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Economics Paper 2 - Grade 12 Essays
Economics (Eduvos)

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Perfect Markets
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Market Failures
Contemporary Economic Issues
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Tourism
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(26 marks)

How does the competition Act protect consumers? (10 marks)
INTRODUCTION
• The individual business can make economic profit, economic loss or
normal profit in the short run
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Graphical explanation
• Given a market price of R10, profit is maximised where MR = MC and this
occurs at quantity 15
• At quantity 15 the firm’s average revenue (AR) per unit of production is R10,
and the average cost per unit is R12 which is higher than the price of R10
• The firm is making an economic loss which is equal to the -R2 x 15 = -R30 loss

Economic loss
• A business makes economic loss when its revenue is less than its costs
• The minimum point of the ATC curve lies above the market price
• It implies that the average revenue is less than the average cost

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Graphical explanation
• Given a market price of R10, profit is maximised where MR = MC = P and this
occurs at point E where quantity is 15
• At 15 the firm’s average revenue (AR) per unit of production is R10, which is
also equal to the average cost per unit R10
• Since average revenue equals average cost the producer makes a normal profit
ADDITIONAL PART
• The Competition Act tries to eliminate practises which have negative effects on
competition which benefits the consumer
• Competition will be promoted and sustained in the markets which will result in
consumers paying lower prices for goods and services
• Interests of the consumers are protected, ensuring freedom of trade
• Consumers are protected from price inflating by producers for purposes of
making higher profits
• Minimum quality specifications and safety standards are set for both goods and
services establishing mechanism to redress consumers’ grievances
• Formation of cartels leading to collusive pricing, division of markets and joint
decisions to reduce supply are prevented by the act
CONCLUSION
• In reality there are few perfect markets in some sectors such as mining and
agriculture where conditions for perfect market are met
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(26)
• Briefly compare an oligopoly and a perfect competitor in terms of the
demand curves, products, prices, output and equilibrium positions
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BODY: MAIN PART
Characteristics of oligopolies are as follows:
• Number of businesses: a few big firms dominate the market in an oligopoly
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• Nature of the product: the product may be identical or differentiated
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If the product is
differentiated the market is called a differentiated oligopoly
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Firms under oligopoly advertise extensively
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Advertising is very expensive and firms who cannot afford
to do so will lag behind the competition
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Any
decision and action of one will have a direct effect on the profits of the others
who will retaliate by changing prices and output
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considers the market demand for its product, but also the reactions of other firms
to its price and output policies
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The oligopolist has limited but fierce
competitors, and must therefore consider their possible reaction
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• Price and profits: prices of goods and services are higher in general in
imperfect markets than in perfect competition
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• Market concentration: market concentration refers to the number of firms and
the size of their market share
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Other, smaller firms comprise the
rest of the market
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• Non-price competition takes the following forms:
• Product developmentnew products with unique features and variations in
quality are introduced to attract new customers
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• Loyalty schemes getting customers to sign up for loyalty cards encourages
buyers to shop in one place
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This image includes a visual identity and
values, attitudes and behaviours
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• Free deliveries and installation
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• Longer trading hours
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• Expansion into new markets by diversifying the product range
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• Products
Products sold for an Oligopoly are homogeneous but differentiated
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This does not restrict the
buyers to buy from a specific seller because the products are the same in quality
and standard
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While perfect competitors charge lower prices because their prices are
determined by the industry meaning that they are the price takers
• Output
The output produced is less for the oligopolist
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This comes from the prices determined by the market
• Equilibrium positions
Economic profit is made in the long run for the oligopoly
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CONLUSION
• In South Africa, cartels are illegal and are punishable by law

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Possible Market Failure Essay
Draw a clearly labeled graph explaining the consequences of government
intervention in the market for each of the following:
• Maximum prices
• Taxation (26)
• Explain the supply of undesirable goods in South Africa and how the
government can deal with it
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BODY: MAIN PART
Maximum Prices

• Sometimes government will set the price of a good or service at a maximum
level that is below the market price
• The government intervene and passes a law that suppliers may not charge more
than the maximum price
• The immediate effect is that quantity supply will drop
• The original market equilibrium price and quantity is P and Q respectively

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-Items such as cigarettes, alcohol and non-prescription drugs are examples of
demerit or undesirable goods
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• These goods are often over supplied in the market, due to the fact that the
external cost is not added to the market price
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• Government can ban their consumption or reduce it by means of taxation
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Possible Tourism Essay
Tourism is one of the fastest growing industries worldwide
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(28 marks)
-Evaluate how tourism benefits the households in your community by
using appropriate examples
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BODY: MAIN PART
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6% worldwide
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2 Employment
• Employs 7% of SA workforce (1,12 million)
• largest provider of jobs and earner of foreign exchange, due to:
-Tourism is labour intensive
-Tourism employs many skills
-Tourism can provide immediate employment
-Tourism provides entrepreneurial opportunities
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• Provides alternative to urbanisation, permitting people to
continue - a rural family existence, enfranchising both women
and youth
• Offers diversity of income sources to poor people:
-Allowing them a stake
-Empowering them
-Creating partnerships

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Possible Environmental Sustainability Essay
• Discuss in detail government measures to ensure sustainable
development
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OTHER GHAPHS

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