THE PUBLIC ACCOUNTS EXAMINATION COUNCIL OF MALAWI 2012 EXAMINATIONS ACCOUNTING TECHNICIAN PROGRAMME PAPER TC 5: ECONOMICS

Transcription

1 EXAMINATION NO. THE PUBLIC ACCOUNTS EXAMINATION COUNCIL OF MALAWI 2012 EXAMINATIONS ACCOUNTING TECHNICIAN PROGRAMME PAPER TC 5: ECONOMICS TUESDAY 4 DECEMBER 2012 TIME ALLOWED: 3 HOURS 2.00 PM PM INSTRUCTIONS 1. You are allowed 15 minutes reading time before the examination begins during which you should read the question paper and, if you wish, make annotations on the question paper. However, you are not allowed, under any circumstances, to open the answer book and start writing or use your calculator during this reading time. 2. Number of questions on paper The paper is divided into sections A and B. 4. FIVE questions ONLY to be answered; TWO from Section A and THREE from Section B. 5. Each question carries 20 marks. 6. Begin each answer on a fresh page. 7. DO NOT OPEN THIS PAPER UNTIL YOU ARE INSTRUCTED BY THE INVIGILATOR. This question paper contains 6 pages. This question paper must not be removed from the examination hall.

2 1 SECTION A Answer two questions only from this section. 1. Kutchena Salon is one of many beauty shops operating in Blantyre City Centre. The Salon has been operating for more than twelve years, offering slightly differentiated cosmetic services to its clientele. Most customers have described Kutchena Salon as, Medium, neither big nor small. (a) State the market structure that Kutchena Salon belongs to. 2 Marks Mention two long-run characteristics of firms operating in the market structure in (a) above. With the aid of a clearly labelled diagram, explain the likely output and pricing levels for Kutchena Salon. 10 Marks Mention one advantage and one disadvantage to consumers of firms operating in a market structure like Kutchena Salon. Continued/...

3 2 2. Kampepuza, in Ntcheu district, is a small town of about 400 households whose staple food is maize. Between January and February 2012, the price of maize increased from MK2000 to MK3000 per 50kg bag. In return, quantity demanded decreased from 550 bags to 450 bags during that period. (a) Calculate the arc price elasticity of demand for maize at Kampepuza between January and February Marks From the diagram below: Price A B C Quantity (i) (ii) Which demand curve best describes your answer in (a) above? 2 Marks If there was one maize trader at Kampepuza and assuming that the supply curve is positively sloped, which curve would be more desirable in the case of a decrease in price of maize? Please explain. 3 Marks Name and explain four factors that would determine the price elasticity of supply of a product. Define the term cross-price elasticity of demand. 2 Marks

4 3 3. (a) Explain clearly any two economic systems that you know. Mention the two advantages and two disadvantages of a free market economy. To what extent could it be argued that the planned economy is better than the market mechanism as a means of allocating resources? Explain four points. State the difference between a public good and a merit good, and give an example of each. 4. Carefully study the table below. Units of output Units of output Total cost Total cost (a) From the table above, derive: (i) average cost (ii) marginal cost Without necessarily plotting, sketch graphs of the average cost, marginal cost and total cost, explaining the relationship between marginal cost and average cost when the latter is at its minimum. 12 Marks

5 4 SECTION B Answer three questions only from this section. 5. (a) Define the term aggregate demand. 2 Marks Write and explain an equation that represents the components of an aggregate demand. 5 Marks For each of the components of aggregate demand name and explain one factor that may cause it to change. 9 Marks (i) Define the term GNP. 2 Marks (ii) State the difference between GNP and NNP. 2 Marks 6. Promotion of closer trade ties amongst member countries is one of the key objectives of the Common Market for Eastern and Southern Africa (COMESA). Of late there have been suggestions to move towards free trade in the COMESA region. (a) Give three reasons that may necessitate trade amongst countries in the COMESA region. 3 Marks State four advantages that might arise from free trade amongst the COMESA member states. In spite of the calls for free trade, state four reasons for Malawi, like many other countries, to still pursue protectionist measures. Mention five disadvantages of protectionism. 5 Marks

6 5 7. (a) State four factors that can influence the total volume of desired investment in an economy like that of Malawi. Research has shown that in Malawi, the domestic marginal propensity to save (MPS) is very low hence low private investment. Assume that the MPS is 10 percent, then: (i) Define the term marginal propensity to save. 2 Marks (ii) Determine the size of the multiplier. 2 Marks (iii) If all income accrued by Malawians is spent only on consumption and saving, by how much would the national income increase if household income went up by MK300? 2 Marks Mention two factors that determine the size of the multiplier. 2 Marks State four main factors that tend to limit the importance of the multiplier as far as economic management is concerned. 8. Tobacco accounts for nearly 65 percent of Malawi s agricultural exports. However, the growing of this cash crop is solely rain-fed. This can lead to unemployment in the tobacco industry. (a) Define the term unemployment. 2 Marks Name and explain the type of unemployment that is being referred to in the Malawi s tobacco industry. 6 Marks State two negative effects of unemployment. (e) State the link between technological improvement such as usage of tractors in the tobacco industry and structural unemployment. State two ways in which government can reduce cyclical unemployment. (TOTAL : 20 MARKS)

7 6 9. (a) Define the term barter trade. 2 Marks Mention five disadvantages of barter trade. 5 Marks State the difference between narrow definition of money and broad definition of money. What three assumptions must be made if the quantity theory of money is to become an explanation of price inflation? 9 Marks E N D