1. This document contains 10 subsections with multiple choice and structured questions related to microeconomics and macroeconomics concepts. 2. It asks the reader to answer 5 questions by selecting 2 from subsection A and 2 from subsection B. The questions cover topics such as economic systems, production possibilities curve, demand and supply analysis, costs and revenues, and national income accounting. 3. Detailed data and information is provided within some questions to calculate economic indicators like equilibrium price and quantity, average costs, GDP, and personal income.

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Answer five questions only selecting two questions from sub section A and two questions from sub
section B
SUB SECTION A
1.
a.
i. What are the main functions of micro economics? (02 Marks)
ii. What are the main institutional features of economic system? (02 Marks)
b. Do you agree with the following statements? Explain with reasons
i. What to produce question is the question related to the relative profitability
ii. How to produce question is the question related to relative cost
iii. Whom to produce question is the question relative to purchasing power
iv. Price at free market provide incentives to both producers and consumers
(1*4 Marks)
c. What are situations can reasonable the intervention of government in free market?
(04 Marks)
d. Basic economic questions are common to all societies. Why different economic
systems create to solve them? (04 Marks)
e. According to the nature of the resources used in the industry the factor mobility and
opportunity cost is differ. Do you agree? Explain with reasons. (04 Marks)
2.
a. Why does all the goods not consider as economic goods even though they satisfy the
human wants? (03 Marks)
b. In a society the resources are limited relative to the wants and this result creation of
scarcity problem. Why does the choice should be made when there is scarcity?
(02 Marks)
c.
i. What are the basic economic questions solved by the economic system?
ii. Why does all the societies faced these problems? (03 Marks)
d.
i. It is practical to use concave PPC to explain opportunity cost concept. Do you
agree? Explain. (03 Marks)
ii. How does PPC can be used to explain the micro economic problems?
(03 Marks)
e. Following information has provided related to a hypothetical economy in a certain
situation
Model Paper 05
General Certificate of Education (A/Level) Examination 2015
Economics-Part 02
Time: Three Hours

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Resources are fully utilized and produce 450 million computers. When computer
production is zero, 500 million motor cycles can be produced. When motor vehicles
increase by 500 million computer production decrease by million 200,300,1000,1400
and 1600 accordingly
i. Construct a PPC using above information (03 Marks)
ii. Explain the shape of PPC and mention the reasons. (03 Marks)
3.
a. Suppose the demand and supply equations for X good in certain market are given
below.
Qd=900-9P
Qs=50+10P
i. Find the equilibrium price and quantity
ii. Suppose government impose minimum price as Rs.80 for this good
government should incur higher cost for purchase excess supply or deficiency
payment system?
iii. If the government selects the lower cost method how much save by the
government? (05 Marks)
b. “Maximum price always benefit to consumers” Do you agree? Explain. (04 Marks)
c. “The main reason for law of demand is price effect”. Explain the main factors.
(04 Marks)
d. “ the reasons for the law of demand impact on expansion of demand” Explain the
reasons using hypothetical example. (04 Marks)
e. What do you meant by “ Equilibrium Price? Explain the salient features. (03 Marks)
4.
a.
i. Explain the difference between “factor market” and “ good market”
(02 Marks)
ii. What are the main factors that determine the size of price elasticity of
demand? (02 Marks)
b.
i. Derive the two demand equations for the following graph. (02 Marks)
ii. Calculate the point elasticity at point “ A” and “B”. (02 Marks)
c.
i. Why does the supply curve slope upwards from left to right? . (02 Marks)
ii. The elasticity of supply at all points on a linear supply curve starts from origin
always equals to one. Do you agree? Explain. (02 Marks)

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d. Following table illustrates the demand quantities purchased by Y good by a
household with an increase in income levels
Income(Rs.Million) Quantity purchased by Y Good
2000 50
4000 200
6000 300
8000 350
10000 385
12000 395
14000 350
16000 250
Explain which income ranges this good considered as luxury, essential or inferior goods with
reasons. (04 Marks)
e. Explain the economic impacts at a minimum pricing when policies used price support
policy and excess supply purchasing policy briefly. (02 Marks)
5.
a.
i. What do you meant by returns to scale?
ii. Why does the economies of scale created? (02 Marks)
b. What are the alternative approaches that can be followed by perfect competitive firm
when outputs decide to achieve profit maximization in short run? (02 Marks)
c. Why does the Mahaweli paddy farmer consider as a supplier of perfect competitive
firm? (04 Marks)
d. Explain the difference between following concepts
i. Factor productivity
ii. Economic profit
iii. Economic cost (03 Marks)
e. In a certain economy following information has published. Answer the questions
using them.
Direct wages 15000
Raw materials 40000
Interest payments 20000
Fuel 5000
Rent 16000
Normal profit 25000
Administrative expenses 19000
Additional information is provided
Unit price Rs.750
Units produced 200
i. Average variable cost and Average Cost (03 Marks)
ii. Total Revenue and Total cost (03 Marks)
iii. Unit Profit (03 Marks)

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SUB SECTION B
6.
a. What do you meant by “production cost” in economics? How it differs from
“Accounting Cost”? Explain (04 Marks)
b. Explain the relationship between” Average Variable Cost” , “Average Cost” and “
Marginal Cost” using graph. (04 Marks)
c. What is the shape of demand curve faced by the perfect competitive firm? Explain
using a graph including reasons (04 Marks)
d. How does the production level determined by a perfect competitive firm to achieve
the maximum profit? (04 Marks)
e. Compare the monopolistic competition and perfect competition using appropriate
criteria. (04 Marks)
7.
a. What is meant by ‘Equilibrium national income’? Explain using a suitable graph.
(05 Marks)
b. “ An Economy could be achieved the equilibrium with or without an inflation or
unemployment according to the Keynesian income expenditure analysis” Explain this
statement using a diagram. (04Marks)
c. You are given the following data relevant to a certain economy. All statistics are in
Rs.millions.
Consumption Expenditure C=40+0.8Yd
Investment Expenditure I=200
Government Purchases G=100
Taxes T=50
i. What is the equilibrium output level? (02 Marks)
ii. What is the consumption expenditure at equilibrium output level? (02 Marks)
d. Calculate Average Propensity to Consume(APC) and Average Propensity to
Save(APS) at the equilibrium output level? (02 Marks)
e. The economy decide to increase government expenditure by Rs.15 million by cutting
down taxes by Rs.20 million.
i. By which policy a higher expansionary effect is occurred from these policies?
(03 Marks)
ii. What is the amount of effect to the equilibrium output by implementing this
policy? (02 Marks)
8.
a. What are the expenditure not included under the expenditure approach when
calculating GDP? (04 Marks)
b. How does circular flow of income can be used to estimate the total product value in
the economy? (04 Marks)
c. “When trade balance is zero GDP equals GDE” Do you agree? Mention your ideas
(04 Marks)

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d. Following information provided related to a hypothetical economy
Net foreign factor income 300
Net investment 400
Consumption 500
Government Expenditure 200
Wages 550
Net interest 400
Changes in inventory 150
Capital formation 300
Trade deficit 180
Budget deficit 50
Calculate following
i. Net National Product
ii. Gross domestic Savings (04 Marks)
e. Explain the importance of national account data (04 Marks)
9.
a. Explain the approaches which determine macro-economic equilibrium in national
income? (06 Marks)
b. State the difference between “ Autonomous Consumption” and “ Induced
Consumption” (04 Marks)
c. What are the withdrawals which make contraction on aggregate expenditure in
circular flow of national income of an open economy? (04 Marks)
d. Some macro economic data which are related to a hypothetical economy are given
below.
Consumption Expenditure C=200+0.75Yd
Investment Expenditure I=400billions
Government Purchases G=800billions
Net Exports NX=200billion
Calculate the following
I. What is the autonomous expenditure in this economy? (02 Marks)
II. What is the equilibrium income level? (02 Marks)
III. What is the consumption expenditure at equilibrium income level?
(02 Marks)
10.
a. Mention the three methods of national income estimation in Sri lanka. Why does three
approaches used? (04 Marks)
b. What are the main components included under the GDP estimated at market price?
(03 Marks)
c. What do you meant by value added? What are the main components? (03 Marks)
d. What is the impact on GDP by following?
i. Salaries paid for the government workers
ii. Purchase shares of domestic company by foreign investor

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iii. Purchase book by pensioner
iv. Pay direct tax to the government y company
v. Cleaning house by house wife (05 Marks)
e. Some information related to national accounts is given below, all are in Rs.millions.
Household consumption 400
Government purcahses 250
Corporate Gross profit( Depreciation 20) 100
Net foreign factor income -50
Net investment 60
Private income tax 100
Net indirect tax 80
Imports 150
Government transfer payments 120
Payments of dividends 20
Net exports -50
Corporate taxes 40
Other income not received by households 70
Calculate following
I. Gross Domestic product
II. National Income
III. Personal Income
IV. Disposable Personal Income
V. Personal Savings (05 Marks)