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ZIMSEC A Level · J2010

Economics Paper 1 June 2010

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

economic methodology
Which of the following is a positive statement?
  1. AWealth should be distributed equally.
  2. BThe best level of taxation is zero percent because people keep everything they earn.
  3. CAn increase in college tuition fees will cause fewer students to apply for college.
  4. DThe government must lower the price of bread so that more customers can afford it.

Question 2

economic methodology
The term *ceteris paribus* means
  1. Achanging other variables.
  2. Bother things being equal.
  3. Cfalse unless proven true.
  4. Dchanging some variables whilst others remain constant.

Question 3

price mechanism and allocative efficiency
The role of promoting allocative efficiency is played by changes in
  1. Arelative prices.
  2. Bthe rate of growth.
  3. Cthe rate of inflation.
  4. Dthe average level of prices.

Question 4

consumer theory / demand
An individual's demand curve corresponds to
  1. Aan indifference curve.
  2. Bthe budget constraint line.
  3. Cthe price-consumption curve.
  4. Dthe income-consumption curve.

Question 5

demand shifts
Which of the following could cause a shift of the demand curve from D1D_1 to D2D_2?
  1. Aan increase in supply
  2. Ba rise in the price of a substitute
  3. Ca rise in the price of a complement
  4. Da fall in the price of the product

Question 6

consumer surplus

Joseph's demand for movies is as follows:

Ticket priceNumber of tickets demanded
$4 0004
$6 0003
$8 0002
$10 0001
$12 0000

Suppose the actual price is $4 000, how much consumer surplus would Joseph enjoy?

  1. A$4 000
  2. B$16 000
  3. C$24 000
  4. D$40 000

Question 7

supply determinants
Which of the following does not shift the supply curve?
  1. Adevelopment of new technology
  2. Bconsumers buying more of a product
  3. Ca rise in the wages paid to workers
  4. Da decrease in the number of suppliers

Question 8

elasticity of supply
The two main factors affecting elasticity of supply are
  1. Asupply and demand.
  2. Bprice and quantity.
  3. Ccost and revenue.
  4. Davailability of inputs and time.

Question 9

production and costs
What is the distinction between economies of scale and increasing returns?
  1. AScale is associated with a fixed plant size, returns are not.
  2. BScale results in short run cost analysis, returns do not.
  3. CReturns are associated with a fixed plant size, scale is not.
  4. DReturns are associated with profit maximisation solution, scale is not.

Question 10

supply determinants
Which of the following are supply determinants?
  1. Aa technology, price of resources, expectations and number of buyers
  2. Ba price of other goods, expectations, income and technology
  3. Cincome, expectations, technology and number of sellers
  4. Dprice of resources, technology, expectations and price of the good itself

Question 11

market equilibrium
Equilibrium prices include
  1. Abid prices by buyers.
  2. Bprice catalogue of products on offer.
  3. Ctransaction prices that leave no shortage or surpluses.
  4. Dprices at which there is excess supply.

Question 12

demand and supply
Which of the following statements best contrasts the demand curve and the supply curve?
  1. AThe demand curve reflects what the buyer is willing and able to buy and the supply curve reflects what the seller is willing and able to sell.
  2. BBoth the demand curve and supply curve reflect what a seller is willing and able to make available to the buyer.
  3. CBoth the demand curve and supply curve reflect what the buyer is willing and able to purchase from the seller.
  4. DThe demand curve reflects what the seller will be able to sell and supply curve reflects what the buyer is able to buy.

Question 13

firm theory and costs
The diagram represents the revenue and cost conditions faced by a profit-maximising firm. It indicates that the firm is earning
  1. Anormal profit.
  2. Bsupernormal profit.
  3. Ceconomic profit and will continue in production in the short run.
  4. Dless than normal profit but will continue to produce in the short run.

Question 14

contestable markets
In a contestable market
  1. Athere is a single firm which can act as a monopolist.
  2. Bthe potential entry of new firms increases the market power of the existing firm.
  3. Cthe potential entry of new firms has no effect on the power of the existing firm.
  4. Dif there is a single firm, it cannot act as though it is a monopoly.

Question 15

monopolistic competition
Which diagram shows a monopolistic firm in long run equilibrium?
  1. ADiagram A
  2. BDiagram B
  3. CDiagram C
  4. DDiagram D

Question 16

monopoly profit
Using the diagram above, if the industry is monopolised and demand and costs of production remain unchanged, what is the maximum monopoly profit?
  1. A$15 000
  2. B$25 000
  3. C$50 000
  4. D$75 000

Question 17

factor markets / derived demand
Derived demand for factors of production means that
  1. Afirms, rather than consumers, demand factors.
  2. Bthe demand for factors is derived from their marginal revenue product.
  3. Cthe demand for factors depends on the demand for the goods they produce.
  4. Dthe demand for units of one factor will be affected by the firm's demand for other factors.

Question 18

factor markets / economic rent
Which of the following statements refers to quasi-rent?
  1. Athe permanent surplus above transfer earnings accruing to a factor of production
  2. Bthe return to a factor of production which is above its transfer earnings in the short run
  3. Cthe return to a factor of production only in the long run
  4. Dtotal payment made to a factor of production

Question 19

labour market / economic rent

The diagram shows the supply and demand of labour for a perfectly competitive market.

Which area represents the opportunity cost of labour when the market is in equilibrium?

  1. AAPwEAP_wE
  2. BOPwEQLOP_wEQ_L
  3. CBPwEBP_wE
  4. DOAEQLOAEQ_L

Question 20

profit and costs
Economic profit is
  1. Atotal cost.
  2. Btotal revenue minus explicit cost.
  3. Ctotal revenue minus implicit cost.
  4. Dtotal revenue minus explicit and implicit costs.

Question 21

government intervention / market failure
Which of the following is not a valid reason for government intervention in an economy?
  1. Amarket failure
  2. Bmonopoly regulation
  3. Cdivergence between social costs and private costs
  4. Dprofiteering in provision of demerit goods

Question 22

contestable markets
A perfectly contestable market is when
  1. Amarginal costs are zero.
  2. Bproducts are homogenous.
  3. Ccosts of entry by new firms are zero.
  4. Dno abnormal profits are realised in the long run.

Question 23

economic growth and development
The difference between economic growth and economic development is that
  1. Aeconomic growth is a quantitative process while economic development is a qualitative process.
  2. Beconomic growth occurs in all countries but economic development occurs only in developed countries.
  3. Ceconomic growth has costs and benefits but economic development results in benefits only.
  4. Deconomic growth occurs in the short run but economic development occurs in the long run.

Question 24

macroeconomic objectives / Phillips curve
Economic objectives trade off is explained by the
  1. Amultiplier concept.
  2. Bopportunity cost concept.
  3. CPhillips curve analysis.
  4. Dcost-benefit analysis.

Question 25

development economics / population
Which of the following pyramids correctly depicts the population structure of a developing country?
  1. ADiagram A
  2. BDiagram B
  3. CDiagram C
  4. DDiagram D

Question 26

fiscal multiplier / national income
In an economy with a multiplier of 2, government plans to raise spending by $500 billion on its budget, funded by $500 billion increase in tax. Equilibrium income is $2 500 billion. What effect will the budget have on the economy?
  1. Aequilibrium income remains at $2 500 billion
  2. Bequilibrium income shifts to $3 000 billion
  3. Cequilibrium income shifts to $3 500 billion
  4. Dequilibrium income cannot be determined from this information

Question 27

monetary economics / liquidity trap
In the Keynesian liquidity preference theory, liquidity trap occurs when
  1. Ainterest rates are negative.
  2. Bprice of securities is low.
  3. Csupply of money is perfectly inelastic.
  4. Ddemand for money becomes perfectly interest elastic.

Question 28

unemployment
Frictional unemployment can be reduced by
  1. Abanning retrenchments.
  2. Btraining job seekers.
  3. Cincreasing unemployment benefits.
  4. Davailing information on jobs available to prospective job seekers.

Question 29

inflation
Other things being equal, what is likely to immediately result from a fall in inflation?
  1. Aa capital inflow
  2. Ban increase in consumption
  3. Can increase in investment
  4. Da fall in unemployment

Question 30

balance of payments / trade
Which of the following items is not part of invisible trade?
  1. Ainterest
  2. Bdividends
  3. Ctransport
  4. Dbeverages

Question 31

market failure
The following goods illustrate market failure except
  1. Afree goods.
  2. Bpublic goods.
  3. Cmerit goods.
  4. Dprivate goods.

Question 32

labour supply / backward-bending supply curve
The curve illustrates that
  1. Athe marginal utility of reducing leisure time is greater than the wage rate offered.
  2. Bas a worker provides labour, there comes a point where disutility sets in.
  3. Cworking more hours increases wage rate.
  4. Dlabour and wage rates are positively dependent.

Question 33

Keynesian multiplier / national income
Given that mpc = 0.8 and additional G = $5 billion, the increase in National Income is
  1. A$4 billion.
  2. B$6.25 billion.
  3. C$25 billion.
  4. D$40 billion.

Question 34

monetary policy
Which of the following is not a monetary policy instrument?
  1. Ainterest rate
  2. Bopen market operations
  3. Cchanges in government taxation
  4. Dchanges in banks' liquidity ratio

Question 35

supply-side policy
The following are supply side policy measures except
  1. Aimproved quality of labour.
  2. Bprivatisation and deregulation.
  3. Cincreased government expenditure.
  4. Dreduction in trade union power.

Question 36

international trade / comparative advantage
The main difference between absolute advantage and comparative advantage is that
  1. Acomparative advantage benefits one country whilst absolute advantage benefits both countries.
  2. Bin absolute advantage, one country is better at both commodities whilst in comparative advantage a country is better at one commodity.
  3. Ccomparative advantage looks at relative costs whilst absolute advantage looks at absolute costs.
  4. Din absolute advantage, a country may produce both goods more efficiently and in comparative advantage one country is relatively efficient in the production of one good.

Question 37

economic growth / business cycle
Which part of the economic growth rate curve A, B, C or D shows a recession?
  1. AA
  2. BB
  3. CC
  4. DD

Question 38

national income accounting / GDP

The table shows incomes earned by factors of production in a year.

Income from employment: $800 000
Income from self employment: $500
Gross trading profits of companies: $950 500
Gross trading surpluses of nationalised industries: $4 000
Gross trading surplus of general/government enterprises: $5 000
Rent: $60 000
Imputed charge for consumption of non-funded capital: $80 000
Stock appreciation: $50 000

What is the country's gross domestic product at factor cost?

  1. A$1 820 000 billion
  2. B$1 850 000 billion
  3. C$1 900 000 billion
  4. D$1 950 000 billion

Question 39

welfare economics / externalities
Which one of the following areas A, B, C or D shows welfare loss due to underproduction of a commodity?
  1. AA
  2. BB
  3. CC
  4. DD

Question 40

international trade / economic integration
'An economic integration where there is free trade between member countries and all members are obliged to operate a common external tariff on imports from non member countries.' This describes
  1. Aa common market.
  2. Ba free trade area.
  3. Ca customs union
  4. Dan economic union.

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