CAPE Economics Unit 1 · 2005 · Paper 1

40 questions and parts from this paper. Open one to see it in full, then practise it on Quelpr and get it marked against the mark scheme.

1. 1(a)1 markState ONE reason why making economic choices is necessary.
2. 1(b)3 marksState THREE fundamental questions that must be addressed when determining what goods and services to produce.
3. 1(c)2 marksIdentify the opportunity cost of choosing to read email messages rather than studying, and briefly explain your reasoning.
4. 2(a)3 marksUsing the data in Table 1, plot the production possibilities frontier (PPF).
5. 2(b)1 markMark the coordinate (300, 300) on your drawn diagram.
6. 2(c)1 markState why the point (300, 300) does not represent an efficient allocation of resources.
7. 2(d)1 markExplain what the shape of the drawn PPF indicates regarding the opportunity costs of producing an additional unit of pineapples or mangoes.
8. 3(a)2 marksList TWO factors that influence the demand for coffee.
9. 3(b)4 marksExplain how ONE of the factors listed in (a) influences the demand for coffee.
10. 4(a)3 marksConstruct the demand and supply diagram for milk using the data provided in Table 2.
11. 4(b)2 marksIndicate the equilibrium price and equilibrium quantity on the diagram drawn in part (a).
12. 4(c)1 markDefine the term 'equilibrium'.
13. 5(a)1 markState the difference between the Average Total Cost Curve (ATC) and the Average Variable Cost Curve (AVC).
14. 5(b)2 marksExplain why the Marginal Cost Curve (MC) intersects the ATC and AVC curves at their respective minimum points.
15. 5(c)3 marksExplain why point 'A' represents the shutdown point for the firm.
16. 6(a)4 marksState TWO ways in which a firm operating under monopolistic competition differs from a monopolist.
17. 6(b)2 marksExplain the statement: 'Monopolistic competition produces inefficiently even in the long-run because it has excess capacity.'
18. 7(a)4 marksDistinguish between price leadership in an oligopoly and a formal cartel arrangement.
19. 7(b)2 marksProvide an example of a successful cartel arrangement and explain why it is considered successful.
20. 8(a)4 marksExplain how oligopolistic firms expect rival firms to react to price increases versus price decreases according to the kinked demand curve model.
21. 8(b)2 marksDeduce what these competitor responses imply about the price elasticity of demand above and below the current price.
22. 9(a)2 marksList TWO examples of public goods.
23. 9(b)2 marksIdentify TWO key characteristics of public goods.
24. 9(c)2 marksBriefly describe ONE of the characteristics identified in part (b).
25. 10(a)2 marksDefine the term 'externalities'.
26. 10(b)2 marksProvide ONE example of an external benefit (positive externality) and ONE example of an external cost (negative externality) that occurs in your country.
27. 10(c)2 marksExplain how each of the external benefits and costs named in part (b) leads to an inefficient allocation of resources.
28. 11(a)2 marksCalculate the total cost of production for Jack's Inc.
29. 11(b)4 marksMatch EACH of the four factors of production (land, labour, capital, and entrepreneurship) with the dollar amount paid by Jack's Inc.
30. 12(a)2 marksIdentify which of the goods purchased by the farmer have demands classified as 'derived demands'.
31. 12(b)2 marksExplain why the demand for the goods identified in (a) is considered derived demand.
32. 12(c)2 marksProvide TWO other examples of goods whose demand is considered derived demand.
33. 13(a)2 marksList TWO basic human needs.
34. 13(b)(i)2 marksDefine absolute poverty.
35. 13(b)(ii)2 marksDefine relative poverty.
36. 14(a)2 marksDetermine the equilibrium wage and the equilibrium number of workers employed from the diagram.
37. 14(b)(i)2 marksDetermine the number of workers that will be employed at a wage rate of $22.
38. 14(b)(ii)2 marksCalculate the number of workers who will be laid off as a result of the negotiated wage rate.
39. 15(a)2 marksExplain the effect of this labour migration on wage rates in Country A and Country B.
40. 15(b)4 marksClassify the two described scenarios under the concepts of asymmetric information, moral hazard, or adverse selection.