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ZIMSEC A Level · 9158/1 · J2011

Economics Paper 1 June 2011

Questions
40
Syllabus code
9158/1

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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

production possibility curve
A straight line production possibility curve displays
  1. Aincreasing returns.
  2. Bdecreasing returns.
  3. Cconstant opportunity cost.
  4. Drising marginal rate of substitution.

Question 2

scarcity and choice
Scarcity in an economy implies that
  1. Athere are no economic goods.
  2. Bdomestic expansion is no longer possible.
  3. Ceconomic agents can no longer make choices.
  4. Dchoice is inevitable for all economic agents.

Question 3

opportunity cost
A country calls up all able-bodied citizens between 18 and 45 years to join its army to defend the nation. The cost of such an army is likely to be more expensive than the same size army of professional soldiers because
  1. Aindiscipline will cause more expenses in the army.
  2. Benlisted soldiers demand higher pay than professional soldiers.
  3. Cits opportunity cost is higher as these soldiers have higher returns elsewhere.
  4. Dtheir wages are greater than the value of alternative output in the economy.

Question 4

production possibility curve

The diagram below shows an economy's production possibility curve (PPC).

What does the slope of the line RS measure?

  1. Aopportunity cost of Good Y for Good X
  2. Bmarginal rate of substitution of Good Y for Good X
  3. Crate of increase in Good Y as Good X rises
  4. Dsociety's budget constraint for Goods X and Y

Question 5

elasticity of demand
The price of mealie-meal rises from $10 000 to $20 000 and quantity demanded of mealie-meal changes from 100 000 to 95 000 tonnes. Which diagram A, B, C or D reflects the demand for mealie-meal?
  1. AA
  2. BB
  3. CC
  4. DD

Question 6

income elasticity of demand
The income elasticity of demand for a good is 5. If demand rises by 50%, income would have changed by how much?
  1. A0,1%
  2. B0,5%
  3. C10%
  4. D25%

Question 7

budget lines

A consumer derives satisfaction from consuming two goods, clothes and food. The original budget constraint is XY and the new budget constraint is XZ. With a budget of $500 000 and prices at:

1 unit of clothes $5 000;
1 unit of food $2 500;

Which diagram A, B, C or D reflects the changes when food price falls to $2 000 per unit?

  1. AA
  2. BB
  3. CC
  4. DD

Question 8

budget lines

A consumer's budget is constrained at $200 000. She buys goods X and Y, whose prices are $2 000 and $1 250 respectively. If her budget rises to $300 000 and prices of goods X and Y change such that the new budget constraint cuts the 'X' axis at 200 and 'Y' axis at 120, what are the new prices of goods X and Y?

The options give the price of X and then the price of Y.

  1. A$1 500, $2 500
  2. B$1 800, $1 000
  3. C$2 500, $1 500
  4. D$3 000, $2 500

Question 9

production and costs

The diagram below shows the total product (TP) curve for a firm.

At which level of employment of labour A, B, C, or D will average product (AP) be at maximum?

  1. AA
  2. BB
  3. CC
  4. DD

Question 10

production and costs
Santa Fresh operates a bakery whose total variable cost (TVC) is $2 000 000, average total cost (ATC) is $5 000 and average fixed cost (AFC) is $3 000. What is the firm's output?
  1. A250 units
  2. B400 units
  3. C666 units
  4. D1 000 units

Question 11

perfect competition

The diagram below shows a perfectly competitive firm's cost curves.

Which output shows the shutdown point of the firm in the short run?

  1. Aq1
  2. Bq2
  3. Cq3
  4. Dq4

Question 12

production and costs
Hurudza Farm produces 10 000 units of farm implements. Its total fixed costs are $20 000 000 and its average variable costs are $5 000. If the firm wants a break-even price, what will it charge per unit?
  1. A$1 000
  2. B$2 000
  3. C$5 000
  4. D$7 000

Question 13

perfect competition
Which of the following does not apply to a perfectly competitive firm in the long run equilibrium?
  1. Acharge a price greater than average cost
  2. Bequate average cost to average revenue
  3. Cequate marginal cost to marginal revenue
  4. Dequate price to marginal cost

Question 14

economies of scale
Minimum efficient scale refers to where
  1. Aa given size plant is used to full capacity.
  2. Bthe firm can avoid making a loss.
  3. Cthe firm's operations just break even.
  4. Dthe firm's average costs start rising.

Question 15

consumption and saving
The savings function of a closed economy with no government is given by the equation S = -$500 + 0,3Y. If the level of the national income is $5 000, what is the average propensity to consume?
  1. A0,3
  2. B0,6
  3. C0,7
  4. D0,8

Question 16

national income accounting
The gross domestic product of a country is $3 000 billion and the price index stands at 120. What is the country's real gross domestic product?
  1. A$1 000 bn
  2. B$2 000 bn
  3. C$2 500 bn
  4. D$3 000 bn

Question 17

consumption and saving
What does the slope of the consumption function measure?
  1. Athe marginal propensity to save
  2. Bthe marginal propensity to consume
  3. Cthe average propensity to consume
  4. Dthe average propensity to save

Question 18

money and inflation
A fall in the velocity of circulation leaves the price level unchanged. What could explain this?
  1. Aa fall in the price of output
  2. Ba fall in the level of employment
  3. Ca rise in the money supply
  4. Da rise in the volume of transactions

Question 19

trade barriers
A manufacturer faces a quota on its exports to a large foreign market. What strategy would help to increase sales revenue to this market?
  1. Aestablishing and subsidising a dealer network in the foreign market
  2. Bimproving the quality of the products it produces
  3. Csetting up a manufacturing plant in the foreign market
  4. Dreducing the price of exports to that market

Question 20

market failure
Which of the following should be provided by the government because of market failure?
  1. Afree education
  2. Bstreet lighting
  3. Cfree diesel to new farmers
  4. Dold age pension benefits

Question 21

balance of payments
What might cause a favourable balance of trade in a country if the exchange rate remains unchanged?
  1. Aa fall in the price of exports
  2. Ban improvement in the terms of trade
  3. Can increase in the price of imports
  4. Da constant level of real income per head

Question 22

costs and decision making
A firm finds it costly to run and maintain a machine it bought a decade ago. What should the firm not consider when it wants to dispose of the machine?
  1. Awages of machine operators
  2. Bthe cost price of the machine to the firm
  3. Ccurrent market price of the machine
  4. Delectricity charges to run the machine

Question 23

national income accounting

In an open economy where

Y = aggregate output of domestically produced goods
I = investment
C = consumption
G = government expenditure
T = taxes
M = imports
X = exports

Which of the following equation shows the equilibrium of the country?

  1. AC + I + G = Y
  2. BC + I + G + M - X = Y
  3. CC + I + G + X - M = Y
  4. DC + I + G - T + M - X = Y

Question 24

subsidies
Given that the price of transport in a country has gone up, the government has reacted by increasing subsidies for public transport. Which of the following will result from the government's move?
  1. Aan increase in taxes
  2. Blower bus fares
  3. Can increase in traffic congestion
  4. Da lot of workers will go to work

Question 25

national income accounting
In a given year the money income rose by 6% while the price level rose by 5%. What can be concluded from this?
  1. Areal income decreased by 1%
  2. Bthe volume of output increased by 1%
  3. Cthe money supply increased by 11%
  4. Dthe income velocity of circulation decreased by 1%

Question 26

national income accounting

The table below gives information about a country's national income and some of its components.

($bn)
national income 500
consumer spending 200
investment spending 100
government spending 150
imports 125

What is the value of exports?

  1. A$175 bn
  2. B$125 bn
  3. C$ 50 bn
  4. D$ 25 bn

Question 27

macroeconomic policy
An economy has a balance of payments surplus and a low level of inflation. What would be the appropriate action for a government to take?
  1. Areduce the money supply
  2. Breduce interest rates
  3. Cimpose tariffs on imports
  4. Dappreciate the currency

Question 28

merit goods
A government believes that consumers derive greater benefit from a good than consumers themselves perceive. To which category does the good belong?
  1. Afree goods
  2. Bmerit goods
  3. Cpublic goods
  4. Dnormal goods

Question 29

fiscal policy
Which of the following is not an automatic stabiliser of national income?
  1. Asocial security contributions
  2. Bold age pensions
  3. Ctaxes on expenditure
  4. Dunemployment benefits

Question 30

externalities
Which of the following is an externality arising from tobacco smoking?
  1. Athe burden on the health services delivery system
  2. Bthe amount paid by tobacco smokers
  3. Csubsidies paid to tobacco farmers
  4. Dtax revenue on tobacco

Question 31

national income equilibrium

On the diagram below Yf represents full employment level of national income.

Which statement best describes this economy?

  1. Athe economy is in equilibrium and all resources will be employed
  2. Bgovernment income increases its expenditure
  3. Cthere is a deflationary gap
  4. Dthere is an inflationary gap

Question 32

money and banking
The liquidity preference is drawn on the assumption that
  1. Athe money supply is fixed.
  2. Bthere is a liquidity trap.
  3. Cthe transaction demand for money is constant.
  4. Dthe rate of interest varies directly with bond prices.

Question 33

circular flow of income
When a diagram is drawn showing the circular flow of payments between households and business, the two major markets are
  1. Agoods and services.
  2. Bcapital and labour.
  3. Ccapital and land.
  4. Dconsumer goods and factor resources.

Question 34

taxation

The table below shows relationships between income and tax paid.

Tax 10,Income 10, Income 10 000
Tax 20,Income 20, Income 50 000
Tax 30,Income 30, Income 90 000

Which type of tax is illustrated in the table?

  1. Aneutral
  2. Bprogressive
  3. Cregressive
  4. Dproportional

Question 35

national income equilibrium

Suppose that

C = 0,5 of GDP
I = 100
G = 140
X = 60
M = 10% of GDP

Then, equilibrium GDP equals

  1. A500.
  2. B600.
  3. C750.
  4. D790.

Question 36

factor markets
The payment made to a factor of production over and above that necessary to keep the factor in its present use is
  1. Aconsumer surplus.
  2. Beconomic rent.
  3. Cnormal profit.
  4. Dopportunity cost.

Question 37

national income accounting
The difference between gross national product and net national product is
  1. Asubsidies.
  2. Bdepreciation.
  3. Cindirect taxes.
  4. Dnet property income from abroad.

Question 38

monetary policy
Ceteris Paribus, what is likely to result from a reduction in interest rates?
  1. Aa capital inflow
  2. Ba fall in investment
  3. Can appreciation of the currency
  4. Dan increase in consumption

Question 39

consumer behaviour
Which of the following statements best describes a rational consumer?
  1. Aone who weighs up the costs and benefits of each good consumed
  2. Bone who has brand loyalty of certain commodities
  3. Cone who always buys valuable goods
  4. Done who maximises total utility

Question 40

agriculture and intervention
Which of the following is not a valid reason for government intervention in agriculture?
  1. Auncertainty may discourage farming
  2. Bunstable prices may disadvantage consumers
  3. Cfluctuating prices cause fluctuating farm incomes
  4. Dconsumers need a variety of commodities through competition

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