first trial exam-ib2

8/18/2019 First Trial Exam-IB2

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Good Shepherd International

School

First Trial Examination, December 2015

Economics-Paper

Economics Candidate No-

Higher level

Paper 3

1 hour

Instructions to candidates

• Do not open this examination paper until instructed to do so.

• You are permitted access to a calculator for this paper.

• Do not open this examination paper until instructed to do so.

• Answer two questions in the boxes provided.

• Unless otherwise stated in the question, all numerical answers must be given exactly

or correct to two decimal places.

• You must show all your woring.

• !he maximum mar for this examination paper is "#$ mars%.


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Answer two questions. &ach question is worth [25 marks. 'rite your answers in the boxes

provided

1 A business man from (ndia decides to buy coal from Australia for his iron and steel

company. !he current maret exchange rate is AU) 1.$$*(+ -./$ where AU) is the

Australian dollar and (+ is (ndian rupees. Assume that the businessman placed a

order for 1# metric tonne of blac coal and 0# metric tonne of lignite coal. !he price

of blac coal is AU) /#. per metric tonne and lignite coal is AU) /1.- per metric

tonne.

2a3 4alculate the amount of expenditure by (ndian businessman on imported coal inAustralian dollar. "5%

2b3 4alculate the total expenses on coal in (ndian s. "5%


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+ext time while placing the order the (ndian business man discovers that the Australian

dollar has appreciated against the (ndian rupees by #.1# 6.

2c3 4alculate the new exchange rate. "5%

2d3 4alculate the increase in Australian dollar needed to pay for coal import if the

amounts of coal order remain same for the next year. "0%

2e3 7etch on the following axes a fully8labelled diagram illustrating the appreciation of

the Australian dollar. "5%


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2f3 &xplain two reasons for which the Australian dollar may have appreciated against

(ndian rupees. "-%

2g3 7tate one action the reserve ban of Australia could tae to prevent a further

appreciation of the Australian dollar. "1%


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2h3 Australia is suffering from a current account deficit of ) 1$$ and wishes to try to

reduce the deficit through devaluing its currency by 5$6. &conomists estimate thatthe 9&D for the country:s imports is $./ while the 9&D for the country:s exports is

$.0. 'ill the devaluation have its intended effect; &xplain your answer with help of

numerical calculation. "0%

!he prices of (ndia:s imports and exports are given in the table below

barrel

(+ 5#$ (+ 1$$

4oal2(mport3 (+ 1>g (+1.1$ (+ $.?$


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7teel 2&xport3 (+5#$>tonne

(+ 5$$ (+ 0$$

@achinery2&xport3 (+1$$>piece

(+ 1$$ (+ 1$#

2i3 4onsidering 5$11 as a base year calculate the price index for exports and imports for

each year. 'rite the values in the above table. "-%

23 4alculate the terms of trade of (ndia from 5$11 to 5$15. "5%

5 !he government of 4ountry A has decided to implement an expansionary fiscal

policy. Direct income tax will be reduced in 5$1/ as illustrated in the following table!able 1

(ncome2) per year3

ate of incometax25$1#3

ate of incometax 25$1/3

181$,$$$ #6 $6

1$,$$185#,$$$ 5$6 1$6

5#,$$18-$,$$$ 0$6 5$6


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-$,$$1 and over -$6 0$6

2i3 4alculate the income tax paid in 5$1# by an individual earning )#$$$ per year.

"5%

2ii3 4alculate the average rate of tax paid by the individual in 5$1/ 2assuming the

individual:s income remains the same as in 5$1#3. "0%

2iii3 &xplain why a decrease in the rate of direct tax would affect the value of the

multiplier in country A. "5%


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(n 4ountry A an indirect tax of 5$6 is imposed on all goods and services purchased.

7ome economists have argued that reducing the indirect tax would be preferable to

reducing income tax, due to the liely effects on the distribution of income.

2iv3 (n the following box, setch and label a BorenC curve for country A to show the

liely effects on the distribution of income if the rate of indirect tax is reduced. "5%

2v3 'ith reference to your diagram in question 2iv3, explain how the


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2vi3 &xplain how the increase in the rates of income tax in 5$1/ may affect equity in

the distribution of income in !hailand. "-%

!he


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!able below sets out data for the 7outh orean economy for the year 5$$ and 5$1$.

!hese data are used to calculate the 7outh orean


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2ix3 Using the multiplier calculated in 2viii3, calculate the change in 7outh orea:s real


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2b3 Using the data in the table below, determine the marginal product for the different

quantities of labour employed and complete the marginal product column in the table. "5%

Babour input !otal product @arginal product

$ $ 8

1 #

5 15

0 1/

- 1?

# 1

2c3 Using the data in the table in question 2b3, draw a graph to show the relationship

between marginal product and labour input. !he axes and curve must be labelled. "5%


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2d3 =n the graph above identify the point where diminishing returns set in. "1%

2e3 Using the data in the table, determine the marginal cost and average total cost figures

for the different quantities of total product and complete the marginal cost and

average cost columns in the table. "-%


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Babour (nput !otal product2units3

!otal cost2inU7D3

@arginalcost2in U7D3

Average totalcost2in U7D3

$ $ #/

1 # ?$

5 15 1$-

0 1/ 15?

- 1? 1#5

# 1 1/

2d3 &xplain one possible source of economies of scale that this firm might benefit

from if it increases the scale of production. "5%

!he following table shows data for price elasticity of demand and income elasticity of

demand for four products for (van in Finland

Cheese Co!!ee "ennis #all $tor% #ook

Price elasticit% o!

demand

8-.# 8$.5# 8$.$/ 8#

Income elasticit%

o! demand

8$.51 $.#/ 1.# 1$

2f3 =utline one reason why price elasticity demand for tennis ball is low compare to story

boo; "5%


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2g3 =utline the reason why the income elasticity of demand for 4heese is negative. "5%

2h3 !hough the (ncome elasticity of demand for both tennis ball and story boo is

positive. Describe the reason behind higher income elasticity of demand for story

boo than tennis ball. "5%

2i3 4alculate the percentage change in quantity demanded for coffee if the price of coffee

rises by 1$6. "5%


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23 'hat ind of products has Gero cross elasticity of demand; "1%

23 !he cross elasticity of demand for Baptop and wireless internet connection was

estimated to be equal to 8$.$0. &xplain the possible impact that an increase in laptop

prices might have on the demand for wireless internet connection. "0%

first trial exam-ib2

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