SECONDARY EDUCATION CERTIFICATE ECONOMICS: SPECIMEN PAPER
Syllabus: 2010 –
PAPER I
Directions to Candidates
Answer ANY FOUR questions. All questions carry 25 marks each.
Remember:
•
Orderly presentation and neatness of diagrams are required.
•
Answer in essay format.
•
Start each answer on a fresh page.
•
Non-programmable calculators may be used.
•
All workings must be shown.
•
Questions set in the context of the Maltese economy must be answered within this
context. The use of recent examples from the Maltese economy, where relevant
and appropriate, will gain credit.
•
In answering questions that do not specifically relate to the Maltese economy, you may
also refer to examples from other countries.
________________________________________________________________________________
SECTION A - Microeconomics
Question 1
The following Table shows a shop’s demand schedule for DVDs:
Price (in Euro)
16
14
12
10
8
6
a/
b/
c/
d/
e/
Quantity sold per month
10
20
30
40
50
60
Give a full definition of demand and state the basic law of demand. Use a simple sketch to
illustrate your answer.
(3+2 marks)
Define the price elasticity of demand.
(3 marks)
Calculate the price elasticity of demand if price changes:
(i)
from 6€ to 5€
(ii) from 3€ to 2€.
(6 marks)
In each case indicate whether demand is elastic, inelastic or unitary elastic.
(2 marks)
What is the revenue the shop would derive from the sale of these DVDs at all price levels?
(5 marks)
From your answers to questions c and d, would the knowledge of price elasticity of demand
be of any help to the shop owner?
(4 marks)
Page 1 of 5
Question 2
The Table below gives some of the combinations of capital goods and consumer goods a country
can produce:
Combination
A
B
C
D
E
a/
b/
c/
d/
e/
Capital goods
30
27
18
10
0
Consumer goods
0
8
20
23
25
Draw the Production Possibility Curve (PPC) for this country based on the table above. Plot
the capital goods on the horizontal axis (x) and the consumer goods on the vertical axis (y).
Then indicate all the combinations on the curve.
(4 marks)
What do the combinations A; B, C, D and E have in common?
(3 marks)
What is the opportunity cost to the economy if it is producing combination B and chooses to
produce 12 more units of consumer goods?
(2 marks)
The Production Possibility Curve illustrates the three key economic concepts of scarcity,
choice and opportunity cost.
Briefly explain each concept in relationship to the PPC.
(6 marks)
The Production Possibility Curve is also referred to as the Production Possibility Frontier.
Why is it called a ‘Frontier’?
(2 marks)
Part f/ and g/ refer to the information contained in the following Table:
Combination
F
G
f/
g/
Capital goods
12
28
Consumer goods
18
24
What is the situation in the economy if combination F is being produced?
What does the combination G mean? How can it be reached?
(4 marks)
(4 marks)
Question 3
A perfectly competitive firm producing laptops was found to have the costs at each indicated level
of output as in Table below:
Goods
produced
Total Cost
Variable cost
0
1
2
3
4
5
6
7
8
9
100
180
250
300
320
360
420
500
600
720
80
150
200
220
260
320
400
500
620
Average Total
Cost
Page 2 of 5
Average
Variable Cost
Marginal
Cost
a/
b/
c/
d/
e/
f/
g/
Work out and complete the last three columns.
(3 marks)
Determine the fixed cost and the average fixed cost for each level of output of this firm. Draw
both curves on the same graph paper.
(3+3 marks)
On the same graph paper, draw the average total cost (ATC), the average variable cost (AVC)
and the marginal cost (MC).
(3 marks)
At what price levels are break-even and shut down points determined? What output is
produced at that price level?
(4 marks)
Define fixed cost and give some examples of fixed cost for the firm producing laptops.
(3 marks)
Define variable cost and give some examples of variable cost for the firm producing laptops.
(3 marks)
Is this firm operating in the short run or in the long run? Explain.
(3 marks)
SECTION B - Macroeconomics
Question 4
Study the Table referring to the Visible Trade of country A in 2005 and 2006:
2005
2006
(in millions of Euro)
368
281
VISIBLE IMPORTS
271
202
VISIBLE EXPORTS
?
?
BALANCE of TRADE
(Source: Central Bank of country A)
a/
b/
c/
d/
e/
f/
g/
Calculate the Balance of trade for 2005 and 2006.
(2 marks)
Calculate the rate of change (in 2006 compared with 2005) in the balance of trade. (2 marks)
What additional information is required to calculate the current account balance? (2 marks)
The information in the table above may resemble the visible trade of Malta. Can you describe
why?
(4 marks)
The table above is a part of The Balance of Payments. Can you explain what a balance of
payments is?
(4 marks)
Explain how each of the following factors might affect the current account balance, keeping
other things constant:
(i) imposing a quota on imported fruits and vegetables.
(4 marks)
(ii) improvement in the quality of locally manufactured goods which are exported. (4 marks)
How can a country correct a short term deficit on the balance of payments?
(3 marks)
Page 3 of 5
Question 5
Read the following extract adapted from the Malta National Statistics Office press releases and
answer the questions below.
At the end of 2002, the Maltese population stood at 386,938 and consisted of 191,975 males and
194,963 females. In 1993, the Maltese population was 366,431.
Population changes are the result of two main factors: the natural population increase and the
migration balance. The two movements have been positive in the last ten years in Malta.
In 1993, there was a natural increase of 2,455 in the Maltese population, ten years later it was
only 774.
All European countries have over the past ten years experienced a decrease in fertility. The case
of Malta is a notable example. In 1992, the birth rate was 14 per thousand, by 2002 it had come
down to 10 per thousand.
Also registered was a noticeable drop in infant mortality rates. In 1993 the infant mortality rate
was 8, whilst in 2002 it stood at 6 per thousand live births.
According to the 1995 Census, the average age of the population of Maltese Islands was 36
years. The average age obtained from the 1985 Census was of 34 years. This shows that
population is getting older.
The old population group is growing at a faster rate than any other major age groups within the
population. This ageing process leaves various socio-economic effects on the present and the
future population of Malta.
At the same time, better nutrition awareness together with other factors resulted in an extension
of the life expectancy for both genders. As a result, the number of persons in the older age
groups as a proportion of the total population went up.
a/
b/
c/
d/
e/
f/
g/
h/
i/
Calculate the population growth in % between 1993 and 2002.
(2 marks)
Explain the terms:
(i) natural population increase
(ii) migration balance.
(2 marks)
Calculate how many babies were born in the year 2002.
(2 marks)
What is ‘infant mortality rate’ and why is it an important indicator of the standard of living?
(4 marks)
What is happening to the age structure of the Maltese population?
(2 marks)
Describe economic consequences of the changes in the age structure of Malta.
(5 marks)
Given these population characteristics, does Malta represent a typical developed country or a
developing country? Explain your answer well.
(4 marks)
Calculate the percentage of males and females respectively in 2002.
(2 marks)
Mention some ‘other factors’ which resulted in an extension of the life expectancy in Malta.
(2 marks)
Page 4 of 5
Question 6
‘The bulk of public spending must be paid for through taxation. Governments have discovered
ingenious ways of raising taxes to pay for ambitious spending programmes.
(Source: Money Management Review 2003)
a/
b/
c/
d/
e/
What are the most important items of government spending?
What qualities should a good tax possess?
Can you explain, using also simple numerical example, the difference between
the progressive, proportional and regressive taxes?
‘Taxes are a very important social tool for the government.’
Explain this statement.
Why do governments impose taxes? Give some valid reasons.
(Do not give the one mentioned in previous question).
Page 5 of 5
(4 marks)
(4 marks)
(9 marks)
(3 marks)
(5 marks)