General Certificate of Education (Advanced Level) Examination

REVISION AND PAPER CLASS – 2024 A/L

LEVEL UP Paper No 04
Economic Part I

Name: …………………………………………………………….. 60 minutes

01. A “free good” in economic terms can best be described as one which.
(i) Is supplied at a zero price to the consumer.
(ii) Is provided free by the government.
(iii) Does not use scarce resources in its production.
(iv) Is extracted directly from the land or sea.
(v) Can be produced at constant opportunity cost.

02. The problem of scarcity

(i) Exists only in economies which rely on a mixed economy.
(ii) Could be eliminated if we could force prices to fall.
(iii) Means there are shortages of some goods.
(iv) Exists because human a wants cannot be satisfied with available resources.
(v) Exists now but will be eliminated with economic growth.

03. The fundamental economic problem faced by all countries is,

(i) Too much money chasing after few goods.
(ii) Excessive use of earth’s scarce resources.
(iii) Environmental pollution.
(iv) Unlimited wants constrained by limited resources.
(v) Growing poverty.

04. Which of the following is a scarce resource?

(i) Coal (iii) Skilled labour (v) All of the above
(ii) Water (iv) Time

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 05. The diagram below shows the production possibilities frontier of an economy.
Capital goods

X
Consumer goods
Indicate the correct combination of current and future living standards resulting from a movement from
X to Y on the curve?

Current living standards Future living standards

(i) Decrease Decrease
(ii) Decrease Increase
(iii) Increase Decrease
(iv) Increase Increase
(v) Increase Remain Unchanged

06. Assume an economy producing private goods and public goods. When the economy is operating
on its production possibility frontier, an increase in the production of the public good will.
(i) Have no effect on the supply of private goods.
(ii) Increase the opportunity cost of private goods.
(iii) Increase total output because public goods are non-rival.
(iv) Mean a reduction in the production of private goods.
(v) Shift the production possibility frontier to the left.

07. The diagram below shows the production possibilities frontier of an economy.
Food

30
B
20

10 A

Cloth
0 10 20 30 40 50

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The opportunity cost of moving from point A to point B is,

(i) 20 units of cloth

(ii) Zero
(iii) 10 units of food
(iv) ½ a unit of cloth for one unit of food
(v) 30 units of cloth and 20 units of food

08. The table below shows the production possibilities of a farmer who uses all his resources to
produce millet and corn, at a given time.
Millet (Bushels) Corn (Bushels)
0 55
10 50
20 42
30 28
40 0
Suppose the farmer currently produces 20 bushels of millet and 42 bushels of corn. According to the
above table, the opportunity cost of 10 more bushels of millet is.

(i) 5 bushels of corn. (iv) 1.4 bushels of corn.

(ii) 8 bushels of corn. (v) 28 bushels of corn.
(iii) 14 bushels of corn.

09. A basic difference between a market economy and a command economy would be that.
(i) Government plays no role in a market economy.
(ii) Prices both ration and guide in a market economy but are not a major guiding device in
a command economy.
(iii) Consumer choice does not exist in a command economy.
(iv) Storages of output or inputs seldom occur in command economies.
(v) Market prices exist only in command economies.

10. One of the main functions of the price mechanism in a free-market economy is to
(i) Ensure full employment.
(ii) Ration scarce resources.
(iii) Keep prices stable.
(iv) Provide public stable.
(v) Ensure that incomes are evenly distributed.
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 11. One reason why there are mixed economies is that,
(i) The free-market economy allocates resources efficiently.
(ii) The profit motive acts as a disincentive to new businesses to enter an industry.
(iii) Competition is always undesirable.
(iv) The free-market economy can lead to an unequal income distribution.
(v) Labour productivity is low in free market economy.

12. One of the differences between a free-market economy and a centrally planned is that in the
former,
(i) Some resources are privately owned, and some are state owned.
(ii) Resources are only scarce in a free market economy.
(iii) All resources are privately owned and allocated by market forces.
(iv) Most resources are used to produce capital goods.
(v) Resources are allocated by the market forces and are therefore no longer scarce.

13. In a planned economy, the question of “for whom to produce?” is determined primarily by,
(i) The sale of resources for income payments in competitive markets.
(ii) The distribution of production to members of the community based on social customs.
(iii) Government distributing goods and services to low-income earners.
(iv) Government centrally setting wages and prices as part of an economic plan.
(v) The bargaining process between employers and employees.

14. The diagram shows the supply and demand curves for public transport in a municipality, with
a flat rate fare of OP.
Price
(Rs.) M QS

E
P

S QD
O T Kilometers travelled
if the Municipal Council decides to Q
provide this transport service free of charge to all those who wish to
use it, the consumers’ surplus will be.

(i) Reduced by MEP. (iv) Increased by OPET.

(ii) Increased by SPE. (v) Increased by OSEQ.
(iii) Increased by OPEQ.
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 15. The diagram shows the demand and supply curves for a consumer good where P1 is the initial
equilibrium price.
Price D2 S1
(Rs.)
D1
S2
P2
P1

Quantity
0 Q1 Q2 (units)
The increase in the price from P1 to P2 is most likely a result of

(i) An increase in the price of substitutes and a fall in raw material costs.
(ii) A fall in incomes and a rise in interest rates.
(iii) An increase in the wages paid to all workers.
(iv) An increase in income tax and value added tax.
(v) An increase in the number of suppliers in the market.

16. Price (Rs.)

S

P2

P1

D2

D1
0 Q
Q1 Q2
The diagram above shows the effect of an increase in demand for fish in a competitive market. This will
cause,

(i) Producer surplus and consumer surplus to increase.

(ii) Producer surplus and consumer surplus to decrease.
(iii) Producer surplus to decrease and consumer surplus to increase.
(iv) producer surplus to increase and consumer surplus to remain unchanged.
(v) No change in either consumer or producer surplus.

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 17. The diagrams below show how shift in the supply of good X results in a shift in the demand for
good Y.
S
S1 W
P2 P2
S2
P1 P1
D2
D1
Q1 Q2 Q 1 Q2
Quantity demanded and Quantity demanded and
Supply of good X Supply of good Y

Which of the following pairs is most likely to be represented by good X and good Y ?

(i) Tea and coffee

(ii) Bus travel and rail travel
(iii) Rice and wheat flour
(iv) Sugar and jaggery
(v) Tires and tubes

18. The demand curve for price is downward sloping. If the demand for price is price inelastic, a
reduction in the price of rice must result in,
(i) Excess supply of rice.
(ii) An increase in the quantity demanded for rice.
(iii) An increase in the total expenditure on bread.
(iv) Increased sales of wheat flour.
(v) An increase in total expenditure on rice.

19. The following information gives details of the price elasticity of demand for certain goods and
services.
Product Price Elasticity of demand
Motor Cars -1.5
Motor bicycle -1.0
Cinema tickets -0.4
Boxes of matches 0.0

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An increase in the price of each item by 1% would result in an increase in sales revenue in the case of,

(i) Motor cars only.

(ii) Motor cars and motorcycle only.
(iii) Cinema tickets and boxes of matches only.
(iv) Cinema tickets only.
(v) Boxes of matches only.

20. A consumer survey reveals that 20% increase in the price of an alcoholic drink would reduce
consumption of the rich by 3% and consumption of the poor by 10%. It can be deduced from this
that,
(i) The rich enjoy the alcoholic drink more than the poor.
(ii) For the rich, the alcoholic drink is an inferior good.
(iii) For the poor, the alcoholic drink is a normal good.
(iv) The demand of the poor is price elastic while that of the rich is price inelastic.
(v) Demand is price inelastic for both the rich and the poor.

21. The diagram below relates the quantity demanded of product X to income.
Income(Rs.)

D
Quantity demanded of product X

The diagram suggests that product X is

(i) An inferior good.

(ii) A necessity.
(iii) A normal good.
(iv) A luxury.
(v) A complementary good.

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B.COM IN FINANCIAL MANAGEMANT (SPECIAL) (UOK) 077 430 8903
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 22. The table below shows a household’s demand of five different goods A, B, C, D and E at two
separate income levels.
Income Units of goods demanded
A B C D E
Rs. 10,000 200 200 200 200 200
Rs. 12,000 200 240 260 280 300
Over the above range of income, for which good does the household have and income elasticity of
demand of unity?

(i) A (iii) C (v) E

(ii) B (iv) D

23. The table below shows the cross elasticities of demand for the products of the manufacturing
firms with respect to the prices of their closest substitutes.
Manufacturing Firm Cross Elasticity of Demand
Firm A +2.0
Firm B +1.0
Firm C +0.5
Firm D +0.4
Firm E 0.1
Which one of the above firms is likely to possess the greatest market power?

(i) Firm A (iii) Firm C (v) Firm E

(ii) Firm B (iv) Firm D

24. The government imposes a tax on a good, causing the supply curve to shift from SS to S 1S1 as
shown in the diagram below. S1
Price
(Rs.) D
S
16
12

8
S1
S
Quantity
0 40 50 (units)
What part of the total tax burden falls on the producers?

(i) Rs. 12 (iii) Rs. 280 (v) Rs. 480

(ii) Rs. 160 (iv) Rs. 320
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B.COM IN FINANCIAL MANAGEMANT (SPECIAL) (UOK) 077 430 8903
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 25. As shown in the diagram, when the government imposes an indirect tax on a certain product, the
supply curve shifts from S1 to S2. The government’s tax revenue is,
Price S2
(Rs.)
S1

H
G
E
F J
N D
K
Quantity
O
L M (units)

(i) NFJK (iii) FGHJ (v) FEHG

(ii) OGHL (iv) NGHK

26. Select the correct statement with regard to an inferior good and a Giffen good.
(i) There is negative relationship exists between price and quantity demanded with regard
to both goods.
(ii) The price effect with regard to both goods is positive.
(iii) Income effect of an inferior good is positive and income effect of a Giffen good is negative.
(iv) Negative substitution effect of an inferior good is stronger than the negative substitution
effect of a Giffen good.
(v) All inferior goods are considered as Giffen goods but not all Giffen goods are considered
as inferior goods.

27. Consumer surplus of a particular good at market equilibrium is Rs. 4500. With an intention of
encouraging producers’ government spent Rs. 3500 in providing a producer subsidy with regard
to this good. The market output after providing the subsidy was 350 units. Consumer
expenditure after the subsidy was Rs. 8750 & the consumer surplus was 6125. According to the
information given the size of subsidy & the benefit of subsidy towards the consumer are
respectively,
(i) Rs. 10 & Rs. 4250 (iv) Rs. 10 & Rs. 2625
(ii) Rs. 10 & Rs. 1625 (v) Rs. 20 & Rs. 1625
(iii) Rs. 5 & Rs. 4250

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B.COM IN FINANCIAL MANAGEMANT (SPECIAL) (UOK) 077 430 8903
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 28. Market behavior after a price control is shown by the diagram below.

D S
40

30

20

10 Price ceiling

0 300 Q
100 200 400

Select the correct answer after price ceiling.

Excess demand Under production Dead weight loss

(i) 200 200 Rs. 1000
(ii) 300 200 Rs. 500
(iii) 200 300 Rs. 500
(iv) 200 100 Rs. 1000
(v) 400 200 Rs. 2000

29. Following diagram shows a situation of guaranteed price policy.

D S
A
P2 Guaranteed price
B D
C
P1 E
H
I
K
J G F
1
0 Q2 Q
Q3 Q1
Which area of the diagram shows dead weight loss, social welfare loss and government
expenditure when government purchases the surplus product after the guaranteed price policy?

Dead weight loss Social welfare loss Government expenditure

(i) CH CH BCDEHI
(ii) E E BIJ
(iii) E CHGFE CDEFGH
(iv) CHGFE E CDEFGH
(v) E JGFE CDEFGH

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B.COM IN FINANCIAL MANAGEMANT (SPECIAL) (UOK) 077 430 8903
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 30. Which of the following measure can be implemented by the government in order to increase
income of chilly farmers where they gain a surplus of chilly production?
(i) Releasing of buffer stocks.
(ii) Increase production quota on chilly production.
(iii) Removal of the subsidy provided to farmers.
(iv) Accumulation of buffer stocks.
(v) Increase of taxes imposed over consumers.

DINUKA FERNANDO
B.COM IN FINANCIAL MANAGEMANT (SPECIAL) (UOK) 077 430 8903
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