1

ADI CAKOBAU SCHOOL

ANNUAL EXAMINATION: 2012

FORM 7 ECONOMICS

Time Allowed: Three Hours

(An extra ten minutes allowed for reading this paper )

INSTRUCTIONS

1. Write all your answers in the Answer Book provided.

2. Write your name in the space provided.

3. There are three sections in this paper. Sections A and B are compulsory.
Note the choice in Section C.

SUMMARY OF QUESTIONS

SECTION GUIDELINES TOTAL MARKS

A There are 30 multiple choice 30 marks

questions.
All are compulsory.

B There are four short-answer 50 marks

questions. All are compulsory.

C There are three essay questions. 20 marks

Answer any two questions.

SECTION A MULTIPLE CHOICE [30 MARKS]

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The Multiple Choice in this section is compulsory. Each question is worth 1

mark.

Circle the letter of the best answer in the grid provided in the Answer Book.

1. “ While saving is good for the individual, it is not necessarily good for the
nation as a whole.”

This statement is an example of:

A. post-hoc fallacy
B. fallacy of composition
C. a factual statement
D. a false statement

2. Which of the following economists was especially renowned for his

statements on the Principle of Comparative Advantage?

A. Adam Smith
B. Robert Malthus
C. David Ricardo
D. John Maynard Keynes

3. John Maynard Keynes differed from the classical economists in that he

believed in:

A. the vertical aggregate supply curve

B. government intervention
C. laissez-faire
D. the invisible hand

4. Goods which have negative income elasticity of demand are called:

A. inferior goods
B. positive goods
C. normal goods
D. demerit goods

5. Which of the following would shift the demand curve of a normal good to the
right?

A. a fall in income
B. a fall in the price of the good
C. an increase in the cost of production
D. an increase in the price of a substitute

Questions 6 to 8 are based on the following cartoon.

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6. The issue of “environmental protection”:

A. arises because of economic scarcity

B. is not an economic matter
C. is of interest mainly to environmentalists
D. only arises when rapid economic growth occurs

7. The opportunity cost of environmental protection is

A. a reduction in GDP
B. increased opportunity for labour
C. nil
D. a reduction in “external benefits” from the forests

8. The forestry worker in the cartoon is expressing hostility towards

environmentalists. The most valid explanation for this would be:

A. forestry workers are angry that environmentalists may damage forests

B. forests are a depletable resource which should not be developed by
environmentalists
C. forestry workers would like to see our forests protected
D. forestry workers feel that their interests are threatened by
environmentalists

Questions 9 and 10 are based on the graph below.

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Price
($)

50 MC
40
30 AC
20
10

AR
0 Output
250 500
MR

9. At what price and quantity can profit be maximised?

A. Price: $30, Quantity: 500

B. Price: $20, Quantity: 500
C. Price: $20, Quantity: 750
D. Price: $10, Quantity: 500

10. The total revenue for the firm would be:

A. $ 5 000
B. $ 7 500
C. $10 000
D. $15 000

Use the figure below to answer Question 11.

Price

MC

D AC

C
B

A AR

Output
Q1 Q2 Q3 Q4

MR

11. The profit maximising output level for the firm would be:

A. Q1
B. Q2
C. Q3
D. Q4
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12. Which of the following is regarded as a key characteristic of a monopolistic

competition?

A. mutual interdependence
B. non-price competition
C. strong barriers to entry
D. perfect substitutability

13. Use the table below to answer the question that follows.
After tax Income Consumption Net Savings
Expenditure
A 14 200 13 700 500
B 15 800 14 900 900

The marginal propensity to save (MPS) is

A. 0.25
B. 0.50
C. 0.75
D. 1.0

14. If income is equal to consumption and savings (ie. Y = C + S) and

consumption is given as C = 100 + 0.5Y, the amount saved if the total income
is $400 would be:

A. $100
B. $150
C. $200
D. $250

15. Which of the following is an important limitation of the GDP as a measure of

economic well-being?

A. The total figure does not reveal how income is distributed.

B. The GDP places monetary value on leisure.
C. Costs of unfavourable externalities are included in the GDP.
D. It does not include production for export.

16. Which one of the following policies is most likely to reduce the level of
structural unemployment?

A. reduce the level of interest rates

B. lower employment benefits
C. increase labour mobility
D. increase the level of consumer expenditure
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17. The “Disclosure Policy” that was implemented for financial institutions is
regulated by

A. the Colonial Bank

B. the Fiji National Provident Fund
C. the Reserve Bank of Fiji
D. the Ministry of Finance

18. The marginal revenue product (MRP) of a resource is defined as:

A. the addition to output that results from hiring one more unit of resource
B. the supply curve of the resource
C. the change in average revenue resulting from hiring one more unit of
resource
D. the change in total revenue associated with a change in the use of
resources

19. If an economy has a marginal propensity to consume of 0.75 and a

deflationary gap of $20m, then to bring the economy to full employment,
national income must increase by:

A. $15m
B. $20m
C. $60m
D. $80m

20. Which of the following statements about equity is correct?

A. Equity and equality are the same.

B. Markets produce solutions that result in equity.
C. Governments intervene in markets to promote equity.
D. Equity usually results in efficiency.

21. Under perfect competition a firm would hire an additional worker if:

A. The marginal revenue product of labour is less than the wage rate.
B. The marginal revenue product of labour is greater than the wage rate.
C. The price of the firm’s produce is greater than the wage rate.
D. The firm’s total revenue is greater than its cost.
22. At present, the top marginal tax rate is 39% - and the Government is under
pressure to reduce it. To do so would probably result in which of the
following?

A. More equity and no change to efficiency.

B. Less equity and no effect on efficiency.
C. More equity but less efficiency.
D. Less equity but more efficiency.

23. Which of the following items is not a credit item in Fiji’s balance of payment?
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A. Domestic goods sold overseas

B. Visitors’ expenditure in Fiji
C. The carriage of foreign goods in Fiji
D. Capital invested overseas

24. The table below shows the relationship between imports and exports of a
country.
2001 2002
Index of import prices 100 240.1
Index of export prices 100 288.1

From the information it is possible to conclude that between 2001 and 2002

A. the terms of trade improved

B. the terms of trade worsened
C. the current account balance improved
D. the current account balance worsened

25. The quantity of US dollars demanded by foreigners is likely to rise:

A. After foreigners devalue their currency relative to the US dollar

B. if it is anticipated that the US dollar will depreciate.
C. If there is more inflation in US than abroad.
D. If there is no inflation in the US but there is inflation abroad.

Use the following diagram to answer Questions 26 and 27.

Price Sf
($)

Pw

Df
0
A B C Quantity

26. Assume that Sf and Df are the Fiji supply and demand curves respectively for
rice which is traded internationally. Pw is the world price for rice. The
quantity traded by Fiji will be:

A. Exports of AC
B. Exports of AB
C. Imports of BC
D. Imports of AC

27. The domestic production of rice in Question 26 will be

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A. OA
B. OB
C. AB
D. AC

28. If the exchange rate between New Zealand and Fiji was initially NZ$1 = F$1
and the Fiji dollar appreciated by 5 percent relative to New Zealand dollar.
The new exchange rate would be:

A. NZ $0.95 = F $0.95
B. NZ $0.95 = F $1.00
C. NZ $1.00 = F $1.05
D. NZ $1.05 = F $1.00

29. A less developed country is likely to have

A. a high level of literacy

B. a rising birth rate
C. an aging population
D. a low infant mortality rate

30. The price that society must pay for economic growth is:

A. inflation and externalities

B. resource depletion
C. an improvement in the standard of living
D. the green house effect

SECTION B [50 MARKS]

The questions in this section are compulsory.

QUESTION 1 INTRODUCTION TO ECONOMICS [10 marks]

a) A farmer has some land available that can be used for growing bananas or
raising chickens.
The schedule below shows the different possible combinations.

Combinations A B C D E
Bananas 0 200 400 500 550
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Chicken 1 000 900 700 400 0

(i) Draw and fully label the Production Possibility Curve. (2 marks)

(ii) The economy is operating at point C. In response to changes in overseas

demand, the pattern of production changes and the economy operates at
point B. What is the real cost of this move?
(1
mark)
(ii) Suppose the economy produces 200 units of bananas and 600 units of
chicken. Comment on the economic performance.
(1
mark)

(iii) What does the production possibility show? (1 mark)

(iv) Discuss how the concept of increasing cost is related to the shape of the
curve.
(1 mark)
b) State briefly the contributions made by the following classical economists
to the field of economics.

 Karl Marx
 Adam Smith (2 marks)

c) Differentiate between macroeconomics and microeconomics.(2 marks)

QUESTION 2 INTERNATIONAL AND DEVELOPMENT ECONOMICS

[10
MARKS]

a) Use the graph given below and your knowledge to answer questions (i) to
(iii)

Fiji’s price
of £
S£

$1.40
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$1.20
D£
D£
100 110 140 Quantity of £

(i) Give one factor which may have led to the increase in Fiji’s demand for
British pounds in the diagram above. (1 mark)

(ii) What would be the result of this increase in demand under:

 fixed exchange rates?
 Floating exchange rates? (1 mark)
`

(iii) If the exchange rate change to $1.40 = £1, what would be the effect on:
 exporters
 domestic firms which compete in the local market with imports?
(1
mark)

(b) Use the graph below and your knowledge to answer questions (i) to (iii)

Graph showing the Effects of Tariff Imposed by a Government on Good X

D (domestic market) S(domestic market)
Price
($)

P3
A B
P2
C D E F
P1
Good X
0 Q1 Q2 Q3 Q4 Quantity (units)

(i) The world price for Good X is initially at OP1. Assume that this
government imposes a tariff which raises the price on the domestic market
to OP2. How much is the tariff per unit equal to in this case? (1 mark)

(ii) How much does this government receive as total revenue from tariff
imposed on the imported Good X ? (1 mark)

(iii) Besides tariff, identify two other protectionism policies that government
can implement to control the amount of imports into a country.
(1
mark)

(d) Read the extract given below and with your knowledge, answer the
questions that follow.
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As 1992 came to an end, the world’s population was

estimated to be almost 5.5 billion. Projections made by the
United Nations placed the figure at more than 6.3 billion by the
end of the twentieth century and 8.5 billion by the year 2025.
Over four fifths of that population will inhabit the developing
world. What will be the economic and social implications for
levels of living, national and personal esteem, and freedom of
choice – that is, for such quantitative projections are realised?
Are such projections inevitable, or will they depend on the
success or failure of Third World development efforts? Finally,
even more significant, is rapid population growth per se as a
serious problem, as many people believe, or is it a manifestation
of more fundamental problems of underdevelopment and the
unequal utilisation of global resources between rich and poor
nations, as others argue?

(Adapted from Todaro, M. “Economic Development”)

(i) Discuss two economic implications of rapid population growth.

(1
mark)

(ii) Discuss two social implications of rapid population growth. (1 mark)

(iii) Propose two ways in which Third World countries can reduce the rapid
population growth in their own countries. (1 mark)

(iv) Discuss Thomas Malthus ideas on population growth. (1 mark)

QUESTION 3 MICROECONOMICS [15 MARKS]

a) Study the graph given below and with your knowledge answer the
questions that follow.

Price &
Cost MC

AC
35
32
25

10
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AR

500 750 Quantity (units)

MR

(i) What type of market structure is shown above? (½ mark)

(ii) Calculate: (a) Total Revenue
(b) Total Profit (1 mark)

(iii) What type of profit is the firm making? (½ mark)

(iv) Identify the price and output for
(a) a perfectly competitive industry
(b) a monopolist (2 marks)

(vi) Describe two features of the market structure identified in (i) above
(1
mark)
b) The following equations describe the relationship between the price of
clutch pencils, the quantity sellers are willing to sell and the quantity
buyers are willing to buy.

D = - 4P + 12
S = 2P

Where P is the price per pencil in dollars and quantities are expressed in
millions.
The actual price of pencils is $4 per pencil.

(i) Solve the equations to determine the equilibrium price and quantity.
Show working. (1 mark)
(ii) On the grid provided in your Answer Book, plot and fully label the graph
for the two equations above. (2 marks)
(iii) Would you expect the price to rise or fall? By how much? (1 mark)
(iii) Suppose the government impose a price ceiling of $5 per pencil.
What would be the market situation at the new price? (1 mark)

c) Use the following Guidelines and Labels and your knowledge to

answer questions (i) and (ii)

(i) In your Answer Book, draw a graph for a perfectly competitive firm
making losses in the short run and yet finding it viable to continue
production.

Labels to be used:
 AR - Average Revenue Curve
 MR - Marginal Revenue Curve
 MC - Marginal Cost Curve
 AC - Average Total Cost Curve
 AVC - Average Variable Cost Curve
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Indicate the price (P1), and quantity (Q1) at the shut down level of output.
(5 marks)

QUESTION 4 MACROECONOMICS [15 MARKS]

(a) Use the information given below to answer the questions that follow.
(All values are in $millions)

Y = C+I+G+X–M
C C = 20 + 0.75 Y
I = 20
Y G = 150
X = 100
M = 0.45Y

(i) Calculate the equilibrium level of income. (Show working)

(2
marks)
(ii) Calculate the value of the multiplier if :
mpc = 0.6
mpt = 0.25
mpm = 0.5 (1 mark)

(iii) Suppose government spending increases by $20 million.

Using the multiplier in (ii) above, comment on it effect on the equilibrium
level of income. (1 mark)

(iv) Differentiate between autonomous investment and induced investment.

(2
marks)

b) (i) The graph given below shows the unusual supply curve of labour.

Wage
Rate D

B
A

Quantity
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Discuss briefly the reasons for the unusual shape of the curve in terms of
shifts from:
 A to B
 C to D (2 marks)

(ii) The graph below shows ‘ Disequilibrium’ in the Labour Market when the
wage rate is increased from $4 to $5.

Wage Rate
($/hr)
SL
5

DL Quantity of Labour (000’s)

2 4 6

(a) Give one possible cause of the wage rise from $4 to $5. (1 mark)

(b) Discuss two major effects of the wage increase from $4 to $5. (1 mark)

(c) Why are more women participating in the labour force today than before?
(1
mark)

c) Study the graph given below and your knowledge to answer questions (i)
and (ii).

Graph Showing Economy Y Experiencing An Inflationary Gap

Expenditures Y
($ million)

C+I+Gn
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25
23

20

0 20 30 Real GDP ($ million)

(i) Calculate the following:

1. Equilibrium level of Income, Output and Employment (Ye)

2. Full Employment level of Income, Output and Employment (Yf)
3. Autonomous Aggregate Expenditure
4. Inflationary Gap (4 marks)

SECTION C [20 MARKS]

There are six questions in this section. Answer any two essay questions.
Each question is worth 10 marks. An essay should contain approximately 250 –
300 words.
Note that for each question, 1 mark is allocated for the structure and style of the
essay.

Question 1
Economics is neither a Social Science nor a pure Science subject. It is seen as a
melting pot of so many disciplines.

Evaluate the above statement with reference to:

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 The three definitions of Economics as seen from the perspective of

Adam Smith, Alfred Marshall and John Maynard Keynes;
(3 marks)
 Any three descriptive features of the Classical School of Economic
Thinking: (3 marks)
 Any three dominant beliefs or findings of the Economist Karl Marx.
(3 marks)

Question 2
The Household Sector incorporates two very important economic concepts:
Consumption and Saving.

Discuss the above statement with reference to:

 The composition of the Household Sector and two roles that it

plays in the economy: (3 marks)
 The definition of consumption and any two factors that affect
household consumption; (3 marks)
 The definition of household saving and any two reasons for saving.

(3 marks)

Question 3
“Governments restrict foreign trade to protect producers from foreign
competition. Of the arguments used to promote such protection, only few are
valid” (Boyles/ Melvin)

Comment on the above statement with reference to:

 three types of protectionism (3 marks)
 three valid reasons why government might impose protection
policies (3 marks)
 three arguments against the use of protection (3 marks)

Question 4
A fair distribution of wealth and income is an acceptable objective for any
government.

Discuss the statement with reference to:

 the nature and scope of wealth as compared to income:
(3 marks)
 three sources of revenue for any government; (3 marks)
 three factors affecting the distribution of income and wealth.
(3 marks)

Question 5
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Poverty has become a very important issue lately as the gap increases between
the rich and the poor and while some are trying to wipe out poverty, others
believe that poverty is here to stay.

Discuss the statement above with reference to

 the definition of poverty and the two types of poverty (3 marks)

 three causes of poverty (3 marks)

 measures taken by government and non-governmental
organisations to minimise poverty. (3 marks)

Question 6
The Foreign Exchange Rates Market plays an intrinsic role in the area of
international trade.

Evaluate the statement in the light of:

 the definition of exchange rates and the two systems of exchange

rates; (3 marks)
 the features of the exchange rate and how it is determined in each
of the two systems; (3 marks)
 one advantage and one disadvantage of a fixed exchange rate
system (3 marks)

THE END

NAME:

NASINU SECONDARY SCHOOL

ANNUAL EXAMINATION: 2009

FORM 7 ECONOMICS

ANSWER BOOK

INSTRUCTIONS:
 18

1. Write all your answers in this Answer Book.

2. Write your name on the front page of this book.

SECTION A MULTIPLE CHOICE

1 A B C D 16 A B C D
2 A B C D 17 A B C D
3 A B C D 18 A B C D
4 A B C D 19 A B C D
5 A B C D 20 A B C D
6 A B C D 21 A B C D
7 A B C D 22 A B C D
8 A B C D 23 A B C D
9 A B C D 24 A B C D
10 A B C D 25 A B C D
11 A B C D 26 A B C D
12 A B C D 27 A B C D
13 A B C D 28 A B C D
14 A B C D 29 A B C D
15 A B C D 30 A B C D

(30 marks)

2.

SECTION B [50 MARKS]

Question 1 (10 marks)

A. (i) ________________________________________________________________
(1 mark)

(ii) _______________________________________________________________
(1 mark)

(iii) _____________________________________________________________________
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_____________________________________________________________________
(1 mark)

(iv) Increasing cost: ________________________________________________________

_____________________________________________________________________

_____________________________________________________________________
(1 mark)

B. David Ricardo:

___________________________________________________________________________

___________________________________________________________________________

Karl Marx:

___________________________________________________________________________

___________________________________________________________________________

Adam Smith:

___________________________________________________________________________

___________________________________________________________________________
(3 marks)

3.

C. (i) Macroeconomics

_________________________________________________________________________

_________________________________________________________________________
Microeconomics:

_________________________________________________________________________

_________________________________________________________________________
(2 marks)
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(ii) ________________________________________________________________________

________________________________________________________________________
(1 mark)

Question 2. (10 marks)

A. (i) ______________________________________________________________________________

______________________________________________________________________________
(2 marks)

(ii) _______________________________________________________________________________

_______________________________________________________________________________
(2 marks)

(iii) _______________________________________________________________________________

________________________________________________________________________________
(2 marks)

(iv) _______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________
(1 mark)
B. (i) Features:

___________________________________________________________________________________

___________________________________________________________________________________
(2 marks)

(ii) ________________________________________________________________________________

___________________________________________________________________________________

4.

Question 3 (8 marks)

(i) A to B _____________________________________________________________________________

B to C ______________________________________________________________________

C to D ______________________________________________________________________
(3 marks)

(ii) Nominal wages

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____________________________________________________________________________

____________________________________________________________________________
Real wages

____________________________________________________________________________

____________________________________________________________________________
(2 marks)

(iii) (a) ________________________________________________________________________

________________________________________________________________________
(1 mark)

(b) ________________________________________________________________________

_________________________________________________________________________
(1 mark)

(c) _________________________________________________________________________
(1 mark)

5.

Question 4 (10 marks)

A. (i) Equilibrium price: ______________________________________________

Equilibrium price: ______________________________________________ (1 mark)

(ii) Total revenue: _________________________________________________ (1 mark)

(iii) Consumers Pay: ________________________________________________

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Producers Pay: _________________________________________________

(1 mark)

(iv) Area of Deadweight Loss: _________________________________________

Deadweight loss: __________________________________________________________

________________________________________________________________________
(2 marks)

B. (i) _________________________________________________________________________

_________________________________________________________________________

_________________________________________________________________________

_________________________________________________________________________

_________________________________________________________________________
(1 mark)

6.

(iii) ____________________________________________________________________________
(1 mark)

(iv) ___________________________________________________________________________
(1 mark)
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Question 5 (8 marks)

(a) (i) _______________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________
(2 marks)

(ii) Multiplier: _______________________________________________________________

_______________________________________________________________________
(1 mark)

(iii)_____________________________________________________________________

________________________________________________________________________
(I mark)

(iv) Autonomous investment: ____________________________________________________

________________________________________________________________________

Induced investment: _______________________________________________________

________________________________________________________________________
(2 marks)

(b) ________________________________________________________________________

_______________________________________________________________________
(2 marks)

7.

Question 6 (6 marks)

(a) (i) Balance on current account:

_____________________________________________________________________

______________________________________________________________________
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______________________________________________________________________
(1 mark)

(ii) Balance on capital account:

______________________________________________________________________

______________________________________________________________________

______________________________________________________________________
(1 mark)

(b) (i) _____________________________________________________________________

(1 mark)

(ii) Under fixed exchange:

_______________________________________________________________________

_______________________________________________________________________
Under floating exchange:

_______________________________________________________________________

_______________________________________________________________________
(2 marks)

(iii) Effect on exporters:

_______________________________________________________________________

Effect on domestic firms:

_______________________________________________________________________
(1 mark)

8.

SECTION C [20 MARKS]

No. _____________
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 26

10.

No. _______________
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11.
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THE END
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