CANDIDATE = PLEASE NOTE! RINT oernamcon he ae xo and tara this booklet with your answersheet. Fallure 9 | spc, ee a Eee rest cope 02116010 FORM TP 2021220 MAY/JUNE 2021 CARIBBEAN EXAMINATIONS COUNCIL CARIBBEAN ADVANCED PROFICIENCY EXAMINATION® ECONOMI UNIT 1 Paper 01 J hour 30 minutes READ THE FOLLOWING INSTRUCTIONS CAREFULLY. 076 1. This test consists of 45 items. You will have | hour and 30 minutes to answer them. 2. _Inaddition 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. Onyouranswer 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 the cost of (A) goods used (B) goods bought (C) materials used (D) _ materiats produced g & ‘The best answer to this item is “materials used”, so (C) has been shaded, 6 If you want to change your answer, erase it completely before you 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. Ifyou cannot answer an item, go on to the next one, You may return to that item later. 8. You may do any rough work in this booklet. 9. You may use a silent, non-programmable calculator to answer items, DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO. Copyright © 2019 Caribbean Examinations Council All rights reserved. 0211601 0/MA/CAPE 2021 Scanned with CamScanner4 2. Which of the following situations is MOST likely to result when there are limited resources? cc) People must make choices. (B) The poor will become poorer. {C) The rich can acquire what they desire. (D) Some firms will be forced out of business. Consumer surplus may be defined as the (A) excess of total spending over total utility GW| difference bewween total utility and total spending (©) addition of total utitity and total spending (D) area where total utility and total spending are maximized Item 3 refers to the following inform: A baker can bake any of 2 combinations of cakes and loaves of bread using the following options. 4. lity frontier that bows [WD increasing opportunity cost as more of one good is produced (B) change inthe amount of resources available to the producer (©) constant opportunity cost as more of either good is produced (D) decreasing opportunity cost as more of one good is produced Which of the following measures is an example of a price ceiling? BW Rentcontrot (B) Farm price support © Atax on the market () Minimum wage law ‘tem 6 refers to the following diagram which depicts consumer surplus. Loaves of Bread | Cakes a uf Price s Tr P| R D 3 v 96 5. ut 5 15 3. What is the opportunity cost of producing, Leake? (A) L loaf of bread (B) 5 loaves of bread [@)_ 7 loaves of bread (D) 8 loaves of bread (0211601 0/MJ/CAPE 2021 6. s Quanity Which area of the diagram depicts consumer surplus? @® pur (BR) RPT (©) orTS (BD) oUTD' GO ON TO THE NEXT PAGE Scanned with CamScannerBe Hem 7 refers to the following diagram which represents the demand for and supply of bananas, D QQ Quantity 7. Whatis the MOST likely reason for the fall in price from OP, to OP,? (A) Adecrease in supply WD) Anincrease in supply (C) Arise in quantity from 00, to0Q, (D) A movement along the demand curve from Q to R (0211601 0/MJ/CAPE 2021 i Item 8 refers to the following diagram which shows supply curves for a firm operating ina perfectly competitive market. Price Quantity Which segment of the curves represents the shortrun supply curve? (A) Gtol (B) FtoH © Ewh (D) Ets GO ON TO THE NEXT PAGE Scanned with CamScannerke 3 ‘Quantity 9. An increase in the price of yam is MOST. likely to result in (A) an inward shift of the demand curve (B) an outward shift of the demand curve (C) a movement along the demand curve from Point Y to Point X a movement along the demand curve from Point X to Point Y 02116010/MJ/CAPE 2021 o 4 8 2 16 Consumer goods ‘The firm presently produces at Point X. What will be the MOST likely change if the firm decides to produce at Point Y? (A) There will be a recursing decrease in opportunity cost. ‘There will be a decrease in capital goods and an inerease in consumer goods. (C)__ The opportunity cost of consumer goods to capital goods will remain constant. (D) There will be an increase in capital goods and a reduction in consumer goods. GO ON TO THE NEXT PAGE Scanned with CamScannera ems 11-12 refer to the following graph 13. Which of the following production possi- Which shows the marginal cost (MC) curve bilities frontiers (PPFs) illustrates constant and average cost (AC) curve ofa firm, return? Cost A ita Mc ac Se Av 1 u Tt f —— Quantity of output Consumer 4 11. Which of the following points indicates optimum production? ©) Capitat (A) I —_———_ u i © Ww L____, 12, Assuming that a firm is earning normal ean profits, at which point would marginal 1 revenue (MR) = marginal cost (MC)? © copitat (a) 1 B) Il ul 0 W [__ >_> Consumer 4 GE cop {___\, Consumer GO ON TO THE NEXT PAGE (02116010/MJ/CAPE 2021 Scanned with CamScanner14. 15. Item 14 refers to the following table which shows the price of chicken and the quantity of beef demanded. Price of Chicken [ Quantity of Beef] $20 100. $25 300 Using the formula for point elasticity, calculate the cross elasticity of demand between chicken and beef if the price of chicken increases from $20 to $25? Bs ®) 480 (©) 0.002 (D) 0.005 Which of the following statements és true if Good X is an ‘inferior good"? (A) The price elasticity of demand is zero. (B) The price elasticity of demand is positive (©) The income elasticity of demand is positive. BB) The income elasticity of demand is negative. 02116010/MJ/CAPE 2021 6 16. Item 16 refers to the following information which pertains to two industries. ‘Moo-Moo Ltd is part of the milk industry where there are few large firms and high barriers to entry and exit. Each firm can control its own price. Buzz-Buzz Ltd operates in the honey industry where there are hundreds of price- taking firms which all produce an identical product. Which of the following combinations correctly describes the market structure of EACH industry? MilkIndustry | Honey Industry (A) | Oligopoly [ Monopolistie Jcompetition __| (B) | Perfect ‘Monopolistic competition | competition Oligopoly _| Perfect competition (D) | Monopolistic | Perfect competition competition GO ON TO THE NEXT PAGE Scanned with CamScanner17. A situation in which it is impossible to reallocate consumption activities to make at least one person better off without making anyone else worse off is known as (A) (@B) 8 18. On which of the following assumptions is perfect competition based? Ue}! © @) market failure marginal utility Pareto optimality Perfect control of Large number of buyers Large number of big firms ‘Small number of individual firms 19. Which of the following situations represents a negative externality? Private cost is less than social cost. (B) Private cost is equal to social cost. (©) __ Private benefit is less than social benefit. (@) Private cost is greater than private benefit. 20. Positive economic profit exists when (A) _ marginal revenue is greater than marginal cost (B) marginal revenue is less than marginal cost (C) _ averagerevenueislessthanaverage cost 6 average revenue is greater than average cost (0211601 0/MJ/CAPE 2021 Price 2. 22, 23. o Q a Items 21-22 refer to the following diagram which shows a situation in which monopolistically competitive firm is in long-run equilibrium. ‘Quantity Using the marginalist approach to determine equilibrium price and quantity, the area between Q, and Q, is referred to as (A) the minimum efficiency scale (B) the equilibrium point (©) the shut-down point ED) excess capacity ‘What level of profit is being made? BD Norma (B)— Windfalt (C)_ Monopoly (D) Abnormal If the cost of providing a good to an additional person is zero, then the good is, private non-rival (©) a free rider (D) — non-excludabte GO ON TO THE NEXT PAGE Scanned with CamScannerWhich of the following terms BEST describes the types of goods that can be provided by the market, but that are usually subsidized or provided by the government in order to increase social benefits? Free Merit Public Demerit 25, The term ‘deadweight loss’ can be BEST defined as a (A) disadvantage of market failure (B) decrease in the marginal produc- tivity of labour decrease in the netwetfare ofsociety (D) decrease in the productivity of firms in an industry 02116010/MJ/CAPE 2021 26. 27. Items 26-27 refer to the following diagram ‘which illustrates the demand for and supply of health care in a particular market. S=MSC QQ Quititity, If there is no health care insurance, what ‘would be the equilibrium price and quantity of health care? (A) P,andQ, P, and Q, P, and Q, () P,andQ, Ifa health insurance company offers to pay half the cost of health care, what would be the price and quantity demanded by the consumer? (A) P,andQ, (B) P,andQ, (C) P and Q, P, and Q, GO ON TO THE NEXT PAGE, Scanned with CamScannerems 28-29 refer to the following diagram which represents the social and private costs of cigarette production. Marginal | mc cant and benefits MC ‘SMBD 30. o RG Quantity 28. Which of the following areas represents the deadweight loss to society, if production is at output level G? ZXY (8) WzY (©) WZxy (@) RWYG 31. 29. What does the distance, XY, on the graph above represent? (A) Social cost (B) Social benefit (C) Private benefit External cost 32, 02116010/MJ/CAPE 2021 Item 30 refers to the following table which shows the market shares of six firms. Firm Market Share (%) 1 30 2 25 3 10 4 10, 3 3 6 2 Based on the size of the Herfindahl— Hirschman index for the data in the table above, how would this market be described? (A) Concentrated (B) —_ Unconcentrated ighly concentrated 8 Slightly concentrated Which of the following terms describes the relationship between factor rewards and costs of production? ® Direct (B) Inverse (©) Indirect (D) Negative Which of the following factors is NOT likely to cause a shift in the supply curve for labour? Cost of labour ern (C) Increased population growth (D) Migration of skilled workers GO ON TO THE NEXT PAGE Scanned with CamScanner33. Me 35. =10- Marginal physical product is BEST described as the change in (A) total cost from increasing output by one unit (B) total profit from increasing output by one unit total output from employing an extra unit of labour total revenue from employing an extra unit of labour ©) Which of the following measures includes longevity? Gini coefficient WA iriten Devetoprene index (©) Four-firm concentration ratio (0) _ Herfindhal-Hireshman index Item 35 refers to the following diagram in which the marginal revenue product curve has shifted from MRP, to MRP,, Wage MRP, MRP; o ‘Quantity of labour ‘The factors that are MOST likely to have caused this movement are 1. a worker productivity I, arise in the price ofthe final good mM. arise in the size of the labour force Vand II only (B) Land Ill only (C) Mand Il only (D) Wand ttt 02116010/MJ/CAPE 2021 36. 37. 38. 39. Which of the following assumptions is NOT true of a perfectly competitive labour market? All workers and employers have (a) perfect knowledge. Bl Wages are determined by workers and their unions. (©) Alljobs are equally attractive to all workers (D)__Allworkershave identical abilities. of the following terms BEST describes a situation in which people in an economy CANNOT afford basic goods and services? (A) The poverty line (B) _ Relative poverty Absolute poverty (D) The gini coefficient ‘The demand for a factor of production is a derived demand. This means that the demand for the factor comes from the (A) supply of the factor (B) rewards paid to the factor (C) demand for other products demand for the product that is made from the factor Which of the following government policies is LEAST likely to reduce poverty? (A) The introduction of book grants (B) An increase in child benefit payments [B_Theimplementation ofaregressive tax system (D) The introduction of housing subsidies GO ON TO THE NEXT PAGE Scanned with CamScanner“ue 40. John and Mary are both engineers who Atemsl refers to the following diagram of have similar qualifications and work the Lorenz curve experience, John earns $20 000 per month working for an offshore oil company while Mary earns $15 000 per month in a power generation plant, Which of the following factors BEST explains the disparity in wages between John and Mary? (A) Mary's company is notas profitable as John’s company. (B) Mary cars less as she is being discriminated against on the basis of gender. (©) John and Mary belong to different non-competing groups of labour sa their wages eamot ba equal. 41. Which curve represents the GREATEST ‘Cumulative % of income ‘Cumulative % of population (DD ohn cams more as he is being level of inequality? ‘compensated for greater risks and more unpleasant conditions @ P of his job. ®) Q R Us) 5S 42, A trade union successfully bargains for a wage increase in an imperfectly competitive labour market. What is the MOST likely consequence of this action in that labour market? @ Anincrease in the level of employ- ment (B) An increase in the quantity of labour demanded (C) — Adecrease in the quantity of labour supplied (D) — Adecrease in the quantity of labour demanded GO ON TO THE NEXT PAGE 02116010/MJ/CAPE 2021 Scanned with CamScanner-12- 43. Which of the following factors is MOST Item 45 refers to the following diagram likely to cause an increase in the wage rate which shows how indifference curve of construction workers? analysis is applied to labour supply. (A) Aninerease in immigrant construc- Income tion workers ak Budget tine (HB) Anincrease in the market price of housing (© An increase in the non-monetary 7 benefits of construction workers (D) An improvement in the working Indifference conditions of construction workers Item 44 refers to the following diagram 45, Which of the following represents labour which depicts the demand and supply of a supply? good. ° (A) oa Price| s B® D (© o¢ @) ed D, D D, [|______ 2 44. A shift jantity of the demand curve from DD to D,D, will result in @B) © ©) a decrease in economic rent an increase in economic rent ‘a decrease in transfer earnings an increase in transfer earnings END OF TEST IF YOU FINISH BEFORE TIME IS CALLED, CHECK YOUR WORK ON THIS TEST, 0211601 0/MJ/CAPE 2021 Scanned with CamScanner