Raymond’s CXC Blog CXC PAST QUESTIONS AND ANSWERS – PRINCIPLES OF BUSINESS May 17, 2011 at 1:00 pm (P.O.B Lessons) Lessons)
1) The first question is is a compulsory 10 marks question, taken from May June 2002 past paper (General). Question
1. It involves Economic Systems and Government Governmen t Control of Business Activity. (a) List TWO types of economic systems. (2mks) (b) Explain the differences between the types of economic systems listed in (a) above. (4mks) (c) Suggest two ways by which the government of your country can control business activity. (4mks) Total 10 marks
Before reading the discussion and guidelines to answering an swering the question, you may wish to plan an answer that you would give to the question. Remember, there may ma y be other possible answers than the ones suggested. DISCUSSION AND GUIDELINES
(a) Any two types of economic systems s ystems can be listed, for example, the free economic system and the planned economic system. This part of o f the question does not require any expansion ex pansion or explanation. (b) The characteristics or features of the economic systems listed can be used to show the differences between them. Conjunctions such as whereas, on the other hand, while and however should be used to indicate your reference to the opposite feature for the other o ther economic system. For example, ex ample, in the free economy, most of the scarce resources are owned and allocated by private individuals and firms while in the planned economy, scarce resources are owned and allocated by the government. The marks allotted for this part of the question would wo uld indicate that a minimum of two differences is required.
(c) Governments’ control of business activity can come in man y forms including:
* Legislation The passing of laws that businesses should abide by. by. * Price controls Government stated maximum prices for selected goods and services services * Nationalisation Direct ownership and control of industries by the Government, Government, for example, where monopolies are exploiting consumers. * Increased taxation To reduce monopoly profits. Registration and other legal requirements for setting up of businesses. * Employment of inspectors to monitor the affairs of businesses e.g. price i nspectors and sanitary inspectors. * Setting up of government agencies such as The Bureau of Standards to monitor the quality of goods produced and imported. Remember, you are asked to suggest only two ways. 2) Now let’s move on to another question. CXC past paper May/June 2003 (General), Question 1.
(a) List TWO functions of a business. (2 marks) (b) Briefly describe TWO of the following types of business organisations: (i) Partnership (ii) Public Limited Company (iii) Co-operative (4 marks) (c) State TWO advantages which the Public P ublic Limited Company has over the Partnership type o f business. (4 marks) Total 10 marks.
DISCUSSION AND GUIDELINE ANSWER
(a) Any TWO functions of a business can be b e listed e.g.to sell goods and services to satisfy people’s wants and to provide employment for people. Expansion on and explanation of the functions is not required. (b) The TWO types of businesses can be described by defining them and /or outlining their features or characteristics. For e.g. in describing the partnership one might say that a partnership
is formed with two to 20 members who pool their resources together to run a business with a view to making a profit. Partnerships are normally required to sign a Deed of Partnership and register with the Registrar of Companies. (c) The advantages which the Public Limited Company has over the Partnership type of business includes the fact that: * A larger number of part owners, since the Public Limited Company has a minimum of seven shareholders and no maximum. * More capital can be raised than in a partnership since an appeal can be made to the general public through the Stock Exchange. * The Public Limited Company is a separate entity from the shareholder owners, therefore, the individual shareholders cannot be sued, the company must be sued. * The Public Limited Company has a Board of Directors elected by the shareholders. * These companies may enjoy economies of scale. * Risk is spread over many shareholders. Remember, you are asked to state only TWO advantages of the Public Limited Company over the Partnership. 3) CXC past paper May/June 2003 (General) Question 5.
The following information appeared in a daily newspaper. Property Services, No. 56 Newpark Saletown Public Auction Sale On January 25, 2002 at 10:00 a.m. I will offer for sale on the date and at the place mentioned above the following vehicle: One l999 Toyota Mini Bus Terms of Sale:
Strictly cash on the fall of the hammer. Vehicle on view on the morning of the sale. Vehicle will be sold as is where is.
- John Brown, Auctioneer.
Tom Phillip who lived 20 miles away, drove to the address on the date specified with the intention of purchasing the minibus.
On arrival, he was told by the auctioneer that the minibus was no longer available and was removed from the items to be auctioned. Tom Phillip became furious, threatened to sue for breach of contract and demanded a refund of his traveling expenses (a) Define the term ‘contract’. (2 marks) (b) (i) By attending the public auction sale, did Tom Phillip accept a firm offer? (1 mark) (ii) Give ONE reason for your answer in (b)(i) above (2marks) (c) What do you understand by ‘vehicle will be sold as is where is’? (2 marks) (d) (i) Define the term ‘breach of contract’. (2 marks)
(ii) State ONE way in which a court may settle a breach of contract. (1 mark) (e) State TWO ways by which a contract can be terminated or discharged (4 marks) (f) (i) Should John Brown refund Tom Phillip’s traveling expenses? (1mark)
(ii) Give ONE reason for your answer to (f)(i) above. (2 marks) (g) (i) Advise Tom Phillip whether he will succeed in court against John Brown. (1 mark) (ii) Give ONE reason for your advice in (g)(i) above. (2 marks) Total 20 marks
DISCUSSION AND GUIDELINE ANSWER
* (a) You must be careful to define a contract, and not an agreement. A contract is defined as a legally binding agreement or an agreement that is created with legal intentions. If you state that a contract is an agreement without stating any legal aspect, you may only score half of the marks, since all contracts are agreements, but not all agreements are contracts. * (b) (i) The answer to this part of the question is simply NO. (ii) The vehicle was not offered for sale, therefore, one cannot accept an offer that was not made. An acceptance MUST be to a firm offer. * (c) This means that the vehicle is to be sold in the condition that it is presently in at the place or physical locality that it is at.
(d) (i) Breach of contract means that a party or parties to the contract fail to keep their part or parts to the contract. (ii) The court can rule that the party that has breached the contract be forced to abide by their side of the contract. Or, with the injured parties agreement, the existing contract can be terminated and a new one can come into existence that satisfies all parties. * (e) There are a number of ways in which a contract can be discharged or terminated. You are asked to state TWO ways. Some ways are suggested below: * By death of either party to the contract * By bankruptcy, which must be proven in the legal sense. * By frustration, which means that something, which was possible at the time the contract was made, now becomes impossible . * The agreed time for the contract to elapse has passed. * By agreement of all concerned parties * By breach. However, in this case the contract can only be terminated with the permission of the injured party. * By law. This is when something that was legal at the time the contract was made now becomes illegal by law. Therefore, the contract must come to an end. * (f) (i) No, John Brown should not refund Tom Phillip?s traveling expenses. (ii) There was no contract and no breach of contract. Tom Phillip took it upon himself to make the journey to the auction and so the cost of doing so must fall on his own shoulders (g) (i) Tom Phillip will NOT succeed in court against J ohn Brown. (ii) There was no contract and there was no breach of contract. He would win the case if an existing contract had been breached. 4) CXC past paper May/June 2004 (General) question 4.
Tasty Fruit Ltd. is a manufacturer of several types of exotic tropical fruit juices. Without consultation, Mr. Albert, the general manager, took a decision that with immediate effect all breaks would be reduced from 15 minutes to five minutes. He claimed that the change became necessary to enable the factory to process a larger amount of fruit juices daily.
(a) What type of leadership style did Mr. Albert appear to be practising? (2 marks) (b) (i) Name TWO other leadership styles. (2 marks) (ii) Describe ONE of the leadership styles you named in (b)(i) above. (2 marks) (c) Identify TWO situations that can result from the action taken b y Mr. Albert. (4 marks) (d) (i) State FIVE qualities of a good manager. (5 marks). (ii) Give an example to show how lack of one of the qualities you mentioned at (d)(i) above can affect the operation of the factory. (2 marks) (e) State THREE responsibilities of management to its employees. (3 marks) Total 20 marks
DISCUSSION AND GUIDELINE ANSWER
(a) Autocratic/Authoritarian leadership style. (b) (i) Any TWO of the following can be named: laissez-faire/free reign leadership style, democratic leadership style, charismatic leadership style. (ii) Laissez-faire individuals are given the broad outlines, but left on their own to carry out the major aspects of the decisions. Democratic those who will be affected by the decision are consulted before the decision is taken, though the leader still reserves the right to make the final decision. Charismatic the leader leads by virtue of his/her personality or charisma. Any ONE of the leadership styles can be described. (c) The following situations may result: poor management-worker relationship; industrial action may be taken by workers; resignations by workers; workers may become discontented; poor selfesteem of workers and reduced productivity of workers. Any TWO situations may be used. (d) (i) The qualities of a good manager include: honesty, flexibility, ability to carry out management functions and responsibilities, show genuine concern for employees and customers, ability to motivate workers, be adaptable to various situations, able to work on own initiative, ability to use Management Information Systems, be aggressive, but not too aggressive, be reliable etc. (ii) If for example the manager is unable to motivate his employees, they will become lax and productivity will fall. The business will end up loosing profits. The negative effects of the lack of any of the qualities you listed in (d)(i) can be explained. (e) Responsibilities of managers to employees include: to treat them fairly, to give them safe, clean environment to work in, to allow them the freedom to join trade unions, to support their
desires to be educated and trained, to pay fair wages and salaries, to honour leave entitlement, to give adequate compensation for injury on the job etc. Any THREE responsibilities can be stated. 5) CXC past paper January 2005, (General) question 5.
Recently, the employees of the telephone company have engaged in various industrial activities in support of their trade union. The trade union was involved in ‘collective bargaining’ with the management of the company for a new three-year industrial agreement for its members. The management retaliated by taking certain actions against the employees who charged that their rights were being violated. (a) Give FIVE examples of industrial activities which the employees could have engaged in without striking. (5 marks) (b) Identify TWO actions the management could have taken in retaliation against the industrial activities by the workers. (2 marks) (c) Explain the term ‘collective bargaining’. (2 marks)
(d) List FIVE responsibilities of the management to its employees. (5 marks) (e) Apart from ‘collective bargaining’, outline THREE other functions of a trade union. (6 marks) Total 20 marks
DISCUSSION AND GUIDELINE ANSWER
(a) Examples of industrial action apart from striking include: sick out, go -slow, sit-in, overtime ban, work-to-rule and boycotting the company’s products etc. (b) The action that management could have taken includes: lockouts, black-listing, suspensions, termination of work contracts, deductions of salary etc. (c) Collective bargaining refers to the trade union function in which the trade union representing the workers and the employer or emplo yers’ association discuss issues relating to employees with a view to settlement which is suitable to bo th sides. (d) See answer (e) in previous question. (e) Other functions of the trade union include: securing better wages and fringe benefits for workers, securing better work environment, job security, ensuring that workers get the leave they are entitled to, ensuring that workers are not exploited in any way, education of members as to the role of trade unions, scholarships to members and family etc. The THREE points chosen should be expanded on by brief explanations and /or examples.
6) Past CXC paper May/June 2002, (General) question 7.
Many governments throughout the Caribbean region have been encouraging persons to become entrepreneurs. (a) What do you understand by the term ‘entrepreneur’? (2 marks)
(b) Suggest THREE reasons why entrepreneurship is being en couraged in your country. (3 marks) (c) List THREE characteristics of a successful entrepreneur. (3 marks) (d) Discuss TWO problems an entrepreneur may encounter. (6 marks) (e) Outline how an entrepreneur may overcome any ONE of the problems discussed in (c) above. (2 marks)
(f) List FOUR ways in which governments may assist entrepreneurs. (4 marks) Total 20 marks
DISCUSSION AND GUIDELINE ANSWER
(a) The entrepreneur is a human factor of production that is responsible for organising the other factors of production and bearing the risks in production. (b) Among the reasons why entrepreneurship is being encouraged are: entrepreneurship provides opportunity for self employment, it also reduces unemployment, it increases the production of goods and services, increases the variety of goods and services produced, Gross National Product is increased, makes use of idle skills, and uses up local raw materials. Any THREE reasons may be suggested. (c) The characteristics of a successful entrepreneur are many and varied. They include: ability to work hard, ability to take calculated risks, ability to make effective decisions, ability to organise, ability to motivate and the ability to think qu ickly and clearly in any situation. Again, any THREE characteristics may be listed. (d) The problems of the entrepreneur include: problems in sourcing capital, lack of managerial skills, lack of suitable collateral, inability to assess market potential, inability to evaluate competition, lack of appropriate technology and the inability to procure suitable machinery and equipment.You should expand on the TWO problems you choose to discuss by explaining them and giving examples. (e) You should begin this part of your answer by stating the problem selected and then outline your suggestion for overcoming the problem. For example, if you select the problem of the difficulty in sourcing capital, you could suggest that the entrepreneur explore several sources of
capital and that he even combine different sources of capital, such as his own savings, along with a loan from a bank or credit union. (f) The ways in which governments can assist entrepreneurs include: providing them with ‘soft loans’ (loans with little or no interest), providing education and training on enterprise management, giving tax incentives, providing entrepreneu rial consultants to monitor and assist entrepreneurs, providing factory shells for them to operate their businesses in, and providing markets for their goods and services. Any FOUR ways can be listed. 7) CXC past paper January 2001,( General), question 2.
For many years, persons from Caribbean territories have migrated to Europ e and North America. Very often these persons only return for holidays or upon retirement. (a) Explain what is meant by migration. (2 marks). (b) State THREE negative effects of migration on the labour force in your country. (3 marks). (c) Explain TWO positive effects migration may have on your country (4 marks). (d) Identify ONE measure your country uses to encourage nationals to return. (1 mark). Total 10 marks
DISCUSSION AND GUIDELINE ANSWER
(a) Migration refers to the permanent movement of people from one area to another within a country (internal movement), or from one country to another (external movement) for at least one year. The correct time period of the movement must be included in your explanation in order to obtain full marks. (b) The negative effects of internal or external migration or both may be given. Internally, the negative effects of migration include: shortage of labour in one area and surplus of labour in another area, overpopulation in one area with resulting social disorders, e.g., crime, etc. External migration results in negative effects such as ‘the brain drain’, families abandoned and left to fend for themselves by migrants, lower standard of living, etc. An y three negative effects will be accepted. (c) Migration can have positive effects on a country. This is especially true of external migration which reduces the strain on the government, in cases where the migrants were previously unemployed. Also, many of these migrants return years later and contribute positively to their countries through skills learnt in other cou ntries and/or through money they bring back. The points brought out must be explained accurately in order to score full marks.
(d) Governments may encourage nationals to return by offering attractive and affordable housing, jobs for those who require them, by allowing them to return with their personal effects without having to pay duties, or only requiring them to pay small amounts of duty, by ensuring that their country is as close to crime-free as possible, etc. Any one measure properly stated will be accepted. 8) CXC January 2000 paper (General) , question 6.
Rapid structural change is being experienced throughout the world, bringing with it a growing importance of the contribution of small firms/businesses to economic development in every country. Many industries and firms are now buying and selling goods via the computer through a system called the Internet. (a) Define the term small business. (2 marks). (b) Given the following sectors in the Caribbean, indicate which FOUR are most likely to be dominated by small businesses: (i) bauxite production (ii) retailing (iii) agriculture (iv) petroleum refining (v) finance and banking (vi) personal services (vii) fishing. (4 marks). (c) Discuss FOUR ways through which small businesspersons can use the Internet to assist them in their business goals. (8 marks). (d) Suggest THREE reasons why the government of your country should encourage the growth of small businesses as a way to promote economic development. (6 marks). Total: 20 marks
DISCUSSION AND GUIDELINE ANSWER
(a) There are a number of acceptable definitions of the small firm. You may wish to u se any of the three definitions from Trinidad and Tobago, or any other definition that you are comfortable with. The Trinidad and Tobago definitions are: * A firm whose total assets excluding land and buildings does not exceed TT$500,000. * According to The Central Statistical Office, a small business is a business that employs less than 10 workers. * A firm that employs only one top manager who should manage the business and perform other functional duties as well.
Generally speaking, a small firm is one with virtually no middle management, i.e., there is hardly any supervisors or subordinate managers. (b) The FOUR sectors most likely to be dominated by small businesses are retailing, agriculture, personal services and fishing. (c) The Internet allows small business persons to: communicate with others in the same field, get information and ideas that are current in their field, ad vertise their products, source raw materials and goods at reasonable prices, source markets/outlets for their goods and services, get access to Internet buying and selling which boosts sales, etc. The points must be discussed fully to show how the small business benefits from the Internet in order to gain the full eight marks. (d) Governments should encourage the growth of small businesses because: * They provide healthy competition to larger firms and force them to sell at more reasonable prices. * Small businesses reduce unemployment through employing people. * They produce goods and services that people want and this will increase standard of living. * They contribute towards GNP/National Income. * They use up natural and other idle resources. * They provide linkages to other firms so they can be certain of their sources of raw materials and/or their outlets. * New ideas are usually tried out in small firms. * Small firms often grow into larger successful businesses, these firms are flexible and can produce what is required for economic development. The THREE reasons chosen must be developed properly in order to gain the full six marks. 9) CXC (General) paper May/June 1999, questions six and seven.
Let us start with question six: a) Classify three types of productive activities. (3 mks) (b) Identify three types of productive activities that are carried out in the Caribbean and list the country in which each is carried out. (6 mks) (c) (i) State five factors which determine the location of an industry. (5 mks) (ii) Discuss three economic and social implications of technological develop ement. (6 mks)
Total: 20 mks
DISCUSSION AND GUIDELINE ANSWER
(a) There are four types of productive activities: extraction, construction, manufacturing and service activities. Any three of the four can be used for the answer. (b) A number of activities and countries can be used for this answer. Consider the following: Agriculture Fishing Mining Construction Manufacturing Transport Tourism Communication
Jamaica Barbados Guyana Trinidad Trinidad St. Lucia Jamaica Barbados
You should note that other activities and countries may be considered, however, you should identify three different productive activities and the countries in which the activities are observed. (c) (i) The factors that influence the location of industry include: land, nearness to markets, nearness to raw materials, nearness to a suitable labour supply, nearness to power, climate, infrastructure and the government. (ii) The economic and social implications of technological development include: increased output, improved standard of living or quality of life, greater speed in producing, improved quality of production, structural unemploy-ment, physical impairment and stress and alienation. Note that the points discussed can be economic or social in nature and may also be positive or negative. Each implication must be discussed, not listed, for full marks. 10) Now for the second and final question for this lesson.
(a) Differentiate between the terms ‘market’ and ‘marketing’. (2 mks)
(b) List four marketing activities. (4 mks) (c) Identify four factors influencing the behaviour of consumers in their ch oice of local hamburgers over foreign hamburgers. (8 mks) (d) Discuss three methods a local business may use to promote local hamburgers. (6 mks) Total: 20 mks
DISCUSSION AND GUIDELINE ANSWER
(a) A market refers to a situation in which buyers and sellers are in contact for the purpose of buying and selling goods and services. Marketing, on the other hand, refers to everything that is done to get goods and services to the right people at the right time and priced in the most efficient manner, while making a profit. (b) Any four marketing activities can be listed. Included are: market research, advertising, sales promotion, branding, distribution, sales, pricing; public relations, research and development, marketing mix, etc. (c) Taste, tradition, quality, price, brand loyalty, income, k nowledge of the owners, convenience, the way the good is advertised, etc. (d) Methods of promotion that can be used include: advertising, sales promotions, publicity, public relations and competitive pricing. Each method should be discussed, e.g., advertising may increase the demand for local hamburgers. The business will sell more and make more profit. 11) CXC past paper, January 2001, General Proficiency, Question 6.
This question is based on economies and diseconomies of scale and mechanisation. Company XYZ Ltd. manufactures and markets a range of candles of different shapes and lengths. Since its incorporation in 1989, sales volume has increased tenfold. In order to meet demand, the company has had to expand its production capacity and support systems considerably. (a) List FOUR internal economies of scale the compan y might experience. (4 marks) (b) Identify FOUR diseconomies of scale the company mi ght experience. (4 marks) Expansion has invariably led to increased mechanisation of various aspects of a business. (c) (i) Explain FOUR benefits the company might experience because of mechanisation. (8 marks)
(ii) Discuss TWO negative effects the introduction of mechanisation might have on the company. (4 marks)
Total: 20 marks DISCUSSION AND GUIDELINES ANSWER
(a) You will remember that economies of scale refers to advantage to a firm or company from going into large-scale production. The economies of scale include:
Technical economies/economies in the use of factors of production. Managerial economies/economies in administration. Research and development economies. Financial economies. Marketing economies/commercial economies. Social economies. Risk-bearing economies etc.
Any FOUR economies or advantage may be listed. (b) Diseconomies of scale refers to the disadvantages to a firm or company from large-scale production. The diseconomies include:
Increased costs, e.g. increased marketing and financial costs. ‘Red tape’, which is the elaborate and time-consuming procedures through which consumers must pass. Changing techniques of production may cause expensive machinery to lay idle. Larger businesses often result in loss of coordination and lack of control, e.g. communication between management and workers may slow down, wastages of factors, etc.
Any FOUR diseconomies or disadvantages may be listed. (c) (i) Recall that mechanisation means partially replacing human o r animal muscle power by a machine, e.g., a tailor buying a sewing machine instead of sewing by hand. The benefits of mechanisation include:
Output increases because work is speeded up and more can be produced in less time. Fewer workers are needed as machines can do the work of a number of persons. Costs are saved. These costs that are saved can be transferred to the market in the form of lower prices to consumers. The quality of output often increases. It encourages more skilled workers to enter the workforce, i.e., workers wh o can operate specific machinery etc.
Any FOUR benefits can be explained. For full marks, the benefits must be brought ou t clearly. (ii) The negative effects of the introduction of mechanisation on the company might include:
Unemployment caused by the fact that less labour is required than when work is done entirely by hand, therefore, the excess labour is no rmally laid off. Some machines are of a technical nature and require skilled persons to operate them. In some cases these skilled persons are hard to find. When machines are out of service, overhead cost increase. Machines may be costly to maintain, as in some cases parts may have to be imported with the use of scarce foreign exchange.
As in (c) (i) above, the negative effects of mechanisation must be properly discussed in order to gain full marks. 12) CXC past paper, January 2001, General, question 8
The Caribbean island of Green Mountain is having problems with its financial institutions. Customers of some banks are adding to the problems as many have withdrawn their deposits from the banks. The government has asked the central bank to do all it can to prevent a collapse of the commercial banking sector. (a) State FOUR characteristics of money. (4 marks) (b) List TWO functions or services offered by commercial banks. (2 marks) (c) For EACH of the functions mentioned above, explain what benefit customers obtain from using these functions. (4 marks) (d) List FOUR features of central banks. (4 marks) (e) Select THREE of the features of central banks you mentioned above, and explain how they help to promote smooth operation of the banking system in your country. (6 marks) Total marks: 20 DISCUSSION AND GUIDELINE ANSWER
(a) You must be careful not to confuse the characteristics of money with the functions of mone y. The characteristics of money are the features of money. Money should be:
Generally acceptable Durable or long-lasting Homogeneous Divisible into large and small units Scarce or limited in supply Portable
Any FOUR characteristics may be stated. (b) The functions or services offered by commercial banks today are many and varied. They include the following:
Accept deposits from customers for safekeeping and makes these depo sits available to customers when needed. Lend money to qualified customers at interest. Allow standing order payments at customers’ requests.
Make the use of the cheque as a means of payment possible. Sell travellers’ cheques and buy and sell foreign currency. Give financial advice to customers. Help customers to open letters of credit. Act as agents in collecting dividends on behalf of their customers. Act as executors and trustees to the written wills of their customers. Allow customers use of the banks’ safety deposit boxes and night safe facilities etc.
Any TWO functions or services may be listed. (c) Whichever TWO functions you choose to explain, you must ensure that you properly explain the benefits of them to the customer. For example: The function of accepting deposits from customers benefits the customers in that it allows them to keep their money in a safe place instead of keeping it at home. In addition, for most deposit accounts, the customer earns interest on his deposits and this encourages him to save with commercial banks. Commercial banks lend money to qualified customers by opening loan accounts, by means of overdrafts and by discounting bills of exchange. Whatever the method, customers are granted loans and benefit from large sums of money, which they perhaps could not save for, while they benefit in being able to pay back loans in small installments. Customers benefit in getting loans for various purposes including education, vacation and for purchasing cars and other assets. (d) The features of the central bank includes:
Carrying out government’s monetary policies. Control and monitoring of commercial banks and other financial institutions. Issuing notes and coins and recalling them from circulation when necessary. Being banker to commercial banks and to the government. Negotiating on behalf of the government in international financial agreements, e.g. with the IMF, etc.
Any FOUR features may be listed. (e) Again, in explaining the THREE chosen features, you must be careful to show how they promote smooth operations of the banking system. For example, in monitoring the commercial banks and other financial institutions, the central bank ensures that governments’ monetary policies are carried out and that they are not promoting the opposite policy which would cause chaos in the financial system and in the country. You must explain THREE features in like manner. 13) CXC past paper, May/June 2005, general, question 9
The question, reproduced below, surrounds the topic of international trade and balance of payments:
The following information was taken from the final accounts of Tropicalo, a country in the Caribee Isles. The figures are quoted in US ($M). $US Visible trade Exports Imports Invisible (net) Exports Imports
24 000 26 000 20 000 15 000
(a) (i) Differentiate between a country’s terms of trade and its balance of trade. (3 mks) (ii) Calculate Tropicalo’s balance of trade using the figures given above. (2 mks) (b) Calculate Tropicalo’s current account balance using the figures given above. (3 mks)
You are not required to explain the calculations in (a) (ii) and (b).
(c) Identify two ways in which a country may have a surplus on its current account. (4 mks) (d) (i) Explain what is meant by ‘balance o f payment’. (2 mks)
(ii) Discuss three ways by which a country would be able to finance the deficit in its balance of payments. (6 mks) Total 20 marks DISCUSSION AND GUIDELINE ANSWER
(a) (i) A country’s terms of trade refers to the rate at which its goods and services exchange for the goods and services of another country. It is calculated as:
Index of export prices x 100 Index of import prices Whereas, a country’s balance of trade is the difference between the country’s imports and exports of goods only. To properly differentiate between the two terms, the candidate should use terms such as ‘on the other hand’, ‘while’, ‘whereas’, etc.
(ii) The balance of trade in this case is: 24,000 - 26,000 -2,000US ($M) (minus 2,000 US($M) )
(b) The current account balance takes into consideration the visible trade balance and the invisible trade balance. From (a) (ii) we found the visible trade balance (balance of trade) to be minus 2,000 US ($M). The invisible trade balance is plus 5,000 US ($M). This is the difference between invisible exports and invisible imports. The current account balance is plus 3,000 US ($M).
(c) Exporting more goods and services than it imports Import less than it exports If the positive visible balance exceeds the negative invisible balance
(d) (i) A country’s balance of payments is its annual record of trading with other countries in terms of income from exports and expenditure for imports. (ii) To finance a deficit is different from correcting the deficit. To finance the deficit, the country must find ways to make the balance of payments balance by covering the deficit. This includes:
Importing the deficit amount on credit Loans from other countries Loans from international financial institutions e.g., International Monetary Fund and the World Bank. Debit the foreign reserves account Grants from other countries Sell gold reserves, etc.
Any short-term solution which results in the amount of mone y to cover the deficit, if properly discussed, will earn two marks each. 14) January 2006, General past paper, question number eight
Government has a responsibility to protect consumers as well as to p rovide a climate for businesses to survive. (a) State TWO reasons why consumers need protection. (4 mks) (b) Identify THREE ways in which the government of your country can ensure that consumers’ safety and well-being are protected. (6 mks) (c) Discuss THREE ways in which the government may help businesses to succeed. (6 mks) (d) State TWO ways by which the government can ensure that businesses protect the environment. (4 mks) Total : 20 marks
Now, for my discussion and guideline answers. I hope they will help you in getting a fair understanding of the question.
Discussion and guideline answers. (a) There are many reasons why consumers need to be protected. These reasons include the fact that they receive:
Short change, short weights and short measurements Unsafe and poor quality products Misleading price reductions and false sales False claims about products Insufficient goods for their money Unfair treatment when faulty goods are returned, etc.
In addition, consumers are not always able to make a good assessment of the goods they buy. They cannot protect themselves and therefore need to be protected. Candidates should state clearly any TWO reasons for con sumer protection. (b) Some of the ways in which the government can ensure that consumers? safety and well-being are protected are:
By setting up consumer protection agencies such the Ombudsman, the Bureau of Standards and the Consumer Affairs Commission. By educating and advising consumers through pamphlets, radio and TV programmes. Through the introduction of penalties for producers and sellers who show lack of regard for consumers. By passing legislation/laws that ensure consumer protection, e.g., processed food acts, Public Health Act, The Standard Act and The Food and Drugs Act. By the control and supervision of prices. By enforcing fair trading practices. By supervising hire purchase and credit control, etc.
(c) Government can help businesses to succeed by:
Giving them loans with little or no interest to be pa id back. Allowing them subsidies and grants which result in the lowering of costs of production. Providing business educational opportunities free or at very low cost. Allowing the importation of essential raw materials duty free. Providing free zone areas for the location of businesses. Reducing corporation tax which reduces overall costs and boosts profits. Assisting businesses in finding markets and in the marketing of their products, etc.
For this part of the question, the THREE points selected must be properly discussed to score full marks. (d) The protection of the environment has become increasingly important. The government can ensure that businesses protect the environment by:
Introducing a pollution tax. Taking over the production where businesses fail to p rotect the environment. Passing legislation or laws against practices that damage the environment. Having inspectors go around and ensure that practices are not damaging to the environment. Giving warnings which if not adhered to, result in the business being taken to court or some other action. Encouraging the location of businesses in special areas where their production practices will not harm the environment, etc.
1. The basic needs of man are: a) land, money, car b) food, money, land c) food, clothing, shelter d) food, shelter, money 2. The most important principle upon which barter trade depends is known as: a) insurable interest b) indemnity principle c) utmost good faith d) double coincidence of wants 3. Mary lives in a country in which the state makes all the decisions about economic activities. That country has adopted the: a) planned economic system b) mixed economic system c) free economic system d) Capitalist economic system 4. The most important role of a business in any community is to: a) pollute the environment b) earn foreign exchange c) provide revenue for the government d) provide goods and services to satisfy the wants of people 5. Consumers are those individuals who: a) buy their goods from a consumers cooperative society b) consume all the goods produced by manufacturers c) provide goods and services for our satisfaction d) utilise the goods and services provided to satisfy wants
6. The public sector comprises: a) a body of public corporations, public companies and municipal undertakings b) a combination of public companies and public corporations c) an association of all public companies within the country d) central and local government organisations and state corporations 7. Which of the following business organisations belong to the private sector? a) municipal authority b) nationalised industries c) public corporations d) public limited companies 8. In a partnership, an investor is a partner. In a large company, an investor is a: a) sole trader b) manager c) director d) shareholder 9. What is the maximum number of share holders a private limited company can have? a) two b) five c) fifty d) eighty 10. The relationship between the highest level of management down to the various departments is known as: a) flow b) rank c) staff d) line 11. If X offers Y a book for $5, but Y says that he can only pay $4.50 for it, this is an example of: a) an offer b) a counter offer c) an invitation to treat d) consideration
12. An item displayed in a store with a price tag is an example of: a) an offer b) a counter offer c) an invitation to treat d) consideration 13. John buys goods to the value of $150, but is allowed 20% trade discount on the invoice, plus 5% cash discount. He will therefore pay: a) $112.50 b) $114.00 c) $126.00 d) $142.50 14. If you received less goods than was ordered and paid for, your supplier would send you: a) a credit note b) an invoice c) a debit note d) a bill of exchange 15. When a cheque is crossed, it means that: a) something is wrong with it b) it is cancelled and not good anymore c) the money cannot be withdrawn immediately, but has to be lodged to an account d) it can be taken to a bank and the money stated withdrawn at once 16. Which of the following is the most important characteristic of money? a) acceptability b) durability c) limited supply d) portability 17. The only bank which can claim to be a lender of last resort is the: a) merchant bank b) central bank c) commercial bank d) trustee savings bank 18. The document that has details of the source of goods, the raw materials from which the goods are made, is called the:
a) shipping note b) certificate of origin c) bill of lading d) bill of exchange 19. Assurance policies specifically refer to: a) personal life coverage b) coverage of risks involving cargo transport c) loss of goods due to hurricane d) loss of sale of goods 20. A man insured his property for $80,000, but its true value was $100,000. A fire caused $10,000 worth of damage. The insurance will pay out: a) $10,000 b) $8,000 c) $5,000 d) $6,500 The answers to multiple choice questions: 1.c 5.d 9.c 13.b 17.b
2.d 6.d 10.d 14.a 18.b
3.a 7.d 11.b 15.c 19.a
4.d 8.d 12.c 16.a 20.b.
1. Which of the following is not a factor of production? (a) food (b) land (c) labour (d) capital 2. Which one of the following will have the effect of reducing the suppl y of labour? (a) a high birth rate (b) a large population (c) a high proportion of old people (d) a low proportion of very young people 3. The labour force of a country is: (a) all people below retirement age (b) all persons who are employed or are available for work
(c) the total population (d) all persons over the school leaving age 4. The education of the labour force is a major determinant of which of the following? (a) the supply of labour (b) the labour force as a whole (c) the mobilisation of labour (d) the efficiency of labour 5. Which of the following does not have a direct effect on the efficiency of labour? (a) the quality of education of the workers (b) the wages paid to workers (c) a country’s cultural practices (d) working conditions 6. Labour is classified as: (a) size, age, mobility (b) size and mobility (c) skilled, semi-skilled and unskilled (d) skilled and semi-skilled 7. The rewards to the factors of production are: (a) salaries, wages, profit and interest (b) wages, rent, profit and interest (c) rent, capital and profit (d) profit, capital, rent, wages 8. Occupational mobility of labour refers to the: (a) ease with which workers are transported to their jobs (b) frequency with which workers move from one job to another (c) degree of efficiency with which workers perform their tasks. (d) willingness and stability of workers to acquire new skills. 9. Each year, some high school graduates of the Caribbean rural communities move to the towns and cities to live and work. The movement of such persons could be described as: (a) expected migration (b) external migration (c) cross-country migration (d) internal migration
10. People who migrated from the West Indies in the early 1950′s went to all of the following countries on a large scale except:
(a) Great Britain (b) Japan (c) Canada (d) United States of America 11. Unemployment that results from a ‘slump’ in the economy can be described as:
(a) frictional unemployment (b) seasonal unemployment (c) residual unemployment (d) cyclical unemployment 12. The ’4-H’ Club and the Lion’s Club are examples of` (a) multinational companies (b) community self-help organisations (c) monopolies (d) voluntary chain stores
13. Natural resources may also be referred to as: (a) capital (b) labour (c) land (d) Entrepreneurial skills 14. Which of the following is the best ex ample of capital as a factor of production? (a) machinery (b) shares (c) debentures (d) money 15. Circulating capital is: (a) money and inventory used to finance the day to day running of a business. (b) Capital that changes from one form to another and back to its original form (c) The money paid to workers for maintaining day to day production. (d) Any man-made item that assists in production. 16. Which of the following is a fixed asset? (a) A bicycle for private use (b) A washing machine for resale
(c) A motor car for family use (d) A truck for delivery of goods 17. The reward to capital is: (a) profit (b) interest and dividends (c) rent (d) wages 18. The term ‘human resources’ refers to
(a) materials and goods made by human beings (b) raw materials used in the manufacture of goods (c) persons available for productive and professional services (d) capital invested by shareholders in a company. 19. The ‘Human Resources’ are:
(a) students in tertiary institutions (b) labour and entrepreneurial skills (c) monies used by humans in production (d) resources produced by humans. 20. A person responsible for bringing together and organising the factors of production is the (a) entrepreneur (b) trade-unionist (c) manager (d) financier End of Test 1. The advantages of a sole trader over a partnership form of business include which of the following? i) Profits are shared. ii) Risks are greater. iii) The sole trader is his or her own boss. iv) The partners can contribute capital to expand the business. A) (i) and (ii) only B) (i) and (iii) only C) (iii) only D) (i) and (iv) only
2. In a partnership, an investor is a partner. In a large company, an investor is a: A) sole trader. B) manager. C) director. D) shareholder. 3. A sleeping partner is otherwise known as a: A) careless partner. B) active partner. C) dormant partner. D) general partner. 4. Which of the following are disadvantages of a private limited company? i) It has an independent legal status. ii) The firm cannot raise capital on the stock exchange. iii) The firm cannot have more than 50 shareholders. iv) The firm has too many taxes to pay. A) (i) and (ii) only B) (ii) and (iii) only C) (i) and (iv) only D) (iii) and (iv) only 5. To comply with legal requirements to register a private limited company, the firm mu st provide at least two documents. These are: A) a prospectus and a certificate of origin. B) a memorandum of association and articles of association. C) a certificate of trading and tax file number. D) a share certificate and a debenture certificate. 6. Those partners who, when their business goes bankrupt, stand to lose all their personal possessions as well as their investments are known as: A) unlimited liability partners. B) limited liability partners. C) ordinary partners. D) sleeping partners. 7. The form of business where shares are allowed to be sold only to owners of the business or to their relatives or employees is known as:
A) partnership. B) private limited company. C) public limited company. D) multinational company. 8. The main aim of a co-operative retail society is to: A) make a profit from its member-customers. B) buy and sell goods retail. C) buy goods wholesale and sell them cheaply to its members. D) organise and plan the running of the society. 9. Company A owns all these businesses: soft drink company, bakery, shipping company and motor-car assembly company. Company A is an example of a: A) conglomerate. B) multinational. C) private limited company. D) partnership. 10. If one company, A, has or owns the majority shares in another company, B, then company A can best be regarded as being a: A) holding company. B) partnership. C) co-operative. D) joint-stock company. Now you can have a look at the answers to see how well you have done. 1. C 3. C 5. B 7. B 9. A
2. D 4. B 6. A 8. C 10. A
