C. Chaplin 
         
         
         
         
         
         
         
         
         
                         St udy Guide 
         
         
                      Economics 
                         Grade 12 
                                
                                
                                
                                
                       Contents 
                             
        
       Term 1 .................................................................................................................... 1 
       1  Topic Circular Flow  ............................................................................................ 1 
       2  Business Cycles   ............................................................................................. 13 
       3  Public Sector  ................................................................................................... 20 
        
       Term 2 .................................................................................................................. 38 
       1  Economic systems: protection and free trade (globalisation) ........................... 38 
       2  Dynamics of markets: perfect markets ............................................................. 44 
       3  Dynamics of markets: imperfect markets ......................................................... 59 
       4  Dynamics of markets: market failures.............................................................67 
        
       Term 3 .................................................................................................................. 72 
       1  Economic growth and development) ................................................................ 72 
       2  Economic growth and development: industrial development policies ............... 78 
       3  Economics: basic concepts and quantitative elements (economic and social  
       performance indicators) ................................................................................... .....84 
       4  Economic issues of the day: inflation..............................................................89 
       5 Tourism and economic redress: environmental sustainability ...................... .....96 
         
       6  Basic economic problem: environmental sustainability...................................103 
        
       Answers term 1-3............................................................................................ . ...107 
        
       End-of-year examination paper  microeconomics.................................................143 
       Final examination paper macroeconomics...........................................................148 
       Memo microeconomics.......................................................................................155 
       Memo macroeconomics......................................................................................162
                                                       TERM                                1 
                                                                            
                  Term1  
                  Topic 1 Circular flow 
                  Overview 
                  This topic discusses the open economy circular flow model and  the various markets that 
                  facilitate economic activities. It also deals with national accounts aggregates and 
                  conversions, and the multiplier effect in the economy. 
                  In this topic, you will learn about: 
                   
                          The open economy circular flow model 
                          The markets 
                          National account aggregates and conversions 
                          The multiplier 
                                                                                             The markets 
                        The circular flow model 
                        The participants                                       Goods market 
                        The flows                                            • Factor market  
                                                                             • Financial market 
                                                                             • Foreign exchange market 
                                                                             • Flows through different markets 
                 National account aggregates and conversions                                    The Multiplier 
                                                                                  Meaning of the multiplier 
                Basic prices                                                  • The multiplier process in a two-sector 
                Factor cost                                                   model  
                Market cost                                                      The multiplier effect in a graphical form  
                GNI                                                           • The multiplier process in the three and 
                GDP                                                           four sector models 
                    © Via Afrika Publishers >> Economics                                                                         1 
                    TERM         1 
        
       Unit 1 The open economy circular flow model  
        
       Introduction 
       The circular flow model shows us how the economy functions by illustrating the relationship in the 
       economy between production, income and spending. As consumers we have to make choices as 
       there are scarce resources to satisfy our unlimited needs and wants. 
       Macroeconomics explains how the economy functions as a whole while microeconomics explains 
       how particular and specific elements of the economy operate, for example importers, consumers, 
       etc. 
       1. The complete diagram 
       The circular flow model of an open economy shows the workings of an economy that is open to 
       foreign trade. South Africa has an open economy because we trade with other countries. 
        
       1.1 Participants 
       The flows of production, income and expenditure are influenced by four participants: households 
       (consumers), firms (business enterprises), government (public sector) and the foreign sector. 
        
       1.1.1 Households 
        
       In economics a household is any number of people that live together and make joint economic 
       decisions. A household can consist of one person or a number of people. They sell their factors of 
       production (productive resources) to the factor market. The factors of production are bought by 
       firms to produce goods and services. Households spend the income they earn to buy goods and 
       services from firms. We call spending on goods and services consumption expenditure (C). 
       Households do not spend all their money on goods and services. They keep their savings (S) with 
       financial institutions such as banks and insurance companies. They also pay taxes (T) to the 
       government in various forms such as value-added tax or income tax. 
        
       1.1.2 Firms 
        
       Firms produce the goods and services that are bought and consumed by other participants such as 
       households. In order to do this they buy factors of production from households. In return for the 
       goods and services they produce firms earn revenue. 
        
       1.1.3 Government 
        
       The government buys factors of production from the factor market to produce goods and services 
       for the public. In exchange for public goods and services, firms and households pay taxes 
       to the government. 
        
       1.1.4 Foreign sector 
        
        © Via Afrika Publishers >> Economics    2