MINISTRY OF EDUCATION

FIJI YEAR 13 CERTIFICATE EXAMINATION

2017

ECONOMICS

DETAILED MODEL ANSWERS AND

ANSWERING TECHNIQUES

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SECTION A MULTIPLE-CHOICE QUESTIONS [20 marks]
Circle the letter which represents the best answer.

1. A B CC D 11. A B C DD

2. A
A B C D 12. A
A B C D

3. A B
B C D 13. A BB C D

4. A
A B C D 14. A B
B C D

5. A B CC D 15. A B C DD

6. A B C DD 16. A B CC D

7. A B C D 17. A BB C D

8. A B CC D 18. A B C D

9. A B C D 19. A B C D

10. A B C D 20. A
A B C D

20

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 Section A. Multiple choice (20 marks)
1. C - Believing what we want to believe, and ignoring the information or facts that conflicts with those
beliefs is wishful thinking. It is a product of resolving conflicts between beliefs and desire. e.g.
Economist Irving Fisher said that "stock prices have reached what looks like a permanently high
plateau" a few weeks before the Stock Market Crash of 1929, which was followed by the Great
Depression.

2. A – Classical school of economics advocates the principle of invisible hand to explain how capitalist
economy works best without government intervention. The term “invisible hand” is a metaphor for
how, in a free market economy, self-interested individuals operate through a system of mutual
interdependence to promote the general benefit of society at large. It was introduced by Scottish
enlightenment thinker Adam Smith in his book “An Inquiry into the Nature and Causes of the Wealth
of Nations” (1776). The main idea of the Classical school was that markets work best when they are
left alone.

3. B - The concept of utility is used by economists to provide an explanation for the shape of demand
curve. An explanation of the law of demand and the negatively-sloped demand curve based on utility
analysis and the law of diminishing marginal utility. The law of diminishing marginal utility states
that marginal utility declines as consumption increases. Because demand price depends on the
marginal utility obtained from a good, price also declines as consumption increases, meaning price
and quantity demanded are inversely related, which is the law of demand.

(Source: www.google.com)

Use the following web link for video demonstration on the derivation of demand curve from
marginal utility.
WEBLINK: https://www.youtube.com/watch?v=jv8eDOYc_2c

Turn Over

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4. A - If the average cost is greater than the marginal cost for a competitive firm, then marginal cost is
increasing.

5. C - The cost which includes both accounting and opportunity cost is known as economic cost.
Opportunity cost is also known as implicit cost. Opportunity cost is the revenue lost by forgoing the
next best alterrnative, for example renting out premises instead of conducting business there.
Accounting costs is also known as explicit cost which is the costs incurred in running a business.
Explicit costs include the direct costs to the company, such as employee wages, utility bills (water,
electricity, etc), raw material cost, premises cost, transportation and storage cost.

6. D - The constraint on consumers‟ income depends on both price and income.

7. A - The elasticity of demand for products having very close substitutes is elastic. When several close
substitutes are available, consumers can easily switch from one good to another even if there is only a
small change in price.

8. C - A monopolist‟s demand curve is its average revenue curve .

D = AR

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9. A – Final goods is included in the calculation of Gross Domestic Product (GDP) to avoid double
counting. Final goods prices cover the cost of all intermediate products that were used to produce the
final output.

10. B - The government‟s role which deals with establishing a basic legal system that guarantees the right
to one‟s property and the rules on how the business should be conducted is regulatory role.

11. D - de-merit goods are goods which government considers harmful for consumption.e.g. drugs,
alcohol. These goods also have negative externalities, for example, smoking harms to yourself and to
others as well.

12. A - M2 refers to M1 + near money. Near money are assets that can be converted into cash easily.

13. B – The expansionary monetary policy tool is open market purchases.

14. B - The situation where workers choose not to work because their reservation wage is higher than the
prevailing wage is known as voluntary unemployment. Voluntary unemployment is a situation when
persons who are able to work but are not willing to work although suitable work is available for them.
Reservation wage is the lowest wage rate at which a worker would be willing to accept a partcular
type of job. The prevailing wage rate is defined as the average wage paid to similarly employed
workers in a specific occupation in the area of intended employment. A job offer involving the same
type of work and the same working conditions, but at a lower wage rate, would be rejected by the
worker.

15. D - The addition of current account and capital account is the balance of payments account. The
Balance of Payment is the record of transaction between a country and the rest of the world. It
provides useful data for economic analysis of a country‟s weaknesses and strengths as a partner in
international trade. Current account records the value of exports and imports of goods and services
while cpaital account keeps track of currency moving into and out of the country due to international
investments, and is used by governmental financial institutions to determine fiscal strategy regarding
currency valuations.

(Source: www.forexkarma.com) Turn Over

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16. C - The floating exchange rate is the rate determined in terms of other currencies in the foreign
exchange market. System in which a currency's value is determined solely by the interplay of the
market forces of demand and supply (which, in turn, is determined by the soundness of a country's
basic economic position), instead of by government intervention.

17. B - The terms of trade will improve as a result of an increase in price of exports. The terms of trade is
the ratio of export prices to import prices. An improvement of a nation's terms of trade benefits the
country in the sense that it can buy more imports for any given level of exports.
Formula: Terms of Trade = Export Price Index x 100
Import Price Index 1

18. A - Due to the major problem of unemployment, developing countries prefer to have labour intensive
industries. Labour intensive industries are industries that requires large amount of labour to produce
goods or services. Developing countries have labour industries due to the larger primary sector than
manufacturing sector. Examples of labour intensive industries are agriculture, mining, hospitality and
food service.

19. D - Open access to a property which does not have defined property rights is described as tragedy of
common. The tragedy of the commons is an economic theory of a situation within a shared-resource
system where individual users acting independently according to their own self-interest behave
contrary to the common good of all users by depleting or spoiling that resource through their
collective action.

20. A - High level of importation is a major reason for low household savings in Less Developed
Countries (LDC).

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SECTION B SHORT ANSWER QUESTIONS [60 marks]
The five short answer questions in this section are all compulsory.

QUESTION 1 INTRODUCTION TO ECONOMICS (6 marks)

(a) (i)
I. Economic Efficiency- occurs when it is not possible to make one person or group in society
better off without also making some other person worse off / it occurs when the economy is
operating on its PPF/ maximum use of resources/ full employment or utilisation of resources.

II. Scarcity – refers to the limitation of resources due to our unlimited needs and wants.
Limited/lack/not enough resources.
(2 marks)
(ii) Opportunity Cost:

OC of producing one unit of tractor

=Foregone/gain
=50/100
=1/2 or 0.5 kilograms of food per month
(1 mark)

(iii) 200 units of tractors per month. (1 mark)

(b) Due to his pessimistic notion in which he believed that population is growing at a much faster
pace than food production which will cause food starvation in the long run. Or population grows
at geometric rate that is, doubling with each cycle (e.g. 2,4,8,16,…) while food production grows
at an arithmetic rate that is, by the repeated addition of a uniform increment in each uniform
interval of time (e.g. 1,2,3,4,5,….), dooming mankind to unending poverty and hardship.
(2 marks)

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SECTION B (continued)

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QUESTION 2 MICROECONOMICS (18 marks)

(a) (i)
Resource I - Monopolistic Competition
Resource II - Oligopoly
(2 marks)

(ii) Excess Capacity- refers to the situation where a firm produces below its
efficient scale, which is the quantity at which average total costs is a minimum –
the quantity at the bottom of the U shaped ATC curve. Situation in which actual
production is less than what is achievable or optimal for a firm.
(1 mark)
Excess Capacity = Potential Output – Actual Output

(iii) Demand for the product is actually below what the business could potentially
supply to the market. A company can use excess capacity to offer customers a special order price
and generate more sales near the end of the month. It may also occur due to the many entrants of
new firms. (2 marks)

(iv) Because of the dangers of price wars and thus achieving less profits. Or because of
interdependence. (1 mark)
(b) (i) Price Mechanism- refers to the system where the forces of demand and supply
determine the prices of commodities and the changes therein. It is the buyers and sellers who
actually determine the price of a commodity.
(1 mark)

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 (ii)
Equilibrium Price and Quantity

6000 – 2P = 3000 + 4P Inorder to calculate the equilibrium

3000 = 6P price and quantity equate the demand
EP = $500 and supply function and derive
equilibrium price and then substitute
6000 – 2P = Q price either in demand function or
6000 – 2 (500) = 5000 supply function to find the equilibrium
EQ = 5000 units of computers quantity.

(2 marks)

(iii) Demand and Supply Curves

(2 marks)
Note: Always put quantity on x-axis and price on y-axis and it should not be
interchanged. Both axes should be properly labeled and there should be consistency in
intervals. Both demand and supply curves should be labeled as well.

(c) (i) Law of diminishing returns

Law which means that as more and more units of a variable factor are added to a
number of fixed factor, the additional units/extra units/marginal product produced will decline.
(1 mark)
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SECTION B (continued)

(ii) 105 to 120 output. (2 marks)

Units of labour Total output (units) Marginal Output (units)

1 10 10
2 26 16
3 52 26 Increasing Returns
4 84 32
5 105 21
6 115 10 Diminishing Returns
7 120 5

NB.: Answer should be given in terms of output range according to the question and not
to give answer in terms of input range that is units of labour.

(iii) short run (1 mark)

Diminishing return sets in the short run period because in the short run at least one factor of
production is fixed while in the long run period all factors of production are variable. If one
factor of production (number of workers, for example) is increased while other factors
(machines and workspace, for example) are held constant, the output per unit of the variable
factor will eventually diminish.

(d) (i) Ilaitia‟s money income

X / 2 = 12
X = $24

(1 mark)

(ii)

I $12/$3 = 4

II 0

(2 marks)

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QUESTION 3 MACROECONOMIC ANALYSIS MANAGEMENT (18 marks)

(a) (i)
Open economy because it allowed for international trade – exports and imports.
(2 marks)
(ii) Real GDP (Y)

Y = C + I + G + (X – M)
= (50+ 0.75Y) + 30 + 25 + (30 – (15 + 0.1Y)
= (50 + 0.75Y) + 55 + (30 – 15 – 0.1Y) 1m
= (50 + 0.75Y) + 55 + (15 – 0.1Y)
= (50 + 0.75Y) + 55 + 15 - 0.1Y
= (50 + .75Y) + 70 – 0.1Y
= 120 + .65Y 1m
.35Y = 120
Y = $342.86m/$342.85m/$342.9m/$342.8m

(2 marks)

(iii) Change in GDP

Or Y = C + I + G + (X – M)
1 / (1 - mpc + mpi)
= 1 / (1 – 0.75 + 0.1) = (50+ 0.75Y) + 30 + 35 + (30 – (15 + 0.1Y)
=2.8 X 10 = (50 + 0.75Y) + 65 + (30 – 15 – 0.1Y)
= $28.57m/$28.6m = 130 + .65Y
.35Y = 130
Y = 371.43
ΔGDP = 371.43 – 342.86 = $28.57m

(1 mark)
(b) (i) Deflationary gap

The amount that equilibrium national income must increase to reach the full employment level of
income . This occurs when the economy is at below capacity. Is the difference between potential
output at full level of employment and the actual level of output in the economy. Or it is the
amount by which actual aggregate demand falls short of/is less than aggregate supply at level of
full employment. It is a measure of amount of deficiency of aggregate demand/ Yf > Ye /
AS > AD. (1 mark)

(ii) Expansionary fiscal policy & Loose Monetary policy. (1 mark)

(iii) Yf (1 mark)

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 Turn Over
SECTION B (continued)

(c) (i) Reserves

Money set aside for emergencies or run (1 mark)

(ii) Also known as money multiplier is a measure of the extent to which
the creation of money in the banking system causes the growth in
I. credit multiplier the money supply to exceed growth in the monetary base.

CM = 1 / RAR RAR = CASH RESERVES / DEPOSITS

= 1 / 0.2 = 3000 / 15,000 = 0.2
=5
(1 mark)

II. total increase in credit created

Initial Deposit X Credit Multiplier = 15,000 X 5 =$ 75, 000 - $15 000

= $60 000 (1 mark)

(d)
(i) Curve A – illustrates the line of equality in the economy. (1 mark)

(ii) Lorenz Curve

The further the

Cumulative
Lorenz Curve
% of
from the line of
Income
income equality,
Curve A
the greater the
Curve B
income disparity
or inequality
Curve C

Cumulative % of Households

(1 mark)

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(e) (i) Budget deficit (1 mark)

(ii) Crowding out effect, Increase AD (lower taxes and increase G)-inflation, increase interest
rates, stimulate economic activity, expansionary effect, increase national debt, increase in
investment and GDP, increase in money supply, more employment.
(1 mark)

(iii) Borrowing internally and externally ( selling treasury bills and bonds). (1 mark)

(f) MV = PQ. Showcases the relationship between MS, velocity of money, the price level and the
quantity of goods and services in which the leading advocate was Irving Fisher. (2 marks)

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QUESTION 4 INTERNATIONAL ECONOMICS (9 marks)

(a) (i) I. Dirty float – An exchange rate that is not completely freely floating
because the central bank may intervene to alter the rate from its free market level.

II. Foreign Exchange Market – situation where foreign currencies are bought and sold (or
traded) and exchange rates determined. (2 marks)

(ii) In order to maintain its pegged ratio, the Fiji Government needs to sell Fiji Dollars
In exchange for US $. (1 mark)

(iii) Devalued (1 mark)

(iv)
1/ 0.45 = $2.22 OR 5000/0.45
US$1 = F$2.22 = F$11,111.11 (2 marks)
US $5,000 x $2.22 = F$11,100.00

(b) (i) Comparative Advantage

refers to a country with a lower opportunity cost than anyone else. (1 mark)

(ii) Country B (2 marks)

Need to calculate opportunity cost inorder to get the answer.

Opportunity cost(Country A) = F/G Country B
= Cars/Trucks
=30/6 = 35/21 9
=5 = 1.67
Country B has lower opportunity cost of 1.67 than Country A which
has opportunity cost of 5.

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QUESTION 5 DEVELOPMENT ECONOMICS (9 marks)

(a) Official Development Assistance

Refers to aid given to developing countries to support them with their developmental needs.
(1 mark)
(b) Property rights is legal ownership of resources. It encourages conservation of the resource so that
it will provide an income into the future. It encourages efficient use of resources. Minimises
overexploitation of resources. (1 mark)
(c) (i) Benefits are non- excludable. No one will be excluded from primary up to secondary as it is
free in Fiji. Non- rivalry feature. (2 marks)
(ii) Private schools or private tutoring schools in town. (1 mark)

(d) (i) Positive Externality of Consumption. Positive side effect of consumption that benefit other
people, for instance when consumers use public transport. (1 mark)

(ii)

I. Private market equilibrium e/MC=MB/MSC=MB

II. Social Equilibrium b/MSB=MSC/MSB=MC

Private market equilibrium is the intersection of private cost curve(MC) and the demand
curve (MB) that is when the externality is not accounted for while social equilibrium is
where Marginal Social Benefit (MSB) = Marginal Social Cost (MSC) after taking
into account the cost or benefit of externalities.

(iii) Taxing, fines, carbon taxing, regulation, carbon credit schemes.

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SECTION C ESSAY QUESTIONS [20 marks]

[Introduction-1/2m, Body – 9m, Conclusion – 1/2m)

QUESTION NUMBER

Introduction:
Circular flow model is a diagram illustrating the flow of goods and services through the economy and
represents the monetary transactions in an economy. This essay intends to discuss the three sectors within
the circular flow model, three assumptions of the 2 sector circular flow model and three concepts
underlying the model.
Body:
I. Households - provides factors of production and buy goods and services from the business sector.
Firms - this sector consists of all business units present within the economy which are engaged in
production and distribution of goods and services.
Government – provides rules and regulations, collective goods, redistribution of income, ensures
for economic growth and development, etc.
Overseas sector - covers all the foreign transactions in which other sectors are engaged in, mainly
export, import and international money flows.
Financial Institutions - this sector consist of those institution which engaged in borrowing and
lending of money.
II. No savings, only 2 sectors in the economy, no inventory, no investment, all money earned is spent
by the economy
III. Specialisation - jobs are divided up so that each individual performs one of the few particular
tasks thus we have doctors, lawyers, computer operators.
Interdependence - household depend on firms for goods and services to satisfy their needs and
wants. At the same time firms needs f.o.p to produce goods and services from households.
Injections – inflow of money in the circular flow.
Leakages – withdrawal/outflow of money from the circular flow.

Conclusion:
Evaluate the question in relation to the question statement.

QUESTION NUMBER

Introduction:
Market structure is a descriptive organizational term for discussing the economics of the market and other
characteristics of a market. There are two types of market structure known as perfect competition and
imperfect competition markets. This essay intends to discuss three features of perfect competition
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markets, three short run profit situations and breakeven and shutdown points of perfect competition
markets.
Body: I. Homogeneous, no barriers to entry, price takers, perfect knowledge, many buyers and sellers.
II. Normal Profit - occurs when a firm‟s total revenue is exactly equal to its total cost. Normal
profit situation is also known as break even situation where the firm is making zero profit.
TR=TC

III.
Cost/rev.IV. MC
Price V. AC
$ VI.
VII.

C = Pe D=AR=MR=P

0
Qe output

Subnormal Profit - occurs when the firms total cost exceeds total revenue. It is a loss made by
the firm where TC > TR.

P/R/C
MC
$
AC

Pe D=MR=AR=P

0 Qe output

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 Supernormal Profit - occurs when firm‟s total revenue exceeds its total costs. It is also known as
super profits or economic profit.

Cost/rev. MC
Price
$ AC

Pe D =AR=MR=P

0
Qe output

III. Breakeven point: where a firm is covering all its costs of production . It is determined
where TR = TC, AR=AC or MR = MC, P=MC. Shut down point is where a firm‟s revenue is less
than the avoidable costs and the firm is best advised to shut down in the short run. It is determined
where P=AVC.

Cost/rev. MC AC
Price
$ AVC

P D =AR=MR
Breakeven point
P D = AR = MR

Shutdown point
0 Qe output

Conclusion:
Evaluate the question in relation to the question statement.

Turn Over

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QUESTION NUMBER

Introduction :
Labour is the aggregate of all human physical and mental effort used in creation of goods and services.
Labor is a primary factor of production. The size of a nation's labor force is determined by the size of its
adult population, and the extent to which the adults are either working or are prepared to offer their labor
for wages. This essay intends to discuss the three factors affecting labour demand, three factors
influencing labour supply and unusual supply curve for labour elaborating income and substitution effect.

Body: I. Technology, price of other factors of production, price of firm‟s output, increase in consumer
spending, derived demand, increase in physical productivity of workers.
II. wages, age, education and training, migration, changes in income tax, benefit reform, trade unions,
government labour regulations, changes in the retirement age and female participation in the workforce.
III.There will come a time when no more labour is able to enter the market, no matter how highthe wages
may rise. This is shown by the supply curve of labour being inelastic or vertical. At extremely high wage
rates, the curve may even bend backwards. Some people may be earning such high wages that they do
not need to offer themselves for work full-time or may even be able to pick and choose when they do
and do not wish to work.
Conclusion: Evaluate the question in relation to the question statement.

QUESTION NUMBER

Introduction :
Primary industry is concerned with obtaining or providing natural raw materials for conversion into
commodities and products for the consumer such as mining, agriculture, forestry and fishing. This essay
intends to discuss three significant contributions of primary industry, three challenges and strategies to
overcome challenges of the primary industry.

Body: I. Employment, GDP, Foreign Exchange, Increase standard living and other minor developments
eg: roads, bridges etc.
II. Diseconomies of scale, market prices, government regulations, and natural hazards.
III. Tax Free Zones, training, improvement in transport, grants, subsidies, Fijian Made Campaign,
export promotion policy, import susbstitution, mechanisation, diversification.
Conclusion: Evaluate the question in relation to the question statement.

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QUESTION NUMBER

Introduction :
Multi-National Companies operate in more than one country such as Coca Cola, Shell, IBM, McDonalds.
This essay intends to discuss the three features of MNCs, three advantages of MNCs in devekloping
countries and three negative criticisms of MNCs in developing countries.
Body: I. Huge assets & turnover, international operations through a network of branches, unity of
control, mighty economic power, advanced and sophisticated technology, professional management,
aggressive advertising, better quality of products.
II. Employment generation, managerial expertise, GDP, automatic inflow of foreign capital, proper use
of idle resources, improvement of BOP position and technical development, capacity building, source of
aid, economic growth and development, infrastructure development.
III. danger for domestic industries, repatriation of profits, disregard of national interests, monopoly
power, influence to government, dumping, transfer pricing, depletion of resources.

Conclusion:
Evaluate the question in relation to the question statement.

QUESTION NUMBER

Introduction :
Trade is the act or process of buying, selling, or exchanging commodities, at either wholesale or retail,
within a country or between countries. The two forms of trade are domestic trade and international trade.
Domestic trade relates to trade within the country while international trade refers to all economic
transactions which takes place between a country and the rest of the world. This essay intends to discuss
the three justifications for trade, three trade agreements which Fiji is signatory of and three policies
which Fiji uses to promote its exports overseas.

Body: I. resources, speciailisation, comparative advantage, improve BOP, low cost of production.
II 1. The Melanesian Spearhead Group (MSG) was conceived in 1986 between the three Melanesian
Pacific Island Countries namely Papua New Guinea, Vanuatu and the Solomon Islands. To solidify its
status in the Group, Fiji joined the MSG Trade Agreement in 1998. The MSGTA has played a pioneering
role in the regional integration in the Pacific. At present, members of the MSG are discussing broadening
the MSGTA (trade in goods agreement) to an MSG Plus agreement which will include Trade in Services,
labour mobility and membership from other interested Pacific Island Countries. The MSG has established
its own secretariat, based in Vanuatu that facilitates meetings and coordination amongst MSG members.
Members are currently further discussing the architecture of the Trade Agreement.
2. Pacific Island Countries Trade Agreement (PICTA)
Trade in services for sectorial liberalization and
Temporary Movement of Natural Person. (labour mobility)
3. South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA)
SPARTECA was signed in 1981 between Australia, New Zealand and countries of the South Pacific
Forum. It allows duty free access for the products of Forum Island Countries (FICs) to the markets of
Australia and New Zealand, subject to "Rules of Origin" regulations. The aim is to redress the unequal
trade relationships between the two groups. The Textiles, Clothing and Footwear (TCF) industry has

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been a major beneficiary of SPARTECA through the preferential access to Australian and New Zealand
markets.
III. 1.Fijian Made & Buy Fijian Campaign

The “Fijian Made and Buy Fijian Campaign” was mooted by the Fijian Government in 2009 primarily
to promote and raise the profile of Fijian made products and produce, both domestically and
internationally through a national branding strategy. The „brand‟ is categorized with different
representations, each having to meet a certain compliance criteria as endorsed by Cabinet in 2011 and
reflected in the Industry Emblem Decree and Regulations 2011 being: ‘Fijian Made’, ‘Fijian Product’,
‘Fijian Packed’, ‘Fijian Crafted’, ‘Fijian Grown’, ‘Fijian Assembled’, ‘Fijian Designed’ and ‘Fijian
Sewn’.

2. National Export Strategy

The National Export Strategy (NES) was developed in 2006 to achieve sustainable economic growth
through encouraging competitiveness, value addition and export diversification in areas of competitive
advantages. To address the challenges of reversing the widening trade deficit and the need to stabilize the
country‟s foreign reserve position, 6 major sectors were prioritized from the 13 sectors identified in the
NES to improve export performance. These sectors are Agro-business, Forestry, Marine Products,
Mineral Water, ICT and Audio-Visual.

3. International Expos- 2012 Yeosu Expo

The Ministry is also now gearing up for the YEOSU Expo in South Korea which will be held in Yeosu,
South Korea from May 12 – August 12, 2012. The aim was to promote and showcase its people, products
(commercial and cultural) and places in relation to the sub-theme of „creative maritime activities‟. Fiji is
expected to gain a lot from participating in this expo as it will interact with people from more than 100
countries and will assist in Fiji‟s exposure to the Korean market.

Conclusion: Evaluate the question in relation to the question statement.

THE END

______________________
COPYRIGHT: MINISTRY OF EDUCATION, FIJI, 2017.

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