1) Write the following acronyms in full:

(i) EU

2) State the name of the international organization that was established to provide member countries with short-
term financing.
(1 mark )

3) Discuss TWO problems that may arise for a consumer when shopping on the Internet.
(6 marks)

3) Explain TWO problems that may arise for a small island trying to significantly expand its production of
bananas.

4) Explain TWO measures that may be used to reduce seasonal unemployment in a country.
(8 marks)

5) Discuss TWO problems that may arise for trade unions in attempting to fulfil their role, when a country is in
recession.

6) State the MAIN disadvantage of barter.

7) Explain THREE functions of a Central Bank.

(6 marks)

8) To which function of money does each of the following scenarios apply?

(1)
Mark compares the price of a Lacoste polo shirt to the price of a pair of Ralph
Lauren shorts.

(2)
Margaret joins a meeting turn (sou-sou or box hand or partner or sindicato).

9) Using THREE characteristics, explain the type of market structure that would be associated with
manufacturers of cellular phones.

10) Explain TWO gains from trade for EACH of the following:

(1)
Consumers

(2)
Producers

11) Discuss TWO factors that give rise to balance of payment deficits.

12) A university graduate receives his first pay cheque. Discuss how scarcity, choice and opportunity costs arise
for the graduate on his first shopping trip to the city.

13) List THREE examples of services.

(3 marks)

14) Describe TWO benefits of being a sole trader.

(8 marks)

15) Explain TWO examples of fixed costs that would accrue to an owner of a small supermarket.

SOME SAMPLE ANSWERS TO 2013 PAPER 2

 A) Marginal cost
B) Average total cost
C) Average variable cost
D) Average fixed cost

With the aid of diagrams, explain the impact of the following situations on the production possibility curve of a
country that produces bananas and sugar cane:

1)The economy is experiencing heavy unemployment.

2)The government invests in a new fertilizer that improves the yield for banana farmers only.
(8 marks)

1) Impact of Heavy Unemployment on the Production Possibility Curve:

The production possibility curve (PPC) represents the maximum output combinations of two goods
that a country can produce with its available resources and technology. Heavy unemployment can
have a significant impact on the PPC. Let's consider a country that produces bananas and sugar cane.

Diagram:
```
Sugar Cane
| C
| /
| /
| /
 | /
| /
| /
| /
| /
| /
| /
| /
| /
|/
-------- A ------- Bananas
```

In the diagram above, the PPC shows the initial production possibilities between bananas and sugar
cane, represented by the line AC.

Effects:
- Heavy unemployment means there is a significant amount of idle labor and unused resources in the
economy. This situation indicates that the country is not utilizing its full potential.
- With high unemployment, the country's production capacity decreases, and the PPC shifts inward
or to the left. This is represented by the new PPC line AB.

Explanation:
- The inward shift of the PPC indicates that the country's production capacity for both bananas and
sugar cane has reduced. The available resources and labor are not fully utilized, leading to a
decrease in overall output.
- This means that the country's ability to produce bananas and sugar cane simultaneously is
diminished due to the idle resources caused by unemployment.

2) Impact of New Fertilizer Investment on the Production Possibility Curve:

Now, let's consider the situation where the government invests in a new fertilizer that improves the
yield for banana farmers only. This investment can affect the PPC by enhancing the productivity of
banana production.

Diagram:
```
Sugar Cane
| D
| /
| /
| /
| /
| /
| /
| /
| /
| / B
| /
| /
| /
 | /
| /
| /
| /
-------- A ------- Bananas
```

In the diagram above, the original PPC is represented by line AB.

Effects:
- The new fertilizer investment specifically improves the yield for banana farmers, resulting in an
increase in the production potential of bananas.
- The PPC for bananas shifts outward or to the right due to the increased productivity, represented
by the new PPC line BD.

Explanation:
- The outward shift of the PPC indicates an increase in the production capacity for bananas. The new
fertilizer allows banana farmers to produce more bananas using the same amount of resources.
- As a result of the investment, the country can now produce more bananas without sacrificing the
production of sugar cane. The improved yield allows for a more efficient allocation of resources,
leading to an increase in the total output of bananas.

It's important to note that while the new fertilizer investment affects the production of bananas, the
production of sugar cane remains unaffected. Therefore, the PPC for sugar cane remains the same in
this scenario.