NATIONAL

SENIOR CERTIFICATE

GRADE 12

ECONOMICS P2

JUNE 2024

MARKING GUIDELINE

MARKS: 150

TIME: 2 hours

These marking guidelines consist of 24 pages.

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NSC-Marking Guideline

SECTION A: COMPULSARY

QUESTION 1 30 MARKS – 20 MINUTES

1.1. MULTIPLE CHOICE

1.1.1 B selling price 

1.1.2 A perfect competition 
1.1.3 C monopolistic competition 
1.1.4 D a duopoly 
1.1.5 A variable 
1.1.6 B internal 
1.1.7 C branding 
1.1.8 D non-rival 
( 8x 2) (16)

1.2 MATCHING ITEM

1.2.1 E / value of inputs owned by entrepreneur and used in production

process 
1.2.2 D / a point where the price is equals to the average variable cost of
the firm 
1.2.3 F / occurs when inputs increase, while outputs are increasing by less
than the percentage increase in inputs 
1.2.4 G / the number of units produced during a particular time 
1.2.5 B / the total revenue equals to the total cost 
1.2.6 I / passing of laws or use existing legislative framework to control
businesses that generate negative externalities 
1.2.7 C / goods that are seen to be socially harmful 
1.2.8 A / costs or benefits to third party which are not included in market
price of good and services 
(8 x 1) (8)

1.3 ONE WORD

1.3.1 Long run

1.3.2 Monopolistic
1.3.3 Patent
1.3.4 Social costs
1.3.5 Deregulation
1.3.6 Pareto inefficiency
(6 x 1) (6)

TOTAL SECTION A: (30)

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SECTION B

Answer any TWO of the three questions in this section in the ANSWER BOOK.

QUESTION 2: MICROECONOMICS 40 MARKS – 30 MINUTES

2.1 Answer the following questions.

2.1.1 Name any TWO institutions responsible for regulating competition

in South Africa.

 Competition commission 
 Competition tribunal 
 Competition appeal court  (2x1) (2)

2.1.2 Why do oligopolists use non-price competition to compete?

 Non price competition allows oligopolistic firms to differentiate their

product or services from their competitors. 
 It also enables firms to emphasize product quality
(Accept any other correct relevant response) (1X2) (2)

2.2 DATA RESPONSE

2.2.1 Identify the profit maximization point from the above graph.

e (where MC=MR)  (1)

2.2.2 Name the curve that is represented by the letter K

AC/ATC curve  (1)

2.2.3 Briefly describe the concept marginal cost.

It’s a change in total production cost that comes from making or producing
one additional unit. 
(Accept any other correct relevant response) (2)

2.2.4 Why do firms in a perfectly competitive market make normal profit in

the long-run?

 There are many firms that enter the market in the long run. 
 Supply of goods and services will be higher than demand, therefore
price charged will be low. 
 As a result, all firms have to share the market share in the
industry
(Accept any other correct relevant response) (2)

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2.2.5 Use the information in the graph above to calculate profit/loss that is
made by the firm. Show ALL calculations.

TR – TC
(PXQ) – (ACXQ) 
(10X120) – (8X120) 
=R1200-R960 
=R240 (4)

2.3. DATA RESPONSE

2.3.1 Identify the percentage of market share controlled by the dominant

firms in the above extract.

70%  (1)

2.3.2 Name the type of demand curve related to oligopoly market structure.

Kinked demand curve 

(1)

2.3.3 Briefly describe the term mutual dependence.

It means the decision that one firm make about prices, advertising and
quantities depends on how it thinks other firms will react. 
(Accept any other correct relevant response) (2)

2.3.4 Why would the oligopolistic firms be reluctant to change the price of
their products?

 Changing the price (increase or decrease) leads to lower

revenue/profit. 
 Decreasing of prices by one firm can lead to price wars which
further reduce revenue 
(Accept any other correct relevant response) (2)

2.3.5 How does branding play a key role in a monopolistic competitive

market structure?

 Branding plays a key role in monopolistic competitive markets

because each business selling a slightly differentiated
product

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 Branding is based on the opinion of consumers and help with

building of customer loyalty where a consumer will choose one (4)
producer over another  e.g. Checkers no-name brand
(Accept any other correct relevant response)

2.4 Distinguish between cartel (explicit) and price leadership (implicit) as forms of
collusion.

Cartel
 It is when firms openly and formally agree to control the market by agreeing to fix
prices and output. 
 An example is OPEC, which often meet to decide on the quantity they can supply
in order to obtain high profit. 
 The colluding firms operate as a collective monopoly. 
 This form of collusion is illegal in South Africa. 
(Max. 4)
Price leadership
 This is an informal agreement between firms to control the market. 
 A dominant firm often take the lead by changing its prices. 
 Other firms then follow it by also changing their prices to match that of the
biggest firm.
 Without any meetings or communication of any kind, the firms will always watch
the actions of the price leader and act accordingly. 
 The biggest firm is known as the price leader.  (Max. 4)
(Accept any other correct relevant response) (8)

(Allocate a maximum of 4 marks for a mere listing of facts/examples)

2.5 Analyze the impact of imperfect competition in the economy.

Negative Impact
 Most businesses operating in imperfect markets maximise profits by
supplying less than the optimal quantity of goods or services produced
which means that some consumers needs may not be met 
 Reduced quantities lead to higher prices which may exclude lower
income groups and also lead to inflation 
 New businesses are sometimes prevented from entering the industry,
thereby limiting competition, which prevents consumers from enjoying
lower prices and a variety of goods which reduces standards of living 
 Collusion which is rife in oligopoly markets results in higher prices which
at times prevent some consumers to afford the product and reduce
aggregate demand for goods and services 
 Reduction in demand for goods and services may lead to some people
loosing their jobs due to decrease in production

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 Imperfect competition can lead to decrease in production which may

result in lower economic growth 

Positive impact
 Imperfect markets can stabilise supply or output of certain goods and
services, that requires a vast amount of input capital, ensuring a variety of
goods available to consumers in order to reduce goods shortages in the
economy 
 Imperfect markets can also provide a better quality product to the
consumer; large corporations have Research and Development units that
constantly develop new technology and improved production methods
which can improve exports and make the country to be more competitive
globally 
 Patent rights give the patent holder exclusive rights to produce a product;
this stimulate innovations and inventions (new products) that could be
beneficial to consumers  (8)
(Accept any other correct relevant response) (4 x 2)
(Allocate a maximum of 2 marks for a mere listing of facts/examples)
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QUESTION 3: MICROECONOMICS 40 MARKS – 30 MINUTES

3.1 Answer the following questions.

3.1.1 Name any TWO characteristics of a monopolistic competition.

 There are many buyers and sellers

 Products are differentiated
 They have incomplete information
 Entry and exit is free but not easy
(Accept any other correct relevant response) ( 2 x 1) (2)

3.1.2 What will the effect be if one firm in a perfect market decides to
increase the price of a product?

Firm will make a loss, because it will loose its customers to the
competitors
(Accept any other correct relevant response) (1x2) (2)

3.2. DATA RESPONSE

3.2.1 Name the type of externality that is shown in graph above

Positive externality  (1)

3.2.2 Give any ONE example of the externality identified in question 3.2.1.

 Education 
 Health care
 Clean community water 
(Accept any other correct relevant response) (1)

3.2.3 Briefly describe the term social cost.

The cost of a good or service which is paid by society.

(Accept any other correct relevant response) (2)

3.2.4 Explain immobility of factors of production as a cause of market

failure.

 Labour takes time to move from one area to another. 

 The supply of skilled labour cannot be increased because of the
time it takes to be trained or educated. 
 Physical capital, like factory buildings or infrastructure such as
telephone lines cannot be reallocated easily. 

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 Structural changes like a change from producing plastic packets to

paper packets or shifting from labour-intensive production to
computer based production requires a change in labourers’ skills,
employment and work patterns. 
 This takes time to change. 
(Accept any other correct relevant response) (2)

3.2.5 Why is socially optimal output (Q1) more beneficial to the society?

 More goods and services will be produced and will meet what the
society wants 
 The consumers will have enough of certain goods because
quantity Q1 will be produced instead of Q resulting in allocative
efficiency 
 Price paid is P1 instead of P which includes external benefit and
resulting in efficiency 
(Accept any other correct relevant response) (2 x 2) (4)

3.3 DATA RESPONSE

3.3.1 Identify the service that is offered by the businesses above.

Insurance service  (1)

3.3.2 What type of profit is made by monopolistic competitors in the long

run?
(1)
Normal profit 

3.3.3 Briefly describe the term economic profit.

It is when average revenue is greater than average cost the firm

(Accept any other correct relevant response) (2)

3.3.4 Why does the monopolistic competitor have little control over
prices?

Each business sells at its own price since a single price cannot be
determined for the differentiated product because a range of prices could
apply 
(Accept any other correct relevant response) (2)

3.3.5 How do insurance companies compete to increase their market

share?

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 Insurance companies extend working hours to be able to reach

customers when they are less busy. 
 Promoting online sales, which makes it easier customers get
insurance without any additional cost
 They offer variety of services for customers to make
comparisons
 They advertise a lot on phones or social media and also using
robots in order to reach a lot of customers  (4)
(Accept any other correct relevant response) (2 x 2)

3.4 Describe the reasons for cost-benefit analysis.

 Market signals e.g. price help to allocate resources through demand and
supply 
 Goods supplied by the government such as roads, bridges etc. are
provided free 
 With the absence of market signals, decisions on the desirability of a
project may be subjective 
 Objective criteria may be required to ensure economic efficiency in
resource allocation 
 CBA brings greater objectivity to decision making 
 This is done by identifying all the relevant benefits and costs of a project
so that an informed decision can be made
(Accept any other correct relevant response) (4 x 2) (8)
(Allocate a maximum of 4 marks for a mere listing of facts/examples)

3.5 How can an entry of firms in a perfectly competitive market affect the
economy?
 There will be an increase in competition due to increase in number of
firms in the market 
 Prices of goods and services are likely to decrease because of an
increase in supply 
 Unemployment levels will decrease as some businesses will join the
market 
 The aggregate demand for goods and services will increase due to a
decrease in unemployment levels 
 Government will collect more revenue due to increased number of firms
in the economy 
 Consumers will have more access of goods and services to choose
from 
(Accept any other correct relevant response (4 x 2)
(Allocate a maximum of 2 marks for a mere listing of facts/examples) (8)

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QUESTION 4: MICROECONOMICS 40 MARKS – 30 MINUTES

4.1 Answer the following questions.

4.1.1 List any TWO examples of community goods.

 Defence/police services/ prison services 
 Street lighting 
 Flood control/ storm water drainage 
 Lighthouses 
(Accept any other correct relevant response) (2 x 1) (2)

4.1.2 Why is it difficult for new firms to enter oligopoly market?

 High start-up capital required/existing firms may use aggressive

marketing which is expensive 
 Difficult to compete with established existing brands due to high
advertising costs
 (Accept any other correct relevant response) (1 x 2) (2)

4.2 DATA RESPONSE

4.2.1 Identify the market structure represented by the above cartoon?

Perfect competition  (1)

4.2.2 Give any ONE other example of a business found in the market
structure identified in question 2.2.1.

 International commodity market 

 Foreign exchange market 
 Stock exchange market 
 Central grain exchange 
(Accept any other correct relevant response) (1)

4.2.3 Briefly describe the term price taker.

 The individual business has no influence on price. 
 The individual business takes price that is determined by the
market
(Accept any other correct relevant response) (2)

4.2.4 What is the positive effect of complete information on consumers in

a perfect market?

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 Consumers will be fully aware of what is happening in any part of the

market therefore consumers cannot be charged higher prices by
producers or be misled 
(Accept any other correct relevant response) (2)

4.2.5 How would firms in a perfectly competitive market increase their

market share?

 Finding ways to produce at a lower cost than their competitors.

 Focusing on efficiency and innovation.
 Providing exceptional customer service and experience can also be a
way for firms to differentiate themselves in a perfect competitive
market. 
(Accept any other correct relevant response) (2 x 2 ) (4)

4.3 DATA RESPONSE

4.3.1 Identify the curve that relates to productive efficiency.

AA  (1)

4.3.2 What quantity of sweetcorn will be produced if A units of flour are

supplied?

0 (zero)  (1)

4.3.3 Briefly describe the term missing market.

It is when markets are incomplete because they cannot meet the demand
for certain goods.
(Accept any other correct relevant response) (2)

4.3.4 How can the government encourage production of essential goods?

 The government can set up minimum prices to encourage

producers to produce more essential goods 
 The government can provide producers with subsidies which will
lower their cost of production and encourage them to produce
more essential goods 
(Accept any other correct relevant response) (2)

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4.3.5 Why will production at D be regarded as inefficient?

 Few goods and services will be produced due to inefficient use

of resources. 
 Due to inefficient use of resources, cost of production will
increase. 
 Goods and services are not produced an optimum level since
there is enough room to produce more goods with given resources

 The consumers will be deprived of certain goods/The type or
quantity of goods produced will not be what is best for the
consumers. 
 Few job opportunities will be created resulting in lower
standard of living. 
 The production of one product (i.e., flour) may be increased
without decreasing the production of the other product
(i.e., sweet corn) 
(Accept any other correct relevant response) (2 x 2) (4)

4.4 Briefly discuss prices and production levels of the oligopoly.

 An oligopoly is a market structure where a few large firms dominate the

industry, therefore most of the output in the industry comes from the
dominant firms. 
 One characteristics of oligopolies is that firms tend to have
interdependent pricing decisions. 
 One common strategy is price leadership, where on dominant firm sets
the price and other firms follow suit. 
 Collusion is another pricing strategy in oligopolies, although it is often
illegal, while collusion is illegal in many countries, it can still occur in
secret, leading to higher prices and reduced consumer welfare. 
 In an oligopoly, production levels are also determined by the behaviour
of the dominant firms. 
 The production decision of oligopolistic firms can be influenced by
various factors, including market demand, production cost and strategic
considerations. 
(Accept any other correct relevant response) (4 x 2) (8)
(Allocate a maximum of 4 marks for a mere listing of facts/examples)

4.5 Evaluate the measures that are used by government to reduce imperfect
distribution of income and wealth in the economy.

The government has been successful because;

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 Government uses progressive income tax where the high income earners
pay more tax and low income earners pay less tax in order to close the
gap between the rich and the poor 
 Government transfers income directly to the poor such as child support
grants, unemployment benefits and thereby reducing income inequalities

 Government provides goods free of charge e.g. community goods,
education and allowing access to basic needs to all citizens 
 Government implements employment creation programmes, which will
create jobs and improve skills for all types of labour to be able to afford
basis goods and services e.g. public works programme 
 Government subsidising producers to encourage production of merit
goods as they are beneficial to the society and spends on campaigns that
will inform public about policies and legislation that protects them against
exploitation 

Government has not been successful;

 The gap between the poor and the rich keep increasing, some South
Africans are living below poverty line 
 Taxes such as VAT makes poor people to end up being worse of making (8)
the distribution of income and wealth to be worse off 
(Accept any other correct relevant response (4 x 2)
(Allocate a maximum of 2 marks for a mere listing of facts/examples)

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TOTAL SECTION B: (80)

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SECTION C

Answer any ONE of the two questions in this section.

QUESTION 5: MICROECONOMICS 40 MARKS – 40 MINUTES

 Discuss the monopoly in detail without graphs. (26 marks)

 How effective is South Africa’s anti-monopolistic policy? (10 marks)

INTRODUCTION

A monopoly is a market structure where only one seller operates. Entry is blocked and
the product has no close substitutes 
(Accept any other correct relevant response) (Max. 2)

MAIN BODY

Number of firms/businesses 
 The monopolist is the only supplier of a product which implies that there is no
competition in this market structure 
 The monopoly also responsible for the industry’s total output  such as De
Beers and Eskom 

Nature of product 
 The product is unique and it has no close substitutes which implies that
consumers’ choice is limited 
 The product has relatively inelasticity demand which means that quantity
demanded less responsive to price changes 

Market entry 
 Market entry refers to how easy or difficult for the businesses to enter or to leave
the market 
 Market entry into a monopoly market is entirely/completely blocked 
 The reason why other producers are unable to supply the same product as the
monopolist is that there are barriers that prevent them from entering the product
market,  such as high development costs, limited size of the market, exclusive
ownership of raw materials, patents, licensing, sole rights, import restrictions 
- These barriers can be divided into two main groups:

Natural monopolies 
 High development costs are frequently a reason for the existence of natural
monopolies 
 The provision of electricity is an example of natural monopoly because building
power stations and transmission lines to distribute electricity costs billions of
rand

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 Natural monopolies are frequently owned or regulated by the government and

can serve the whole market at a lower price than two or more businesses
together 

Artificial monopolies 
 Artificial monopolies exist due to barriers to entry are not economic in nature
such a patent 
 A patent is the legal and exclusive right of a patent holder to manufacture a
product using his or her unique invention 
 Licences protect operators against the entry of competitors and is another way in
which an artificial monopoly may exist 
 In South Africa licences are required for radio and TV broadcasting, telephone
and cellular phone communication networks, and commercial production of
electricity 

Control over price 

 A monopolist has full control over the market price and it is regarded as a price
maker 
 Monopolist can decide on price-quantity combination, that suits it the best, on the
demand curve 
 There is always the possibility of consumer exploitation because a monopolist is
the only supplier of a product 
 A monopoly business may restrict output or supply of the product to charge
higher price 
 However, this is often limited by the market demand since monopolist does not
have control over demand 
 Consumers have limited budgets and a monopoly can therefore not demand
excessive prices for its product 
 The monopolist's product has to compete for consumers' favour (and money)
with all the other products available in the economy 

Market information 
 All buyers and the single seller have full knowledge about the current market
conditions 
 This implies that there is high degree of transparency in the monopoly as there is
no incentive for the monopoly to hide information from consumers 

Demand curve 
 A monopolist is faced with a normal demand curve which slopes downwards from
left to right 
 The demand curve is relatively inelastic because the product has no close
substitutes 
 Demand curve for a monopoly is equal to its average revenue curve 
 For every additional unit sold by a monopoly, marginal revenue is less than the
price, thus marginal revenue curve lies below the demand curve 

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Decision making 
 A monopoly business makes decisions independently because there are no
competitors 
 However, a monopoly’s decisions may be influenced by government laws and
regulations, for instance Eskom’s decisions are influenced by NERSA 

Collusion 
 Collusion is irrelevant because there is one business in the market 

Productive and allocative efficiency 

 A monopoly does not achieve productive efficiency because output is produced
without minimising the average cost 
 There is allocative inefficiency because the output produced by a monopoly does
not correspond with the quantity demanded by consumers 
 Monopoly produces output level where the price is above the marginal cost 

Economic profit/loss
 A monopolist can earn an economic profit or economic loss in the short run 
 If a monopoly is making economic loss in the short-run, it will build a new
production plant that yields economic profit in the long-run 
 If a monopoly is making economic profit in the short-run, it will expand its
production scale or capacity in order to make more economic profit in the long-
run 

(Accept any other correct relevant response) (Max. 26)

(Allocate a maximum of 8 marks for headings/examples)

ADDITIONAL PART
South Africa’s anti-monopolistic policy has been effective because;

 The restrictions of entry into any industry was relaxed which promote economic
transformation in the country 
 The economic power of big conglomerates was limited to ensure a more
equitable distribution of income and wealth 
 South African businesses were able to regain access to the world economy and
became more competitive 
 The policy ensures that previously disadvantaged people have an equal
opportunity to participate in the economy 
 Anti-monopolistic policy allows imports to increase competition on local products
thereby forcing local business to keep their prices low 
 The policy attracts foreign direct investments to increase competition in local
markets 

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 Small and micro enterprises (entrepreneurship) are promoted to increase

competition on large businesses and increase supply of goods in the economy
encouraging economic growth 
 The policy implements the competition policy to reduce anti-competitive
behaviour, such as price fixing by oligopolies and monopolies 

South Africa’s anti-monopolistic policy has been ineffective because;

 Fines charged are too lenient and do not cover the costs suffered by
consumers
 Fines are too lenient to act as a deterrent to other businesses colluding which is
evident from the larger number of firms being investigated regularly 
 A lack of human resources results in some investigations or act of collusion
sometimes goes undetected 
 Cases of restrictive practices take longer to investigate and lose merit in the
process 
 Corruption and political interference/interests prevent some acts of collusion from
being investigated properly 
 Some mergers and acquisitions only protect workers in the short term,
eventually workers are retrenched 
 Artificial monopolies and other powerful businesses abuse their market power as
the competition policy fails to create opportunities for new entrants to the
market
 The monitoring measures to identify collusion practices are compromised due to
a lack of information as many investigations takes place after a long period of
collusion 
 The monitoring and enforcement of competition policies is difficult due to the
vastness of areas 

(Accept any other correct relevant response) (Max. 10)

Allocate a maximum of 2 marks for mere listing of facts/examples)

CONCLUSION
The monopoly can continue to earn economic profit for as long as the demand for its [40]
product continues and its production costs stay the same 
(Accept any other correct relevant high order conclusion) (Max. 2)

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Economics/P2 18 MDE/June 2024
NSC-Marking Guideline

QUESTION 6: MICROECONOMICS 40 MARKS – 40 MINUTES

 Discuss in detail state intervention as a consequence of market

failures, with the aid of relevant graphs. (26 marks)
 Evaluate the success of government in reducing consumption and
production of demerit goods. (10 marks)

INTRODUCTION
When market failure occurs, consequences such as inefficiencies, spill-over effects
imperfect competition and government intervention are likely to prevail (Max. 2)
(Accept any other correct relevant introduction)

MAIN PART
State intervention as a consequence of market failure
Direct control 
 The state can pass laws or use existing legislative frameworks to control
businesses and industries, individuals who generate negative externalities

 Thus, in South Africa, emissions of potentially dangerous chemicals, air and
scenic pollution, environmental preservation are controlled through carious
Acts regulations 
 Advertising by the tobacco industry is prohibited and alcohol may not be
sold on Sundays or to persons under the age of 18 years 

Imperfect markets 
The government can deal with imperfect competition by:
 Formulating or implementing a competition policy to increase the level of
competition 
 Using laws on competition to prevent exorbitant prices charged by firms, to
ensure that entry to the market is free, prevent harmful collusion and
encourage foreign competition which helps to keep prices low 
 Granting licences to more business in the case of state monopolies 
 Imposing price controls to decrease prices of goods and services 

Providing producer subsidies 

 The government provides subsidies to producers to encourage them to
produce more goods and services 
 Subsidies lower the cost of producing goods and thus the market price of
these goods is lowered, increasing consumption 

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Economics/P2 19 MDE/June 2024
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 The market price decrease from P to P1, and the quantity consumed will
increase from Q1 to Q2 due to the subsidy paid by government 
 The producer benefits from a subsidy/producer's profit increases (the
difference between P and P2) 
 The consumer benefits from a subsidy by paying less (price decreased
from P to P1) 
 Producer subsidies are often given to suppliers of agricultural products
such as milk, wheat and maize 

Levying of taxes 
 The government will intervene in the market by levying taxes to recover
external costs 
 These taxes will increase the price and will result in a decrease in
production of a certain good 
 Levying taxes could be used as a strategy of reducing production and
consumption of demerit goods as well as generating revenue for the state

 Firms and consumers will then be allocating resources in a more efficient
way 

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Economics/P2 20 MDE/June 2024
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 The original market equilibrium at e, with P as the equilibrium price and Q

as the equilibrium quantity 
 The tax increase will shift the supply curve to the left from SS to S1S1 
 New equilibrium at e1, tax would raise the price from P to P1 
 The production will decrease from Q to Q1 

Minimum wages 
 A minimum wage is the lowest remuneration that employers are required by
law to pay their workers 
 Income for the workers will increase and as a result their standard of living
will improve (improve welfare and ensure basic needs are met) 
 If a minimum wage is set above the equilibrium market wage, supply of
labour will exceed the demand for labour 
 This will increase the cost of labour, resulting in higher cost of production for
businesses 
 Some workers may be retrenched and increase unemployment and while
production decreases 

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Economics/P2 21 MDE/June 2024
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 The graph shows that if the wage rate is set at W, the corresponding
demand and supply of labour will be Q 
 If a minimum wage of W 1 is set, the demand for labour will decrease from Q
to Q1, making some people may become unemployed 
 However, the supply of labour will increase from Q to Q2, as more people
will offer their labour because of a higher income 
 Minimum wages will lead to more bargaining power of workers 

Maximum prices 
 The government will set a maximum price if the price is deemed to be too
high for essential goods (basic goods) 
 The maximum price that is set by the government below the market price is
known as a price ceiling or maximum price 
 The government will intervene in the market by passing law that suppliers
may not charge more than a maximum price 
 The immediate effect of maximum prices in the market is that the quantity
supplied drops thus causing shortages 

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Economics/P2 22 MDE/June 2024
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 In the graph above, the maximum price is set at P1, while the market price is
at P 
 The immediate effect would be that the quantity supplied will drop from Q to
Q1 
 The shortage caused by the price ceiling creates a problem of how to
allocate the good since the demand will exceed the supply 
 Black markets often develop where illegal goods are bought or sold 

Minimum prices 
 The government is obliged to intervene to ensure sufficient supplies of
staple food in the market 
 The approach of setting minimum prices or price floors will be used so that it
will be worthwhile for producers (to make a comfortable profit) to produce
essential goods in desired quantities 
 These are prices that are set above the market price by the government 

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Economics/P2 23 MDE/June 2024
NSC-Marking Guideline

 The market equilibrium price is P and the equilibrium quantity is Q 

 The market equilibrium price is P and the equilibrium quantity is Q 
 If the government sets a minimum price at P1, farmers will be earn greater
profits and supply more wheat 
 Quantity supplied will therefore increase to Q1 and quantity demanded will
decrease to Q2 
 There would be a surplus of wheat equal to the difference between Q 1 and
Q2 
 Surplus products become a challenge to dispose as they should rather be
sold at lower costs, dumped to other countries which is prohibited by the
WTO or be destroyed 
 Although minimum prices may cause a surplus they do encourage the
supply of important food stuffs 

Redistribution of wealth 
 The South African government uses a progressive income tax system to
redistribute income and wealth 
 Traditional methods such as levying various taxes, provisioning of free
services, benefits in kind and cash benefits, are used to reduce the income
gap 
 The government can also implement redress methods such as BBBEE,
affirmative action, land restitution, land redistribution and property subsidies
to redistribute wealth among the population 

Government involvement in production 

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Economics/P2 24 MDE/June 2024
NSC-Marking Guideline

 Subsidising merit goods to increase production 

 Imposing taxes on demerit goods to reduce production 
 Levying income taxes, indirect taxes and wealth taxes to provide community
goods free of charge 
 Providing collective goods such as refuse removal, waste disposal and
sewerage drainage for a user fee 
(Accept any other correct relevant response) (Max. 26)
(Allocate a maximum of 8 marks for mere listing of facts/ examples)

ADDITIONAL PART

The government has been successful;

 Through providing information (education) to the public about the harmful

effects of these products, some people stop consumption of demerit
goods
 By regulating and banning the consumption of demerit goods e.g., bottle
stores are not allowed to sell alcohol on Sundays 
 Through charging of tax (excise duties) which increases the price of demerit
goods, consumption of such goods is discouraged 
 Less severe regulatory controls take the form of spatial restrictions e.g.
people are banned from smoking in their place of work, on public transport,
in cinemas and restaurants 

The government has not been successful;

 There is too much demerit goods in the communities such as drugs 

 The youth is being addicted into alcohol and drugs and some are even
ending up as street kids 
(Accept any other correct relevant response) (Max. 10)
Allocate a maximum of 2 marks for mere listing of facts/examples)

CONCLUSION

Market failure may also result in inefficiencies in the way resources are allocated
and used in producing goods and services 
(Accept any other correct relevant higher order (conclusion) (Max. 2) [40]

TOTAL SECTION C: 40
GRAND TOTAL: 150

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