#

,it '' AFFIX SEAL HERE

CA}IDIDATE-P,LEASE NOTET''
You must sign below and refurn Ois'booklet
witn fte.lns*cr Shea-: Failr#.t6 ..Oqtto..-"y TESTCODE02ll60lO
lirult in itisqrialificrtibni' I,.,.' '
,, '

FORMTP2007183 Signature '_ '

MAY/JUNE2OO7

CARIBBEAN EXAMINATIONS COUNCI L

ADVANCED PROFICIENCY EXAMINATION
ECONOMICS

Unitl-Paper0l
90 minutes

23 May 2007 (a.m.)

READ THE FOLLOWING DIRECTIONS CAREFULLY

1. In additionto this test booklet, you should have an answer sheet.

Each item in this test has four suggested answers lettered (A), (B), (C), (D)' Read each item you are
2.
about to answer and decide which choice is best.

On your answer sheet, find the number which corresponds to yoru item and shade the space
having
3.
the same letter as the answer you have chosen. Look at the sample item below'

Sampleltem
'-
Prime cost is calculated bY
SampleAnswer 1l
E
(A) adding direct factory expenses to cost of materials used xU'
(B) adding indirect factory expenses to cost of materials used o@@@ F,
t.
iCl subtracting direct factory expenses from cost of materials used
FI
iOl subtracting indirect factory expenses from cost of materials used F
rtt

The best answer to this item is "adding direct factory expenses to cost ofmaterials
used", so answer --
space (A) has been blackened.

Ifyouwantto change your answer, be sure to eraseyour old answercompletely and fill inyournew
4.
choice.
Ifyoucannot
5. Whenyouaretoldtobegin,turnthepageandworkasquicklyandascarefullyasyoucan'
harder items later'
*r*", an item, omit iland go or, [o the next one' You can come back to the
il 6. You may do any rough work in this booklet'

rl 7. This test consists of 45 items. You will have 90 minutes to answer them.
8. you may use silent non-programmable calculators to answer questions'

Do not be concerned that the answer sheet provides spaces for

more answers than there are items in
9..

this test.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO'

Copyri ght @ 2006 Caribbean Examinations Council'@
All rightsreserved'
02116010/c p.PE2007
 2-
l. Which of the following BEST defrnes the Item 4 refers to the following diagrams
concept ' scarcity' ? illustating four $pes ofproduction possibility
frontiers.
(A) Goods and services to consumers are
inshortzupply.
(B) There are not enough resources
available atpresent. Capital
goods
(C) The excess ofhumanwants overthe
(A)
economy's resources.
(D) The wants of society are greater
than the supply of goods.
Consumer
goods
.,
A baker can bake any combination of items
using the following options below.
R
Capital
Loaves Cakes goods
(B)
of bread
96 t2
75 l5

What is the opportunity cost ofproducing one goods

cake?

(A) I loafofbread
(B) 5 loaves ofbread Capital
goods
(c) 7 loaves ofbread (c)
(D) 8 loaves ofbread

3. Which of the following statements BEST

defines a'production possibility frontier' ? goods

(A) The limit of the combinations of

goods and services that can be
produced Capital
goods
(B) The combinations of goods and (D)
services that maybe produced in a
country
(c) The mixture of goods and services
that are desired by a country
(D) An illustration of an economy goods
producing goods and services forits
citizens
4. Which diagram illustrates decreasing
opportunity costs?

(A) A
(B) B
(c) ,c
(D) .D
 -3-
J. Which of the following diagrams illustrates a perfectly elastic demand curve?

(A)

(B)

(c)

(D)

6. A variable whose value is determined

independently ofthe model may be classified
AS

(A) exogenous
(B) endogenous
(C) relational
(D) functional
(lO ON TO THF.NF.XT PAGE
 I

at

-4-
Items 7 - 8 refer to the following diagrams Item 9 refers to the diagram below.
where ab is the consumer's initial budget line
andcd is the new budget line.
a
Quantity
Good demanded

Income

9. The diagram above BEST describes the

relationship between income and quantity
Goodr demandedof

7. What has happened to cause the budget line (A) anormal good
to shift from ab to cd? (B) a giffen good
(C) an inferior good
(A) Consumer income decreased and (D) ostentatious goods
prices remained unchanged.
(B) The price of good x fell, ceteris
paribus. 10. The following is a caption from Tropic Island
(c) The price of goodx rose and the price dailynewspaper.
ofgoodyfell.
(D) The prices of good x andy fell in the
sameproportion. CHICKEN PRICES PLUMMET AS BIR-D FLU
THREATENS THE ISLAND

8. IC, is downward sloping and convex to the

origin. The shape is convex because the
Which of the following could have led to the
(A) consumer opportunitY cost is fall inchickenprices?
increasing
(B) marginal rate of substitution is (A) Increasing demand for chicken
increasing (B) Decreasing demand for chicken
(c) marginal rate of substitution is (c) Increasing supply of chicken
decreasing (D) D ecreasing supplY of chicken
(D) consumer opportunitY cost is
decreasing
 -5-
-[tel4_11 refers to the diagram below. 14. Which of the following BEST defines
'marginal cost'?

(A) The addition to total variable costs

from producing one more unit of
ouFut
(B) Thd addition to total fixed costs from
producing one more unit ofoutput
(c) The addition to average total costs
from producing one more unit of
output
(D) The addition to averagevariable costs
from producing one more unit of
output

ll. In the above diagram a6 is the consumers' 15. There is a direct relationship between quantity
initial budget line. The price ofx falls and the supplied and price. This is so because
budget line pivots to ac. What is the income
effect ofthis price change? (A) producers believe that higher prices
lead to grcaterprofits
(A) fs (B) producers want to secure capital
(B) fti equipment to mass produce goods
(c) hb (C) as producers buy more of a factor of
f hg production, its price goes down
(D) as production increases, competition
for factors of product ion i ncreases
12. Which ofthe following BEST describes the their cost
price elasticity of demand of a downward
sloping demand curve?
16. The table below shows the percentage of
(A) Decreasing elasticitiy ofdemand as National Income eamed bv various factors
price decreases ofproduction.
(B) The same elasticity of demand
throughout Land lsyo
(C) Increasing elasticity of demand as Labour 25yo
price decreases Capital 2OYo
(D) Unitary elasticity of demand Entrepreneurship 40Yo
.throughout
This table represents

l3_ In the short run which of the following is (A) functionaldisributionoflncome

NOT affected by fixed cost? (B) personal distribution of Income
(C) size distribution oflncome
(A) TotalCost (D) cost to firms of each factor
(B) Marginal Cost
(C) Average Cost
(D) Average Fixed Cost

rl^ r)\I Tr| T}-Itr NtrXT PAGF

t

-6-
17. In the graph below the Marginal Revenue
20. The MRP curve slopes downward because
Product Curve has shifted from MRP, to
MRr' (A) a firm willpay more to attract factors
from other uses
(B) less of a factor is demanded at a
lower price
(C) more df a factor is demanded at a
lowerprice
(D) the marginal physical product is
constantly falling

Item 2l belows refers to the graph showing

the demand and supply for a factor of
production.
Which are the factors to have MOST
LI KELY caused this movement?

I. A rise in the price ofthe final good

II. A rise in the size ofthe labour force
III. A fall in the price ofthe final good
IV. A rise in workerproductivity

(A) I and II only

(B) II and III only
(c) I and IV only
(D) II and IVonly

18. Which ofthe following will cause the demand

for labour curve to shift to the right? 21. A shift of the demand curye from DD to
D,D, will result in
(A) A decrease in the price ofthe product
(B) An increase in the price of a (A) an increase in transfer earnings
substitute factor of production (B) an increase in economic rent
(c) A rise in the wage rate (C) a decrease in transfer eamings
(D) A decrease in the productivity of (D) a decrease in economic rent
labour
:
22. Which of the following countries has the
19. Which ofthe following terms explains the greatest inequality of income dishibution?
I
relationship between factor rewards and I
costs of production? Country Value of
J
Gini coeflicient
(A) Inverse A I
(B) Direct B .3
(C) Indirect C .7
(D) Negative D .9
(A) CountryA
(B) Country B
(C) CountryC
(D) Country D
 -7 -
23. The labour force may be defined as persons 26. Which ofthe following can be obtained by
who are employed plus the examining the portion ofthe entire area that
is shaded?
(A) unernployed
(B) selfemployed (A) The elasticity coefficient
(C) underemployed W Theginicoefficient
(D) workingpopulation (C) The cgncentration ratio
(D) Themarginalrateofsubstitution

24. Which ofthe following influence the labour

I
I force participation rate? 27. Which of the following measures are MOST
t
LIKELY to contribute to poverty reduction
I. Total Population inthe long run?
II. Demand for labour
III. Change in attitudes I. Increased educational and training
opportunities
(A) I and II only II. Increased taxes on producers of
(B) I and III only necessities
(C) II and III only IIL Increased occupational and
(D) I, II and III geographical mobi I ity of labour
IV. Establishmentofagovemmentsocial
welfare program
Items 25 - 26 refer to the following diagram
ofa Lorenz Curve- (A) I, II and III only
(B) I, I[ and [V only
(C) I,III and IV only
(D) II, III and IV only

H roo
28. Which ofthe following BESTdescribes the
E^so
-. q) concept of a wel fare fu nction?
b.=
E* 60 (A) A functioning government welfare
9E payment system where everyone
^a)d
-- AlD benefits
(B) The relationship between an
individual's well being and the
factors that influence it
(c) The fu nction of Government to help
those less fortunate by giving them
i 7o ofhouseholds
monthly grants
I
I (D) The relationship benrueen the different
!.

I econom ic fu nctions of Govemment

25. What does this diagram indicate about income
distibution?
29. Which of the following can negatively
(A) It distributed equally. '
is I infl uence social welfare?
(B) It is distributed at a constant rate.
,(c) It is unequally distributed. (A) Fallincrime
(D) Sixty per cent ofhouseholds receive (B) Fall in interest rates
sixry per cent of income. (c) Rise in employment
(D) Rise in inflation
 -8-
30. Which is an example of asymmetric 31. Perfect competion is based on which ofthe
information? fol lowing assum ptions?

(A) Both parties have equal knowledge (A) Perfect control of price
about the matter. (B) Smallnumberofindividualfirms
(B) One party hasmore knowledgethan (C) Largehumberofbigfirms
the other about the matter. (D) Largenumberofbuyers
(c) Both parties equally lack knowledge
about the matter.
(D) One party refuses to share
information with another party.

Items 32 - 33 refer to the following diagram

which shows the cost and revenue curves of
a profit maximising monopolistically
competitivefirm.

Cost
Revenue

32. Which one of the following rectangles 33. Which rectangle represents total revenue of
represents total cost ofthe firm? the firm at equilibrium?

(A) OPWX (A) oPwx

(B) ORtrx (B) ORTIX
(c) osrx (c) osTx
(D) OQVY (D) oQVY
 -9-
34. Thecondition necessary fornormal profit is
37. Which ofthe following BEST describes the
that
'maqginalist principle'?

(A) marginal cost must be equal to (A) Average cost equals average
marginalrevenue
revenue
(B) average cost must be equal to (B) Marginal cost equals average
marginalcost revenue
(c) average cost must be equal to (c) Average cost equals marginal
marginal revenue revenue
(D) average cost must be equal to (D) Marginal cost equals marginal
average revenue
revenue

35. Which ofthe following responsible for the

is 38. Countries that allow multinational
'kink' in the demand curve ofthe oligopolistic
corporations to undertake direct foreign
firm? i nvestrnent benefi t from

(A) Rival firms in an oligopoly match (A) transfer pricing practices of the
price cuts but not price increases.
multinational corporation
(B) Rival firms in an oligopoly match (B) rapid depletion of Iocal natural
price increases but not price cuts. resources
(C) The products sold by oligopolistic (C) transferoftechnologyandproduction
firms are subsantially different from techniques
each other. (D) monopsony power in wage
(D) The products sold by oligopolistic negotiations
firmsare slightly differentfrom each
other.
39. The point at which the firm in perfect
competition covers its variable costs is called
Item 36 refers to the diagram below which the
shows a firm operating in a perfectly
competitive market. (A) closingdownpoint
(B) variation point
(C) economies ofscale point
(D) longrunequilibriumpoint

36. Which segment of the curves shown

represents the short run supply curve?

(A) CtoE
(B) BtoD
(C) AtoD
(D) AtoF
 -10-
Item 40 refers to the diagram below showing 42. Market failure describes the failure of the
cost and revenue curves ofa nationalised market economy to achieve an efficient
industry. allocation of

(A) resources
(B) capital.
(C) machiriery
(D) labour
lr
--T-T--
_L_L__
43. Market failure is usually corrected by

(A) consumers
(B) public firms
(c) private firms e
(D) Government -
40. Ifthe industry is mandated to adopt marginal
cost pricing, what price will it charge?
44. Which combination BEST describes
(A) Pr examples of privatisation?
(B) P2
(c) P3 (A) Deregulation and franchising
(D) P4 (B) Contracting out and regulation
(c) Deregulation and national isation
(D) Franchising and redisribution
41. Economic efficiency in production occurs
when
45. The concept of 'adverse selection' implies
(A) all firms are maximisingprofits and that
producing where MC: MR
(B) there is no spare capacity (A) persons who have insurance may
(c) the output ofone good cannot be tend to be less careful and thus
increased without reducing the increase risks
ouputofanothergood (B) persons who take out insurance are
(D) the economy does not have to depend those with the highest risk
on importedgoods (c) those who sell insurance policies are
more well informed than those who
buythem
those who refuse insurance policies
.
are often the same ones who really
needthem

IF' YOU FTI\IISH BEFORE TIME IS CALLED, CIIECKYOURWORI( ON THIS TEST.

02t16010/cAPE2ffi7