Grade 10 Economics Exam

September 2013

Time: 120 Minutes Marks: 120

INSTRUCTIONS

1Answer THREE questions as follows:

SECTION A: MULTIPLE CHOICE(+/- 40 minutes)

SECTION B: DATA RESPONSE(+/- 40 minutes)

SECTION C: ONEQUESTION OUT OF THREE OPTIONS(+/- 40 minutes)

2Write the number of the question next to each answer.

3Number the answers according to the system used in this question paper.

4Start each SECTION on a NEW PAGE. Leave one to two lines open between sub-sections of each question.

5Read each question carefully.

6A neat and systematic presentation of facts is required.

7Answer in full sentences.

8Do not answer more than the required number of questions. Only the required number of questions, in the order in which they have been handed in, will be marked.

9Use only a black or blue pen (graphs / diagrams may be done in pencil).

10Non – programmable pocket calculators may be used.

THIS QUESTION PAPER CONSISTS OF 10 PAGES AND ONE ANSWER SHEET

SECTION A: MULTIPLE CHOICE

For each question, there are four possible answers: A, B, C or D. Choose the one you consider correct and record your choice in the appropriate space on the ANSWER SHEET attached to the question paper.

QUESTION 1

1.1In 2008 the demand curve for new cars in the European Union shifted to the left.

Which change could have caused such a shift?

  1. an increase in real disposable income
  2. an increase in the cost of borrowing
  3. an increase in the price of new cars
  4. an increase in the price of train travel

1.2What will happen to an industry’s supply curve if new firms enter the industry?

  1. It will shift to the left at any given price.
  2. It will shift to the right at any given price.
  3. There will be a downward movement along the supply curve.
  4. There will be an upward movement along the supply curve.

1.3The number of passenger journeys per week by train on a certain route is shown by the demandcurve in the diagram.

Initially the fare is OP, but it is then reduced by PW.

Which area measures the amount spent on the extra journeys resulting from the lower fare?

  1. VUT
  2. PWTV
  3. VRST
  4. URST

1.4When the price of a good changes, the effect on quantity demanded is the result of an incomeand a substitution effect.

Which statement about these effects is always correct?

  1. For inferior goods, the income effect and substitution effect work in the same direction.
  2. For inferior goods, the substitution effect outweighs the income effect.
  3. For normal goods, the income effect and substitution effect work in the same direction.
  4. For normal goods, the income effect outweighs the substitution effect.

1.5The diagrams show possible relationships between income and the quantity of a goodpurchased.

Which diagram shows an inferior good?

1.6Which combination of price and quantity will lead to a rise in price and a contraction in quantity toreach equilibrium?

  1. P1Q1
  2. P1Q3
  3. P3Q1
  4. P3Q3

1.7What must be the effect on consumer surplus if the supply of a product, that has a normaldemand curve, halves?

  1. Consumer surplus will fall.
  2. Consumer surplus will fall by 50 %.
  3. Consumer surplus will rise.
  4. Consumer surplus will rise by 100 %.

1.8Due to changes in the costs of production, an industry’s supply curve shifted at various times from S1 to either S2 or S3.

If a shift in supply was due to a seasonal increase in the cost of raw materials, what would have been the effect on demand?

  1. The demand curve would move from D1 to D2.
  2. The quantity demanded would move from x to w.
  3. The quantity demanded would move from x to y.
  4. The quantity demanded would remain the same at x.

1.9The graphs, drawn to the same scale, show the demand curves of four firms. The market price is $10. The price then falls to $8.

Which firm will have the largest increase in total revenue?

1.10The diagram shows a market subject to a maximum price.

What will happen if the maximum price is removed?

  1. There will be allocation by a queuing system.
  2. There will be allocation by government rationing.
  3. There will be allocation by seller’s preference.
  4. There will be allocation by the price system.

1.11The government imposes a maximum price of P2 on a product.

What will be the position after this action?

  1. an equilibrium with price P1 and quantity Q1
  2. an equilibrium with price P2 and a quantity between Q2 and Q3
  3. an oversupply in the market by Q2Q3
  4. a shortage in the market of Q2Q3

1.12In 2008, the government of Argentina imposed a tax on exports of wheat and soya beans.

What was the most likely aim of this tax?

  1. to increase agricultural output
  2. to increase exports
  3. to reduce a budget surplus
  4. to reduce the rise in domestic food prices

1.13The 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?

  1. $2.00
  2. $2.40
  3. $12.00
  4. $20.00

1.14Consumer spending decreased in the recession of 2009 – 2010. A firm tried to keep revenue high bygiving discounts to encourage demand. It measured the price elasticity of demand (PED) for itsown product and the cross elasticity of demand (XED) with its competitors’ products.

When might such promotions achieve the result the company hoped?

  1. when PED is greater than one and XED is positive
  2. when PED is less than one and XED is negative
  3. when PED is less than one and XED is positive
  4. when PED is unity and XED is negative

1.15If the income elasticity of demand for candles is +0.5, then this implies that candles are...

  1. inferior goods.
  2. luxury goods.
  3. necessities.
  4. capital goods.

1.16In a country where the demand for petrol (gas) is price-inelastic, the incidence of any increase in petrol tax will be mainly on...

  1. the company that refines the oil.
  2. the motorist who buys the petrol.
  3. the petrol station that sells the petrol.
  4. the wholesale company that stores the petrol.

1.17The table gives information about an individual’s consumption of good X.

The diagram shows the marginal utility a consumer derives from the consumption of good Y.

Assuming no change in the price of good X, by how much will the individual’s consumption ofgood Y increase if the price falls from $30 to $20?

  1. 5 units
  2. 10 units
  3. 20 units
  4. 30 units

1.18The table shows the total utility that an individual obtains from consuming different quantities of agood.

The individual’s marginal utility of money is $1 = 3 units of utility.

What is the maximum quantity of the good that the individual will buy when its price is $4?

  1. 2 units
  2. 3 units
  3. 4 units
  4. 5 units

1.19The assumption that the indifference curve approach is ordinal…

  1. allows individuals to compare their exact marginal utilities associated with the consumption of a commodity.
  2. means that one can establish how much more satisfaction is derived from a cup of tea than from a cup of hot chocolate.
  3. allows for a more precise measure of utility than is provided under the cardinal approach.
  4. means that different utility functions, associated with the consumption of two goods, can be ordered.

1.20Consider the following income-consumption curve. Point A is the initial equilibrium for a consumer on her indifference curve U1 and on HJ (the original budget line). When the consumer’s income increases the budget line shifts to KL. The new equilibrium point now lies at C.

Given the information above, we can conclude that...

  1. q1 is a normal good but q2 is an inferior good.
  2. q2 is a normal good but q1 is an inferior good.
  3. both q1 and q2 are inferior goods.
  4. both q1 and q2 are normal goods.

TOTAL SECTION A: [40]

SECTION B: DATA RESPONSE

START EACH SECTION ON A NEW SHEET OF PAPER.

QUESTION 2

Study the article below and answer the questions that follow:

The struggles of the Ivory Coast’s cocoa farmers

Cocoa prices have hit a 30-year high due to demand exceeding supply.

Production of cocoa in the Ivory Coast, which provides about a third of the world’s cocoa beans, has fallen as a result of poor weather and under-investment in the industry. The 2009 harvest was badly affected by dry weather, pests and disease.

A spokesperson at the International Cocoa Organisation commented, “We have now had three consecutive years of supply declining. With current production methods, the Ivory Coast has reached maximum output. Farmers don’t use many chemicals and pesticides. They need to invest more in chemicals and other farming techniques to increase their yields.”

The demand for cocoa has continued to grow. The fashion for more expensive, high-quality chocolate has helped to increase demand as it typically has a higher cocoa content.

A spokesperson from the Fair Trade Association commented, “The large, unpredictable fluctuations in the cocoa market make life extremely difficult for farmers.”

The Government of the Ivory Coast is planning to create greater stability in the cocoa market by regulating the industry. It is thinking of selling the cocoa itself and also fixing the price. If the government fixed the price for cocoa, the farmers would be less vulnerable to fluctuations in prices due to changes in demand and supply factors.

2.1State one reason for the increase in demand for cocoa. (2)

2.2State two reasons for the decrease in supply of cocoa. (4)

2.3Explain, using a demand and supply diagram, how the changes in the demand for and the supply of cocoa have affected the equilibrium price and equilibrium quantity in the cocoa market. (12)

2.4Explain why the large, unpredictable fluctuations in the cocoa market make life difficult for cocoa farmers. (6)

2.5Discuss whether an economy would benefit from its government intervening to regulate an industry. (16)

TOTAL SECTION B: [40]

SECTION C

ANSWER ONE QUESTION FROM THIS SECTION.

START EACH SECTION ON A NEW SHEET OF PAPER.

QUESTION 3

3.1Explain, with the use of diagrams, the different effects on the price and quantity of a product of the removal of a subsidy and the removal of an indirect tax on that product. (16)

3.2Discuss the possible benefits and drawbacks of government subsidies to agriculture. (24)

OR

QUESTION 4

4.1Explain how income elasticity of demand and cross elasticity of demand can be used to classify different types of goods. (16)

4.2Discuss the effectiveness of government use of maximum and minimum prices to help consumers and producers. (24)

OR

QUESTION 5

5.1Explain how the law of diminishing marginal utility might be used to construct a consumer’s demand curve for a product. (16)

5.2Analyse how budget lines may be used to illustrate what happens for both a normal good and an inferior good when the price of the good increases at the same time as a consumer’s income increases. (24)

TOTAL SECTION C: [40]

GRAND TOTAL: [120]

Grade 10 Economics Exam

September 2013

ANSWER SHEET

NAME: ______TEACHER: OFH / MJW / WHS

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[20 x 2 = 40]

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Grade 10 Economics: September 2013