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FORM TP 2017186 MAY/JUNE 20I7

CARIBBEAN EXAMINATIONS COUNCIL


CARIBBEAN ADVANCED PROFICIENCY EXAMINATIONO

ECONOMICS

UNITI-Paper02
2 hours 30 minutes

READ THE FOLLOWING INSTRUCTIONS CAREFULLY.

I ThispaperconsistsofTHREEquestions,onefromeachmodule. AnswerALLquestions.

2 Write your answers in the spaces provided in this booklet.

J Do NOT write in the margins.

4 You may use a silent, non-programmable calculator to answer questions.

5 If you need to rewrite any answer and there is not enough space to do so on the
original page, you must use the extra lined page(s) provided at the back of this booktet.
Remember to draw a line through your original answer.

6 If you use the extra page(s) you MUST write the question number clearly in the box
provided at the top of the extra page(s) and, where relevant, include the question
part beside the answer.

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

ht Copyright O 2016 Caribbean Examinations Council


All rights reserved.

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MODULE 1: METHODOLOGY- DEMAND AND SUPPLY

1. (a) Define EACH of the following terms:

(i) Price elasticity of supply

[2 marksl

(ii) Income elasticity of demand

[2 marksl

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0211602004
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5

Explain, with the aid of a PPF diagram, the concept'opportunity cost'.


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[5 marksl

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021 1602005 J
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Table I shows the quantity of lollipops demanded and supplied at various prices.
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TABLE I: QUANTITY OF LOLLPOPS DEMANDEI)
AI\D SUPPLIED AT VARIOUS PRICES

Price Quantity Demanded Quantity Supplied


$z 200 50
$8 180 90
$e 150 150
$10 ll0 210
$ll 60 250

Use the information in Table I to calculate the price elasticity of supply when the
price changes from $9 to $10. Interpret your results.

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021 1602006
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[8 marksl

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0211602007 I
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(c) A large domestic retailer's strategic plan over a four-year period is to increase its operations
in the region. In order to meet the region's demand, the firm will have to increase its
supply by expanding its physical capacity. The CEO claims that since the demand is high,
expanding will allow the firm to benefit from economies of scale. Evaluate the CEO's
claim.

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021 1602008
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[8 marksl

Total25 marks

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021 1602009
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MODULE 2: MARKET STRUCTURE, MARKET FAILURE AND INTERVENTION


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2. (a) (i) Outline ONE barrier to entry,

[2 marks]

(ii) Table 2 shows five firms and their corresponding sales figures.

TABLE 2: FIRMS AND THE AMOUNTS OF THEIR SALES

Firm Sales
A $200 000
B ss00 000
C $400 000
D $300 000
E $r00 000

Using the information in Table2,calculate the Herfindahl-Hirschman Index (HHl).

[3 marksl

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0211602010
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Compare, with the aid of diagrams, the productive efficiency and economic profit of
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perfectly competitive firm and a monopolistically competitive firm in the long run.

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[12 marksl

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Health care in many Caribbean territories is free or provided at a low cost to citizens, and
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has been paid for by the governments from tax receipts. Governments'yearly expenditure
on health care is a large sum and they have often been critised for such large expenditure.

Discuss TWO reasons why the market for health care may fail if it was not subsidised by
the government.

[8 marksl

Total25 marks
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MODULE 3: DISTRIBUTION THEORY


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3. (a) Define EACH of the following terms:

(i) Marginal revenue product of labour

[2 marksl

(ii) Income inequality

[2 marksl

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Prove that the labour market profit maximizing condition is MRP, = MC,
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[5 marksl

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0211602015
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Draw a diagram illustrating how the wage rate is determined in a perfectly competitive
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market.

[4 marksl

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0211602016
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The IDB reports that " males'earnings surpass those of females by between l4 and 27 per
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cent of average females' wages in Barbados, and between 8 and 17 per cent of average
females' wages in Jamaica".

Discuss THREE factors that could account for this disparity in wages.

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[2 marksl

Total25 marks

END OF TEST

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

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