TEST CODE 02116010 FORM TP 2013166 MAY/JUNE 2013

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CARIBBEAN EXAMINATIONS COUNCIL

CARIBBEAN ADVANCED PROFICIENCY EXAMINATION

ECONOMICS

Unit 1 -Paper 01

1 hour 30 minutes

(u JUNE 2013 (a.m.)) READ THE FOLLOWING INSTRUCTIONS CAREFULLY.

1. This test consists of 45 items. You will have 1 hour and 30 minutes to answer them.

2. In addition to this test booklet, you should have an answer sheet.

3. Do not be concerned that the answer sheet provides spaces for more answers than there are items in this test.

4. Each item in this test has four suggested answers lettered (A), (B), (C), (D). Read each item you are about to answer and decide which choice is best.

5. On your answer sheet, find the number which corresponds to your item and shade the space having the same letter as the answer you have chosen. Look at the sample item below.

Sample Item

Prime cost is calculated by adding direct factory expenses to cost of

(A) (B) (C) (D)

goods used goods bought materials used materials produced

Sample Answer

The best answer to this item is "materials used", so answer space (C) has been shaded. 6. If you want to change your answer, be sure to erase your old answer completely and fill in

your new choice.

7. When you are told to begin, tum the page and work as quickly and as carefully as you can. If you cannot answer an item, omit it and go on to the next one. You can come back to that item later. Your score will be the total number of correct answers.

8. You may do any rough work in this booklet.

9. You may use silent non-programmable calculators to answer questions.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

Copyright 2009 Caribbean Examinations Council All rights reserved.

02116010/CAPE 2013

1.

2.

3.

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Which of the following situations is MOST likely to result when there are limited resources?

(A) (B) (C)

(D)

People must make choices. The poor will become poorer. Only the rich can acquire everything

they desire. Some firms will be forced out of

business.

A baker can bake any of two combinations of cakes and loaves of bread using the following options.

Loaves of Cakes Bread

96 12 75 15

What is the opportunity cost of producing one cake?

(A) (B) (C) (D)

1 loaf of bread 5 loaves of bread 7 loaves of bread 8 loaves of bread

Which ofthe following is an example of a normative economic statement?

(A) A reduction in the price of goods will benefit consumers.

(B) The government should provide free medication for senior citizens.

(C) An increase in interest rates will attract foreign investors.

(D) An increase in the minimum wage will increase inflation.

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4.

5.

Which of the following BEST describes the 'marginalist principle'?

(A) (B)

(C)

(D)

Aver~ge cost equals average revenue. Marginal cost equals average

revenue.

Average cost equals marginal revenue.

Marginal cost equals marginal revenue.

i

Item 5 refers to the following diagram showing the Production Possibility Frontier.

Bread A D

B

O L_------------------~S~o~d~a

On the diagram, point F represents

(A) inefficiency (B) equilibrium (C) technical efficiency (D) an unattainable level of production

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I

r

6.

7.

8.

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Which of the following situations results in an external cost?

(A) Private citizens clean up the

(B)

(C)

sidewalk. Individuals place litter at the side

ofthe road. A food processing company

provides scholarships for needy children.

(D) Disadvantaged youth from inner city communities enrol in a skills programme.

Supply functions are positively sloped because

(A) (B)

(C)

(D)

of the law of increasing returns less output is supplied at higher

prices more output is supplied at higher

pnces extra output must be attracted from

elsewhere

Item 8 refers to the diagram below which represents the market for ferry services.

Ticket Price

($) F f------------x

s

D o'--------------7-

Number of Trips

OF is the equilibrium ticket price for a return trip. If government imposes a price ceiling to allow the lower income groups to utilise more of the ferry services, it should be placed

(A) either above or below OF (B) at the equilibrium price, OF (C) above the equilibrium price, OF (D) below the equilibrium price, OF

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9.

10.

11.

Item 9 refers to the diagram below which shows a firm operating in a perfectly competitive market.

p

Q

Which segment of the curves shown represents the short-run supply curve?

(A) (B) (C) (D)

Cto E BtoD AtoD A to F

If the demand for a seller's product is inelastic and he lowers the price, his total revenue will

(A) (B) (C) (D)

increase decrease fluctuate remain the same

Which of the following is an example of a price ceiling?

(A) (B) (C) (D)

Rent controls Farm price supports Taxes on the market Minimum wage laws

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12.

13.

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Which of the following BEST explains the term, 'indifference curve'?

(A)

(B)

(C)

(D)

Goods for which the budget line is the same

Goods for which consumption is indifferent

Goods which give the consumer maximum satisfaction

The combination of two goods which give the consumer the same level of satisfaction

Item 13 refers to the following diagram depicting consumer surplus.

Price U

S Quantity

Which area on the diagram depicts consumer surplus?

(A) (B) (C) (D)

RPT PUT ORTS 1 OUTD 1

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14. The demand curve for a normal good is said to be negatively sloped.

Which of the following diagrams would NOT represent a normal good?

(A) Price s

p

D

Q Quantity

(B) Price s

p

D

Q Quantity

(C) Price s

D

Quantity

(D) Price s

Q Quantity

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Item 15 refers to the diagram below which shows total marginal utility of ice cream and the quantity of ice cream.

50

1 2 3

TU

5----MU

Quantity of Ice Cream (number of cones)

15. In the diagram, at which quantity of ice cream is the consumer maximizing utility?

16.

(A) 1 (B) 3 (C) 4 (D) 5

Which of the following market structures is characterised by several firms which are too small to influence the market?

(A) (B) (C) (D)

Perfect competition Duopolistic competition Oligopolistic competition Monopolistic competition

17. On which of the following assumptions is perfect competition based?

(A) Perfect control of price (B) Large number of buyers (C) Large number of big firms (D) Small number of individual firms

0211 60 I 0/CAPE 2013

18. 'Voluntary agreements' is an example of which ofthe fo llowingtypes ofintervention?

(A) (B) (C) (D)

Free market Government Private sector Individual choice

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19.

Price

0

20.

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If a firm cannot prevent a consumer from enjoying the benefits of a good it produced at low cost, the good is

(A) (B) (C) (D)

excludable non-excludable rival in consumption nonrival in consumption

Item 20 refers to the graph below which shows a situation in which the monopolistically competitive firm is in the long-run equilibrium.

MC AC

I MR D

I

Quantity

Using the marginalist approach to determine equilibrium price and quantity, what is the area between Q 1 and Q2 called?

(A) Excess capacity (B) Shut-down point (C) Equilibrium point (D) Minimum efficiency scale

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Item 21 refers to the diagram below showing the social marginal costs (SMC), the private marginal costs (PMC) and the social marginal benefits (SMB).

SMC

Price

0 '-----------::L' -----='---~ Ql Q2 Quantity

21. Which of the following is TRUE?

22.

(A) Output Q2 is efficient because

(B)

(C)

SMC > PMC. Output Ql is efficient because

SMB = SMC. Output Q2 is efficient because

PMC = SMB. (D) Output Q 1 is efficient because

SMB > PMC.

Which of the following is NOT a characteristic of the oligopolistic industry?

(A) There are many buyers. (B) The firms are price takers. (C) There are few firms in the industry. (D) The goods may be identical or

differentiated.

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23. Which of the following is NOT a cause of market failure?

(A) Taxation (B) Monopoly (C) Externalities (D) Imperfect knowledge

24. If the production of a good results tn positive externalities then

(A) a tax should be imposed on the good (B) production of the good should cease (C) production of the good should be

subsidized (D) too many resources are going into

the production of the good

25. A situation is defined as 'Pareto efficient' if it is

(A) possible to make someone better off without making someone else worse off

(B) impossible to make anyone better off without making someone else worse off

(C) possible to make someone worse off and everyone else better off

(D) impossible to make anyone better off without making someone pay

26. A situation in which people enjoy the benefits of public goods without paying for them, is known as the

(A) non-rival problem (B) free-rider problem (C) non-excludable problem (D) drop-in-the-bucket problem

27. If the cost of providing a good to an additional person is zero, the good is

(A) a free rider good (B) non-excludable (C) a private good (D) non-rival

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Price

28.

29.

30.

Items 28-29 refer to the graph below which shows the demand for and supply of health care in a particular market .

I I I I I I I I I

S=MSC

e D=MSB

If there is no health care insurance, what would be the equilibrium price and quantity of health care?

(A) P 1 and Q1 (B) P2 and Q2 (C) P2 and Q3 (D) P3 and Q3

If a health insurance company offers to pay halfthe cost of health care, what would be the price and quantity demanded by the consumer?

(A) P 1 and Q1 (B) P2 and Q2 (C) P2 and Q3 (D) P3 and Q3

Which of the following contributions are examples of privatization?

(A) Regulation and franchising (B) Franchising and redistribution (C) Contracting out and deregulation (D) Deregulation and nationalization

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Quantity

31.

32.

33.

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If an investor borrows $1 000 at an interest rate of 14 per cent per annum, the annual interest payment would be

(A) (B) (C) (D)

$ 14 $ 140 $1 000 $1 680

Which ofthe following is NOT likely to cause a shift in the supply curve for labour?

(A) (B) (C) (D)

Cost of labour Increased birth rate Increased population growth Migration of skilled workers

Which of the following terms describes the relationship between factor rewards and costs of production?

(A) (B) (C) (D)

Direct Inverse Indirect Negative

34. Which of the following countries has the GREATEST inequality of income distribution?

Country Value of Gini Coefficient

(A) p 0.1 (B) Q 0.3 (C) R 0.7 (D) s 0.9

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35.

Item 35 refers to the following diagram depicting a labour market.

Wage

MRPL

Quantity Labour

Which of the following economic concepts does the shaded area in the triangle represent?

(A) (B) (C) (D)

Poverty Economic rent Transfer earnings Consumer surplus

Item 36 refers to the table below which shows the percentage of national income earned by various factors of production.

Factor Percentage % Income Earned

Land 15% Labour 25% Capital 20% Entrepreneurship 40%

36. The table represents

(A) cost of firms of each facto r (B) size distribution of income (C) personal distribution of income (D) functional distribution of income

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I r l

37.

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Item 37 refers to the following diagram of a Lorenz curve.

e 100 8 = ..... ~- 80 ~ ~ ell ...

~ .... = ~ 60 ~ = y e t e

=-- - 40

Percentage of Households

By examining the portion of the entire area that is shaded, an economist can determine the

(A) (B) (C) (D)

Gini coefficient concentration ratio elasticity coefficient marginal rate of substitution

02116010/CAPE 2013

38.

39.

Item 38 refers to the graph below showing the demand and supply for a factor of production.

Price s

D

D

S 0 t oL---------~--~~--~~ Quantity

A shift of the demand curve from DD to Dp 1 will result in (A) (B) (C) (D)

a decrease in economic rent an increase in economic rent a decrease in transfer earnings an increase in transfer earnings

"Longevity" is a component of which of the following measures?

(A) Gini coefficient (B) Human Development Index (C) Fair-firm concentration ratio (D) Herfindahl-Hirschman index

40. When examining the Lorenz curve, a Gini coefficient of 100 % is regarded as total

(A) employment in the country (B) equality of income distribution (C) inequality of income distribution (D) separation ofthe rich and the poor

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41. The higher the demand for houses, and hence the higher their price, the higher will be the demand for bricklayers.

The concept explained above BEST describes

(A) (B) (C) (D)

derived demand increase in demand increase in factors demanded increase in quantity demanded

42. In the factor market, land is similar to labour in that

(A)

(B)

(C)

(D)

the owners of both may be represented by a trade union

the determinants of supply ofboth ofthem are similar

both are demanded for their contribution to production

both are fixed in supply and are indestructable

43. Under the CARICOM Single Market and Economy (CSME) agreement, a plumber from Grenada now works as an electrician in Trinidad. What types of labour mobility have occurred?

I. Vertical II . Horizontal

III. Geographical IV. Occupational

(A) I and III only (B) II and Ill only (C) II and IV only (D) III and IV only

44.

45.

END OF TEST

Items 44- 45 refer to the information below.

Jack's Inc . paid wages in the amount of $20 000, rent $2 000 and interest $1 500. The business realized a profit of $5 000.

For the factor of production, capital, how much did Jack's Inc. pay?

(A) $ I 500 (B) $ 2 000 (C) $ 5 000 (D) $20 000

For the factor of production, entrepre-neurship, how much did Jack's Inc. pay?

(A) $ 1 500 (B) $ 2 000 (C) $ 5 000 (D) $20 000

IF YOU FINISH BEFORE TIME IS CALLED, CHECK YOUR WORK ON THIS TEST.

02116010/CAPE 2013