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ZIMSEC A Level · J2009

Economics Paper 1 June 2009

Questions
40

Sit this paper online

Questions
40
Pass mark
24
Sit this paper

Answer every question in the printed order, get marked at the end, then see the answers.

The questions

Question 1

opportunity cost / production possibility
What is the opportunity cost to a fully employed economy of increasing capital investment?
  1. Afall in present income
  2. Bfall in present consumption
  3. Crise in present saving
  4. Drise in the present rate of interest

Question 2

production possibility curve
The diagram shows an economy's production possibility curve. What is the effect on present and future total output of a move from Z to point X?
  1. Alower / lower
  2. Blower / higher
  3. Cunchanged / lower
  4. Dunchanged / higher

Question 3

supply
The quantity supplied is
  1. Aa choice of alternative goods and services to be produced.
  2. Bthe ability to produce the goods and services that are desired.
  3. Cthe perfect knowledge of the opportunities available to suppliers.
  4. Dthat both the supplier and consumer is a king.

Question 4

price elasticity of demand
The price of a product rises from $18 000 to $22 000 and demand falls from 4 000 to 3 000. Calculate the coefficient of the price elasticity of demand.
  1. A1.125
  2. B0.4
  3. C0.75
  4. D1.25

Question 5

perfect competition / supply curve
The short-run supply curve of a perfectly competitive firm is the
  1. Aentire marginal cost curve.
  2. Bentire short-run average cost curve.
  3. Cshort-run average cost curve above the minimum marginal cost.
  4. Dmarginal cost curve above the short-run average variable cost curve.

Question 6

revenue concepts
What is marginal revenue?
  1. Athe difference between the total revenue of selling n units and n − 1 units of sales
  2. Bthe difference between the average revenue of selling n units and n − 1 units of output
  3. Cthe difference between the average total revenue of selling n units and n − 1
  4. Dthe average variable cost of producing one more unit of output

Question 7

supply shifts
The diagram represents the market for maize. What might shift S2S_2 to S1S_1?
  1. Aa rise in the wages of maize workers
  2. Ba decrease in the productivity of maize workers
  3. Can increased government subsidy to maize farm workers
  4. Dstarting up new cotton farms

Question 8

profit maximisation / loss minimisation
To minimize loss, a firm must produce that output which
  1. Aequates average revenue and average cost.
  2. Bequates marginal revenue and marginal cost.
  3. Cequates marginal revenue and average cost.
  4. Dminimizes loss per unit of output.

Question 9

economic rent
Which of the following is the payment to a factor of production over and above that necessary to keep the factor in its present use?
  1. Aconsumer's surplus
  2. Beconomic rent
  3. Cnormal profit
  4. Dtransfer earnings

Question 10

opportunity cost
To enter a competition Sindiso pays $20 000. Sindiso is fortunate and subsequently wins the first prize which offers the choice of a holiday at Great Zimbabwe which costs $3 000 000 or $2 600 000 in cash. If she selects the holiday what is the opportunity cost of her choice?
  1. A$20 000
  2. B$400 000
  3. C$2 600 000
  4. D$3 000 000

Question 11

production possibility curve
What is implied by the shape of the production possibility frontier shown below?
  1. AThe economy will operate at full employment.
  2. BThe quantity of farming goods will be greater than the quantity of mining goods.
  3. CResources are not equally good at producing both mining and farming goods.
  4. DThere is a constant opportunity cost in transferring resources from mining to farming.

Question 12

economic systems
The main difference between a planned and a market economy is that in a market economy
  1. Amost of the economy is state owned.
  2. Bgovernment officials are the ultimate decision takers.
  3. Cproduction is planned on the basis of input-output analysis.
  4. Dthe price mechanism is the main mechanism for allocating resources.

Question 13

price elasticity of supply
Which of the following diagrams illustrates unit price elasticity of supply?
  1. AA horizontal supply curve (perfectly elastic)
  2. BA vertical supply curve (perfectly inelastic)
  3. CAn upward-curving (convex) supply curve through the origin
  4. DA straight upward-sloping supply curve through the origin

Question 14

joint supply
Which of the following goods are in joint supply?
  1. Atea and coffee
  2. Bgas and elasticity
  3. Cwool and lamb
  4. Dbolt and nut

Question 15

perfect competition / shutdown condition
The diagram below shows the cost and revenue conditions faced by a profit maximising firm producing under conditions of perfect competition. The firm is making a loss. What should the firm do?
  1. Aincrease the price to cover the average variable cost (AVC)
  2. Blower price to increase demand for its product
  3. Cleave the industry in search of higher profits elsewhere
  4. Dcontinue in production in the short-run in the hope that demand and price will rise in the future

Question 16

oligopoly / kinked demand curve
Faced with a kinked demand curve, firms operating in an oligopolistic market will
  1. Asell products in more than one market
  2. Bnot follow price rises done by rival firms
  3. Chave horizontal marginal revenue curves
  4. Dface inelastic demand above and elastic demand below the current market price

Question 17

economic rent and transfer earnings
The diagram below illustrates the market for a factor of production. What is the effect of a change from S to S1S_1 on the proportion of economic rent and transfer earnings?
  1. Arises / rise
  2. Brises / fall
  3. Cfalls / rise
  4. Dfalls / fall

Question 18

demand for money / liquidity preference
What influences the speculative demand for money?
  1. Avalue of current transactions
  2. Bproductivity of capital
  3. Cexpected level of interest rates
  4. Dfrequency with which income payments are made

Question 19

normal profit
Normal profit is earned by an organisation when
  1. Amarginal cost is equal to marginal revenue.
  2. Bmarginal cost is equal to average cost.
  3. Cmarginal cost is equal to average revenue.
  4. Daverage cost is equal to average revenue.

Question 20

scarcity and choice
What does the existence of scarcity imply?
  1. AAll goods are economic goods.
  2. BEconomic agents have to make choices.
  3. CIt is not possible to increase the quantity of resources.
  4. DProductive potential of an economy is decreasing.

Question 21

monetary policy
Which of the following measures is not consistent with a deflationary monetary policy?
  1. Acalling for special deposits
  2. Boverfunding the fiscal deficit
  3. Ccentral bank purchases of bills on the open market
  4. Dan increase in the general level of interest rate

Question 22

terms of trade
A favourable movement in the terms of trade implies that the
  1. Acurrency has been devalued.
  2. Bprices of exports have increased.
  3. Cvisible trade balance has improved.
  4. Dbalance of payments has improved.

Question 23

aggregate demand and employment
There will be full employment without inflation if aggregate demand
  1. Afalls below NNP.
  2. Bequals actual GNP.
  3. Cequals potential GNP
  4. Dfalls below actual GNP.

Question 24

liquidity preference
Liquidity preference refers to
  1. Athe community's preference for a gold-backed currency.
  2. Bthe community's effective demand for capital goods.
  3. Cthe bank's insistence on collateral security from business borrowing.
  4. Dthe extent to which investors prefer to keep their assets as money.

Question 25

credit creation / money supply
When commercial banks create credit they are increasing the
  1. Astock of money.
  2. Breal national income.
  3. Creal wealth of the country.
  4. Dpurchasing power of the currency.

Question 26

circular flow of income
A temporary leakage from the circular income flow could take the form of
  1. Awages.
  2. Bsalaries.
  3. Cdepreciation reserves.
  4. Ddistributed profits.

Question 27

national income measurement
National income is calculated by
  1. Aconsumption, production and income methods.
  2. Btaxation, production and income methods.
  3. Csavings, investment and consumption methods.
  4. Dexpenditure, production and income methods.

Question 28

economic growth
The economic growth of a country may be deduced from an increase in its
  1. Atotal wage bill
  2. Bper capita output
  3. Cyield from taxation
  4. Dgeneral level of prices

Question 29

unemployment
Structural unemployment may be reduced by government action in
  1. Areducing short-term interest rates.
  2. Btemporarily restricting the immigration of unskilled labour.
  3. Cmaking grants available for the introduction of automated production.
  4. Dencouraging greater occupational and geographical mobility of labour.

Question 30

aggregate demand / open economy
In an open economy, a decrease in imports, other things being equal,
  1. Araises aggregate demand and equilibrium income.
  2. Blowers aggregate demand and equilibrium income.
  3. Craises aggregate demand and lowers equilibrium income.
  4. Dlowers aggregate demand and raises equilibrium income.

Question 31

investment
Which one of the following constitutes investment?
  1. Aincreasing the wages of employees
  2. Barranging a loan from a commercial bank
  3. Cpurchase of securities on the stock exchange
  4. Dadditions to a firm's stocks of raw materials

Question 32

international trade
Dumping is the practice of
  1. Aexchanging industrial goods for agricultural products.
  2. Bselling substandard goods to less developed countries.
  3. Cselling goods overseas at prices lower than those in the home market.
  4. Dselling goods overseas in order to minimise the risk of loss resulting from price fluctuations.

Question 33

real income / standard of living
If both prices and money income have doubled over a given period of time, other things being equal, standard of living is
  1. Ahalved
  2. Bdoubled
  3. Cquadrupled
  4. Dunchanged

Question 34

consumption and savings
If the average propensity to save and the average propensity to consume are equal, it follows that
  1. Ainvestment is nil.
  2. Binvestment must be equal to one quarter total income.
  3. Cinvestment must be equal to one half total income.
  4. Dmarginal propensity to save and marginal propensity to consume are equal.

Question 35

balance of payments

The following figures are based on a country's balance of payments account.

Visible imports: $m 2 000
Visible exports: $m 3 000
Shipping: −20
Travel and tourism: −70
Interest, dividends and profits: +20
Immigrants funds: −8
Government: −100

The overall balance on current account is

  1. A+$1 000m
  2. B+$822m
  3. C−$198m
  4. D−$178m

Question 36

fiscal policy / automatic stabilisers
A tax will provide some automatic stabilisation for an economy if it
  1. Aincreases with a decrease in GNP.
  2. Bdecreases with a rise in incomes.
  3. Cdecreases with a decrease in incomes.
  4. Dremains constant as GNP rises.

Question 37

inflation
Cost-push inflation may be accelerated as a result of
  1. Aa general increase in rates of VAT.
  2. Bhigher money wages reflecting increases in productivity.
  3. Can increase in the level of gold reserves.
  4. Dgovernment decisions to limit production of non-essential goods.

Question 38

demand-pull inflation
Which of the following factors can cause demand-pull inflation?
  1. Aa sharp increase in unemployment
  2. Ban increase in income tax
  3. Ca steep reduction in direct taxation
  4. Da fall in consumption expenditure

Question 39

balance of payments / visible trade
A country's visible balance would be affected directly by
  1. Aan increase in aid to less developed countries.
  2. Ba doubling of government expenditure abroad.
  3. Ca decline in the money value of its food imports.
  4. Da fall in profits of its shipping firms' dealing with overseas customers.

Question 40

exchange rates / purchasing power parity
One of the criticisms of the purchasing power parity theory is that it
  1. Adoes not allow for the possibility of devaluation
  2. Bdoes not allow for the effect of tariffs
  3. Cdoes not take into account the influence of disequilibrium in the balance of payments
  4. Dis difficult to compare accurately purchasing power in different countries

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