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ZIMSEC A Level · 9158/1 · J2018

Economics Paper 1 June 2018

Questions
36
Syllabus code
9158/1

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Questions
36
Pass mark
22
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Answer every question in the printed order, get marked at the end, then see the answers.

The questions

Question 1

production possibility curve
A concave production possibility curve (PPC) illustrates that
  1. Aincreasing one good's production is only possible through sacrificing production of another good.
  2. Bsome resources are better suited to the production of just one of the two goods.
  3. Cthe economy can choose to produce more of one good without incurring any opportunity cost.
  4. Dthe resources are not sufficient to produce the quantity that may be wanted by the economy.

Question 2

basic economic concepts
A flow variable is a variable that
  1. Ais measured per unit of time.
  2. Bis available at any given time.
  3. Cdoes not change over time.
  4. Ddoes not have a time dimension.

Question 3

opportunity cost

A country's production possibility frontier is given by the equation P = 100 - 25 Q where P and Q are the two goods produced by the economy.

What is the opportunity cost of producing one extra unit of P?

  1. A1/100 units of Q
  2. B1/25 units of Q
  3. C99 units of Q
  4. D100 units of Q

Question 4

indifference curves

The indifference map below relates to two goods, X and Y.

Which type of products are shown?

  1. Aabsolute necessity
  2. Bindependent products
  3. Cperfect complements
  4. Dperfect substitutes

Question 5

consumer equilibrium
Using the indifference curve analysis, consumer equilibrium is achieved when
  1. AMU = P1.
  2. BMU1/P2 = MU2/P1.
  3. CMU1 = MU2.
  4. DP1/P2 = MRS.

Question 6

monopoly

The diagram below shows the revenue and cost curves of a monopoly.

If the monopolist adopts a marginal cost pricing policy, at what output level A, B, C and D will it produce?

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

Question 7

factor combination
A firm uses two variable factors of production, labour and capital. The prices of the factors are given as PL and PK. Given that the average and marginal products to labour and capital are APL and APK, MPL and MPK respectively, which one of the following expressions represents the optimum combination of the factors?
  1. AAPL / APK
  2. BAPL / PL = APK / PK
  3. CMPL / PL = MPK / PK
  4. DPL / MPK = PK / MPL

Question 8

costs of production
On a total cost curve, average total cost is calculated as the
  1. Adistance from the quantity axis to the total cost curve.
  2. Bslope of the ray from the origin to the total cost curve.
  3. Cslope of a tangent to the total cost curve.
  4. Dslope of the total cost curve.

Question 9

factor combination

The table below relates to the methods of production employed by a firm.

factors of productionlandlabourcapital
marginal physical product/units of output1052
price per unit of output20010040

It can be determined that, it is

  1. Anot possible to reduce costs by reallocating inputs.
  2. Bpossible to reduce costs by using more of land and less labour and capital.
  3. Cpossible to reduce costs by using more of land and labour and less capital.
  4. Dpossible to reduce costs by using more capital and less labour and land.

Question 10

indirect taxes

The diagram below shows the supply curves before and after the imposition of a specific tax on a good.

The tax per unit is equal to

  1. AOZ.
  2. BXY.
  3. CXZ.
  4. DYZ.

Question 11

marginal utility
A consumer spends his disposable income on food and clothing. When his weekly income is $40, he buys 5 units of food at a unit price of $5. His marginal utility from the consumption of food is 10 utils. If the price of clothing is $0.50 per unit, the consumer's marginal utility from clothing is
  1. A1/10 utils.
  2. B1 util.
  3. C10 utils.
  4. D80 utils.

Question 12

costs of production

The firm's short run cost function is C = 10 000 + 100 Q² where Q is the level of output.

If 20 units of output are produced, what is the average total cost?

  1. A$500
  2. B$2 500
  3. C$10 000
  4. D$40 000

Question 13

consumer equilibrium

Initially, the consumer's income is $2 000 per year. The person is consuming two goods: health care and shelter in constant proportion of 1 unit of health care to 2 units of shelter. The prices of health care and shelter are 20and20 and 15 respectively.

If the income increases to $3 000 per year and the prices of health care and shelter remain constant, what are the new quantities of health care and shelter consumed?

  1. Ahealth care 40, shelter 80
  2. Bhealth care 60, shelter 120
  3. Chealth care 240, shelter 150
  4. Dhealth care 250, shelter 400

Question 14

price controls
For a price ceiling to be effective, it has to be set
  1. Aat the equilibrium price.
  2. Babove the equilibrium price.
  3. Cbelow the equilibrium price.
  4. Dset in combination with quantity.

Question 15

oligopoly
Which form of price leadership accepts a firm from another industry as a leader?
  1. Aa cartel
  2. Bbarometric price leadership
  3. Cdominant firm price leadership
  4. Dlow cost firm price leadership

Question 20

aggregate demand

The diagram below shows the aggregate demand (AD) and aggregate supply (AS) curves for an economy.

An increase in aggregate demand from AD1 to AD2 could be a result of

  1. Aan increase in exports.
  2. Ban increase in savings.
  3. Can increase in the general price level.
  4. Da decrease in investment.

Question 21

costs of production

The table below shows a firm's total product schedule when operating with labour as the only variable factor.

number of workers12345
total product (units)4791011

If each worker is paid $400, the marginal cost of the tenth unit is

  1. A$40.
  2. B$100.
  3. C$400.
  4. D$4 000.

Question 22

national income
Gross domestic product at market prices is adjusted to give gross domestic product at factor cost by
  1. Aadding net property income from abroad.
  2. Badding taxes and subtracting subsidies.
  3. Csubtracting capital consumption.
  4. Dsubtracting taxes and adding susidies.

Question 23

national income

The statistical data below is for a closed economy.

YearNominal GDPpopulationGDP deflator (CPI)
2010$2 580 bn10 m100
2011$3 000 bn10.5 m130
2012$3 500 bn11 m150

Over the period, what happened to the standards of living in the economy?

  1. AThey improved.
  2. BThey declined.
  3. CThey remained the same.
  4. DThey improved, then declined.

Question 24

national income determination

Given the information below for an open economy where

C = 400 + 0.6 y
X = 300
I = 500
G = 800
M = 10 % of Y

The equilibrium level of national income is equal to

  1. A$2 400.
  2. B$3 333.
  3. C$4 000.
  4. D$5 200.

Question 25

balance of payments
The J-curve effect arises because
  1. Ain the short run, the price elasticity of demand for imports and exports is very low.
  2. Bof the ineffectiveness of policies to cure the Balance of Payments deficit.
  3. Cthere is speculation against the domestic currency over time.
  4. Dthe elasticity of import demand diminishes after some time.

Question 26

trade protection

The diagram below shows a small country facing a perfectly elastic world supply curve for its imports, Ws.

What is the overall effect of imposing a tariff?

  1. AIncreased government revenue.
  2. BIncreased production by domestic firms.
  3. CReduced imports into the economy.
  4. DReduced welfare of the citizens because of the deadweight loss from the tariff.

Question 27

comparative advantage

Country X and Country Y are producing guns and wheat as shown in the production schedule below.

countrygunswheat
country X2001 000
country Y2 000400

It can be inferred that

  1. Acountry X has comparative advantage in guns production.
  2. Bcountry Y has a comparative advantage in wheat production.
  3. Ccountry X has a comparative advantage in wheat production.
  4. Dcountry Y has a comparative advantage in both wheat and guns production.

Question 28

inflation
Assuming the demand for oil is price elastic, the effect on demand-pull inflation and on cost-push inflation in an oil importing country of an increase in the world price of oil will be
  1. Ademand-pull: a reduction; cost-push: a reduction.
  2. Bdemand-pull: a reduction; cost-push: an increase.
  3. Cdemand-pull: an increase; cost-push: a reduction.
  4. Ddemand-pull: an increase; cost-push: an increase.

Question 29

economic integration
The highest form of economic integration involves
  1. Athe removal of tariff and non-tariff barriers.
  2. Bthe adoption of a common external tariffs.
  3. Cthe free movement of factors of production.
  4. Dthe harmonisation of monetary, agricultural and judicial policies.

Question 30

macroeconomic policy conflicts
A developing country is facing macro-economic problems of rising inflation, unemployment and low levels of economic growth. The most significant conflict may be encountered in solving the macro-economic problems of
  1. Arising inflation and unemployment.
  2. Brising inflation and low levels of economic growth.
  3. Cunemployment and low levels of economic growth.
  4. Drising inflation, unemployment and a low level of economic growth.

Question 31

money and banking

An undated government bond was originally sold for $100 with a nominal rate of interest of 4%.

If the current yield on the bond is 10 %, what is the price of the bond?

  1. A$25
  2. B$40
  3. C$60
  4. D$110

Question 32

money supply
Under what circumstances would an increase in the Public Sector Borrowing Requirement (PSBR) not lead to an increase in money supply, other things being equal?
  1. AThere is large scale unemployment.
  2. BThe demand for money is interest inelastic.
  3. CPSBR is financed by an increase in national savings.
  4. DThere are no accompanying increases in commercial bank lending to the private sector.

Question 33

welfare economics

The diagram below shows an industry in equilibrium.

If output is restricted to Q1, the reduction in net welfare is shown by the area

  1. AK.
  2. BL.
  3. CK + L.
  4. DJ + K.

Question 34

inflation
Cost push inflation is a result of the following except
  1. Aa fall in the exchange rate.
  2. Bwages rising faster than productivity.
  3. Crising world prices for major raw materials.
  4. Dincreased export demand for the country's output.

Question 35

balance of payments policy
Which of the following measures is an expenditure switching policy?
  1. Aa reduction in government expenditures
  2. Bdevaluation of country's currency
  3. Chigher interest rates
  4. Dincrease in direct taxation

Question 36

balance of payments policy
Which of the following policies is likely to be effective in rectifying a deficit on a county's balance of payments?
  1. Adevaluing the currency
  2. Bencouraging the export of capital
  3. Cimposing exchange controls
  4. Draising tariff barriers

Question 37

income distribution
An incomes policy is likely to make the distribution of income more equal if it
  1. Alinks increases in income to the consumer price index (CPI).
  2. Bensures that everyone gets the same percentage increase in income.
  3. Censures that everyone gets the same absolute increase in income.
  4. Drestricts the rate of growth of income to the rate of growth of productivity.

Question 38

externalities
The existence of a negative externality in a good's production implies that ______
  1. Athe firm is not a profit maximiser.
  2. Bprivate costs and social costs diverge.
  3. Coutput of the good is below its optimum level.
  4. Dindividuals consume less of the good if left to themselves.

Question 39

externalities
An externality arising from football matches by professional teams is ______
  1. Abonuses paid to the winning players.
  2. Brevenues earned by operators running extra buses.
  3. Cdamage by supporters to infrastructure near the stadium.
  4. Dpayments by the teams to meet the cost of policing.

Question 40

demand for money

The diagram below shows the liquidity preference (LP) and money supply (M) curves.

The increase in liquidity preference from LP1 to LP2 is a result of a

  1. Afall in national income.
  2. Brise in income taxes.
  3. Crise in interest rates.
  4. Drise in the price level.

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