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ZIMSEC A Level · N2002

Economics Paper 1 November 2002

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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

The diagram below shows the transformation curve of an economy

Why is the curve a straight line?

  1. AResources are fully utilized
  2. BThe marginal rate of transformation is decreasing
  3. CThe marginal rate of transformation is constant
  4. DThe economy is experiencing diminishing returns

Question 2

unemployment
If Zimbabwe is experiencing a recession, what will be the effect of rising unemployment among school leavers?
  1. Aan increase in productivity
  2. Ban upsurge in the spread of Aids among teenagers
  3. Can increase in the drop out rate in secondary schools
  4. Da reduction in the drop out rate in secondary schools

Question 3

marginal analysis
Production decisions are always made at the margin because
  1. Athe marginal output is always very small
  2. Bproducers face the problem of resource scarcity.
  3. CDecisions about production are made by private owners of resources
  4. DProfit is always maximized when price is equated to marginal cost

Question 4

utility

In the equations below, MRSa and MRSb denote the marginal rates of substitution for goods A and B respectively, while Pa and Pb are the prices of goods A and B respectively.

Utility is maximised when:

  1. AMRSa / MRSb = Pa / Pb
  2. BMRSa / MRSb = Pb / Pa
  3. CMRSa = MRSb / Pb
  4. DMRSb = MRSa / Pa

Question 5

demand
Assuming many young Zimbabweans would prefer to have restaurant meal than a home prepared one, which of the following would not change their demand for restaurant meals?
  1. Aa change in the incomes of consumers
  2. Ba change in the quality of home cooking
  3. Ca change in the price of a restaurant meal
  4. Da change in the cost of electricity for domestic use

Question 6

elasticity

The diagram below shows the demand curve for a given good.

The price elasticity along the demand curve is

  1. Aconstant throughout
  2. Bequal to the ratio of prices
  3. Cdecreasing with a fall in price
  4. Dequal to the slope of the demand curve

Question 7

elasticity of supply
Which supply curve A, B, C or D on the diagram below does not have constant elasticity?
  1. AA
  2. BB
  3. CC
  4. DD

Question 8

supply

In the diagram below, D0 and D1, S0 and S1 represent the original and subsequent demand and supply curves, respectively. P0 is the original equilibrium price.

What could have caused the price to fall to P1?

  1. Aexternal economies of scale
  2. Binternal diseconomies of scale
  3. Cincreasing returns to the variable factor
  4. Ddiminishing returns to the variable factor

Question 9

costs and supply
The short – run supply curve of an individual firm is
  1. Athe average cost curve
  2. Bthe average variable cost curve
  3. Cthe marginal cost curve above the average total cost curve
  4. Dthe marginal cost curve above the average variable cost curve

Question 10

price discrimination

The diagram below shows a perfect price discriminating monopolist

Which statement about production is true as shown in the diagram?

  1. Athe firm breaks even when producing oq units
  2. Bthe firm makes supernormal profits when producing oq units
  3. Coutput oq is lower than would be produced by a single price monopolist
  4. Dproduction cannot take place the average total cost is less than the average revenue at all levels

Question 11

elasticity of supply
The supply of mangoes on the market tends to be more inelastic in the
  1. Along run
  2. Bshort run
  3. Cvery long run
  4. Dmomentary period

Question 12

costs

In the short run, the total costs of a firm are given as TC = $ (8000 + 20x2) where x is the level of output

If the actual output produced is 10 units, what are the firm's average fixed costs and average variable costs?

The options give the average fixed costs in $ and then the average variable costs in $.

  1. A400 and 100
  2. B800 and 200
  3. C4 000 and 1 000
  4. D8 000 and 2 000

Question 13

shut-down decision

The diagram below shows the short run total cost (TC) and total revenue (TR) schedules of a perfectly competitive firm. The broken line labeled X is parallel to TR.

At what output range would the firm rather close down than continue producing?

  1. AOS
  2. BOR
  3. COQ
  4. DQR

Question 14

opportunity cost
Past expenses, for example, sunk costs are irrelevant to decisions about supply because
  1. Aopportunity costs incurred are not important in decision making
  2. Bpast expenses reduce profits if they are included in decision making
  3. Copportunities available in the present are not affected by past expenses
  4. Dopportunities that will have to be forgone will determine supply decisions

Question 16

demand and supply
The Zimbabwe Football Association (ZIFA) usually increases the price of soccer tickets when there is an international match because
  1. Athe higher the price the greater the utility derived from the game
  2. Bthe price paid to international players is very high due to high economic rent
  3. CZIFA wants people to watch the match since entertainment is a merit good
  4. DThe seating capacity of the sports stadium will not match the increase in demand for the tickets

Question 17

factors of production
Human capital can be defines as
  1. Aemployees of a firm
  2. Bmachinery used by human beings in a firm
  3. Ccapital owned by people employed in the private sector
  4. Dskills, abilities and knowledge possessed by people in a firm.

Question 18

economic rent

The diagram below shows the demand and supply curves in a labour market.

Which area measures economic rent and transfer earnings when the market is in equilibrium?

The options give the economic rent and then the transfer earnings.

  1. Aabd and bcd
  2. Babd and oadq
  3. Cacd and bcd
  4. Dacd and oadq

Question 19

trade unions
Labour unions may not be able to increase of their individual members when
  1. Athere are too many unions
  2. Bcompetition for labour among employers is very high
  3. Ctheir members face competition from non – unionized labour
  4. Dinternational labour regulations do not allow wage bargaining

Question 20

factor markets

A firm is in equilibrium when the last cent spent on each factor is equal to the marginal revenue productivity of each factor

This principle is called

  1. Aequity
  2. Bmarginal analysis
  3. Cdiminishing returns
  4. Dequi- marginal returns

Question 21

consumer and producer surplus
Which area on the diagram below shows community surplus?
  1. Aabd
  2. Bacb
  3. Cbcd
  4. Dodbe

Question 23

public goods
Police protection is provided by the government
  1. Ato minimize inefficiency in the police force
  2. Bto create jobs for the unemployed school leavers
  3. Cbecause it is cheaper to hire government police units
  4. Dbecause it cannot be adequately financed through voluntary contributions

Question 24

taxation

In economy with a progressive tax system, there is an increase in before tax incomes:

After tax incomes will

  1. Adecrease less than proportionately
  2. Bdecrease more than proportionately
  3. Cincrease less than proportionately
  4. Dincrease more than proportionately

Question 25

government intervention
Which action by the government may increase the supply of farm produce on the Zimbabwean market?
  1. Agranting subsidies to producers
  2. Blevying a specific tax on farm produce
  3. Cincreasing the sales tax on farm produce
  4. Dimposing a price ceiling at which farm produce may be sold

Question 26

comparative advantage

Zimbabwe and Zambia are two SADC countries each capable of producing two commodities X and Y as shown below:

Hours of labour required to produce 1 unit
Zimbabwe: X = X1, Y = 7
Zambia: X = 54, Y = 21

If neither country has a comparative advantage in either commodity the missing figure X1 is

  1. A18
  2. B26
  3. C33
  4. D40

Question 27

balance of payments
How is expenditure by foreign tourists recorded in the Balance of Payments Accounts?
  1. Aa credit in the invisible account
  2. Ba debit in the invisible account
  3. Ca credit in the visible trade account
  4. Da debit in the visible trade account

Question 28

investment
Following an increase in output, investment increases by a certain percentage. This is explained by the
  1. Amultiplier effect
  2. Binvestment ratio
  3. Caccelerator principle
  4. Dmarginal return on capital

Question 29

inflationary gap

The diagram below shows Y1 as the full employment level of income and AD0 AD1 and AD2 represent the aggregate demand at different levels of income.

If the aggregate demand is AD2, the inflationary gap is shown by

  1. Abd
  2. Bcb
  3. Cce
  4. Ddc

Question 30

national income equilibrium

The diagram below shows an economy experiencing an inflationary gap.

Assuming that the marginal propensity to consume is a constant and that autonomous consumption becomes zero, then the economy is now

  1. Ain a recession
  2. Bin an inflationary gap
  3. Cin a deflationary gap
  4. Dat full employment equilibrium

Question 31

national income equilibrium

In a closed economy with no government expenditure, C = 50 + 0.75Y and Investment = 1*, where C = consumption and Y = Income.

If the equilibrium income is $500 million what is the level of investment?

  1. A$50m
  2. B$75m
  3. C$425
  4. D$925

Question 32

national income accounting

Which change must be made to convert Gross Domestic Product at market prices to Net National at factor cost?

The options give the treatment of depreciation, then net property income from abroad, then net subsidies.

  1. A- , + , -
  2. B- , + , +
  3. C+ , - , +
  4. D+ , - , -

Question 33

real and nominal values

The gross domestic product of a country is $3 billion and the price index stands at 150.

What is the country's gross domestic product, valued in the prices of the base year of the price index?

  1. A$1,0 billion
  2. B$2,0 billion
  3. C$3,0 billion
  4. D$4,5 billion

Question 34

exchange rates
If the Central Bank maintains a policy of high interests rates to cure inflation, further increases in interest rates with a flexible exchange rate system will lead to
  1. Acurrency appreciation
  2. Ban increase in investment
  3. Ca decrease in capital investment
  4. Dimprovement in the BOP position in future

Question 35

monetary policy
The inflation rate in Zimbabwe has been on average above 50% for the period 1999 – 2001. Which action by government would be consistent with a policy to reduce the demand for credit?
  1. Aa reduction in interest rates
  2. Ba reduction in the reserve ratio of the commercial banks
  3. Ca decrease in the amount of special deposits held by the central bank
  4. Da decrease in the repayment period on hire purchase transaction

Question 36

labour markets

The Zimbabwean government has often gazetted minimum wages for domestic and farm workers since 1980.

Why has this been the case?

  1. Aso that workers may not be overpaid
  2. Bso that workers may not lose their jobs
  3. Cbecause the workers have low productivity
  4. Dbecause the workers have worker bargaining power

Question 37

unemployment
Shortages of fuel and foreign currency have caused many firms to close down or streamline operations. Governments have often assisted the retrenched by providing retraining schemes. This suggests the existence of
  1. Acyclical unemployment
  2. Bseasonal unemployment
  3. Cstructural unemployment
  4. Ddemand deficiency unemployment

Question 38

fiscal policy
Which one of the following is an inflationary fiscal measure?
  1. Areducing taxes
  2. Breducing interest rates
  3. Cincreasing the money supply
  4. Dreducing government expenditure

Question 39

macroeconomic policy
Which policy tends to reduce both the rate of inflation and a balance of payments deficit?
  1. Aan increase in import tariffs
  2. Ba reduction in government spending
  3. Ca rise in the country's exchange rate
  4. Da reduction in the level of interest rates

Question 40

real and nominal values

The average prices as measured by the consumer price index doubled between 1980 and 1990 while the price of 1kg of tomatoes rose from $6,00 to $9,00

The cost of 1kg of tomatoes in 1990 was

  1. Athe same as it was in 1980
  2. Bhalf much as it was in 1980
  3. Cthree quarters of what it was in 1980
  4. Dindeterminate because the tomatoes in 1990 were of poor quality

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