PRIJ1ff yourname on the line below and return

this booklet with your answer sheet. Failure to

do so may result in disqualification.
TEST CODE 02116010
FORM TP 2020220 MAY/JUNE 2020

CARIBBEAN EXAMINATIONS COUNCIL

CARIBBEAN ADVANCED PROFICIENCY EXAMINATION®

ECONOMICS

UNIT 1 - Paper 01

1 hour 30 minutes

( 08 JUNE 2020 (a.m.) )

0
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READ THE FOLLOWING INSTRUCTIONS CAREFULLY.

I. 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.

I 3.

4.
Do not be concerned that the answer sheet provides spaces for more answers than there are items
in this test.

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
~

0
0
<(
(A)
(B)
goods used
goods bought
@® e @
(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 and as carefully as you can. 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.

9. You may use a silent, non-programmable calculator to answer items.

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

Copyright © 2018 Caribbean Exami nations Council

All rights reserved.
0~ 1160 I 0/MJ/CAPE 2020
 -2-

·ice of Good X increa sed from $5

3. Ast he Pr . .
increa sed from
Whic h of the follow ing produ ction I l the quanti ty suppli ed
1. .
to $ to' 820. What is the va Iue o f th e price
possibility frontiers illustrates consta nt 700
return? elasticity of supply ?

(A) Capital (A) 0.14

goods (B) 0.27
(C) 1.88
(D) 7.00

Consumer goods 4. Which of the follow ing activi ties results in

an external cost?
(B) Capital
(A) Priva te citize ns clean up the
goods
sidewalk.
(8) A food proce ssing comp any
provid es schola rships for needy
children.
(C) Individuals place litter at the side
Consumer goods of the road.
(D) Disad vanta ged youth from inner
(C) Capital city comm unitie s enrol in a skills
goods progra mme.

5. The term ' effective dema nd' refers to what

consu mers
Consumer goods
(A) wish to buy at a partic ular period
(D) of time
Capital
goods (B) are able and willin g to buy at a
partic ular period of time
(C) pay for a suppl ier 's produ ct at a
partic ular period of time
(D) use to maxim ize their total utility
at a partic ular period of time
Consumer goods

2. Consumer surplus may be defined as the

(A) excess of total spending over total

utility
(8) add ition of total utility and total
spending
(C) difference between total utility and
tota l spending
(D) area where total utility and total
spend ing are maximized
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 -3-

Items 6-7 refer to the following scenario.

Due to technical problems being experienced at the CMC bauxite plant, Mr Brown, an engineer,
suffered a ' pay cut'. It was noticed, shortly afterwards, that he purchased fewer fish fillets and
more chicken parts.

6. What type of good do fish fillets represent?

(A) Giffen
(B) Public
(C) Normal
(D) Inferior

7. What type of good do chicken parts represent?

(A) Giffen
(B) Public
(C) Normal
(D) Inferior

Item 8 refers to the following diagram which shows the total, average and marginal product curves
for a particular firm.

Total 1
Total product
product I
I I
I I

Marginal
and average
product

a Number of
Marginal product workers

8. At which stage of production should the firm operate?

(A) 0a
( B) ab
(C) be
(D) cd

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021 160 I 0/MJ/CA PE 2020
 -4-

Ite m 9 refers to the fo llowin g diagram Item 11 refers to the following diagram
which shows cost curves for a firm operat- depicting consumer surplus.
ing in a pcrrectl y competitive market.

Price U
Price s1
p

01
S Quantity

11. Which a rea in the diagram depicts

consumer surplus?
Quantity

9. (A) PUT
Whic h segm e nt of the cu rves re presents the
(B) RPT
sho11-ru n supply curve?
(C) ORTS
(D) OUTD
(A) G to I
(B) F toH
(C) E to H
(D) l~ to J Item 12 refers to the following diagram
wh ich re p res ents the dem and for and
supply of bananas.
Item 10 refe rs to the fo llowing table which
sho \\ s the co st of producing up to three
uni ts of outp ut. Price

Outpu t (Unit) Total Cost ($)

0 20
J 26
2 36
3 50

JO. W hat is the ma rgi na l co st o f produc in g the

seco nd uni t of o utput? D

(A ) $ 10 0
Quantity
(B) $ 13
(Cl $ 14
12. What is the MOST likely reaso n for the fa ll
(D) $ 18
in price from OP I to OP ?
2.

(A) A decrease in supply

(13) A n increase in suppl y
(C) A r ise in q uanti ty from OQ, to OQ
1
(D) A mov e m e nt alon 0o th e d e m an d
curve fro m Q to R

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 -5-

13. Item 16 refers to the following information

A baker can bake any of two combinations
which pertains to two industries.
of cakes and loaves of bread using the
following options.
Moo-Moo Ltd is part of the milk industry
where there are few large firms, each of
Loaves of Bread Cakes which can control its own price and where
there are high barriers to entry and exit.
96 12
Buzz-Buzz Ltd operates in the honey
75 15 industry where there are hundreds ofprice-
taking firms which all produce an identical
product.
What is the opportunity cost of producing
one cake?
16. Which of the following correctly classifies
the market structure of each industry?
(A) ?... loaf of bread
(B) 5 loaves of bread Milk Industry Honey Industry

(C) (A) Oligopoly Monopolistic

7 loaves of bread
competition
(D) 8 loaves of bread (B) Perfect Monopolistic
competition competition
(C) Oligopoly Perfect competition
14. Which of the following is an example ofa
(D) Monopolistic Perfect competition
normative economic statement?
competition
(A) The government should provide
free medication for senior
17. John purchased an auto insurance policy.
citizens.
One week later, he carelessly drove his car
(B) An increase in interest rates would
into a wall. This scenario is an example of
attract foreign investors.
(C) An increase in the minimum wage
(A) moral hazard
would increase inflation.
(B) adverse selection
(D) A reduction in the price of goods
(C) a negative externality
would benefit consumers.
(D) asymmetric information

15. Which of the following statements is true

18. Positive economic profit exists when
if Good x is an ' inferior good' ?
(A) marginal revenue is greater than
(A) Price elasticity of demand is zero.
marginal cost
(B) Price elasticity of demand is
(B) marginal revenue is less than
positive. . marginal cost
(C) Income elasticity of demand 1s
(C) average revenue is greater than
positive.
average cost
(D) Income elasticity of demand is
(D) average revenue is less than
negative.
average cost

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02 11 60 I 0/ MJ/CA PE 2020
 -6-

Item 19 refers to the fol lowing table which Item 21 refers to the follow ing . diagra m
show s the marke t share s of six firms . which show s the socia l marg ma 1 cost
(SMC ), the privat e. margi nal cost (PMC )
and the social margm al benef it (SMB ).
Firm Mark et Share (%)
l 50
2 25
3 10 SMC
Price
4 10
5 3 PMC
6 2

19. Based on the size of the Herfi ndahl -

1-lirs chman Index for the data in the
table above , how would this marke t be
descri bed?
SMB
(A) Conce ntrate d
(B) Unconcentrated
(C) Highly conce ntrate d
0
(D) Slightly conce ntrate d Quantity

20. The term ' deadw eight loss' can be BEST 21. Which of the follow ing statem ents is true?
defined as a
(A) Outpu t Q 2 is effici ent becau se SMC
(A) disadv antag e of marke t failure
>PM C.
(B) decre ase in the net welfa re of
(B) Outpu t Q 2 is effici ent becau se PMC
society
(C)
= SMB.
decr ease in the marg inal
(C) Outpu t Q I is effici ent becau se SMB
productivity of labour
(D) > PMC .
decre ase in the produ ctivit y of
(D) Outpu t Q 1 is efficie nt becau se SMB
firms in an industry
= SMC.

22. Which of the following situat ions represents

a negat ive extern ality?

(A) Private cost is less than social cost.

(B) Privat e cost is equal to social cost.
(C) Privat e benef it is less than social
benefit.
(D) Privat e cost is greate r than privat e
benefit.

02 11 60 I 0/M J/CA PE 2020 GO ON TO THE NEX T PAGE

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 -7-

Items 23-24 referto the following diagram Items 25-26 refer to the following diagram
which shows the equilibrium position of a which represents the social and private
monopolistically competitive firm in the costs of cigarette production.
long-run.

SMC
Marginal
Price/cost costs
nvenue
and
benefits

AC

SMB/D

AR
0 R G Quantity
MR
0 Output
25. Which of the following areas represents the
dead weight loss to society, if production
23. What level ofprofit is being made by the firm? is at output level G?

(A) Normal (A) ZXY

(8) Windfall (8) WZY
(C) Monopoly (C) WZXY
(D) Abnormal (D) RWYG

24. To maximize profit, the firm should produce 26. From the diagram, what does tbe distance
at the output level where XY represent?

(A) average cost is minimized (A) Social cost

(8) marginal cost is minimized (8) External cost
(C) marginal revenue exceeds marginal (C) Social benefit
cost (D) Private benefit
(D) marginal cost is equal to marginal
revenue

02 11 60 I 0/M J/CAP E 2020

GO ON TO THE N EXT PAGE

:t: ... ..
j'::t
 -8-

Item 22 refers to the following scenario.

Item 27 refers to the following diagram
which shows the demand for and supply
of health care in a particular market.
S=M SC
Price
Flin tston e Qua rries Ltd is awa re of the
nega tive envi ronm enta l imp acts of its
quarrying activities in the Bedr ock Hills.
The company therefore organizes an annual
reforestation driv e and also main tains a

small park and a recreation grou nd for the

community of Bedr ock Hills.

29. This scen ario repr esen ts an exam ple of

correcting mark et failure via the adoption
of
Quandty
(A) a corporate ethic
(B) a voluntary agre eme nt
27. If there were no health care insurance
(C) corporate code of cond uct
available , what would be the equilibrium
(D) corporate soci al responsibility
price and quantity of health care?

(A) P2 and Q2
(B) P1 and Q 1 30. Which of the follo wing facto rs is NOT
(C) P2 and Q3 likely to cause a shift in the supp ly curve
(D) P3 and Q3 for labour?

(A) Increased birth rate

28. On which of the following assumptions is (B) Increased popu latio n grow th
perfect competition based? (C) Migration of skill ed work ers
(D) Changes in the cost of Jabour
(A) Perfect control of price
(B) Large number of buyers
(C) Large number of big firms
(D) Small number of individual firms

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02 ! l 60 I 0/M JICA PE 2020
 -9-

Item 31 refers to the following diagram 34. The total social cost of cuttin g trees for
which shows the demand for and supply lumbe r and firewood results in the
of a factor of production.
(A) marginal cost of cutting the last tree
Price s (B) increa sing chanc e of flooding as
more trees are cut
D (C) opportunity cost, to the individual,
of cuttin g the trees
(D) increasing chanc e of flooding plus
the privat e cost of cuttin g the
trees

35. Which of the follow ing factors is LLKE LY

to cause an increase in the wage rate of
construction worke rs?
31. A shift of the deman d curve from DD to
op, will result in (A) An increase in the marke t price of
housin g
(A) a decrease in economic rent (B) An incre ase in immi grant
(B) an increase in economic rent constr uction worke rs
(C) a decrease in transfer earnings (C) An impro veme nt in work ing
(D) an increase in transfer earnings conditions ofconstruction workers
(D) An increa se in non-m oneta ry
benefits of constr uction worke rs
32. The deman d for a factor of production is
a derive d deman d. This means that the
deman d for the factor is determined by 36. Mr and Mrs Smith can afford to send their
children to school, buy grocer ies and pay
(A) supply of the factor their rent. Howe ver, they canno t afford to
(B) rewards paid to the factor save or even own a car. This is an examp le
(C) deman d for other products of
(D) deman d for the product the factor
makes (A) basic needs
(B) basic poverty
(C) relative poverty
33. Which of the following terms describes the
(D) the poverty line
relationship betwe en factor rewards and
costs of production?

(A) Inverse
(B) Indirect
(C) Positive
(D) Negative

02 11 60 I 0/MJ/ CA PE 2020 GO ON TO THE NEXT PAG E

~'1-:'f~
ta
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- 10 -

dia gra m in
Item 38 refers to the follow ing
diagram duc t cur ve
Item 37 refers to the following which the marginal rev enu e pro
ren ce cur ve
wh ich sho ws how ind iffe has shifted from MRP 1 to MR 2
P•
ply .
analysis is applied to labour sup

Income
d

c- - - - " " -'

MRP2
lnd ifference
0 Qu ant ity of Jabour
-:lb-~ Leisure
o ----◄------ 8 likely hav e
38. Which factors wo uld MO ST
represents caused the shift abo ve?
37. Which of the following segments
labour supply ?
I. A rise in wo rke r pro duc tiv ity
d
0- a I l. A fall in the pri ce of the final goo
(A ) ce of the fina l goo d
(B) a- b m. A rise in the pri
e
0- c
IV. A rise in the siz e of the lab our forc
(C)
(0 ) c- d
(A) I and II onl y
(B) I and Ill onl y
(C) II and IV onl y
(D) Ill and IV onl y

bar gai ns
39. A tra de uni on suc ces sfu ll y
imp erf ect ly
for a ':~ ge inc rea se in an
t. Wh at is the
competitive lab our ma rke
this act ion
MO ST likely con seq uen ce of
in that labour market?
of
(A) An inc rea se in the le v el
em plo ym ent
of
(B) An inc rea se in the qua nti ty
labour dem and ed
our
(C) A decrease in the quantity of lab
supplied
our
(D) A decrease in the quantity of lab
demanded

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021 160 10/ MJ,'CA P E 202 0
 - 11 -

40. When examining the Lorenz curve, a Gini
coefficient of I 00% is regarded as total
(A) employment in the country
(B) equality of income distribution
(C) inequality of income distribution
(D) separation of the rich and the poor
Item 41 refers to the following diagram
which depicts a labour market.
Wage
Quantity of labour
41. Which of the following economic concepts
does the shaded triangular area represent?
42. John and Mary are both engineers who have
similar qualifications and work experience.
John earns $20 000 per month working for
an offshore oil company while Mary earns
$15 000 per month in a power generation
plant.
Which of the following factors BEST
explains the disparity in wages between
John and Mary?
(A) Mary's company is not as profitable
as John 's company.
(B) John and Mary belong to different
non-competing groups oflabour
so their wages cannot be equal.
(C) John earns more as he is being
compensated for greater risks
and more unpleasant conditions
of his job.
(D) Mary earns less as she is being
discriminated against on the
basis of age.

(A) Poverty 43. Factors which account for variations in the

(B) Economic rent price of labour within an industry or across
(C) Transfer earnings industries are known as
(D) Consumer surplus
(A) price controls
(B) wage differentials
(C) labour inequalities
(D) economies of scale

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021160 I 0/ M.1/CA PE 2020
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44. Which of the following countries has 45. Which of the following factors is LEAST
the GREATE ST inequalit y of income likely to contribute to poverty alleviation
distribution? in an economy?

Value of Gini (A) Increased access to small business

Country financing
Coefficient
p (8) Increased job creation projects
(A) 0.1 and programm es by firms and
(8) Q 0.3 governme nt
(C) R 0.7 (C) (ncreased governme nt spending on
(D) s 0.9 scholarsh ips and bursaries
(D) Increased regressio n in the tax
system

END OFTEST

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

02 11 60 I 0/MJ/CAP E 2020