SUMMATIVE ASSESSMENT 1

MODEL QUESTION PAPER

ECONOMICS

GRADE 9

Duration: 2 hours Marks: 100

MCQ (30 Marks)

1. Which topic is included in microeconomics?

a. economic growth
b. elasticity of demand
c. inflation
d. the balance of payments

2. Microeconomics analyses choices in various situations. Which area of economic study

does it not include?

a. costs and revenues of a firm

b. individual consumer behaviour
c. policies for economic growth
d. wages for different occupations

3. Which situation indicates a mixed economy?

a. Economic activity is controlled entirely by the private sector.

b. Individual choices are unaffected by government actions.
c. Services are provided by both private and public sectors.
d. The government carries out all planning and decision making.
4. A country experiences a long strike by railway workers. What would be the
macroeconomic impact of such a strike?

a. National output would fall.

b. Railway workers would lose income.
c. The demand for taxi services would rise.
d. The profits of railway operators would fall.

5. What necessarily describes the market system?

a. an economy with both a private and public sector

b. limited resources but unlimited wants
c. resources are allocated through demand and supply
d. when all resources are used to produce consumer goods

6. What is not held constant when constructing the supply curve of a firm?

a. indirect taxes and subsidies on the firm’s products

b. the level of technology used by the firm in production
c. the price of the factors of production paid for by the firm
d. the market price of the good produced by the firm

7. What aspect of demerit goods means they are overproduced?

a. clear product information

b. high external costs
c. high product taxes
d. low customer demand

8. What is the cause of market failure?

a. many firms
b. monopoly
c. profit maximisation
d. specialisation
9. A newspaper reported that ‘The world market for coffee has returned to equilibrium’.
Which situation supports this statement?

a. A sequence of poor harvests resulted in shortages.

b. Decreased transport costs led to a surplus of supply.
c. Farmers matched demand by planting more coffee bushes.
d. The price of coffee was fixed between producers.

10. The table shows the demand schedule for a good at different prices.

The current market price for the goods is $10. Following a 20% increase in price, what
will be the change in the quantity demanded?

a. – 60
b. – 40
c. +120
d. +200

11. Unlike the UK and US, a significant proportion of the shares on the stock exchanges of
China and Russia are of state-owned enterprises. Which judgement about China and
Russia can be made from this information?

a. their distribution of income and wealth

b. their level of development
c. their stages of production
d. their type of economic system
12. The diagram shows market demand and supply curves.

To what extent is the market in disequilibrium at price P3?

a. OQ1 – OQ2
b. OQ1 – OQ3
c. OQ2 – OQ4
d. OQ3 – OQ5

13. The price of bread rose by 5% and the quantity demanded fell by 4%. What was the price
elasticity of demand for bread?

a. –0.4
b. –0.8
c. –1.25
d. –2.0

14. A product has a price elasticity of demand of – 0.5. What happens to the demand for a
product if its price falls from $1 to $0.80?

a. It decreases by 10%.
b. It decreases by 20%.
c. It increases by 10%.
d. It increases by 20%.
15. The demand for gas in a country becomes price-inelastic. What will happen as a result?

a. Gas workers will be less likely to be successful in obtaining wage increases.

b. Gas workers will be more likely to be successful in obtaining wage increases.
c. Total expenditure on gas by consumers will fall when its price rises.
d. Total expenditure on gas by consumers will rise when its price falls.

16. A large bakery buys a flour mill. Which form of integration is this?

a. conglomerate
b. horizontal
c. vertical backwards
d. vertical forwards

17. Why is the energy supply industry dominated by very large firms in many economies?

a. Government controls prevent the exploitation of consumers.

b. High fixed capital costs exist.
c. Labour-intensive production techniques are used.
d. Non-price advertising increases competition.

18. The diagram shows the fixed costs, variable costs and total costs of a firm.

Which distance represents the firm’s fixed costs?

a. WX
b. WY
c. XY
d. XZ
19. An entrepreneur buys a workshop for $200 000 to make plastic boxes. In the first year of
operation he spends $70 000 on materials, employs ten production workers paid by the
amount produced (piece rate) at a total cost of $80 000 and buys two delivery vehicles for
$10 000 each. What are his total variable costs?

a. $100 000
b. $150 000
c. $220 000
d. $370 000

20. What is the main difference between capital-intensive production and labour-intensive
production?

a. the market structure of the production process

b. the output that the production process creates
c. the resources on which the production relies
d. the size of the firm that uses the production process

21. What is the definition of diseconomies of scale?

a. the decrease in average revenue as output increases

b. the decrease in fixed cost as output increases
c. the increase in average total costs as output increases
d. the increase in total costs as output increases

22. Which business organisation is most likely to have unlimited liability?

a. co-operative
b. multinational
c. public limited company
d. sole trader

23. What is an example of a technical economy of scale?

a. Banks provide loans at a lower interest rate to bigger firms.

b. Bigger firms hire more workers.
 c. Firms obtain discounts when buying in bulk.
d. Machines are used closer to their full capacity.

24. The table shows total fixed and total variable costs at different levels of output for a firm.
At which level of output is the average total cost lowest?

Option D

25. The following information refers to a firm producing shoes. At which level of output
does the firm maximise profits?

Option B
26. The table shows total fixed and total variable costs at different levels of output for a firm.

What happens as output rises?

a. Average fixed cost falls.

b. Average fixed cost rises.
c. Average variable cost remains constant.
d. Average variable cost rises.

27. In 2014, a plan for a major new rail link funded by central and regional government was
announced. It would involve the redevelopment of a city area, generate 14000 jobs and
allow the development of 2000 homes and offices for private businesses. What economic
concepts are indicated directly in the above statement?

a. budget surplus and inflation

b. factors of production and multinational companies
c. fiscal policy and mixed economy
d. regional unemployment and average wage rates

28. When is a tax regressive?

a. when some goods have a lower tax than others

b. when the tax as a proportion of income decreases as income increases
c. when the tax is linked to the rate of inflation
d. when the tax is on incomes rather than on goods or services
29. The Government of India wishes to help the very poorest people. Which policy would be
most likely to achieve this?

a. lowering capital gains tax

b. lowering housing subsidies
c. lowering indirect taxation
d. lowering inheritance tax

30. How is a government most likely to prevent the growth of monopolies?

a. by encouraging mergers in the private sector

b. by establishing nationalised industries
c. by promoting the benefits of economies of scale
d. by reducing barriers to entry into an industry
STRUCTURED QUESTIONS (70 Marks)

Section A

Answer the following question. (30 Marks)

Read the source material carefully before answering Question 1.

1. Source material: Traffic jams in the Philippines

Manila, the capital city of the Philippines, is densely populated and has almost no spare
land to build on. It is well-known for its traffic jams (congestion). People can spend hours
travelling just a short distance. The Philippine government is concerned that the traffic
congestion may damage people’s health, discourage multinational companies (MNCs)
from setting up in the country and reduce economic growth. It will also stop the country
achieving full employment and reduce labour productivity. Entrepreneurs and workers
are regularly arriving at their firms stressed and tired.

More Philippine workers are moving into Manila to take up jobs in the expanding
computer, retail and education industries. One of the advantages of the Philippine
economy is its young and well-educated population. Increases in the skills of Philippine
workers are making it easier for workers to transfer from declining to expanding
industries.
Rises in the country’s population are increasing the number of cars on Philippine roads.
Driving is also encouraged by the low cost and ease of parking, and the poor quality of
public transport. Manila has too few trains but too many buses. By 2017, deregulation
had increased the number of bus companies in the city to more than 1100.

Taxes in the Philippines are relatively high but disposable income has risen. As a result
consumer spending, including on cars, has increased. Some of the cars purchased are
imported. Table 1.1 shows consumer expenditure and imports in selected countries in
2017.

The government is considering a number of measures to reduce the traffic congestion in

Manila. These include building more roads, building a rapid bus route where buses travel
along bus-only lanes and increasing car park charges. Building more roads may affect not
only journey time but also the number of cars purchased and driven in the city.

Answer all parts of Question 1. Refer to the source material in your answers. 1

a. Calculate the external cost per kilometre of driving a car in Manila in 2017. [1]

$0.54 (1).

b. Identify two macroeconomic aims of the Philippine government. [2]

 Economic growth (1) full employment (1).

c. Explain one reason why traffic congestion can reduce labour productivity. [2]

● Reduce health of workers / workers arriving tired / stressed (1) this is

likely to lead to more days of absence from work / reduce their output
per hour (1).
● Late arrival to work (1) output per day declines / less working time
(1).
d. Explain how an increase in the mobility of Philippine workers would be likely to
affect unemployment in the Philippines. [5]

● Greater geographical mobility (1) enables moving from areas of

unemployment to areas where there are job vacancies / expanding
industries such as computer, retail, and education (1) will affect
frictional unemployment (1) take jobs overseas (1).
● Greater occupational mobility (1) through education/training enables
moving into jobs requiring different skills/qualifications (1) will
reduce structural unemployment (1).
e. Draw a demand and supply diagram to show how a rise in the price of car parking
could affect the market for cars in the Philippines. [4]

Up to 4 marks for the diagram:

● Axes correctly labelled – price and quantity or p and q. (1).

 ● Demand and supply curves correctly labelled (1).
● Demand curve shifted to the left (1).
● Equilibriums – shown by lines P1 and Q1 and P2 and Q2, or by
labelling equilibrium points as E1 and E2 (1).
f. Discuss whether or not the supply of enterprise is likely to increase in the
Philippines. [8]

Up to 4 marks for why it might:

● economy is growing / rising incomes / higher consumer spending (1) so

likely to earn higher profit (1)
● well-educated population (1) ability to employ skilled labour (1)
attracts MNCs (1)
● greater skills (1) encourage workers to set up own businesses (1)
● population is growing (1) so more potential entrepreneurs (1) larger
markets (1)
● deregulation (1) so there may be more market opportunities / less
barriers to entry (1)
● the reduction of traffic congestion (i) will increase productivity of
workers (1) raising opportunity to make profits (1)

Up to 4 marks for why it might not:

● some entrepreneurs may emigrate (1)

● high taxes (1) which may reduce the reward to entrepreneurs (1)
● traffic congestion (1) can increase costs of production (1) MNCs may
be discouraged from entering the country / reducing the supply of
foreign entrepreneurs (1)
● may not want to take the risk/stress of running own business (1)
prefer to stay as employee (1)
● growth rate is falling (1) less opportunities for investment / new
businesses (1)
g. Discuss whether or not building more roads in Manila will benefit the Philippine
economy. [8]

Up to 4 marks for why it might:

● reduce traffic congestion (1) lowering journey times / transport costs

(1) helps tourism (1)
● productivity may rise (1), reduce costs of production (1) encourages
higher output / economic growth (1)
● government expenditure on roads (1) leads to higher employment (1)
and higher spending / total demand (1)
● MNCs may be attracted into the country (1) reducing unemployment
(1)
● lower average costs (1) may increase international price
competitiveness (1) increasing exports (1) improving the current
account position (1)

Up to 4 marks for why it might not:

● shortage of land (1) opportunity cost in terms of how the land is used
(1)
● opportunity cost (1) could have been used for education / health (1)
● government may have to raise taxes to fund the road building (1) and
taxes are already high (1)
● may increase the number of cars on the roads (1) may not reduce
traffic congestion in the long run (1)
● during the building process there will be disruption to drivers and
production (1)
● more roads lead to increase in negative externalities (1) example (1)
lowering standard of living (1)
● rapid growth in population (1) land more expensive to build roads (1)
● additional expenditure if at full employment (1) could lead to
demand-pull inflation (1)
Section B

Answer any two of the following. (40 Marks)

2. Among the reasons for Malaysia’s continued economic growth are rises in consumer
spending and the country’s ability to adapt to changes in global demand. For example,
when the price of natural rubber fell, most rubber plantations changed to palm oil
production. The government has tried to promote the growth of different sectors,
including the primary sector.

a. State two sectors, other than the primary sector, in an economy. [2]

Secondary sector (1) Tertiary sector (1)

b. Explain two possible reasons for a fall in the price of a product such as natural
rubber. [4]

● Decrease in demand for natural rubber (1) emergence of substitutes

(1) decrease in future expected price or any other relevant examples
(1).
● Increase in supply of natural rubber (1) due to increase in the number
of producers / good yield / relevant example (1).
c. Analyse how firms can benefit from specialisation. [6]

Improve skills of workers (1) save time (1) lead to invention of new
technology (1) increase productivity (1) raise quality (1) decrease average
cost of production (1) decrease prices (1) increase demand (1) enable
advantage to be taken of economies of scale (1) increase profits (1).

d. Discuss whether or not the growth of the primary sector is beneficial to a country.

[8]

Why it is beneficial:
 ● can increase total output of the economy, increasing economic growth
• can provide employment opportunities that are accessible to all /
requires low skill / requires low technology
● could increase standards of living in rural areas
● provide raw materials for secondary sector
● could ensure that the country has food security, reduce imports of
necessities, if prices of primary sector products are high e.g. high oil
price which could bring huge export revenue to the country. This
could reduce the current account deficit.

Why it is not beneficial:

● productivity may be low in the primary sector, very low value added
● may be low wages and poor working conditions
● overdependence on primary sector may restrict growth of secondary
and tertiary sectors
● some primary industries may be disrupted by weather conditions and
natural disasters
● supply and demand are inelastic so there may be considerable price
fluctuations
● natural resources e.g. copper may be depleted.
3. The Indian government has declared that the country, now a major car producer, will sell
only electric cars by 2030. The government wants to reduce external costs, some of
which are caused by petrol and diesel cars. Demand for electric cars is currently
relatively low and price-elastic. The government, however, thinks that it will not need to
subsidise the production of electric cars to achieve its target.

a. Define external costs. [2]

Harmful effects (1) on third parties (1). Social costs – private costs (1).

b. Explain two influences on whether demand for a product is price-elastic or

price-inelastic. [4]
 ● Availability of substitutes (1) close substitutes will be likely to result in
demand being price-elastic (1).
● Whether the product is a luxury or necessity (1) luxuries tend to have
elastic demand/necessities tend to have inelastic demand (1).
● Proportion of income spent on the production (1) demand tends to be
inelastic if a small proportion is spent on it/ elastic if a high proportion
is spent on it (1)
● Whether the purchase can be postponed (1) if so, demand is likely to
be elastic, if not inelastic.
● Addictiveness of the product (1) addictive products are likely to have
inelastic demand (1).
● Time period (1) demand tends to become elastic over time (1).
c. Analyse, using a demand and supply diagram, how a subsidy given to producers
could affect the market for electric cars. [6]

Up to 4 marks for the diagram:

● Axes correctly labelled – price and quantity or p and q (1).

● Demand and supply curves correctly labelled (1).
● Supply curve shifted to the right (1).
● Equilibriums – shown by lines P1 and P2 / Q1 and Q2 or equilibrium
points E1 and E2 (1).
 Up to 2 marks for coherent analysis which might include:

● A subsidy encourages firms to produce more/equivalent to a reduction

in costs (1).
● Price will fall/quantity traded will rise (1).
d. Discuss whether a cut in corporation tax will increase economic growth. [8]

Up to 5 marks for why it might:

● It will increase firms’ incentive to expand/invest (1) as they know they

will be able to keep more of any profits earned (1).
● It will increase firms’ ability to expand/invest (1) as they will have
more funds available to spend on capital goods (1).
● If firms increase their output it will directly increase real GDP (1) it
will also lead to higher employment (1) which will increase total
demand (1) further increasing output (1).
● Multinational firms may be attracted into the country by a low rate
(1) they will contribute to the country’s economic growth (1).

Up to 5 marks for why it might not:

● Firms may be making a loss (1) and so will not benefit from the cut
(1).
● Firms may be pessimistic about the future (1) may not expect to make
a profit in the future (1).
● Higher profits may be distributed to shareholders (1) who may spend
the extra income on imports (1).
● Lower tax revenue (1) may lead to a cut in government spending (1).
● Multinational companies may send most of their profits abroad (1) so
government revenue may not increase significantly, reducing funds
available to promote growth (1).
● Corporation tax may have been high to start with (1) may still act as a
disincentive (1)
4. In 2017, the Brazilian paper industry was booming. Its total revenue increased and it
employed both more, and better quality, factors of production. Brazil’s largest paper
producer merged with an Indonesian paper-producing firm at the end of 2017. The
performance of Brazil’s coffee industry differed from its paper industry. Brazilian coffee
experienced a fall in demand and a fall in total revenue.

a. Define total revenue. [2]

The total income / money received (1) from a firm’s sales (1).

OR

Price (1) multiplied by quantity sold (1).

b. Explain two differences between capital and labour. [4]

● Capital is a human-made resource / factor of production / machines

(1)
● labour is a human resource / factor of production / workers / type of
worker (1)
● Capital is increased by investment (1) labour is increased by e.g. rises
in population (1)
● The quality of capital is improved by advances in technology (1) the
quality of labour is improved by e.g. better education (1)
● Capital is paid interest (1) labour is paid wages (1).
● Capital can be a fixed cost (1) whereas labour can be a variable cost
(1).
● Capital can be a one-off investment (1) wages are paid regularly (1).
● Labour tends to be mobile (1) capital tends to be immobile (1).
● Capital can work for 24 hours (1) workers have breaks / work for less
than 24 hours (1).
c. Analyse the possible effects on consumers of a merger between two
paper-producing firms. [6]
 ● This would be a horizontal merger (1) it may enable the merged firm
to take greater advantage of economies of scale (1) so lower average
costs of production (1) which may lower prices (1) enabling consumers
to buy more / save more (1).
● The merger may increase profits (1) allowing the merged firm to
spend more on e.g. R&D (1) gain new ideas (1) increase investment (1)
consumers may gain from a rise in the quality of the product (1) new
products may be produced(1).
● The merger may reduce competition / result in a monopoly (1) which
may increase prices (1).
● If the merged firm is a monopoly it may restrict supply / result in
outlets being shut down (1) making it more difficult for consumers to
obtain the product (1) may reduce choice (1) may result in
diseconomies of scale (1).
● A reduction in competitive pressure (1) may reduce the quality of the
product (1).
d. Discuss whether or not demand for coffee is likely to rise in the future. [8]

Why it might:

● incomes may rise increasing people’s ability to buy coffee

● price may fall (due to e.g. subsidies) increasing people’s willingness
and ability to buy coffee
● the quality of coffee may rise
● population may increase.

Why it might not:

● price of substitutes, such as tea / coffee produced by other countries,

may fall so people may switch away from drinking coffee
● there may be a health report suggesting that drinking coffee is
harmful to health
● the price of complements, such as milk, may rise
● taxes / tariffs may be imposed on coffee
● Less may be spent on marketing.