Economics

Higher Level
Model Paper 1 Paper 1
Monday, 4 May, 2015 (afternoon)
1 hour 30 minutes
___________________________________________________________________________
Instructions to candidates:
Use of calculator is not allowed
You will be given 5 minutes of reading time
Diagrams if used, should be fully labelled diagrams
Answer any 1 question form Section A
Answer any 1 question form section B

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Section A
Answer any one question form this section
Microeconomics
1.

a.

Explain why choice results in an opportunity cost.

[10marks]

b.

Price mechanism is always the best way of allocating resources. Comment

[15 marks]

2.

a.

Explain using example that when in an economic transaction buyer possess

more information than seller , market failure occurs.

b.

[10marks]

Evaluate any two measures that governmnet may take to correct market
failure occurred due to incomplete information with the seller.

[15 marks]

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Section B
Answer any one question form this section
Macroeconomics
3.

a.

Examine why, in the new classical approach, despite short-term fluctuations

in output, the economy has inbuilt tendency to return to the full employment
level of output in the long run.

b.

[10marks]

Discuss why, increases in aggregate demand need not be inflationary.

[15 marks]

4.

a.

Explain that the natural rate of unemployment is the rate of unemployment

that exists when the economy is producing at the full employment level of
output.

b.

[10marks]

Evaluate governmnet policies to deal with the causes of the natural rate of
unemployment.

[15 marks]

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