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Revision Paper 03

General Certificate of Education (A/Level) Examination 2015

ECONOMICS-PART 02
Time: Three Hours
Answer five questions only selecting two questions from sub section A and two questions from sub
section B

SUB SECTION A
1.
1) What are the compulsory questions encountered by the people when they try to fulfill
their unlimited wants?
(03 Marks)
2) The future generation will lose their opportunities to fulfill their wants,if present
generation utilize resources indiscriminately Explain
(03 Marks)
3) The relative price of goods and services is based to overcome basic economic
problems optimally in the market economy
i. What is meant by relative price?
ii. What is the relationship between relative price and overcoming basic
economic problems?
(04 Marks)
4) Illustrate the following events on a production possibility curve
i. A country can consume a bundle of goods beyond the PPC due to comparative
advantage theory
ii. The relative importance of agricultural sector declines and the relative
importance of industrial sector increases when there is an economic growth
(02*2 Marks)
5) What is meant by gross investment and net investment? Explain the relationship
between investment and production possibility curve.
(04 Marks)
6) Explain the law of opportunity cost effects the slope of PPC.
(02 Marks)
2. You are given the following demand and supply functions in a competitive market
Qdx=120-10P
Qsx=40+10P
1) Draw the demand and supply curves using the above equations and show the
equilibrium price and quantity
(04 Marks)
2) Estimate the producer surplus at equilibrium.
(02 Marks)
3) If government levies Rs.20 tax on this good estimate the producer surplus after tax.
(02 Marks)
4) Compute the producers gross revenue and net revenue after tax. (02 Marks)
5) The government has decided to implement a maximum price ceiling for rice, as the
domestic price rice has been very high.
a. According to economic concepts show this situation with a graph(03 Marks)
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b. What are the economic consequences of the decision


6) What are the determinants of elasticity of supply?

(04 Marks)
(03 Marks)

3.
1)
2)
3)
4)

Why opportunity cost is not financial cost?


(03 Marks)
Explain why economic systems are different and diverse?
(03 Marks)
Distinguish between factor market and product market?
(02 Marks)
Explain the following situations in PPC
a. Increase in production of a product by a static economy which doesnt
experience economic growth
b. Use of a new technique by industry X
c. Destruction of economic infrastructure due to war
d. Ability of an economy to consume a combination of products outside the PPC
of that country due to international trade
e. Deactivation of labor oil refinement industry due to a certain reasons
(05 Marks)
5) What are the methods available to attain an economic growth by an economy without
limiting the current consumption?
(03Marks)
6) What are the underlying assumptions in drawing PPC as an economic model?
(04 Marks)
4.
1) Explain the following concepts
i. Economic goods and Free goods
ii. Renewable and non-renewable resources
iii. Specialization and division of labor
iv. Fixed capital and circulatory capital
2)
3)
4)
5)
6)

(02*4Marks)
What is meant by economic resources?
(02Marks)
In economics there is no free lunch. What do you meant by this? (03Marks)
What are the conditions required to productive efficiency and allocative efficiency?
(03Marks)
In some situations free goods become economic goods. Elaborate this? (03Marks)
Explain the opportunity cost of entrepreneurship and how challenges and objectives
of entrepreneurship operates in the economy
(04Marks)

5.
1) Demand and supply functions for a certain good are given below.
PD=100-1/5Q
PS=25+10Q
a) Calculate the equilibrium price and quantity by solving these equations.
(03Marks)
b) Calculate the consumer surplus and producer surplus at equilibrium? (04Marks)
2) State three situations which decrease the equilibrium price with the changes in
demand and supply?
(03Marks)
3) The supply determinants are the factors that change quantity supply and supply
Explain this statement.
(04Marks)
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4) The government decides to impose an import duty of Rs.10 per kg of imported rice.
What changes could occur in the Sri Lankan rice market due to such decision.
(04 Marks)
5) What is meant by static equilibrium? (02Marks)

SUB SECTION B
6.
1) Elaborate the relationship between short run product curves and cost curves with
relevant diagram.
(04Marks)
2) Distinguish between Accounting costs and opportunity cost of production? (04Marks)
3) the loss of continuing the business is less than the shutting down a business, when
total revenue exceeds the total variable cost of firm in a perfect competition Do you
agree with this statement? Explain using an appropriate diagram. (05Marks)
4)

The diagram depicts the nature of average cost curve in the long run. Give reasons to
the nature of curves when move from point a to point b
(03Marks)
5) How is the oligopoly market differ from monopoly
(04Marks)
7.
1) Why do the cost curves take U shape both in the short run and long run? (04Marks)
2) Difference between accounting profit and economic profit arises due to implicit
cost Explain (04Marks)
3) the Firms supply curve in perfect competitive firm is same both in the long run and
short run explain using appropriate diagrams(04Marks)
4) Name the types of market structure described below.
i. The firm faces a demand curve for which it cannot influence at all
ii. Consumers have no choice but to pay the price charged
iii. The firm do not change the price more frequently
iv. Very small firms have little market power.
(04Marks)
5) Both allocative efficiency and productive efficiency can be achieved only when the
perfect competitive industry is in equilibrium in the long run Explain(04Marks)
8.
1) Explain the supply curve of a firm in perfect competition using graphs. (04Marks)
2) What do you meant by law of diminishing returns? What can you implied by the
shape of short run cost curve through this theory? (04Marks)
3) Explain the concepts of monopoly and natural monopoly(02Marks)
4) Information related to the costs faced by the perfect competitive firm is given below.
Output(Units)Q
0 1 2 3 4 5 6 7
Marginal Cost(MC) 0 20 15 10 15 20 30 40
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Furthermore the firm has incurred Rs.12 average fixed cost when 5 units produced.
According to the above information prepare schedule including the Total Fixed
Cost(TFC), Total Variable Cost(TVC), Total Cost(TC) and Average Variable
Cost(AVC). (06 Marks)
5) Why do you say perfect competitive firm as a price take? Explain.. (04Marks)
9.
1) List four main non price factors that determine the consumer demand of a good.
(03Marks)
2) It is said that there is a high instability of the markets with very low coefficient of
demand and supply elasticity. Explain this situation using appropriate
diagrams.(04Marks)
3) Suppose the following equation describe the market demand and supply function of
an industrial good in competitive market.
Qd=30-2P
Qs=-2+2P
i. Solve the equations to determine the equilibrium price and quantity(02Marks)
ii. Calculate the consumer surplus and producer surplus at equilibrium?
(04Marks)
4) Suppose the new government introduces a minimum price of Rs.10 per unit without
the implementing any price support system.
i. Estimate the excess quantity. (02Marks)
ii. If the above excess supply quantity purchase by the government estimate the
total cost to be incurred. (02Marks)
iii. If the price support system is introduced instead of the above estimate the total
cost to be incurred by the government. (03Marks)
10.
1) Distinguish between economies of scale and diseconomies of scale? (04Marks)
2) Consider the data given below for a hypothetical prefect competitive firm in the short
run.
Production
=200bags at Rs.250 per bag
Total Fixed Cost
= Rs.20000
Total Variable Cost =Rs.40000
Marginal Cost
= Rs.250
What are the various methods in which the firm tries to maximize their profits?
(02Marks)
3) List the components of explicit cost(04Marks)
4) What is meant by Economic profit by a perfectly competitive firm.? Explain this
situation using appropriate diagrams. (05Marks)
5) Identify and indicate the relevant market structure for the following
i. A satellite service station
ii. A firm producing soups
iii. A owner of rice processing factory
iv. A commercial bank
v. A beauty saloon
(1*5Marks)
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