over-consumed 
 Consumer unaware of true cost of consuming them, e.g. increased health
costs, social decay = negative externalities 
4. Imperfect competition 
 Competition is often reduced by power in market economies – power lies with
producers 
 Conditions of imperfect competition: restrict output and raise prices which
prevent new businesses to enter and also prevents full adjustment to changes
in demand 
 Modern market does not allow for price negotiations 
 Advertising promote producer sovereignty – encourage consumer to buy
products – delay products from market until it is in businesses' financial
interest 
5. Lack of information 
 Information is not always available to make rational decisions. 
 Consumers – need detailed information to maximize their utility –
technology increase information but it is not perfect. 
 Workers unaware of job opportunities, advantages and disadvantages,
health risks of current jobs 
 Entrepreneurs lack of information about costs, availability and
productivity of some factors of production – operating on basis of incorrect
information
 Which leads to market failure 
6. Immobility of factors of production 
 Most markets do not adjust rapidly to changes in supply and demand – due to
resources not being mobile . Thus a misallocation of resources results. 
 Labour takes time to move occupationally and geographically – adjust
slowly and inadequately 
 Unskilled workers not able, willing or have time to gain necessary skills

 Physical capital infrastructure like telephone lines – can move from one
location to another at irregular intervals 
 Structural changes occur slowly – demand increases or decreases –
technology used like robots – takes time for labour-intensive textile production
to be switched to computer assisted production 
© Gauteng Department of Education
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7. Imperfect distribution of income and wealth 
 Market system is neutral to income distribution 
 Market economy provides opportunities to earn an income, but it's not equal –
no equal education and skills 
 Results in the poor, women and disabled people earning less 
8. Price discrimination 
 A situation in which identical goods and services are sold at different prices to
different consumers 
 Leads to a situation where some consumers pay lower prices 
 E.g. when airlines sell tickets on the same flight at different prices to different
customers (Max 26 marks)
NEGATIVE EXTERNALITY
S1 (MSC)
Price
D
S(MPC)
E1
P2
E
P1
D(MPB)
0
Q2
Q1
Quantity
(Max 10 marks)
CONCLUSION
Any suitable conclusion. (Max 2 marks)
[40]
___________________________________________________________________
© Gauteng Department of Education
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SESSION 8: CONSOLIDATION AND REVISION
Learner Note: Session 1 – 5 will be tested in Paper 1 and Session 6 – 7 will be
tested in Paper 2.
SECTION A: TYPICAL EXAM QUESTIONS
PAPER 1
SECTION A
10 minutes
(Taken from various sources)
Question 1
1.1
Various options are provided as possible answers to the following questions.
Choose the answer and write only the letter (A–C) next to the question
number (1.1.1–1.1.12) in the ANSWER BOOK.
1.1.1
Successive periods of increasing and decreasing economic activity is
known as a/an …
A
B
C
circular flow.
economic cycle.
business cycle.
1.1.2
The three levels of the government together with the SOEs are
collectively known as the … sector.
A
B
C
private
public
primary
1.1.3
The ratio between export prices and import prices expressed as an
index is known as …
A
B
C
terms of trade.
balance of trade.
surplus trade.
1.1.4
When there are no restrictions to trade such as taxes on goods or bans
on imports, it is called …
A
B
C
dumping.
protectionism.
free trade.
(2)
(2)
(2)
(2)
1.1.5
When import duties are imposed as a percentage of the value of
the imported product, it is known as … duties.
A
B
C
ad valorem
specific
composite
(2)
© Gauteng Department of Education
41
1.2
Give the economic term/concept for each of the following descriptions. Write
only the term/concept next to the question number (1.2.1–1.2.5) in the
ANSWER BOOK.
1.2.1 The group of economists that believe markets are inherently unstable.
1.2.2 Money taken from the economy, for example savings, taxes and imports.
1.2.3 An initial change in spending results in a much bigger change in national
income.
1.2.4 International transactions in portfolio investments are recorded in
the ... account.
1.2.5 The exchange rate system where exchange rates are determined by the
market forces of supply and demand.
( 5 x 1 ) (5)
1.3.
Choose a description from COLUMN B that matches the item in COLUMN A.
Write only the letter (A–F) next to the question number (1.3.1–1.3.5) in the
ANSWER BOOK.
COLUMN A
1.3.1 Factors of production
COLUMN B
A Characterised by non-excludability and
non-rivalry in consumption
1.3.2 Laffer curve
1.3.3 Public goods
B Removal of restrictive laws and
regulations
1.3.4 Taxes
C Incentives to increase sales abroad
1.3.5 Deregulation
D inputs into the production of goods and
services
E Direct or indirect compulsory payments
to the government
F Shows the relationship between tax
rate and tax revenue
( 5 x 1 ) (5)
Section B
MACROECONOMICS 40 MARKS – 20 MINUTES
(Taken from various sources)
Answer the following questions:
QUESTION 2:
2.1
2.1.1
2.1.2
Name TWO participants in a closed economy.
(4)
Which curve measures the relationship between unemployment
and inflation?
(2)
© Gauteng Department of Education
(2)
42
2.2
Study the following extract and answer the questions that follow.
Parastatals unprofitable: survey
Five out of nine SOEs recorded profits in the 2009/10 financial year, the SA
Institute of Race Relations has revealed. Transnet was the most profitable
parastatal, while Eskom recorded the biggest loss in 2009/10, according to
the latest South Africa Survey.
The Pebble Bed Modular Reactor, SA Airways, SA Express, and the SA
Forestry Company all made a profit in 2009/10.
“The least profitable parastatal for the 2009/10 financial year was Eskom,
which posted a loss of over R9,7 billion, although it has since turned around
its fortunes and posted a profit of R13 billion for 2010/11.”
“The biggest concern with these results is that the government will have to
support loss-making entities at taxpayers’ expense,” said a researcher at the
institute.
[Adapted from City Press 2012-01-17]
2.3
2.2.1
Which parastatal recorded the biggest loss in 2009/10?
(2)
2.2.2
Define the term ‘restructuring’ of an enterprise.
(2)
2.2.3
Mention any TWO reasons for privatisation.
(4)
2.2.4
What is the biggest concern for the government when the
parastatals are making losses?
(2)
Study the following image and answer the questions that follow.
© Gauteng Department of Education
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2.3.1
Mention any TWO features of public goods.
(4)
2.3.2
Differentiate between ‘community goods’ and ‘collective goods’.
(4)
2.3.3
Public goods are provided by the government free of charge. Give
ONE reason.
(2)
2.4
Explain how the gross domestic product (GDP) at market prices is derived by
using the expenditure method – GDP (E). (4 x 2)
Discuss TWO methods of ‘export promotion’. (4x2)
2.5
(8)
(8)
[40]
SECTION C
STRUCTURE OF ESSAY:
Introduction
Body:
 Main part: Discuss/Distinguish/Differentiate/Explain/Analyse
/Evaluate/Assess
 Additional part: Use/Draw/Sketch a graph/diagram …/
Deduce …/Outline/Briefly explain/Expand on .../Your own
opinion
Conclusion
TOTAL
QUESTION 3 MACROECONOMICS
MARK ALLOCATION:
Max. 2
Max. 26
Max. 10
Max. 2
40
40 MARKS –20 MINUTES
Business cycle indicators are used in forecasting –

Discuss the indicators - Leading, Lagging, Co-incident, Length and Amplitude.
(30 marks)
 In addition draw a fully labelled “business cycle”.
(10 marks)
[40]
© Gauteng Department of Education
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SECTION C: HOMEWORK
PAPER 2
SECTION A
10 minutes
(Taken from various sources)
QUESTION 1
1.1 Various options are provided as possible answers to the following questions.
Choose the answer and write only the letter (A–C) next to the question number
(1.1.1–1.1.5) in the ANSWER BOOK.
1.1.1 Under conditions of perfect competition, the market demand curve...
A
B
C
slopes upwards from left to right.
slopes downwards from left to right.
is a horizontal line.
(2)
1.1.2 Goods and services that are highly desirable for the general welfare of the
people are called ... goods.
A
B
C
community
merit
public
(2)
1.1.3 This is an example of an oligopoly market in South Africa.
A
B
C
Eskom
Johannesburg Securities Exchange
Cellphone industry
(2)
1.1.4 Cost-benefit analysis is a method used for calculating and evaluating the total
social cost and total social … associated with an economic project.
A
B
C
expenditure
benefit
consumption
(2)
1.1.5 Formal collusion between oligopolists is referred to as a …
A
B
C
1.2
cartel.
take over.
merger.
(2)
Give the economic term/concept for each of the following descriptions. Write
only the term/concept next to the question number (1.2.1–1.2.3) in the
ANSWER BOOK.
© Gauteng Department of Education
45
1.2.1 The technique used to evaluate the total social cost and total social benefit
associated with an economic project.
1.2.2 The additional cost incurred when production increases by one more unit.
1.2.3 The mechanism that brings together buyers and sellers of goods and services.
( 3 x 1 ) (3)
1.3
Choose a description from COLUMN B that matches the item in COLUMN A.
Write only the letter (A-F) next to the question number (1.3.1–1.3.5) in the
ANSWER BOOK.
COLUMN A
1.3.1 Competition policy
COLUMN B
A Cost or benefit to third parties
1.3.2 Demerit goods
B These are over consumed in a free
market economy
1.3.3 Perfect competition
C It is impossible to make someone
better off without making someone else
worse off
1.3.4 Externality
1.3.5 Pareto efficiency
D To prevent the abuse of economic
power e.g. monopoly
E ad valorem or specific taxes on
imported goods
F Unregulated market
(5 x 2) (10)
SECTION B
QUESTION 2
MICROECONOMICS
40 MARKS – 20 MINUTES
(Taken from various sources)
2.1.1 List the TWO aims of the competition policy in South Africa.
2 x 1 (2)
2.1.2 What is the function of the Competition Tribunal?
1 x 2 (2)
© Gauteng Department of Education
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2.2
Study the graph given below and answer the questions that follow.
SAC
2.2.1 What does the above graph represent?
2.2.2 What happens when the minimum point of the SAC is lower than
the market price ‘P’?
2.2.3 At what point does the firm maximise its profit?
2.2.4 Briefly explain ‘explicit cost’.
(2)
(2)
(2)
(4)
2.3
Study the scenario given below and answer the questions that follow.
Sipho operates a manufacturing firm and various types of by-products are
produced during the production process. He now has to make arrangements
to dispose of the waste. This means burning it, dumping it in landfills or
flushing it into the ocean. But people in the surrounding area will suffer the
consequences of the pollution created by his disposal methods.
2.4
2.5
2.3.1 Define the term ‘externalities’.
2.3.2 Briefly explain ‘social costs’.
2.3.3 Differentiate between ‘private costs’ and ‘private benefits’.
(2)
(4)
(4)
Briefly explain ‘collusion’ by oligopolies.
Discuss ‘allocative inefficiency’ as an effect of market failure.
(8)
(8)
[40]
SECTION C
STRUCTURE OF ESSAY:
Introduction
Body:
 Main part: Discuss/Distinguish/Differentiate/Explain/Analyse
/Evaluate/Assess
 Additional part: Use/Draw/Sketch a graph/diagram …/
Deduce …/Outline/Briefly explain/Expand on .../Your own
opinion
Conclusion
TOTAL
MARK ALLOCATION:
Max. 2
© Gauteng Department of Education
Max. 26
Max. 10
Max. 2
40
47
40 MARKS –20 MINUTES
QUESTION 3 MICROECONOMICS
Monopoly is an example of imperfect markets.


Discuss in detail, the characteristics of a monopoly as a market structure. (30)
Show the short-term equilibrium of a monopolist with the aid of a graph. (10)
SECTION D: SOLUTIONS AND HINTS TO SECTION A
PAPER 1
SECTION A
1.1.1
1.1.2
1.1.3
1.1.4
1.1.5
1.2.1
1.2.2
1.2.3
1.2.4
1.2.5

1.3.1
1.3.2
1.3.3
1.3.4
1.3.5
C
B 
A
C
A
10 minutes
(Taken from various sources)
business cycle
public
terms of trade
Free trade
ad valorum
Keynesians 
leakages/withdrawals 
Multiplier 
Financial
Free floating / floating 
D inputs into the production of goods and services
F Shows the relationship between tax rate and tax revenue
A Characterised by non-excludability and non-rivalry in consumption
E Direct or indirect compulsory payments to the government
B Removal of restrictive laws and regulations
Section B
QUESTION 2 MACROECONOMICS
40 MARKS – 20 MINUTES
2.1.1
 Households/consumers 
 Businesses/producers 
 State/government (any 2 x 2) (4)
2.1.2
 Phillips curve (2)
2.2
2.2.1 Eskom
(2)
2.2.2 It is used to describe the change in status of an enterprise from
a non-profit to a profit-seeking enterprise. (2)
2.2.3
 SOEs are bureaucratic, inefficient, and unresponsive to the needs of
the people. 
© Gauteng Department of Education
48




It will broaden the tax base.
Private sector is able to adapt more easily to changing economic
conditions. 
It will give more people a share in the economy. 
It will make funds available for necessities like housing, education,
health care and assistance to the poor. (Any 2 x 2) (4)
2.2.4 The government will have to support loss-making entities at
taxpayer’s expense. (2)
2.3







2.3.1
Non-rivalry.
Non-excludability
Social benefits outstrip private benefits
Infinite consumption
Non-rejectability (Any 2 x 2) (4)
2.3.2
Community goods
It is impossible to prevent people from using it.
Collective goods
It is possible to exclude free-riders by levying fees, charges, tolls
etc. (2 x 2) (4)
2.3.3
Producers cannot withhold the goods for non-payment.
Producers are not able to establish a market price  (Any 1 x 2) (2)


2.4







Expenditure on GDP measures total expenditure on final goods and services
produced within the borders of the country.
It is calculating by adding together expenditures of the participants in an open
economy/(households, state, businesses)
Households spend on durable goods/ semi-durable goods/ non- durable
goods and services.
State spends on public goods 
Businesses spends on capital goods 
The residual item is included as balancing item.
The exports of the foreign sector are added and the imports are subtracted.

GDP(E) = C + G +I + (X – M)  




(8)

2.5 
Incentives
 It will encourage manufacturers to increase their export volumes.
 Include market information, research with regard to new markets, concessions
on transport charges, export credit and guarantees, etc.
Subsidies 
 This is in the form of cash payments to exporters.
© Gauteng Department of Education
49

Includes cash payments like refunds on import tariffs, general tax rebates, tax
concessions, employment subsidies, assistance in financing exports.
(4 x 2) (8)
SECTION C
QUESTION 3:
INTRODUCTION
An economic indicator suggests how the economy is performing or is likely to
perform.or
Basic forecasting is done by studying the changes in the numerical values of
indicators. 
(Accept any appropriate introduction.)
(Any 1 x 2)
BODY
A. Leading economic indicators





These indicators will change before the economy changes
They peak before the aggregate economic activity reaches the peak.
They reach trough before the economic activity reaches trough. 
They are important because they give advance warning of changes in
aggregate economic activity. 
E.g. Number of new vehicles sold (Any ONE example) (Any 4 x 2)
B. Co-incident economic indicators





They indicate the actual state of the economy.
They move at the same time as the economy moves. 
Co-incident indicators coincide with the turning points.
If co-incident economic indicators are improving, it means the economy is
improving and vice versa. 
E.g. Real GDP. (Any ONE example) (Any 4 x 2)
C. Lagging economic indicators




They do not change direction until after the business cycle has changed
direction. 
It confirms the behaviour of co-incident indicators. 
If they do not confirm an upswing or downswing, they are weak or likely to
end at an early stage. 
E.g. number of commercial vehicles sold. (Any ONE example)
(Any 3 x 2)
© Gauteng Department of Education
(6
)
Index of economic activities
50
Time series
AB – Expansion
B – Peak
BC – Contraction
D – Trough – recession, depression
AG – Trend 
(10 Marks)
CONCLUSION
Even though we try to predict the future of the economy with all the available
techniques, accurate prediction of the future of the economy is beyond us. 
(Any appropriate conclusion can be credited)
(2 Marks)
[40]
__________________________________________________________________
© Gauteng Department of Education
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2
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SESSION 9: ECONOMIC GROWTH AND DEVELOPMENT
Learner Note: All countries want economic growth and development. Growth leads
to an increase in the capacity to produce more final goods and services.
Development leads to an improvement in the standard of living of people. Growth
focus on goods and services and development focus on people.
SECTION A: TYPICAL EXAM QUESTIONS
QUESTION 1:
5 minutes Section A – Short Questions
Various options are provided as possible answers to the following questions. Choose
the answer and write only the letter (A–C) next to the question number.
1.1 The policy that was introduced to increase employment, promote economic
growth and redistribute income.
A. Asgisa
B. GEAR
C. RDP
1.2 Many developing countries do not have the … to sustain large-scale
manufacturing operations.
A. capital
B. wages
C. industrial policies
1.3 The application of new scientific knowledge in the form of inventions and
innovations is known as …
A. capital.
B. technology.
C. labour.
1.4 The scorecard used to measure progress with Black Economic
Empowerment (BEE) is published by the …
A. Amalgamated Banks of South Africa (ABSA).
B. Development Bank of Southern Africa (DBSA).
C. Department of Trade and Industry (DTI).
1.5 Economic development impacts mainly on …
A. the standard of living.
B. the real gross domestic product.
C. aggregate supply.
5 x 2 (10)
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QUESTION 2:
5 minutes Section B (Taken from DBE/Feb.–Mar. 2013)
Study the extract below and answer the questions that follow.
DEEP THINKING
South Africa is one of the world's, and Africa's, most important mining countries in
terms of the variety of minerals mined. It has the world's largest reserves of chrome,
gold, vanadium and manganese. Combined, this represents 6,5% of the country's
GDP. In fact, the gold industry remains the largest employer, responsible for more
than 50% of total employment in this sector.
The move towards black economic empowerment in this industry is progressing, but
not fast enough. There is also a move within government towards accommodating
small mining companies, creating opportunities for junior operations to start up.
[Source: Adapted from Skyways, 2012]
2.1
2.2
2.3.
Define the term economic growth.
(2)
Give reasons why the gold industry is of economic importance to South Africa.
(2 x 2)(4)
Why is black economic empowerment necessary in South Africa's mining
industry?
(4)
QUESTION 3:
10 minutes Section B (Taken from Eastern Cape Prelim Sept 2011)
Discuss any TWO South African approaches to improve business efficiency.
(2 x 4) (8)
QUESTION 4:
30 minutes Section C (Taken from DoE/Feb.– March 2009)
 Compare and evaluate South Africa's growth and development policies in
terms of international benchmarks.
(30)
 Highlight the North-South divide.
(10)
[40]
SECTION B: ADDITIONAL CONTENT NOTES
ECONOMIC GROWTH AND DEVELOPMENT
Economic Growth
Consists of growth in the REAL GDP and implies an increase in the CAPACITY of the
ECONOMY to produce more goods and services. It requires policies that empower the
economy.
Economic development
Consists of growth of PER CAPITA REAL GDP and implies an increase in the
CAPACITY of the POPULATION to PRODUCE more goods and services. It requires
policies that EMPOWER people.
he demand-side approach
An increase in domestic demand for a product or service will cause an increase in the
level of its production, this increase in the quantity of goods and services will lead to
economic growth.
C+I+G+X–M
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Consumption spending by households (C)
 Increase in production – Increase in production leads to an increase in
disposable income of households, which leads to increase in consumption which
leads to more production etc. (Multiplier effect)
 Government fiscal policy – Lowering of direct and indirect taxes leaves more
money for households to spend, leading to more production.
 Government monetary policy – Lowering interest rates makes credit cheaper and
consumers will borrow more, consume more and production will increase.
 Government programmes to satisfy basic needs – Government assist poor
households to satisfy their basic needs for access to healthcare, clean water,
energy and education. This is done to create jobs which provide incomes to
households which lead to consumption which leads to production.
Investment spending by firms (I)
 Capital formation increases the production capacity of businesses and the
economy.
Government spending (G)
 Government spending on public services and economic affairs ensures a level of
demand.
 This is the easiest and quickest way to increase aggregate demand and get
economic growth.
Imports and exports
 Imports provide consumers with a wider choice of goods and services; they also
provide capital and intermediate goods and services to firms.
 An increase in imports leads to a reduction in local production; this could lead to
unemployment and reduction in production.
 Exports on the other hand leads to job creation and increase in production.
The supply-side approach
The supply –side economists put emphasis on the factors that affected the production
capacity of the economy:
Natural resources - South Africa has a competitive advantage in respect to following:
• Mineral resources: Gold and platinum base metals and coal. These raw
materials can easily be exploited and exported.
• Vegetation and wildlife: There is great diversity of wildlife and vegetation.
• Coast line: Beautiful scenic coastline which is ideal for tourism.
• Location: Its geographical location makes it closer to European markets than its
competitors such as Australia.
Human resources - Economic growth depends upon the quality and size of the labour
force so that labour may be productive in producing goods and services. The following
can be done to improve the quality of labour.
• Improving education and training so that labour can be more productive.
• Improving the quality of health services.
• Limiting the power and influence of trade unions.
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In South Africa the quality of public education and health services is poor. Trade
unions often during strike season disrupt production through strikes and labour unrest
often occurs.
Entrepreneurship - When an entrepreneur starts a new business, he contributes to the
economic development of the local community. Economic growth occurs, incomes
increase, living standards improve, investment opportunities arise, the tax base is
enlarged by a greater number of new enterprises, technological developments occur
and job opportunities arise.
Capital formation - Capital formation is essential so that a country can grow and
develop. Capital can be increased in a number of different ways.
• Increased savings by consumers which are then invested. The problem is that
the rate of savings among South African consumers is low and many are in debt.
• Increased taxes by government which can be spent on capital investment. The
problem in South is less than 20% of the country’s budget is spent on improving
and retaining existing infrastructure. Biggest part of budget go to salaries.
• Increased overseas investment – labour unrest and threats of nationalisation
deter foreign investment.
• Encouraging small and medium business enterprises.
The new Growth path
This policy was announced in October 2010. The aim is to enhance growth, create
employment and create greater equity.
The key areas where jobs can be created are:
 Infrastructure expansion
 Agricultural value chain
 Mining value chain
 Green economy
 Manufacturing sector
 Tourism
Previous plans and strategies aimed at growth and development
Reconstruction and Development Programme (RDP)
The RDP was implemented in 1994 and was aimed at improving living standards
among South Africans.
MEETING BASIC NEEDS
1. Many people live below the poverty level
2. There is a shortage of houses
3. Houses don’t have electricity
Providing the following needs
Jobs, Land, Housing, Water, Telephones, Transport, Food, Health care, Environment,
Social security and welfare
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DEVELOPING OUR HUMAN RESOURCES
Aims to develop a culture of teaching and learning. All have equal access to education.
Important areas to be developed include:
• Education and training
• Literacy
• Arts and culture
• Sport and recreation
• Youth development
BUILDING THE ECONOMY
RDP’s goals for the economy
• End poverty
• Create jobs
• Build the SA economy and integrate it into the world economy
• End discrimination
The three keys to building the economy:
1. Reconstruction
2. Restructuring
3. Development
Growth, Employment and Redistribution Programme (GEAR)
GEAR is a macroeconomic strategy adopted by the Department of Finance in June
1996 as a five-year plan.
Aims:
• Strengthening economic development
• Broadening of employment
• Redistribution of income and socioeconomic opportunities in favour of the poor
• GEAR remains government macroeconomic policy
Accelerated and Shared Growth Initiative for South Africa (AsgiSA)
This plan consists of the following components:
• The challenge (aim): To halve poverty and unemployment by 2014. Aim seen as
feasible if economic growth rate is maintained.
• Consultation: Local governments and provincial governments consulted.
• Targets of accelerated and shared growth: Between 5 and 6% growth rate
and achievement of a more balanced and sustainable growth.
• Binding constraints: Include currency volatility (rand exchange rate varies
considerably), backlogs in infrastructure and investment, shortage of suitably
skilled labour, barriers to entry, limits to competition and limited new investment
opportunities, many state regulations on small businesses and deficiencies in
state organisation, capacity and leadership.
The programme plans to achieve these objectives by concentrating its affords on the
following six areas:
1. Infrastructure investment
2. Sector investment strategies
3. Education and skills development
4. Eliminating the Second economy
5. Macroeconomic issues
6. Governance and institutional interventions
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Evaluation of growth and development in South Africa using different indicators
Performance of the economy has to be measured and economic indicators are used for
this purpose. The following indicators are used:
 Percentage annual change in GDP at market price Percentage annual change in
GDP at constant 2005 prices
 GDP per capita at constant 2005 prices
 Income distribution
 Standard of living
Comparison to international benchmarks
The United Nations Human Development Index (HDI) is used for this.
The following factors are taken into account when using the HDI to determine the
standard of living:
 Health
 Level of education
 Income level per capita
The HDI for South Africa improved from 2010 to 2011, although our ranking decreased.
This indicates that the HDI for the world increased overall over this period.
The North/South divide
Characteristics of developed countries:
• Well-developed infrastructure
• Relatively high standard of living
• High productivity
• Low population growth
• Rapid capital development
• Normal distribution of income
• Diversified economic structure
Characteristics of developing countries:
• Low standard of living
• Low productivity
• High population growth
• Unemployment
• Defective economic structure
• Weaker position in international relations
• Climate, soil and terrain restrictions
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SECTION C: HOMEWORK
ECONOMIC GROWTH AND DEVELOPMENT
QUESTION 1:
10 minutes
(Source: Via Afrika Economics)
1.1
Differentiate between economic growth and economic development.
1.2
Briefly discuss the demand-side policy used in promoting growth and
development.
QUESTION 2:
(8)
(8)
10 minutes (Source: Oxford Successful Economics)
South Africa’s mining output fell sharply in volume in February 2012. This
highlighted the effects of a government safety drive that slowed production in
several mines. There was also a crippling strike at the world’s biggest platinum
mine in the Rustenburg area.
2.1
2.2
Identify whether the mining article is about the demand-side or supply-side of
the economy and indicate the likely effect on growth of the two events
mentioned.
(6)
Explain how the shortage in the supply of electrical power by ESKOM between
2009 and 2012 affected economic growth in South Africa.
(6)
QUESTION 3:
5 minutes
List the main aims of AsgiSA.
(Source: Fast Track Economics)
(10)
SECTION D: SOLUTIONS AND HINTS TO SECTION A
ECONOMIC GROWTH AND DEVELOPMENT
QUESTION 1:
5 minutes Section A
(Taken from various sources)
1.1
B GEAR
1.2
A capital
1.3
B technology
1.4
C Department of Trade and Industry (DTI).
1.5
A the standard of living.
(5 x 2) (10)

QUESTION 2:
5 minutes Section B
(Taken from DBE/Feb.–Mar. 2013)
2.1
Economic growth is the increase in the production capacity of a country to
produce more/Increase in the Real GDP 
Accept any other relevant answer. (2)
2.2
 Historical importance – discovery of gold in 1886 
 Biggest earner of foreign exchange 
Accept any other relevant answer.
(Any 2 x 2) (4)
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2.3
 To redress inequalities of the past 
 To increase ownership (stake) of the economy.
 To increase jobs (top management/structure of mining industry)
 To improve the standard of living 
 Make mines more competitive (tendering purposes)
Accept any other relevant answer.
(Any 2 x 2) (4)
QUESTION 3:
10 minutes Section B
(Taken from Easter Cape Prelim Sept 2011)
Taxes
 Reduction in corporate and personal taxes.
 Bracket creeping on personal income tax has been attended to.
 VAT has been kept at 14% for a long time. 
Capital formation
 Depreciation has been revised to encourage investment
 Provided start-up capital and loans to SMMEs.
Human resources
 School education has been transformed
 SETAs were established to facilitate work-related training.
 Labour Relations Act – for the promotion of social justice and peaceful
labour relations.
Free advisory service
 Advice on development of export markets, management of SMME’s,
agriculture, etc.
(Any 2) (2 x 2)(8)
QUESTION 4:
20 minutes Section C (Taken from DoE/Feb.– March 2009)
INTRODUCTION
According to UN classification, SA falls in the medium human development group of
th
countries and ranks 119 out of 177 countries. 
Development is a multi-faceted process and each facet is addressed by different
kinds of policies 







(max 2 marks)
Body
The following policies are evaluated in terms of international benchmarking:
1. Macro-economic policy 
 Successful application in interest of poor and wealthy people
 Per capita GDP increased from -1.6 % in 1998 to 3.5 % in 2005
 Illustrates increase in standard of living of SA-population as a whole
 Demand and supply-side and other policies were therefore successful 
 Redistribution affected through tax system, cash benefits, in kind benefits,
housing and services benefits
(Any description X 2 marks) 
 Evaluation of policy 
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2. Micro-economic policy 
 Due to increase in unemployment rate, perception prevails that labour market
within parameters imposed by employment equity and BEE has failed
 Employment in informal and formal sectors increased by 32 % (3.6 % per
year) which was higher than the average real growth rate of 3.2 %
 Unemployment rate increased sharp due to consolidation of homelands and
migration 
 Perception of labour market failure is therefore not correct 
 Evaluation of policy 
3. Social policies 
 E.g. social security grants, benefits in kind, services, primary health care,
education are examples of government intervention to solve poverty 
 Evaluation of policy 
 E.g. Almost 34 % of SA’s population is poor in terms of international
benchmark poverty line income ($2 per day)
4. Redress 
 International organizations (UN) articulate importance of empowerment of
indigenous peoples of developing countries
 In SA redress measures are essential due to racially discriminatory policies of
the past 
 SA government passed both empowerment and affirmative action acts and
introduced range of measures to ensure redress taking place 
 Evaluation of redress 
5. Black Economic Empowerment (BEE) 
 BBBEE Act No. 53 of 2003 provides legal basis for transformation of SA
economy so that number of black people that own, manage and control
country’s economy can increase significantly and income inequalities will
decrease substantially
 Speed and extent of empowerment and transformation agreed upon in
charters (agreements) between government and various industries 
 Elements on scorecards include equity ownership, management and control,
employment equity, preferential procurement, enterprise development and
social responsibility 
 Evaluation of BEE 
6. Land redistribution and restitution 
 Government aims to redistribute 30 % of agricultural land to previously
disadvantaged individuals and groups 
 Evaluation of redistribution 
7. Affirmative action 
 Affirmative action rules described in Employment Equity Act, no 55 of 1998
and apply to employers with 50 or more employees or income turnover above
stipulated limits of R2 million in agriculture and R10 million in manufacturing
 Workforce should reflect demographic and gender profile of country 
 Also requires employment of proportion of disabled persons 
 Evaluation of affirmative action 


(max 26 marks)
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North-South divide
• Refers to countries of Northern and Southern hemispheres of the world - referring to
developed and developing countries 
NORTH-SIDE Developed countries
SOUTH-SIDE Developing countries
Per capita income high – 87%
produced by 15% of world's population
/ higher employment / more jobs 
Per capita income is low -85% of
1
world's population living on /5 of world's
income / higher unemployment / less
jobs 
The North-South Divide refers to the
developed countries in the North 
The North-South Divide refers also to
the developing countries in the South


Life expectancy is low due to
malnutrition, disease and ill health = 48
years 
Life expectancy is high = 75 years

Better infrastructure / technology 
Lack of infrastructure / technology

Level of education: high – everyone
literate 
Level of education low – only 46%
adult literacy. 
Trade: rich countries subsidize
production – developing countries
cannot compete 
Trade: developing countries are
marginalised by subsidies. 

Mass consumption of oil and coal –
damage to ozone layer – air, water,
noise pollution and toxic waste 
(2 x 2)(4)
Focus on agriculture – soil conditions,
adequate rainfall and health of crops
degradation and depletion of
land, water and vegetation – do not
produce sufficient food – hunger and
malnutrition 
(2 x 2)(4)
(max 10 marks)

Conclusion
Any relevant answer.
(max 2 marks)
[40]
___________________________________________________________________
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SESSION 10: ECONOMIC GROWTH AND EVELOPMENT: INDUSTRIAL
DEVELOPMENT POLICIES
Learner Note: All developed countries are strong in industrialisation. For South
Africa to be seen as a developed country, we need to improve our industries.
Economic activities and opportunities must be created in the whole of South Africa.
Under- developed areas must be identified and policies must be put in place to
address this in these rural and under-developed areas.
SECTION A: TYPICAL EXAM QUESTIONS
QUESTION 1:
5 minutes Section A
(Taken from various sources)
Various options are provided as possible answers to the following questions. Choose
the answer and write only the letter (A–C) next to the question number.
1.1 The Maputo Corridor is found in the … province.
A. Eastern Cape
B. Gauteng
C. Mpumalanga
1.2 Spatial areas that offer a passageway to mining, manufacturing and other
businesses are referred to as …
A. gateways.
B. corridors.
C. export processing zones.
1.3 A purpose-built industrial estate which is physically enclosed and linked to an
international port is a/an …
A. industrial development zone.
B. corridor.
C. industrial development community.
1.4 The process whereby indigenous people are empowered in development is
called …
A. Skills Support Programme (SSP).
B. Black Economic Empowerment (BEE).
C. Industrial Development Zones (IDZ).
1.5The national government's initiative aimed at economic development of specific
locations in South Africa, is called …
A. SDI.
B. DTI.
C. DOT.
(5 x 2) (10)
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QUESTION 2: 10 minutes Section B (Taken from DBE/November 2012)
Study the map below and answer the questions that follow.
2.1
2.2
2.3
[Adapted from Natal Witness, 16 September 2011]
What is an industrial development zone?
(3)
Which industrial development zone is found at A? Name ONE advantage of
industrial development zones.
(2 x 2)(4)
Why would government encourage new industries to establish themselves in
an industrial development zone?
(1 x 3)(3)
QUESTION 3:
5 minutes Section B (Taken from DBE/November 2012)
Name any TWO incentive schemes which involve cash grants to promote regional
industrial development.
(2 x 1) (2)
QUESTION 4:
20 minutes Section C (Taken from DBE/November 2013)
Regional industrial development refers to policies aimed at increasing the economic
livelihood of specific areas.
• Discuss regional industrial development in South Africa by focusing on the Spatial
Development Initiatives and Industrial Development Zones.
(20 marks)
• How appropriate are the various financial incentives granted by the South African
government for the establishment of new businesses?
(10 marks)
[40]
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SECTION B: ADDITIONAL CONTENT NOTES
ECONOMIC GROWTH AND EVELOPMENT: INDUSTRIAL DEVELOPMENT
POLICIES
Industrial development
Planning for and building new industries in certain areas as well as expanding
existing industries in certain areas.
Different policy measures include the following:
 Trade policy – higher tariffs on selected imports, subsidies to protect industries
and promote exports.
 Export Marketing and Investment Assistance (EMIA) – Exporters are
compensated for costs of developing foreign markets
 Export credit insurance – Government help with providing re-insuring risks of
non-payments.
 Strategic Investment Projects or programmes (SIPs)- selected industries can
be supported through tax allowances to encourage investments by local and
foreign investors.
 Foreign Investment Grants (FIGs) – Foreign investments are encouraged.
 Skills development and education – development of certain skills to promote
development in certain industries.
 Industrial Development Zones (IDZs) – see notes further down
 Competition policy – ensuring effective industries that can compete
internationally
Regional development
These policies are aimed at providing and encouraging aid and other assistance to
regions that are less economically developed.
The following guidelines are seen as the best practice to improve the development of
a region:
(i)
Development is a multi-dimensional process - The development of a
region is not determined only by economic factors. Non-economic factors such as
social infrastructure must also be taken into account. Education, health and balanced
eating habits are important for productivity.
(ii)
Development from the inside - Development from the inside means that
each region will be responsible for its own development. As far as possible, local
physical and human resources should be used.
(iii) Development of people for people by people - The ultimate aim of regional
development is increasing people’s standard of living. No development can happen
without people. Aspects such as training and health are very important.
(iv)
Development from below - Development should concentrate on the lowest
level (lower class or working class) of society which tends to show the most need.
Small-scale labour-intensive production methods are for example more appropriate
than highly sophisticated capital-intensive methods.
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South Africa’s endeavours
Industrial development policy
The industrial policy is aimed at:
 Ensuring healthy and equitable competition
 Regulating the economy to ensure policy and economic regulation
 Linking industrial policy to improve standard of living
The industrial Policy Action Plan 2 (IPAP 2)
 Purpose is to expand production in value-added sectors, with high
employment and growth potential.
 Industries included:
o Metals fabrication, capital and transport equipment, green and energysaving industries and agro-processing
o Interventions in sectors identified in the first Industrial Policy Action
Plan like: automotive and components, medium and heavy vehicles,
plastics, etc.
o Focus on sectors in which South Africa has the potential to develop
long-term advanced capabilities like nuclear, advanced materials and
aerospace sectors
The industrial Development Corporation (IDC)
Is a national development finance institutions set up to promote economic growth and
industrial development.
Regional development policy:
Spatial Development Initiatives (SDIs)
Spatial development initiatives (SDI) endeavour to attract infrastructure and
investments to underdeveloped areas. Creating employment is its primary aim. This
programme makes provision for private-public partnerships (PPPs) to take advantage
of the economic potential of underdeveloped areas.
The SDI programme consists of 9 local SDIs
 Maputo Development Corridor
 Lubombo SDI
 Richards Bay SDI including the Durban and Pietermaritzburg nodes
 Wild Coast SDI
 Fish River SDI
 West Coast Investment Initiative
 Platinum SDI
 Phalaborwa SDI
 Coast -2- Coast corridor
Industrial Development Zones (IDZs)
IDZs are located near major transport nodes such as ports and airports they are
enclosed areas.
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The benefits of IDZs are support to investing companies, especially for greenfield
development projects, access to transport for export purposes; waiver of import
duties for products that are produced for export; and subsidies in the provision of
skills training for employees.
South African strategies.
National Policy:
 Infrastructure investment – maintaining and expanding infrastructure
 Technology – use more technology in the production process to improve
exports
 Competition – will improve quality of products and improve export possibilities
 Creative development – research and new product development
 Human capital – to maintain long-term economic growth
Regional policy – To get skilled workers to a place where work is available and to
bring work to where workers are.
Small business development – to support SMMEs easier access to capital,
information, business advice and entrepreneurial development.
Black Economic Empowerment – to support and empower indigenous people.
SECTION C: HOMEWORK
ECONOMIC GROWTH AND EVELOPMENT: INDUSTRIAL DEVELOPMENT
POLICIES
QUESTION 1:
10 minutes
(Source: Via Africa)
Discuss Spatial Development Initiatives (SDI) by highlighting the following:
Concept
(8)
key objectives
(8)
QUESTION 2:
10 minutes
(Source: Clever Economics)
2.1 What is the overall objective of South Africa’s industrial development policy? (4)
2.2 Why does South Africa need a regional development plan?
(10)
QUESTION 3:
16 minutes
(Source: Solution for all Economics)
3.1
Describe the different levels on which a development policy should be
evaluated.
3.2
Explain why a spatial development initiative that involves more than one
country may be beneficial to all countries involved.
SECTION D: SOLUTIONS AND HINTS TO SECTION A
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(6)
66
ECONOMIC GROWTH AND EVELOPMENT: INDUSTRIAL DEVELOPMENT
POLICIES
QUESTION 1:
5 minutes
(Taken from various sources)
1.1
C Mpumalanga
1.2
B corridors.
1.3
A industrial development zone
1.4
ASkills Support Programme
1.5
A SDI (5 x 2) (10)
QUESTION 2:
10 minutes
(Taken from DBE/November 2012)
2.1
IDZ's are purpose-built industrial estates which are physically enclosed
and linked to an international port or airport  

(3x1) (3)
2.2
 A – Coega/Ngqura 
 Advantages:
- Raw materials are imported duty-free
- Exempt from VAT
- World-class infrastructure
- Government incentive schemes 
- Access to latest information technology
- Dedicated customs support services
(1x2) (4)
2.3
 Economic growth 
 Job creation 
 Foreign currency/ exports 
 Infrastructural development 
 Regional development (Any 1x3) (3)
(Any other relevant answer)
QUESTION 3:






5 minutes
(Taken from DBE/November 2012)
Small and Medium Enterprises Development Programme / (SMEDP)
Skills Support Programme / (SSP)
Black Business Supplier Development Programme / (BBSDP)
Critical Infrastructure Programme / (CIP) 
Foreign Investment Grant / (FIG) 
Strategic Investment Projects / (SIP)(Any 2x1)(2)
QUESTION 4:
20 minutes
(Taken from DBE/November 2013)
INTRODUCTION
South Africa's overall objective of Industrial Development Policy is to ensure
international competitiveness in its nine provinces /
Regional development is aimed at increasing the economic livelihood of specific
areas or regions /
Regional development attempts to limit the negative effects of economic activities in
only a few areas /
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It attempts to promote the advantages of a more even regional development by using
labour and other natural resources and infrastructure in neglected areas 
Accept any relevant introduction.
(Max 2)
BODY: MAIN PART
SPATIAL DEVELOPMENT INITIATIVES (MAIN PART)
• SDI Programme attracts infrastructure and business investments to
underdeveloped areas to create employment. 
Department of Trade and Industry is driving force behind industrial and spatial
development.
DTI plans together with central, provincial and local government, IDC, parastatals
and research institutions. 
Industrial Development Policy Programme (Spatial Development) has 2 focus
points: - spatial development initiative (SDI) and
- financial incentives. 
SDI refers to government’s initiative and economic development potential of
certain specific spatial locations in SA. 
Key objectives
stimulate economic activity in selected strategic locations. 
generate economic growth and foster sustainable industrial development; 
develop projects of infrastructure in certain areas and finance them through lending
and private sector investment 
establish private-public partnerships (PPP's) 
In areas with high poverty and unemployment, SDI focuses on:
high-level support in areas where socio-economic conditions require concentrated
government assistance 
where inherent economic potential exists. 
The approach is towards international competitiveness, regional cooperation and
a more diversified ownership base. 
Some of the main focus points of the SDI Programme are:
Lubombo Corridor (agro-tourism, education, craft, commercial and agricultural
sectors); 
KwaZulu-Natal (ports of Durban and Richards Bay); 
West Coast SDI (fishing and industrial ports); 
Coast-2-Coast Corridor with agro-tourism. 

It also makes it possible for private sector businesses to take advantage of the
economic potential of underdeveloped areas in private-public-partnerships.
(PPPs).
• In a PPP a private business may provide the capital to build the factory and to buy
raw materials and employ labour, while the government provides the capital for the
infrastructure such as roads and water and electricity. The business benefits from
profits and the government benefits from taxes, levies and employment opportunities.
There are TWO types of PPP’s which are compensated differently:
Unitary payments: private sector builds and runs a project (it performs the function on
behalf of the public sector); the payment provides an acceptable return on the total
investment (building cost, maintenance, operational expenses)
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User-fees: private sector constructs the project and then is given the right to charge a
toll fee (e.g. public road); the toll covers costs of construction, maintenance,
operation.
The above options can be combined. E.g. hospital (cost of building is an annual
payment and a user-fee is also charged)
Corridors: a track of land that forms a passageway allowing access from one area to
another and particular advantages to mining, manufacturing and other businesses

Two types: Domestic corridor e.g. Lubombo, West Coast, Fish River 
Corridors beyond the South African borders (SADC) e.g. Maputo
Development Corridor, Mozambique. 
Reasons in support of South Africa's regional integration in Southern Africa:
have political and stable neighbours 
have important export markets and a future source of water and energy supplies

integration may be a precondition for support from foreign investors, donors and
multilateral institutions 
a robust regional transport system and a solid infrastructure base hold the key to
attracting investment into the SADC region – improving competitiveness and
promoting trade. 
Advantages from corridor development:
greater levels of economic efficiency and productivity 
compact urban form 
corridor developments will often occur due to private investment 
integration of land use and transport planning will lead to generally efficient
integration 
efficient urbanisation leads to efficient use of land and promotion of an efficient
transport system. 

INDUSTRIAL DEVELOPMENT ZONES (IDZs)
• Geographically designed, purpose-built industrial sites providing services tailored
for export-orientated industries. 
Physically enclosed and linked to an international port or airport. 
Specifically designed to attract new investment in export-driven industries. 
Falls outside domestic customs zones and able to import items free of customs
and trade restrictions, add value, and then export their goods. 
Development and management done by private sector. 
Government IDZ policy designed to boost exports and jobs. 
IDZs aim to encourage economic growth – attract foreign investment in industrial
development – facilitate international competitiveness regarding manufacturing.
(Max 26)
BODY: ADDITIONAL PART
FINANCIAL INCENTIVES
• Small and Medium Enterprise Development Programme (SMEDP) 

This incentive has provided a tax-free cash grant for investment in industries in South
Africa E.g. manufacturing, agricultural, processing, aquaculture and tourism.

Critical Infrastructure Fund Programme (CIF) 
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A tax-free cash grant incentive for projects has improved critical infrastructure in
South Africa e.g. for installation, construction of infrastructure, payment of
employees, materials directly consumed during installation. 
Duty-free Incentives (for businesses operating in the IDZs) 
This has encouraged export-orientated manufacturing to increase their
competitiveness and helped to promote foreign and local direct
investment.
Foreign Investment Grant (FIG) 
This has assisted foreign investors to invest in new manufacturing businesses in SA
benefited in terms of the cost of relocating new machinery and equipment from
abroad. 
Strategic Investment Projects (SIP) 
This has attracted investment from local and foreign entrepreneurs in manufacturing,
computer, research and engineering sectors. 
Skills Support Programme (SSP) 
This cash grant for skills development has encouraged greater investment in training
in general and stimulated the development of new advanced skills. 
Black Businesses Supplier Development Programme (BBSDP) 
This 80% cash grant has provided black-owned enterprises with access to training
which has improved management of their enterprises. 
The government has introduced Special Economic Zones (SEZ) as an extension
to the current financial incentives to further promote regional development. The
major incentive is a tax reduction of 15 % for businesses settling in this area.
This does not mean that existing businesses in the IDZ can relocate to take
advantage of this incentive. If a current business in the IDZ wants to expand
they are allowed.  






(Max 10)
If incentives are only listed, a learner can obtain a maximum of 5 marks.
If incentives are discussed, a maximum of 10 marks can be allocated. (A learner can
obtain 10 marks by discussing at least 3 incentives.)
CONCLUSION
From the above discussion it is clear that different initiatives form part of South
Africa's Regional Industrial Development Programme. 


(Max 2)
[40]
© Gauteng Department of Education