EXAMINATION NO.

____________________

2014 EXAMINATIONS
ACCOUNTING TECHNICIAN PROGRAMME
PAPER TC5: ECONOMICS
THURSDAY 4 DECEMBER 2014

TIME ALLOWED : 3 HOURS

2.00 - 5.00 PM

INSTRUCTIONS
1

Number of questions on paper 7.

The paper is divided into sections A and B.

FIVE questions ONLY to be answered; TWO from Section A and THREE

from Section B.

Each question carries 20 marks.

Begin each answer on a fresh page.

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

SECTION A
Ans wer two questions only from this section.
1.

Carefully study the table below and answer the questions that follow it.
Number of
labourers

Number of bricks
made per hour

Average product of
labour

Marginal product of
labour

20

30.5

21

651

41

22

726

33

23

35

79

24

768

-37

25

750

30

Required:
(a)

Define the following terms:

(i)

Average product of labour

2 Marks

(ii)

Marginal product of labour

2 Marks

(b)

Compute the values shown by points A, B, C, D, E and F.

3 Marks

(c)

Name and explain two laws that may be associated with what is
happening to the number of bricks made per hour and marginal
productivity of labour as the number of labourers increases from 24 to 25.
4 Marks

(d)

Assume that the table above represents a small firm with a huge potential
to grow.

Required:
(i)

State three reasons why a firm may want to grow.

3 Marks

(ii)

Name and explain any two ways in which a firm can experience external
growth.
6 Marks
(TOTAL: 20 MARKS)
Continued/

2.

(a)

With the aid of a clearly labelled graph, explain the difference between
change in quantity supplied and change in supply.
4 Marks

(b)

Assume that the market for thobwa can be represented in the competitive
market model.
Required:
Illustrate and explain what will happen to the equilibrium price and
quantity in the following situations:

3.

(i)

A record breaking heat wave hits Malawi during summer.

(ii)

Intermittent electricity supply causes fire that destroys several

thobwa factories.
4 Marks

(iii)

Maize crop failure raises the price of maize flour which is a key
ingredient in the production of thobwa.
4 Marks

4 Marks

(c)

List (without explaining) four factors that would influence the demand for
thobwa in the urban centres of Malawi.
4 Marks
(TOTAL: 20 MARKS)

(a)

State any two ways in which:

(i)

Perfect competition is similar to monopolistic competition.

2 Marks

(ii)

Perfect competition is different from monopolistic competition.

2 Marks

(b)

State the difference between homogeneous products and heterogeneous

products.
2 Marks

(c)

Can a firm in a perfectly competitive industry earn an economic profit in

the long-run? Clearly explain your answer.
3 Marks

Continued/

(d)

The table below shows the quantity and price of a product sold by a monopolist.
Carefully study the table and answer the questions that follow it.
Quantity

Price

Total Revenue

30

25

20

15

10

Required:
(i)

Calculate the values shown by points A, B, C, D, E and F.

3 Marks

(ii)

With a clearly labelled graph, sketch the total revenue curve.

4 Marks

(iii)

If the table above was for a perfectly competitive firm, using a clearly
labelled graph, illustrate what its total revenue curve would look like.
4 Marks
(TOTAL: 20 MARKS)

Continued/

SECTION B
Ans wer three questions only from this section.
4.

The figure below shows a five sector circular flow of income. Carefully study it
and answer the questions that follow it.
Economic resources (land, labour, capital & enterprise)

Households
Households

Firms
B

Payments for goods and services

C
D

Financial
Sector

Investment

Taxation

Government
Sector

Overseas
Sector

Exports

Required:
(a)

Name the sector(s) and flows indicated as A, B, C, D, E and F.

(b)

What is the collective term for the following flows:

(c)

3 Marks

(i)

D, Taxation and F;

1 Mark

(ii)

Investment, E and Exports?

1 Mark

Assume that E is greater than Taxation.

(i)

What term is used to describe this situation?

1 Mark

(ii)

What will be the overall impact on the circular flow of income?

2 Marks
Continued/

(d)

The above figure forms the basis for measuring Gross Domestic Product
(GDP) and Gross National Product (GNP).
(i)

What is meant by GDP and how does it differ from GNP?

3 Marks

(ii)

5.

6.

Explain three ways in which GDP can be measured.

9 Marks
(TOTAL: 20 MARKS)

(a)

State four reasons why Malawi is involved in international trade. 4 Marks

(b)

Name and clearly explain two trade barriers used in Malawi.

(c)

State five arguments for and five arguments against protectionism.

10 Marks
(TOTAL: 20 MARKS)

(a)

State four key roles played by the Reserve Bank of Malawi.

4 Marks

(b)

What does the term monetary policy stand for?

2 Marks

(c)

State any two objectives of the monetary policy in Malawi.

2 Marks

(d)

The monetary policy transmission mechanism explains how changes in

interest rates are transmitted through the financial system and the
economy, and the impact on areas such as inflation and unemployment.

6 Marks

Required:
Clearly explain the following transmission mechanisms when tight
monetary policy is pursued in a country such as Malawi.

(e)

(i)

Savings and investment behaviour

2 Marks

(ii)

Cash flow

2 Marks

(iii)

Money and credit

2 Marks

(iv)

Asset prices

2 Marks

Explain two main weaknesses of fiscal policy in an economy.

4 Marks
(TOTAL: 20 MARKS
Continued/

7.

The table below shows the cost of maize per 50kg bag and the consumer price
index (CPI) for the years 2010 to 2013.
Year

Price of maize per 50kg bag

Cons umer price index (CPI)

2010

MK1000

100

2011

MK1500

110

2012

MK2000

115

2013

MK3000

118

Required:
(a)

State the function of the Consumer Price Index (CPI).

(b)

Calculate inflation rates for the following years:

(c)

2 Marks

(i)

2011

2 Marks

(ii)

2012

2 Marks

(iii)

2013

2 Marks

Compute the real maize prices (2010 prices) for the following years.
(i)

2011

2 Marks

(ii)

2012

2 Marks

(iii)

2013

2 Marks

(d)

State four problems that would be encountered if maize was sold under
the barter trade system.
4 Marks

(e)

State two functions of money.

END

2 Marks
(TOTAL: 20 MARKS)