13 Economics — Test One
ASSESSMENT SCHEDULE
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use only
QUESTION ONE: PRODUCTION POSSIBILITY CURVES
Farmer Jim has some spare land that can be used for producing flowers or free-range eggs. The table
below shows the different combinations possible.
Production Possibilities
Combination Bunches of flowers
Free-range eggs
A
0
10 000
B
200
9 000
C
400
7 000
D
500
4 000
E
550
0
Production Possibilities for Farmer Jim
Flowers (Bunches)
4 of the following:
 Title
 Axis label
 Frontier
labels
 Scales
 Accurate
plotting
E
500
D
C
400
300
A2
B
200
100
2000
4000
6000
8000
A
10000
Free Range eggs
1.
On the graph above, construct a fully labelled and accurate production possibility curve from the
data provided.
2.
What is the opportunity cost for Farmer Jim in moving from combination B to combination C?
2000 free range eggs
A2
3.
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Explain why the production possibility curve you have drawn is concave to the origin.
Because resources are not perfect substitutes for each other, diminishing returns occur, leading to increasing
opportunity costs
4.
Other than the production possibility curve, what is ONE piece of information that Farmer Jim
should consider when deciding what combination of flowers and eggs to produce?
The market price of flowers and eggs
5.
A2
A2
The Ministry of Agriculture and Fisheries has discovered a new pest that will destroy some of the
flowers Farmer Jim is intending to grow. Show the effect of this pest on the production possibility
curve you have drawn, above.
Any line drawn inside the original that starts at 10,000 eggs
A2
QUESTION TWO: UTILITY AND DEMAND
1.
State the law of demand.
A1
As the price of a commodity rises, the quantity demanded falls (or vice versa)
2.
(a) Suggest a close substitute for each of the following:
(i)
video
dvd /
all
correct
(ii) ham
chicken / beef / pork
(iii) i-pod
mp3 / discman
A1
(b) on the graph right show how an decrease in the
price of computers may affect the demand for
software
A1
D’
Requires arrow or labels
D
Laura is a teenager who enjoys watching DVDs. Table 1 below shows the total and marginal utility
that Laura gets from hiring and watching DVDs.
3.
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Define marginal utility.
Extra satisfaction/enjoyment/ benefit derived from consuming an extra unit
A1
[Note: must define both marginal and utility using different terms]
4.
Complete Table 1 by filling in the missing numbers. (Note: assume utility is measured in cents)
Laura’s Utility Gained from Hiring DVDs
(per week)
Table 1:
5.
Marginal Utility
(cents)
Number of DvDs
Total Utility (cents)
0
0
1
1 000
1000
2
1 800
800
3
2 400
600
4
2 800
400
5
3 000
200
4
correct
A1
Use the information in Table 1 above to plot Laura’s demand curve for DVDs on Graph 1.
Price
$
10.00
Graph 1: Laura’s Demand Curve for DVDs
6.00
D
2.00
1
2
3
4
5
A1
Q
6.
Use the law of diminishing marginal utility to explain the shape of the demand curve.
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1. The price consumers are prepared to pay for a good depends on the marginal utility they receive from it.
2. Since MU falls as quantity increases consumers will only buy extra units if the price falls to match the lower
MU
3. So the demand curve slopes down to the right with lower prices matching the lower MU of the extra units
consumed.
Identifies/explains the relationship between price and MU
OR
All 3 points covered
A1
OR
M1
QUESTION THREE: COSTS
To pay his way through university, James works nights as a taxi driver. One night he is on duty at the
airport when a potential passenger offers him $15.00 for the trip into the city. The usual taxi fare for
the 30km trip from the airport to the city is $25.00. It is late and unlikely that there will be any other
passengers that night. James has fixed costs of $30.00 per week and variable costs of 30 cents per
kilometre.
1.
2.
For the taxi driver, state a likely example of:
(a) a variable cost petrol / tyres /
A1
(b) a fixed cost insurance / car / licence / WoF and registration
A1
Should James accept the $15.00 fare offered? Answer Yes or No, and justify your answer.
Yes / No
(circle your answer)
Justification:
YES — variable costs are covered, and some contribution to fixed costs / AR of 50cper km is greater than AVC
of 30c per km / MR of $15 is greater than MC of $9 (30km x $0.30)
NO —
opportunity cost is a $25 fare / if driver has to travel back towards airport AC or MC is greater than
AR or MR
Justification must be clear
M1
3.
(a) On the axes below, draw a fully labeled graph of the marginal and average cost curves for an
average firm.
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MC
AC
Both
curves
correct
A1
Q Dim. Ret.
M1
(b) On the graph, indicate the level of output at which diminishing returns set in.
(c) Which curve represents the short-run supply curve of the firm?
Marginal Cost
A1
(d) Explain why the marginal cost curve cuts the average cost curve where it does.
Marginal Cost is the extra cost of producing another unit
Average Cost is the cost per unit
If MC is below AC, then the average will be lowered, if MC is above AC, then the average will be raised
Clearly explained
M1
For
Marker’s
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QUESTION FOUR: SUPPLY
Tom’s DVDs 4 Hire is a small business that hires DVDs to the public.
1.
For each of the changes listed below
Change 1
Cause:
A decrease in the quantity supplied
of DVDs by Tom’s DVDs 4 Hire.
Price
S
a fall in price
Quantity
Correct cause and sketch shows movement down the curve with dotted lines and arrows or labels.
Change 2
A increase in supply of DVDs by
Tom’s DVDs 4 Hire.
Price
A1
S
S
Cause:
e.g. lower costs of production or example of e.g. lower
wages, improved technology in production of DVDs,
improved productivity, price of related good.
Quantity
Correct cause and sketch shows shift of supply curve to the right
and new curve is labelled or arrow indicates change
For Assessor’s Use only
Achievement Criteria
Achievement
Use marginal analysis to
derive the demand and supply
curves and to describe the
behaviour of firms in different
market situations
Merit
Excellence
Use marginal analysis to
explain changes in output and
pricing decisions.
Use concepts of demand,
and supply.
Overall Level of Performance (all criteria within a column are met)
Seven A1s or better
three A2s
plus three M1s
A1