PRIJ1ff yourname on the line below and return
this booklet with your answer sheet. Failure to
do so may result in disqualification.
TEST CODE
FORM TP 2020220
CARIBBEAN
02116010
MAY/JUNE 2020
EXAMINATIONS
COUNCIL
CARIBBEAN ADVANCED PROFICIENCY EXAMINATION®
ECONOMICS
UNIT 1 - Paper 01
1 hour 30 minutes
( 08 JUNE 2020 (a.m.) )
0
~
I
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.
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.
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 the cost of
~
(A)
(B)
(C)
(D)
0
0
<(
goods used
goods bought
materials used
materials produced
Sample Answer
@® e @
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, turn the page and work as quickly and as carefully as you can. If you
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 © 2018 Caribbean Exami nations Council
All rights reserved.
0~ 1160 I 0/MJ/CAPE 2020
-2-
1.
Whic h of the follow ing produ ction
possibility frontiers illustrates consta nt
return?
(A)
sed from $5
·ice of Good X increa
. .
Ast he Pr
sed from
increa
ed
suppli
ty
I l the quanti
.
to $ to' 820. What is the va Iue o f th e price
700
elasticity of supply ?
(A)
(B)
(C)
(D)
Capital
goods
Consumer goods
(B)
3.
4.
Capital
goods
(8)
(C)
(C)
(D)
Capital
goods
5.
1.88
7.00
Which of the follow ing activi ties results in
an external cost?
(A)
Consumer goods
0.14
0.27
Priva te citize ns clean up the
sidewalk.
A food proce ssing comp any
provid es schola rships for needy
children.
Individuals place litter at the side
of the road.
Disad vanta ged youth from inner
city comm unitie s enrol in a skills
progra mme.
The term ' effective dema nd' refers to what
consu mers
Consumer goods
(A)
(D)
Capital
goods
(B)
(C)
(D)
Consumer goods
2.
wish to buy at a partic ular period
of time
are able and willin g to buy at a
partic ular period of time
pay for a suppl ier 's produ ct at a
partic ular period of time
use to maxim ize their total utility
at a partic ular period of time
Consumer surplus may be defined as the
(A)
(8)
(C)
(D)
excess of total spending over total
utility
add ition of total utility and total
spending
difference between total utility and
tota l spending
area where total utility and total
spend ing are maximized
0~ 1160 I 0/MJ/ CAPE 2020
GO ON TO THE NEXT PAG E
-3-
Items 6-7 refer to the following scenario.
Due to technical problems being experienced at the CMC bauxite plant, Mr Brown, an engineer,
suffered a ' pay cut'. It was noticed, shortly afterwards, that he purchased fewer fish fillets and
more chicken parts.
6.
What type of good do fish fillets represent?
(A)
(B)
(C)
(D)
7.
Giffen
Public
Normal
Inferior
What type of good do chicken parts represent?
(A)
(B)
(C)
(D)
Giffen
Public
Normal
Inferior
Item 8 refers to the following diagram which shows the total, average and marginal product curves
for a particular firm.
Total
product
1
Total product
I
I
I
I
I
Marginal
and average
product
a
Marginal product
8.
Number of
workers
At which stage of production should the firm operate?
(A)
( B)
ab
(C)
be
(D)
cd
0a
GO ON TO THE NEXT PAGE
021 160 I 0/MJ/CA PE 2020
-4-
Ite m 9 refers to the fo llowin g diagram
which shows cost curves for a firm operating in a pcrrectl y competitive market.
Item 11 refers to the following diagram
depicting consumer surplus.
Price U
Price
s1
p
01
Quantity
S
Which a rea in the diagram depicts
consumer surplus?
11.
Quantity
9.
Whic h segm e nt of the cu rves re presents the
sho11-ru n supply curve?
(A)
(B)
(C)
(D)
J
2
3
JO.
RPT
ORTS
OUTD
Item 12 refers to the following diagram
wh ich re p res ents the dem and for and
supply of bananas.
Item 10 refe rs to the fo llowing table which
sho \\ s the co st of producing up to three
uni ts of outp ut.
0
PUT
(B)
(C)
(D)
G to I
F toH
E to H
l~ to J
Outpu t (Unit)
(A)
Price
Total Cost ($)
20
26
36
50
W hat is the ma rgi na l co st o f produc in g the
seco nd uni t of o utput?
(A )
(B)
(Cl
(D)
$ 10
$ 13
$ 14
$ 18
D
0
12.
Quantity
What is the MOST likely reaso n for the fa ll
in price from OP I to OP ?
2.
(A)
(13)
(C)
(D)
021 160 I 0/M J/CAP E 2020
A decrease in supply
A n increase in suppl y
A r ise in q uanti ty from OQ, to OQ
1
A mov e m e nt alon 0o th e d e m an d
curve fro m Q to R
GO ON TO THE NEXT PAG E
-5-
13.
Loaves of Bread
Cakes
96
12
75
15
What is the opportunity cost of producing
one cake?
14.
(A)
?... loaf of bread
(B)
5 loaves of bread
(C)
7 loaves of bread
(D)
8 loaves of bread
Moo-Moo Ltd is part of the milk industry
where there are few large firms, each of
which can control its own price and where
there are high barriers to entry and exit.
Buzz-Buzz Ltd operates in the honey
industry where there are hundreds ofpricetaking firms which all produce an identical
product.
16.
(B)
(C)
(D)
The government should provide
free medication for senior
citizens.
An increase in interest rates would
attract foreign investors.
An increase in the minimum wage
would increase inflation.
A reduction in the price of goods
would benefit consumers.
Which of the following statements is true
if Good x is an ' inferior good' ?
(A)
(B)
(C)
(D)
Price elasticity of demand is zero.
Price elasticity of demand is
positive.
.
Income elasticity of demand 1s
positive.
Income elasticity of demand is
negative.
Which of the following correctly classifies
the market structure of each industry?
Milk Industry
Honey Industry
(A)
Oligopoly
(B)
Perfect
competition
Oligopoly
Monopolistic
competition
Monopolistic
competition
Monopolistic
competition
Perfect competition
Perfect competition
(C)
Which of the following is an example ofa
normative economic statement?
(A)
15.
Item 16 refers to the following information
which pertains to two industries.
A baker can bake any of two combinations
of cakes and loaves of bread using the
following options.
(D)
17.
John purchased an auto insurance policy.
One week later, he carelessly drove his car
into a wall. This scenario is an example of
(A)
(B)
(C)
(D)
18.
moral hazard
adverse selection
a negative externality
asymmetric information
Positive economic profit exists when
(A)
(B)
(C)
(D)
marginal revenue is greater than
marginal cost
marginal revenue is less than
marginal cost
average revenue is greater than
average cost
average revenue is less than
average cost
GO ON TO THE NEXT PAGE
02 11 60 I 0/ MJ/CA PE 2020
-6-
Item 19 refers to the fol lowing table which
show s the marke t share s of six firms .
Firm
Mark et Share (%)
l
50
25
10
10
2
3
4
5
6
19.
SMC
Price
3
PMC
2
Based on the size of the Herfi ndahl 1-lirs chman Index for the data in the
table above , how would this marke t be
descri bed?
(A)
(B)
(C)
(D)
20.
Item 21 refers to the follow ing . diagra m
which show s the socia l marg ma 1 cost
(SMC ), the privat e. margi nal cost (PMC )
and the social margm al benef it (SMB ).
Conce ntrate d
Unconcentrated
Highly conce ntrate d
Slightly conce ntrate d
The term ' deadw eight loss' can be BEST
defined as a
(A)
(B)
(C)
(D)
SMB
0
21.
Quantity
Which of the follow ing statem ents is true?
(A)
disadv antag e of marke t failure
decre ase in the net welfa re of
society
decr ease in the marg inal
productivity of labour
decre ase in the produ ctivit y of
firms in an industry
(B)
(C)
(D)
22.
Which of the following situat ions represents
a negat ive extern ality?
(A)
(B)
(C)
(D)
02 11 60 I 0/M J/CA PE 2020
r,.::;::,:
~
Outpu t Q 2 is effici ent becau se SMC
>PM C.
Outpu t Q 2 is effici ent becau se PMC
= SMB.
Outpu t Q I is effici ent becau se SMB
> PMC .
Outpu t Q 1 is efficie nt becau se SMB
= SMC.
Private cost is less than social cost.
Privat e cost is equal to social cost.
Privat e benef it is less than social
benefit.
Privat e cost is greate r than privat e
benefit.
GO ON TO THE NEX T PAGE
-7-
Items 23-24 referto the following diagram
which shows the equilibrium position of a
monopolistically competitive firm in the
long-run.
Items 25-26 refer to the following diagram
which represents the social and private
costs of cigarette production.
SMC
Marginal
costs
and
benefits
Price/cost
nvenue
AC
SMB/D
MR
0
0
AR
What level ofprofit is being made by the firm?
(A)
(8)
(C)
(D)
24.
Normal
Windfall
Monopoly
Abnormal
To maximize profit, the firm should produce
at the output level where
(A)
(8)
(C)
(D)
average cost is minimized
marginal cost is minimized
marginal revenue exceeds marginal
cost
marginal cost is equal to marginal
revenue
02 11 60 I 0/M J/CAP E 2020
:t: ... ..
j'::t
G
Quantity
Output
25.
23.
R
Which of the following areas represents the
dead weight loss to society, if production
is at output level G?
(A)
(8)
(C)
(D)
26.
ZXY
WZY
WZXY
RWYG
From the diagram, what does tbe distance
XY represent?
(A)
(8)
(C)
(D)
Social cost
External cost
Social benefit
Private benefit
GO ON TO THE N EXT PAGE
-8-
Item 22 refers to the following scenario.
Item 27 refers to the following diagram
which shows the demand for and supply
of health care in a particular market.
Flin tston e Qua rries Ltd is awa re of the
nega tive envi ronm enta l imp acts of its
quarrying activities in the Bedr ock Hills.
The company therefore organizes an annual
reforestation driv e and also main tains a
small park and a recreation grou nd for the
community of Bedr ock Hills.
S=M SC
Price
29.
This scen ario repr esen ts an exam ple of
correcting mark et failure via the adoption
of
Quandty
27.
If there were no health care insurance
available , what would be the equilibrium
price and quantity of health care?
(A)
(B)
(C)
(D)
28.
(A)
(B)
P2 and Q2
P1 and Q 1
P2 and Q3
P3 and Q3
On which of the following assumptions is
perfect competition based?
(A)
(B)
(C)
(D)
Perfect control of price
Large number of buyers
Large number of big firms
Small number of individual firms
02 ! l 60 I 0/M JICA PE 2020
(C)
(D)
30.
a corporate ethic
a voluntary agre eme nt
corporate code of cond uct
corporate soci al responsibility
Which of the follo wing facto rs is NOT
likely to cause a shift in the supp ly curve
for labour?
(A)
(B)
(C)
(D)
Increased birth rate
Increased popu latio n grow th
Migration of skill ed work ers
Changes in the cost of Jabour
GO ON TO THE NEX T PAGE
-9-
Item 31 refers to the following diagram
which shows the demand for and supply
of a factor of production.
34.
(A)
(B)
s
Price
The total social cost of cuttin g trees for
lumbe r and firewood results in the
D
(C)
(D)
35.
31.
A shift of the deman d curve from DD to
op, will result in
(A)
(B)
(C)
(D)
Which of the follow ing factors is LLKE LY
to cause an increase in the wage rate of
construction worke rs?
(A)
a decrease in economic rent
an increase in economic rent
a decrease in transfer earnings
an increase in transfer earnings
(B)
(C)
(D)
32.
The deman d for a factor of production is
a derive d deman d. This means that the
deman d for the factor is determined by
(A)
(B)
(C)
(D)
33.
supply of the factor
rewards paid to the factor
deman d for other products
deman d for the product the factor
makes
Which of the following terms describes the
relationship betwe en factor rewards and
costs of production?
(A)
(B)
(C)
(D)
An increase in the marke t price of
housin g
An incre ase in immi grant
constr uction worke rs
An impro veme nt in work ing
conditions ofconstruction workers
An increa se in non-m oneta ry
benefits of constr uction worke rs
Mr and Mrs Smith can afford to send their
children to school, buy grocer ies and pay
their rent. Howe ver, they canno t afford to
save or even own a car. This is an examp le
of
(A)
(B)
(C)
(D)
basic needs
basic poverty
relative poverty
the poverty line
Inverse
Indirect
Positive
Negative
02 11 60 I 0/MJ/ CA PE 2020
~'1-:'f~
ta
36.
marginal cost of cutting the last tree
increa sing chanc e of flooding as
more trees are cut
opportunity cost, to the individual,
of cuttin g the trees
increasing chanc e of flooding plus
the privat e cost of cuttin g the
trees
GO ON TO THE NEXT PAG E
r
- 10 -
dia gra m in
Item 38 refers to the follow ing
duc t cur ve
which the marginal rev enu e pro
P•
has shifted from MRP 1 to MR 2
diagram
Item 37 refers to the following
cur ve
ce
ren
wh ich sho ws how ind iffe
.
ply
analysis is applied to labour sup
Income
d
c- - - - " " -'
MRP2
lnd ifference
0
-:lb-~
o ----◄------
8
37.
Leisure
38.
represents
Which of the following segments
labour supply ?
(A )
(B)
(C)
(0 )
Qu ant ity of Jabour
likely hav e
Which factors wo uld MO ST
caused the shift abo ve?
I.
I l.
0- a
IV.
d
A fall in the pri ce of the final goo
d
goo
l
fina
the
of
ce
A rise in the pri
e
A rise in the siz e of the lab our forc
(A)
(B)
(C)
(D)
I and II onl y
I and Ill onl y
II and IV onl y
Ill and IV onl y
m.
a- b
0- c
c- d
39.
bar gai ns
A tra de uni on suc ces sfu ll y
erf ect ly
imp
for a ':~ ge inc rea se in an
is the
at
Wh
t.
competitive lab our ma rke
ion
act
this
MO ST likely con seq uen ce of
in that labour market?
(A)
(B)
(C)
(D)
021 160 10/ MJ,'CA P E 202 0
A rise in wo rke r pro duc tiv ity
of
An inc rea se in the le v el
em plo ym ent
of
An inc rea se in the qua nti ty
labour dem and ed
our
A decrease in the quantity of lab
supplied
our
A decrease in the quantity of lab
demanded
GO ON TO TH E NE XT PA G E
- 11 40.
When examining the Lorenz curve, a Gini
coefficient of I 00% is regarded as total
(A)
(B)
(C)
(D)
42.
employment in the country
equality of income distribution
inequality of income distribution
separation of the rich and the poor
John and Mary are both engineers who have
similar qualifications and work 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?
Item 41 refers to the following diagram
which depicts a labour market.
(A)
Wage
(B)
(C)
Quantity of labour
41.
(D)
Which of the following economic concepts
does the shaded triangular area represent?
(A)
(B)
(C)
(D)
Poverty
Economic rent
Transfer earnings
Consumer surplus
43.
Mary's company is not as profitable
as John 's company.
John and Mary belong to different
non-competing groups oflabour
so their wages cannot be equal.
John earns more as he is being
compensated for greater risks
and more unpleasant conditions
of his job.
Mary earns less as she is being
discriminated against on the
basis of age.
Factors which account for variations in the
price of labour within an industry or across
industries are known as
(A)
(B)
(C)
(D)
price controls
wage differentials
labour inequalities
economies of scale
GO ON TO THE NEXT PAGE
021160 I 0/ M.1/CA PE 2020
- 12 44.
Which of the following countries has
the GREATE ST inequalit y of income
distribution?
Country
(A)
p
(8)
Q
R
(C)
(D)
s
45.
Which of the following factors is LEAST
likely to contribute to poverty alleviation
in an economy?
(A)
Value of Gini
Coefficient
0.1
0.3
0.7
0.9
(8)
(C)
(D)
Increased access to small business
financing
Increased job creation projects
and programm es by firms and
governme nt
(ncreased governme nt spending on
scholarsh ips and bursaries
Increased regressio n in the tax
system
END OFTEST
fF YOU FINISH BEFORE TIME IS CALLED , CHECK YOUR WORK ON THIS TEST.
02 11 60 I 0/MJ/CAP E 2020