Economics

Standard 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 why some governments provide subsidy on products like

petrol/gasoline.

b.

[10marks]

Discuss the consequences of providing such subsidy on an economy.

[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 how the Gini coefficient is derived and its significance.

b.

Discuss how despite unequal ownership of factors of production, government

may achieve its objective of more equal distribution of income.

[10marks]

[15 marks]

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