FORM TP 2015172 AUMEAMETL test cope 02116010 | MAY/JUNE 2015, CARIBBEAN EXAMINATIONS COUNCIL CARIBBEAN ADVANCED PROFICIENCY EXAMINATION® ECONOMICS Unit 1 - Paper 01 I hour 30 minutes 09 JUNE 2015 am.) READ THE FOLLOWING INSTRUCTIONS CAREFULLY. 's of 45 items. You will have I hour and 30 minutes to answer them. i to this test booklet, you should have an answer sheet. Do not be concerned that the answer sheet provides spaces for more answers than there are items in this test. 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. 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 [tem Prime cost is calculated by adding direct factory expenses to the cost of Sample Answer (A) goods used ©Ge@0 (B) goods bought (©) materials used (D) materials produced ‘The best answer to this item is “materials used”, so (C) has been shaded. If you want to change your answer, erase it completely before you fill in your new choice. When you are told to begin, turn the page and work as quickly and as carefully as you can. If you cannot answer an item, go on to the next one. You may return to that item later. ‘You may do any rough work in this booklet. ‘You may use silent, non-programmable calculators to answer questions. DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO. Copyright © 2013 Caribbean Examinations Council All rights reserved.-2- Which of the following phrases BEST explains the term ‘indifference curve"? (A) Goods for which the budget line is the same (B) Goods for which consumption is different (©) Goods which give the consumer maximum satisfaction @ __ The combination of two goods which gives the consumer the same level of satisfaction ‘Consumer surplus may be defined as the (A) excess of total spending over total utility (B) addition of total utility and total spending @ iference between total uility and total spending (D) area where total utility and total spending are maximized Which of the following sentences is an example of a normative economic statement? (A) A reduction in the price of goods will benefit consumers, (B) —Anincrease in the minimum wage will increase inflation. (C) An increase in interest rates will attract foreign investors. @ Te government should provide free medication for senior citizens, The use of land to build hospitals reduces the amount available for factory construction. ‘This statement BEST illustrates the concept of choice scarcity (©) shortage (D) rationing ItemSreferstothe following diagram which shows the ‘production possibility frontier’. ‘Sod On the diagram, point F represents @ inefficiency (B) equilibrium (©) _ technical efficiency (D) — anunattainable level of production Which of the following activities results in an external cost? (A) Private citizens clean up the sidewalk. @ individuals place titer atthe side of the road. (© A food processing company provides scholarships for needy children, (D) Disadvantaged youth from inner city communities enrol in a skills programme. GO ON TO THE NEXT PAGE.Item 7 refers to the following table which shows the cost of producing up to three units of output. ‘Output (Unit) | Total Cost (S) 0 20 1 26 2 36 3 50 7. What is the marginal cost of producing the second unit of output? @ $10 ®) $13 © sia (D) $18 Item 8 refers to the following diagram which shows a firm operating in a perfectly competitive market. Price| 1H ality 8 Which segment of the curves represents the shortrun supply curve? (A) Gtol (8) FtoH EtoH EtoJ 02116010/CAPE 2015 Price 10. Item 9 refers to the following diagram which shows the demand for and supply of digital cameras. a a Q, ity Which of the following statements is ‘TRUE? ALP, there is a surplus of cameras, (B) _AtP, there isa shortage of cameras. (C)__AtP, there isa shortage of cameras. (D) _ AtP, there is @ surplus of cameras. Dave paid $5 for a chance to win $500 in 1 cookie eating competition. He enters the competition but does not win, What is Dave's opportunity cost? (A) $5 (B) $500 ‘What could have been bought with the $5 (D) — Whatcould have been bought with the $500 GO ON TO THE NEXT PAGE,u 12. Price 13. a4. Magic Ltd observed thatas ithired additional ‘Fairy Godmothers’, the marginal output Of glass slippers initially increased but eventually showed continuous decline. ‘This observation can be explained by (A) diseconomies of scale decreasing retums to scale é the law of diminishing returns (D) the diminishing marginal rate of substitution Which of the following items is an example of a price ceiling? g © (D) Rent controls, Farm price supports ‘Taxes on the market Minimum wage laws item 13 refers to the following diagram depicting consumer surplus. u s r P 2 v . Quality Which area on the diagram depicts consumer surplus? (RPT fe Pur (©) orts () ouTD otemaimave ants 14. The demand curve for a normal good is said to be negatively sloped. Which of the following diagrams does ‘NOT represent a normal good? (ay Pace ® © GO ON TO THE NEXT PAGE15, 16. 7. 18, 19, Which of the following characteristics is NOT true of the oligopolistic industry? There are many buyers. ‘The firms are price takers. (C) There are few firms in the industry. (D) The goods may be identical or differentiated. Positive economic profit exists when @ average revenue is greater than average cost (B) average revenue is less than average cost (C) marginal revenue is greater than marginal cost (D) marginal revenue is less than marginal cost (On which of the following assumptions is perfect competition based? (A) Perfect control of price Large number of buyers (C) Large number of big firms (D) Small number of individual firms Which of the following types of goods are non-rivalry and non-excludable? 8 © (D) — Demerit John took out an auto insurance policy. A week later he carelessly drove his car into wall. This is an example of moral hazard (B) adverse selection (©) anegative externality (D) asymmetric information 02116010/CAPE 2015 Price 21. Which of the following types of goods ean be provided by the market, but are usually subsidized or provided by the government in order to increase social benefits? (A) Free Merit Public (D) — Demerit Item 21 refers to the following diagram which shows the social marginal cost (SMC), the private marginal cost (PMC) and the social marginal benefit (SMB). SMC ‘Quantity 1 Which of the following statements is true? (A) Output Q2 is efficient because SMC > PMC. (B) Output Q2 is efficient because PMC = SMB. (C) Output QI is efficient because SMB > PMC. @ _ ouppur 1 is eficient because SMB = SMC. GO ON TO THE NEXT PAGE22. 23. “6 Item 22 refers to the following which shows the equilibrium pos ‘competitive firm in the long run, ion of a Mc P, Ac MR bie ° Q What level of profit is being made? Normal (B) Wind fall (©) Monopoly (D) Abnormal [tem 23 refers to the following scenario. 26- Miss Bent feels unwell and visits her local doctor who, after examining her, discovers an incurable illness. The doctor does not tell Miss Bent what he found but instead prescribes costly medicine for her. What economic concept does the scenario describe? 27. (A) Inefficiency (B) Moral hazard ©) Adverse selection e Asymimetric information iagram 24. 25. If the production of a good results in positive externalities then (A) a tax should be imposed on the good (B) production of the good should @ production of the good should be subsidized (D) tod many resources are allocated to the production of the good ‘The term ‘deadweight loss’ can be BEST defined as a disadvantage of market failure é decrease in the net welfare of society (© decrease in the marginal productivity of labour (D) decrease in the productivity of firms in an industry A situation in which people enjoy the benefits of public goods without paying for them is known as the (A) non-rival problem free-rider problem (C) _ non-excludable problem (D) — drop-in-the-bucket problem ‘Two products, bananas and plums, cost exactly the same to produce. However, plums give twice as much satisfaction as bananas. If allocative efficiency is to exist, then (A) _ half as many plums as bananas should be produced (B) twice as many bananas as plums should be produced (©) twice as many plums as bananas should be produced the same quantity of both plums and bananas should be produced GO ON TO THE NEXT PAGEItem 28 refers to the following graph which shows the demand for and supply of health care in a particular market. Cuantity If there were no health care insurance, what would be the equilibrium price and quantity of health care? (A) P,andQ, P, and Q, © P,andQ, (D) PyandQ, Item 29 refers to the following table which shows the market share of six firms in the supermarket industry. Firm | Market Share (%) 30 15 20 9 6 20 aunen What is the top four-firm concentration (A) 50% (B) 55% 3% ec 02116010/CAPE 2015 30. 31. 32, Ina perfectly competitive market, a firm ize its profit in the short run (A) average costis the same as average revenue (B) marginal cost is the same as average revenue @ _ marginal cost is the same as marginal revenue (D) average revenue is the same as average variable cost Item 31 refers to the following diagram which shows the demand for and supply of a factor of production. a Price| s D. ms D 8. ____ _'e. e ‘Quantity A shift of the demand curve from DD to D,D, will result in @ adccrease in economic rent (B) an increase in economic rent (©) a decrease in transfer earnings (D) an increase in transfer earnings Which of the following factors is NOT likely to cause a shift in the supply curve for labour? 9 Cost of labour ) Increased birth rate (©) _ Increased population growth (D) Migration of skilled workers GO ON TO THE NEXT PAGE,33. 3 3 Which of the following terms describes the relationship between factor rewards and costs of production? (A) Inverse Indirect Positive (D) Negative ‘The demand for a factor of production is a derived demand. This means that the demand for the factor comes from the (A) supply of the factor (B) rewards paid to the factor ©) demand for other products demand for the product that the factor makes Item 35 refers to the following diagram depicting a labour market Wage Quantity of Labour 5. Which of the following economic concepts does the shaded area in the triangle represent? (A) Poverty Economic rent ) Transfer earnings (D) Consumer surplus 36. Percentage of income (cumulative) 37. 38, Mr and Mrs Smith can afford to send their children to school, buy groceries and pay ‘their rent. However, they cannot afford to save or even own a car. This is an example of (A) basic needs (B) basic poverty relative poverty ) the poverty line ‘Item 37 refers to the following diagram of ‘Lorenz curve. 100 80 60 40) 20) ae ow 4060-80100 Percentage of Households By examining the shaded area, an economist can determine the Gini coefficient (B) concentration ratio (©) elasticity coefficient (D) marginal rate of substitution The total social cost of cutting trees for lumber and firewood results in the (A) marginal costofeutting the last tree (B) increasing chance of flooding as more trees are cut (C) opportunity cost, to the individual, of cutting the trees rising chance of flooding plus the private cost of cutting the trees GO ON TO THE NEXT PAGEwv. 40. 41. 42, The demand’for teachers is based on the 43. demand for educational services. Which of the following types of demand does this describe? Joint 8 Derived ) — Bffective (D) Competing When examining the Lorenz curve, a Gini coefficient of 100% is regarded as total (A) employment in the country B) equality of income distribution inequality of income distribution (O) separation of the rich and the poor Which of the following factors is NOT likely to contribute to poverty alleviation in an economy? @ _ increased regression in the tax system (B) Increased access to small business financing © Increased job creation projects and programmes by firms and government 44. (D) Increased government spending on scholarships and bursaries Factors which account for variations in the price of labour within an industry or across industries are known as (A) price controls & wage differentials ") labour inequalities (D) economies of scale 02116010/CAPE 2015 Which of the following factors is LIKELY. to cause an increase in the wage rate of ‘construction workers? oO An increase in the market price of housing (B) An increase in immigrant construction workers (©) An inerease in the non-monetary benefits of construction workers (D) An improvement in the working conditions of construction workers tem 44 refers to the following diagram which shows how indifference curve analysis is applied to labour supply. Which of the following represents labour supply? (A) oa B) ab (C) o« 6: GO ON TO THE NEXT PAGE-10- Item 45 refers to the following diagram in which the marginal revenue product curve has shifted from MRP, to MRP,. Wage MRP, ~SMRP, ‘Quantity of labour 45. The factors that are MOST likely to have caused this movement are a I H Ml. IV. (B) (©) () rise in worker productivity rise in the price of the final good fall in the price of the final good tise in the size of the labour force Tand I only Vand Il only Mand IV only IL and 1V only END OF TEST IF YOU FINISH BEFORE TIME IS CALLED, CHECK YOUR WORK ON THIS TEST. 991161 0/APF 2015,