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TEST CODE 02116010 FORM TP 2013166 MAY/JUNE 2013
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CARIBBEAN EXAMINATIONS COUNCIL
CARIBBEAN ADVANCED PROFICIENCY EXAMINATION
ECONOMICS
Unit 1 -Paper 01
1 hour 30 minutes
(u JUNE 2013 (a.m.)) READ THE FOLLOWING INSTRUCTIONS
CAREFULLY.
1. This test consists of 45 items. You will have 1 hour and 30
minutes to answer them.
2. In addition to this test booklet, you should have an answer
sheet.
3. Do not be concerned that the answer sheet provides spaces for
more answers than there are items in this test.
4. 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
cost of
(A) (B) (C) (D)
goods used goods bought materials used materials produced
Sample Answer
The best answer to this item is "materials used", so answer
space (C) has been shaded. 6. If you want to change your answer, be
sure to erase your old answer completely and fill in
your new choice.
7. When you are told to begin, tum the page and work as quickly
and as carefully as you can. If you cannot answer an item, omit it
and go on to the next one. You can come back to that item later.
Your score will be the total number of correct answers.
8. You may do any rough work in this booklet.
9. You may use silent non-programmable calculators to answer
questions.
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.
Copyright 2009 Caribbean Examinations Council All rights
reserved.
02116010/CAPE 2013
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1.
2.
3.
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Which of the following situations is MOST likely to result when
there are limited resources?
(A) (B) (C)
(D)
People must make choices. The poor will become poorer. Only the
rich can acquire everything
they desire. Some firms will be forced out of
business.
A baker can bake any of two combinations of cakes and loaves of
bread using the following options.
Loaves of Cakes Bread
96 12 75 15
What is the opportunity cost of producing one cake?
(A) (B) (C) (D)
1 loaf of bread 5 loaves of bread 7 loaves of bread 8 loaves of
bread
Which ofthe following is an example of a normative economic
statement?
(A) A reduction in the price of goods will benefit
consumers.
(B) The government should provide free medication for senior
citizens.
(C) An increase in interest rates will attract foreign
investors.
(D) An increase in the minimum wage will increase inflation.
0211601 0/CAPE 2013
4.
5.
Which of the following BEST describes the 'marginalist
principle'?
(A) (B)
(C)
(D)
Aver~ge cost equals average revenue. Marginal cost equals
average
revenue.
Average cost equals marginal revenue.
Marginal cost equals marginal revenue.
i
Item 5 refers to the following diagram showing the Production
Possibility Frontier.
Bread A D
B
O L_------------------~S~o~d~a
On the diagram, point F represents
(A) inefficiency (B) equilibrium (C) technical efficiency (D) an
unattainable level of production
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I
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6.
7.
8.
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Which of the following situations results in an external
cost?
(A) Private citizens clean up the
(B)
(C)
sidewalk. Individuals place litter at the side
ofthe road. A food processing company
provides scholarships for needy children.
(D) Disadvantaged youth from inner city communities enrol in a
skills programme.
Supply functions are positively sloped because
(A) (B)
(C)
(D)
of the law of increasing returns less output is supplied at
higher
prices more output is supplied at higher
pnces extra output must be attracted from
elsewhere
Item 8 refers to the diagram below which represents the market
for ferry services.
Ticket Price
($) F f------------x
s
D o'--------------7-
Number of Trips
OF is the equilibrium ticket price for a return trip. If
government imposes a price ceiling to allow the lower income groups
to utilise more of the ferry services, it should be placed
(A) either above or below OF (B) at the equilibrium price, OF
(C) above the equilibrium price, OF (D) below the equilibrium
price, OF
0211601 0/CAPE 2013
9.
10.
11.
Item 9 refers to the diagram below which shows a firm operating
in a perfectly competitive market.
p
Q
Which segment of the curves shown represents the short-run
supply curve?
(A) (B) (C) (D)
Cto E BtoD AtoD A to F
If the demand for a seller's product is inelastic and he lowers
the price, his total revenue will
(A) (B) (C) (D)
increase decrease fluctuate remain the same
Which of the following is an example of a price ceiling?
(A) (B) (C) (D)
Rent controls Farm price supports Taxes on the market Minimum
wage laws
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12.
13.
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Which of the following BEST explains the term, 'indifference
curve'?
(A)
(B)
(C)
(D)
Goods for which the budget line is the same
Goods for which consumption is indifferent
Goods which give the consumer maximum satisfaction
The combination of two goods which give the consumer the same
level of satisfaction
Item 13 refers to the following diagram depicting consumer
surplus.
Price U
S Quantity
Which area on the diagram depicts consumer surplus?
(A) (B) (C) (D)
RPT PUT ORTS 1 OUTD 1
02 116010/CAPE 2013
14. The demand curve for a normal good is said to be negatively
sloped.
Which of the following diagrams would NOT represent a normal
good?
(A) Price s
p
D
Q Quantity
(B) Price s
p
D
Q Quantity
(C) Price s
D
Quantity
(D) Price s
Q Quantity
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Item 15 refers to the diagram below which shows total marginal
utility of ice cream and the quantity of ice cream.
50
1 2 3
TU
5----MU
Quantity of Ice Cream (number of cones)
15. In the diagram, at which quantity of ice cream is the
consumer maximizing utility?
16.
(A) 1 (B) 3 (C) 4 (D) 5
Which of the following market structures is characterised by
several firms which are too small to influence the market?
(A) (B) (C) (D)
Perfect competition Duopolistic competition Oligopolistic
competition Monopolistic competition
17. On which of the following assumptions is perfect competition
based?
(A) Perfect control of price (B) Large number of buyers (C)
Large number of big firms (D) Small number of individual firms
0211 60 I 0/CAPE 2013
18. 'Voluntary agreements' is an example of which ofthe fo
llowingtypes ofintervention?
(A) (B) (C) (D)
Free market Government Private sector Individual choice
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19.
Price
0
20.
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If a firm cannot prevent a consumer from enjoying the benefits
of a good it produced at low cost, the good is
(A) (B) (C) (D)
excludable non-excludable rival in consumption nonrival in
consumption
Item 20 refers to the graph below which shows a situation in
which the monopolistically competitive firm is in the long-run
equilibrium.
MC AC
I MR D
I
Quantity
Using the marginalist approach to determine equilibrium price
and quantity, what is the area between Q 1 and Q2 called?
(A) Excess capacity (B) Shut-down point (C) Equilibrium point
(D) Minimum efficiency scale
02116010/CAPE 2013
Item 21 refers to the diagram below showing the social marginal
costs (SMC), the private marginal costs (PMC) and the social
marginal benefits (SMB).
SMC
Price
0 '-----------::L' -----='---~ Ql Q2 Quantity
21. Which of the following is TRUE?
22.
(A) Output Q2 is efficient because
(B)
(C)
SMC > PMC. Output Ql is efficient because
SMB = SMC. Output Q2 is efficient because
PMC = SMB. (D) Output Q 1 is efficient because
SMB > PMC.
Which of the following is NOT a characteristic of the
oligopolistic industry?
(A) There are many buyers. (B) The firms are price takers. (C)
There are few firms in the industry. (D) The goods may be identical
or
differentiated.
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23. Which of the following is NOT a cause of market failure?
(A) Taxation (B) Monopoly (C) Externalities (D) Imperfect
knowledge
24. If the production of a good results tn positive
externalities then
(A) a tax should be imposed on the good (B) production of the
good should cease (C) production of the good should be
subsidized (D) too many resources are going into
the production of the good
25. A situation is defined as 'Pareto efficient' if it is
(A) possible to make someone better off without making someone
else worse off
(B) impossible to make anyone better off without making someone
else worse off
(C) possible to make someone worse off and everyone else better
off
(D) impossible to make anyone better off without making someone
pay
26. A situation in which people enjoy the benefits of public
goods without paying for them, is known as the
(A) non-rival problem (B) free-rider problem (C) non-excludable
problem (D) drop-in-the-bucket problem
27. If the cost of providing a good to an additional person is
zero, the good is
(A) a free rider good (B) non-excludable (C) a private good (D)
non-rival
02116010/CAPE 2013
Price
28.
29.
30.
Items 28-29 refer to the graph below which shows the demand for
and supply of health care in a particular market .
I I I I I I I I I
S=MSC
e D=MSB
If there is no health care insurance, what would be the
equilibrium price and quantity of health care?
(A) P 1 and Q1 (B) P2 and Q2 (C) P2 and Q3 (D) P3 and Q3
If a health insurance company offers to pay halfthe cost of
health care, what would be the price and quantity demanded by the
consumer?
(A) P 1 and Q1 (B) P2 and Q2 (C) P2 and Q3 (D) P3 and Q3
Which of the following contributions are examples of
privatization?
(A) Regulation and franchising (B) Franchising and
redistribution (C) Contracting out and deregulation (D)
Deregulation and nationalization
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Quantity
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31.
32.
33.
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If an investor borrows $1 000 at an interest rate of 14 per cent
per annum, the annual interest payment would be
(A) (B) (C) (D)
$ 14 $ 140 $1 000 $1 680
Which ofthe following is NOT likely to cause a shift in the
supply curve for labour?
(A) (B) (C) (D)
Cost of labour Increased birth rate Increased population growth
Migration of skilled workers
Which of the following terms describes the relationship between
factor rewards and costs of production?
(A) (B) (C) (D)
Direct Inverse Indirect Negative
34. Which of the following countries has the GREATEST inequality
of income distribution?
Country Value of Gini Coefficient
(A) p 0.1 (B) Q 0.3 (C) R 0.7 (D) s 0.9
021 16010/CAPE 2013
35.
Item 35 refers to the following diagram depicting a labour
market.
Wage
MRPL
Quantity Labour
Which of the following economic concepts does the shaded area in
the triangle represent?
(A) (B) (C) (D)
Poverty Economic rent Transfer earnings Consumer surplus
Item 36 refers to the table below which shows the percentage of
national income earned by various factors of production.
Factor Percentage % Income Earned
Land 15% Labour 25% Capital 20% Entrepreneurship 40%
36. The table represents
(A) cost of firms of each facto r (B) size distribution of
income (C) personal distribution of income (D) functional
distribution of income
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37.
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Item 37 refers to the following diagram of a Lorenz curve.
e 100 8 = ..... ~- 80 ~ ~ ell ...
~ .... = ~ 60 ~ = y e t e
=-- - 40
Percentage of Households
By examining the portion of the entire area that is shaded, an
economist can determine the
(A) (B) (C) (D)
Gini coefficient concentration ratio elasticity coefficient
marginal rate of substitution
02116010/CAPE 2013
38.
39.
Item 38 refers to the graph below showing the demand and supply
for a factor of production.
Price s
D
D
S 0 t oL---------~--~~--~~ Quantity
A shift of the demand curve from DD to Dp 1 will result in (A)
(B) (C) (D)
a decrease in economic rent an increase in economic rent a
decrease in transfer earnings an increase in transfer earnings
"Longevity" is a component of which of the following
measures?
(A) Gini coefficient (B) Human Development Index (C) Fair-firm
concentration ratio (D) Herfindahl-Hirschman index
40. When examining the Lorenz curve, a Gini coefficient of 100 %
is regarded as total
(A) employment in the country (B) equality of income
distribution (C) inequality of income distribution (D) separation
ofthe rich and the poor
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41. The higher the demand for houses, and hence the higher their
price, the higher will be the demand for bricklayers.
The concept explained above BEST describes
(A) (B) (C) (D)
derived demand increase in demand increase in factors demanded
increase in quantity demanded
42. In the factor market, land is similar to labour in that
(A)
(B)
(C)
(D)
the owners of both may be represented by a trade union
the determinants of supply ofboth ofthem are similar
both are demanded for their contribution to production
both are fixed in supply and are indestructable
43. Under the CARICOM Single Market and Economy (CSME)
agreement, a plumber from Grenada now works as an electrician in
Trinidad. What types of labour mobility have occurred?
I. Vertical II . Horizontal
III. Geographical IV. Occupational
(A) I and III only (B) II and Ill only (C) II and IV only (D)
III and IV only
44.
45.
END OF TEST
Items 44- 45 refer to the information below.
Jack's Inc . paid wages in the amount of $20 000, rent $2 000
and interest $1 500. The business realized a profit of $5 000.
For the factor of production, capital, how much did Jack's Inc.
pay?
(A) $ I 500 (B) $ 2 000 (C) $ 5 000 (D) $20 000
For the factor of production, entrepre-neurship, how much did
Jack's Inc. pay?
(A) $ 1 500 (B) $ 2 000 (C) $ 5 000 (D) $20 000
IF YOU FINISH BEFORE TIME IS CALLED, CHECK YOUR WORK ON THIS
TEST.
02116010/CAPE 2013