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TEST CODE

FORM TP 2013166
CARIBBEAN

02116010

MAY/JUNE 2013
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
Sample Answer
(A)
(B)

(C)
(D)

goods used
goods bought
materials used
materials produced

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.

i iiiiii

Copyright 2009 Caribbean Examinations Council


All rights reserved.

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02116010/CAPE 2013

-2-

1.

Which of the following situations is MOST


likely to result when there are limited
resources?
(A)
(B)
(C)
(D)

4.

Which of the following BEST describes


the 'marginalist principle'?
(A)
(B)

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.

(C)
(D)

Aver~ge cost equals average revenue.


Marginal cost equals average
revenue.
Average cost equals marginal
revenue.
Marginal cost equals marginal
revenue.
i

2.

A baker can bake any of two combinations


of cakes and loaves of bread using the
following options.
Loaves of
Bread

Cakes

96

12
15

75

Item 5 refers to the following diagram


showing the Production Possibility Frontier.

Bread A

What is the opportunity cost of producing


one cake?
(A)
(B)
(C)
(D)

3.

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)
(B)

(C)
(D)

A reduction in the price of goods


will benefit consumers.
The government should provide
free medication for senior
citizens.
An increase in interest rates will
attract foreign investors.
An increase in the minimum wage
will increase inflation.

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

5.

On the diagram, point F represents


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

inefficiency
equilibrium
technical efficiency
an unattainable level of production

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- 3-

6.

Which of the following situations results


in an external cost?

Item 9 refers to the diagram below which


shows a firm operating in a perfectly
competitive market.

Private citizens clean up the


sidewalk.
Individuals place litter at the side
ofthe road.
A food processing company
provides scholarships for needy
children.
Disadvantaged youth from inner
city communities enrol in a skills
programme.

(A)
(B)

(C)

(D)

7.

Supply functions are positively sloped


because
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

(A)
(B)

(C)
(D)

9.

10.

Item 8 refers to the diagram below which


represents the market for ferry services.

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

11.
D
o'--------------7Number of Trips

8.

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)
(B)
(C)

(D)

(A)
(B)
(C)

Cto E
BtoD
AtoD

(D)

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)

Ticket
Price

Which segment of the curves shown


represents the short-run supply curve?

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

either above or below OF


at the equilibrium price, OF
above the equilibrium price, OF
below the equilibrium price, OF

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0211601 0/CAPE 2013

-4-

12.

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

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

Item 13 refers to the following diagram


depicting consumer surplus.

Quantity

Price U

(B)

Price

s
p

Quantity
D

13.

Which area on the diagram depicts


consumer surplus?
(A)
(B)

(C)
(D)

RPT
PUT
ORTS 1
OUTD 1

Quantity

(C)

Price

Quantity

(D)

Price

Quantity

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02 116010/CAPE 2013

-5Item 15 refers to the diagram below which shows total marginal utility of ice cream and the
quantity of ice cream.

50

TU

15.

1
3

4
5

Which of the following market structures is


characterised by several firms which are too
small to influence the market?
(A)
(B)
(C)

(D)
17.

5
----MU
Quantity of Ice Cream
(number of cones)

In the diagram, at which quantity of ice cream is the consumer maximizing utility?
(A)
(B)
(C)
(D)

16.

Perfect competition
Duopolistic competition
Oligopolistic competition
Monopolistic competition

18.

'Voluntary agreements' is an example of


which ofthe fo llowingtypes ofintervention?
(A)
(B)
(C)
(D)

Free market
Government
Private sector
Individual choice

On which of the following assumptions is


perfect competition based?
(A)
(B)
(C)
(D)

Perfect control of price


Large number of buyers
Large number of big firms
Small number of individual firms

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- 6-

If a firm cannot prevent a consumer


from enjoying the benefits of a good it
produced at low cost, the good is

19.

(A)
(B)

(C)
(D)

Item 21 refers to the diagram below


showing the social marginal costs (SMC),
the private marginal costs (PMC) and the
social marginal benefits (SMB).

excludable
non-excludable
rival in consumption
nonrival in consumption

SMC
Price

Item 20 refers to the graph below


which shows a situation in which the
monopolistically competitive firm is in the
long-run equilibrium.
Price
MC

AC
0

'-----------::L'-----='---~

Ql

21.

(B)

(C)

Quantity

(D)
20.

Using the marginalist approach to determine


equilibrium price and quantity, what is the
area between Q 1 and Q 2 called?
(A)
(B)
(C)
(D)

Excess capacity
Shut-down point
Equilibrium point
Minimum efficiency scale

22.

Quantity

Which of the following is TRUE?


(A)

MRI

Q2

Output
SMC
Output
SMB
Output
PMC
Output
SMB

Q2 is efficient
> PMC.
Ql is efficient
= SMC.
Q2 is efficient
= SMB.
Q 1 is efficient
> PMC.

because
because
because
because

Which of the following is NOT a


characteristic of the oligopolistic industry?
(A)
(B)
(C)
(D)

There are many buyers.


The firms are price takers.
There are few firms in the industry.
The goods may be identical or
differentiated.

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02116010/CAPE 2013

-7-

23.

Which of the following is NOT a cause of


market failure?
(A)

(B)
(C)
(D)

24.

(A)

(B)
(C)
(D)

Taxation
Monopoly
Externalities
Imperfect knowledge

If the production of a good results


positive externalities then

Items 28-29 refer to the graph below which


shows the demand for and supply of health
care in a particular market .
Price

I
I
I
I
I
I
I
I
I

tn

a tax should be imposed on the good


production of the good should cease
production of the good should be
subsidized
too many resources are going into
the production of the good

A situation is defined as 'Pareto efficient'


if it is
(A)

(B)
(C)
(D)

26.

(B)
(C)
(D)

non-rival problem
free-rider problem
non-excludable problem
drop-in-the-bucket problem

If the cost of providing a good to an


additional person is zero, the good is
(A)

(B)
(C)
(D)

If there is no health care insurance, what


would be the equilibrium price and quantity
of health care?
(A)
(B)
(C)
(D)

29.

30.

P 1 and Q1
P 2 and Q2
P2 and Q3
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)
(B)
(C)
(D)

A situation in which people enjoy the


benefits of public goods without paying
for them, is known as the
(A)

27.

possible to make someone better


off without making someone else
worse off
impossible to make anyone better
off without making someone else
worse off
possible to make someone worse
off and everyone else better off
impossible to make anyone better
off without making someone pay

D=MSB

Quantity

28.
25 .

S=MSC

P 1 and
P 2 and
P2 and
P 3 and

Q1
Q2
Q3
Q3

Which of the following contributions are


examples of privatization?
(A)
(B)
(C)
(D)

Regulation and franchising


Franchising and redistribution
Contracting out and deregulation
Deregulation and nationalization

a free rider good


non-excludable
a private good
non-rival
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02116010/CAPE 2013

- 831.

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

32.

14
$ 140
$1 000
$1 680

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

MRPL

Quantity Labour
35.

Which of the following terms describes the


relationship between factor rewards and
costs of production?

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

34.

Wage

Which ofthe following is NOT likely to cause


a shift in the supply curve for labour?
(A)
(B)
(C)
(D)

33.

Item 35 refers to the following diagram


depicting a labour market.

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)

Direct
Inverse
Indirect
Negative

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.

Which of the following countries has


the GREATEST inequality of income
distribution?
Country

Which of the following economic concepts


does the shaded area in the triangle
represent?

(A)
(B)
(C)

Value of Gini
Coefficient
0.1

0.3

(D)

0.7
0.9

Percentage %
Income Earned

Factor
Land
Labour
Capital
Entrepreneurship
36.

15%
25%
20%
40%

The table represents


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

cost of firms of each facto r


size distribution of income
personal distribution of income
functional distribution of income

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021 16010/CAPE 2013

-9Item 38 refers to the graph below showing the


demand and supply for a factor of production.

Item 37 refers to the following diagram of


a Lorenz curve.

Price

e8

100

=
.....

r
l

~- 80
~ ~

=~....e=
ell ...
~

~
y

60

=-- - 40

S
t
oL---------~--~~--~~

Quantity

38.
Percentage of Households

37.

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

A shift of the demand curve from DD to

Dp 1 will result in
(A)
(B)
(C)
(D)

39.

"Longevity" is a component of which of


the following measures?
(A)
(B)
(C)
(D)

40.

a decrease in economic rent


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

Gini coefficient
Human Development Index
Fair-firm concentration ratio
Herfindahl-Hirschman index

When examining the Lorenz curve, a Gini


coefficient of 100 % is regarded as total
(A)
(B)
(C)
(D)

employment in the country


equality of income distribution
inequality of income distribution
separation ofthe rich and the poor

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02116010/CAPE 2013

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- I 0-

41.

Items 44- 45 refer to the information below.

The higher the demand for houses, and


hence the higher their price, the higher will
be the demand for bricklayers.

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.

The concept explained above BEST


describes

44.
(A)
(B)
(C)
(D)

42.

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

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

$ I
$ 2
$ 5
$20

500
000
000
000

In the factor market, land is similar to


labour in that

45.
(A)
(B)

(C)
(D)

43.

For the factor of production, capital, how


much did Jack's Inc. pay?

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

For the factor of production, entrepreneurship, how much did Jack's Inc. pay?
(A)
(B)
(C)
(D)

$ 1 500
$ 2 000
$ 5 000
$20 000

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.
II .
III.
IV.

Vertical
Horizontal
Geographical
Occupational

(A)
(B)
(C)

I and III only


II and Ill only
II and IV only
III and IV only

(D)

END OF TEST

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

02116010/CAPE 2013