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Micro

Market failures

A market fails when, left alone, it produces too much or too little of something compared with what is best for society.

CAPS

Grade 12 · Economics · Micro

Economics wants the concept, then the diagram or the data, then the consequence.

  • The papers

    Paper 1 is macroeconomics and economic pursuits. Paper 2 is microeconomics and contemporary economic issues. Each paper is 150 marks.

  • How to write it

    Define the term as CAPS uses it. If a graph is asked for, label both axes, the curves, and the equilibrium or the shift. Then say what happens to price, quantity, growth, inflation or unemployment. A curve with no labels does not explain.

  • How a marker reads it

    A common mix-up is calling education a public good, when people can be excluded from schools, so it is a merit good.

Essays are marked on the introduction, a body that applies the theory, and a conclusion that answers the question. A list of definitions is not an argument.

Worked theory

Worked theory. A coal power station near eMalahleni pays for coal and wages, but not for the asthma treatment of nearby families. Because that external cost is not in its price, electricity output is higher than the socially best level. A carbon tax pushes the cost back onto the producer.

More worked examples

  • Street lights

    Street lights in a suburb light the road for everyone, and no one can be stopped from using the light. No firm can sell it, so the municipality pays from rates. That is a public good.

  • Rent ceiling

    If a city capped rents below the market level, more people would want flats than landlords offer, creating a shortage and long waiting lists. That is a maximum price causing a shortage.

In ordinary words

When a cost such as pollution falls on outsiders, the producer's private cost is lower than the social cost, so too much is produced. Public goods are not supplied because non-payers cannot be excluded, and merit goods are under-consumed. Government taxes, subsidises, regulates or provides, but its intervention can also fail.

In South Africa

A power station chimney upwind of a township clinic.

Part 1 / 4

What it is

A market fails when, left alone, it produces too much or too little of something compared with what is best for society.

More worked examples

Board walkthroughs on this topic. Open one, copy the working, then try the next.

Example 1 / 20

A factory's private cost is R30 per unit and it causes R12 of pollution damage per unit. Calculate the social cost per unit.

How we got there

Read this like a teacher at the board. We go slowly, name every number, and say why we take each step.

Explain in another language · 11

1. What is the question asking?

Read the question twice. Circle the unknown. Underline every number and unit. The paper is asking: A factory's private cost is R30 per unit and it causes R12 of pollution damage per unit. Calculate the social cost per unit.

Before any working — hunt first

Given

Numbers and units already in the sentence: R30 per · R12 of. Copy each one into a column. A name without a number is not given.

Missing

After you copy the given, the letter that still has no number is missing. The paper is pointing at: the social cost per unit. Circle that word — that is the missing variable.

Find

We are required to find: the social cost per unit. Write that as a symbol on the left, with a question mark, before you touch a formula.

Calculate

What we need to calculate: Social cost = private + external. Then substitute the given, one line at a time, to get the social cost per unit.

In other words — as if you have never seen this before

If you have never seen this before: Social cost = private + external. We will name a method in words, write the formula with no numbers, then substitute one line at a time.

2. What do we already know?

MPC R30; external cost R12.

3. Which method — and why this one?

Social cost = private + external.

4. Step-by-step working

  1. 01 / 08

    Step A — Read the question twice

    Slow down. Circle the word that names the unknown. Underline every number and its unit. Do not grab a formula yet — first decide what the paper is actually asking.

    Why this step: If you can say the method in a sentence, you will pick the right formula. First-timers skip this and grab the first equation they remember.

  2. 02 / 08

    Step A2 — Hunt: Given, Missing, Find, Calculate

    Given: Numbers and units already in the sentence: R30 per · R12 of. Copy each one into a column. A name without a number is not given. Missing: After you copy the given, the letter that still has no number is missing. The paper is pointing at: the social cost per unit. Circle that word — that is the missing variable. Find: We are required to find: the social cost per unit. Write that as a symbol on the left, with a question mark, before you touch a formula. Calculate: What we need to calculate: Social cost = private + external. Then substitute the given, one line at a time, to get the social cost per unit.

    Why this step: Do not name the letters yet. First hunt: what already has a number (Given), what has no number (Missing), the word the paper wants (Find), and which formula still contains the missing letter (Calculate).

  3. 03 / 08

    Step B — Write the given in a column

    MPC R30; external cost R12.

    Why this step: A column with units stops you mixing cm with m, or minutes with seconds. Markers can also see you started correctly.

  4. 04 / 08

    Step C — Name the method in words

    Social cost = private + external.

    Why this step: If you can say the method in a sentence, you will pick the right formula. First-timers skip this and grab the first equation they remember.

  5. 05 / 08

    Add

    30+12=R42.

    Why this step: We only do one job per line so a marker can follow the marks — and so you can find a slip without starting over.

  6. 06 / 08

    Step G — Sense-check the size

    Ask: is this the kind of number a Grade 10–12 paper would want? A speed of 3 000 ms for a learner walking, or a probability bigger than 1, means a unit or algebra slip. Estimate first: round the numbers and do the sum in your head.

    Why this step: Markers write ‘unrealistic’ in the margin when the method is right but the size is wild. A 10-second head check often finds a missing 10² or a unit that never changed.

  7. 07 / 08

    Step F — Box the answer with its unit

    R42 per unit.

    Why this step: A number without a unit is half a mark on a Physics paper, and a marker can miss a Maths answer that is buried in working.

  8. 08 / 08

    Step H — What the marker is looking for

    On an NSC memo you usually earn: (1) a method mark for naming the right formula or idea in words, (2) an accuracy mark for substituting the given numbers with units, (3) an accuracy mark for the boxed answer with its unit. Write those three lines even if you are unsure of the arithmetic — blank pages score zero.

    Why this step: First-timers chase the final number and leave the method blank. The memo still pays out for the idea and the substitution even when the last line is wrong.

5. The answer

R42 per unit.

Copy onto your answer sheet — in this order

Answer: R42 per unit.

6. Check it like a marker

Market output is too high because only R30 is considered.

7. A trap first-timers fall into

First-timers often grab the first formula they remember, mix units (cm with m, minutes with seconds), or drop a minus sign. Write the formula in words first: “this equals that, because…”

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