1516 Level L Economics Final Revision Sheet With Solutions T2

8/19/2019 1516 Level L Economics Final Revision Sheet With Solutions T2

1/22

1516 Level L Economics T2 Final Revision with Solutions Page 1 of 22

SABIS® Proprietary

Term 2 Final Revision Paper

Level L Economics

Solutions

Final

(Multiple Choice Question Paper)

Term 2 Material:

Chapters 5 – 8: points 5.1 – 8.4

Study all these concepts thoroughly in order to be well -prepared for the fi nal exam. Fur ther

study of all the poin ts studied in Term 2 wil l guarantee a high mark .

Revision

1. Identify advantages of price mechanismCompetit ion resul ts in suppli ers becoming more eff icient

2. Who takes risk in a free market economy?

I n a f ree market economy, taking r isks is the responsibi li ty of pr ivate entr epreneur s

3. Define a market

A place where goods and services are bought and sold.

A place where prices and quanti ties exchanged are determined .

A place where the interaction between buyers and sell ers takes place.

Consumers and suppl iers can use the internet to buy and sell their pr oducts.

4. Identify a merit of the price mechanism

I t allows for automatic all ocation of resources in an effi cient way

5. Identify results of the availability of substitutes

H igh competiti on

Reducti on in business costs

Reduction i n the product pri ce

A r eduction in the profit f or some fi rms


2/22


SABIS® Proprietary

6. Know how producers should react to achieve allocative efficiency, given a diagram

The business should produce more to achieve all ocative eff iciency

7. What is the main factor that encourages firms to keep their costs low in a market

economy?

Competition

8. Where on the PPC, a country achieves productive efficiency?

Points A, B, C and E are productively eff icient

9. What does high competition in the market economy lead to?

High competi tion in the market economy leads to lower pri ces for consumers

10. Explain what high competition results in in a market system

H igher eff iciency I ncrease in supply of goods and services

Decrease in pr ices of goods and services

I ncrease in var iety and choice for consumers

11. Why do producers supply what consumers want in a market economy?

I n order to sell more and make more prof its


3/22


SABIS® Proprietary

12. Define dynamic efficiency.

Dynamic effi ciency - refers to identif ying optimal methods of investment and

innovation to increase effi ciency

13. Explain when dynamic efficiency is achieved

Spending money on research and development

14. Explain how efficiency is rewarded in a market system

by generating higher prof its

15. Explain when allocative inefficiency occurs

When consumers’ satisfaction is very low

16. Identify the benefits from competition

Many fi rms would exist and compete for profit

Wider vari ety of goods and services for consumers

17. Explain competition in a market system

I t is high between f irms in a market system

I t leads to higher eff iciency in a market system

I t resul ts in the optimum allocation of r esources

I t exists between employees when competing f or positions

18. Identify one disadvantage of the market system

Only prof itable goods are produced

19. Identify goods that are under provided in a market system and important to the

welfare of the community.

merit good

20. Identify public goods

good or service provided by the government benefi ts everybody even if they do not payfor it

21. Identify a market failure in the free market system

Only prof itable goods are produced


4/22


SABIS® Proprietary

22. Give examples of demerit goods

Alcohol

Cigarettes

23. Give an example of public goods

Highways Street li ghts

24. Explain non excludability of public goods

I t i s not possible to stop other people from consuming i t

25. Explain why merit goods are under produced by the private sector

Because people fai l to acknowledge the value of merit goods and would have to pay a

high pri ce for their use

26. List the reasons of market failure

Lack of publ ic goods

Negative external i ties

Over supply of demerit goods

Under production of meri t goods

27. List the characteristics of public goods

Non ri val and non-excludable

28. Explain why negative externalities exist in a market economy

Because of the objective of maximi zing prof it

29. Explain why the market system results in negative externalities

Because of the prof it motive

30. Give an example of negative externality

Demeri t goods such as cigarettes are suppl ied and sold in l arge quanti ties

31. Explain the outcome of having consumers know less about the market than

suppliers

Market failur e

Asymmetri c information


5/22


SABIS® Proprietary

32. Explain why income is unequally distributed in a market system

Because some people might not own r esour ces or might be unemployed

33. Comment on the provision of public and merit goods in a market system

Merit goods are under produced in a market system

Publ ic goods are not provided at all in the market system Merit goods are overpri ced and under produced if left to market forces

The market fail s in the provision of both the merit goods and the public goods

34. Explain how abusive market power is addressed by the government

The government can assist the establ ishment of new smal l f irms

35. Identify the types of benefits and costs caused by a fertilizer that lead to high yield

but more pollution?

Private benefi ts and external costs

36. Know how external benefits are calculated

Social benefi ts minus pri vate benefi ts

37. Identify the effect of a business action on the society such as an oil spill.

Market failure in the form of negative externality

38. Define external costsThe dif ference between social cost and the private costs

39. Identify an external benefit from subsidizing health services

The population wil l become health ier

40. Explain the effect of reducing pollution on private and external costs by installing

new equipment

private costs would increase, whil e external costs would decrease.

41. Give an example of private benefits from building a mall

The profi t generated once shops are rented out in the mall

42. Give an example of private costs from building a mall

The wages paid to constructi on workers


6/22


SABIS® Proprietary

43. Identify the condition for efficient resource allocation

The last unit’s marginal costs and benefits must be equal

44. What will happen when a firm produces an output level where social benefits exceed

social cost?

The market fail s because of underproduction

45. Explain why a cost benefit analysis is made

To assess the eff iciency of a project in terms of social costs and benefi ts

46. Give examples of private costs for a softdrink company

The rent paid annually

The wages paid to employees for their effort

The cost of deli ver ing the dri nks to retail stores

The cost of the raw material s used in the production

47. Give examples of private benefits for a bakery shop

t he profit received from selling the bakery’s products

48. Explain how social benefits are calculated

The social benefi ts are the sum of private benefi ts and positive external it ies

49. Give examples of transfer payments Student grants

Old age pensions

Sickness benefi ts

Unemployment benefi ts

50. Give an example of transfer payment

Housing provided for the needy and pensions

51. Explain why producers have to choose between conserving and consumingresources.

Because of the scarci ty of resour ces

52. Explain the effect of overexploiting resources

Market failur e

H igher profit margins

Negative external i ties


7/22


SABIS® Proprietary

53. Who will benefit from conservation of resources?

Future generations

54. Identify the effect of conserving resources

Fewer negative external i ties

55. Identify a benefit from conserving resources

Negative external i ties would be low

56. Identify the factors to consider when deciding whether to conserve or consume

resources

The fu tur e demand level

The cur rent demand level

The degree of consideri ng social costs and benefi ts The need for the country to rai se finance thr ough using the resources

57. Explain the effect of exploiting resources

Overproduction and market failu re

58. Identify which resources to conserve the most

Non-renewable resour ces

59. Identify areas of government spending

Transfer payments

Support of those in need

Provision of merit goods

F inancing public sector f irms

60. Identify a factor that leads to sustainable development

The conservation of nonrenewable and scarce resour ces

61. Explain how a government decision to educate the poor will affect the rich

They wil l benefi t because in the long r un, the productive capacity of employees wil l

increase

62. Give an example of a firm that is protecting the environment

A f irm that recycles waste paper in to tissue boxes


8/22


SABIS® Proprietary

63. Give an example of government action that will lead to higher external benefits

Give subsidies to bus companies

64. Give an example of public expenditure

The subsidies given to small entrepreneur s

65. List the main characteristics of money

durability

portability

divisibility

acceptability

66. Explain the functions and characteristics of money that make it better than barter

Money is more durable

Money can be divided into smal ler notes

Money can be used as a means of deferred payment

Money is generall y an acceptable means of payment

67. Identify a characteristic of money that make it easy to break down

A cur rency is easy to break down in uni ts - divisibi li ty

68. List the Functions of money

uni t of account

store of wealth

medium of exchange

standard of deferred payment

69. Explain the function of money as a measure of value

Money can be used to easi ly compare how much each product is worth

70. Identify problems associated with barter but not money

double coincidence of wants

goods are not always divisibl e

goods not always easi ly portable

goods used are sometimes peri shable

71. Explain what deferred payment means

a promise to pay later


9/22


SABIS® Proprietary

72. What form of money is considered as legal tender

Notes and coins are legal tender

73. What factor is directly related to money as a medium of exchange

The income level that wil l be used to acqui re goods and services

74. Explain the importance of exchange

I t allows fi rms to make prof its

I t i ncreases the speciali zation of countr ies

I t al lows employees to spend their wages on the products they want

I t all ows a countr y to have access to scarce resour ces that are not avail able with in

the countr y

75. Identify the function of money related to saving

store of economic wealth or value

76. Identify a function of money related to lending and borrowing

Money as a standard of deferr ed payment

77. Identify the functions of money

To pay in installments

To be reli ably saved and retr ieved

To be able to acqui re goods and services

To compare values of goods and services

78. Explain why chocolates cannot be used as money when compared to coins

They are not durable

79. Explain why bank notes are used as money

They are general ly accepted

80. Describe the characteristics of commercial banks

They receive deposits

They are prof it -making organizations

They can provide loans to consumers and businesses

They are pr ivately owned banks that can operate accounts for businesses


10/22


SABIS® Proprietary

81. State the functions of commercial banks

Accepting deposits

Giving loans to customers

Receiving payments from consumers

Enabli ng customers to receive payments

82. Explain current accounts

They are provided by commercial banks

L itt le or no interest is paid to the account holder

Customer has immediate and di rect access to his money

These accounts are normal ly used for day-to-day transactions

83. Describe deposit accounts

They are used as a form of saving

They are provided by commercial banks

They pay interest on the money deposited

A noti ce of withdrawal is needed in advance

84. Explain monetary policy and why it is implemented.

I t i s a means by which the government af fects spending th rough the interest r ate and

money supply

85. Explain the term "lender of last resort"

I t all ows commercial banks to borrow fr om the centr al bank when they do not have

enough cash

86. List some services provided by commercial banks

Di rect debit

Di rect credit

Banker orders

Safe deposit boxes

87. Types of loans offered by banks Overdrafts

Credit cards

Loan accounts


11/22


SABIS® Proprietary

88. What are the functions of the central bank

Control of the note issue

Banker to the government

Management of national debt

Bankers to the commercial banks

89. What is meant by PSNCR?

Publi c sector Netcash requirement

The excess of government spending over its revenue

90. Which function is performed by a central bank but not a commercial bank?

Controll ing the money supply

91. Identify a function of the central bank

To issue new cur rency

92. Identify who controls monetary policy and why?

the Centr al Bank to inf luence the in terest rate and money supply

93. What is a cheque?

orders to a banker to transfer f unds from the acco unt of the “payer” to the account ofthe “payee”

94. An overdraft can be described as?

this is a short- term loan facil ity

95. List the functions of central banks

I ssue of notes

Managing national debt

Acting as the bankers’ bank

Act as the government’s bank

96. Identify forms of borrowing

Overdrafts

Bank loans

97. Identify a common function between central and commercial banks

Deal in foreign curr encies


12/22


SABIS® Proprietary

98. What are the two major accounts offered by commercial banks?

Cur rent accounts and deposit accounts

99. Identify companies that have their shares traded on the stock exchange

Publi c limited companies

100. Identify functions of stock exchange markets

To refl ect the economic situation

To provide protection to buyers of shares

To provide a market for second-hand securit ies

To create investment opportuni ties for small investors

101. Identify a factor that result in higher share prices

when companies’ profit increases

102. Identify the role of the stock broker

Trade with shares on the stock exchange market

103. Identify the function of the stock exchange

A place to buy and sel l shares

104. Explain a case when shares are more demandedThe company issues a limi ted number of shares

105. Explain why retained profit is a favorable source of finance

Because it can be reinvested in the company without the need to pay an interest

106. Calculate the yield

The current market price of a share is $50 and the dividend paid per share is $4.

The yield is therefore equal to:

8%

107. Identify sources of investment finance

I ssui ng shares

Retained profi ts

Borrowing fr om banks


13/22


SABIS® Proprietary

108. Explain the effect of higher profits on share price

Higher share price

109. Explain dividends

They are payments to shareholders out of annual profi t

110. Identify advantages of the division of labor

Productivity wil l increase

Factors of production may become cheaper

People become more ski ll ed at what they are doing

Special ized machinery can be employed in large-scale producti on

111. Give an example of the size of the market as a limitation of the division of labor

A f irm producing quali ty products but in a small amounts.

112. Suggest a production process that does not require division of labor

Writi ng a novel

113. Identify features of division of labor

Speciali zation of l abor can be implemented in the banking industry.

By dividing up the dif ferent jobs and making each worker a speciali st in one of

those, outpu t is increased.

114. Identify advantages of specialization in a water bottling plant

I ncreased output of bottles of water

115. Identify long-term benefits of specialization

Productivity will increase

116. Identify a drawback of division of labor

More interdependence

117. Define division of labor

I f the production process is divided in to stages and each stage is done by a dif ferent

worker

118. Identify a drawback of division of labor

As the divi sion of labour increases in businesses, in terdependence between workers

increases, affecting output negatively


14/22


SABIS® Proprietary

119. Give examples where division of labor cannot be implemented

Making hand-made carpets

Hairdressing

Writi ng a novel

120. List all the advantages of division of labor

lower need for tr aining

higher output due to high added value

the development of improved abil ity i n one task th rough greater practice

an increase in the productivity of workers since they spend less time in completing

their task

121. Identify the commodities/industries where division of labour would be most

extensively applied Car manufacturi ng

H igh-tech manufacturi ng

122. Identify disadvantages of specialization in jobs

Capital equipment can be substi tuted for labor

123. Identify the factor that influences labor specialization

The size of the market

124. Describe the features of specialization

I t helps the business add value

I t r esul ts in high i nterdependence between workers

I t resul ts in h igher production and higher expertise at doing one parti cular task

I t might lead to higher production costs if employees are bored from repetit ive work

125. Explain the backward-bending supply curve

indicates that at a hi gher wage, people supply less labor

126. Identify factors that determine the supply of labor

Skills

Abilities

The qualif ications required

The level of danger involved


15/22


SABIS® Proprietary

127. Give an example that explains backward-bending supply curve

A doctor’s salary increased from $3,500 to $4,000 and therefore, he started to work lesshours and instead he started to enj oy more leisur e time.

128. Explain what is meant by “derived demand”

The demand for labor depends on the demand for the product i t produces

129. Explain the effect of increased sales of softdrinks on wages of workers in softdrink

industry

An increase in the wages of workers in soft dr ink industry

130. Give examples of professions that has a back-ward bending supply curve

medical consul tants

131. Identify a factor that causes an extension of the supply of farmers

An increase in the wages paid to farmers

132. Identify factors that could lead to higher wages

I f a job requi res special talents, quali fi cations and exper ience

133. Define equilibrium wage

I t is the wage whi ch equates the demand and supply of labor

134. Identify arguments for setting a minimum wage

I t increases the level of income of low wage workers.

Safety net for workers against exploi tation fr om pri vate employers.

135. Explain the meaning of inelastic supply of labor

An increase in wage rate wil l lead to a relati vely small i ncrease in the number of

workers employed

136. Give an example of income

The amount r eceived for r enti ng out an apartment i s an income

137. Know why doctors have higher wages than nurses

Doctor s are scarcer than nur ses


16/22


SABIS® Proprietary

138. Identify the effect of setting the minimum wage above equilibrium

A decrease in the employment rate

139. What is the difference between piece rate and time rate wages?

A piece rate wage can act as an i ncentive to workers

A piece rate wage can lead to a poor quali ty of goods Time rate wages are in effect when there is no l ink between eff ort and pay

140. Give an example of a professional who has a high wage

A hospital doctor

141. Know why younger workers are paid less than older workers

Older workers have more experience

142. Identify factors that affect the elasticity of labor supply

The skil ls and qualif ication required in occupations

143. Identify factors that influence the elasticity of demand for labor

The expansion of the industry

The elasticity of demand f or the good it produces

The percentage of labor cost in the business total costs

The ease with wh ich labor can be substitute by other f actors

144. Give two factors that affect wages

I f the supply of labor decreases, wages wi l l r ise.

I f a factory becomes more capital intensive, its labor costs wil l f all in the long run.

145. Identify effects of setting a minimum wage above equilibrium

An excess supply of l abor

146. Identify a factor that limits wage increases in an industry

the replacement of workers with robots

147. Explain why road sweepers are relatively poorly paid

the work does not require high ski ll s

148. Identify a factor that results in a higher wage

A high need for special skil ls


17/22


SABIS® Proprietary

149. Explain the features of national minimum wage

I t can be used as a policy to reduce poverty and inequal ity

I t creates an excess of supply of labor over the demand for labor

I t usually resul ts in increasing the standard of li ving of those employed

I t refers to the lowest income that employers are obl iged to pay to employees

150. Identify a function of a trade union

To increase pay for their workers and represent them in the workplace

151. Give an example of industrial unions

The national union of mi neworkers

152. Identify the types of trade unions

Craf t unions

General un ions

I ndustri al uni ons

Whi te coll ar unions

153. Define collective bargaining

I t is when the representatives of the workers negotiate with the representative of

employers in an attempt to reach an agreement on wages

154. Identify functions of a trade union Collective bargain ing

Maintain ing job securi ty

Negotiating conditi ons of service

Improving the working conditi ons of workers

155. Identify benefits of trade union membership

They receive hi gher wages

They receive better pay and benefi ts

They have a stronger bargain ing power in negotiations

They are protected against unf air work practices and conditi ons

156. Give an example when a trade union is powerful in negotiation

when the trade union has many members of ski ll ed workers


18/22


SABIS® Proprietary

157. When is a strike likely to damage a firm?

A stri ke is likely to damage a fi rm the most when the str ike involves high percent of the

workers

158. Identify when a trade union bargains for higher wages

When the profi ts of f irms in the industry has increased

159. Identify non-wage factors for worker to accept another job.

Shor ter hours

160. Explain a factor that makes an individual start seeking a new job

when he becomes more occupational ly and geographi cally mobile

161. Identify a drawback of overtime payI t can resul t in lower productivity

162. Define bonus

I t is paid on top of a wage for workers who f in ish their tasks beforehand

163. Explain how the government affects decision about jobs

By providing unemployment benefi ts

By changing the national minimum wage

By promoting health and safety regulations By setting laws to regulate coll ective bargain ing

164. Explain why an employee changes his job for a lower paid job

The job might be part- time

There are no other j ob vacancies available

The employee might be close to his retir ement age

The job might be temporary unti l a better job is found later

165. Identify a factor that makes an individual more likely to accept a jobAn individual is more li kely to accept a job when requi res work ing for few hours on a

weekly basis

166. Identify the effect of high job satisfaction

More employees wil li ng to do the job


19/22


SABIS® Proprietary

167. Give an example of an occupation choice with the government

Work as an assistant dir ector i n a nationali zed company

168. Explain why an individual accepts same pay job in another company

if the new job is in a fast growing multi national company

169. Justify why an individual prefer to work for the public sector rather than the

private sector

An i ndividual prefer to work f or the publi c sector rather than the pri vate sector

because jobs in the publ ic sector pr ovide more secur i ty than those in the private sector

170. Give reason why individuals work in public sector for low pay

Greater job secur ity and pension

171. Identify what income after tax is called

disposable income

172. Explain why a central bank attempts to increase the interest rate

Encourage individuals to save

173. Identify factors that affect consumption

The in terest rate

The conf idence level The distri bution of income

The disposable income level

174. What is interest rate?

I t is a common factor that af fects savings, borrowings and consumption

175. Why would a person consider borrowing?

To meet the additi onal expendi tur e

176. Identify the main factor that affects consumption

The disposable income

177. Identify a factor that increases consumption but not savings.

Spending would increase but not savings when more credit facil it ies are provided


20/22


SABIS® Proprietary

178. Identify a motive for saving

Lower i ncome tax

179. Identify a reason for taking a long-term loan

To pur chase residential property

180. Calculate disposable income

Ron’s gross income is $20,000. Income tax is 12%.

What is Ron’s disposable income?

$17,600

181. Define unearned income

in come generated from sour ces that are unrelated to employment

182. Define disposable income

The income that a househol d has after taxes have been deducted

183. Analyze data to determine saving patterns between different age groups

Age

group15-30 31-40 41-50 51-60 60+

%

saved-33% -5% 19% 30% -22%

The 51-60 age group saves the hi ghest proport ion of income

184. Explain the effect of a decrease in interest rates on savings and spendings

A decrease in i nterest rates resul ts in an increase in spendi ng and a decrease in saving.

185. Give an example to calculate savings

Tala has a gross income of $800 and a disposable income of $700. She spends $300.

She is saving $400

186. Compare the spending and saving pattern between high income and low incomeearners

Low income earners spend more and save less proportionall y than high income

earners.

187. Identify a factor that increases family spending on food.

The number of chil dren in the famil y increases


21/22


SABIS® Proprietary

188. Identify patterns of borrowing,saving, and spending for a retired person

High spending, low saving, low borr owing

189. Explain market failure

When the output is not optimal or the all ocation of r esources is not eff icient

190. Describe public goods

I t is mainl y financed by taxes

I t is provided by the public sector

I t is not provided by the fr ee market

I t is an example of market fai lu re as it l acks in a free market

191. Identify functions of central banks

Regulating the banki ng sector

Acting as the government' s bank

Implementing the government' s monetary poli cy

Holding the offi cial stocks of foreign cur rency reserves

192. Identify factors that affect the price of shares

Government policy

Economic situations

Changes in interest rates

Rumours and speculati on

193. Explain specialization

I t involves division of labor

I t resul ts in more eff icient production

I t can be appli ed to businesses as well as to workers

I t is used to describe workers who perform a parti cular task and master it

194. State and explain factors affecting the working population

The reti rement age

Any change in the school-leaving age

The number of women enteri ng the workforce

The number of students pursuing fu ll -time education

195. Explain how an increase in wages affect the labor demand and supply curves

Demand curve wil l have a contr action; supply curve wil l have an extension


22/22


196. Explain when the labor market is in equilibrium

The number of hour s worked by employees is equal to the number of hours demanded

by employers

197. Describe trade unions

Their power depends on the number of members they include They negotiate contr acts as a group instead of at an individual level

They usuall y seek to secure economic impr ovements for their members

They protect members if there is an argument between wor kers and employers

198. List the factors that affect an individual' s decision to work

The type of work

The wage level r eceived

The bonus and holi days received

The location and type of the business

199. Identify factors that is likely lead to more borrowings

More banks are establ ished

Restr icti ons on loans by banks are reduced

He got mar r ied and needs to buy a new house

There are chances of r eceiving a raise in the salary next year

200. Explain the effect of an increase in disposable income on savings and expenditures

An increase in both savings and expenditures

1516 Level L Economics Final Revision Sheet With Solutions T2

Documents

Transcript of 1516 Level L Economics Final Revision Sheet With Solutions T2