TEST CODE 01216032

FORM TP 2013063 MAY/JUNE 2013

CARIBBEAN E XAM I NAT I O N S COUNCIL

CARIBBEAN SECONDARY EDUCATION CERTIFICATE®

EXAMINATION

ECONOMICS

Paper 032 – General Proficiency

1 hour 30 minutes

READ THE FOLLOWING INSTRUCTIONS CAREFULLY.

1. You MUST answer ALL the questions on this paper.

2. Use this answer booklet to respond to the questions. For EACH question, write
your answer in the space provided.

3. If you need additional paper to write your answers, request it from the supervisor.

4. Attach any additional paper that you use securely to this answer booklet.

5. Return this answer booklet at the end of the examination.

6 Silent, electronic calculators may be used, but ALL necessary working should be
clearly shown.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

Copyright © 2011 Caribbean Examinations Council.

All rights reserved.

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Read the following passage and answer the questions that follow.

Market Structure and the Economy

The only power company on the island of Taibu, the Taibu Power Company (TPC) raised electricity rates
from US$0.20 per kilowatt hour in 2009 to US$0.40 per kilowatt hour in 2010. Over the same period,
monthly demand changed from 250,000 kilowatts to 200,000 kilowatts.

The Consumer Protection Agency called the price change in electricity rates unfair since the costs to
generate power remained constant. Further, the Private Sector Association indicated that the rate change
would negatively affect businesses by making production more costly and might force some businesses
to cease operations. The Association argued that one way of reducing the influence of the TPC was to
encourage investment into the power sector, and thus, competition.

However, the TPC responded by stating, “Do not blame us, blame the OPEC cartel and the forces of supply
and demand.” In the meantime, consumers continued to pay the rate increases.

1. (a) Define the term ‘demand’.

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(2 marks)

(b) Define the term ‘supply’.

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(2 marks)

(c) State TWO characteristics of a ‘cartel’.

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(2 marks)

(d) With reference to the passage, how is the change in the electricity rates likely to affect
businesses?

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(2 marks)

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(e) According to the Private Sector Association, what measure is necessary to reduce the
influence of the Taibu Power Company (TPC)?

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(2 marks)

2. From the information provided in the passage, the percentage change in electricity rate (price) is
100 and the percentage change in the quantity of electricity demanded is 20.

(a) Calculate the price elasticity of demand for electricity.

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(2 marks)

(b) Interpret the results obtained in (a) above.

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(2 marks)

3. Describe THREE measures that consumers can take to reduce the impact of the electricity rate
change.

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(6 marks)

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4. (a) Explain TWO effects on households of Taibu as a result of the electricity rate change.

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(6 marks)

(b) Describe TWO measures, other than those mentioned in the passage, that the government
of Taibu can pursue to control the behaviour of the TPC.

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(4 marks)

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5. Using examples, discuss TWO reasons why competition may be better for the economy than the
market structure in which the TPC operates.

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(10 marks)

END OF TEST

IF YOU FINISH BEFORE TIME IS CALLED, CHECK YOUR WORK ON THIS TEST.

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