EXAMINATION NO.

____________________
THE PUBLIC ACCOUNTANTS EXAMINATION
COUNCIL OF MALAWI
2014 EXAMINATIONS
ACCOUNTING TECHNICIAN PROGRAMME
PAPER TC 5: ECONOMICS
WEDNESDAY 28 MAY 2014

TIME ALLOWED: 3 HOURS
2.00 PM

5.00 PM

INSTRUCTIONS
1

Number of questions on paper – 9.

2

The paper is divided into sections A and B.

3

FIVE questions ONLY to be answered; TWO from Section A and THREE
from Section B.

4

Each question carries 20 marks.

5

Begin each answer on a fresh page.

6

DO NOT OPEN THIS PAPER UNTIL YOU ARE INSTRUCTED BY
THE INVIGILATOR.

This question paper contains 8 pages

This question paper must not be removed from the examination hall

in business enterprises. 4 Marks (e) As a firm grows.1 SECTION A Ans wer two questions only from this section.000 cars? 2 Marks (ii) What is the opportunity cost of producing 10. 2 Marks (b) State four disadvantages of sole proprietorship. (b) You are provided with the following statistics of an economy: Cars (000‟s) Boats (000‟s) 0 10 3 9 2 Marks 6 7 9 4 12 0 Required: 2. 4 Marks (c) State two reasons that motivate a firm to grow.000 th boat? 2 Marks (c) Name four factors of production and their respective rewards. (f) Define the term “economies of scope”. 8 Marks (d) How does “allocative efficiency” differ from “productive efficiency”? 4 Marks (TOTAL: 20 MARKS) (a) State the main characteristic which makes a partnership different from a limited company. it is possible for it to experience economies of scale. (i) What is the opportunity cost of producing the first 3. 1. (a) Define the term “opportunity cost”. 2 Marks (d) Clearly explain how vertical integration differs from horizontal integration.000 boats? 2 Marks (ii) What is the opportunity cost of producing the 10. Required: Name and explain three major sources of internal economies of scale. 6 Marks 2 Marks (TOTAL: 20 MARKS) Continued/…… .

(a) Study the data in the table below. Quantity Average revenue 1 30 2 Total revenue Marginal revenue 30 50 3 20 10 4 15 60 5 10 50 -10 Required: Calculate the points (b) What is the alternative term for “average revenue”? 5 Marks 1 Mark Continued/…… .2 3.

3 The graph below shows part of the short-run profit maximization in perfect competition. 2 Marks (ii) At what output level does the firm maximize its profits? 2 Marks (iii) At what output level does the firm break even? 2 Marks (iv) At what output level does the firm minimize its marginal costs? 2 Marks (v) At what output level does the firm‟s marginal costs equal marginal revenue for the second time? 2 Marks (d) State any four characteristics of an oligopolistic market. a Cost & Revenue (c) b Q1 Q2 Q3 Output Required: (i) Name the curves labelled and . 4 Marks (TOTAL: 20 MARKS) Continued/…… .

2 Marks (ii) Time lags.4 4. 2 Marks Explain three ways in which a government might choose to regulate markets. (a) Define the term „market failure‟. 6 Marks (c) How would the following bring about market imperfection? (d) (i) Monopsony buyers. 6 Marks (TOTAL: 20 MARKS) Continued/…… . 2 Marks (iii) Monopoly markets. 2 Marks (b) Mention three factors that would lead to market failure.

Examine the following simple five sector circular flow model: Sector 1 Households Sector Firms2 Savings Sector 3 D A Sector 4 C B Sector 5 Exports Required: (a) Name the sectors 1 to 5 5 Marks (b) Name the flows represented by A. C and D. B. 2 Marks (d) If how much do injections exceed leakages? by 2 Marks (e) What happens to the size of the circular flow when leakages exceed injections? 2 Marks (f) State five assumptions of a basic circular flow of income model. 5 Marks (TOTAL: 20 MARKS) Continued/…… . 5. 4 Marks (c) Write down the equilibrium equation for this model.5 SECTION B Ans wer three questions only from this section.

8 Marks (TOTAL: 20 MARKS) Continued/…… . 4 Marks (iii) Calculate the economy‟s GDP using the expenditure approach. 4 Marks (iv) By how much does the GDP measured using the income approach differ from the GDP measured using the expenditure approach? 2 Marks Explain four weaknesses of using national income per capita as a guide to comparing the standard of living in different countries. (a) Carefully study the data below for a simple theoretical economy‟s gross domestic product (GDP). expressed in US$. $ Wages and salaries (W) 800 Interest (N) 400 Private Consumption expenditure (C) 300 Government expenditure (G) 1. 2 Marks (ii) Calculate the economy‟s GDP using the income approach.000 Imports (M) 30 Exports (X) 20 Profits (P) 80 Rent (R) 60 Investment expenditure (I) 50 Required: (b) (i) Explain the term “GDP”.6 6.

4 Marks 8. (a) Explain the term “investment”. 5 Marks (c) The graph below shows the relationship between investment and the business cycle. (ii) State any five characteristics of recession. (c) Explain the term „crowding-out‟ effect? (d) Explain four arguments against public debt in Malawi. 8 Marks 5 Marks (TOTAL: 20 MARKS) Continued/…… .7 7. 2 Marks Required: (i) Name and explain two direct taxes employed in Malawi. (b) State any five factors that may influence the volume of investment in a particular country. B. 4 Marks (ii) Name and explain two indirect taxes employed in Malawi. C and D. 2 Marks 8 Marks (TOTAL: 20 MARKS) 2 Marks Output Actual output A * Trend in output * D * B * C Time Required: (i) Name and briefly explain points A. (a) What is meant by “budget deficit”? (b) A government may increase both direct and indirect taxes in order to reduce a budget deficit.

2 Marks (b) State three advantages of liberalizing the passenger transport industry. Required: (a) Define the term “market liberalization”. may reduce unemployment. Required: In your own words. END 4 Marks (TOTAL: 20 MARKS) .8 9. explain how John Maynard Keynes would react to such an argument. especially in the passenger transport. Required: Name and explain the type of unemployment that these people ma y be referring to. 4 Marks (d) Some economists think that bus fares in most urban centres of Malawi would go down due to market liberalization. Beginning from the mid-1990s Malawi embarked on market liberalization which included the passenger transport sector. 4 Marks (e) State any four advantages of protectionism. 6 Marks (c) Some people have argued that market liberalization.