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TEST CODE 02116010
FORM TP 2015172 MAY/JL]NE 2015
CARIBBEAN EXAMINATIONS COUNCIL
CARIBBEAI{ AD VAN CED PROFICIENCY EXAMINATION@
ECONOMICS
Unitl-Paper0l
t hour 30 minutes

09 JUNE 2015 (a.m.)

READ THE FOLLOWING INSTRUCTIONS CAREFULLY.

t. This test consists of 45 items. You will have I hour and 30 minutes to answer them.
2. In addition to this test booklet, you should have an answer sheet.
a
J. 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 the cost of Sample Answer

(A)
(B)
goods used
goods bought
@@o@
(C) materials used
(D) materials produced

The best answer to this item is "materials used", so (c) has been shaded.
6. If you want to change your answer, erase it completely before you fill in your new choice.
7. When you are told to begin, turn the page and work as quickly ancl as carefully as you can.
t
If you cannot answer an item, go on to the next one. You may return to that item later.
8. You may do any rough work in this booklet.

I 9. You may use silent, non-programmable calculators to answer questions.

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

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Copyright O 2013 Caribbean Examinations Council
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All rights reserved.
 a

Iletn following diagram which

5 refers to the
1. Which of the following phrases BEST
shows the 'production possibility frontier'.
explains the term 'indifference curve'?

(A) Goods for which the budget line is

the same
(B) Goods for which consumPtion is
indifferent
(C) Goods which give the consumer
maximum satisfaction
(D) The combination of two goods
which gives the consumer the
same level of satisfaction

2. Consumer surplus tnay be defined as the

(A) excess of total spending over total 5. On the diagram, point F rePresents
utility
(B) addition of total utility and total (A) inefficiency
spending (B) equilibrium
(C) difference between total utility and (C) technical efficiencY
total spending (D) an unattainable level ofproduction

(D) area where total utility and total

spending are maximized
6. Which of the following activities results in
an external cost?
3. Which of the following sentences is
an example of a normative economic (A) Private citizens clean uP the
statement? sidervalk.
(B) lndividuals place litter at the side
(A) A reduction in the price of goods ofthe road.
will benefit consumers. (C) A food processing company
(B) An increase in the minimum wage provides scholarshiPs for needY
will increase inflation. children.
(C) An increase in interest rates will (D) Disadvantaged youth from inner
attract foreign investors. city communities enrol in a skills
(D) The government should provide progranlme.
free medication for senior
citizens.

4. The use of land to build hospitals reduces the

amount available for factory construction.
This statement BEST illustrates the concept
of

(A) choice
(B) scarcity
(c) shortage
(D) rationing

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 Item 7 refers to the following table which Item 9 refers to the following diagram
shows the c<lst of producing up to three which shows the demand for and supply
units of output. of digital cameras.

Output (Unit) Total Cost ($)

0 20
I 26
2 36
J 50

7. What is the marginal cost of producing the

second unit of output?

(A) Sl0
(B) $ 13
(c) $14
(D) Sl8

Q, Q! Quantity
Item 8 refers to the following diagram
which shows a firm operating in a perfectly
competitive market.
9. Which of the following statements is
TRUE?

(A) At P, there is a surplus of cameras'

(B) At P, there is a shortage of cameras.
(c) At P, there is a shortage of cameras.
(D) At P, there is a surplus of cameras.

10. Dave paid $5 for a chance to win $500 in

a cookie eating competition. He enters
the competition but does not win. What is
Dave's opportunity cost?
8. Which segment ofthe curves represents the
shortrun supply curve? (A) $s
(B) $s00
(A) Gtol (C) What could have been bought with
(B) FtoH the $5
(C) EtoH (D) What could have been bought with
(D) EtoJ the $500

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021 1601O/CAPE 2015
 -4-
11. Magic Ltd observed that as it hired additional 14. The demand curve for a normal good is
'Fairy Godniothers,, the marginal output
said to be negatively sloped.
of glass slippers initially increased Lut
eventually showed continuous decline.
Which of the following diagrams does
NOT represent a normal goocl?
This observation can be explained by
(A) Price
(A) diseconomies of scale
(B) decreasing returns to scale
(C) the law of diminishing returns
(D) the diminishing marginal rate of
substitution

12. Which ofthe following items is an example

of a price ceiling? Quantify

(A) Rent controls (B) Prlce

(B) Farm price supports
(C) Taxes on the market
(D) Minimum wage laws

Item 13 refers to the following diagram

depicting consumer surplus.

Quantlty

(c) Prlce

Quality

13. Which area on the diagram depicts (D) Prlce

consumer surplus?

(A) RPT
(B) PUr
(c) oRTS
(D) ouTD'

Quantlty

ntlt<ntn/^AD.tr.)n1< GO ON TO THE NEXT PAGE

15. Which of the following characteristics is 20. Which of the following types of goods can
NOT true of the oligopolistic industry? be provided by the tnarket, but are usually
subsidized or provided by the government
(A) There are many buYers. in order to increase social benefits?
(B) The firms are price takers.
(C) There are few firms in the industry. (A) Free
(D) The goods may be identical or (B) Merit
differentiated. (C) Public
(D) Demerit

16. Positive economic profit exists when

Item 21 refers to the following diagram
(A) average revenue is greater than which shows the social marginal cost
average cost (SMC), the private rnarginal cost (PMC)
(B) average revenue is less than and the social marginal benefit (SMB).
average cost
(C) rnarginal revenue is greater than
marginal cost
(D) marginal revenue is less than
marginal cost

17. On which of the following assumptions is

perfect competition based?

(A) Perfect controlof price

(B) Large number of buyers
(C) Large number of big firms
(D) Small number of individual firms

18. Which of the following types of goods are

non-rivalry and non-excludable?
Ql Q2 Quantity
QuantitY
(A) Merit
(B) Public 21. Which of the following statements is true?
(C) Normal
(D) Demerit (A) Output Q2 is efficient because
SMC > PMC.
(B) Output Q2 is efficient because
19. John took out an auto insurance policy. A PMC: SMB.
week later lre carelessly drove his car into (c) OutputQl is efficient because
a wall. This is an example of SMB > PMC.
(D) Output Ql is efficient because
(A) moral hazard SMB : SMC.
(B) adverse selection
(C) a negative externality
(D) asymmetric information

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021 l 60 l O/CAPE 20 I 5
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Item 22 refers to the following diagram 24. If the production of a good results in
which shows the equilibrium position of a positive externalities then
competitive firm in the long run.
(A) a tax should be imposed on the
good
(B) production of the good should
cease
Pr
(C) production of the good should be
subsidized
(D) too many resources are allocated
to the ptoduction of the good

25. The term 'deadweight loss'can be BEST

defined as a
0vr
(A) disadvantage of market failure
22. What level of profit is being made? (B) decrease in the net welfare of
society
(A) Normal (c) decrease in the nrarginal
(B) Wind fall productivity of labour
(C) Monopoly (D) decrease in the productivity of
(D) Abnormal firms in an industry

Item 23 refers to the following scenario. 26. A situation in which people enjoy the
benefits of public goods without paying
Miss Bent feels unwell and visits her local for them is known as the
doctor who, after examining her, discovers
an incurable illness. The doctor does not (A) non-rival problem
tell Miss Bent what he found but instead (B) free-rider problem
prescribes costly medicine for her. (C) non-excludable problem
(D) drop-in-the-bucket problem
23. What economic concept does the scenario
describe?
27. Two products, bananas and plums, cost
(A) Inefficiency exactly the same to produce. However,
(B) Moralhazard plums give twice as much satisfaction as
(C) Adverse selection bananas.
(D) Asymmetric information
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
(C) twice as many plums as bananas
should be produced
(D) the same quantity of both plurns
and bananas should be produced

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na11zn1nl^Anninla
 Item 2E refers to the following graph which 30. In a perfectly competitive market, a firm
shows the demand for and supply of health can maximize its profit in the short run
care in a particular market. when

(A) average cost is the same as average

revenue
(B) marginal cost is the same as
average revenue
(c) marginal cost is the same as
marginal revenue
I (D) average revenue is the same as
+ Average variable cost
I

Item 31 refers to the following diagram

28. lf there were no health care insurance, what which shows the demand for and supply
would be the equilibrium price and quantity of a factor of production.
of health care?

(A) P, and Q,
(B) P, and Q,
(C) P, and Q,
(D) Prand Q,

Item 29 refers to the following table which

shows the market share of six firms in the
supermarket industry.

Firm Market Share (o/o)

31. A shift of the demand curve from DD to
1 30
D,D, willresult in
2 l5
) 20
(A) a decrease in economic rent
4 9
6
(B) an increase in economic rent
5
20
(C) a decrease in transfer earnings
6
(D) an increase in transfer earnings

29. What is the top four-firm concentration

ratio?
32. Which of the following factors is NOT
likely to cause a shift in the supply curve
(A) s0%
for labour?
(B) sso
(c) 73% (A) Cost of labour
(D) 8s'A (B) Increased birth rate
(C) lncreased population growth
(D) Migration of skilled workers

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021 1 60 r 0/CAPE 20 1 5
33. Which of the following terms describes the 36. Mr and Mrs Srnith can afford to send their
relationship between factor rewards and children to school, buy groceries and pay
costs of production? their rent. However, they cannot afford to
save or even own a car. This is an example
(A) Inverse of
(B) Indirect
(C) Positive (A) basic needs
(D) Negative (B) basic poveqty
(C) relative poverty
(D) the poverty line
34. The demand for a factor of production is
a derived demand. This means that the
demand for the factor comes from the Item 37 refers to the following diagram of
a Lorenz curve.
(A) supply of the factor
(B) rewards paid to the factor
(C) demand for other products Itr
(D) demand for the product that the E
factor makes .E6
E.E
oE
Item 35 refers to the following diagram &,E
depicting a labour market.
Ed
L
&
Wage

40 60 80 100
Percentage of Households
37. By examiningthe shaded area, an economist
can determine the

(A) Gini coefficient

(B) concentration ratio
35. Which of the following economic concepts (c) elasticity coefficient
does the shaded area in the triangle (D) marginal rate of substitution
represent?

(A) Poverty 38. The total social cost of cutting trees for
(B) Economic rent lumber and firewood results in the
(C) Transfer earnings
(D) Consumer surplus (A) marginal cost of cufting the last tree
(B) increasing chance of flooding as
more trees are cut
(c) opportunity cost, to the individual,
of cutting the trees
(D) rising chance of flooding plus the
private cost of cutting the trees

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39. The demand for teachers is based on the 43. Which of the following factors is LIKELY
demand fbr educational services. Which to cause an increase in the wage rate of
of the following types of demand does this construction workers?
describe?
(A) An increase in the market price of
(A) Joint housing
(B) Derived (B) An increase in immigrant
(C) Effective construction workers
(D) Competing (c) An increase in the non-monetary
benefits of construction workers
(D) An improvement in the working
40. When examining the l,orenz curve, a Gini conditions of construction
coefficient of l00Yo is regarded as total workers

(A) employment in the country

(B) equality of income distribution Item 44 refers to the following diagrarn
(c) inequality of income distribution which shows how indifference curve
(D) separation of the rich and the poor analysis is applied to labour supply.

lncome
4t. Which of the following factors is NOT
likely to contribute to poverty alleviation
in an economy?

(A) Increased regression in the tax

system Indifference
(B) Increased access to small business curve
financing Leisure
(C) Increased job creation projects
and programmes by firms and
government 44. Which of the following represents labour
(D) Incieased government spending on supply?
scholarships and bursaries
(A) o-a
(B) a-b
42. Factors which account for variations in the (C) o-c
price of labour within an industry or across (D) c-d
industries are known as

(A) price controls

(B) wage differentials
(c) labour inequalities
(D) economies of scale

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021 I 60 1 O/CAPE 20 I 5
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Itern 45 refers to the following diagram in which the marginal revenue product curve has shifted
from MRP, to MRP'.

Wage

\MRP2

45. The factors that are MOST likelv to have caused this movement are a

I. rise in worker productivity

Il. rise in the price of the final good
III. fall in the price of the final good
IV. rise in the size of the labour force

(A) I and II only

(B) I and lll only
(C) II and IV only
(D) Ill and IV only

END OF TEST

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

o? I 1601n/CApF' ?O l 5