Grade 12 · CAPS
Grade 12 Market Failure
Economics practice questions and a worked example
When a market fails to allocate resources efficiently -- through externalities, imperfect competition or missing information -- government intervention such as a minimum wage or cost-benefit analysis is used to correct it. Grade 12's real past-paper questions here work through an actual minimum-wage news extract and a genuine cost-benefit comparison between three real infrastructure projects.
Worked example
2.1.2 How would the levying of taxes on demerit goods influence their consumption?
Answer & explanation
Consumption or demand for demerit goods will decrease as consumers will buy less of the products / Taxes increase the prices of the goods resulting in a decrease in the quantity demand.
When taxes are levied on demerit goods, the prices of these goods increase. This is because the tax is added to the cost of the product, making it more expensive for consumers. As a result, the higher price leads to a decrease in the quantity demanded, as some consumers will choose not to buy the product or to buy less of it. This decrease in demand is the intended effect of taxing demerit goods, as it helps reduce their consumption due to their negative effects on society.
Test your understanding
Try a similar Grade 12 Market Failure question and get a useful next step based on your answer.
No account needed to start.
Question 1 of 3
1.1.3 The benefit gained by a third party which is not included in the market price is known as ... externality.
Learn from each answer, right or wrong.
Try again before revealing the solution.
More practice questions
Explore additional Grade 12 Market Failure questions.
- 2PAY HIKE FOR DOMESTIC WORKERS The Department of Employment and Labour's National Minimum Wage (NMW) Commission has recommended an above-inflation wage increase to the NMW for 2023, which could see the rate for domestic workers jump to R25,05 an hour. With the consumer price index (CPI) averaging around 7% in 2022, this would put the hike at around 8%. An increase of R25,05 would push the monthly rate to over R4 000 for a worker who works 8 hours a day, 20 days a month. This would be approximately R300 more than in 2022. (Adapted from Business Tech) 2.3.3 Briefly describe the term market failure.
- 3PAY HIKE FOR DOMESTIC WORKERS The Department of Employment and Labour's National Minimum Wage (NMW) Commission has recommended an above-inflation wage increase to the NMW for 2023, which could see the rate for domestic workers jump to R25,05 an hour. With the consumer price index (CPI) averaging around 7% in 2022, this would put the hike at around 8%. An increase of R25,05 would push the monthly rate to over R4 000 for a worker who works 8 hours a day, 20 days a month. This would be approximately R300 more than in 2022. (Adapted from Business Tech) 2.3.5 How would minimum wages negatively affect the employers?
- 42.5 How would the provision of subsidies to producers positively influence the economy?
- 54.1.1 Name any TWO redress methods used to redistribute wealth.
Common mistakes
- Assuming any government intervention automatically corrects market failure -- a minimum wage set above equilibrium, for instance, can itself cause unemployment, which is exactly the kind of trade-off the real exam questions ask learners to evaluate.
More Grade 12 Economics topics
Aligned to CAPS Grade 12 Economics — Market Failure. Curriculum source: CAPS for the FET Phase, Department of Basic Education.
Need more help with Grade 12 Economics?
Work through Economics one-on-one with a verified tutor.
Find a tutorExam preparation
Know what to work on before your exams.
Practise with questions from past papers, track your progress, and discover which topics need more attention.
Set up my exam
Homework Assist
Stuck on a question?
Work through it with Homework Assist.
Try Homework Assist