GEMS AKADEMIA INTERNATIONAL SCHOOL

First Term Examination 2014-15

Name:

_________________

Time: 2 hrs.

Subject:

Economics

Max. Marks:100

Grade:

XI

Marks Scored:

Instructions :
All answers and working to be done in the booklet provided.
Attempt all questions from Section A, case study from Section B and answer one structured question
from Section B.
The time mentioned above is only for writing.
SECTION-A (30*2=60)
1. Why can division of labour benefit an economy?
a. Costs of trading are reduced.
b. Individual workers learn a wider range of skills.
c. Less money is required as a medium of exchange.
d. The total supply of goods and services rises.
2. The diagram shows two production possibility curves (EF and GH), before and after
technological progress has taken place.

GAIS: First Term Examination 2014-15

Page 1 of 9

After technological progress has taken place, what is the opportunity cost in capital goods of
producing OX consumer goods?
A. MH

B. OH

C. OM

D. YF

3. The diagram shows the production possibility curve (PPC) of an economy that produces goods
and services.
What might cause the shift of the PPC from XY1 to XY2?
A.
B.
C.
D.

a decrease in the demand for services

a decrease in the efficiency in the production of services
a decrease in the opportunity cost of producing services
a decrease in the resources employed in services

4. When will the demand curve for motorcycles shift to the left?
A. when the price of cars falls
B. when the price of motorcycles falls
C. when the tax on motorcycles rises
D. when the price of public transport rises
5. A government wishes to impose a tax on a good so that the producer and not the consumer pay
most of the tax. Which type of elasticity would it be best for the good to have to achieve this
aim?
A. high price elasticity of demand
B. low price elasticity of demand
C. totally inelastic price elasticity of demand
D. unitary price elasticity of demand
GAIS: First Term Examination 2014-15

Page 2 of 9

6. Which statement is correct?

A. External benefit minus private benefit equals social benefit.
B. Private benefit minus external benefit equals social benefit.
C. Social benefit minus external benefit equals private benefit.
D. Social benefit plus private benefit equals external benefit.
7. A government carries out a cost-benefit analysis on the building of a new airport.
It calculates that the cost of constructing and running the airport will be less than the revenue the
airport will generate. It also estimates that benefits to third parties will be greater than the cost to third
parties. Which reason might the government give for not building this airport?
A. The external costs exceed the external benefits.
B. The net private benefit is greater on another project.
C. The net social benefit is greater on another project.
D. The social costs exceed the social benefits.
8. What is a defining characteristic of a public good?
A. An increase in consumption by one individual leaves the quantity available to
others unchanged.
B. Consumption of the good by one individual confers benefits on other
individuals.
C. The benefits obtained by those who consume the good are greater than they
themselves realise.
D. The good is consumed jointly by all members of society.
9. Which statement about the impact of a quota and a tariff is correct?
A. A quota benefits the seller of the imports while a tariff raises government
revenue.
B. A quota decreases the quantity of imports while a tariff leaves the quantity of
imports unchanged.
C. A quota leaves import prices unchanged while a tariff raises the price of
imports.
D. A quota shifts the demand curve for imports while a tariff shifts the supply
curve of imports.
10. India is failing to reach its full economic potential because of poor rail, road and electricity
infrastructure. Its problem is not lack of government spending but a lack of skilled civil engineers.
Which factors of production need to be increased?
A. capital and land
B. enterprise and labour
GAIS: First Term Examination 2014-15

Page 3 of 9

C. labour and capital

D. land and enterprise
11. The price elasticity of demand for good X is 1. At a price of $12, quantity demanded is 4000 units.
What will be the price when the quantity demanded is 20 000 units?
A $2.00

B $2.40

C $12.00

D $20.00

12. In a market economy, demand for a product rises and price increases but output remains
unchanged. What could explain this?
A. A lack of financial incentives for entrepreneurs
B. a perfectly inelastic supply of factors of production
C. consumer influence exceeding producer influence
D. social benefits equaling private benefits
13. An international oil company announced that it would stop exploring for oil off the coast of
Namibia. This was because there was only enough oil to support a local power station for Namibia and
not enough to allow exports of oil. What might be a possible advantage and disadvantage to Namibia
of this decision?
Advantage

Disadvantage

A. A. a reduction in potential external costs of

pollution

the loss of cheaper oil

B. B. a reduction in taxes paid by the oil the conservation of a natural resource

company to the Namibian government
C. C. a saving in costly research paid for by the a loss of employment opportunities
oil company
D. D. the exhaustion of a natural resource

the loss of potential exports

14. A government wishes to encourage the consumption of a merit good and reduce the consumption
of a demerit good. Which policy should it adopt towards each good?
merit good
A confine access to certain age groups

demerit good
tax output

B increase advertising on the benefits of the set a minimum level of output

good
C subsidise the good
GAIS: First Term Examination 2014-15

put legal controls on output

Page 4 of 9

D tax the good

produce only in the public sector

15. An economy with a long history of extensive barriers to trade decides to switch to totally free
trade. What is most likely to increase in the short term?
A. consumer surplus
B. government revenue
C. inflationary pressure
D. profits of all domestic companies
16. Rising demand for oil from China and other countries is leading to concerns that there may be a
world shortage of oil. How should a change in the price of oil prevent such a shortage developing?
A. Price should fall to reduce demand and encourage a search for more oil.
B. Price should fall to reduce supply and encourage a reduction in fuel use.
C. Price should rise to reduce demand and encourage a search for alternative
fuels.
D. Price should rise to reduce supply and encourage a switch to alternative
fuels.
17. What is the most likely reason economists will give to explain why large hospital projects are often
funded by governments?
A. Governments usually control the construction industry.
B. Hospitals benefit many people who do not use them.
C. Hospitals are non-excludable.
D. Hospitals are an essential service.
18. Despite much opposition, the local government in a popular tourist resort built a leisure centre and
swimming pool which is open to everyone. Many tourists visit the centre. Local residents are charged
a reduced entry fee. How would economists classify this service?
A It is a demerit good because some people objected to the development.
B It is a merit good because the entry fee is reduced for local residents.
C It is a private good because there is an entry fee for all users.
D It is a public good because it is open to everyone and provided by the local
government.
19. A government minister states that the main economic benefit of locating a new factory in a
coastal region is the 500 jobs it will create. What does this statement imply about the coastal
region?

GAIS: First Term Examination 2014-15

Page 5 of 9

A.
B.
C.
D.

Alternative employment opportunities are scarce.

Job seekers have a wide range of choices open to them.
Labor is a scarce resource.
Unemployment is at a low level.

20. An economy has changed from a command economy to a market economy. What might
increase after this change?
A.
the amount of centralised decision making
B.
the extent of externalities
C.
the level of government economic intervention
D.
the production of merit goods
21. What is likely to occur when an economy moves from state planning to a market system?
A.
Consumer choice is reduced.
B.
Enterprise is discouraged.
C.
The amount of innovation declines.
D.
The output of merit goods is reduced.
22. In the recession of 2011 some governments decided to reduce expenditure and decrease the numbers
working in the public sector. Trades unions organised a mass demonstration in protest. Which question
relating to the government decision is a normative question rather than a positive question?
A.
How should public sector industries be run?
B.
What goods and services are produced by the public sector?
C.
When the government reduced its expenditure what happened to the
level of Unemployment?
D.
Why was there a trade union protest?
23. The table identifies the functions of money and the principal benefit that each function produces.
Which function of money is correctly matched with its principal benefit?

24. What is a characteristic of a planned economy?

A.
All property is owned privately.
B.
All resources are allocated centrally.
C.
Supply and demand always determine prices.
D.
There is competition in most markets.
GAIS: First Term Examination 2014-15

Page 6 of 9

25. The growing domestic, agricultural and industrial demand for water is leading to a world shortage of
water. Which change would reduce this problem of water scarcity?
A.
an increase in demand for food
B.
an increase in population growth
C.
climate change which leads to lower rainfall
D.
more efficient water management
26. By 2030, as the human population grows, the world will need at least 50% more food, 45%
more energy and 30% more water from the same resources.
What does this statement directly indicate?
A. comparative advantage
B. merit goods
C. negative externalities
D. the economic problem
27. If the elasticity of demand for a commodity is unity, an increase in its price will
A. decrease the quantity purchased.
B. have no effect on consumer surplus.
C. increase total expenditure on the commodity.
D. leave the quantity purchased unchanged.
28. What is consumer surplus?
A. the difference between the cost of producing a good and what consumers
would be willing to pay for it
B. the difference between what consumers actually pay for a good and its cost
of production
C. the difference between what consumers actually pay for a good and the
maximum amount they would be willing to pay for it
D. the difference between what consumers are willing to pay for a good and
the amount required by producers to supply the good
29. A country produces washing machines. The government lowered both the tax on washing
machines produced in its country and the quota on imports of foreign washing machines.
What is the likely result?
A. Government revenue increased.
B. Home production decreased.
C. Prices of foreign washing machines fell.
GAIS: First Term Examination 2014-15

Page 7 of 9

D. The balance of trade in goods improved.

30. A group of countries join together to form a single market with a single common currency.
Which term best describes the resulting organisation?
A. customs union
B. economic union
C. free trade area
D. trade union
SECTION B
The Current Account of Swazilands Balance of Payments Swaziland is a small, landlocked economy
in southern Africa. The Swazi currency is the lilangeni (plural emalangeni) and the currency is pegged
to the South African rand at a fixed rate of one to one. The country has faced changing international
conditions in recent years, as is shown in its current account statistics.
Table 1: Swazilands current account components, selected years, millions emalangeni
2003
Balance of Goods

2005
957.9

- 1641.3

Balance on services

-1090.2

-765.0

Net income
Net Current Transfers

-317.4
1136.4

1133.8
619.8

2007
- 1910.1
-367.6
449.3
1366.6

The Central Bank of Swazilands report on the 2007 export performance identified the following.
Exports grew by 8.4% with a positive performance by some manufacturing companies.
Successful exports included sugar, sugar-based products, soft drink concentrates, wood pulp and
timber products, textiles and garments, citrus and canned fruits and meat products.
Global demand and rising export prices led to increased export revenue.
Export performance was helped by the depreciation of the domestic currency against the US$ and the
currencies of other trading partners outside of the Southern African Customs Union (SACU) and
Common Monetary Area (CMA), of which Swaziland is a member. In addition, exports of meat and
meat products to the European Union (EU) resumed in 2007 after the EU lifted its ban on Swazilands
beef exports. This ban was originally imposed because of Swazilands failure to comply with the
required quality standards.
(a) In Swazilands current account between 2003 and 2007,
(i) Which component showed a continuous improvement, and
(ii) Which component showed a continuous worsening? [2]
(b) How did the current account balance change between 2003 and 2007? [3]
(c) (i) What is comparative advantage? [2]
GAIS: First Term Examination 2014-15

Page 8 of 9

(ii) In the light of the Central Bank of Swazilands report what might be concluded about the nature of
Swazilands comparative advantage and the factors on which it is based? [4]
(d) Explain the conditions necessary for the depreciation of a countrys currency to increase its export
revenue. [3]
(e) Discuss the case for and against the use of tariffs by Swaziland to retaliate when the EU banned
imports of Swazilands beef. [6]
SECTION C
Answer any one question
1. (a) With reference to the relevant type of elasticity of demand, explain the terms (i) inferior
good, and (ii) complementary good. [8]
(b) Discuss the importance of price in the effective operation of a mixed economy. [12]
2. (a) Explain why a lighthouse is often given as an example of a public good while a light bulb is
not. [8]
(b) Discuss whether it is likely that the private costs and the social costs of production would be
identical. [12]
3. (a) Explain how a countrys production possibility curve depends upon its factors of production.
[8]
(b) Discuss how well comparative advantage explains the pattern of international trade. [12]

GAIS: First Term Examination 2014-15

Page 9 of 9