AL 2014 Economics - Predictions For Exam

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Economics

The Final Session
22
nd
July 2013

P.SUTHAHARAN BBA (Marketing Special) (Col), DipM ACIM

EDUTION INSTITUTE
No 6, 3/1, 37
th
Lane, Colombo - 06
T.P 0773461479
A/L
ECONOMICS
PREDICTIONS & FINAL CHECK LIST
FOR A/L 2014 EXAMS
By Haran

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Tutors Profile

Haran holds a bachelors degree in Business Administration (Marketing Special) from the University of
Colombo, with a Post Graduate Diploma in Marketing awarded by the Chartered institute of
Marketing (UK). Currently he is reading for his Masters in Economics from Faculty of Arts, University of
Colombo.
He has 5+ years of experience in teaching economics for advanced level students, and has served as a
teacher at Stafford International Colombo. Now working as Senior Business Analysis at a consultancy
firm.

A/L Result - Economics - A / Business Statistics- A / Accounting - B, Z score 2.0138
E-mail haran5555@gmail.com , T.P 0773461479

This material was prepared based on gut feel referring to the following sources
Past exam papers
Withdrawal papers of leading schools (Royal/LC/HFC/Methodist/Visaka)
Prediction by the leading tutors in the industry (Tamil/Sinhala medium)
Questions and suggestions in this tutorial are subjective and directional expectations of the tutor regarding
the 2014 exam Economics paper.

Assumption in preparing this document
Examination department already under critique since there are errors in previous exam (O/L and
A/L exam papers )
Since new examiner to prepare A/L 2014 exam paper, he would probably avoid taking risk by testing
new areas and doing experiment in his first exam paper
So he would prepare his paper, based on previous past papers
Higher likelihood of some of the previous past paper question being repeated (2012/2009)

Black highlighted questions in each sections are of higher importance

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Analysis of Previous Past Papers SECTION A (allocation of marks for each
section, highlighted ones are of higher importance

Unit Section 2013 2012 2011 2010 2009 2008
1 Introduction to Economics (Total) 20 20 20 30 30 15
Economic Resources 4 4 4 4 3
Factors of Production |Efficiency |DOL 8 8 9 5 4
Production Possibility curve / Opp.Cost 4 4 6 11 10 8
Economic Systems 4 4 10 6 15 15
2 Demand, Supply, Elasticity & Equilibrium 20 20 20 15 15 15
Demand related Questions 4 4 9 6
Supply Related Questions 4 10
Elasticity (PED/PES/XED) 3
Equilibrium Sum 12 12 8 9 15 15
(Tax(T), Subsidy(S), Mx.Con, Mn.Con Tax Mn Sb Tax Mn Mn
3 Products, Cost curves and Market structure 20 20 10 15 15 00
Production /Return to scale /Diminishing 4 4 6 2 6
Cost Curves 8 4 2
Short Run / Long run/exit 4 8 4
Market Structures 4 8 6 11 9
(PC,Mo,Mc,Op) PC All All PC PC/M
4 National Accounts 20 20 20 15 15 15
Theories related to National accounts 14 6 10 4 4 5
Avoided / Included in National Accounts 9 5 7 5
Production Approach
Expenditure approach 6 5 11
Income Approach 5 4 5
5 Macroeconomic equilibrium 20 20 20 15 00 15
Conditions for equilibrium 6 6 6 5
Simple Economy 4 12 5
Closed economy 8 12 4 5
Multiplier 3 5
Other Theory Questions 4 2 2

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Unit 1: Introduction to Economics
This unit is simple and straight forward, could be the unit we have practised most number of
questions.
There will be around 5-7 MCQ from this section (6 Marks)
A definite question for part 2 (10 Marks)
So, altogether a section with 15-17 Marks
Pay more attention for Production possibility curve and Market systems

Key areas to Focus for MCQ
Scarcity
Positive and Normative economics
Type of goods Economic goods, free goods
Renewable and Non Renewable
Factors of production (Entrepreneurship/Labour)
PPC, Opportunity cost, showing various situ/shift in PPC
Solving the basic economic problem
Type of economies and their characteristics/features
Productivity, optimum and actual output
Charectistics and differences of market system

Key areas to Focus
for Part 2
Key Check List
Economic Resources Differentiate accounting profit and
economic profit
Differentiate type of goods
(free/economic/public/private/merit)

Factors of production Differentiate full employment and full
production?
How human capital can be enhanced?
Explain the type of capital, and their
importance?
Explain how factor returns can be
optimized?
What you understand by the term
optimum product mix?
Characteristics and roles of the
entrepreneurship?
Productivity and how to enhance it?
Efficiency and effectiveness, differentiate
what can be done to improve?
Production Possibility
curve
Explain different type of
opportunity cost with the
assistance of a diagram
Reason for the shape of the
PPC curve
Factors influence the inward
and outward shift of the PPC
Showing different scenarios in the
production possibility curve? (Exploitation of
resources/mismanagement/recession/declin
e etc.)
Allocation of resources through the PPC
Different economic
system
Explain what is meant by allocation
problem, production problem and
distribution problem
Price mechanism and its important
functions?
How every economic system solves the
basic economic problem?
Diffenciate types of economic system
Explain what is meant by traditional
economic system, transitional economic
system and emerging economies

Try to attempt the question if you are familiar
with all questions, since the risk of losing
marks here is comparatively lower
Use diagram and chart wherever possible,
briefly explain if you use such
Better question to start with, since you have
attempted this kind of question more number
of time in last 2 years

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Unit 2
Analyses the rational behaviour of Households and firm in the market
Roughly there will be around 8-9 MCQ from this section (8-9 Marks)
Pay more attention to Elasticity calculation and Market equilibrium sum with Subsidy or manimum
control price

Reasons for rightwards and leftward shift (D/S)
Identifying consumer / producer surplus
Elasticity (different types)
Calculation based on demand and supply equation
Consumer expenditure and producer income with Elasticity
Excess demand/Supply Excess demand/supply price
Types of goods (griffin goods/inferior/ normal/luxury good)
Changes in the price with tax/subsidy etc.
Consumer tax burden/producer tax burden/deadweight loss
Control prices

Key areas to
Focus for Part 2
Key Check List
Demand & Supply
Questions
What are determinants of demand?
Explain income effect and substitution effect?
What is meant by market equilibrium
Define substitution effect and income effect
Explain what is meant by derived demand
Explain the term Market cleaning price and
Stable equilibrium?
Differentiate Economic surplus,
consumer surplus and producer surplus
Movement along the curve and the
movement of the curve
differentiate individual demand
function and market demand function
Discuss the difference between
producer surplus and economic profit

Elasticity

Calculation of elasticity for different type of
product
Elaborate the type of product based on the
elasticity
Why elasticity is important, discuss the
economic importance of calculating
elasticity ( For each elastic model)

Market Equilibrium
Highly likely to check the subsidy or Minimum
control price for 10 Marks
Equilibrium price and quantity before tax/subsidy
Equilibrium price and quantity after tax/subsidy
Consumer surplus before T/S
Producer surplus before T/S
Consumer surplus after T/S
Producer surplus after T/S
Government subsidy expenses
Subsidy benefit bourn by customer and producer
Excess demand and Excess supply at the price

Maximum control price
Minimum control price
Why control price is imposed
What should government do to ensure
the control price
Black market price
Social cost
Imports with exchange rate
local supply, imported supply

This unit is has certain amount of risk ,
but the return also higher if you do it
correctly
All the calculation question might look
like simple when you try to attempt, but
100% attention required when working
out
If nothing new and complicated, just
attempt
Pay attention, You can easily ensure 18-
20 marks if you can do this correctly

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Unit 3
Production / Cost curves and Market Structures
There will be 4-6 MCQ from this section (3-4 Marks)
Pay more attention to Returns to scales, diminishing utility and cost curves specially AC and MC

Nature and function of curves
Interaction point of AC & MC
Conditions for the profit maximization point
Characteristics of the market structures
Short run and long run costs
Explicit and implicit cost
Production and cost curves for different market structures

Key areas to Focus
for Part 2
Key Check List
Production /Return to
scale /Diminishing
What is meant by Law of diminishing
return?
Explain your understanding of the
shutdown point? When this will happen?
Explain what is meant by sunk cost?
What is meant by economic rent and
transfer earning?
Distinguish between normal profit and
economic profit?
Differentiate between return to scale and
economies of scale

Cost Curves
Why MC curve travel through the
minimum point of the average cost curve?
Explain the relationship between the AFC
and AVC
Explain how the total product and marginal
product curves function?

Market Structures
Discuss the factors based on which the
market structure is classified into?
Draw the abnormal profit earning
situation of the perfect competitive
market?
Discuss the minimum price at which the
perfect competitive firm like to retain at
the market? Why?
Explain why perfectly competitive firm in
the short run sets P=MC and in the long run
set P=MC=AC
Do you think the concept of perfect
competition is important to understand the
market behaviour of the real world?

Discuss the features of the perfect
competition?
How the monopolistic competition differs
from the perfect competitive market?
Explain the demand curve of oligopoly
market?
Explain what is meant by revival action?
why perfect competitive firm is a price
taker
Explain what is meant by price
differentiation and product differentiation?
Explain the concepts of price war and
collusion in relation to Oligopoly market?

Use diagrams wherever possible and
needed
There might be lot indirect questions
from this section, just try to related it
with the content you have studied
Answers should be comprehensive and
should stick to the point. bluffing would
not bring marks in this section

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Unit 4
National Accounts with Macroeconomic framework

There will be around 3-4 MCQ from this section (3-4 Marks)
Pay more attention to Income approach and theories related to
National accounting (Specially Underground economics,
Importance of NA, dos and donts in NA, graphical methods)

Things to be avoided in National accounting calculation
Definition for GDP, GNP,NDP
Value added and final output
Few calculation using price index
Nominal and real income
Difference between pricing method (constant current)
Example for the transfer payment /one sided payment
Calculation of growth or inflation percentage

Key areas to
Focus for Part 2
Expected Questions
Theory in National
Accounting
What is mean by double counting?
How to avoid double counting in National
accounting calculation?
How to measure the economic growth?
Discuss the importance of national accounting
calculation
Discuss the limitations of the national
accounts calculation
Explain what is meant by green accounting?

Other National
Accounting
Question
What are the components of aggregate
national income?
Define each of the components?
Distinguish between gross domestic fixed
capital formation and gross domestic capital
formation
Differentiate employment income and
rental income
Define Investment, and what factors
determine the level of investment in a country?
Discuss the components of the consumption?
Distinguish autonomous consumption and
induced consumption
what factors will influence the individual
demand
Question on
National
Accounting
Calculation

Be familiar with the followings on expenditure
approach
Total consumption
Total investment
GDE
Exp.on GDP / Exp.on GNP
NNP
Total resources/ resource utilization

Likely chance of Income approach to be tested
this time , Be familiar with the followings,
Net domestic income
Gross domestic income (Factor
cost/Market price)
Gross national income
Private income
Disposable income
Household income

This question should be carefully
planned & approached before
start writing
High risk but return also high
See whether you can answer the
entire question
If any new question given for
more than 4 marks and you are
not sure about answer dont
attempt
Do a draft calculation of the sum,
before attempting it
Logically structure the answer
and write in brief depending on
the mark allocated

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Unit 5
Investigate determinants of Macroeconomic equilibrium
Roughly there will be around 4-5 MCQ from this section (4-5 Marks)
Do few question with disposable income, draw C/I/E/Y/S
Graphs, revise expenditure multiplier

Different sectors involved
Role of the each sector and their involvement
AD / AS and its components
Different types of economies ( Simple/closed/open)
Calculation of equilibrium national income (Short one)
Consumption and saving function
Multiplier effect
Income, Saving and Consumption graphical presentation

Key areas to Focus
for Part 2

Basic Questions What are the components of aggregate
income and expenditure in the Simple/open
economy?
Injections and withdrawals/leakages in
relation to circular flow of income
What is meant by autonomous
consumption and induced consumption?
Explain the equilibrium national income in a
closed economy?
Multiplier What the difference between investment
multiplier and tax multiplier?
Explain the term MPC and APC? What is the
relationship prevailing among both of them?
Discuss the difference between investment
multiplier and transfer multiplier?
Calculation Question This question might include a Disposable
income part (Yd)
Rework A/L 2009, past paper question.
Distinguish between inflationary gap and
recessionary gap
Calculate the equilibrium level of income of
this economy?
If the saving changes, what will happen to
the equilibrium national income?
Show the changes through the diagram
Calculate the investment multiplier and tax
multiplier?

This question should be carefully
studied before start writing
See whether you can answer the
entire question
High risk but return also high
Do a draft calculation of the sum,
before attempting it
Use graphs and diagrams to explain
concepts
Try to attempt this question if you
can secure over 16 marks out of 20

Students should try to attempt at least one of the 2 sums questions from unit 4 and 5; this will help to save time for the rest of the questions
that you are attempting. Try to complete these questions within 20-25 minutes.

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Unit 6
Analysis the Change of the price levels that affects macroeconomic process
Maximum of 2-3 marks MCQ from this section.
Since, Inflation is not tested in last few year examinations, higher possibility to be test with money and
banking, unlikely to test as a spate question
There will be 5marks question incorporating monetary policy and fiscal policy with inflation
Sometime, effect of exchange rate also can be tested with this section
There is possible chance for a 7-8 Marks from this unit

Inflation Rate
Comparing countries on inflation rate
Nominal and real rate of inflation
Different price index and their purpose
Identify the Type of inflation for the given scenario

Key areas to Focus for
Part 2

Basic Questions What is meant by price indices? How
to measure the price level changes?
What you understand by the term inflation
and what are the consequences of it?
Concepts of inflation Differentiate core inflation and
headline inflation , Galloping inflation
and creeping inflation
What is meant by the term spiral effect of
inflation or spiral inflation?
Different Approaches to the
inflation
Explain and differentiate cost push
inflation and demand pull inflation?
What are reasons for that inflation?
Explain how the inflation could be
controlled? (both the cost push inflation and
demand pull inflation)
Country specific question Discuss the impact of the exchange
rate devaluation on the inflation?
Discuss the measures; the government has
taken to control the inflation in Sri Lanka?
Discuss the trend of inflation in Sri Lanka in
the recent years?

This question is easy to answer
Questions will be very straight forward
and will be tested on the theory
But structured and logical answer
required
Answers must be in detail depending on
the marks offered
Have to think about all the dimensional
influence when answering the question
Clearly differentiate the answers into
sections when answering a question
Higher possibility of testing current
situation of the inflation

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Unit 7
Analyses the contribution of monetary and banking system to the
economic process

Around 3-4 marks MCQ from this section.
Part 2 will have certain question from 10 marks
High powered money, repo rates, type of money demand

Determinant of demand for money
Type of Money
% of some of the type of the money in the market
Money multiplier
Functions of commercial banks and central banks
Bank rate / repo rate/ reserve rate at present
Capital markets in Sri Lanka
Calculations based on reserve ration

Part 2
Expected Questions
Basic Questions What is meant by high geared
money?
What factors influence the demand for
money
What are the tool that central bank
has in order to control the money
supply?
What you understand by the term
crowding out effect?

What is meant by moral suasion? What are the conditions required for the
banking system to create money?
Discuss the roles and functions of
the commercial bank in a countries
economy
Discuss the role of central bank in the
countries development
Explain the details of the open
market operation carried out by central
bank
Explain the credit creation process
Explain the difference between type of
money M2, M2b , M4 etc.
Calculation Question There will be a calculation question for
6 - 8 marks
Assets and liabilities of banking system
Calculation of the excess reserve
Value of the loans the bank can
provide
Value of the money creation
multiplier of the banking system
Showing the balance sheet after the
change

This question is easy to answer and
straight forward
Detail writing is not required unless its a
essay type question for or 6 marks
Make sure that you know the calculation
question 100% if you are going to
attempt the question.
Must attempt this question, if you can
answer more than 80% of the questions

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Unit 8
Investigate the type of intervention of the government to achieve macro-
economic objective

Likely chance of Supply side policies and Externality to be tested

Type of good
Reasons for government intervention
Positive and negative externalities
Reasons for the market failure and government failure
Fiscal policy measures
Taxation
Current contribution of taxation direct/indirect %
% of budget deficit
% of current & capital accounts
Causes for the budget deficit

Part 2
Expected Questions
Government failure Understand the reasons why
government intervene into the
economic system
What is the role of government and why its
important in market economy?
Differentiate market failure and
government failure
What is meant by imperfect information
Externalities Show the positive and negative
externalities with the help of graph
List examples for positive and negative
externalities
Government budget and
taxation
Explain the impact of following
budgetary situation (Excess budget,
Shortfall budged, balance budget)
Differentiate equity and neutrality
Calculation of budget deficit/ primary
account balance
What measures taken by government to
reduce budget deficit?
What is meant by universal public good
List the purpose of taxation
Discuss the principals of taxation
Supply side policies List all supply side policies and its
impact?
How supply side policies helps to
achieve economic growth in a country
Differentiate fiscal policy and monetary policy
measures,

This question is easy to answer and
straight forward
Detail writing is not required unless its a
essay type question for or 6 marks
Maintain the logical sequence of answers
if it is a long answer.
Must attempt this question, if you can
answer more than 80% of the questions

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Unit 9
Analysis of the effects of International trade and finance
Likely chance of Comparative advantage, different exchange rates and their pros and cons

Advantage of International trade
Absolute advantage and comparative advantage
Terms of Trade
Static gains and dynamic gains
Export and import structure - % high imports /exports
Protectionism policies
Balance of payment and its composition
Exchange rate system ( real and nominal)
Effects of globalization
Appreciation and depreciation effects

Part 2
Expected Questions
Theories of International
Trade
Why countries involve in international
trade
What are the determining factors of
comparative advantage
Explain nominal and real exchange
rates
Exchange Rate Discuss advantages and disadvantages
of fixed and floating exchange rate
system
Explain what is meant by J-Curve effect
What factors influence the exchange rate of
Sri Lanka?
Discuss whether depreciation of the currency
will bring the positive effect to the economy
always
Balance of Payment Status of the current account balance
of Sri Lanka
List the component of BOP
What are consequence of increase in imports
in Sri Lanka?
What are consequences of decrease in
exports in Sri Lanka?
BOP calculation Calculation question on BOP
Protectionism Discuss the arguments for and against
protectionnism

Detail and logical writing is required
Should attempt only if you are familiar
with the question
Avoid taking risk if this is a new type of
question.
Relate current statistics when you are
answering balance of payment questions

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Unit 10 & 11
Economic growth & development, SL Performance since independence

Likely chance of Multi-dimensional poverty, Poverty reduction in Sri Lanka Mihanda Chinthanaya
unstoppable Sri Lanka

Poverty Rates
Un employment rates
Labour participation rate
Government development policies
Current trends in economic development
Comparison between countries
In equality /gini coefficient
Measures of economic development
Key social indicators HDI /MDPI
Sectorial contribution to GDP

Part 2
Expected Questions
Multi dimensional poverty
index
What are the components of poverty
index
Discuss the measures taken to reduce
poverty in Sri Lanka
Discuss why Sri Lanka is ahead of all
south Asian countries in terms of
health care indicators
Population Discuss the consequences to the
economy due to aging population
What factors determine the population
change
Development Importance of investment Importance of spending on investment
Mahindra Chinthanya Unstoppable Sri Lanka

Detail and logical writing is required
Should attempt only if you are familiar
with the question
Avoid taking risk if this is a new type of
question.
Relate current statistics when you are
answering balance of payment questions

AL 2014 Economics - Predictions For Exam

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