Economics Grade 12 Practice Flashcards

Overview of the Grade 12 Economics Curriculum and Examination Structure

• Examination Format: The Grade 12 Economics examination consists of two papers, each lasting $1.5$ hours and carrying a total of $150$ marks.
• Paper 1 Focus: Macroeconomics (Circular flow, Business cycles, Public sector, Foreign exchange markets, Protectionism, and Free Trade) and Economic Pursuits (Growth and Development, Industrial development policies, and Economic and social performance indicators).
• Paper 2 Focus: Microeconomics (Perfect markets, Imperfect markets, Market failures) and Contemporary Economic Issues (Inflation, Tourism, and Environmental sustainability).
• Question Structure:
  • Section A (Compulsory): $30$ marks. Includes multiple-choice, matching, and concept identification (8 items each).
  • Section B (Choose Two of Three): $80$ marks total ($40$ per question). Includes short items, data response (graphs/tables/cartoons), and short questions.
  • Section C (Choose One of Two): $40$ marks. A detailed essay consisting of an introduction ($2$ marks), main body ($26$ marks), additional part ($10$ marks), and conclusion ($2$ marks).

Essential Study Skills and Exam Techniques

• Study Tips:
  • Prepare all materials (pens, highlighters) beforehand.
  • Use colors and pictures to help the brain learn.
  • Use repetition to retain information.
  • Maintain physical health: $8$ hours of sleep, proper nutrition, and hydration.
• Mobile Notes Tool: A technique where a blank piece of paper is folded into $8$ parts, with a concept written on one side and its definition/explanation on the other.
• Mnemonics: Codes to remember complex lists.
  • EMILII (Market Failure Reasons): Externalities, Missing markets, Imperfect competition, Lack of information, Immobility of factors of production, Imperfect distribution of income and wealth.
  • PIWPC (International Trade Demand Reasons): Population, Income, Wealth, Preferences, Consumption.
• Mind Maps: Visual summaries using a central name/theme with branches for different ideas using keywords and colors.
• Exam Day Guidelines:
  • Arrive $1$ hour early with all stationery, ID, and admission letter.
  • Use the $10$-minute reading time to understand instructions and plan the easiest questions first.
  • Circle question words and underline key terms to ensure accurate responses.

Chapter 1: The Circular Flow Model, National Account Aggregates, and the Multiplier

• The Open Economy Circular Flow Model: A macroeconomic model showing the interaction between households, firms, the state, and the foreign sector.
• Key Participants:
  • Households: Primary owners of the four factors of production; provide these to firms in exchange for rent, wages, interest, and profit.
  • Firms/Business Sector: Purchase factors of production and produce goods and services.
  • State/Public Sector: Provides public goods/services and receives taxes (e.g., income tax from households, company tax from firms).
  • Foreign Sector: Involves imports ($M$) as monetary outflows and exports ($X$) as monetary inflows.
• Economic Equilibrium: Occurs when leakages ($L$) equal injections ($J$).
  • Leakages: $L = S + T + M$ (Savings + Taxes + Imports).
  • Injections: $J = I + G + X$ (Investment + Government Spending + Exports).
  • Formula: $S + T + M = I + G + X$.
• National Account Aggregates:
  • Production Method: Adds final values of all goods and services (Gross Value Added at basic prices).
  • Income Method: Sum of all income earned by owners of factors of production (GDP at factor cost).
  • Expenditure Method: Sum of spending by the four sectors: $GDP = C + I + G + (X - M)$.
• National Account Conversions:
  • Factor Cost to Basic Prices: $GDP_{\text{factor cost}} + \text{taxes on production} - \text{subsidies on production} = GDP_{\text{basic prices}}$.
  • Basic Prices to Market Prices: $GDP_{\text{basic prices}} + \text{taxes on products} - \text{subsidies on products} = GDP_{\text{market prices}}$.
  • Domestic to National (GDP to GNP): $GDP + \text{Primary income from world} - \text{Primary income to world} = GNP$.
• The Multiplier Effect: The process where an initial change in spending lead to a proportionately larger increase in national income.
  • Formulae: $M = \frac{1}{1 - mpc}$ or $M = \frac{1}{mps}$.
  • Note: $mpc + mps = 1$.

Chapter 2: Business Cycles and Forecasting

• Nature of Business Cycles: Successive periods of growth (upswing) and decline (downswing). These are recurring but never of the same duration or magnitude.
• Phases of the Cycle:
  • Prosperity/Recovery: Increasing economic activity.
  • Peak: Highest point of expansion.
  • Recession: At least two successive quarters of negative growth.
  • Trough/Depression: Lowest point of economic activity.
• Explanations for Cycles:
  • Exogenous (Monetarist): Caused by factors outside the economy (e.g., weather, solar radiation, or government policy mismanagement). Markets are seen as inherently stable.
  • Endogenous (Keynesian): Caused by internal market instability; markets fail to coordinate demand and supply properly. Government intervention is deemed necessary.
• Government Policies for Smoothing Cycles:
  • Monetary Policy: Managing money supply and interest rates (Repo rate) via the SARB.
  • Fiscal Policy: Managing taxation ($T$) and government spending ($G$).
• Forecasting Indicators:
  • Leading: Change direction before the economy (e.g., job adverts, building plans).
  • Coincidental: Move with the economy (e.g., real GDP, retail sales).
  • Lagging: Change direction after the economy (e.g., unemployment, new vehicle sales).
• Cycle Features: Amplitude (height of peaks), length (trough to trough), and trend line (long-term average).

Chapter 3: The Role of the Public Sector

• Composition: Includes National, Provincial, and Local government, plus Public Corporations (e.g., Eskom, Transnet).
• Necessity: To provide public goods, conserve resources, and manage the economy.
• Public Goods Types:
  • Community Goods: Non-excludable and non-rival (e.g., police, defense).
  • Collective Goods: Fees or tolls can be charged to exclude free-riders (e.g., parks, toll roads).
  • Merit Goods: Under-supplied by markets (e.g., education, healthcare).
• Problems in Provisioning: Accountability, inefficiency, difficulty assessing needs, and pricing policy issues.
• Fiscal Policy and the Laffer Curve: Illustrates the relationship between tax rates and tax revenue. It suggests that increasing tax rates beyond a certain point will actually decrease revenue because it discourages work and investment.
• Public Sector Failure Reasons: Management failure, apathy, corruption, lack of motivation, and bureaucracy.

Chapter 4: Foreign Exchange and Balance of Payments

• International Trade Reasons:
  • Demand: Population size, income levels, wealth, and preferences.
  • Supply: Natural resources, climate, labor skills, and technology.
• Balance of Payments (BoP) Accounts:
  • Current Account: Merchandise exports/imports, gold, services, income, and transfers.
  • Financial Account: Direct investment (FDI), Portfolio investment (shares/bonds), and other investments.
  • Capital Transfer Account: Capital grants and debt forgiveness.
  • Reserve Account: Changes in gold and foreign exchange reserves.
• Exchange Rate Systems:
  • Free Floating: Determined purely by market demand and supply.
  • Managed Floating: Market-driven but with central bank intervention within limits.
  • Fixed: Deliberate revaluation or devaluation by authority.
• Terms of Trade: Ratio comparing export prices to import prices. Formula: $\frac{\text{Index of export prices}}{\text{Index of import prices}} \times 100$.

Chapter 5: Protectionism and Free Trade

• Export Promotion: Incentives to encourage local production for export (e.g., subsidies, trade neutrality). Advantage: no market size limits. Disadvantage: high real cost of subsidies.
• Import Substitution: Replacing imports with local products. Methods include tariffs, quotas, and exchange control. Advantage: industrialization and job creation. Disadvantage: loss of comparative advantage.
• Arguments for Protection: Industrial development, infant industries, protecting local jobs, and preventing "dumping" (selling surplus abroad below cost).
• Arguments for Free Trade: Specialization, economies of scale, consumer choice, and global efficiency.
• Economic Integration: Includes Free Trade Areas (e.g., SADC), Customs Unions (SACU), Common Markets, and Economic Unions.

Chapter 6 & 7: Dynamics of Markets (Perfect and Imperfect)

• Perfect Competition: Homogenous products, large number of buyers/sellers, perfect knowledge, and free entry/exit. Firms are "price takers."
• Profit Maximization: Occurs where $MR = MC$.
• Monopoly: One seller, blocked entry, unique product, "price maker." Can be natural (high startup costs like Eskom) or artificial (patents).
• Oligopoly: Few large firms, mutual dependence, kinked demand curve, non-price competition (advertising), and potential for collusion (cartels).
• Monopolistic Competition: Many sellers, differentiated products, non-price competition, easy entry/exit.
• Shut-down Point: Occurs when $AR < AVC$ or $TR < TVC$.

Chapter 8: Market Failures

• Causes: Externalities, missing markets (public goods), imperfect competition, lack of information, and factor immobility.
• Externalities: Costs or benefits to third parties not included in the price.
  • Negative: Social cost > Private cost (e.g., pollution).
  • Positive: Social benefit > Private benefit (e.g., education).
• Cost-Benefit Analysis (CBA): An evaluation tool for public projects to ensure social benefits exceed social costs.
• Government Interventions: Minimum wages, maximum prices (ceilings), minimum prices (floors), and taxes/subsidies.

Chapter 9 & 10: Economic Growth, Development, and Industrial Policy

• Economic Growth: Increase in Real GDP.
• Economic Development: Improved standard of living and literacy.
• South African Policies: RDP (Reconstruction and Development Programme), GEAR (Growth, Employment and Redistribution), ASGISA, and the National Development Plan (NDP).
• North-South Divide: The disparity between developed (North) and developing (South) countries in per capita income and health.
• Industrial Endeavors: Spatial Development Initiatives (SDIs), Industrial Development Zones (IDZs, e.g., Coega), and Special Economic Zones (SEZs).
• Incentives: Small Business Support, Skills Support ($SSP$), and Foreign Investment Grants ($FIG$).

Chapter 11, 12, 13 & 14: Economic Issues and Sustainability

• Indicators:
  • Economic: Inflation rate (CPI/PPI), employment rate, Repo rate.
  • Social: Life expectancy, nutrition, literacy levels.
• Inflation: Sustained increase in general price level.
  • Types: Headline (unadjusted CPI), Core (excludes volatile items), and Stagflation (high inflation + high unemployment + low growth).
  • Measures: Monetary (limiting money supply) and Fiscal (increased taxation).
• Tourism: Benefits include GDP growth, job creation, and infrastructure expansion. Important roles for Indigenous Knowledge Systems (IKS).
• Environmental Sustainability: Preservation (keeping resources intact) vs. Conservation (managed use). International agreements include the Kyoto Protocol and COP 17 (Durban).

• Composition: Includes National, Provincial, and Local government, plus Public Corporations (e.g., Eskom, Transnet).
• Necessity: To provide public goods, conserve resources, and manage the economy.
• Public Goods Types:
  • Community Goods: Non-excludable and non-rival (e.g., police, defense).
  • Collective Goods: Fees or tolls can be charged to exclude free-riders (e.g., parks, toll roads).
  • Merit Goods: Under-supplied by markets (e.g., education, healthcare).
• Problems in Provisioning: Accountability, inefficiency, difficulty assessing needs, and pricing policy issues.
• Fiscal Policy and the Laffer Curve: Illustrates the relationship between tax rates and tax revenue. It suggests that increasing tax rates beyond a certain point will actually decrease revenue because it discourages work and investment.
• Public Sector Failure Reasons: Management failure, apathy, corruption, lack of motivation, and bureaucracy.