Grade 12 Economics Exam

June 2015

Paper 2 (Microeconomics)

Time: 120 Minutes Marks: 150

INSTRUCTIONS

1 Answer FOUR questions as follows:

SECTION A: COMPULSORY QUESTION (+/- 20 minutes)

SECTION B: TWO QUESTIONS OUT OF THREE OPTIONS (+/- 60 minutes)

SECTION C: ONE QUESTION OUT OF TWO OPTIONS (+/- 40 minutes)

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

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

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

5 Read each question carefully.

6 A neat and systematic presentation of facts is required.

7 Answer in full sentences.

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

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

10 Non – programmable pocket calculators may be used.

THIS QUESTION PAPER CONSISTS OF 8 PAGES AND ONE ANSWER SHEET


SECTION A (COMPULSORY)

QUESTION 1

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

1.1.1 In economics the term 'short run' refers to a period where … factors of production can change.

A only variable

B only fixed

C both variable and fixed

1.1.2 In a perfectly competitive market products are …

A heterogenous

B homogenous

C differentiated

1.1.3 A market which has major government influence and control can be described as being...

A unregulated

B deregulated

C regulated

1.1.4 A patent which gives one the exclusive right to manufacture a product is characteristic of a/an … monopoly.

A artificial

B natural

C local

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

A marginal

B additional

C average

1.1.6 The goods of a monopolistic competitor are …

A similar.

B differentiated.

C unique.

1.1.7 A firm will spend less on pollution reduction equipment because of its low marginal …

A private benefit.

B social cost.

C private cost.

1.1.8 Social cost =

A private cost + external cost

B private cost + opportunity cost

C private cost + explicit cost

(8 x 2 = 16)

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

COLUMN A / COLUMN B
1.2.1 / Monopoly / A / A price maker
1.2.2 / Merit goods / B / The rent that an entrepreneur pays.
1.2.3 / Long – run / C / Price of product drops below the average variable cost (AVC)
1.2.4 / Negative externality / D / Aircraft noise
1.2.5 / Cartel / E / A situation where identical products are sold at different prices to different consumers.
1.2.6 / Shutdown point / F / Often under-produced by the market, for example education
1.2.7 / Explicit cost / G / average revenue = average costs
1.2.8 / Normal profit / H / Responsible for anti-competitive policy in South Africa.
I / Cost incurred when production increases by an additional unit
J / A period of production where all factors of production become variable.
K / when a group of producers form a collective monopoly

(8 x 1 = 8)

1.3 Give ONE term for each of the following descriptions. Write only the term next to the question number (1.3.1–1.3.6) in the ANSWER BOOK.

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

1.3.2 The amount by which the total cost increases when an extra unit is produced.

1.3.3 Prices that are set below equilibrium price in the market and which allow the poor greater access to goods and services.

1.3.4 The additional cost incurred when production is increased by one more unit.

1.3.5 The organizational features of perfect and imperfect markets.

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

(6 x 1 = 6)

[30]

SECTION B (ANSWER TWO QUESTIONS FROM THREE)

QUESTION 2 (Start this question on a NEW SHEET OF PAPER)

2.1 Differentiate between normal and economic profit without referring to the average revenue and / or the average cost curves. No graphs required. (2 x 2 = 4)

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

Graph A

Graph B

2.2.1 Which one of these two graphs refer to the firm making a normal profit? (2)

2.2.2 Briefly explain why the AR and MR curves in graph A is the same curve. (4)

2.2.3 Which of these two graphs refers to a firm in a monopolistic competitive market? Explain. (4)

2.3 Study the extract and answer the questions that follow:

2.3.1 Why is alcohol classified as a demerit good? (2)

2.3.2 Define the concept market failure. (2)

2.3.3 What other measure would you propose to solve drug and alcohol abuse by adults? (2)

2.3.4 What negative effects will the ban on liquor marketing have on retail? (4)

2.4 Briefly discuss three conditions for a perfect market to exist and explain why the JSE, although close, cannot be regarded as perfect. (4 x 2 = 8)

2.5 Governments in many countries use competition policies to protect consumers and to promote the efficient use of scarce resources. Discuss TWO responsibilities of the Competition Commission. (2 x 4 = 8)

[40]

QUESTION 3 (Start this question on a NEW SHEET OF PAPER)

3.1 Differentiate between the shapes of the Total Revenue (TR) curve in a perfect market and that of an imperfect market. (2 x 2 = 4)

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

3.2.1 Name the market structure in the above graphs. (2)

3.2.2 Explain the difference between the short run and the long run situations. (4)

3.2.3 Explain what will happen in the long run if the firm makes a loss in the short run. (4)

3.3 Study the extract and answer the questions that follow:

http://www.japantoday.com/category/opinions/view/obesity-as-a-market-failure

3.3.1 Define the concept of an oligopoly. (2)

3.3.2 Why do unregulated markets lead to food oligopolies? (4)

3.3.3 Why can the existence and the growth of oligopoly markets be regarded as market failures? (4)

3.4 Explain the process that economists use to conduct a cost-benefit analysis. (4 x 2 = 8)

3.5 Discuss how the kinked demand curve attempts to explain why firms in an oligopoly market tend to keep their prices constant. In your answer you need to make use of a well-labelled graph. (4 x 2 = 8)

[40]

QUESTION 4 (Start this question on a NEW SHEET OF PAPER)

4.1 Briefly discuss two examples of non-price competition in imperfect markets.

(2 x 2 = 4)

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

4.2.1 Define the concept of a monopoly. (2)

4.2.2 What type of monopoly is depicted by the graph? Motivate your answer. (4)

4.2.3 Briefly explain why monopolies, in general, negatively affect consumers. (4)

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

The South African Competition Commission has called for six oil companies – Shell, BP, America’s Chevron, France’s Total and domestic producers Sasol and Engen – to stand before the South African Competition Tribunal for collusion.
An investigation that begun in 2009 revealed that the six companies to have kept diesel prices artificially high, using the South African Department of Energy’s maximum price guideline as their benchmark.
The Commission accused the firms of “extensive exchanges of commercially sensitive information”, such as monthly fuel sales, to enable them to “track each other’s sales and to align their strategies in the market”.
The investigation found that confidential information exchanges had been occurring since the 1980s, and from 2005, went through the South African Petroleum Industry (SAPIA).
The companies were also accused of colluding to influence the regulatory environment of South Africa's fuel market, attempting to raise barriers to entry for new firms in order to maintain the status quo.
The scandal has had far-reaching effects in South Africa, since diesel is used heavily by the transport industry, the mining industry, fisherman, and farmers.
Each company faces penalties of up to 10 per cent of the companies’ annual South African turnover if found guilty by the Competition Tribunal.
http://www.newstatesman.com/business/business/2012/10/shell-and-bp-accused-collusion-south-africa

4.3.1 Define the role of the Competition Tribunal. (2)

4.3.2 In your own words what were these companies accused of? (4)

4.3.3 What are the possible consequences of these accusations - why does the Competition Commission and Competition Tribunal regard it as their duty to intervene? (4)

4.4 Explain, by means of a neatly labelled graph, the relationship between the shutdown point and the supply (MC) curve of the individual firm in a perfect market. (4 x 2 = 8)

4.5 Explain with the aid of a graph why the individual firm in perfect competitive market will always maximize profit where MR = MC? (4 x 2 = 8)

[40]

SECTION C (ANSWER ONE ESSAY QUESTION FROM TWO)

Start this question on a NEW SHEET OF PAPER

Your answer will be assessed as follows:

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

QUESTION 5

Under perfect market conditions the market price of products is determined through the interaction of supply and demand.

·  Discuss perfect competition under the following sections:

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

o  Profit maximisation

Use graphs to support your discussion. (26)

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

(10)

/40/

QUESTION 6

Market failure results in either the over-production and over-consumption of output or the under-production and under-consumption of output. When the market fails, intervention is required. The only institution capable of intervening with market failure is the government.

·  Discuss how the government can intervene in an attempt to address market failures. (26)

·  Briefly discuss how the government intervened in order to address the over provision of demerit goods in post-apartheid South Africa. Make use of a graph to illustrate your answer. (10)

·  /40/

Grade 12 Economics Exam

June 2015

Paper 2 (Microeconomics)

ANSWER SHEET

NAME: ______TEACHER: SH / CCS / WHS

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

9