Sample Test Paper

Aptitude Scholastic Test

Economics

SECTION A Multiple Choice (Full marks 160)

1B 2C 3D 4B 5C

6A 7D 8D 9C 10 B

11 A 12 C 13 D 14 B 15 D

16 B 17 C 18 D 19 C 20 D

21 B 22 D 23 D 24 D 25 B

26 C 27 A 28 D 29 D 30 B

31 A 32 C 33 D 34 B 35 C

36 A 37 B 38 A 39 D 40 A

SECTION B Free-response Questions

1.

Handbags Jackets

Cambodia 0.20 5

Thailand 0.25 4

a. Thailand has an absolute advantage in the production of both products.

b. Cambodia has a comparative advantage in the production of handbags.

c. Thailand has a comparative advantage in the production of jackets.

A country can have an absolute advantage without having a comparative advantage

in the production of a product, because having an absolute advantage means a country
can produce more of the product than another country while using the same amount of
resources, and having a comparative advantage means that the country can produce the
product at a lower opportunity cost than another country. Having a comparative
advantage is not required to have an absolute advantage.
 Level Descriptions Marks

Reasoned and well-argued explanation along with thorough

contrast aided by correct calculations of opportunity costs
4 15–20
(four values) with conclusions regarding the two nations’
absolute/comparative advantage in producing the goods.

Competent analysis but with no clear logic in or limited

focus on the relationship between comparative advantage
3 and opportunity cost, using some data given to support the 11–14
argument (partially wrong calculation results which is
seemingly contradictory to the conclusions made).

Normally organized argument with far fewer attempt to

distinguish the economic concepts like absolute advantage,
2 8–10
comparative advantage and opportunity cost, or dealt with
in an incorrect manner (without any calculations).

Answer containing many inaccuracies, irrelevancies and

1 only a few correct points or including substantial errors or 1–7
omissions of analysis (totally wrong calculation results).

0 No creditable response. 0

2. Initially, when the price of a typical restaurant meal is $20 and the price of a jazz
performance ticket is $10, Grant consumes the bundle “A” on BC1. Following the price
changes, Grant’s new budget line is BC2. He is no longer able to afford this same bundle
“A” as shown in the figure below. However, he can now afford a new bundle on the
upper part of BC2, which was not attainable before the price changes. This new bundle
may give him a lower or higher level of utility (compared with bundle A), depending on
the configuration of the indifference map, which is in turn determined by the specific
functional form of Grant’s utility function (unknown in this case). Therefore, Grant may
be better off or worse off.
 Level Descriptions Marks

Graph (standard format) clearly and correctly presented

with concise judgement to the point as well as complete
4 and structured descriptions of the changes in budget 15–20
constraint and the consuming point where the individual
indifference curve is tangent to his budget line.

Competent analysis with a relatively clear graph containing

several minor errors, or underdeveloped without stating
3 that: the slope of the budget line equals the slope of the 11–14
indifference curve at the optimal point and the like;
unprofessionally omitting the change process.

The correct answer figured out and lacking clarity, but no

2 graph presented with only a few points discussed in the 8–10
effects of price change; inadequate analysis to support.

Answer containing many inaccuracies, irrelevancies, or just

1 including the introduction of the different curves or the 1–7
model with no key points involved.

0 No creditable response. 0

3. a. This is an example of price discrimination, since it references charging different

prices to different customers for the same product, and the price differences are not due
to differences in costs. Determining different customers’ willingness to pay is one of the
requirements for successful price discrimination, and this is accomplished by asking the
customers how much they want to pay for the chili.

b. When a firm knows every consumer’s willingness to pay, and can charge every
consumer a different price, this is known as perfect price discrimination, or first-degree
price discrimination. (With perfect price discrimination,) The perfect price discriminator
sells Q3 units and charges a range of prices along the demand curve — P1 to the person
who is willing to pay P1 for unit Q1, P2 to the person who is willing to pay P2 for unit
Q2, and P3 to the person buying unit Q3, for example. Producer surplus is the entire area
of triangle A between the demand and marginal cost curves. There is no deadweight loss
and there is no consumer surplus. The marginal revenue curve equals the demand curve.
 Level Descriptions Marks

Reasoned and well-organized explanation together with the

4 detailed marked graph of price discrimination (type and 15–20
characteristics etc.) in a logic fashion without ambiguity.

Competent analysis with insufficient evidence supported

3 (not influential), but the general conclusions accompanied 11–14
by a relatively complete graph depicted.

Price discrimination discussed in an unreasonable way

2 8–10
despite some correct answers / key elements involved.

Answer containing many inaccuracies or irrelevancies, or

1 1–7
including substantial errors or omissions of analysis.

0 No creditable response. 0

4. Wages are based on the marginal revenue product of labor and the supply of labor.
The marginal revenue product of professional basketball players is likely to be very
high and the supply of people with the ability to play professional basketball is likely to
be very low, whereas the marginal revenue product of police officers is likely to be
much lower and the supply of people with the ability to be police officers is likely to be
much higher.
 Level Descriptions Marks

Sound interpretation of the interaction of demand and

supply (how wages determined in general) with the
4 illustrated comparison between the two professions in 15–20
disparity of marginal revenue / demand curve as well as the
supply side (normative graph also well presented).

Fair explanation and relatively complete graph presented

3 but with a seemingly intuitively imprecise elucidation in 11–14
analyzing economic issues. [Should still be a conclusion.]

Not fully developed or extensive with the equilibrium point

2 or the other curves in the wrong position, and an inaccurate 8–10
conclusion made.

Answer containing many inaccuracies, irrelevancies, and

1 apparent inconsistencies with the problem statement or 1–7
including substantial errors or omissions of analysis.

0 No creditable response. 0

5. Over time technological advances cause the vertical long-run aggregate supply
curve to shift to the right. An expansionary fiscal or monetary policy (for example)
shifts the aggregate demand curve (which is downward sloping) to the right. Output
growth (as reflected in the rightward shift of the long-run aggregate supply) puts
downward pressure on the price level, while the short-run positive shock (the
expansionary fiscal or monetary policy, etc.) tends to lead to a higher price level.
 Level Descriptions Marks

Reasoned and well-organized explanation together with a

4 correctly drawn graph showing the static comparatives of 15–20
the equilibrium in a logic fashion without ambiguity.

Fair explanation and overall complete and reasonable

3 11–14
answer.

Limited evaluation and many imprecise answers but with a

2 8–10
few complemented interpretations or a proper instance.

Answer containing many inaccuracies, irrelevancies with

1 1–7
no logic connections be it right or wrong.

0 No creditable response. 0

6. The (social) costs of inflation mainly include:

The cost of reducing your money holdings to reduce your inflation tax;

The costs of price adjustments;

The costs of resource misallocation that result from the relative-price variability
induced by inflation;

The costs of inflation-induced tax distortions;

The costs of confusion and inconvenience;

And the costs associated with the arbitrary redistribution of wealth accompanying
unexpected inflation.
 Level Descriptions Marks

4 Correct, complete and nearly perfect answer. 15–20

Fair explanation and overall complete and reasonable

3 11–14
answer.

Limited evaluation and many imprecise answers but with a

2 8–10
few complemented interpretations or a proper instance.

Answer containing many inaccuracies, irrelevancies with

1 1–7
no logic connections be it right or wrong.

0 No creditable response. 0

7. Assume the aggregate production function follows a Cobb-Douglas form.

Y (t )  K(t )(A(t )L(t ))1

Labor and technology grow exogenously at the rate n and g respectively.

L(t )  L(0)e nt , A(t )  A(0)e gt

Define the corresponding per unit of effective labor terms as

yˆ  Y /(AL ) , kˆ  K /(AL )
So that the intensive form of the production function is

yˆ(t )  kˆ(t )
The dynamics of capital can be captured by

K(t )  sY (t )  K(t )
Therefore

 K(t ) K (t )
kˆ(t )   [A(t )L(t )  A(t )L(t )]
A(t )L(t ) [A(t )L(t )]2

kˆ(t )  syˆ(t )  (n  g   )kˆ(t )  skˆ(t )  (n  g   )kˆ(t )
It can be seen that the steady state is captured by
1 /(1   )  /(1   )
 s   s 
kˆ*    yˆ  
*

n  g    n  g   
Level Descriptions Marks

4 Correct, complete and nearly perfect derivation. 15–20

Fair assumptions and overall complete and reasonable

3 11–14
derivation.

Flawed derivation with a few complemented interpretations

2 8–10
or a proper instance.

Answer containing many inaccuracies, irrelevancies with

1 1–7
no logic connections be it right or wrong.

0 No creditable response. 0