market economy essay pdf

Economic Essays Grade 12

Grade 12 Economic Essays for the Next Three-Year Cycle (2021-2023)

Discuss in detail the markets within the FOUR-SECTOR model (Circular Flow)

Discuss in detail 'The new economic paradigm'/Explain the 'smoothing of cycles (Business Cycles)

Discuss in detail the features underpinning forecasting (Business Cycles)

Discuss in detail the main objectives of the public sector in the economy (Public Sector)

Discuss in detail the reason(s) for public sector failure (link them to typical problems experienced through public sector provisioning) (Public Sector)

Discuss in detail the reasons for international trade (Foreign Exchange Markets)

Discuss in detail export promotion (Protectionism and FreeTrade)

Discuss in detail the arguments in favour of protectionism (Protectionism and Free Trade)

Discuss in detail the demand-side approach in promoting growth and development in South Africa (Growth and development)

Discuss in detail the following South African growth and development policies and strategic initiatives (Growth and development)

Discuss in detail South Africa's initiaties (endeavours) in regional development (Industrial Development Policies)

Discuss in detail the following economic indicators (Economic and Social Performance Indicators

Discuss in detail the following social indicators (Economic and Social Performance Indicators)

Discuss in detail the various equilibrium positions with the aid of graphs-PERFECT MARKET (Perfect Market)

Discuss the monopoly in detail (with/without the aid of graphs) (Imperfect Market)

Examine the oligopoly in detail (Imperfect Market)

Compare and contrast any TWO types of market structures

Discuss in detail how the following factors lead to the misallocation of resources in the market (Market Failures)

Discuss in detail state intervention as a consequence of market failures, with the aid of relevant graphs (Market Failures)

Discuss in detail the consequences of inflation (Inflation)

Discuss in detail the measures to combat demand-pull and/or cost-push inflation (Inflation)

Examine in detail the effects of tourism (Tourism)

Examine in detail the benefits of tourism (Tourism)

Discuss in detail how the government can ensure sustainable development (Environmental Sustainability)

Discuss in detail the following problems and the international measures taken to ensure sustainable development (Environmental Sustainability)

ESSAYS FOR THE NEXT THREE-YEAR CYCLE (2021-2023)

Macroeconomics- paper1.

Discuss in detail the markets within the FOUR-SECTOR model (Circular Flow) INTRODUCTION The economy of a country is regarded as an open economy because of the presence of households, producers, government, foreign sector and financial sector as active participants in the economy. Markets link the participants in the economy 🗸🗸 [Max 2]

BODY: MAIN PART PRODUCT / GOODS/ OUTPUT MARKET🗸

These are the markets for consumer goods and services🗸🗸
Goods are defined as tangible items, like food, clothes, cars, etc. that satisfies some human wants or needs🗸🗸
Buying and selling of goods that are produced in markets e.g. 🗸🗸
Capital Goods market for trading of buildings and machinery🗸🗸
Consumer goods market for trading of durable consumer goods, semi-durable consumer goods and non-durable consumer goods. 🗸🗸
Services are defined as non-tangible actions and include wholesale and retail, transport and financial markets. 🗸🗸

FACTOR / RESOURCE/ INPUT MARKETS🗸

Households sell factors of production on the markets: rent for natural resources, wages for labour interest for capital and profit for entrepreneurship🗸🗸
The factor market includes the labour, property and financial markets. 🗸🗸
The market where services of factors of production are traded e.g. labour is hired and capital is borrowed – these services earn wages, interest, rent and profits🗸🗸

FINANCIAL MARKETS🗸

They are not directly involved in the production of good and services, but act as a link between households , the business sector and other participants with surplus finds🗸🗸
E.g. banks, insurance companies and pension funds🗸

MONEY MARKETS🗸

In the money markets short term loans, and very short term funds are saved and borrowed by consumers and business enterprises 🗸🗸
Products sold in the market are bank debentures, treasury bills and government bonds 🗸🗸
The simplest form exists when parties make demand and short-term deposits and borrow on short term 🗸🗸
The SARB is the key institution in the money market🗸🗸

CAPITAL MARKETS🗸

In the capital markets long term funds are borrowed and saved by consumers and the business sector🗸🗸
The Johannesburg Security Exchange (JSE) is a key institution in the capital 🗸🗸
Products sold in this market are mortgage bonds and shares🗸🗸

FOREIGN EXCHANGE MARKETS🗸

On the foreign exchange markets businesses buy/ sell foreign currency to pay for imported goods and services🗸🗸
These transactions occur in banks and consists of electronic money transfers from one account to another🗸🗸
The leading centres/ most important foreign exchange markets are in London, New York and Tokyo 🗸🗸
e.g. traveller’s cheques to travel abroad🗸
Flows of private and public goods and services are real flows and they are accompanied by counter flows of expenditure and taxes on the product market🗸🗸
Factor services are real flows and they are accompanied by counter flows of income on the factor market🗸🗸
Imports and exports are real flows and are accompanied by counter flows of expenditure and revenue on the foreign exchange market🗸🗸[Max 26]
A change in investment of R 10m will result in a change in income of R 20m🗸🗸
An increase in investment causes the expenditure function to shift upwards from C1 to C2 so that C1 is parallel to C2🗸🗸
The effect of the increase in investment is that the total expenditure will increase from R 20m to R 30m🗸🗸
The increase in the value of output (Y) is greater than the increase in the expenditure (E) 🗸🗸 (Explanation must comply with the figures supplied in the graphical presentation) [Max 4] [Max 10]

CONCLUSION The circular flow ensures continued interdependence and coordination of the economic activities in the economy / markets are critically important institutions in our economic system, because they regulate the supply and demand and safeguard price stability and general business confidence. 🗸🗸 [Any other relevant conclusion] [Max 2]

INTRODUCTION The new economic paradigm in terms of the smoothing of business cycles discourages monetary policy makers from using monetary and fiscal policies to fine tune the economy but rather encourages achieving stability through sound long term decisions relating to demand and supply in the economy/smoothing out the painful part of economic down-fall that is part of the market economy🗸🗸 (Accept other relevant definition/description of smoothing/new economic paradigm). [Max 2]

BODY: MAIN PART The new economic paradigm is embedded in the demand and supply side policies. 🗸🗸

Demand-side policies

It focuses on aggregate demand in the economy🗸🗸
When households, firms and the government spend more, demand in the economy increases. 🗸🗸
This makes the economy grow but lead to inflation.🗸🗸
Aggregate demand increases more quickly than aggregate supply and this causes price increases. 🗸🗸
If the supply does not react to the increase in demand, prices will increase. 🗸🗸
This will lead to inflation (a sustained and considerable in the general price level) 🗸🗸

Unemployment:

Demand-side policies are effective in stimulating economic growth. 🗸🗸
Economic growth can lead to an increase in demand for labour. 🗸🗸
As a result more people will be employed and unemployment will increase. 🗸🗸
As unemployment decreases inflation is likely to increase. 🗸🗸
This relationship between unemployment and inflation is illustrated in the Phillips curve. 🗸🗸
The PC curve shows the initial situation. A is the point of intersection of the PC curve with the x- axis. It shows the natural rate of unemployment, for instance 14%🗸🗸
At point A inflation rate is zero. 🗸🗸
If unemployment falls to C for instance, 8%, inflation caused by wage increases is at 6%.🗸🗸
If unemployment increases from C to B to A, inflation falls from 6% to 2% to 0%.🗸🗸

Supply-side policies Reduction of costs 🗸

Infrastructural services: reasonable charge and efficient transport, communication, water
services and energy supply. 🗸🗸
Administrative costs: these costs include inspection, reports on applications
of various laws, regulations and by-laws, tax returns and returns providing statistical
information.
It adds to costs and businesses carry a heavy burden 🗸🗸
Cash incentives: it includes subsidies for businesses to locate in neglected areas where unemployment is high and compensation to exporters for certain costs they
incurred in development of export markets. 🗸🗸

Improving the efficiency of inputs 🗸

Tax rates: low tax rates can serve as an incentive to workers. It will improve the productivity and output. 🗸🗸
Capital consumption: replacing capital goods regularly creates opportunities for businesses to keep up with technological development and better outputs🗸🗸
Human resource development: to improve the quality of manpower by improving health care, education and training. 🗸🗸
Free advisory service: these promote opportunities to export. 🗸🗸

Improving the efficiency of markets 🗸

Deregulation: removal of laws, regulations and by-laws and other forms of government controls makes the market free. 🗸🗸
Competition: encourages the establishment of new businesses 🗸🗸
Levelling the play field: private businesses cannot compete with public enterprises 🗸🗸 Answers must be in full sentences and well described with examples to be able to obtain 2 marks per fact. Learners should be awarded 1 mark per heading or sub-heading to a maximum of 8 marks. (8 x 1) (8) [Max 26]

Explanation: The above graph shows:

Aggregate demand (AD) and aggregate supply (AS) are in equilibrium at point C. 🗸🗸
If aggregate demand is stimulated so that it moves to AD1 and aggregate supply responds promptly and relocates at AS1; a larger real output becomes available without any price increases. 🗸🗸
Supply is often sticky and fixed in the short term. 🗸🗸
Therefore, if aggregate demand increases to AD1 and aggregate supply does not respond, intersection is at point F. Real production increases but so does the price, in other words, with more inflation. 🗸🗸
The aggregate demand locates at any position to the left of AS1 inflation prevails. 🗸🗸
The solution is to create conditions that ensure supply is more flexible. 🗸🗸
If the cost of increasing production is completely flexible, a great real output can be supplied at any given price level. 🗸🗸 [Max 10]

CONCLUSION It is clear from the discussion above that it is critically important to manage the aggregate supply and demand to ensure stability in the economy. 🗸🗸 [Accept any relevant higher order conclusion] [Max 2]

INTRODUCTION Accurate prediction is not possible in Economics. The best the economists can do is to try and forecast what might happen. There are a number of techniques available to help economists to forecast business cycles, e.g. economic indicators 🗸🗸 OR Successive periods of contraction and expansion of economic activities 🗸🗸 [Accept any other relevant introduction] [Max 2]

BODY: MAIN PART Business cycle indicators Leading economic indicators 🗸

These are indicators that change before the economy changes / coincide with the reference turning point 🗸🗸
They give consumers, business leaders and policy makers a glimpse (advance warnings) of where the economy might be heading. 🗸🗸
Peak before a peak in aggregate economic activity is reached.
Most important type of indicator in helping economists to predict what the economy will be like in the future 🗸🗸
When these indicators rise, the level of economic activities will also rise in a few months' time/an upswing 🗸🗸
E.g. job advertising space/inventory/sales ratio🗸

Coincident economic indicators🗸

They move at the same time as the economy / if the turning point of a specific time series variable coincides with the reference turning point🗸🗸
It indicates the actual state of the economy🗸🗸
E.g. value of retail sales. 🗸
If the business cycle reaches a peak and then begins to decline, the value of retail sales will reach a peak and then begin to decline at same time🗸🗸

Lagging economic indicators🗸

They do not change direction until after the business cycle has changed its direction🗸🗸
They serve to confirm the behaviour of co-incident indicators🗸🗸
E.g. the value of wholesalers' sales of machinery🗸
If the business cycle reaches a peak and begins to decline, we are able to predict the value of new machinery sold🗸🗸

Composite indicator🗸

It is a summary of the various indicators of the same type into a single value🗸🗸
Their values are consolidated into a single value , if this is done we find a value of a composite leading , coincident and lagging indicator🗸🗸 Accept ONE example from the table below:

This is the time that it takes for a business cycle to move through one complete cycle (measured from peak to peak) 🗸🗸
It is useful to know the length because the length tends to remain relatively constant over time.🗸🗸
If a business cycle has the length of 10 years it can be predicted that 10 years will pass between successive peaks or troughs in the economy. 🗸🗸
Longer cycles show strength. 🗸🗸
Cycles can overshoot. 🗸🗸

Ways to measure lengths:

Crisis to crisis 🗸🗸
Historical records 🗸🗸
Consensus on businesses experience 🗸🗸

Amplitude 🗸

It is the difference between the total output between a peak and a trough. 🗸🗸
It measures the distance of the oscillation of a variable from the trend line / It is the intensity (height) of the upswing and downswing (contraction and expansion) in economic activity 🗸🗸
A large amplitude during an upswing indicates strong underlying forces – which result in longer cycles 🗸🗸
The larger the amplitude the more extreme the changes that may occur / extent of change 🗸🗸
E.g. During the upswing inflation may increase from 5% to 10%. (100% increase) 🗸🗸
A trend is the movement of the economy in a general direction. 🗸🗸
It usually has a positive slope because the production capacity of the economy increases over time 🗸🗸
Also known as the long term growth potential of the economy. 🗸🗸
The diagram above illustrates an economy which is growing – thus an upward trend (positive slope) 🗸🗸
Trends are useful because they indicate the general direction in which the economy is moving – it indicates the rate of increase or decrease in the level of output🗸🗸

Extrapolation 🗸

Forecasters use past data e.g. trends and by assuming that this trend will continue, they make predictions about the future🗸🗸
Means to estimate something unknown from facts or information that are known 🗸🗸
if it becomes clear that the business cycle has passed through a trough and has entered a boom phase, forecasters might predict that the economy will grow in the months that follow 🗸🗸
It is also used to make economic predictions in other settings e.g. prediction of future share prices🗸🗸

Moving average 🗸

It is a statistical analytical tool that is used to analyse the changes that occur in a series of data over a certain period of time / repeatedly calculating a series of different average values along a time series to produce a smooth curve 🗸🗸
The moving average could be calculated for the past three months in order to smooth out any minor fluctuations 🗸🗸
It is calculated to iron out (minimize) small fluctuations and reveal long-term trends in the business cycle🗸🗸 Answers must be in full sentences and well described with examples to be able to obtain 2 marks per fact. Learners should be awarded 1 mark per 8 headings and examples. [8 x 1=8] [Max 26]

BODY: ADDITIONAL PART

An expansionary monetary policy is implemented when the economy is in recession in order to stimulate economic activities. 🗸🗸
Interest rates can be reduced to encourage spending. 🗸🗸
Households and firms can borrow more and spend more. 🗸🗸
The increased spending increases the level of economic activity. 🗸🗸
Investment will increase and more factors of production will be employed. 🗸🗸
Higher levels of production, income and expenditure will be achieved. 🗸🗸
If the supply of goods and services does not increase in line with an increase in demand, inflation will increase. 🗸🗸
Inflation can be curbed by reducing money supply and availability of credit. 🗸🗸
To dampen demand at the peak the government will be able to reduce the money supply by increasing interest rates. 🗸🗸
Selling government bonds and securities (open market transactions) and reduce the supply of money in circulation. 🗸🗸
Increase the cash reserve requirements to manipulate money creation activities of banks. 🗸🗸
Persuade banks to decrease lending (moral suasion) 🗸🗸
To devaluate the exchange rate (exchange rate policy) 🗸🗸 [Max 10]

CONCLUSION It remain clear that business cycles must be clearly monitored through the indicators available, policy makers must act quickly by using monetary and fiscal instruments in order to prevent instability in the economy. 🗸🗸 [Accept any other relevant conclusion] [Max 2]

INTRODUCTION: The government provides goods and services that are under supplied by the market and therefore plays a major role in regulating economic activity and guiding and shaping the economy. 🗸🗸 [Max 2]

BODY: MAIN PART Objectives:

Economic growth 🗸

Refer to an increase in the production of goods and services 🗸🗸
Measured in terms of Real GDP 🗸🗸
For economic growth to occur, the economic growth rate must be higher than Population growth 🗸🗸
Growth and development in a country benefit its citizens because it often leads to a higher standard of living 🗸🗸

Full employment 🗸

It is when all the people who want to work, who are looking for a job must be able to get a job 🗸🗸
High levels of employment is the most important economic objective of the government 🗸🗸
The unemployment rate increased over the past few years 🗸🗸
Informal sector activities must be promoted because it is an area where employment increase 🗸🗸

Exchange rate stability 🗸

The economy must be manage effectively and effective Fiscal and monetary policy must be used to keep the exchange rate relatively stable 🗸🗸
Depreciation and Appreciation of the currency create uncertainties for producers and traders and should be limited. These uncertainties must be limited 🗸🗸
The SARB changed the Exchange rate from a Managed floating to a free floating exchange rate 🗸🗸

Price stability 🗸

Stable price causes better results in terms of job creation and economic growth 🗸🗸
The SARB inflation target is 3% - 6% and they are successful in keeping inflation within this target 🗸🗸
Interest Rates, based on the Repo Rate are the main instruments used in the stabilisation policy 🗸🗸
The stable budget deficit also has a stabilizing effect on the inflation rate 🗸🗸

Economic equity 🗸

Redistribution of income and wealth is essential 🗸🗸
South Africa uses a progressive income tax system – taxation on profits, taxation on wealth, capital gains tax and taxation on spending, are used to finance free services 🗸🗸
Free social services are basic education; primary health and to finance basic economic services 🗸🗸
E.g. Cash Grant to the poor, e.g. child grants and cash grants to vulnerable people, e.g. disability grants 🗸
Progressive taxation means that the higher income earners pay higher/more taxation 🗸🗸 [Max 26]
Learner responses can be positive or negative.
Follow the argument and see if the learner can produce enough evidence to support his/her answer.

Economic Growth:

SA targets 4–5% economic growth. Previously SA had a 5% growth rate 🗸🗸
In recent years the growth rate decreased steadily (presently below 3%) 🗸🗸

Full Employment:

Compared to foreign countries unemployment is very high. (Expanded – over 30%) 🗸🗸
Efforts by SA government to reduce these figures includes the GEAR strategy, focus on small business enterprises, Public Works Programme 🗸🗸

Exchange rate stability:

SA now operates on a free floating exchange rate system in line with international benchmarks 🗸🗸
Unfortunately our currency has lost its value, with a general trend of depreciation over the last few years 🗸🗸

Price stability:

For the past few years South Africa has managed to remain within the 3–6% target 🗸🗸
The current increase in the repo rate has put constraints on the inflation rate 🗸🗸

Economic equity:

Economic equity has improved (BEE, affirmative action, gender equity) and led to an improvement in economic equity 🗸🗸 [Any 5 x 2] [Max 10]

CONCLUSION: While some successes have been achieved by government, the fulfilling of some of the objectives are compromised by factors like lack of accountability, corruption, budgeting, nepotism and incompetence. 🗸🗸 [Any relevant conclusion] [Max 2]

INTRODUCTION The government responds to market failures by establishing and maintaining state owned enterprises to provide public goods and services 🗸🗸 [Any other relevant introduction] [Max 2]

BODY: MAIN PART

It is required to give an explanation of one's decisions, actions and expenditures over a period of time 🗸🗸
There are mechanisms for evaluating government's economic and financial performance 🗸🗸
That the desired quantities and quality of goods and services for which taxes are raised are delivered 🗸🗸
That monopolies, corruption, nepotism, incompetence and apathy does not occur 🗸🗸
Two important elements of accountability is participation and transparency🗸🗸
Ministerial responsibilities, i.e. the ministers of government departments are responsible for decisions and actions and expenditures 🗸🗸
Parliamentary questioning arises and members of the government departments have to respond 🗸🗸
The national treasury is responsible for treasury control 🗸🗸
The auditor-general reports annually in writing on each government department🗸🗸
Public goods are efficiently provided if Pareto efficiency is achieved 🗸🗸
That is if resources are allocated in such a way that no one can be made better off without making someone else worse off 🗸🗸
Bureaucracy the official rules and procedures. 🗸🗸/insensitivity to the needs of their clients 🗸🗸
Incompetence- the lack of skill or ability to do a task successfully🗸🗸/May have improper qualifications/or an attitude of apathy 🗸🗸
Corruption- the exploitation of a person's position for private gain /taking bribes, committing fraud, nepotism 🗸🗸
State-owned enterprises do not operate according to the forces of supply and demand 🗸🗸
It becomes thus very difficult for state-owned enterprises to assess needs and they are thus prone to under- or over-supplying public goods and services 🗸🗸
The census and other household surveys as well as local government structures provide this type of information 🗸🗸
Since resources are scarce, government must then decide which needs and whose needs are to be satisfied 🗸🗸
In the private sector houses are built according to the price that people are able and willing to pay 🗸🗸
In the public sector housing is regarded as a social responsibility and authorities supply them according to the needs of people 🗸🗸
In a market economy prices are determined by supply and demand 🗸🗸
The objectives of firms are to maximise their profits and they usually set prices to achieve this objective 🗸🗸
Government does not pursue the profit maximisation objective 🗸🗸
Government takes into account certain social, economic, political and environmental conditions as well as public opinion 🗸🗸
Free-of-charge services- this is met from taxes 🗸🗸 and applies to most community goods and collective goods 🗸🗸 (e.g.) defence, police whereby charges and toll fees are levied 🗸
User-charges 🗸 option to charge depends on technical reasons 🗸🗸 (e.g.) cost of providing a double lane road could be recovered by toll charges 🗸 Economic reasons 🗸 such as services like water and electricity 🗸 that have a zero price 🗸 political reasons 🗸 where income distribution is significantly unequal, administrative rationing according to need takes place 🗸🗸 (e.g.) public health and education 🗸
Direct and indirect subsidies direct subsidies are used to cover part of the costs 🗸🗸 (e.g.) urban bus service 🗸 and an indirect subsidy is used to write off accumulated losses or deficits 🗸🗸
Standing charges -called availability charges 🗸🗸 (e.g.) water and electricity 🗸 standing charges goes to meet fixed costs and the price per unit consumed covers variable costs 🗸🗸
Price discrimination - different users have different elastic ties of demand for a good 🗸🗸 (e.g.) commercial and manufacturing businesses pay higher rates than households and they pay on a sliding scale🗸🗸
State-owned enterprises that either render a service or when an existing enterprise is nationalised 🗸🗸
They focus on making a profit and maximizing cost at the expense of the needs of some groups 🗸🗸 (e.g.) Iscor 🗸 SABC, 🗸SAA, Spoornet 🗸
refers to the process whereby state-owned enterprises and state-owned assets are handed over or sold to private individuals 🗸🗸
cost of maintaining and managing state-owned enterprises are high which can lead to higher taxes and larger public debt 🗸🗸
State-owned enterprises are not run as efficiently as private enterprises 🗸🗸
Nationalisation is the process whereby the state takes control and ownership of privately owned assets and private enterprises 🗸🗸
It includes contracting of services, public-private partnerships, increasing competitiveness🗸🗸 [Max 26]

ADDITIONAL PART Possible problems in your community or elsewhere

Lack of drinking water due to burst pipes 🗸🗸
Lack of electricity due to lack of infrastructure (load shedding) 🗸🗸
Lack of schooling – no buildings available – lack of maintenance 🗸🗸
Lack of health services due to lack of staff, infrastructure, strikes 🗸🗸
Lack of adequate housing (RDP) 🗸🗸 [Max 10 marks - List of examples max 5 marks] [Accept any other relevant answer]

CONCLUSION If the above problems are not dealt with timeously by government, government will continue to fail its people in terms of service delivery, seeing many protests occurring regularly 🗸🗸 [Any other relevant higher order conclusion] [Max 2]

INTRODUCTION International trade can be defined as the exchange of goods and services between countries globally. 🗸🗸 These trade agreements are negotiated by protocols and agreement due to the uneven distribution of natural resources globally. 🗸🗸

BODY-MAIN PART The main reasons for international trade.

Demand reasons The size of the population impacts demand.

If there is an increase in population growth, it causes an increase in demand, as more people’s needs must be satisfied. 🗸🗸
Local suppliers may not be able to satisfy this demand. 🗸🗸

The population’s income levels effect demand.

Changes in income cause a change in the demand for goods and services. 🗸🗸 • An increase in the per capita income of people in more disposable income that can be spent on local goods and services, some of which may then have to be imported. 🗸🗸

An increase in the wealth of the population leads to greater demand for goods.

People have access to loans and can spend more on luxury goods, many of which are produced in other countries. 🗸🗸

Preferences and tastes can play a part in the determining of prices,

E.g. customers in Australia have a preference for a specific product which they do not produce and need to import and it will have a higher value than in other countries. 🗸🗸

The difference in consumption patterns is determined

By the level of economic development in the country, e.g. a poorly developed country will have a high demand for basic goods and services but a lower demand for luxury goods. 🗸🗸

Supply reasons Natural resources are not evenly distributed

Across all countries of the world. 🗸🗸
They vary from country to country and can only be exploited in places where these resources exist. 🗸🗸

Climatic conditions

Make it possible for some countries to produce certain goods at a lower price than other countries, e.g. Brazil is the biggest producer of coffee. 🗸🗸

Labour resources

Differ in quantity, quality and cost between countries. 🗸🗸
Some countries have highly skilled, well-paid workers with high productivity levels, e.g. Switzerland. 🗸🗸

Technological resources

Are available in some countries that enable them to produce certain goods and services at a low unit cost, e.g. Japan. 🗸🗸

Specialisation in the production

Certain goods and services allows some countries to produce them at a lower cost than others, e.g. Japan produces electronic goods and sells these at a lower price. 🗸🗸

Capital allows developed countries

Enjoy an advantage over underdeveloped countries. 🗸🗸
Due to a lack of capital, some countries cannot produce all the goods they require themselves. 🗸🗸

ADDITIONAL PART

Buying and selling goods and services from other countries: 🗸🗸
The purchase of goods and services from abroad that leads to an outflow of currency from SA- Imports (M). 🗸🗸
The of goods and services to buyers from other countries leading to an inflow of currency to SA – Exports (X) 🗸🗸
Different factor endowments mean some countries can produce goods and services more efficiently than others- specialisation is therefore possible: 🗸🗸

Absolute Advantage:

Where one country can produce goods with fewer resources than other. 🗸🗸

Comparative Advantage:

Where one country can produce goods at a lower opportunity cost it sacrifices less resources in production. 🗸🗸

CONCLUSION International trade is important of countries to survive economically, as barriers to trade would disadvantage all countries, due to their interdependency globally. 🗸🗸 [Any other relevant higher order conclusion] [Max 2]

ECONOMIC PURSUITS-PAPER 1

Discuss in detail export promotion (Protectionism and Free Trade)

INTRODUCTION Export promotion refers to measures taken by governments increase production of goods and services that can be exported. The government provides incentives to encourage production 🗸🗸 [Max 2]

BODY: MAIN PART REASONS:

Export promotion measures lower cost of production which makes it easier to compete on the international market 🗸🗸
Achieve significant export-led economic growth🗸🗸
Export enlarges production capacity of country because more and larger manufacturing industries are established. 🗸🗸
The first step to export-led economic growth is to implement policies that encourage the establishment of industries to produce goods and services for export markets🗸🗸

METHODS: Exports are promoted through: Incentives🗸

Export incentives include information on export markets, research with regard to new markets, concessions on transport charges, export credit and export credit guarantees and publicity commending successful exporters🗸🗸
This will encourage manufacturers to export an increased volume of their production🗸🗸
Trade missions help to market SA products abroad🗸🗸and supply SA companies with information about potential markets 🗸🗸

Direct Subsidies🗸

Described as direct because it involves government expenditure. 🗸🗸
Include cash payments to exporters, refunds on import tariffs and employment subsidies.
The aim is to increase the competitiveness of exporting company🗸🗸 reduce cost of production🗸🗸and explore and establish overseas markets🗸🗸

Indirect subsidies

Regarded as indirect because it results in the government receiving less revenue🗸🗸 e.g. general tax rebates,
Tax concessions on profits earned from exports or on capital invested to produce export goods, refunding
Of certain taxes e.g. custom duties on imported goods used in the manufacturing process🗸🗸
Allows companies to lower their prices and enables them to compete in international markets🗸🗸
Challenge for governments to design incentives and subsidies in such a way that prices of export goods can't be viewed as dumping prices🗸🗸

Trade neutrality 🗸

Can be achieved if incentives in favour of export production are introduced
Up to point that neutralises the impact of protectionist measures in place🗸🗸
E.g. subsidies equal to magnitude of import duties can be paid🗸

Export processing zones (EPZs) 🗸

Is free-trade enclave within a protected area –
Is fenced and controlled industrial park that falls outside
Domestic customs area, and usually located near harbour or airport 🗸🗸 NOTE : For the response with regard to the effectiveness of export promotion methods, a maximum of 5 marks can be allocated.
No limitations on size and scale since world market is very large🗸🗸
Cost and efficiency of production based on this and organised along lines of comparative advantage🗸🗸
Increased domestic production will expand exports to permit more imports and may result in backward linkage effects that stimulate domestic production in related industries🗸🗸
Exchange rates are realistic and there is no need for exchange control and quantitative restrictions🗸🗸
Value can be added to natural resources of the country 🗸🗸
Creates employment opportunities 🗸🗸
Increase in exports has positive effect on balance of payments 🗸🗸
Increase in production leads to lower domestic prices, which benefit local consumers🗸🗸

DISADVANTAGES

Real cost of production 🗸 subsidies and incentives reduce total cost of production which must be met from sales🗸🗸 real cost is thus concealed by subsidies🗸🗸products cannot compete in open market 🗸🗸
Lack of competition 🗸 businesses charge prices that are so low that they force competitors out of the market 🗸🗸
Increased tariffs and quotas 🗸can be against spirit of provisions of WTO🗸🗸overseas competitors retaliate with tariffs and quotas🗸🗸 goods are sold domestically below their real cost of production (export subsidies and dumping) 🗸🗸
Protection of labour-intensive industries 🗸 developed countries maintain high levels of effective protection for their industries that produce labour-intensive goods in which developing countries already have or can achieve comparative advantage 🗸🗸
Withdrawal of incentives often leads to closure of effected companies. 🗸🗸
Incentives often lead to inefficiencies in the production process, since companies don't have to do their best to compete🗸🗸
Can be seen as dumping 🗸🗸 [Max 26]

BODY: ADDITIONAL PART How successful is South Africa in protecting the local textile industry against foreign competition?

Not successful: 🗸 Many domestic textile manufacturers closed down due to unfair international competition 🗸🗸 Many wholesalers make use of suppliers from abroad 🗸🗸 e.g. Woolworths/Walmart🗸
Dumping still occurs – European manufacturers still dump clothing in Africa out of season at prices below cost 🗸🗸 Job losses due to a lack of protection in this industry 🗸🗸 [Accept any motivation relating to success indicators] [Max 10]

CONCLUSION South Africa's international trade policy facilitates globalisation thereby impacting positively on the balance of payment. 🗸🗸 [Accept any other relevant conclusion] [Max 2]

INTRODUCTION Protectionism refers to a deliberate policy on the part of the government to erect trade barriers, such as tariffs and quotas, in order to protect domestic industries against international competition. 🗸🗸 [Accept any other relevant definition] [Max 2]

BODY-MAIN PART Raising revenue for the government

Import tariffs raise revenue for the government. 🗸🗸
In smaller countries the tax base is often small due to low incomes of individuals and businesses. 🗸🗸
Low incomes do not provide much in the form of income taxes and therefore custom duties on imports is a significant source of income or revenue. 🗸🗸

Protecting the whole industrial base

Maintaining domestic employment. 🗸🗸
Countries with high unemployment are continuously pressured to stimulate employment creation and therefore resort to protectionism in order to stimulate industrialisation. 🗸🗸
It is thought that using protectionism the country’s citizens would purchase more domestic products and raise domestic employment. 🗸🗸
These measures on domestic employment creation at the expense of other countries, led to such measures as “beggar-my-neighbour” policies. 🗸🗸
Applying import policies is likely to reduce other countries ability to buy country’s exports and may provoke retaliation. 🗸🗸

Protecting workers

It is argued that imports from other countries with relatively low wages represent unfair competition and threaten the standard of living of the more highly paid workers of the local industries. 🗸🗸
Local industries would therefore be unable to compete because of higher wages pushing up the price levels of goods. 🗸🗸
Protection is thus necessary to prevent local wage levels from falling or even to prevent local businesses from closing down due to becoming unprofitable. 🗸🗸
Competition from low-wage countries may also reflect the fact that those countries have a comparative advantage in low-skilled labour-intensive industries. 🗸🗸

Diversifying the industrial base

Overtime countries need to develop diversified industries to prevent overspecialisation. 🗸🗸
A country relying too heavily on the export of one or a few products is very vulnerable. 🗸🗸
If a developing country’s employment and income is dependent on only one or two industries, there is the risk that world fluctuations in prices and demand and supply-side problems could results in significant fluctuations in domestic economic activity. 🗸🗸
Import restrictions may be imposed on a range of products in order to ensure that a number of domestic industries develop. 🗸🗸

Develop strategic industries

Some industries such as the iron-ore and steel, agriculture, (basic foodstuffs, such as maize), energy (fuels) and electronics (communication) among others, are regarded as strategic industries. 🗸🗸
Developing countries may feel that they need to develop these industries in order to become self-sufficient . 🗸🗸

Protecting specific industries Dumping

Foreign industries may engage in dumping because government subsidies permit them to sell at very low prices or because they are seeking to raise profits through price discrimination. 🗸🗸
The reason for selling products at lower prices may be to dispose of accumulate stocks Of the goods and as a result consumers in the importing country stand to benefit however,
Their long term objective may be to drive out domestic producers and gain control of the market and consumers
Are likely to lose out in the reduction in choice and higher prices that the exporters will be able to charge. 🗸🗸

Infant industries

Usually newly established and find it difficult to survive due to their average costs being higher than that of their well-established foreign competitors. 🗸🗸
However, if they are given protection in their early years they may be able to grow and Thereby take advantage lower their average costs and become competitive and at this point protection can be removed. 🗸🗸

Declining industries/sunset industries

Structural changes in the demand and supply of a good may severely hit an industry such industries should be permitted to go out of business gradually declining industries
Are likely to be industries that no longer have a comparative advantage and however, if they go out of business quickly there may be a sudden and large increase in unemployment. 🗸🗸
Protection may enable an industry to decline gradually thereby allowing time for resources including labour to move to other industries. 🗸🗸
Protecting domestic standards domestic regulations of food safety human rights and environmental standards have been increasingly acting as trade restrictions. 🗸🗸 [Accept any other relevant fact] [Max 26]

ADDITIONAL PART South Africa promotes exports through subsidies

Direct Subsidies

Strict screening measures should be put in place when companies apply for financial assistance. Government expenditure can provide direct financial support to domestic producers for their exports e.g. 🗸🗸
Cash grants offered to South African exhibitors to exhibit their products at exhibitions overseas. To explore new markets. 🗸🗸
Foreign trade missions to explore new markets imposition of tariffs on imports. 🗸🗸
Funds for the formation of formal export councils. 🗸🗸
Subsidies for training or employing personnel. 🗸🗸
Funds for the export market research. 🗸🗸
Product registration and foreign patent registrations. 🗸🗸
Government can refund companies certain taxes to promote exports.
These types of indirect subsidies are:
General tax rebates (Part of the cost of production can be subtracted from the tax that has been paid) 🗸🗸
Tax concessions on profits earned from exports or on capital invested to produce export goods. 🗸🗸
Refunds on import tariffs in the manufacturing process of exported goods companies often use custom duties are paid on these goods and the government refunds them. 🗸🗸 [Max 10]

CONCLUSION Most countries agree that protectionism is harmful to the economy if not well managed. Protectionism is needed especially where industries are young and need expansion or development. 🗸🗸 [Any other relevant higher order conclusion] [Max 2]

INTRODUCTION Economic growth is responsible for the overall growth of the economy, in order to enhance the well being of the economy as a whole. Whereas economic development would focus on the individual well being of the citizens of a country. [Any other relevant higher order conclusion] [Max 2]

BODY-MAIN PART Growth and Development A demand-side approach includes discretionary changes in monetary and fiscal policies with the aim of changing the level of aggregate demand. 🗸🗸

Monetary policy

Is driven by the South African Reserve Bank (SARB). 🗸🗸
It aims to stabilise prices by managing inflation. 🗸🗸

Fiscal policy

Is driven by the Department of Finance. 🗸🗸
It aims to facilitate government, political and economic objectives. 🗸🗸
A demand-side approach to economic growth and development does not only depend on fiscal and monetary policy. 🗸🗸
It is dependent on all components of aggregate demand, that is, C, I, X and G. 🗸🗸

South African approach

The South African approach uses both monetary and fiscal measures to influence aggregate demand in the economy. 🗸🗸
The South African Reserve Bank (SARB) as the central bank in South Africa formulates the monetary policy. 🗸🗸
They use the following instruments:

Interest rate changes

It is used to influence credit creation by making credit more expensive or cheaper. 🗸🗸
The exchange rate is stabilised by encouraging inflow or outflows. 🗸🗸

Open market transactions

To restrict credit the SARB sells securities. When banks buy these securities money flows from banks to the SARB. 🗸🗸
The banks have less money to lend and cannot extend as much credit as before. 🗸🗸
To encourage credit creation the SARB buys securities. Money flows into the banking system.🗸🗸

Moral suasion

The SARB consults with banks to act in a responsible manner based on the prevailing economic conditions. 🗸🗸

Cash Reserve Requirements

Banks are required to hold a certain minimum cash reserve in the central bank. 🗸🗸
Banks have a limited amount to give out as credit. 🗸🗸
South Africa’s fiscal policy is put into practice through the budgetary process. 🗸🗸
The main purpose of fiscal policy is to stimulate macroeconomic growth and employment, and ensure redistribution of wealth. 🗸🗸
The following instruments are used:

Progressive personal income tax

Higher income earners are taxed at higher tax rates. 🗸🗸
These taxes are used to finance social development. 🗸🗸
The poor benefit more than those with higher incomes. 🗸🗸

Wealth taxes

Properties are levied (taxed) according to their market values. 🗸🗸
Transfer duties are paid when properties are bought. 🗸🗸
Securities (shares and bonds) are taxed when traded. 🗸🗸
Capital gains tax is levied on gains on the sale of capital goods (e.g. properties, shares). 🗸🗸
Estate duties are paid on the estates of the deceased. 🗸🗸
These taxes are used to finance development expenditures which benefit the poor more often. 🗸🗸

Cash benefits

Old age pensions, disability grants, child support and unemployment insurance are cash grants. These are also known as social security payments. 🗸🗸
Benefits in kind (natura benefits) 🗸🗸
These include the provision of healthcare, education, school meals, protection etc. 🗸🗸
When user fees are charged, poor or low income earners pay less or nothing. 🗸🗸
Limited quantities of free electricity and water are provided. 🗸🗸

Other redistribution

Public works programmes, e.g. the Strategic Integrated Projects (SIP) provides employment subsidies and other cash and financial benefits such as training, financing and export incentives.🗸🗸

Land restitution and land redistribution

Land restitution is the return of land to those that have lost it due to discriminatory laws in the past. 🗸🗸
Land redistribution focuses on land for residential (town) and production (farm) for previously disadvantaged groups. 🗸🗸
The money for these programmes is provided in the main budget. 🗸🗸

Subsidies on properties

It helps people to acquire ownership of fixed residential properties. 🗸🗸
E.g. government’s housing subsidy scheme provides funding to all people earning less than R3 500 per month🗸🗸

CONCLUSION The demand-side approach focuses on the expansion of the demand for goods and services produced in the economy. 🗸🗸 OR To ensure economic growth, there should be an adequate and growing demand for goods and services produced in the economy. 🗸🗸

[Any other relevant higher order conclusion] [Max 2]

INTRODUCTION Different growth and development strategies have been implemented in South Africa since 1994, each aimed at addressing particular needs at the time of introduction. 🗸🗸 [Any other relevant introduction] [Max 2]

BODY-MAIN PART The Reconstruction and Development Programme (RDP)

The RDP was an integrated, coherent socio-economic policy framework that was implemented directly after our first democratic elections in 1994. 🗸🗸
It seeked to mobilise all our people and our country’s resources toward the final eradication of apartheid and the building of a democratic, non-racial and non-sexist future. 🗸🗸

The RDP was based on six principles.

an integrated and sustainable programme. 🗸🗸
a people-driven process focusing on the needs of the population. 🗸🗸
peace and security for all, aimed at a non-violent society that respects all human rights. 🗸🗸
nation-building, focusing on the needs of all members of society. 🗸🗸
linking reconstruction and development. 🗸🗸
The RDP consisted of many proposals, strategies and policy programmes.
All of these could, however be grouped into five major policy programmes that were linked to each other.

The five key programmes were:

meeting basic needs. 🗸🗸
developing our human resources. 🗸🗸
building the economy. 🗸🗸
democratising the state and society. 🗸🗸
implementing the RDP. 🗸🗸

The Growth, Employment and Redistribution Programme (GEAR)

The GEAR built upon the strategic vision set out in the RDP, i.e. 🗸🗸
The importance of all the objectives of the RDP was reaffirmed but it recognized the implementation and macroeconomic problems that the government had been experiencing in implementing the RDP. 🗸🗸
The RDP placed much more emphasis on disciplined economic policy. 🗸🗸
While still recognizing that there were very serious needs that had to be addressed. 🗸🗸

The Accelerated and Shared Growth Initiative for South Africa Programme (AsgiSA).

AsgiSA resulted from government’s commitment to halve unemployment and poverty by 2014. 🗸🗸
The Joint Initiative on Priority Skills Acquisition (Jipsa) was established to address the scarce and critical skills needed to meet AsgiSA’s objectives. 🗸🗸

AsgiSA identified six important factors that prevented growth:

the relative volatility of the currency. 🗸🗸
the cost, efficiency and capacity of the national logistics system. 🗸🗸
shortages of suitably skilled labour, and the spatial distortions of apartheid affecting low-skilled labour costs. 🗸🗸
barriers to entry, limits to competition and limited new investment opportunities. 🗸🗸
the regulatory environment and the burden on small and medium enterprises (SME’s). 🗸🗸
AsgiSA was not intended to be a government programme. 🗸🗸
But rather a national initiative supported by all the key groups in the economy. 🗸🗸
Namely business, labour, entrepreneurs and government and semi-government departments and institutions. 🗸🗸

Joint Initiative on Priority Skills Acquisitions (JIPSA)

It is the skills development arm of ASGISA. Focus is on skills development, especially through the SETAS. 🗸🗸

Expanded Public Works Programme (EPWP)

It is a nationwide government intervention to create employment using labour-intensive methods, and to give people skills they can use to find jobs when their work in the EPWP is done. 🗸🗸

The New Growth Path (NGP)

The New Growth Path (NGP) was released in November 2011. 🗸🗸
This plan is designed to serve as a framework for economic policy, and to be the driver of the country’s job strategy. 🗸🗸

The New Growth Path therefore proposes certain strategies to ensure adequate demand:

Deepening the domestic and regional market by growing employment. 🗸🗸
Increasing incomes and undertaking other measures to equity and income distribution. 🗸🗸
Widening the market for South African goods and services through a stronger focus on exports to the region and other rapidly growing economies. 🗸🗸
On a macroeconomic level the NGP entails accommodating or looser monetary policy combined with stricter fiscal policy to limit inflationary pressures and enhance competitiveness. 🗸🗸
Government spending will be prioritised with the objective of long-term sustainable employment opportunities. 🗸🗸

The microeconomic measures to control inflationary pressures include the following:

A competition policy to supervise monopoly pricing on products and services. 🗸🗸
A review of administered prices to ensure that they do not increase above inflation without compelling reasons. 🗸🗸
Interventions in the case of rapidly rising prices of essential products and services such as private🗸🗸
Healthcare and basic food items. 🗸🗸
Active industrial policy. 🗸🗸
Rural development policy. 🗸🗸
Competition policy. 🗸🗸
Stepping up education and skills development. 🗸🗸
Enterprise development: promoting small business and entrepreneurship; eliminating unnecessary red tape. 🗸🗸
Broad-based Black Economic Empowerment (BBBEE). 🗸🗸
Labour practices. 🗸🗸
Technology policy. 🗸🗸
Developmental trade policies. 🗸🗸
Policies for African development. 🗸🗸
The different growth and development strategies that have been implemented in South Africa since 1994. 🗸🗸
Have all contributed to making our country more prosperous and to address problems created by inequalities of the past. 🗸🗸
However, problems such as a low level of education, unemployment and unequal distribution of income persist. 🗸🗸
The current NGP is a comprehensive policy that is focused on addressing all of these problems. [Any other relevant higher order conclusion] [Max 2]

INTRODUCTION South Africa’s overall objective of Industrial Development Policy is to ensure international competitiveness in its nine provinces. OR Regional development is aimed at increasing the economic livelihood of specific areas or regions. OR Regional development attempts to limit the negative effects of economic activities in only a few areas. OR It attempts to promote the advantages of a more even regional development by using labour and other natural resources and infrastructure in neglected areas. [Accept any relevant introduction] [Max 2]

BODY-MAIN PART SPATIAL DEVELOPMENT INITIATIVES

SDI Programme attracts infrastructure and business investments to underdeveloped areas to create employment. 🗸🗸
Department of Trade and Industry is driving force behind industrial and spatial development. 🗸🗸
DTI plans together with central, provincial and local government, IDC, parastatals and research institutions. 🗸🗸
Industrial Development Policy Programme (Spatial Development) has 2 focus points spatial development initiative (SDI) and financial incentives. 🗸🗸
SDI refers to government’s initiative and economic development potential of certain specific spatial locations in SA. 🗸🗸

Key Objectives:

Stimulate economic activity in selected strategic locations. 🗸🗸
Generate economic growth and foster sustainable industrial development. 🗸🗸
Develop projects of infrastructure in certain areas and finance them through lending and private sector investment. 🗸🗸
Establish private-public partnerships (PPP’s). 🗸🗸

In areas with high poverty and unemployment, SDI focuses on:

High level support in areas where socio-economic conditions require concentrated government assistance. 🗸🗸
Where inherent economic potential exists. 🗸🗸
The approach is towards international competitiveness, regional cooperation and a more diversified ownership base. 🗸🗸

Some of the main focus points of the SDI Programme are:

Lubombo Corridor (agro-tourism, education, craft, commercial and agricultural sectors); 🗸🗸
KwaZulu-Natal (Ports of Durban and Richards Bay); 🗸🗸
West Coast SDI (fishing and industrial ports); 🗸🗸
Coast-2-Coast Corridor with agro-tourism. 🗸🗸
It also makes it possible for private sector businesses to take advantage of the economic potential of underdeveloped areas in private-public partnerships (PPP’s) 🗸🗸
In PPP a private business may provide the capital to build the factory and to buy raw materials and employ labour, while the government provides the capital for the infrastructure such as roads and water and electricity. 🗸🗸
The business benefits from profits and the government benefits from taxes, levies and employment opportunities. 🗸🗸

There are TWO types of PPP’s which are compensated differently: Unitary payments:

Private sector builds and runs a project (it performs the function on behalf of the public sector); the payment provides an acceptable return on the total investment (building cost, maintenance, operational expenses). 🗸🗸
Private sector constructs the project and then is given the right to change a toll fee (e.g. public road); 🗸🗸
The toll covers costs of construction, maintenance, operation. 🗸🗸
The above options can be combined: E.g. hospital (cost of building is an annual payment and a user fee is also charged). 🗸🗸
A track of land that forms a passageway allowing access from one area to another and particular advantages to mining, manufacturing and other businesses. 🗸🗸
Domestic Corridor: e.g. Lubombo, West Coast, Fish River. 🗸🗸
Corridors beyond the South African Borders (SADC) e.g. Maputo Development Corridor Mozambique. 🗸🗸
Reasons in support of South Africa’s regional integration in Southern Africa: have political and stable neighbours have important export markets and a future source of water and energy supplies integration may be a precondition for support from foreign investors, donors and multilateral institutions. 🗸🗸
A robust regional transport system and a solid infrastructure base hold the key to attracting investment into the SADC region – improving competitiveness and promoting trade. 🗸🗸

Advantages from Corridor development:

Greater levels of economic efficiency and productivity compact urban form corridor urban form. 🗸🗸
Corridor developments will often occur due to private investment. 🗸🗸
Intergration of land use and transport planning will lead to generally efficient integration. 🗸🗸
Efficient urbanisation leads to efficient use of land and promotion of an efficient transport system. 🗸🗸

INDUSTRIAL DEVELOPMENT ZONES (IDZ’s)

Geographically designed, purpose-built industrial sites providing services tailored for export- orientated industries. 🗸🗸
Physically enclosed and linked to an international port or airport. 🗸🗸
Specifically designed to attract new investment in export-driven industries. 🗸🗸
Falls outside domestic customs zones and able to import items free of customs and trade restrictions, add value and then export their goods. 🗸🗸
Development and management done by private sector. 🗸🗸
Government IDZ policy designed to boost exports and jobs. 🗸🗸
IDZ’s aim to encourage economic growth –attract foreign investment in industrial development – facilitate international competitiveness regarding manufacturing. 🗸🗸 [Max 26]

ADDITIONAL PART FINANCIAL INCENTIVES Small and Medium Enterprise Development Programme (SMEDP) • This incentive has provided a tax-free cash grant for investment in industries in

South Africa. 🗸🗸
E.g. manufacturing, agricultural, processing, aquaculture and tourism. 🗸🗸

Critical Infrastructure Fund Programme (CIF)

A tax-free cash grant incentive for projects has improved critical infrastructure in South Africa. 🗸🗸
E.g. for installation, construction of infrastructure, payment of employees, materials directly consumed during installation. 🗸🗸

Duty Free Incentives (for businesses operating in the IDZ’s)

This has encouraged export-orientated manufacturing to increase their competitiveness 🗸🗸
And helped to promote foreign and local direct investment. 🗸🗸

Foreign Investment Grant (FIG)

This has assisted foreign investors to invest in new manufacturing businesses in SA. 🗸🗸
Benefited in terms of the cost of relocating new machinery and equipment from abroad. 🗸🗸

Strategic Investment Projects (SIP)

This has attracted investment from local and foreign entrepreneurs in manufacturing, computer, research and engineering sectors. 🗸🗸

Skills Support Programme (SIP)

This cash grant for skills development has encouraged greater investment 🗸🗸
In training in general and stimulated the development of new advanced skills. 🗸🗸

Black Businesses Supplier Development Programme (BBSDP)

This 80 % cash grant has provided black-owned enterprises with access to 🗸🗸
Training which has improved management of their enterprises. 🗸🗸

Special Economic Zones (SEZ)

It is an extention to the current financial incetives to further promoted regional development. 🗸🗸
The major incentive is a tax reduction of 15 % for businesses settling in this area. 🗸🗸
This does not mean that existing businesses in the IDZ can relocate to take advantage of this incentive. 🗸🗸
If a current business in the IDZ wants to expand they are allowed. 🗸🗸 [Max 10]

CONCLUSION From the above discussion it is clear that different initiatives form part of South Africa’s Regional Industrial Development Programme. [Max 2]

INTRODUCTION Economic indicators are used to evaluate the economic performance of an economic unit. This unit can be a company, an industry, a country or a region. Macro-economic indicators, measures the economic performance of a country as a whole. 🗸🗸

BODY-MAIN PART Such indicators can provide an indication of:

Changes taking place in a country. 🗸🗸
How a country compares to other countries. 🗸🗸

Inflation Rate

This is the general increase in the price level of goods and services in the economy over a certain period in time. E.g. one year. 🗸🗸
This is therefore an indicator of the health of the economy and it is monitored in two ways that is at the production wholesale level producer price level (PPI) and at the retail or consumer level consumer price index (CPI) 🗸🗸

The Consumer Price Index (CPI)

Shows the price increases of a representative (weighted) basket of goods and services that consumers buy. 🗸🗸
It is abbreviated as CPI this cover all the urban areas. 🗸🗸
It is an overall index and weights are obtained from expenditures of different income categories of households. 🗸🗸
It is the most comprehensive indicator measuring consumer inflation in the country. 🗸🗸
It shows changes in the general purchasing power of the rand and it is used for inflation targeting 🗸🗸
Is compiled by Stats SA and measures the change in the price level of a basket of consumer goods and services. 🗸🗸
The goods and services included in the basket are chosen to represent the goods and services purchased by an average household. 🗸🗸
This basket is adjusted from time to time as consumption patterns change. 🗸🗸
The inflation rate is the percentage change in the CPI from the previous year and can be calculated as follows:
Change in CPI x 100 🗸🗸 CPI

The Production Price Index (PPI)

Used to measure the price of goods that are produced domestically when they leave the factory year. 🗸🗸
The goods that are imported when they enter the country (at a port) and both of these are before consumers become involved. 🗸🗸
PPI consists of three baskets that are domestically manufactured outputs, e.g. changes in the PPI can be made monthly or quarterly or yearly. 🗸🗸
While changes in the imported products and exported commodities are given separately in the same report. 🗸🗸
PPI includes capital and intermediate goods but not services. 🗸🗸
It is based on a completely different type of a basket of items in the CPI. 🗸🗸
It measures the cost of production rather than the cost of living. 🗸🗸
It is used to predict consumer goods inflation (CPI) 🗸🗸
Which is also estimated and published on a monthly basis by Stats SA, is similar to the CPI, 🗸🗸
Except that it also includes the prices of raw materials and intermediary goods 🗸🗸 (i.e. goods that will be finished in the production process), excludes VAT and excludes services. 🗸🗸
Manufactured goods included in the PPI are priced when they leave the factory, not when they are sold to consumers. 🗸🗸
Unlike the CPI, the PPI therefore cannot be related directly to consumers’ living standards. 🗸🗸
The PPI is nevertheless very useful in the analysis of inflation because it measures the cost of production. 🗸🗸
A significant change in the rate of increase in the PPI is usually an indication that the rate of increase in the CPI will also change a few months later. 🗸🗸

The GDP Deflator Is a ratio that indicates the relationship of the GDP at nominal prices to the GDP at real prices. GDP deflator = Normal GDP x 100 🗸🗸 Real GDP

Nominal GDP

Is the value of total gross domestic product measured at current prices. 🗸🗸
While the real GDP is the value of total gross domestic product measured at constant prices.🗸🗸
So, the GDP deflator includes changes in the prices of exports but not of imports. 🗸🗸
In a small open economy, like that of South Africa where both, imports and exports are significant in relation to the total size of the economy. 🗸🗸
The exclusion of import prices is an important shortcoming. 🗸🗸

Unemployment rate

In terms of economic development, employment is a very important indicator. 🗸🗸
Employment is, however, not very easy to measure as so many people are employed in the informal sector which is not recorded. 🗸🗸
The concept of underemployment is also important. 🗸🗸
This is when someone is employed in a position that requires less skill than their ability. 🗸🗸
For example when a qualified accountant works as a delivery person because he or she cannot find employment as an accountant. 🗸🗸
Someone may also be employed on a part-time basis but would prefer to work full time. 🗸🗸
A labour force survey is published quarterly by Stats SA. 🗸🗸
This publication contains information and statistics concerning a variety of issues related to the labour market, including the official unemployment rate. 🗸🗸
It is a comprehensive survey and provides information on changes in employment in different provinces and industries. 🗸🗸
Employment in the informal sector, and even reasons for changes in employment figures. 🗸🗸
The unemployment rate is a percentage of the total labour force. 🗸🗸
The total labour force includes all employed people and unemployed people who are looking for work. 🗸🗸
The unemployment rate is a lagging indicator, which means that it will only change a few periods after the trend in the economy has changed. 🗸🗸
For example if the economy starts growing at a faster pace. 🗸🗸
The unemployment rate will only react to the growth after two or three quarters. 🗸🗸

Interest rates

Interest rates are important indicators of future economic activity, as the interest rate level is usually an important determinant when economic decisions are being taken. 🗸🗸
Both the general interest rate level and the structure of interest rates are important indicators.🗸🗸
There are many interest rates in the economy. 🗸🗸
Some are short term rates, such as the repo rate, which is the interest rates at which South Africa banks borrow from the Reserve Bank to finance their liquidity deficit. 🗸🗸
The difference between the short term interest rates and long term interest rates: 🗸🗸
Is called the interest rate spread and the term structure of interest rates provides an indication of the interest rates levels on loans or investments of different maturities. 🗸🗸
Usually we can expect the interest rates level in a developing country to be higher than the interest rate in a developed economy. 🗸🗸
This is due to the higher risk attached to the developing economy. 🗸🗸
Factors such as political and economic uncertainty cause this higher risk. 🗸🗸
Developing economies also need to attract foreign investment to their country to finance growth. 🗸🗸
Investors’ funds will move towards the highest yield and thereof. 🗸🗸
Developing countries cannot allow interest rates in their countries to become too low. 🗸🗸

Money Supply

The increase in the M3 money supply is an important economic indicator. 🗸🗸
If M, the money supply increases, this means that either (P) prices or Y (output) has to respond to the increase in M. 🗸🗸
Therefore, an increase in the money supply is an important indicator showing that output will increase. 🗸🗸
Whether this will translate to an increase in real production or the price level will depend on factors like production within the economy. 🗸🗸
In addition to economic growth the employment of people of working age (15 -64 years) is a majot economic objective. 🗸🗸
We need to know more than this; we need to know who the people are that need to be employed. 🗸🗸
The numbers are determined, not only by age, but also by people’s willingness to work. 🗸🗸

The Economically Active Population (EAP)

The EAP is also known as the labour force. 🗸🗸
It consists of people between the age of 15 and 64 who are willing to work for income in cash or in kind and includes: 🗸🗸
Workers in the formal sector- workers in the informal sector. 🗸🗸
Employers any one 🗸🗸
Self employed persons. 🗸🗸

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THE DYNAMICS OF IMPERFECT MARKETS QUESTIONS AND ANSWERS GRADE 12

Unemployed Persons

The 2021 estimate of the South African population was million people. 🗸🗸
The EAP numbered million ( % of the population). 🗸🗸

The Employment Rate

The number of employed persons expressed as a percentage of the EAP gives the employment rate. 🗸🗸
The employment rate can also be converted into an index. 🗸🗸
The SA employment rate was % in 2011. 🗸🗸
This is low, compared to rates in developed and even some developing countries such as Argentina and Pakistan. 🗸🗸
In SA the growth in the economy is not accompanied by the similar growth in employment numbers. 🗸🗸

Employment indicators are used for:

To calculate trends in employment in different sectors or industries. 🗸🗸
This indicates structural changes in the economy. 🗸🗸
To calculate productivity. 🗸🗸
To show the success of the economy in utilizing its full potential. 🗸🗸

Unemployment Rate

Statistics SA (SSA) obtains its labour data each year from Quarterly Labour Surveys (QLFS). 🗸🗸
It uses the standard definition of the International Labour Office (ILO) to calculate unemployment. 🗸🗸
The strict definition of unemployment is used to calculate the unemployment rate. 🗸🗸
Did not work during the seven days prior to the interview. 🗸🗸
Want to work and are available to start work within a week of the week of the interview. 🗸🗸
Have taken active steps to look for work or to start some form of self-employment in four week prior to the interview. 🗸🗸
In SA the official unemployment rate was % in 2021. 🗸🗸
In developed countries, change in the unemployment rate trigger responses. 🗸🗸
From governments to fine-tune the economy. 🗸🗸
Increases require more funds for unemployment insurance (UIF) drawings. 🗸🗸
In developing countries, unemployment is the most important cause of poverty. 🗸🗸 [Accept current statistical data] [Max 16]
To give a policy direction in the country. 🗸🗸
To develop mechanism to caution the most affected sectors of the economy promptly
e.g.during the 2019-2020 recession/pandemic some companies required a bail out from the government. 🗸🗸
Develop some economic stabilisers to defuse the huge impact that may result from the unexpected economic downturn. 🗸🗸
Open some other alternative markets for their goods and services. 🗸🗸
To do research and advice the business community before the actual moment hits. 🗸🗸
It can be used to stimulate thinking and growth in a number of sectors in the Economy. 🗸🗸 [Accept any relevant consideration] [Max 10]

CONCLUSION Countries cannot survive and grow their economies if they do not pay attention to economic indicators for their planning processes. [Accept any relevant consideration] [Max 2]

INTRODUCTION Social indicators also called human development indicators as they promote improvement in the standard of living. 🗸🗸 [Any other relevant definition] [Max 2]

BODY-MAIN PART Demographics

This is the description of the physical population and its composition.
To get this a census is done regularly to obtain this information. 🗸🗸

Human development Index (HDI)

This is a measure of people’s ability to live long and healthy lives, to communicate, 🗸🗸
To participate in the community and to have sufficient income to experience a decent lifestyle. 🗸🗸

Human poverty index (HPI)

It measures life expectancy is measured by the percentage of newborns not expected to survive to age 40. 🗸🗸
Lack of education is measured by the percentage of adults who are ill- educated. 🗸🗸

Health and nutrition

Life expectancy birth. 🗸🗸
Infant mortality rate. 🗸🗸

Nutrition indicators

Daily calorie intake per person. 🗸🗸
The number of children who go hungry. 🗸🗸
These measures are important to government as they are supplying healthcare and sometime have to include legislation such as adding vitamin A to basic foodstuffs such as bread. 🗸🗸
The standard of living of people is directly connected to their education. 🗸🗸
Educated people are employable and can earn an income and provide for their own wants and needs. 🗸🗸

Two important measures are:

Secondary enrolment percemtage-how many children that start Grade 1 get to Grade 8 and finish Grade 12. 🗸🗸
Adult literacy- People over the age of 15 that can read and write. 🗸🗸
A large percentage of the annual budget is allocated to education. 🗸🗸
Because of our constitution certain basic services must be supplied by the government. 🗸🗸
These services have a direct effect on people’s living standards. 🗸🗸
Electricity 🗸🗸
Refuse disposal🗸🗸
Water supply🗸🗸
Sanitation🗸🗸

Housing and urbanisation

Urbanisation the process by which an increasing proportion of a country’s population is concentrated in its urban areas as a result of natural increase and migration from rural areas. 🗸🗸
This measures is important as more people come to live in urban areas the greater the demand for housing, services, education, health care etc. 🗸🗸
Housing the percentage of the population living in a permanent dwelling or house. 🗸🗸
The government issue housing subsidies to help poor people to own a house South African citizens or permanent residents earning R3 500 or less a month could apply for this subsidy. 🗸🗸

International comparisons

Figures collected by the World Bank, International Monetary Fund (IMF) and United Nations provide the best data for comparison purpose. 🗸🗸

Other measures used:

Purchasing power parity (PPP) The number of units of one country’s currency that give the holder the same purchasing power as one unit of another country’s currency. 🗸🗸
The Big Mac Index, The index is based on the price of the Big Mac around the world as compared to its price in the United States. 🗸🗸 [Max 40]

CONCLUSION From the above discussion it is clear that social indicators play a significant role in South Africa. It is, therefore, of the utmost importance that we should study their uses in depth. [Max 2]

MICROECONOMICS-PAPER 2

INTRODUCTION A perfect market is a market structure which has a large number of buyers and sellers. OR The market price is determined by the industry (demand and supply curves). OR This means that individual businesses are price takers, i.e. they are not able to influence prices. OR Perfect competition is an imaginary situation, whereas monopolistic competition is a reality. 🗸🗸 [Accept any other relevant introduction] [Max 2]

BODY-MAIN PART

The indicating of the equilibrium positions on the perfect market structure is of utmost importance because from this point where MC = MR
The dotted lines will be drawn to show economic profit or economics loss.
Where the dotted lines intersect the AC and AR curves either normal profit or economic profit or economic loss will be indicated and shadowed.

Mark allocation for graph:

Position / shape of MC curve = 1 mark
MR curve = 1 mark
Position / shape of AC curve = 2 marks
Equilibrium point = 1 mark
Indication of price / quantity = 1 mark
Shading of economic loss = 2 marks MAX MARKS = (8)

Allocate marks on the graph according to the rubric provided and if facts are duplicated again in writing, do not allocate marks. Max of 8 marks.

Equilibrium is at E 1 i.e. where MC = MR
At this point Q 1 goods are produced at a price of P 1
The averages cost for Q 1 units is point R on the AC curve
Price / AR is greater than AC ( TR > TC)
Therefore economic profit is represented by the area P 1 SRE 1
Equilibrium is at E 1 i.e. where MC = MR
At equilibrium (point E 1 ) average cost is equal to price
The AC curve is tangent to the demand curve which means that P/AR = AC (TR = TC)
The business makes normal profit which is the minimum earnings required to prevent the entrepreneur from leaving the industry.
Equilibrium is at E1, i.e. where MC = MR
At this point Q1 goods are produced at a price of P1
At equilibrium (point E1) price/AR is less than average cost/the AC curve is lies above the demand curve which means that P/AR < AC (TR < TC)
The business makes an economic loss A maximum of 24 marks will be allocated for graph illustration and analysis: 8 marks max per graph illustration - (Max 26 marks)

ADDITIONAL PART CONDITIONS For a market to successfully operate under perfect competition, the following conditions should prevail at the same time:

No firm can influence the market price (price takers) due to a large number of buyers and sellers
Products are identical (homogeneous)
There are no barriers of entry, meaning that there is freedom of entry and exit
Buyers and sellers act independently - no collusion between sellers
No government interference to influence the market – the market is unregulated
Free movement between markets - all factors of production are completely mobile
Both buyers and sellers have full knowledge of all the prevailing market conditions (perfect information)
If any of the above conditions are not met, the market is regarded as an imperfect market Any 5 x 2 = [Max 10 marks]

CONCLUSION Freedom of entry and exit into the perfect market alter the supply of goods on the market. This will result in changes in price which influences the profit or loss of a business. If price falls to a level where it is equal to the AVC then the firm will shut-down. [Max 2] Discuss the monopoly in detail (with/without the aid of graphs) (Imperfect Market)

INTRODUCTION A firm is regarded as a monopolist when it owns or controls the total supply of a scarce factor of production. Monopoly is a market structure where only one seller operates. 🗸🗸

BODY: MAIN PART The characteristics of a monopoly

Number of firms

The monopoly consists out of one single firm. 🗸🗸
The monopoly is also the industry. 🗸🗸
Example: Eskom or De Beers – diamond-selling 🗸🗸 [Accept any other relevant example]

Nature of product

The product is unique with no close substitute. 🗸🗸
Example: Diamonds are unique. 🗸🗸

Market entry

Refers to how easy or difficult it is for businesses to enter or to leave the market 🗸🗸
Is entirely/completely blocked. 🗸🗸
Economies of scale 🗸🗸
Limited size of the market 🗸🗸
Exclusive ownership of raw materials 🗸🗸
Licensing 🗸🗸
Sole rights 🗸🗸
Import restrictions 🗸🗸

They decide on their production level

The monopolist cannot set the level of output and the price independently of each other. 🗸🗸
If a monopolist wants to charge a higher price, it has to sell fewer units of goods. 🗸🗸 Alternatively, a reduction in price will result in a higher output sold. 🗸🗸
A monopolist is confronted with a normal market demand curve 🗸🗸
The demand curve slopes downwards from left to right 🗸🗸
Any point on the monopolist’s demand curve (D) is an indication of the quantity of the product that can be sold and the price at which it will trade. 🗸🗸

They are exposed to market forces

Consumers have limited budgets and a monopoly can therefore not demand excessive prices for its product. 🗸🗸
The monopolist’s product has to compete for the consumer’s favour and money with all other products available in the economy. 🗸🗸

They face substitutes

There are few products that have no close substitutes. 🗸🗸
For example, cell phones can compete with telephone services. 🗸🗸

They may enjoy favourable circumstances

Sometimes an entrepreneur may enjoy favourable circumstances in a certain geographical area. 🗸🗸
For example, there may be only one supplier of milk in a particular town. 🗸🗸

They may exploit consumers

Because a monopolist is the only supplier of a product, there is always the possibility of consumer exploitation. 🗸🗸
However, most governments continually take steps to guard against such practices. 🗸🗸

Market Information

All information on market conditions is available to both buyers and sellers. 🗸🗸
This means that there are no uncertainties. 🗸🗸

Control over price

In the case of a monopoly there are considerable price control, but limited by market demand and the goal of profit maximisation. 🗸🗸

Long-run economic profit Can be positive

Because new entries are blocked and short-run economic profit therefore cannot be reduced by new competing firms entering the industry 🗸🗸
The monopoly can thus continue to earn economic profit as long as the demand for its product remains intact 🗸🗸

Heading = 1 mark AC = 1 mark DD/AR = 1 mark MC = 1 mark Profit maximisation point =1 mark Labelling of the axis = 1 mark Labelling on the axis = 1 mark

Long run equilibrium of a perfect competitor

CONCLUSION A monopoly does not always make economic profit in the short run; it can also make economic loss in the short run if the total cost exceeds total revenue. 🗸🗸

INTRODUCTION

The oligopoly is a type of imperfect market in which only a few large producers dominate the market. 🗸🗸 [Accept any other relevant and correct response]

MAIN PART Nature of product

The product may be homogeneous in a pure oligopoly. 🗸🗸
If the product is differentiated, it is known as a differentiated oligopoly. 🗸🗸

Market information

There is incomplete information on the product and the prices. 🗸🗸
Market entry is not easy, it is limited in the sense that huge capital outlay might be necessary. 🗸🗸
Oligopolists have considerable control over price, it can influence price, but not as much as the monopolist. 🗸🗸
Oligopolies can frequently change their prices in order to increase their market share and this result in price wars. 🗸🗸

Mutual dependence

The decision of one firm will influence and be influenced by the decisions of the other competitors. 🗸🗸
Mutual dependence (interdependence) exists amongst these businesses.
A change in the price or change in the market share by one firm is reflected in the sales of the others. 🗸🗸

Non-price competition

Non - price competition can be through advertising, packaging, after-sales services. 🗸🗸
Since price competition can result in destructive price wars, oligopolies prefer to compete on a different basis. 🗸🗸
Participants observe one another carefully- when one oligopolist launches an advertising campaign, its competitors soon follow suite. 🗸🗸
If oligopolies operate as a cartel, firms have an absolute cost advantage over the rest of the other competitors in the industry. 🗸🗸
Collusion is a strategy used by firms to eliminate competition amongst each other. 🗸🗸
It can be in a form of overt collusion where firms can work together to form a cartel and tacit collusion where a dominating business controls the price. 🗸🗸

Limited competition

There are only a few suppliers manufacturing the same product. 🗸🗸

Economic profit

Oligopolies can make an economic profit over the long term. 🗸🗸
Abnormal profits may result to joint decision-making in an oligopoly. 🗸🗸

Demand curve

Slope from left down to the right. 🗸🗸
It is known as the kinked demand since it contains the upper relatively elastic slope and the lower relatively inelastic slope. 🗸🗸 [Accept any other relevant and correct response] [Max. 26]

ADDITIONAL PART Oligopolist may increase their market share using non-price competition strategies by:

branding their product to create an impression that its product is for a particular age group or income group. 🗸🗸
aggressive advertising which inform customers about the business or product it provides.🗸🗸
Using appealing packaging to bring out important features of their product.
improving their customer service in order to ensure that they return to their businesses.🗸🗸
providing relevant and precise information, which is crucial to the customers, since there are competitors in the market, customers will patronize the businesses that provides relevant information. 🗸🗸
extending shopping hours to the convenience of customers.
Offering loyalty rewards to customers which will encourage their return to spend accumulated rewards. 🗸🗸 [Accept any other relevant response] [Max.10]
In South Africa, oligopolists have been found to be illegally manipulating prices to their benefit, yet to the detriment of consumers and have been penalized for such action. 🗸🗸 [Accept any other relevant response]

Compare and contrast any TWO types of market structures (perfect to imperfect/imperfect to imperfect) in detail in terms of the following. - Number of businesses - Nature of product - Entrance - Control over prices - Information - Examples - Demand curve - Economic profit/loss - Decision-making - Collusion - Productive/Technical efficiency - Allocative efficiency (Perfect Market and Imperfect Market)

‘’Market structures are classified under Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly’’ Compare all FOUR market structures in a tabular form. NB: Learners should write in full sentences even if the comparison is done in a tabular format). (Marks depend on the combination of market structures to be examined)


Number of firms	So many that no firm can influence the market price	So many that each firm thinks others will not detect its actions	So few that each firm must consider the others’ actions and reactions	One seller and there is no competition. The seller is the price maker.
Nature of product	Homogeneous/i dentical in terms of the physical appearance	Heterogeneous /differentiated	Homogeneous or heterogeneous	Only one product with no close substitutes
Entry	Completely free/easy to enter. There are no barriers to enter	Free. There are no barriers to enter	Varies from free to restricted	Completely blocked by legal restrictions and cost advantages e.g. natural and artificial monopolies
Information	Complete	Incomplete	Incomplete	Complete/ Incomplete
Collusion	Impossible	Impossible	Possible	Unnecessary
Firm’s control over the price of the product	None. Prices are determined by demand and supply	Some	Considerable, but less that in monopoly	Considerable, but limited by goal of profit maximisation
Demand curve for the firm’s product	Horizontal (perfectly elastic)	Downward- sloping	Downward- sloping, may be kinked	Equals market demand curve: downward-sloping
Long run economic profit	Zero/normal profit	Zero/normal profit	Can be positive/econom ic profit	Can be positive/economi c profit

PLEASE NOTE: THE ABOVE TABLE SHOULD BE VERBALLY WRITTEN AS PER ESSAY INSTRUCTION

INTRODUCTION Market failure is when the forces of supply and demand fail to allocate resources efficiently / when markets fail to allocate goods and services efficiently. 🗸🗸 [Accept any other correct introduction] [Max 2]

BODY: MAIN PART

1. Missing Markets

Markets are often incomplete in the sense that they cannot meet the demand for certain goods. 🗸🗸
Public goods:
They are not provided by the price mechanism because producers cannot withhold the goods from non-payment and there is often no way of measuring how much a person consumes. 🗸🗸

Public goods have the following features: Non-rivalry:

The consumption by one person does not reduce the consumption of another person e.g. a lighthouse. 🗸🗸

Non-excludability:

Consumption cannot be confined to those who have paid, so there are free riders e.g. radio and TV in South Africa. 🗸🗸

Merit goods

These are goods/services that are deemed necessary or beneficial to the society, e.g. education, health care etc. 🗸🗸
These goods are highly desirable for general welfare but not highly rated by the market, therefore provide inadequate output/supply. 🗸🗸
If people had to pay market prices for them relatively too little would be consumed – the market will fail. 🗸🗸
The reason for undersupply of merit goods is that the market only takes the private costs and benefits into account and not the social costs and benefits. 🗸🗸

Demerit goods

These are goods/services that are regarded as bad or harmful for consumption hence we should use less of these e.g. alcohol, cigarettes, etc. 🗸🗸
Demerit goods lead to a lot of social costs, therefore, the government charges sin tax / excise duties to discourage the consumption of such goods. 🗸🗸
While the market is willing to supply demerit goods, it tends to oversupply demerit goods. 🗸🗸
Some consumers may be unaware of the true cost of consuming them. 🗸🗸

2 Lack of information

Technical and allocative efficiency require that both producers and consumers have complete and accurate information about the costs and benefits of the goods and services produced and consumed in the market. Producers and consumers make production and consumption decisions based on the information they have. 🗸🗸
When information is incomplete or inaccurate, it leads to wrong decisions about what to produce, how to produce and for whom to produce, and a waste of resources occurs. 🗸🗸
Producers might not know all the different technologies and production techniques that are available and the different resources that can best be used to produce goods/services more efficiently. 🗸🗸
Consumers might not know that the price of a product is lower from some other suppliers or about the harmful effects of a product since they might just base their decisions to consume on the information from a misleading suppliers. 🗸🗸

3. Immobility of factors of production

Markets do not respond to changes in consumer demand if resources cannot be easily reallocated or due to a lack of information🗸🗸
Labour takes time to move to into new occupations and geographically to meet the changes in consumer demand. 🗸🗸
Physical capital e.g. equipment, buildings, land and raw materials can only move from one place to another at a high cost, but cannot be moved to fit a change in demand. 🗸🗸
Technological applications change production methods e.g. use of robots rather than physical labour. It takes time for most industries to adapt. 🗸🗸
With greater technological change there is an increasing need for workers to become flexible, to update skills, change employment, occupations and work patterns. 🗸🗸 [Max 26]
Motivate why government has implemented a national minimum wage in the labour market. 🗸🗸
Pressure was put on the South African government to introduce labour laws which require employers to pay minimum wages. 🗸🗸
The application of minimum wage laws is needed to improve a redistribution of income. 🗸🗸

The main objectives were:

To redress inequality (Gap between wealthy and poor) 🗸🗸
To improve the standard of living. 🗸🗸
Government tried to protect domestic workers and farm workers — thus preventing exploitation. 🗸🗸 [Max 10] [Accept any other correct relevant response]

CONCLUSION Governments intervene in the market when market forces cannot achieve the desired output. [Max 2] [Accept any other relevant conclusion]

INTRODUCTION The purpose of government intervention is to ensure that the right quantity of resources is allocated to the production of output so that society as a whole [Accept any other relevant introduction] [Max 2] maximizes its benefits. 🗸🗸

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 🗸🗸
The price set by the government is P1, at this price the demand will increase to Q1 and the supply will decrease to Q2 🗸🗸
The difference between Q1 and Q2 is the shortfall that will be created on the market 🗸🗸
The shortage caused by the price ceiling creates a problem of how to allocate the good since the demand has increased 🗸🗸
Black markets start to develop [Mark allocation: Graph 6 and discussion max. 10 marks]
The appropriate way to intervene in the market by government is by levying taxes as a method to recover external cost 🗸🗸
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 🗸🗸
New equilibrium at E1 🗸🗸
A tax would raise the price from P to P1 🗸🗸
The production will decrease from Q to Q1 🗸🗸 [Mark allocation: Graph total 6 marks and discussion max 10 marks]
Explain the supply of undesirable goods in South Africa and how the government can deal with it. 🗸🗸
Items such as cigarettes, alcohol and non-prescription drugs are examples of demerit or undesirable goods. 🗸🗸
These goods are often over supplied in the market, due to the fact that the external cost is not added to the market price. 🗸🗸
Some consumers may be unaware of the true cost of consuming them, their negative externalities. 🗸🗸
Government can ban their consumption or reduce it by means of taxation. 🗸🗸
Taxation on these products will increase the market price and hopefully the demand for these products will drop. 🗸🗸 [10 marks] [Accept any other correct relevant response]

CONCLUSION The intervention of government ensures that inefficiencies is eliminated and that the market is operating effectively 🗸🗸 [Accept any other relevant conclusion] [Max 2]

CONTEMPORARY ECONOMIC ISSUES-PAPER 2

This is a constant and significant increase in the general price level of goods and services in the country over a certain period of time, e.g. a year. 🗸🗸 [Max 2] [Accept any relevant introduction]

BODY-MAIN PART Creditors and Debtors

Whereas borrowers (debtors) benefit from price increases, lenders (creditors) suffer due to price increases. 🗸🗸
This is because borrowers receive money with a relatively high purchasing power and they repay their loans with money with low purchasing power, unless interest rates are sufficient to prevent this occurrence. 🗸🗸

Salary and Wage Earners

Price increases affect people whose incomes are relatively fixed (in other words, people whose incomes remains constant or do not increase at the same rate as prices do. 🗸🗸
This group includes retired people, pensioners and the poor. 🗸🗸
As prices increase, their almost fixed incomes purchase less and less. 🗸🗸
However there are individuals and entrepreneurs whose incomes often increase at a rate that is higher than the inflation rate and they do not suffer but gain from inflation. 🗸🗸
Globalization results in increased employment opportunities in the economy due to increased productivity, the need to produce more goods both for local and international markets rises in globalised economies. 🗸🗸
The demand for increased skilled labour becomes a need as a result, this demand for labour benefits the local labour market in increased employment opportunities and growth. 🗸🗸

Investors and Savers

Different types of investments are affected by inflation: Assets with fixed nominal values. 🗸🗸
These assets have a fixed nominal value and give a return if they are held until maturity. 🗸🗸
When they are paid, because their nominal values remain constant, the purchasing power of the nominal values decreases as prices increase (that is, their real value decreases). 🗸🗸

Assets with Flexible Market Values

The holders of shares and fixed property usually gain by price increases because the nominal values of these assets tend to increase at least proportionately to the rate of inflation (that is, their market values are flexible). 🗸🗸
Often the prices of these assets increase more rapidly than increases in the general price level.🗸🗸
In this case, inflation creates wealth to the advantage of those holding such assets. 🗸🗸
South Africa has a progressive personal income tax system. 🗸🗸
This means that marginal and average tax rates increase in harmony with the income level. 🗸🗸
The higher level an individual’s income, the greater the percentage of income he or she has to pay tax. 🗸🗸
With inflation, taxpayers’ nominal income (wages and salaries) rise even when their real income remain unchanged. 🗸🗸

Taxes are levied on nominal income and not on real income.

Therefore if the income tax schedule remains unchanged inflation increases the average rate of personal income tax. 🗸🗸
Individuals will have to pay higher taxes even if they are actually no better off than before. 🗸🗸
This phenomenon known as bracket creep, lads to a redistribution of income from taxpayers to the government. 🗸🗸
Bracket deep results from a combination of inflation and progressive income tax. 🗸🗸
It has the same effect as an increase in the tax rate. 🗸🗸

Industrial Peace

Wage bargaining is often accompanied by strikes and mass action. 🗸🗸
These actions can sometimes spill over into violence, which affects society at large. 🗸🗸
In extreme situations in the presence of exceptionally high inflation together with a government that is determined not to yield to wage increase demands (which can push inflation to even higher levels), widespread civil unrest follows. 🗸🗸

Inflation has a negative effect on economic growth

Inflation leads to increased uncertainty in the economy. 🗸🗸
This uncertainty discourages savings and investments especially in the long term. 🗸🗸
Which are necessary for economic growth –result reduced economic growth. 🗸🗸

Inflation affects the real money value and savings

Because inflation reduces the real value of money, it affects the real value of money saved in particular. 🗸🗸
This means that inflation, the rand buys fewer goods and services than before. 🗸🗸
It also means that the real money value saved is worth less at the end of the savings period than when the money was saved. 🗸🗸
e.g. if a consumer receives 5 % interest on his/her savings account while the inflation rate is 8%, then the real rate of interest on the consumer’s savings is -3%.🗸🗸

Inflation has an adverse effect on a country’s balance of payments (BOP).

If a country’s rate of inflation is higher than that of its trading partners the prices of exported goods increase while the prices of imported goods decrease. 🗸🗸
This leads to loss of competitiveness in the export market, which in turn leads to decreased exports. 🗸🗸

This has a negative effect on the country’s balance of payments (BOP).

The loss of export competiveness can also increase unemployment inflation affects the redistribution of income in a country. 🗸🗸

The effects of inflation are uneven.

While it does not clearly benefit anyone and certainly harms most, it also harms some less than others. 🗸🗸
Inflation also tends to redistribute income from low-income groups to higher income groups. 🗸🗸
This is because people in the low income groups do not have assets than can rise in value faster than the rate of inflation to help them overcome the effects of inflation. 🗸🗸
Powerful groups such as trade unions large companies and the wealthy people, are able to increase their share of national income at the expense of disadvantaged people such as pensioners the unemployed and the welfare recipients. 🗸🗸

Inflation has social and political costs

When inflation continually causes rising prices it makes people unhappy and can disturb relations between employers and the employees and between customers and traders or service providers. 🗸🗸
People in lower-income brackets feel severe effects of increases in the price of essential items such as bread, maize meal rental and transport costs. 🗸🗸
This can lead to social unrest and political unrest. 🗸🗸

Inflation feeds on itself and causes further inflation

This is called the inflation spiral. 🗸🗸 e.g. higher wage demands cause producers to increase their prices to maintain their profits.
This happens again and again pushing prices further every time. 🗸🗸
If the government does not keep this wage price spiral in check, inflation may get out of control and become hyperinflation. 🗸🗸 [Max 26]

ADDITIONAL PART Debate the merits (benefits) of administered prices by the government

These are prices regulated by the government e.g. home owner’s costs on water/household fuel (paraffin and electricity) medical care (public hospitals) communication (telephone calls, telephone rentals and installations/postage cell communications /transport (petrol). 🗸🗸
Most of the administered prices are adjusted once a year which brings price stability. 🗸🗸
Regulated prices are restricted as to the extent to which prices may vary, depending on the government’s objectives. 🗸🗸
Administered prices provide additional revenue to national treasury. 🗸🗸
It appears that some of these prices remain extremely robust over the short term. 🗸🗸 [Accept any other relevant response] [Max 10]
If inflation is not controlled by the proper and effective instruments, it can have challenging problems to the economy in general. 🗸🗸

INTRODUCTION COST PUSH Inflation is a sustained and significant increase in general price level over a period of time and a simultaneous decrease in the purchasing power of money. Accept any other relevant introduction. 🗸🗸 [Max 2]

BODY: MAIN PART Causes of cost-push inflation

Increase in Wages:

In South Africa, increase in wages constitute more than 50% of Gross Value Added at basic prices 🗸🗸
If the increase in wages is not accompanied by an increase in production, the cost of production will rise 🗸🗸
Producers will increase the prices of their products to offset the high cost of production strikes and stay-aways / labour union activities 🗸🗸

Key inputs/ increase in prices of imported capital goods

When the prices of key inputs that are imported increase, domestic cost of production 🗸🗸
increases especially in the manufacturing sector 🗸🗸
Supply shocks e.g. sudden increase of oil causes a knock-off effect 🗸🗸

Exchange rate depreciation

A decrease in the value of the rand will result in an increase in prices of imports 🗸🗸

Profit margins

When firms increase profit margins, the prices that consumers pay also increase 🗸🗸
Sometimes firms use their market power to push up prices 🗸🗸

Productivity

Less productive factors of production will lead to increased cost per unit 🗸🗸
Strikes and stay-aways often reduce production output and can result in price increases 🗸🗸

Natural disasters

Natural disasters such as drought, flood and global warming can impact on the cost of production 🗸🗸
This is often the case in relation to food prices 🗸🗸
An increase in interest rates results businesses paying more money for capital loaned firms recover these costs by increasing the prices of their products 🗸🗸

Increase in taxation

Increase in direct tax like company income tax may lead to businesses increasing their prices to offset the extra burden 🗸🗸
Increase in indirect tax such as custom duty will lead to increase in costs of supplying a particular product, therefore the price will increase 🗸🗸
Administered prices increase e.g. fuel prices
Shoplifting and losses caused by employees are added to the prices of products 🗸🗸 [Accept any other relevant fact. Maximum 8 marks for headings] [Max. 26]

DEMAND PULL INFLATION Total spending on domestic goods and services in the economy consists of the spending by households, firms, the government and the foreign sector.

Total spending = C + I + G + (X-M). 🗸🗸

Causes of demand inflation Increase in consumption [C] – consumers expenditure will increase mainly for three reasons:

a. If consumers save less & spend more🗸🗸
b. Decrease in personal income tax. 🗸🗸
c. A greater availability of consumer credit, because of decrease in interest rate. 🗸🗸

Investment [I] –When business invest this increase demand for labour, cement, sand and bricks. 🗸🗸

Supply cannot keep up with the increase in demand and this will increase prices. 🗸🗸
Lower interest rates may result in an improvement in the sentiment and profit expectations of businesses. 🗸🗸
Businesses invest more and this may lead to an increase in the demand of goods and services that are part of the investment (for example, a new building requires cement bricks and labour).🗸🗸
If aggregate demand increases at a faster rate than aggregate supply, price increases will follow.🗸🗸

Government Spending [G] – Three main reasons.

a. New capital projects🗸🗸
b. Consumption expenditure on education, health, and protection. 🗸🗸
c. Social expenditure on public work programme to create jobs and increase in social allowances. 🗸🗸

Export earnings [X]

a. When economy of trading country improve. 🗸🗸
b. When global economy expands. 🗸🗸

Access to credit

There is greater availability of consumer credit (by means of credit cards) of the availability of cheaper credit as a result of decreases in lending rates. As new credit is extended the credit multiplier kicks in and more credit is created. 🗸🗸

Consumption spending

Most governments will at times increase expenditures on education, health, protection and safety (for example, military equipment such as bomber jets and submarines). 🗸🗸

Social spending

Governments sometimes feel they have to do something substantive about unemployment and poverty. 🗸🗸
They borrow money and spend it on public works programmes or raise the level of social grants year after year at a higher rate than the inflation rate. 🗸🗸
Such expenditures invariably lead to inflation because they add to aggregate demand without adding anything to aggregate supply. 🗸🗸

Commodities demand

The world’s demand for commodities expands and contracts like business cycles do. During an expansionary period, foreign demand increases and this leads to greater volumes of exports. The income earned from these exports adds to aggregate demand and prices increase. 🗸🗸

BODY: ADDITIONAL PART YES / NO

Inflation targeting is when a particular percentage is set as an acceptable level for an increase in general price levels 🗸🗸
The SARB's inflation target is a range of 3% and 6% 🗸🗸
The aim of inflation targeting policy is to achieve and maintain price stability 🗸🗸
The implementation of the inflation target is easy to understand – expressed in numbers which makes it very clear and transparent 🗸🗸
It reduces uncertainty and promotes sound planning in the public and private sectors 🗸🗸
It provides an explicit yardstick that serves to discipline monetary policy and improves the accountability of the central banks 🗸🗸
The SARB make use of monetary policy, specifically the repo rate to keep the inflation within the target range 🗸🗸
The government make use of fiscal policy regarding public sector revenue and expenditure 🗸🗸

Positive effects

Where demand is higher than supply an increase in interest rates help to bring the demand down 🗸🗸
The policy can helps businesses to make economic plans without worrying about the effects of high inflation 🗸🗸
South Africa's price level has been fairly stable since the introduction of the inflation targeting policy in 2000 🗸🗸

Negative effects

Inflation targeting can cause a reduction in economic growth 🗸🗸
This is because the raising of interest rates, result in a decrease in total spending which is needed for production to increase 🗸🗸
Decreased economic growth can increase unemployment 🗸🗸
South Africa has been experiencing an increase in unemployment since the implementation of the policy in 2000 🗸🗸
Inflation targeting is difficult to implement when the cause of inflation is supply shocks 🗸🗸 [Max. 10]
A summary of what has been discussed without repeating facts already mentioned in the body. 🗸🗸
An opinion or valued judgement on the facts discussed. 🗸🗸
Additional support information to strengthen the discussion. 🗸🗸
A contradictory viewpoint with motivation. 🗸🗸
Recommendations. 🗸🗸
E.g. Inflation can be a threat to the normal functioning of the economy; therefore, measures like monetary and fiscal are vital to keep the phenomenon under control. 🗸🗸
This is the activities of people travelling to and staying in places outside their usual environment for a period not longer than one consecutive year for leisure, business and other purposes and not related to a remunerative activity from within the place visited 🗸🗸 [Max 2]

BODY - MAIN PART Gross domestic product (GDP)

Tourism impacts mostly on the services industry than on agriculture or manufacturing although there are upstream effects when agriculture provides foodstuffs to restaurants and manufacturing provides vehicles for transport 🗸🗸

Direct contribution on GDP

Statistics South Africa (SSA) shows that in 2020 inbound tourists contributed R69 billion and domestic tourists R billion, amounting to R billion - about % of South Africa's GDP 🗸🗸

Indirect contribution on GDP

If the indirect contribution is added, tourism add about % to GDP 🗸🗸
The WTTC estimated that tourism contributed % to the GDP of the world economy in 2020🗸🗸
In developing economies the service sector is responsible for around % of GDP, while it is responsible for more than % of GDP in developed economies 🗸🗸
South Africa is similar to that of developed economies and services contributed more than % of GDP in 2020. 🗸🗸
Tourism has a major effect on employment and this amounted to million workers in 2020🗸🗸
Tourism is the world’s largest generator of jobs 🗸🗸
Tourism is labour intensive 🗸🗸
More jobs can be created with every unit of capital invested in tourism than elsewhere
Tourism employs many skills 🗸🗸
It ranges from accountants and hairdressers to tour guides and trackers, 🗸🗸
the tourism industry draws upon numerous skills 🗸🗸
Tourism can provide immediate employment 🗸🗸
If one quarter of tourists’ accommodation establishment in South Africa starts to offer live entertainment to quests, thousands of entertainers could be employed within days 🗸🗸
Tourism provides entrepreneurship opportunities 🗸🗸
The tourism industry accommodates informal sector enterprises, from craft and fruit vendors to pavement vendors, chair rentals 🗸🗸
Tourism is widely recognized as one of the fastest and more effective redistribution mechanisms in development 🗸🗸
It brings development to the poor in rural areas 🗸🗸
Tourism provides an alternative to urbanisation, permitting women and youth to continue a rural family lifestyle while giving them business opportunities 🗸🗸
E.g. to start and operate small-scale tourism businesses around community asserts (forests, parks and rivers) 🗸🗸

Externalities

The rapidly expanding tourism industry could have both positive and negative impacts that extend well into the future 🗸🗸
While tourism attracts large amount of revenue, it can also cause undue environmental damage that can harm the very foundation on which it depends 🗸🗸
All other economic resources, tourism uses resources and produces wastes and also creates environmental costs (pollution) and benefits in the process 🗸🗸
Rapid growth in tourism aiming at short-term benefits usually results in more negative effects and these includes the degeneration of traditions and cultural values and environmental damage to sites and setting 🗸🗸

Environment Tourism activities create environmental stress:

Permanent environmental restructuring which includes major infrastructure 🗸🗸
Waste product generation such as biological and non-biological waste that damages fish production 🗸🗸
Direct environmental stress caused by tourist activities, e.g. the destruction of vegetation and dunes 🗸🗸
Effects on population dynamics such as migration and increased urban densities 🗸🗸
Transport infrastructure, e.g. roads, airports 🗸🗸
Communication and infrastructure including telephone lines, electronic signal stations and radio, TVs’ 🗸🗸
Energy infrastructure such electricity and liquid fuel 🗸🗸
Basic service infrastructure such as clean water and sewerage systems 🗸🗸 [Max. 26]

ADDITIONAL PART How can Indigenous Knowledge Systems be used to promote tourism in South Africa?

More cultural villages can be improved to facilitate and promote tourism e.g. Shangana in Mpumalanga, Basotho in the Free State and Simunye Zulu Lodge in Kwazulu-Natal. 🗸🗸
Where guides explain and demonstrate storytelling and indigenous knowledge practices. 🗸🗸
Advertising campaigns domestically and internationally by travel agencies, hotels and B & B, lodges and SA Tourism can focus on promoting these heritage sites in brochures and fliers, social media. 🗸🗸
These actions will make tourists more aware of these attractions 🗸🗸
Encourage tourists to experience different cultures and townships - experience life at home with a household and eat at a shebeen or township restaurant 🗸🗸
World Heritage Sites of South Africa can be promoted for their cultural significance e.g. the Fossil Hominid Sites of Sterkfontein, Mapungubwe Cultural Landscape, Richtersveld Cultural and Botanical Landscape, Vredefort Dome and Robben Island 🗸🗸
Environmental World Heritage Sites of South Africa selected for their natural importance namely the Cape Floral Region Protected Areas, Isimangaliso Wetlands Park as well as uKhahlamba/Drakensberg Park which has been selected for its mixed significance 🗸🗸
Arts and culture festivals e.g. the National Arts Festival, the Hermanus Festival, Awesome Africa Music Festival and Macufe African Cultural Festival should more widely be advertised to encourage tourists to attend 🗸🗸
According to the World Health Organisation, a large majority of the African population make use of traditional medicines for health, social-cultural and economic reasons and forms part of the unique experience tourists experience when visiting local villages 🗸🗸
In South Africa tourists are made more aware of the important role traditional medicine plays in poverty reduction and employment creation 🗸🗸
Relaxation of restrictive tourist visa laws to facilitate easier entry into South Africa 🗸🗸 [Accept any other relevant answers] [Max. 10]
South Africa attracted over million tourists in 2020 /For every 8.1 additional tourist to South Africa, one new job is created/one per cent increase in tourism adds R million annually to the SA economy. 🗸🗸 [Accept any other relevant higher order conclusion] [Max. 2]
Tourism is the activities of people travelling to and staying in places outside their usual environment for no more than one consecutive year for leisure, business or other purposes PP 🗸🗸 [Accept any other correct relevant response] [Max 2]

MAIN PART Business sector

Tourism stimulates business in areas such as accommodation and entertainment 🗸🗸
The construction industry, in private-public partnership with the government to provide the infrastructure, manufacturing sector and recreation sector all benefits from increased demand due to tourism 🗸🗸
The previously disadvantaged communities get entrepreneurial opportunities through the black economic empowerment schemes 🗸🗸
A large number of people get business opportunities in the informal sector e.g. selling of artefacts 🗸🗸
Local retailers may have an increase in sales (and profits) because of increased demand from tourists 🗸🗸
Private businesses and government work in partnership to provide the infrastructure needed for tourism 🗸🗸
This increases the market share of and income of the these businesses 🗸🗸
Allow existing businesses to improve the quality and variety of their products PP 🗸🗸
Allow natural monopolies e.g. Table Mountain Cableway to achieve abnormal profits PP 🗸🗸
The public sector also provides a range of financial incentives for private sector tourism investment (grants, subsidies, loans, tax rebates) PP 🗸🗸 [Max 10]

Infrastructure development

Adequate and well-maintained infrastructure is essential for tourist destinations PP. 🗸🗸
Locals share this infrastructure with tourists 🗸🗸
Government often prioritises economic infrastructure such as ports and beaches 🗸🗸
In addition to physical and basic infrastructure, social infrastructure is also important for the growth of tourism🗸🗸
Most of the SDIs and development corridors also have tourism as an important focus PP 🗸🗸 [Max 8]
Members of households earn income from the tourism sector as tour operators, travel agents etc. 🗸🗸
Many households are indirectly involved in tourism as employees e.g. in hotels, transport sector. 🗸🗸
Entrepreneurs from households that operate as curio producers or musicians can earn income from tourism . 🗸🗸
A large number of households acquire skills in the tourism industry. 🗸🗸
School curriculum and learnership offer opportunities to acquire these skills . 🗸🗸
Encourages rural development because many tourist attractions are located in rural areas PP 🗸🗸 [Accept any other correct relevant response] [Max. 26]

ADDITIONAL PART Tourism can be successfully marketed in less popular destinations by:

advertising the firms' attractions in a variety of media including social media and internet which may reach both local and international potential tourists. 🗸🗸
focusing on a clear message that concentrates on the strength of the attraction/ uniqueness of the destination. 🗸🗸
using the indigenous knowledge systems of that particular area where possible PP. 🗸🗸
describing the service offered in the best possible way to catch the interest of the likely tourist PP E.g. the use of slogans. 🗸🗸
charging a price that is competitive and money well spent for the service offered. 🗸🗸
helping the tourist to view the entire service as value for money – deliver a worldclass visitor experience 🗸🗸
highlighting other places of interest in the vicinity of the attraction as part of a package 🗸🗸
focusing on proudly South African products/services / Sho’t Left campaign PP 🗸🗸
help disadvantaged South Africans to benefit from tourist attractions in the less popular destinations PP 🗸🗸 [Accept any other correct relevant response] [Max. 10]

CONCLUSION A weaker exchange rate has been a major contributing factor to South Africa's tourism industry growth over many years. 🗸🗸 [Accept any correct relevant response] [Max 2]

INTRODUCTION Environmental sustainability can be defined as development that meets the need of the present without compromising the ability of future generations to meet their own needs. 🗸🗸

BODY: MAIN PART Public sector intervention Because it is difficult to enforce measures to ensure sustainability the government has to intervene. 🗸🗸

Environmental taxes Environmental taxes (green taxes) can be added to the cost of goods and services for the negative impact they have on the environment. 🗸🗸 The government uses the income generated through these taxes to protect the environment. 🗸🗸 Taxes can be imposed on petrol, paper, emission gases etc. 🗸🗸 In 2003 the government has legislated the use of biodegradable plastic bags which consumers had to pay for🗸🗸 The hope is that they will use fewer bags and ensure a litter free environment. 🗸🗸

Charging for dumping of waste A monthly fee as part of municipal accounts is charged for collection of waste, sewage and garbage. 🗸🗸 Households already pay for the collection of rubbish. 🗸🗸 The factory owner might clean up his waste if it cost him to dump it. 🗸🗸 Industries might also pay for emitting gases that can be harmful to people and the environment. 🗸🗸 Subsidies Subsidies can be awarded to businesses that are willing to reduce pollution and waste. 🗸🗸 Waste can also be reduced by using new techniques or equipment such as solar energy. 🗸🗸 Emission gases from factories can be reduced using new technology. 🗸🗸

Granting property rights Normally owners of properties tend to be more protective over their resources than users who are only interested in the profits the resources offer. 🗸🗸 For this reason the government might grant property rights over a specific area. 🗸🗸 Property rights empowers owners to negotiate contracts with businesses who wish to exploit the area’s resources. 🗸🗸

Marketable permits A government can decide on the maximum desired level of pollution in an area. 🗸🗸 It then distribute pollution rights (marketable permits) to factories within that area. 🗸🗸 This means that each factory can pollute to a certain limit. 🗸🗸 It means that marketable permits are licenses that polluters can buy or sell to meet the control levels set by government. 🗸🗸

Education Incorporating topics into the curriculum of school fosters awareness. 🗸🗸 The public is gradually been made aware of this rising problem. 🗸🗸 Plastic, bottles and cartons can be recycled or made biodegradable. 🗸🗸

Public sector control If the government’s intervention does not attain the desired results, then it has to intervene more directly by setting and enforcing limits. 🗸🗸

Environmental Impact Assessment In SA every projected construction, mining or similar development has to undergo an assessment by qualified environmental professionals. 🗸🗸 To prove that it will not cause unwarranted environmental damage and that the damage can be repaired after construction. 🗸🗸 The cost if built into the project. 🗸🗸

Command and Control Regulations that are set and enforce environmental limits or standards. 🗸🗸 Quantity: e.g. set the limit to the amount of fish to catch, or limit the season catching certain species of fish. 🗸🗸 Quality: e.g. drinking water quality is carefully monitored and controlled. 🗸🗸 Air quality in workplace is subject to minimum standards. 🗸🗸 Social effect: e.g. noxious fumes from factories, dumping of medical waste near settlements, and noise pollution. 🗸🗸

Voluntary agreements Agreements between government and businesses voluntarily to address negative environmental impacts of industries. 🗸🗸 Businesses voluntary agree to decrease the emissions of pollutants. 🗸🗸 Most prefer negotiations so that they can tailor their specific needs and include it into their planning🗸🗸 Agreements can be formal, which is legally binding contract or informal. 🗸🗸 [Max 26]

ADDITIONAL PART Government does not exercise effective control over the continuous dumping of waste because of a lack of coordination between departments. 🗸🗸 The fines imposed on industries that dump waste are too lenient and they continue polluting the environment. 🗸🗸

The minimum standards set for hazardous gas and fuel emissions are not enforced or adjusted. 🗸🗸 The recycling of waste materials are not widely encouraged and promoted and landfill sites are overflowing. 🗸🗸 Government has various laws that is not really effectively implemented. 🗸🗸 Poor service delivery also adds to the problem in certain areas. 🗸🗸 [Accept any other relevant answer] [Max 10]

CONCLUSION Each and every individual, business and government needs to stand together to save our planet. [Accept any other relevant conclusion] [Max 2] Discuss in detail the following problems and the international measures taken to ensure sustainable development (Environmental Sustainability)

INTRODUCTION Environment refers to the physical surroundings and physical conditions that affect people’s lives. 🗸🗸 The ever-increasing pressure on our environment originates from increasing population numbers and excessive consumption🗸🗸 Our air, land, and water are under constant assault from the ever-growing ravages of man-made pollution generated chiefly by industrialized societies. 🗸🗸 [Accept any appropriate introduction] [Max 2]

BODY-MAIN PART Conservation

Conservation is necessary because human actions cause pollution and over-utilisation of resources. 🗸🗸
Conservation is a strategy aimed at achieving the sustainable use and management of natural resources. 🗸🗸
Conservation seeks a creative continuity of the environment while ensuring that change is sympathetic to the quality of life for both present and future generations. 🗸🗸
Certain aspects of conservation need to be taken into account.
Firstly, there is an opportunity cost. 🗸🗸
Secondly, externalities are often present. 🗸🗸
Lastly, self-interest has a short term horizon – meaning that decisions cannot be left entirely to market forces. 🗸🗸
Over utilization of resources causes a reduction in supply, increase in prices, contradiction of demand and a search for substitutes. 🗸🗸
This necessitates conservation of both renewable and non-renewable resources. 🗸🗸
Conservation has to be concerned with limiting what is harvested in order to maintain a stable stock at least at the minimum level. 🗸🗸
Government can use permits and quotas as two possible direct control methods in order to maintain the stock of resources at the minimum level. 🗸🗸

Preservation

Preservation involves any strategy undertaken to safeguard the environment, maintain its current condition and keep it as habitable as possible for people and animals. 🗸🗸
Heritage sites, indigenous forests, specifies of animals etc. that have special cultural or environmental significance, are often targeted preservation. 🗸🗸
Preservation is not likely to work as a private enterprise because the benefit to society is much bigger than the income of the producer. 🗸🗸
It may be possible to use cost-benefit analysis to calculate the social benefits of preservation of the environment.
The weaknesses in market solutions require the government to intervene in order to preserve environment assets. 🗸🗸
Government could do any of the following:
Buy or expropriate – Environmental assets are simply closed for human use. 🗸🗸
Subsidise-A subsidy would increase net benefits to the owner and raise the property’s present value. 🗸🗸
Controls – The government can compel the owner to apply control measures like restricting the quantities exploited or number of visitors allowed per day. 🗸🗸 [26 Max]

ADDITIONAL PART Stockholm Conference (1972)

The Stockholm Conference was the first major large scale international meeting on the environment convened with the support of the United Nations. 🗸🗸
The meeting agreed upon a declaration containing 26 principles concerning the environment and development, an action plan with 109 recommendations and a resolution. 🗸🗸
The meeting directly impacted on the environmental policies of many countries. 🗸🗸

Rio de Janeiro Earth Summit (1992)

This meeting acknowledged the importance of cooperation in addressing environmental concerns that threaten sustainability. 🗸🗸
The conference helped to make countries around the world aware of the dangers of unsustainable development. 🗸🗸
Unfortunately the principles outlined and accepted at the summit were not binding and subsequently many countries did not confirm to them. 🗸🗸

Rio + 5 (1997)

This conference noted that globalization made some countries poorer – 🗸🗸
In particular African countries and the least developed countries showed a low level of growth or even declined. 🗸🗸

Kyoto Protocol for Climate Change (1997)

Countries committed themselves to reducing their total emissions of greenhouse by 5 %.🗸🗸
Unfortunately, China was excluded from this agreement and the USA withdrew. 🗸🗸

World Summit on Sustainable Development (2002)

The objective of this summit held in Johannesburg was to conserve natural resources in a world that is growing in population. 🗸🗸
The meeting focused on issues like poverty eradication, water and sanitation, energy, health agriculture and biodiversity. 🗸🗸

COP 17 (2011)

The main goal of the conference held in Durban was to establish a treaty to limit carbon emissions and plan strategies to keep global temperature rise to less than 2 degree Celsius in the 21st Century. 🗸🗸
Although the framework for this treaty was established it was not finalised. 🗸🗸
The solution to our environmental problems will depend on our ability to make sound economic decisions that take account of the natural environment and to change our individual behaviour and attitudes. 🗸🗸 [Accept any other relevant conclusion] [Max 2]

Economics Essay Examples

Ace Your Essay With Our Economics Essay Examples

Published on: Jun 6, 2023

Last updated on: Jan 31, 2024

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Are you struggling to understand economics essays and how to write your own?

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We’ve got the solution you've been looking for. Explore quality examples that bridge the gap between theory and real-world applications. In addition, get insightful tips for writing economics essays.

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What is an Economics Essay?

An economics essay is a written piece that explores economic theories, concepts, and their real-world applications. It involves analyzing economic issues, presenting arguments, and providing evidence to support ideas.

The goal of an economics essay is to demonstrate an understanding of economic principles and the ability to critically evaluate economic topics.

Why Write an Economics Essay?

Writing an economics essay serves multiple purposes:

Demonstrate Understanding: Showcasing your comprehension of economic concepts and their practical applications.
Develop Critical Thinking: Cultivating analytical skills to evaluate economic issues from different perspectives.
Apply Theory to Real-World Contexts: Bridging the gap between economic theory and real-life scenarios.
Enhance Research and Analysis Skills: Improving abilities to gather and interpret economic data.
Prepare for Academic and Professional Pursuits: Building a foundation for success in future economics-related endeavors.

Paper Due? Why Suffer? That's our Job!

If youâre wondering, âhow do I write an economics essay?â, consulting an example essay might be a good option for you. Here are some economics essay examples:

Short Essay About Economics

Fiscal policy plays a crucial role in shaping economic conditions and promoting growth. During periods of economic downturn or recession, governments often resort to fiscal policy measures to stimulate the economy. This essay examines the significance of fiscal policy in economic stimulus, focusing on two key tools: government spending and taxation.

Government spending is a powerful instrument used to boost economic activity. When the economy experiences a slowdown, increased government expenditure can create a multiplier effect, stimulating demand and investment. By investing in infrastructure projects, education, healthcare, and other sectors, governments can create jobs, generate income, and spur private sector activity. This increased spending circulates money throughout the economy, leading to higher consumption and increased business investments. However, it is important for governments to strike a balance between short-term stimulus and long-term fiscal sustainability.

Taxation is another critical aspect of fiscal policy. During economic downturns, governments may employ tax cuts or incentives to encourage consumer spending and business investments. By reducing tax burdens on individuals and corporations, governments aim to increase disposable income and boost consumption. Lower taxes can also incentivize businesses to expand and invest in new ventures, leading to job creation and economic growth. However, it is essential for policymakers to consider the trade-off between short-term stimulus and long-term fiscal stability, ensuring that tax cuts are sustainable and do not result in excessive budget deficits.

In conclusion, fiscal policy serves as a valuable tool in stimulating economic growth and mitigating downturns. Through government spending and taxation measures, policymakers can influence aggregate demand, promote investment, and create a favorable economic environment. However, it is crucial for governments to implement these policies judiciously, considering the long-term implications and maintaining fiscal discipline. By effectively managing fiscal policy, governments can foster sustainable economic growth and improve overall welfare.

A Level Economics Essay Examples

Here is an essay on economics a level structure:

Globalization, characterized by the increasing interconnectedness of economies and societies worldwide, has brought about numerous benefits and challenges. One of the significant issues associated with globalization is its impact on income inequality. This essay explores the implications of globalization on income inequality, discussing both the positive and negative effects, and examining potential policy responses to address this issue.

Globalization has led to a rise in the demand for skilled workers in many sectors. As countries integrate into the global economy, they become more specialized and engage in activities that utilize their comparative advantages. This shift toward skill-intensive industries increases the demand for skilled labor, resulting in a skill premium where high-skilled workers earn higher wages compared to low-skilled workers. Consequently, income inequality may widen as those with the necessary skills benefit from globalization while those without face limited employment opportunities and stagnant wages.

Globalization has also led to labor market displacement and job polarization. Developing countries, attracted by lower labor costs, have become manufacturing hubs, leading to job losses in industries that cannot compete internationally. This displacement primarily affects low-skilled workers in developed economies. Moreover, advancements in technology and automation have further contributed to job polarization, where middle-skilled jobs are declining while high-skilled and low-skilled jobs expand. This trend exacerbates income inequality as middle-income earners face challenges in finding stable employment opportunities.

To address the implications of globalization on income inequality, policymakers can implement several strategies. Firstly, investing in education and skills development is crucial. By equipping individuals with the necessary skills for the evolving labor market, governments can reduce the skill gap and provide opportunities for upward mobility. Additionally, redistributive policies, such as progressive taxation and social welfare programs, can help mitigate income inequality by ensuring a more equitable distribution of resources. Furthermore, fostering inclusive growth and promoting entrepreneurship can create job opportunities and reduce dependency on traditional sectors vulnerable to globalization.

Globalization has had a profound impact on income inequality, posing challenges for policymakers. While it has facilitated economic growth and raised living standards in many countries, it has also exacerbated income disparities. By implementing effective policies that focus on education, skill development, redistribution, and inclusive growth, governments can strive to reduce income inequality and ensure that the benefits of globalization are more widely shared. It is essential to strike a balance between the opportunities offered by globalization and the need for social equity and inclusive development in an interconnected world.

Band 6 Economics Essay Examples

Government intervention in markets is a topic of ongoing debate in economics. While free markets are often considered efficient in allocating resources, there are instances where government intervention becomes necessary to address market failures and promote overall welfare. This essay examines the impact of government intervention on market efficiency, discussing the advantages and disadvantages of such interventions and assessing their effectiveness in achieving desired outcomes.

Government intervention can correct market failures that arise due to externalities, public goods, and imperfect competition. Externalities, such as pollution, can lead to inefficiencies as costs or benefits are not fully accounted for by market participants. By imposing regulations or taxes, the government can internalize these external costs and incentivize firms to adopt more socially responsible practices. Additionally, the provision of public goods, which are non-excludable and non-rivalrous, often requires government intervention as private markets may under provide them. By supplying public goods like infrastructure or national defense, the government ensures efficient allocation and benefits for society.

Information asymmetry, where one party has more information than another, can hinder market efficiency. This is particularly evident in markets with complex products or services, such as healthcare or financial services. Government intervention through regulations and oversight can enhance transparency, consumer protection, and market efficiency. For example, regulations that require companies to disclose accurate and standardized information empower consumers to make informed choices. Similarly, regulatory bodies in financial markets can enforce rules to mitigate risks and ensure fair and transparent transactions, promoting market efficiency.

While government intervention can address market failures, it can also create unintended consequences and distortions. Excessive regulations, price controls, or subsidies can result in inefficiencies and unintended outcomes. For instance, price ceilings may lead to shortages, while price floors can create surpluses. Moreover, government interventions can stifle innovation and competition by reducing incentives for private firms to invest and grow. Policymakers need to carefully design interventions to strike a balance between correcting market failures and avoiding excessive interference that hampers market efficiency.

Government intervention plays a crucial role in addressing market failures and promoting market efficiency. By correcting externalities, providing public goods and services, and reducing information asymmetry, governments can enhance overall welfare and ensure efficient resource allocation. However, policymakers must exercise caution to avoid unintended consequences and market distortions. Striking a balance between market forces and government intervention is crucial to harness the benefits of both, fostering a dynamic and efficient economy that serves the interests of society as a whole.

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Economics Extended Essay Examples

In an economics extended essay, students have the opportunity to delve into a specific economic topic of interest. They are required to conduct an in-depth analysis of this topic and compile a lengthy essay.

Here are some potential economics extended essay question examples:

How does foreign direct investment impact economic growth in developing countries?
What are the factors influencing consumer behavior and their effects on market demand for sustainable products?
To what extent does government intervention in the form of minimum wage policies affect employment levels and income inequality?
What are the economic consequences of implementing a carbon tax to combat climate change?
How does globalization influence income distribution and the wage gap in developed economies?

IB Economics Extended Essay Examples

Economics Extended Essay Topic Examples

Extended Essay Research Question Examples Economics

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15.1 The Role of Government in a Market Economy

Learning objectives.

Discuss and illustrate government responses to the market failures of public goods, external costs and benefits, and imperfect competition and how these responses have the potential to reduce deadweight loss.
Define merit and demerit goods and explain why government may intervene to affect the quantities consumed.
Discuss ways in which governments redistribute income.

What do we want from our government? One answer is that we want a great deal more than we did several decades ago. The role of government has expanded dramatically in the last 75+ years. In 1929 (the year the Commerce Department began keeping annual data on macroeconomic performance in the United States), government expenditures at all levels (state, local, and federal) were less than 10% of the nation’s total output, which is called gross domestic product (GDP). In the current century, that share has more than tripled. Total government spending per capita, adjusted for inflation, has increased more than six fold since 1929.

Figure 15.1 “Government Expenditures and Revenues as a Percentage of GDP” shows total government expenditures and revenues as a percentage of GDP from 1929 to 2007. All levels of government are included. Government expenditures include all spending by government agencies. Government revenues include all funds received by government agencies. The primary component of government revenues is taxes; revenue also includes miscellaneous receipts from fees, fines, and other sources. We will look at types of government revenues and expenditures later in this chapter.

Figure 15.1 Government Expenditures and Revenues as a Percentage of GDP

Government expenditures and revenues have risen dramatically as a percentage of GDP, the most widely used measure of economic activity.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, NIPA Tables 1.15 and 3.1.

Figure 15.1 “Government Expenditures and Revenues as a Percentage of GDP” also shows government purchases as a percentage of GDP. Government purchases happen when a government agency purchases or produces a good or a service. We measure government purchases to suggest the opportunity cost of government. Whether a government agency purchases a good or service or produces it, factors of production are being used for public sector, rather than private sector, activities. A city police department’s purchase of new cars is an example of a government purchase. Spending for public education is another example.

Government expenditures and purchases are not equal because much government spending is not for the purchase of goods and services. The primary source of the gap is transfer payments , payments made by government agencies to individuals in the form of grants rather than in return for labor or other services. Transfer payments represent government expenditures but not government purchases. Governments engage in transfer payments in order to redistribute income from one group to another. The various welfare programs for low-income people are examples of transfer payments. Social Security is the largest transfer payment program in the United States. This program transfers income from people who are working (by taxing their pay) to people who have retired. Interest payments on government debt, which are also a form of expenditure, are another example of an expenditure that is not counted as a government purchase.

Several points about Figure 15.1 “Government Expenditures and Revenues as a Percentage of GDP” bear special attention. Note first the path of government purchases. Government purchases relative to GDP rose dramatically during World War II, then dropped back to about their prewar level almost immediately afterward. Government purchases rose again, though less sharply, during the Korean War. This time, however, they did not drop back very far after the war. It was during this period that military spending rose to meet the challenge posed by the former Soviet Union and other communist states—the “Cold War.” Government purchases have ranged between 15 and 20% of GDP ever since. The Vietnam War, the Persian Gulf War, and the wars in Afghanistan and Iraq did not have the impact on purchases that characterized World War II or even the Korean War. A second development, the widening gap between expenditures and purchases, has occurred since the 1960s. This reflects the growth of federal transfer programs, principally Social Security, programs to help people pay for health-care costs, and aid to low-income people. We will discuss these programs later in this chapter.

Finally, note the relationship between expenditures and receipts. When a government’s revenues equal its expenditures for a particular period, it has a balanced budget . A budget surplus occurs if a government’s revenues exceed its expenditures, while a budget deficit exists if government expenditures exceed revenues.

Prior to 1980, revenues roughly matched expenditures for the public sector as a whole, except during World War II. But expenditures remained consistently higher than revenues between 1980 and 1996. The federal government generated very large deficits during this period, deficits that exceeded surpluses that typically occur at the state and local levels of government. The largest increases in spending came from Social Security and increased health-care spending at the federal level. Efforts by the federal government to reduce and ultimately eliminate its deficit, together with surpluses among state and local governments, put the combined budget for the public sector in surplus beginning in 1997. As of 1999, the Congressional Budget Office was predicting that increased federal revenues produced by a growing economy would continue to produce budget surpluses well into the twenty-first century.

That rather rosy forecast was set aside after September 11, 2001. Terrorist attacks on the United States and later on several other countries led to sharp and sustained increases in federal spending for wars in Afghanistan and Iraq, as well as expenditures for Homeland Security. The administration of George W. Bush proposed, and Congress approved, a tax cut. The combination of increased spending on the abovementioned items and others, as well as tax cuts, produced substantial deficits.

The evidence presented in Figure 15.1 “Government Expenditures and Revenues as a Percentage of GDP” does not fully capture the rise in demand for public sector services. In addition to governments that spend more, people in the United States have clearly chosen governments that do more. The scope of regulatory activity conducted by governments at all levels, for example, has risen sharply in the last several decades. Regulations designed to prevent discrimination, to protect consumers, and to protect the environment are all part of the response to a rising demand for public services, as are federal programs in health care and education.

Figure 15.2 “Government Revenue Sources and Expenditures: 2007” summarizes the main revenue sources and types of expenditures for the U.S. federal government and for the European Union. In the United States, most revenues came from personal income taxes and from payroll taxes. Most expenditures were for transfer payments to individuals. Federal purchases were primarily for national defense; the “other purchases” category includes things such as spending for transportation projects and for the space program. Interest payments on the national debt and grants by the federal government to state and local governments were the other major expenditures. The situation in the European Union differs primarily by the fact that a greater share of revenue comes from taxes on production and imports and substantially less is spent on defense.

Figure 15.2 Government Revenue Sources and Expenditures: 2007

The four panels show the sources of government revenues and the shares of expenditures on various activities for all levels of government in the United States and the European Union in 2007.

Sources: Survey of Current Business , July 2008, Tables 3.2 and 3.10.5; Paternoster, Anne, Wozowczyk, Monika, and Lupi, Alessandro, Statistics in Focus—Economy and Finance , Eurostat 23/2008. For EU revenues, “Taxes on production and imports” refers mainly to value-added tax, import and excise duties, taxes on financial and capital transactions, on land and buildings, on payroll, and other taxes on production. In the category “Current taxes on income, wealth, etc.” are taxes on income and on holding gains of households and corporations, current taxes on capital, taxes on international transactions, and payments for licenses. Capital taxes refer to taxes levied at irregular and infrequent intervals on the value of assets, or net worth owned, or transferred in the form of legacies or gifts. Social contributions cover actual amounts receivable from employers and employees.

To understand the role of government, it will be useful to distinguish four broad types of government involvement in the economy. First, the government attempts to respond to market failures to allocate resources efficiently. In a particular market, efficiency means that the quantity produced is determined by the intersection of a demand curve that reflects all the benefits of consuming a particular good or service and a supply curve that reflects the opportunity costs of producing it. Second, government agencies act to encourage or discourage the consumption of certain goods and services. The prohibition of drugs such as heroin and cocaine is an example of government seeking to discourage consumption of these drugs. Third, the government redistributes income through programs such as welfare and Social Security. Fourth, the government can use its spending and tax policies to influence the level of economic activity and the price level.

We will examine the first three of these aspects of government involvement in the economy in this chapter. The fourth, efforts to influence the level of economic activity and the price level, fall within the province of macroeconomics.

Responding to Market Failure

In an earlier chapter on markets and efficiency, we learned that a market maximizes net benefit by achieving a level of output at which marginal benefit equals marginal cost. That is the efficient solution. In most cases, we expect that markets will come close to achieving this result—that is the important lesson of Adam Smith’s idea of the market as an invisible hand, guiding the economy’s scarce factors of production to their best uses. That is not always the case, however.

We have studied several situations in which markets are unlikely to achieve efficient solutions. In an earlier chapter, we saw that private markets are likely to produce less than the efficient quantities of public goods such as national defense. They may produce too much of goods that generate external costs and too little of goods that generate external benefits. In cases of imperfect competition, we have seen that the market’s output of goods and services is likely to fall short of the efficient level. In all these cases, it is possible that government intervention will move production levels closer to their efficient quantities. In the next three sections, we shall review how a government could improve efficiency in the cases of public goods, external costs and benefits, and imperfect competition.

Public Goods

A public good is a good or service for which exclusion is prohibitively costly and for which the marginal cost of adding another consumer is zero. National defense, law enforcement, and generally available knowledge are examples of public goods.

The difficulty posed by a public good is that, once it is produced, it is freely available to everyone. No consumer can be excluded from consumption of the good on grounds that he or she has not paid for it. Consequently, each consumer has an incentive to be a free rider in consuming the good, and the firms providing a public good do not get a signal from consumers that reflects their benefit of consuming the good.

Certainly we can expect some benefits of a public good to be revealed in the market. If the government did not provide national defense, for example, we would expect some defense to be produced, and some people would contribute to its production. But because free-riding behavior will be common, the market’s production of public goods will fall short of the efficient level.

The theory of public goods is an important argument for government involvement in the economy. Government agencies may either produce public goods themselves, as do local police departments, or pay private firms to produce them, as is the case with many government-sponsored research efforts. An important debate in the provision of public education revolves around the question of whether education should be produced by the government, as is the case with traditional public schools, or purchased by the government, as is done in charter schools.

External Costs and Benefits

External costs are imposed when an action by one person or firm harms another, outside of any market exchange. The social cost of producing a good or service equals the private cost plus the external cost of producing it. In the case of external costs, private costs are less than social costs.

Similarly, external benefits are created when an action by one person or firm benefits another, outside of any market exchange. The social benefit of an activity equals the private benefit revealed in the market plus external benefits. When an activity creates external benefits, its social benefit will be greater than its private benefit.

The lack of a market transaction means that the person or firm responsible for the external cost or benefit does not face the full cost or benefit of the choice involved. We expect markets to produce more than the efficient quantity of goods or services that generate external costs and less than the efficient quantity of goods or services that generate external benefits.

Consider the case of firms that produce memory chips for computers. The production of these chips generates water pollution. The cost of this pollution is an external cost; the firms that generate it do not face it. These firms thus face some, but not all, of the costs of their production choices. We can expect the market price of chips to be lower, and the quantity produced greater, than the efficient level.

Inoculations against infectious diseases create external benefits. A person getting a flu shot, for example, receives private benefits; he or she is less likely to get the flu. But there will be external benefits as well: Other people will also be less likely to get the flu because the person getting the shot is less likely to have the flu. Because this latter benefit is external, the social benefit of flu shots exceeds the private benefit, and the market is likely to produce less than the efficient quantity of flu shots. Public, private, and charter schools often require such inoculations in an effort to get around the problem of external benefits.

Imperfect Competition

In a perfectly competitive market, price equals marginal cost. If competition is imperfect, however, individual firms face downward-sloping demand curves and will charge prices greater than marginal cost. Consumers in such markets will be faced by prices that exceed marginal cost, and the allocation of resources will be inefficient.

An imperfectly competitive private market will produce less of a good than is efficient. As we saw in the chapter on monopoly, government agencies seek to prohibit monopoly in most markets and to regulate the prices charged by those monopolies that are permitted. Government policy toward monopoly is discussed more fully in a later chapter.

Assessing Government Responses to Market Failure

In each of the models of market failure we have reviewed here—public goods, external costs and benefits, and imperfect competition—the market may fail to achieve the efficient result. There is a potential for government intervention to move inefficient markets closer to the efficient solution.

Figure 15.3 “Correcting Market Failure” reviews the potential gain from government intervention in cases of market failure. In each case, the potential gain is the deadweight loss resulting from market failure; government intervention may prevent or limit this deadweight loss. In each panel, the deadweight loss resulting from market failure is shown as a shaded triangle.

Figure 15.3 Correcting Market Failure

In each panel, the potential gain from government intervention to correct market failure is shown by the deadweight loss avoided, as given by the shaded triangle. In Panel (a), we assume that a private market produces Q m units of a public good. The efficient level, Q e , is defined by the intersection of the demand curve D 1 for the public good and the supply curve S 1 . Panel (b) shows that if the production of a good generates an external cost, the supply curve S 1 reflects only the private cost of the good. The market will produce Q m units of the good at price P 1 . If the public sector finds a way to confront producers with the social cost of their production, then the supply curve shifts to S 2 , and production falls to the efficient level Q e . Notice that this intervention results in a higher price, P 2 , which confronts consumers with the real cost of producing the good. Panel (c) shows the case of a good that generates external benefits. Purchasers of the good base their choices on the private benefit, and the market demand curve is D 1 . The market quantity is Q m . This is less than the efficient quantity, Q e , which can be achieved if the activity that generates external benefits is subsidized. That would shift the market demand curve to D 2 , which intersects the market supply curve at the efficient quantity. Finally, Panel (d) shows the case of a monopoly firm that produces Q m units and charges a price P 1 . The efficient level of output, Q e , could be achieved by imposing a price ceiling at P 2 . As is the case in each of the other panels, the potential gain from such a policy is the elimination of the deadweight loss shown as the shaded area in the exhibit.

Panel (a) of Figure 15.3 “Correcting Market Failure” illustrates the case of a public good. The market will produce some of the public good; suppose it produces the quantity Q m . But the demand curve that reflects the social benefits of the public good, D 1 , intersects the supply curve at Q e ; that is the efficient quantity of the good. Public sector provision of a public good may move the quantity closer to the efficient level.

Panel (b) shows a good that generates external costs. Absent government intervention, these costs will not be reflected in the market solution. The supply curve, S 1 , will be based only on the private costs associated with the good. The market will produce Q m units of the good at a price P 1 . If the government were to confront producers with the external cost of the good, perhaps with a tax on the activity that creates the cost, the supply curve would shift to S 2 and reflect the social cost of the good. The quantity would fall to the efficient level, Q e , and the price would rise to P 2 .

Panel (c) gives the case of a good that generates external benefits. The demand curve revealed in the market, D 1 , reflects only the private benefits of the good. Incorporating the external benefits of the good gives us the demand curve D 2 that reflects the social benefit of the good. The market’s output of Q m units of the good falls short of the efficient level Q e . The government may seek to move the market solution toward the efficient level through subsidies or other measures to encourage the activity that creates the external benefit.

Finally, Panel (d) shows the case of imperfect competition. A firm facing a downward-sloping demand curve such as D 1 will select the output Q m at which the marginal cost curve MC 1 intersects the marginal revenue curve MR 1 . The government may seek to move the solution closer to the efficient level, defined by the intersection of the marginal cost and demand curves.

While it is important to recognize the potential gains from government intervention to correct market failure, we must recognize the difficulties inherent in such efforts. Government officials may lack the information they need to select the efficient solution. Even if they have the information, they may have goals other than the efficient allocation of resources. Each instance of government intervention involves an interaction with utility-maximizing consumers and profit-maximizing firms, none of whom can be assumed to be passive participants in the process. So, while the potential exists for improved resource allocation in cases of market failure, government intervention may not always achieve it.

The late George Stigler, winner of the Nobel Prize for economics in 1982, once remarked that people who advocate government intervention to correct every case of market failure reminded him of the judge at an amateur singing contest who, upon hearing the first contestant, awarded first prize to the second. Stigler’s point was that even though the market is often an inefficient allocator of resources, so is the government likely to be. Government may improve on what the market does; it can also make it worse. The choice between the market’s allocation and an allocation with government intervention is always a choice between imperfect alternatives. We will examine the nature of public sector choices later in this chapter and explore an economic explanation of why government intervention may fail to move market solutions closer to their efficient levels.

Merit and Demerit Goods

In some cases, the public sector makes a determination that people should consume more of some goods and services and less of others, even in the absence of market failure. This is a normative judgment, one that presumes that consumers are not always the best judges of what is good, or bad, for them.

Merit goods are goods whose consumption the public sector promotes, based on a presumption that many individuals do not adequately weigh the benefits of the good and should thus be induced to consume more than they otherwise would. Many local governments support symphony concerts, for example, on grounds that the private market would not provide an adequate level of these cultural activities.

Indeed, government provision of some merit goods is difficult to explain. Why, for example, do many local governments provide tennis courts but not bowling alleys, golf courses but not auto racetracks, or symphony halls but not movie theaters? One possible explanation is that some consumers—those with a fondness for tennis, golf, and classical music—have been more successful than others in persuading their fellow citizens to assist in funding their preferred activities.

Demerit goods are goods whose consumption the public sector discourages, based on a presumption that individuals do not adequately weigh all the costs of these goods and thus should be induced to consume less than they otherwise would. The consumption of such goods may be prohibited, as in the case of illegal drugs, or taxed heavily, as in the case of cigarettes and alcohol.

Income Redistribution

The proposition that a private market will allocate resources efficiently if the efficiency condition is met always comes with a qualification: the allocation of resources will be efficient given the initial distribution of income . If 5% of the people receive 95% of the income, it might be efficient to allocate roughly 95% of the goods and services produced to them. But many people (at least 95% of them!) might argue that such a distribution of income is undesirable and that the allocation of resources that emerges from it is undesirable as well.

There are several reasons to believe that the distribution of income generated by a private economy might not be satisfactory. For example, the incomes people earn are in part due to luck. Much income results from inherited wealth and thus depends on the family into which one happens to have been born. Likewise, talent is distributed in unequal measure. Many people suffer handicaps that limit their earning potential. Changes in demand and supply can produce huge changes in the values—and the incomes—the market assigns to particular skills. Given all this, many people argue that incomes should not be determined solely by the marketplace.

A more fundamental reason for concern about income distribution is that people care about the welfare of others. People with higher incomes often have a desire to help people with lower incomes. This preference is demonstrated in voluntary contributions to charity and in support of government programs to redistribute income.

A public goods argument can be made for government programs that redistribute income. Suppose that people of all income levels feel better off knowing that financial assistance is being provided to the poor and that they experience this sense of well-being whether or not they are the ones who provide the assistance. In this case, helping the poor is a public good. When the poor are better off, other people feel better off; this benefit is nonexclusive. One could thus argue that leaving private charity to the marketplace is inefficient and that the government should participate in income redistribution. Whatever the underlying basis for redistribution, it certainly occurs. The governments of every country in the world make some effort to redistribute income.

Programs to redistribute income can be divided into two categories. One transfers income to poor people; the other transfers income based on some other criterion. A means-tested transfer payment is one for which the recipient qualifies on the basis of income; means-tested programs transfer income from people who have more to people who have less. The largest means-tested program in the United States is Medicaid, which provides health care to the poor. Other means-tested programs include Temporary Assistance to Needy Families (TANF) and food stamps. A non-means-tested transfer payment is one for which income is not a qualifying factor. Social Security, a program that taxes workers and their employers and transfers this money to retired workers, is the largest non-means-tested transfer program. Indeed, it is the largest transfer program in the United States. It transfers income from working families to retired families. Given that retired families are, on average, wealthier than working families, Social Security is a somewhat regressive program. Other non-means tested transfer programs include Medicare, unemployment compensation, and programs that aid farmers.

Figure 15.4 “Federal Transfer Payment Spending” shows federal spending on means-tested and non-means-tested programs as a percentage of GDP, the total value of output, since 1962. As the chart suggests, the bulk of income redistribution efforts in the United States are non-means-tested programs.

Figure 15.4 Federal Transfer Payment Spending

The chart shows federal means-tested and non-means-tested transfer payment spending as a percentage of GDP from 1962–2007.

Source: Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2004–2013 (Jan., 2003), Table F-10p. 157; thereafter January, 2008, Table F-10 with means-tested as medicaid plus income security and non-means tested everything else.

The fact that most transfer payments in the United States are not means-tested leads to something of a paradox: some transfer payments involve taxing people whose incomes are relatively low to give to people whose incomes are relatively high. Social Security, for example, transfers income from people who are working to people who have retired. But many retired people enjoy higher incomes than working people in the United States. Aid to farmers, another form of non-means-tested payments, transfers income to farmers, who on average are wealthier than the rest of the population. These situations have come about because of policy decisions, which we discuss later in the chapter.

Key Takeaways

One role of government is to correct problems of market failure associated with public goods, external costs and benefits, and imperfect competition.
Government intervention to correct market failure always has the potential to move markets closer to efficient solutions, and thus reduce deadweight losses. There is, however, no guarantee that these gains will be achieved.
Governments may seek to alter the provision of certain goods and services based on a normative judgment that consumers will consume too much or too little of the goods. Goods for which such judgments are made are called merit or demerit goods.
Governments redistribute income through transfer payments. Such redistribution often goes from people with higher incomes to people with lower incomes, but other transfer payments go to people who are relatively better off.

Here is a list of actual and proposed government programs. Each is a response to one of the justifications for government activity described in the text: correction of market failure (due to public goods, external costs, external benefits, or imperfect competition), encouragement or discouragement of the consumption of merit or demerit goods, and redistribution of income. In each case, identify the source of demand for the activity described.

The Justice Department sought to prevent Microsoft Corporation from releasing Windows ’98, arguing that the system’s built-in internet browser represented an attempt by Microsoft to monopolize the market for browsers.
In 2004, Congress considered a measure that would extend taxation of cigarettes to vendors that sell cigarettes over the Internet.
The federal government engages in research to locate asteroids that might hit the earth, and studies how impacts from asteroids could be prevented.
The federal government increases spending for food stamps for people whose incomes fall below a certain level.
The federal government increases benefits for recipients of Social Security.
The Environmental Protection Agency sets new standards for limiting the emission of pollutants into the air.
A state utilities commission regulates the prices charged by utilities that provide natural gas to homes and businesses.

Case in Point: “Fixing” the Gasoline Market

Figure 15.5

Gas prices in San Diego. Regular is as high as 4.47 per gallon

Emily – gas prices in san diego – CC BY-NC-ND 2.0.

Moderating the price of gasoline is not an obvious mission for the government in a market economy. But, in an economy in which angry voters wield considerable influence, trying to fix rising gasoline prices can turn into a task from which a wise politician does not shrink.

By the summer of 2008, crude oil was selling for more than $140 per barrel. Gasoline prices in the United States were flirting with the $4 mark. There were perfectly good market reasons for the run-up in prices. World oil demand has been rising each year, with China and India two of the primary sources of increased demand. The world’s ability to produce oil is limited and tensions in the Middle East were also adding doubts about getting those supplies to market. Ability to produce gasoline is limited as well. The United States has not built a new oil refinery in more than 30 years.

But, when oil prices rise, economic explanations seldom carry much political clout. Predictably, the public demands a response from its political leaders—and gets it.

Largely Democratic Congressional proposals in 2008 included such ideas as: a bill to classify the Organization of Petroleum Exporting Countries (OPEC) as an illegal monopoly in violation of U.S. antitrust laws, taxing “excessive” profits of oil companies, investigating possible price gouging, and banning speculative trading in oil futures. With an overwhelming majority on both sides of the aisle, Congress passed a bill to suspend adding oil to the Strategic Petroleum Reserve—a 727 million gallon underground reserve designed for use in national emergencies. President Bush in 2008 was against this move, though in 2006, when gas prices were approaching $3 a gallon, he supported a similar move. Whether or not to offer a “tax holiday” on the 18.4 cents per gallon federal gas tax stymied some politicians during the 2008 presidential campaign because Hillary Clinton, a Democrat, and John McCain, a Republican, supported it, while Barack Obama, a Democrat, was against it. Mostly Republican proposals to allow offshore drilling and exploration in the Arctic National Wildlife Refuge also received attention.

These measures were unlikely to have much affect on gas prices, especially in the short-term. For example, the federal government would normally in a two-month period deposit 10 million gallons of gasoline in the strategic reserve; consumption in the United States is about 20 million gallons of gasoline per day. World gasoline consumption is about 87 million gallons per day. Putting an additional 10 million gallons into a global market which will consume about 5 billion gallons in a 60-day period is not likely to have any measurable impact.

The higher oil prices were very good for oil companies. Exxon Mobil, the largest publicly traded oil company in the United States, reported profits of nearly $11 billion for the first quarter of 2008. Whenever oil prices rise sharply, there are always cries of “price gouging.” But, repeated federal investigations of the industry have failed to produce any evidence that such gouging has occurred.

Meanwhile, market forces responding to the higher gasoline prices are already at work. Gasoline producers are looking at cellulosic ethanol, which can be produced from materials such as wood chips, corn stalks, and rice straw. Automobile producers are examining “plug-in” hybrids—cars whose batteries could be charged not just by driving but by plugging the car in a garage. The goal is to have a car that could go some distance on its battery before starting to use any gasoline. Consumers are doing their part. Gasoline consumption in the United States fell more than 4% by the summer of 2008 from its level one year earlier.

These potential market responses are the sort of thing one would expect from rising fuel prices. Ultimately, it is difficult to see why gasoline prices should be a matter for public sector intervention. But, the public sector consists of people, and when those people become angry, the urge for intervention can become unstoppable.

Sources: Paul Davidson and Chris Woodyard, “Proposals To Cut Gas Prices Scrutinized,” USA Today , May 11, 2006, p. 5B; Joseph Curl, “Bush Orders Suspension Of Gas Rules; Federal Probe To Look At Price-Gouging Charges,” The Washington Times , April 26, 2007, p. A1; David M. Herszenhorn, “As Gasoline Prices Soar, Politicians Fall Back on Familiar Solutions,” The New York Times , May 3, 2008, p. A16; Richard Simon, “The Nation; Mixing Oil and Politics; Congress Votes To Stop Shipments to the Nation’s Reserve. The Move Could Save Motorists Some Money,” Los Angeles Times , May 14, 2008, p. A18.

Answers to Try It! Problems

This is an attempt to deal with monopoly, so it is a response to imperfect competition.
Cigarettes are treated as a demerit good.
Protecting the earth from such a calamity is an example of a public good.
Food Stamps are a means-tested program to redistribute income.
Social Security is an example of a non-means-tested income redistribution program.
This is a response to external costs.
This is a response to monopoly, so it falls under the imperfect competition heading.

Get FEE’s “I, Pencil” lesson plan!

“Eloquent. Extraordinary. Timeless. Paradigm-shifting. Classic. Half a century after it first appeared, Leonard Read’s ‘I, Pencil’ still evokes such adjectives of praise. Rightfully so, for this little essay opens eyes and minds among people of all ages. Many first-time readers never see the world quite the same again.” ~ Lawrence W. Reed

Hundreds of thousands of Americans of all ages continue to enjoy this simple and beautiful explanation of the miracle of the “invisible hand” by following the production of an ordinary pencil. Read shows that none of us knows enough to plan the creative actions and decisions of others.

Leonard E. Read (1898–1983) established the Foundation for Economic Education in 1946. For the next 37 years he served as FEE’s president and labored tirelessly to promote and advance liberty. He was a natural leader who, at a crucial moment in American history, roused the forces defending individual freedom and private property.

His life is a testament to the power of ideas. As President Ronald Reagan wrote: “Our nation and her people have been vastly enriched by his devotion to the cause of freedom, and generations to come will look to Leonard Read for inspiration.”

Read was the author of 29 books and hundreds of essays. “I, Pencil,” his most famous essay, was first published in 1958. Although a few of the manufacturing details and place names have changed, the principles endure.

Introduction by Lawrence W. Reed

Eloquent. Extraordinary. Timeless. Paradigm-shifting. Classic. Six decades after it first appeared, Leonard Read’s “I, Pencil” evokes such adjectives of praise. Rightfully so, for this little essay opens eyes and minds among people of all ages. Many first-time readers never see the world quite the same again.

Ideas are most powerful when they’re wrapped in a compelling story. Leonard’s main point—economies can hardly be “planned” when not one soul possesses all the know-how and skills to produce a simple pencil—unfolds in the enchanting words of a pencil itself. Leonard could have written “I, Car” or “I, Airplane,” but choosing those more complex items would have muted the message. No one person—repeat, no one, no matter how smart or how many degrees follow his name—could create from scratch a small, everyday pencil, let alone a car or an airplane.

This is a message that humbles the high and mighty. It pricks the inflated egos of those who think they know how to mind everybody else’s business. It explains in plain language why central planning is an exercise in arrogance and futility, or what Nobel laureate and Austrian economist F. A. Hayek aptly termed “the pretence of knowledge.”

Indeed, a major influence on Read’s thinking in this regard was Hayek’s famous 1945 article, “The Use of Knowledge in Society.” In demolishing the spurious claims of the socialists of the day, Hayek wrote,“This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals.”

Maximilien Robespierre is said to have blessed the horrific French Revolution with this chilling declaration: “On ne saurait pas faire une omelette sans casser des oeufs.” Translation: “One can’t expect to make an omelet without breaking eggs.” A consummate statist who worked tirelessly to plan the lives of others, he would become the architect of the Revolution’s bloodiest phase—the Reign of Terror of 1793–94.

Robespierre and his guillotine broke eggs by the thousands in a vain effort to impose a utopian society with government planners at the top and everybody else at the bottom. That French experience is but one example in a disturbingly familiar pattern. Call them what you will—socialists, interventionists, collectivists, statists—history is littered with their presumptuous plans for rearranging society to fit their vision of the common good, plans that always fail as they kill or impoverish other people in the process. If socialism ever earns a final epitaph, it will be this: Here lies a contrivance engineered by know-it-alls who broke eggs with abandon but never, ever created an omelet.

None of the Robespierres of the world knew how to make a pencil, yet they wanted to remake entire societies. How utterly preposterous, and mournfully tragic! But we will miss a large implication of Leonard Read’s message if we assume it aims only at the tyrants whose names we all know. The lesson of “I, Pencil” is not that error begins when the planners plan big. It begins the moment one tosses humility aside, assumes he knows the unknowable, and employs the force of the State against peaceful individuals. That’s not just a national disease. It can be very local indeed.

In our midst are people who think that if only they had government power on their side, they could pick tomorrow’s winners and losers in the marketplace, set prices or rents where they ought to be, decide which forms of energy should power our homes and cars, and choose which industries should survive and which should die. They should stop for a few moments and learn a little humility from a lowly writing implement.

While “I, Pencil” shoots down the baseless expectations for central planning, it provides a supremely uplifting perspective of the individual. Guided by Adam Smith’s “invisible hand” of prices, property, profits, and incentives, free people accomplish economic miracles of which socialist theoreticians can only dream. As the interests of countless individuals from around the world converge to produce pencils without a single “master mind,” so do they also come together in free markets to feed, clothe, house, educate, and entertain hundreds of millions of people at ever higher levels. With great pride, FEE publishes this new edition of “I, Pencil.” Someday there will be a centennial edition, maybe even a millennial one. This essay is truly one for the ages.

—Lawrence W. Reed, President Foundation for Economic Education

By Leonard E. Read

I am a lead pencil—the ordinary wooden pencil familiar to all boys and girls and adults who can read and write.

Writing is both my vocation and my avocation; that’s all I do.

You may wonder why I should write a genealogy. Well, to begin with, my story is interesting. And, next, I am a mystery —more so than a tree or a sunset or even a flash of lightning. But, sadly, I am taken for granted by those who use me, as if I were a mere incident and without background. This supercilious attitude relegates me to the level of the commonplace. This is a species of the grievous error in which mankind cannot too long persist without peril. For, the wise G. K. Chesterton observed, “We are perishing for want of wonder, not for want of wonders.”

I, Pencil, simple though I appear to be, merit your wonder and awe, a claim I shall attempt to prove. In fact, if you can understand me—no, that’s too much to ask of anyone—if you can become aware of the miraculousness which I symbolize, you can help save the freedom mankind is so unhappily losing. I have a profound lesson to teach. And I can teach this lesson better than can an automobile or an airplane or a mechanical dishwasher because—well, because I am seemingly so simple.

Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds fantastic, doesn’t it? Especially when it is realized that there are about one and one-half billion of my kind produced in the U.S.A. each year.

Pick me up and look me over. What do you see? Not much meets the eye—there’s some wood, lacquer, the printed labeling, graphite lead, a bit of metal, and an eraser.

Innumerable Antecedents

Just as you cannot trace your family tree back very far, so is it impossible for me to name and explain all my antecedents. But I would like to suggest enough of them to impress upon you the richness and complexity of my background.

My family tree begins with what in fact is a tree, a cedar of straight grain that grows in Northern California and Oregon. Now contemplate all the saws and trucks and rope and the countless other gear used in harvesting and carting the cedar logs to the railroad siding. Think of all the persons and the numberless skills that went into their fabrication: the mining of ore, the making of steel and its refinement into saws, axes, motors; the growing of hemp and bringing it through all the stages to heavy and strong rope; the logging camps with their beds and mess halls, the cookery and the raising of all the foods. Why, untold thousands of persons had a hand in every cup of coffee the loggers drink!

The logs are shipped to a mill in San Leandro, California. Can you imagine the individuals who make flat cars and rails and railroad engines and who construct and install the communication systems incidental thereto? These legions are among my antecedents.

Consider the millwork in San Leandro. The cedar logs are cut into small, pencil-length slats less than one-fourth of an inch in thickness. These are kiln dried and then tinted for the same reason women put rouge on their faces. People prefer that I look pretty, not a pallid white. The slats are waxed and kiln dried again. How many skills went into the making of the tint and the kilns, into supplying the heat, the light and power, the belts, motors, and all the other things a mill requires? Sweepers in the mill among my ancestors? Yes, and included are the men who poured the concrete for the dam of a Pacific Gas & Electric Company hydroplant which supplies the mill’s power!

Don’t overlook the ancestors present and distant who have a hand in transporting sixty carloads of slats across the nation.

Once in the pencil factory—$4,000,000 in machinery and building, all capital accumulated by thrifty and saving parents of mine—each slat is given eight grooves by a complex machine, after which another machine lays leads in every other slat, applies glue, and places another slat atop—a lead sandwich, so to speak. Seven brothers and I are mechanically carved from this “wood-clinched” sandwich.

My “lead” itself—it contains no lead at all—is complex. The graphite is mined in Ceylon [Sri Lanka]. Consider these miners and those who make their many tools and the makers of the paper sacks in which the graphite is shipped and those who make the string that ties the sacks and those who put them aboard ships and those who make the ships. Even the lighthouse keepers along the way assisted in my birth—and the harbor pilots.

The graphite is mixed with clay from Mississippi in which ammonium hydroxide is used in the refining process. Then wetting agents are added such as sulfonated tallow—animal fats chemically reacted with sulfuric acid. After passing through numerous machines, the mixture finally appears as endless extrusions—as from a sausage grinder—cut to size, dried, and baked for several hours at 1,850 degrees Fahrenheit. To increase their strength and smoothness the leads are then treated with a hot mixture which includes candelilla wax from Mexico, paraffin wax, and hydrogenated natural fats.

My cedar receives six coats of lacquer. Do you know all the ingredients of lacquer? Who would think that the growers of castor beans and the refiners of castor oil are a part of it? They are. Why, even the processes by which the lacquer is made a beautiful yellow involve the skills of more persons than one can enumerate!

Observe the labeling. That’s a film formed by applying heat to carbon black mixed with resins. How do you make resins and what, pray, is carbon black?

My bit of metal—the ferrule—is brass. Think of all the persons who mine zinc and copper and those who have the skills to make shiny sheet brass from these products of nature. Those black rings on my ferrule are black nickel. What is black nickel and how is it applied? The complete story of why the center of my ferrule has no black nickel on it would take pages to explain.

Then there’s my crowning glory, inelegantly referred to in the trade as “the plug,” the part man uses to erase the errors he makes with me. An ingredient called “factice” is what does the erasing. It is a rubber-like product made by reacting rapeseed oil from the Dutch East Indies [Indonesia] with sulfur chloride. Rubber, contrary to the common notion, is only for binding purposes. Then, too, there are numerous vulcanizing and accelerating agents. The pumice comes from Italy; and the pigment which gives “the plug” its color is cadmium sulfide.

No One Knows

Does anyone wish to challenge my earlier assertion that no single person on the face of this earth knows how to make me?

Actually, millions of human beings have had a hand in my creation, no one of whom even knows more than a very few of the others. Now, you may say that I go too far in relating the picker of a coffee berry in far-off Brazil and food growers elsewhere to my creation; that this is an extreme position. I shall stand by my claim. There isn’t a single person in all these millions, including the president of the pencil company, who contributes more than a tiny, infinitesimal bit of know-how. From the standpoint of know-how the only difference between the miner of graphite in Ceylon and the logger in Oregon is in the type of know-how. Neither the miner nor the logger can be dispensed with, any more than can the chemist at the factory or the worker in the oil field—paraffin being a by-product of petroleum.

Here is an astounding fact: Neither the worker in the oil field nor the chemist nor the digger of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the machine that does the knurling on my bit of metal nor the president of the company performs his singular task because he wants me. Each one wants me less, perhaps, than does a child in the first grade. Indeed, there are some among this vast multitude who never saw a pencil nor would they know how to use one. Their motivation is other than me. Perhaps it is something like this: Each of these millions sees that he can thus exchange his tiny know-how for the goods and services he needs or wants. I may or may not be among these items.

No Master Mind

There is a fact still more astounding: The absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work. This is the mystery to which I earlier referred.

It has been said that “only God can make a tree.” Why do we agree with this? Isn’t it because we realize that we ourselves could not make one? Indeed, can we even describe a tree? We cannot, except in superficial terms. We can say, for instance, that a certain molecular configuration manifests itself as a tree. But what mind is there among men that could even record, let alone direct, the constant changes in molecules that transpire in the life span of a tree? Such a feat is utterly unthinkable!

I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But to these miracles which manifest themselves in Nature an even more extraordinary miracle has been added: the configuration of creative human energies—millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human masterminding! Since only God can make a tree, I insist that only God could make me. Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree.

The above is what I meant when writing, “If you can become aware of the miraculousness which I symbolize, you can help save the freedom mankind is so unhappily losing.” For, if one is aware that these know-hows will naturally, yes, automatically, arrange themselves into creative and productive patterns in response to human necessity and demand— that is, in the absence of governmental or any other coercive master-minding—then one will possess an absolutely essential ingredient for freedom: a faith in free people. Freedom is impossible without this faith.

Once government has had a monopoly of a creative activity such, for instance, as the delivery of the mails, most individuals will believe that the mails could not be efficiently delivered by men acting freely. And here is the reason: Each one acknowledges that he himself doesn’t know how to do all the things incident to mail delivery. He also recognizes that no other individual could do it. These assumptions are correct. No individual possesses enough know-how to perform a nation’s mail delivery any more than any individual possesses enough know-how to make a pencil. Now, in the absence of faith in free people—in the unawareness that millions of tiny know-hows would naturally and miraculously form and cooperate to satisfy this necessity—the individual cannot help but reach the erroneous conclusion that mail can be delivered only by governmental “masterminding.”

Testimony Galore

If I, Pencil, were the only item that could offer testimony on what men and women can accomplish when free to try, then those with little faith would have a fair case. However, there is testimony galore; it’s all about us and on every hand. Mail delivery is exceedingly simple when compared, for instance, to the making of an automobile or a calculating machine or a grain combine or a milling machine or to tens of thousands of other things. Delivery? Why, in this area where men have been left free to try, they deliver the human voice around the world in less than one second; they deliver an event visually and in motion to any person’s home when it is happening; they deliver 150 passengers from Seattle to Baltimore in less than four hours; they deliver gas from Texas to one’s range or furnace in New York at unbelievably low rates and without subsidy; they deliver each four pounds of oil from the Persian Gulf to our Eastern Seaboard—halfway around the world—for less money than the government charges for delivering a one-ounce letter across the street!

The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed. I, Pencil, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cedar tree, the good earth.

By Milton Friedman, Nobel Laureate, 1976

Leonard Read’s delightful story, “I, Pencil,” has become a classic, and deservedly so. I know of no other piece of literature that so succinctly, persuasively, and effectively illustrates the meaning of both Adam Smith’s invisible hand—the possibility of cooperation without coercion—and Friedrich Hayek’s emphasis on the importance of dispersed knowledge and the role of the price system in communicating information that “will make the individuals do the desirable things without anyone having to tell them what to do.”

We used Leonard’s story in our television show, “Free to Choose,” and in the accompanying book of the same title to illustrate “the power of the market” (the title of both the first segment of the TV show and of chapter one of the book). We summarized the story and then went on to say:

“None of the thousands of persons involved in producing the pencil performed his task because he wanted a pencil. Some among them never saw a pencil and would not know what it is for. Each saw his work as a way to get the goods and services he wanted—goods and services we produced in order to get the pencil we wanted. Every time we go to the store and buy a pencil, we are exchanging a little bit of our services for the infinitesimal amount of services that each of the thousands contributed toward producing the pencil.

“It is even more astounding that the pencil was ever produced. No one sitting in a central office gave orders to these thousands of people. No military police enforced the orders that were not given. These people live in many lands, speak different languages, practice different religions, may even hate one another—yet none of these differences prevented them from cooperating to produce a pencil. How did it happen? Adam Smith gave us the answer two hundred years ago.”

“I, Pencil” is a typical Leonard Read product: imaginative, simple yet subtle, breathing the love of freedom that imbued everything Leonard wrote or did. As in the rest of his work, he was not trying to tell people what to do or how to conduct themselves. He was simply trying to enhance individuals’ understanding of themselves and of the system they live in.

That was his basic credo and one that he stuck to consistently during his long period of service to the public—not public service in the sense of government service. Whatever the pressure, he stuck to his guns, refusing to compromise his principles. That was why he was so effective in keeping alive, in the early days, and then spreading the basic idea that human freedom required private property, free competition, and severely limited government.

Leonard E. Read (1898-1983) was the founder of FEE, and the author of 29 works, including the classic parable “I, Pencil.”

More By Leonard E. Read

On Keeping the Peace

How to De-Control: Divest Your Mind of Attachments to Power

#25 – “If Government Doesn’t Relieve Distress, Who Will?”

#12 – “I Prefer Security to Freedom”

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What is the Sahm Rule?

How the sahm rule works, types of sahm rule indicators, history of the sahm rule, limitations of the sahm rule, the bottom line, the sahm rule recession indicator definition and how it's calculated.

Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

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The "Sahm Rule" is a recession indicator created and named after Claudia Sahm, a macroeconomist who worked at the Federal Reserve and the White House Council of Economic Advisers. According to the Sahm Rule, the early stages of a recession is signaled when the three-month moving average of the U.S. unemployment rate is half a percentage point or more above the lowest three-month moving average unemployment rate over the previous 12 months.

The Sahm Rule has been widely recognized for its accuracy, simplicity, and ability to quickly reflect the onset of a recession.

Key Takeaways

The Sahm Rule is a indicator that looks at signals related to the onset of a recession.
According to the rule, the early stages of recession are signaled when the three-month average unemployment rate moves above the lowest three-month moving average unemployment rate over the last 12 months by half a percentage point or more.
The rule has become widely recognized as a recession indicator due to its accuracy and simplicity.
The Sahm rule was first introduced by macroeconomist Claudia Sahm in 2019 as part of a policy proposal.

The unemployment rate represents the percentage of the overall labor force that is unemployed. The rate tends to rise when the economy is struggling and workers are having difficulty finding jobs, and fall when the economy is strong and workers can more easily find jobs. The Bureau of Labor Statistics (BLS) typically releases the unemployment rate for the previous month on the first Friday of every month. The unemployment rate is one of the main economic indicators used to measure the health of the economy, and the Sahm Rule inputs the rate into a simple formula to determine whether the U.S. is headed into a recession.

The rule compares the value of the current three-month moving average unemployment rate to the value of the lowest three-month moving average unemployment rate over the last 12 months. If the former is half a percentage point or more above the latter, the Sahm Rule indicates that U.S. is in the early stages of a recession. The Sahm Rule uses the three-month moving average unemployment rate—rather than the current unemployment rate—to prevent overreacting to a single month of data, Sahm said as a guest on The Investopedia Express podcast released in April 2024.

The Sahm Rule simply indicates that the economy is in the early stages of a recession. Since the early 1970s, the indicator has never been triggered outside of a recession, according to Sahm. Historically, when the unemployment rate passes the threshold outlined by the Sahm rule, it continues to increase.

The Federal Reserve Economic Data (FRED) database includes current and real-time Sahm Rule recession indicators.

Current Sahm Rule Recession Indicator

The BLS regularly revises the unemployment rate of previous months based on additional information from its survey that was not initially available. The current Sahm Rule recession indicator is calculated using the unemployment rate's revised values.

Real-Time Sahm Rule Recession Indicator

Unlike the current Sahm Rule recession indicator, the real-time Sahm Rule recession indicator uses "real-time" data. It is calculated using just the unemployment rate and recent history of unemployment rates that were available in a given month.

Sahm first introduced the indicator that would later be named after her as part of a policy proposal called "Direct Stimulus Payments to Individuals" published by The Hamilton Project, an economic policy initiative that is part of the Brookings Institution. The proposal was also included in The Hamilton Project's book "Recession Ready: Fiscal Policies to Stabilize the American Economy" published in 2019.

In the proposal, Sahm explained that consumer spending tends to slow significantly during recession growth, which can make job losses (and a recession overall) worse. She proposed that to combat that unemployment, the government distribute stimulus payments automatically to families in the face of a recessions—specifically, when the three-month average national employment rate jumps at least half a percentage point relative to its low over the last 12 months.

"Recent research finds that broadly distributed, lump-sum payments to individuals directly boost spending and help stabilize demand, making these types of payments effective responses to recessions," Sahm explained. "The total amount of stimulus would offset about half of the slowdown in consumer spending, totaling about 0.7 percent of GDP." Gross domestic product (GDP) refers to a country's total market value of goods and services within a certain time frame. Fiscal policies like the one Sahm proposed are known as automatic stabilizers .

The indicator became widely recognized, with the Federal Reserve adding it to the FRED database in October 2019.

As Sahm has pointed out in her newsletter, the rule is "empirical regularity," not a proposition. She emphasized that this means that the rule can also be broken.

For example, Sahm wrote in an April 2022 newsletter, imagine a scenario in which the unemployment rate increased hovered around 3.5%, up from a low of 3.0%, meeting the criteria for signaling the early stages of a recession based on the Sahm Rule. However, if around that same time, GDP growth held around 2.5%, down from a high of 5.5%, and inflation gradually slid down to 2%, such a combination of circumstances probably wouldn't constitute a recession, she explained.

What is the Sahm Rule today?

First introduced in 2019, the Sahm Rule is a recession indicator based on conditions of the labor market. When the three-month average unemployment rate rises above its 12-month low by at least half a percentage point, we are in the early stages of a recession, according to the rule.

Who created the Sahm Rule?

Claudia Sahm, a macroeconomist who worked at the Federal Reserve and the White House Council of Economic Advisers, introduced the indicator as part of a policy proposal. The rule was then named after her.

How Accurate is the Sahm Rule?

The rule has proved to be very accurate with the indicator always triggering in the early stages of a recession and never outside of one since the 1970s.

The Sahm Rule refers to an indicator that signals the early stages of a recession. According to the rule, the beginning of a recession is signaled when the three-month moving average unemployment rate is half a percentage point or more higher than the lowest three-month moving average unemployment rate over the last 12 months. Historically, when the unemployment rate has passed this threshold, it has continued to rise.

Sahm Consulting. " About ."

U.S. Bureau of Labor Statistics. " Release Calendar: List View ."

Sahm, Claudia. " Direct Stimulus Payments to Individuals ." The Hamilton Project, The Brookings Institute , May 2019, pp. 77.

Sahm, Claudia. " Direct Stimulus Payments to Individuals ." The Hamilton Project, The Brookings Institute , May 2019, pp. 77-79.

Economic Research, Federal Reserve Bank of St. Louis. " FRED Adds Sahm Rule Recession Indicators ."

The Hamilton Project. " Direct Stimulus Payments to Individuals ."

The Hamilton Project. " Recession Ready: Fiscal Policies to Stabilize the American Economy ."

Stay-At-Home-Macro. " Rules Are Made to Be Broken ."

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Edward Jones

What investors need to know about stock market corrections

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Key takeaways

Market corrections are common.

Since the early 1980s, there's been a greater than 5% drawdown in the S&P 500 Index in every year but two.

Is a recession imminent?

Fortunately, many of the “early warning signals” that we track don't appear to be suggesting that a recession is imminent.

Recoveries have been quick

The average time to recovery is three months from a 5%-10% downturn and eight months from a 10%-20% correction.

Market corrections, while common, are always unsettling. Investment strategists lose sleep too. In the midst of this current global market sell-off, I spent the wee hours reminding myself of what I’ve absorbed over the years about market corrections and volatility. Here are some important reminders to keep in mind if the current sell-off is causing you to lose sleep as well.

Ten things to remember about market corrections and volatility

Market corrections happen almost every year. Since the early 1980s, there's been a greater than 5% drawdown in the S&P 500 Index in every year but two (1995 and 2017). 1
Market volatility and corrections don't emerge out of nowhere. They tend to be the result of policy uncertainty. The US market has been expecting multiple rate cuts by the US Federal Reserve (Fed), which haven't yet emerged but are likely forthcoming. 2
Of all the indicators, the bond market tends to get it right most often. The bond market is signaling that US nominal growth (real economic activity plus inflation) may be weak. US long rates have plunged. 3 The 2-year US Treasury has fallen by even more. 4 The bond market is ahead of the Fed and intimating that multiple rate hikes could be imminent.
Market cycles don’t die of old age. They're typically murdered by the Fed with interest rate hikes. Herein, lies the rub. Has the Fed kept interest rates high for too long, and what damage has it done to the global economy? Fortunately, many of the “early warning signals” that we track don't appear to be suggesting that a recession is imminent. ( Explore our Portfolio Playbook to see what our indicators are telling us on a monthly basis.)
The corporate bond market has been the “canary in the coal mine.” Corporate borrowing costs relative to the risk-free rate tend to provide an early warning sign, rising significantly ahead of a recession. Currently, the spread between high-quality corporate bonds and the risk-free rate are rising but remain below average. 5 In short, I believe the corporate bond market is signaling a worsening economic backdrop, but not a recession.
The stock market has historically recovered quickly from corrections. The average time to recovery from a 5%-10% downturn is three months. The average time to recovery from a 10%-20% correction is eight months. 6
If a recession occurs, markets typically fall by more and take longer to recover. The average decline during the more-mild recessions of 1957, 1960, 1980, 1981, and 1991 is nearly 20%. The stock market recovered, on average, within one to two years. 7
The best days in the market often happen near the worst days of the market. Investors likely know that returns can be significantly impaired if they miss the best days in the market, but they may not realize that the best and worst days tend to group together. In fact, of the 30 best days in the stock market in the past 30 years, 24 happened during the “tech wreck,” the Global Financial Crisis, and the COVID-19 pandemic. 8
It’s typically been better to add to portfolios after severe down days. Long-term investors have usually been better served by adding to portfolios rather than by withdrawing money during corrections. 9
Time in the market has generally been better than timing the market. On days when the headlines look dire, our action biases implore us to make changes to our portfolios. However, numerous studies, including one from Dalbar, concluded that investors who remained committed to their investment plans have typically fared better than those who have attempted to time the market. 10

Source: Bloomberg, as of 8/2/24, based on the S&P 500 Index.

Source: Bloomberg, as of 8/5/24, based on Fed Funds Implied Futures.

Source: Bloomberg, as of 8/5/24, based on the 10-year US Treasury rate.

Source: Bloomberg, as of 8/5/24.

Source: Bloomberg, as of 8/5/24, based on the Bloomberg US Corporate Bond Index option-adjusted spread.

Source: Bloomberg, as of 8/5/24, based on the Dow Jones Industrial Average Index drawdowns and market cycles since 1945.

Source: Bloomberg, as of 7/31/24, based on the S&P 500 Index and recession dates defined by the National Bureau of Economic Research: Aug. 1957 – Apr. 1958, Apr. 1960 – Feb. 1961, Dec. 1969 – Nov. 1970, Nov. 1973 – Mar. 1975, Jan. 1980 – Jul. 1980, Jul. 1981 – Nov. 1982, Jul. 1990 – Mar. 1991, Mar. 2001 – Nov. 2001, Dec. 2007 – Jun. 2009 and Feb. 2020 – Apr. 2020.

Sources: Bloomberg and Invesco, as of 8/5/24.

Source: Bloomberg, as of 7/31/24, based on S&P 500 Index returns since 1995. The analysis determines whether investors were better served by adding or withdrawing money following the 50 worst days in the market since 1995.

Sources: Dalbar, Bloomberg, as of 12/31/23. The study is based on a comparison of the return of the S&P 500 Index versus the average asset allocation investor return based on an analysis by DALBAR, Inc., which utilizes the net of aggregate mutual fund sales, redemptions, and exchanges each month as a measure of investor behavior.

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Important information

Image: Hiroshi Watanabe / Getty

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

An investment cannot be made directly in an index.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

The S&P 500 Index is a is a market-capitalization-weighted index of the 500 largest domestic US stocks.

The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes US dollar-denominated securities publicly issued by US and non-US industrial, utility, and financial issuers.

The Dow Jones Industrial Average is a price-weighted index of the 30 largest, most widely held stocks traded on the New York Stock Exchange.

Option-adjusted spread (OAS) is the yield spread that must be added to a benchmark yield curve to discount a security’s payments to match its market price, using a dynamic pricing model that accounts for embedded options.

The risk-free rate represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time.

Fed funds futures are financial contracts that represent the market’s opinion of where the federal funds rate will be at a specified point in the future. The federal funds rate is the rate at which banks lend balances to each other overnight.

The opinions referenced above are those of the author as of August 5, 2024. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.

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Job Market Slows Significantly, Raising Economic Jitters

U.S. employers added 114,000 jobs in July, far short of forecasts, and unemployment rose to 4.3 percent, the highest level since 2021.

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Monthly change in jobs

+114,000 jobs in July

By Sydney Ember

American employers reined in their hiring significantly in July, intensifying jitters that the economy is cooling faster than expected.

Payrolls grew by 114,000, the Labor Department reported on Friday, the second smallest gain in a 43-month period of consistent job growth. The unemployment rate rose to 4.3 percent, the highest level since October 2021, when anxiety about the pandemic was still elevated.

The report added to worries that Federal Reserve officials, who have been holding off on cutting interest rates until they see more data that indicates inflation is coming under control, may have waited too long , potentially sending the labor market into a hard-to-arrest downward spiral. Fed policymakers left the benchmark interest rate at 5.3 percent at their meeting this week but suggested that a rate cut could be on the table at their next gathering, in mid-September.

“I’m not pushing the panic button at this point,” said Robert Frick, the corporate economist at the Navy Federal Credit Union. “But it is a cause for concern, and it certainly indicates the Fed is behind the curve in cutting rates.”

Wage growth and inflation slowed

Year-over-year percentage change in earnings vs. inflation

+3.6% in July

+3% in June

Consumer Price Index

Avg. hourly earnings

Wage growth decelerated in July, with average hourly earnings up 0.2 percent from the previous month and 3.6 percent from a year earlier. The number of people working part time who would have preferred full-time employment also increased, while the number of hours worked per week ticked down slightly, both signals that the demand for workers is slackening.

Job gains were concentrated in a few areas

Change in jobs in July 2024, by sector

Education and health

+57,000 jobs

Construction

Leisure and hospitality

Manufacturing

Business services

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15.1 The Role of Government in a Market Economy

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Why is high inflation a problem?

What is the Sahm Rule?

Key Takeaways

Current Sahm Rule Recession Indicator

Real-Time Sahm Rule Recession Indicator

What is the Sahm Rule today?

Who created the Sahm Rule?

How Accurate is the Sahm Rule?

Individual Investor & Retirement Plan Participant

Retirement Plan Manager

Invesco Contribution Manager

CollegeBound 529

Select your role

Individual Investor

Financial Professional

Institutional

What investors need to know about stock market corrections

Key takeaways

Is a recession imminent?

Recoveries have been quick

Ten things to remember about market corrections and volatility

Related insights

Markets and Economy Podcast: The Fed, job market, and rising risk of recession

Market outlook The presidential election and its effect on the stock market

Markets and Economy Above the Noise: Countdown to a rate cut

Leaving Invesco.com

Change site/location

Job Market Slows Significantly, Raising Economic Jitters

Wage growth and inflation slowed

Job gains were concentrated in a few areas

Tell us about your recent experience in seeking work — or workers.

Reactions to Kamala Harris' pick of Tim Walz for vice president

Iran's Revolutionary Guards hold military drill in western Iran, IRNA says

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