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TEST CODE 02116010

FORM TP 2014t67 iVIAY/ruNE 20I4

CARIBBEAN /DVANCED PROFICIENCY EXAMINATIONO

ECONOMICS

Unitl-Paper0l
I hour 30 minules

10 JUNE 2014 (2.m.)

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'

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

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

Sample Answer
(A) goods used
(B)
(C)
goods bought @@ o@
materials used
(D) materials produced

The best answer to this item is "materials used", so answer space (C) has been shaded.

6. If you want to change your answer, erase your old answer completely and fill in your new
choice.
il 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, 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-prograrnmable calculators to answer questions.

-
-
-
I DO NOT TURN THIS PAGE UNTIL YOU ARB TOLD TO DO SO.

-- Copyright A 201.i Caribbean Examinations Council

- All rights reserved.
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02116010/CAPE 20i4
 the 4' Which of the following graphs showing
I. Which of the following BEST explains
production possibilities frontiers illustrates
term' indifference curve'?
constant return?
(A) Goods for which consumPtion is
indifferent (A) CaPital
(B) Goods for which the budget line is goods

the same
(C) Goods which give the consumer
maximum satisfaction
(D) The combination of two goods
which gives the consumer the
same level of satisfaction Consumer goods

(B) Capital
) The condition necessary for normal profit goods
is that

(A) average cost must be equal to

marginal cost
. (B) average cost must be equal to
marginal revenue
Consumer goods
(c) average cost must be equal
average revenue
(D) marginal cost must be equal to (c) Capital
marginal revenue goods

3. -The use of land to build hospitals reduces

the
amount available for factory construction'
This BEST illustrates the concept of
Consumer goods
(A) deficit
(B) scaxcity
(C) shortage (D) Capital
(D)' rationing
goods

Consumer goods

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02116010/OAPE 2014
5. Which of the following measures rs an 8. Which of the following situations results
example of a price ceiling? in an external cost?

(A) Rent control (A) Private citizens clean uP the

(B) Farm price support sidewalk.
(C) A tax on the market (B) Individuals place liner at the side
(D) Minimum wage law of the road.
(C) A food processing comPany
provides scholarships for needY
Item 6 refers to the following graph which children.
represents the demand for and supply ot' (D) Disadvantaged youth fiom inner
bananas. city communities enrol in a skills
progralnme,

Item 9 refers to the graph below which

shows the demand curve for Yam.

Quantity

6. \\Ihat is the MOST likely reason for the fall

in price from OP, to OP"?

(A) A decrease in supPlY

(B) An increase in suPPlY
(C) Arise in quantity from OQ, to OQ,
(D) A movement along the demand
curve from Q to R
9. Ar, increase in the price of yam will result
in
7. Magic Ltd. observed that as it hired
additional'fairy godmothers', the marginal (A) aninward shift ofthe demand curve
ouput of glass slippers initially increased (B) an outward shift of the demand
but eventually decreased continuously. curve
(C) a movement along the demand
This observation can be explained by curve from Point Y to Point X
(D) a movement along the demand
(A) diseconomies of scale curve from Point X to Point Y
(B) decreasing returns to scale
(C) the law of diminishing returns
(D) diminishing marginal rate of
substitution

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021160l0tCAPE 2014
 -4-
will
table-which 11. tn which of the following graphs
Item 10 refers to the following consumer surPlus be equal
to zero?
3 untts
ffi*-, ,tt" cost of producing up to
of outPut.

(A) Price
0
I

of producing the
What is the marginal cost
second unit of outPut? QuantitY

(A) $10
(B) $13
(c) $14 :

(D) $18 (B) Price t

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021 I6010/cAPE2014 H
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 Items 13-14 ret-erto the following diagram
ttem 12 refe6 to the following diagram
rvith points labelled I, II,III and IV'
depicting consumer surPlus.

U
Price

QuantitY

12. Which area in the diagram depicts o euantiff

Quantiff
consumer surPlus?

(A) PUT 13. Which of the following points indicates

optimum Production?
(B) RPr
(c) oRTS
(A) I
(D) ouTD'
(B) II
(c) III
(D) Iv

t4. Assuming that a firm is earning normal

profits, at wtrich point would marginal
,"lo"tt -," equal marginal cost?

(A) I
(B) tI
(c) III
(D) iv

15. Aproduction possibility frontier that bows

outwards indicates

I (A) a change in the resources available

I

a to the Producer
i (B) increasing opporhrnity cost as more
ofone good is Produced
:

(c) constant oPPorhrnity cost as more

ofeither good is Produced
(D) decreasing oPPortunitY cost as
more of one good is Produced

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021 160lo/cAPE2014
 a
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Ti
of Items 19-20 refer to the following table
16. Which of the following is NOT a cause
*ni"h tho*s the market shares of six firms' .J.
market failure?

(A) Taxation Firm Market Share (7o) :

:.i'i

(B) MonoPolY I 50
ii
(C) Externaliry 2 25
(D) ImPerfect knowledge J l0
4 l0
1
Non-rivalry and non-excludability are ) J
L7.
2
features of which of the following types 6
ofgoods?
r9. Based on the size of the Herfindahl
(A) Merit Hirschman Index for data inthe table above,
(B) Public how would this market be described?
(C) Normal
(D) De-ment (A) Concentrated
(B) Unconcentrated
(C) HighlY concentated
18. . Flintstone Quarries Ltd. is aware
of the (D) SlightlY concentrated
negative environmental impacts of its
q*ttyi"g activities in the Bedrock Hills'
'itr" therefore organizes an annual 20. What is the Four-firm concentration Ratio?
"-o-p*y
reaforestation drive and also maintains a
small park and a recreation ground for the (A) s%
communitY of Bedrock Hills' (B) 25%
(c) 75%
-The scenario above is an example
of (D) es%
correcting market failure via the adoption
ofa

(A) corPorate ethic

(A) voluntary agreernent
(C) corporate code ofconduct
(D) corporatesocialresponsibiliry

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02 I I 601 0/CAPE 20 I 4
 Item 21 refers to the diagram below Items22-24 refer to the following diagram
which sho*s a situation in which the which shows the equilibrium position of a
monopolistically competitive firm is in the competitive firm in the long-run.
long-run equilibrium.
Price/cost
revenue

0 Q, Outp

21. Using the marginalistapproach to determine 7' The firm operating within the market
equilibrium price and quantiry, what is the stnrcture is called
shaded area called?
(A) monopoly
(A) Excess capacity (B) oligopoly
(B) Shut-down point (c) perfectly competitive
(C) Equilibrium point (D) monopolistically competitive
(D) Minimum efficiency scale

23. What is the level of profit being made?

(A) Normal
(B) Windfall
(c) Monopoly
(D) Abnormal

24. To maximize profit, the firm will produce

at the output level where

(A) average cost is minimized

(B) marginal cost is minimized
(c) marginal revenue exceeds marginal
cost
(D) marginal cost is equal to marginal
revenue

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0211601O/CAPE 2014
 -8

Item 27 refers to the following diagram

t< Whenever people can enjoy the benefits of
*hi.h .ho*s the marginal costs and
public goods without paying for them, the firm'
benefits of a Profit maximizing
problem is known as the

(A) drop-in-the-bucket
(B) non-excludable
(c) free-rider t
(D) non-rival -i
:-j[

't
il

26. Which ofthe following situations represents '.!f

6
-fl

a negative externality?
?r't

(A) Private cost is less than social cost'

igi Private cost is equal to social cost'
ici Private benefit is less than social
benefit'
(D) Private cost is gleater than private
benefit'
Current production gives rise to a negative
27.
externality. The government would like
the firm to compensate fully for their
externality. Which of the following
strategies can be used to accomplish
this?

(A) ImPose a tax of XY'

(B) ImPose ataxofYZ'
(C) Restrict outPut to Qr'
(D) Grant a subsidY of XY'

j,,

Ei

H
H
in

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0211601O/CAPE 2014
 -9-
Items 2&-29 refer to the diagram below 31. Which of the following statements about
which shows the demand for and supply factor rewards is NOT true?
of health care in a particular market.
(A) Owners of land earn rents'
(B) Dividends are the reward ofwealth.
(C) Interest is the factor reward
S=MSC accruing to caPital.
(D) Suppliers of Iabour are rewarded
by wages and salaries.

+ 32. 'Longeviry'is a component of which of the

I following measures?
--.-
Quantity (A) Gini coefficient
(B) Herfindahl Hirschman Index
28. If there is no health insurance, what would (C) Human DeveloPment Index
be the equilibrium price and quantity of (D) Four-firm concentration ratio
health care?

(A) P, and Q, 33. The demand for a factor of production

(B) P, and Q, is a derived demand, this means that the
(C) P, and Q, demand for the factors comes from the
(D) P, and Q,
(A) supply of the factor
(B) rewards Paid to the factor
29. If a health insurance company offers to pay
(C) demand for other Products
half the cost ofhealth care, what would be
(D) demand forthe product that is made
from the factor
the price and quantity demanded by the
consumer?

(A) P, and Q, 34. The concept of 'asymmetric information'

(B) P" and Q,
indicates that information is
(C) P- and Q,
(D) P. and Q,
(A) available freelY
(B) evenlY distributed
(C) not available freelY
30. Which of the following factors is NOT (D) unevenlY distributed
likely to cause a shift in the supply curve
for labour?

(A) Cost of labour

(B) Increased birth rate
(c) Increased population growth
(D) Migration of skilled workers

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{J2l rb0l0/C-APE 20i4
 l0-

Item 37 refers to the following diagram of

Item 35 refersto the following graph which
aLorenz curve.
shows the demand and supply for a factor
of production.

q)

DI
\l
q)

o\ \l o!

\N or5
6g
q)9
=J
CJ

\)"

35. A shift of the demand curve from DD to 20 40 60 80 '100

D,D, will result in
Percentage of households

(A) a decrease in economic rent

(B) an increase in economic rent 37. By examining the portion of the entire area
(C) a decrease in transfer earnings that is shaded, an economist can determine
(D) an increase in transfer earnings the

(A) Gini coefficient

Item 36 refers to the following diagram (B) conce,lrtration ratio
depicting a labour market' (C) elasticitY coefficient
(D) marginal rate of substitution

Wage

Which of the following economic concepts

does the shaded area in the triangle
represent?

(A) PovertY
(B) Economic rent
(C) Transfer earnings
(D) Consumer surPlus

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02n6010lCAPE 2011
 l1

Items 3L39 refer to the following diagram Item 40 ref'ers to the graph below in which
of the Loreriz cvrve. the Marginal Revenue Product Curve has
shifted from MRP, to MRP,.

Wage
I
\

c)

Quantity of labour

40. Which factors would MOST likely have

Cumulative 7o of population caused this shift?

I. A rise in worker productiviry

38. Which curve represents the CREATEST il. A fall in the price of the final good
lwel of inequalify? IIL Arise in the price of the final good
ry. Arise in the size of the labour force
(A) P
(B) a (A) I and II only
(C) R (B) I and III only
(9) s (C) II and III only
(D) II and IV only

39. Which area will have the SMALLEST Gini

co-efficient? 41. Which of the following facrors is NOT
likely to contribute to poverfy alleviation
(A) P in an economy?
(B) a
(C) R (A) Increased access to small business
(D) s financing
(B) Increased government spendrng on
scholarships and bursaries
(C) Increased regression in the tax
system
(D) Increased job creation projects
and programmes by firms and
government

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02116010/cAPE20t4
 -t2-

42. Which of the following factors is MOST Item 44 refers to the diagram below which
likely to cause an increase in the wage rate shows how indifference curve analysis is
of construction workers? applied to labour suPPIY.

(A) An increase in the market Price of Income

housing d Budget line
(B) An increase in the number of
irnmi grant construction workers
(c) An improvement in working
conditions of construction
workers IndilTerence
(D) An increase in non-monetary curve
benefits of construction "vorkers Leisure

43. When examiningthe LoreruCuwe, a Gini 44. Which of the following represents labour
coefficient of 100 o/otefers to complete supply?

(A) employment in the country

(A) o-a
'(B) equality of income distribution
(B) a-b
(c) inequality of income distribution
(C) o-c
(D) separation of the rich and the Poor
(D) c-d

Item 45 refers to the following table which shows annual wheat

production.

Number of Total Physical Average Physical Marginal Physical

Workers Product GPP) Product (APP) Product MPP)
0
1
I J 3

2 23 8 F
45. what.is rhe average physical product (APP) when there is oNE worker?

(A) 0
(B) I
(c) 2
(D) 3

END OF TEST

IF YOU FINISH BEFORE TIME IS CALLED, CHECKYOUR WORK ON

TIIIS TEST'

02n6010/cAPE 2014