According to Examination Guidelines for 2023

Advise learners NOT TO FOCUS on essays only since essay consist of 27% and section B 53%
and Section A 20 % per paper

MICROECONOMICS – Term 2
Topics: Essays
 Discuss in detail perfect and imperfect
markets

 Discuss in detail price formation under the

following headings: (Using graphs to illustrate
your point)
 Dynamics of markets
o Equilibrium point, price & quantity
o Over supply/surplus
o Under supply / shortage
o Change in demand/change in supply
o Change in quantity demanded/supply
o Factors that causes change
 Discuss in detail the methods government use
 Public sector intervention
to intervene in the economy
 Production possibility
THE ABOVE TOPIC HAS NO ESSAYS
curve
ECONOMIC ISSUES - Term 4
Topics: Essays
 Labour relations THE ABOVE TOPIC HAS NO ESSAY

 Unemployment  Discuss unemployment in detail

 Economic redress THE ABOVE TOPIC HAS NO ESSAYS
  Discuss in detail perfect and imperfect
 Dynamics of markets
markets

INTRODUCTION

A market exists wherever buyers and sellers meet to exchange goods and services at a price / A
market is any place where buyers and sellers meet in order to determine the price and quantity of
goods or services that will be exchanged. ✓✓

(Accept other correct and relevant introduction). (2)

BODY: MAIN PART

CHARACTERISTICS OF PERFECT MARKETS:

Number of buyers and sellers

• There are a large number of buyers and sellers. ✓✓

• No individual participant can affect the price through their own supply or demand of goods.

✓✓

Nature of product

• The goods or services supplied are homogeneous products, such as cups, plates, toothpaste,
shoes and soaps, are usually mass-produced products. ✓✓

• The products on offer are all more or less the same (identical). ✓✓

• The goods all serve the same purpose and are often easy to produce. This results in a large
number of suppliers that compete for sales, which keeps prices low. ✓✓

Barriers of entry

• Sellers have unrestricted and easy entry and exit into the market. ✓✓

• Sellers can enter the market at will and they are able to sell their products just as easily as any
other seller will, they can also leave the market whenever they want to. ✓✓

Information availability

• These markets have perfect or complete information. Buyers know exactly what each seller’s
price is. ✓✓

• There is also full and complete information available to producers and consumers about market
conditions. ✓✓

Ability of suppliers to change prices

• The seller has no control over the prices, they are price takers. ✓✓

• Sellers have to accept the prevailing market price. If they increase prices above prevailing market
prices, they will not sell anything. No supplier can influence the price in the market.

✓✓
• In reality there are few perfect markets e.g. mining (for example, oil and gold), agriculture for
example, (beef or maize) and the Johannesburg Stock Exchange (JSE). ✓

CHARACTERISTICS OF IMPERFECT MARKETS:

Number of buyers and sellers

• There is only one large supplier of a good or service (monopoly) or a few large suppliers
(oligopoly). ✓✓

• These producers have a direct influence on the price of the product, and are not held back by any
competitors and are able to affect the price. ✓✓

• Also there may be many suppliers but one producer is able to significantly change the demand at
the expense of other producers (monopolistic competition). ✓✓

Nature of product

• The goods or services supplied are heterogeneous or unique products. ✓✓

• The products in the market are quite different from each other and consumers look for specific
qualities of each product. ✓✓

• The seller supplies products that are unique and have no close substitutes. ✓✓

• These products may differ on price or feature or bonus offers. Sometimes products differ due to
location or advertising. ✓✓

Barriers of entry

• Entry into the market is restricted or completely blocked so that new suppliers cannot enter the
market. ✓✓

• Other sellers are prevented from entering the market. ✓✓

• The seller is protected from competition through patents, control of resources and government
restrictions. ✓✓

• There are many examples of imperfect markets, these include Eskom, Telkom, DSTV, cellphone
companies, petrol stations, restaurants, computer and car manufacturers etc. ✓

Information availability

• These markets have imperfect information. ✓✓

• Producers and consumers have incomplete knowledge about market conditions. ✓✓

• It is not easy, and sometimes not possible, for buyers to know what all the prices of a product are
within the market. ✓✓

Ability of suppliers to change prices

• The seller has control over the prices, they are price makers. ✓✓
• The producers of the goods and services can set the prices and buyers are not able to bargain or
affect the prices in a significant way. ✓✓ (26)

CONCLUSION

The government should ensure that there are less monopolies and oligopolists since these types of
imperfect markets lead to exploitation of consumers. ✓✓

(Accept other correct and relevant conclusion of a higher cognitive level). (2)

[40]

 Discuss in detail price formation under the

following headings: (Using graphs to illustrate
your point)
o Equilibrium point, price & quantity
 Dynamics of markets
o Over supply/surplus
o Under supply / shortage
o Change in demand/change in supply
o Change in quantity demanded/supply
o Factors that causes change

(USUALLY ASKS THESE HEADINGS AS ADDITIONAL PART QUESTIONS)

INTRODUCTION

The concept of demand and supply are important to economists as they help them to understand
how prices are determined in the market. Therefor the best place for a market to operate is where
the quantity demanded by the households is equal to the quantity supplied by the firms. ✓✓

BODY: MAIN PART:

• Equilibrium point is where the demand curve equals the supply curve and is labelled as ‘market
equilibrium’ on the graph above. ✓✓

• Equilibrium price (P1 market price) is the price at which demand and supply are the same.✓✓

• Equilibrium quantity (Q1) is the quantity of goods that are produced and sold at a particular price
(P1) in order to completely satisfy the household demand and where there will be no left-over
goods or services. ✓✓

• That is the same point as equilibrium point where quantity supplied is equal to quantity
demanded and there are no forces acting to change the price. ✓✓

Graph = 4 marks

Explanation = 8 marks

o Over supply/surplus

o Under supply / shortage

o Change in demand/change in supply

o Change in quantity demanded/supply

o Factors that causes change

Supply:

• Supply can be defined as the quantity of goods and services that can be produced by producers
over a specific time. ✓✓

• The law of supply states that if the price of a product increases, the quantity supplied will
increase. ✓✓

• The price of the product is directly linked to the quantity, therefore if the price increases, then the
quantity supplied will increase (direct relationship). ✓✓
• The supply curve indicates the quantity of the product supplied at any given price.

✓✓

o Supply curves have a positive slope – slopes up from left to right. ✓✓

• The positive slope is the result of the direct relationship between price and quantity demanded.
✓✓

• Factors that influence supply:

− Cost of production ✓✓

− Cost of technology used during the production process ✓✓

− Prices of alternative products ✓✓

− Prices of complementary products ✓✓

− Number of suppliers ✓✓

− Weather conditions ✓✓

− Price that the consumer is willing to pay for the product ✓✓ (Max. 10 marks)

• Demand:

• Demand can be defined as the quantity of goods and services that the consumer is willing to buy
at a specific price. ✓✓

• The law of demand states that when the price of goods or services increases, the demand for
those goods or services will decrease. ✓✓

• There is an indirect relationship between the amount demanded and the price. ✓✓

• The demand curve indicates the quantity demanded by consumers at a certain price. ✓✓

• Demand curves have a negative slope – slopes down from left to right ✓✓

• The negative slope is the result of the indirect relationship between the quantity demanded and
the price. ✓✓

• Factors that influence demand:

− Price of the product ✓✓

− Consumers’ income levels ✓✓

− Consumers’ tastes and preferences ✓✓

− Price and availability of substitute products ✓✓

− Price and availability of complementary products✓✓ (Max. 10 marks)

CONCLUSION
Price formation is a dynamic occurrence with any change in either supply or demand affecting the
market price of goods and services.

(Accept any other relevant higher order response) (2) [40]

 Discuss in detail the methods government use

 Public sector intervention
to intervene in the economy

INTRODUCTION

Government intervenes in the market by using price controls to stabilise the economy √√

The public sector or government includes all aspects of local, regional and national government
√√

(Accept any other suitable introduction) (Max 2)

BODY

MAIN PART

 Governments impose price ceilings √ to protect consumers against price Increases √

 In the graph above equilibrium √ is achieved where demand intersects the supply curve √
 The equilibrium price is at P √and quantity at Q √
 Suppose the government imposes a price ceiling at a price below equilibrium price √
  The price is prevented by law √ from rising to the market price/equilibrium price √
 At the maximum price/price ceiling we do not have equilibrium √ as the quantity demanded
exceeds the quantity supplied √
 The government, however, has prevented the prices from rising √and a persistent excess
demand √ exists in the market
 The government will intervene √ in the market to control the price of a good or service by
setting maximum prices or price ceilings √
 The maximum price of a good or service is set below the market price to enable poor
consumers √ to afford a good or service √
 With price ceilings prices are prevented √ from rising above a certain level √

(Sub-max 10)

 Governments impose price floors √ to prevent prices from falling below a certain level √
 In the graph above equilibrium √ is achieved where demand intersects the supply curve √
 The equilibrium price is at p* √and quantity at q* √
 Suppose the government imposes a price floor at a price above equilibrium price √
 The price is prevented by law √ from falling to the market price/equilibrium price √
 At the minimum price/price floor we do not have equilibrium √ as the quantity supplied
exceeds the quantity demanded √
 The government, however, has prevented the prices from falling √and a persistent excess
supply √ exists in the market
 The government will intervene √ in the market to control the price of a good or service by
setting minimum prices or price floors √
 With price floors prices are prevented √ from falling below a certain level √
 (Sub-max 10)
(Accept any relevant fact) (Max 26)
(Max 10)

CONCLUSION
Government intervention is necessary in a market to ensure economic growth and
development in the country √√
Governments intervene to help poor households and also to control prices in order
to protect consumers and producers from unfair pricing √√
(Accept any other relevant conclusion) (Max 2)

 Unemployment  Discuss unemployment in detail

INTRODUCTION

Unemployment is a situation in which members of the labour force are without work, are available
or suitable for work and are seeking work, but are unable to find employment. ✓✓

(Accept any other relevant answer.) (Max. 2 marks)

BODY: MAIN PART

Causes of unemployment:

Frictional unemployment ✓

• While some businesses and industries expand, others get smaller. ✓✓

• This means that people often move from one job to another. ✓✓

• They will go to different job interviews. ✓✓

• While people are looking for new jobs, they are said to be frictionally unemployed. ✓✓

Seasonal unemployment ✓

• Some businesses and industries have very busy periods, during which they need lots of workers,
and very slow periods during which they need fewer or no workers. ✓✓

• The farming and tourism industries are examples of seasonal unemployment. ✓✓

• The workers are unemployed during the slow period and re-employed during the busy season. ✓✓

Cyclical unemployment ✓

• Cyclical unemployment varies according to the business cycle. ✓✓

• When the demand for goods and services drops some people may lose their jobs. ✓✓
• When economic activity increases, and the demand increases, people are re-employed. ✓✓

Structural and technical unemployment ✓

• Structural unemployment happens when there are big changes in the economy of the country. ✓✓

• Structural unemployment can happen as a result of a number of factors:

- Production methods and techniques change: Workers may not have the skill to use new technology
or may not be needed to operate new technology. For example, ATM’s that replaced bank tellers. ✓✓

- Foreign competition increases: Products coming in from overseas mean that South African
businesses might not be able to compete with the cheaper prices and may have to layoff workers.
✓✓

- Important industries change: For example, a low demand for gold causes mines to close and people
lose their jobs. ✓✓

• Structural unemployment is a serious problem. ✓✓

• Workers have to be retrained or moved from one area to another where they can find work that
needs their skills and qualifications. ✓✓

(Max. 14 marks)

Effects of unemployment

• Unemployment has a negative impact on the unemployed individual as well as on business,

government and society as a whole. ✓✓

• Economists make a distinction between economic costs and social costs from unemployment.
✓✓

Economic costs of unemployment: ✓

• Lost production and output of goods and services: Unemployment causes a waste of scarce
economic resources and reduces the long run growth potential of the economy. ✓✓

• An economy with high unemployment is producing within its production possibility curve. ✓✓

• If unemployment can be reduced, total national output can increase. ✓✓

• Business pressures: If more people were employed more would be able to buy goods and services.
✓✓

• High levels of unemployment causes businesses to lose income. ✓✓

• Fiscal costs to the government: An increase in unemployment results in higher benefit payments
and lower tax revenues. ✓✓

• The rise in government spending along with the fall in tax revenues may result in a higher budget
deficit. ✓✓
• Loss of investment in human capital: Unemployment wastes some of the scarce resources used
in training workers. ✓✓

• Workers who are unemployed for long periods become deskilled as their skills become increasingly
dated. ✓✓

• This reduces their chances of gaining employment in future. ✓✓

Social costs of unemployment ✓

• Unemployment also affects society and individuals.

• Social and family pressures: Studies have shown that increased unemployment leads to increased
pressures on societies and communities. ✓✓

• Crime usually increases. ✓✓

• Domestic violence and the break-up of families also increases. ✓✓

• Increase in poverty and income inequality: Areas of high unemployment will see a decline in real
income and spending which leads to relative poverty and income inequality. ✓✓

• Community demographics: As younger workers are more geographically mobile than older
employees, there is a risk that areas with above average unemployment will suffer from an ageing
workforce. ✓✓

• Community fears and pressure: High unemployment can encourage xenophobia and
protectionism. ✓✓

(Accept any other relevant answer.) (Max. 12 marks)

(26 marks)

CONCLUSION:

Apart from the monetary and fiscal policies to solve unemployment, the government can use the
supply-side approach which aims at reducing the costs of doing business and improve efficiency of
inputs of the market. ✓✓

(Accept any other relevant higher-order response.) (Max. 2 marks)