r FORM TP 2018187 % rESr coDE 02116020-|

MAY/JUNE 2OI8

CARIBBEAN EXAMINATIONS COUNCIL

CARIBBEAN ADVANCED PROFICIENCY EXAMINATION@

ECONOMICS

UNIT l -Paper02
2 hours 30 minutes

READ THE F'OLLOWING INSTRUCTIONS CAREFULLY.

I This paper consists ofTHREE questions, one from each module. Answer ALL questions

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

3 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 booklet.
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.

Copyright @ 2017 Caribbean Examinations Council

All rights reserved.

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MODULE l: METHODOLOGY - DEMAND AND SUPPLY

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

(i) The law of equi-marginal utility

[2 marksl

(ii) Producer surplus

[2 marksl

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(b) Table I shows an individual's utility from consuming units of chocolate bars and candy bars.

TABLE I: AN INDIVIDUAL'S UTILITY FROM CONSUMING

UNITS OF CHOCOLATE BARS AND CANDY BARS

Units of Ibtal Utility Marginal Utility Maryinal Utility Per Dollar

Chocolate
BarV
Chocolate Candy Chocolate Candy Chocolate Candy
Candy Bars
Bar Bar Bar Bar Bar Bar
Consumed

0 0 0

I 40 22

2 72 42

3 96 60

(i) Complete Table I given that the price of one chocolate bar is $4 and the price of
one candy bar is $2. [8 marksl

(ii) Explain why the optimal bundle of the two goods would be I unit of chocolate
bars and 2 units ofcandy bars.

[3 marksl

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(c) With the aid of a well-labelled diagram, assess the total welfare effect of the imposition
of an indirect tax on candy bars.

[0 marksl

Total25 marks

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 r MODULE 2: MARKET STRUCTURE, MARI(ET FAILURE AND INTERVENTION
-7 - -l

2. (a) List FOUR measures used by the government to control market failure.

[4 marksl

(b) Explain the role of advenising in monopolistic competition and perfect competition.

Monopol isitc competition.

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Perfect competition

[6 marksl

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 r (c)
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With the aid of a well-labelled diagram, explain how negative externalities lead to market
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failure.

[6 marksl

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With the aid of a diagram, analyse the pricing and output decision of the monopolist
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[9 marksl

Total25 marks

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MODULE 3: DISTRIBUTION THEORY

3. (a) Distinguish between EACH of the following pairs of concepts:

(i) 'Transfer earnings' and 'economic rent'

[4 marksl

(ii) 'Absolute poverty' and 'relative poverty'

[4 marksl

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(b) Identify TWO categories of persons who are mone susceptible to poverty and explain why
they are more susceptible.

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[8 marksl

(c) Analyse the effects of geographical mobility and occupational mobility on wages.

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[9 marksl

Total25 marks

END OF TEST

IF YOU FINISH BEF'ORE TIME IS CALLED, CHECK YOUR WORK ON THIS TEST.

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