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CAPE Economics 2007 U1 P1 Answers
CAPE Economics 2007 U1 P1 Answers
Unitl-Paper0l
90 minutes
Each item in this test has four suggested answers lettered (A), (B), (C), (D)' Read each item you are
2.
about to answer and decide which choice is best.
On your answer sheet, find the number which corresponds to yoru item and shade the space
having
3.
the same letter as the answer you have chosen. Look at the sample item below'
Sampleltem
'-
Prime cost is calculated bY
SampleAnswer 1l
E
(A) adding direct factory expenses to cost of materials used xU'
(B) adding indirect factory expenses to cost of materials used o@@@ F,
t.
iCl subtracting direct factory expenses from cost of materials used
FI
iOl subtracting indirect factory expenses from cost of materials used F
rtt
The best answer to this item is "adding direct factory expenses to cost ofmaterials
used", so answer --
space (A) has been blackened.
Ifyouwantto change your answer, be sure to eraseyour old answercompletely and fill inyournew
4.
choice.
Ifyoucannot
5. Whenyouaretoldtobegin,turnthepageandworkasquicklyandascarefullyasyoucan'
harder items later'
*r*", an item, omit iland go or, [o the next one' You can come back to the
il 6. You may do any rough work in this booklet'
rl 7. This test consists of 45 items. You will have 90 minutes to answer them.
8. you may use silent non-programmable calculators to answer questions'
this test.
(A) I loafofbread
(B) 5 loaves ofbread Capital
goods
(c) 7 loaves ofbread (c)
(D) 8 loaves ofbread
(A) A
(B) B
(c) ,c
(D) .D
-3-
J. Which of the following diagrams illustrates a perfectly elastic demand curve?
(A)
(B)
(c)
(D)
(A) exogenous
(B) endogenous
(C) relational
(D) functional
(lO ON TO THF.NF.XT PAGE
I
at
-4-
Items 7 - 8 refer to the following diagrams Item 9 refers to the diagram below.
where ab is the consumer's initial budget line
andcd is the new budget line.
a
Quantity
Good demanded
Income
7. What has happened to cause the budget line (A) anormal good
to shift from ab to cd? (B) a giffen good
(C) an inferior good
(A) Consumer income decreased and (D) ostentatious goods
prices remained unchanged.
(B) The price of good x fell, ceteris
paribus. 10. The following is a caption from Tropic Island
(c) The price of goodx rose and the price dailynewspaper.
ofgoodyfell.
(D) The prices of good x andy fell in the
sameproportion. CHICKEN PRICES PLUMMET AS BIR-D FLU
THREATENS THE ISLAND
ll. In the above diagram a6 is the consumers' 15. There is a direct relationship between quantity
initial budget line. The price ofx falls and the supplied and price. This is so because
budget line pivots to ac. What is the income
effect ofthis price change? (A) producers believe that higher prices
lead to grcaterprofits
(A) fs (B) producers want to secure capital
(B) fti equipment to mass produce goods
(c) hb (C) as producers buy more of a factor of
€f hg production, its price goes down
(D) as production increases, competition
for factors of product ion i ncreases
12. Which ofthe following BEST describes the their cost
price elasticity of demand of a downward
sloping demand curve?
16. The table below shows the percentage of
(A) Decreasing elasticitiy ofdemand as National Income eamed bv various factors
price decreases ofproduction.
(B) The same elasticity of demand
throughout Land lsyo
(C) Increasing elasticity of demand as Labour 25yo
price decreases Capital 2OYo
(D) Unitary elasticity of demand Entrepreneurship 40Yo
.throughout
This table represents
-6-
17. In the graph below the Marginal Revenue
20. The MRP curve slopes downward because
Product Curve has shifted from MRP, to
MRr' (A) a firm willpay more to attract factors
from other uses
(B) less of a factor is demanded at a
lower price
(C) more df a factor is demanded at a
lowerprice
(D) the marginal physical product is
constantly falling
H roo
28. Which ofthe following BESTdescribes the
E^so
-. q) concept of a wel fare fu nction?
b.=
E* 60 (A) A functioning government welfare
9E payment system where everyone
^a)d
-- AlD benefits
(B) The relationship between an
individual's well being and the
factors that influence it
(c) The fu nction of Government to help
those less fortunate by giving them
i 7o ofhouseholds
monthly grants
I
I (D) The relationship benrueen the different
!.
(A) Both parties have equal knowledge (A) Perfect control of price
about the matter. (B) Smallnumberofindividualfirms
(B) One party hasmore knowledgethan (C) Largehumberofbigfirms
the other about the matter. (D) Largenumberofbuyers
(c) Both parties equally lack knowledge
about the matter.
(D) One party refuses to share
information with another party.
Cost
Revenue
32. Which one of the following rectangles 33. Which rectangle represents total revenue of
represents total cost ofthe firm? the firm at equilibrium?
(A) marginal cost must be equal to (A) Average cost equals average
marginalrevenue
revenue
(B) average cost must be equal to (B) Marginal cost equals average
marginalcost revenue
(c) average cost must be equal to (c) Average cost equals marginal
marginal revenue revenue
(D) average cost must be equal to (D) Marginal cost equals marginal
average revenue
revenue
(A) Rival firms in an oligopoly match (A) transfer pricing practices of the
price cuts but not price increases.
multinational corporation
(B) Rival firms in an oligopoly match (B) rapid depletion of Iocal natural
price increases but not price cuts. resources
(C) The products sold by oligopolistic (C) transferoftechnologyandproduction
firms are subsantially different from techniques
each other. (D) monopsony power in wage
(D) The products sold by oligopolistic negotiations
firmsare slightly differentfrom each
other.
39. The point at which the firm in perfect
competition covers its variable costs is called
Item 36 refers to the diagram below which the
shows a firm operating in a perfectly
competitive market. (A) closingdownpoint
(B) variation point
(C) economies ofscale point
(D) longrunequilibriumpoint
(A) CtoE
(B) BtoD
(C) AtoD
(D) AtoF
-10-
Item 40 refers to the diagram below showing 42. Market failure describes the failure of the
cost and revenue curves ofa nationalised market economy to achieve an efficient
industry. allocation of
(A) resources
(B) capital.
(C) machiriery
(D) labour
lr
--T-T--
_L_L__
43. Market failure is usually corrected by
(A) consumers
(B) public firms
(c) private firms e
(D) Government -
40. Ifthe industry is mandated to adopt marginal
cost pricing, what price will it charge?
44. Which combination BEST describes
(A) Pr examples of privatisation?
(B) P2
(c) P3 (A) Deregulation and franchising
(D) P4 (B) Contracting out and regulation
(c) Deregulation and national isation
(D) Franchising and redisribution
41. Economic efficiency in production occurs
when
45. The concept of 'adverse selection' implies
(A) all firms are maximisingprofits and that
producing where MC: MR
(B) there is no spare capacity (A) persons who have insurance may
(c) the output ofone good cannot be tend to be less careful and thus
increased without reducing the increase risks
ouputofanothergood (B) persons who take out insurance are
(D) the economy does not have to depend those with the highest risk
on importedgoods (c) those who sell insurance policies are
more well informed than those who
buythem
those who refuse insurance policies
.
are often the same ones who really
needthem
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