C H A RL E M O NT HIG H SCHOOL

CARIBBEAN ADVANCED PROFICIENCY EXAMINATION®

ECONOMICS
Unit I - Paper 01
1 hour 30 minutes

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 rnore 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 t�e answer you have chosen. Look at the sample item below.
Sample Item
Prime cost is calculated by adding direct factory expenses to cost of
Sample Answer
(A) goods used
(8) goods bought
(C) materials used
(D) materials produced
The best answer to this item is "materials used", so answer space (C) has been shaded.
6. If you want to change your answer, be sure to erase your old answer completely and 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, omit it and go on to the next one. You can come back to that
item later. Your score will be the total number of correct answers.
8. You may do any rough work in this booklet.

- 9. You may use silent non-programmable calculators to answer questions.

DO NOT TURN THlS PAGE UNTIL YOU ARE TOLD TO DO SO.

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1. Which of the following situations is MOST 4. Which of the following BEST describes
likely to result when there are limited the 'marginalist principle'?
resources?
(A) Average cost equals average revenue.
(A) P·eople must make choices. (B) Marginal cost equals average
(B) The poor wi.11 become poorer. revenue.
(C)" Only the rich can acquire everything (C) Average cost equals marginal
. they desire. revenue.
(D) Some firms wiii be forced out of (D) Marginal cost equais marginal
business. revenue.

2. A baker can bake any of two combinations Item 5 refers to the following diagram
of cakes and loaves of bread using the showing the Production Possibility Frontier.
following options.

Loaves of , Cakes Bread A

Bread
96 12
75 15

What is the opportunity cost of producing

one cake?

(A) I loaf of bread

(B) 5 loaves of bread
(C) 7 loaves of bread
(D) 8 loaves of bread

5. On the diagram, point F represents

3. Which of the following is an example of a
n9rmative economic statement?
(A) inefficiency
(B) equilibrium
(A) A reduction in the price of goods
(C) technical efficiency
will benefit consumers.
(D) an unattainable level of production
(B) The government should provide
free medication for senior
citizens.
(C) An increase in interest rates will
attract foreign investors.
(D) An increase in the minimum wage
will inc1'ease inflation.

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6. Which of the following situations results Item 9 refers to the diagram below which
in an exteq,al cost? shows a firm operating in a perfectly
competitive market.
(A) Pri vate citizens clean up the A,
· sidewalk.
(B) Individuals _place litter at the side
of the road.
(C) A food processi ng c omp any
provides scholarships for needy
children.
(D) Disadvantaged youth from inner
city communities enrol in a skills
programme.
,__ _______..,__
Q
_____ ;;,..

7. Supply functions are positively sloped

because 9. Which segment of the curves shown
represents the short-run supply curve?
(A) of the law of increasing returns
.(B) less output is supplied at higher (A) C to E
prices (B) B to D
(C) more output is supplied at higher (C) A to D
pnces (D) A to F
(D) extra output must be attracted from
elsewhere
IO. If the demand for a seller's product is
inelastic and he lowers the price, his total
Item 8 refers to the diagram below which revenue will
represents the market for ferry services.
Ticket l
1f1
S (A) increase
Price j (B) decrease
(C) fluctuate
($) I remain the same
(D)
F!.- -----:X

11. Which of the following is an example of

D a price ceiling?
O'-----------?>
Number of Trips Rent controls
(A)
(B) Farm price supports
(C) Taxes on the market
8. OF is the equilibrium ticket price for a (D) Minimum wage laws
return trip. If government imposes a price•
ceiling to allow the lower income groups to
utilise more of the ferry services, it should
be placed

(A) either above or below OF

(B) at the equilib!"ium price, OF
(C) above the equilibrium price, OF
(D) below the equilibrium price, OF

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12. Which of the following BEST explains the . 14. The demand curve for a normal good 1s
term, 'indifference curve'? said to be negatively sloped.

(A) Goods for which the budget line is Which of the following diagrams would
· the same NOT represent a normal good?
(8) Goods for which consumption is
indifferent (A) Price
(C) Goods which give the consumer s
maxirnun1 satisfaction
(D) -The combination of two goods
which give the consumer the
same level of satisfaction

Item 13 refers to the following diagram

depicting consumer surplus. D

Q Quantity

(B) Price
s

R I p
D
Quantity

,.
I

1;;. Which area on the diagram depicts Q Quantity

consumer surplus?

(A) RPT (C) Price

(B) PUT s
(C) ORTS'
(D) OUTD'

Quantity

(D) Price s

Pi------.f-----D

Q Quantity

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ltem 15 refers to the diagram below which shows total marginal utility of ice cream and the
quantity of ice cream.

/I"
.... . 50

·- ,...._
;a.::; 40 TU
-; z
;::> :c
C e
'Sn "' 30
"' ...
,_ a,

-:; ....� 20

10

2 3 5
---- MU
Quantity of Ice Cx-eam
(number of cones)

15. In the diagram, at which quantity of ice cream is the consumer maximizing utility?

(A) I
(B) 3
(C) 4
(D) 5

16. Which of the following market structures is 'Voluntary agreements' is an example of

characterised by several firms which are too which ofthe fo !lowing types ofintervention?
small to influence the market?
(A) Free market
(A) Perfect corn petition (B) Government
(B) Duopolistic competition (C) Private sector
(C) Oligopolistic competition (D) Individual choice
(0) Monopolistic competition

17. On which of the following assumptions is

perfect competi_tion based?

(A) Perfect control of price

(B) Large number of buyers
(C) Large number of big firms
(D) Small number of individual firms

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19. If a firm cannot prevent a consumer Item 21 refers to the diagram below
from enjoying the benefits of a good it showing the social marginal costs (SMC),
produced at low cost, the good is the. private marginal c<;>sts (PMC) and the
social marginal benefits (SMB).
(A) excludable SMC
(B) non-excluda_ble C
(C)" rival in consumption Price
(D) nonrival in consumption PMC

Item 20 refers to the graph below

which shows a situation in which the
monopolistically competitive firm is in the
long-run equilibrium. SMB

Price
AC
0 ..______.,_____,_____
Q, Q2 Quantity

21. Which of the following is TRUE?

(A) Output Q2 is efficient because

SMC> PMC.
I
(B) Output Q l is efficient because
MR
I
D
SMB = SMC.
0 (C) Output Q2 is efficient because
Quantity
PMC=SMB.
(D) Output QI is efficient because
20. Using the marginal ist approach to determine SMB > PMC.
equilibrium price and quantity, what is the
afea between Q 1 and Q� called?
22. Which of the following is NOT a
(A) Excess capacity characteristic of the oligopolistic industry?
(B) Shut-down point
(C) E;quilibrium point (A) There are many buyers.
(D) Minimum efficiency scale (B) The firrns are price takers.
(C) There are few firms in the industry.
(D) The goods may be identical or
differentiated.

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Which of the following is NOT a cause of Items 28-29 refer to the graph below which
market failure? shows the demand for and supply of health
care in a particular market.
(A) Taxation
Monopoly Price
(B) S=MSC
(C) Externalities
Pl ------ ---- b
(D) Imperfect kno\vledge \
d I
24. lf the production of a good results 111 P2
I I
positive externalities then I I
I I
I II
(A) a tax shou Id be imposed on the good P3 ---- I
(B) production of the good should cease I
(C) prodLiction of the good should be
e
subsidized D=MSB
(D) too many resources are going into Quantity
the productioo of the good
28. If there is no health care insurance, what
A s[tuation is defined as 'Pareto efficient' would be the equilibrium price and quantity
.25.
if it is of health care?

(A) possible to make someone better (A) P, and Q,

off without making someone else (B) P 2 and Q 2
worse off (C) P,- and Q_·'
( B) impossible to make anyone better (D) P 3 and Q,
off without making someone else
worse off
(C) possible to make someone worse 29. !fa health insurance company offers to pay
off and everyone else better off half the cost of health care, what would be
(D) impossible to make anyone better the price and quantity demanded by the
of fwithout making someone pay consumer?

(A) P1 and Q,
26. A situation in which people enjoy the (B) P., and Q,
benefits of public goods without paying (C) P: and Q:
for them, is known as the (D) P3 and Q3

(A) non-rival problem

(8) free-rider problem 30. Which of the following contributions are
(C) non-excludable problem examples of privatization?
(D) . drop-in-the-bucket problem
(A) Regulation and franchising
(B) Frai1chising and redistribution
27. If the cost of providing a good to an Contracting out and deregulation
(C)
additional person is zero, the good is Deregulation and nationalization
(D)

(A) a free ride r good

(8) 1101 1 -excludable ·
(C) a pr ivate good
(D) non-r ival

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31. If an investor borrows$ I 000 at an interest Item 35 refers to the following diagram
rate of I 4 per cent per annum, the annual depicting a labour market.
interest payment would be

(A) · $ 14 Wage
(B)- $. 140
(C) $1 000
(D) $1 680

32. Which ofthe following is NOT likely to cause

a shift in the supply curve for labour? MRP.. L
0 ""'---------'--------?--'•
(A) Cost of labour Quantity L�boiir
(B) Increased birth rate
(C) Increased population growth 35. Which ofthe following economic concepts
(D) Migration of skilled workers does the shaded area in the triangle
represent?

33. . Which ·of the following terms describes the (A) ·Poverty
relationship between factor rewards and (B) Economic rent
costs of production? (C) Transfer earnings
(D) Consumer surplus
(A) Direct
(B) Inverse
(C) Indirect Item 36 refers to the •table below which
(D) Negative shows the percentage of national income
earned by various factors of production.

34. Which of the following countries has Factor Percentage %

the GREATEST inequality of income
Income Earned
distribution?
Land 15%
Country Value of Gini Labour 25%
Coefficient Capital 20%
p 0.1 Entrepreneurship 40%
(A)
(B) Q 0.3
36. The table represents
(C) R 0.7
(D) s 0.9 (A) cost of firms of each factor
(B) size distribution of income
{C) personal distribution of income
(D) functional distribution of income

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ltem 37 refers to the following diagram of Item 38 refers to the graph below showing the
a Lorenz ctirve. demand and supply for a factor of production.

.'\
Price s
E 100 f
r:.J

0
LJ
C: ·i
- I
'o ,..... 80 ;-
c.J).-
--..
r:.i � I
�....
= r
i

..:: I
§ c: 60

! I.,�
......�·- .

-..: -�?::�-�-�­
.....

20 r
< : �·: .�· ::..::�.<-
i
60 80 100 38. A shift of the demand curve fronJ DD to
Percentage of Households D,D, will result in

· 37. By. examining the portion of the entire area (A) a decrease in econornic rent
that is shaded, an economist can determine (8) an increase in economic rent
the (C) a decrease in transfer earnings
(D) an increase in transfer earnings
(A) Gini coefficient
(8) concentration ratio
(C) elasticity coefficient 39. "Longevity" is a component of which of
(D) marginal rate of substitution the following measures?

(A) Gini coefficient

(B) Human Development Index
(C) Fair-firm concentration ratio
(D) Herfindahl-Hirschman index

40. When examining the Lorenz curve, a Gini

coefficient of I 00 % is regarded as total

(A) employment in the country

(B) equality of income distribution
(C) inequality of income distribution
(D) separation of the rich and the poor

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........... --;.

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41. The higher the demand for houses, and Items 44-45 refer to the information below.
hence the higher their price, the higher will
be the demand for bricklayers. Jack's Inc. paid wages in the amount of
$20 000, rent $2 000 and interest $1 500.
The co ncept explained above BEST The business realized a profit of$5 000.
describes
44. For the factor of production, capital, how
(A) derived demand much did Jack's Inc. pay?
(B) increase in demand
(C) increase in factors demanded (A) $ I 500
(D) increase in quantity demanded (B) $ 2 000
(C) $ 5 000
(D) $20 000
42. ln the factor market, land is similar to
labour in that
45. For the factor of production, entrepre­
(A) the owne rs of both may b e neurship, how much did Jack's Inc. pay?
represented by a trade union
,(B) the determinants ofsupply of both (A) $ I 500
ofthem are similar (B) $ 2 000
(C) both are demanded for their (C) $ 5 000
contribution to production (D) $20 000
(D) both are fixed in supply and are
indestructable

,43. . Under the CARI COM Single Market and

Economy (CSME) agreement, a plumber
from Grenada now works as an electrician
in Trinidad. What types oflabour mobility
have occurred?

l. Vertical
11. Horizontal
. Ill. Geographical
IV. Occupational

(A). I and 111 only

(B) II and III only
(C) II and IV only
(D) III and IV only

END OF TEST

IF YOU FINISH BEFORE TIME IS CALLED, CHECK YOUR WORK ON THIS TEST.