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ZIMSEC A Level · N2010

Economics Paper 1 November 2010

Questions
40

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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

economic systems
In a capitalist society, the economic problem of 'what goods' shall be produced is solved primarily by
  1. Apeople advertising their wants.
  2. Bdirection by the government.
  3. Cthe pattern of consumers' spending.
  4. Dpeople producing directly to satisfy their own wants.

Question 2

price and value
Which of the following statements is correct?
  1. AThe value of a commodity has nothing to do with price.
  2. BThe price of a good is its value measured in terms of money.
  3. CAn increase in price of a commodity represents a fall in its value.
  4. DIf the price of a commodity falls, its value relative to other goods does not alter.

Question 3

demand
In a typical demand schedule, quantity demanded
  1. Avaries inversely with price.
  2. Bvaries directly with price.
  3. Cis independent of price.
  4. Dvaries proportionately with price.

Question 4

supply
The diagram shows supply curves for commodity X. The shift of the supply curve from S1S_1 to S2S_2 could be caused by
  1. Aa government subsidy to producers of X.
  2. Bimproved techniques of production of X.
  3. Ca fall in the prices of raw materials used in manufacturing X.
  4. Dan increase in the wage rates paid to workers in the industry for X.

Question 5

demand
The diagram shows the market demand for red meat. The movement from D1D_1 to D2D_2 can be the result of
  1. Aan increase in income taxation.
  2. Ba decrease in the price of red meat.
  3. Can increase in the price of chicken meat.
  4. Da decrease in the price of cheese sauce, a complement.

Question 6

price controls
The diagram shows the market demand and supply of a commodity. Where price is set by government,
  1. AP1P_1 indicates an effective maximum price.
  2. BP2P_2 indicates an effective minimum price.
  3. CP1P_1 causes a surplus of the commodity.
  4. DP2P_2 results in increased utilisation of factor inputs.

Question 7

market equilibrium
A stable equilibrium position is one in which
  1. Athere are endless fluctuations.
  2. Bthere are only two forces influencing the equilibrium position.
  3. Cthere are never any departures from the equilibrium position.
  4. Dany departure from the equilibrium position calls into play forces which tend to restore that position.

Question 8

utility
By saying a good has utility, it means
  1. Ait is very useful.
  2. Bit has power to satisfy a want.
  3. Cit is not socially undesirable.
  4. Dsomething has to be given up in order to possess it.

Question 9

utility
Marginal utility is the
  1. Autility a consumer derives from a particular good.
  2. Bchange in total utility when the consumer buys extra units of a good.
  3. Cchange in total utility resulting from adding one unit to the consumer's stock of a good.
  4. Dchange in total utility resulting from a change in the price of a good.

Question 10

price elasticity of demand
The demand for a good is elastic if
  1. Ademand for that good increases when price falls.
  2. Btotal expenditure on the good decreases as price rises.
  3. Ca price fall produces a decrease in total expenditure on that good.
  4. Da price fall produces a less than proportionate rise in the quantity demanded.

Question 11

production and costs
At what output on the following diagram do diminishing returns set in?
  1. AON
  2. BON1ON_1
  3. CON2ON_2
  4. DON3ON_3

Question 12

opportunity cost
The opportunity cost of a factor of production is what it
  1. Ais earning in its present use.
  2. Bcan earn in some other use.
  3. Ccan earn in the long run.
  4. Dis paid to retain it in its present use.

Question 13

production and costs
Minimum marginal cost occurs at the output where the
  1. Atotal product is at a maximum.
  2. Bfactors are combined in their best possible proportions.
  3. Caverage product of the variable factors is at a maximum.
  4. Dmarginal product of the variable factors is at a maximum.

Question 14

labour market and trade unions
A trade union is likely to be successful in obtaining a wage increase when
  1. Athere is unemployment.
  2. Bthe supply of labour-saving equipment is elastic.
  3. Clabour costs form a significant proportion of total costs.
  4. Dthe demand for the product made by the labour is inelastic.

Question 15

profit maximisation
A single firm operating under conditions of perfect competition wishes to maximise profits. It should produce the output level where
  1. Aprice is below marginal costs.
  2. Bprice exceeds marginal revenue.
  3. Cmarginal revenue equals marginal costs.
  4. Dmarginal revenue is below marginal costs.

Question 16

consumer equilibrium
The conditions of consumer equilibrium exist where
  1. Ano barriers to entry or exit exist.
  2. Bdemand equals supply in all markets.
  3. Call marginal utilities are equal.
  4. Dratios of marginal utility to price are the same for all goods brought.

Question 17

costs and revenue
In the short run, the total revenue of the firm must cover
  1. Afixed costs.
  2. Bvariable costs.
  3. Ctotal costs.
  4. Dmarginal costs.

Question 18

market structures
To which market structure does the diagram above apply?
  1. Amonopoly in the long run
  2. Boligopoly in the short run
  3. Cimperfect competition in the short run
  4. Dmonopolistic competition in the long run

Question 19

production and costs
A firm which is aiming to maximise output for a given budget will ensure that
  1. Amarginal production costs are minimised.
  2. Bthe ratios of marginal product to price of all variable factors are equal.
  3. Cthe marginal products of all variable factors of production are equal.
  4. Dthe marginal revenue from sales equals the marginal costs of production.

Question 20

price elasticity of demand
If the price elasticity of demand for a product is less than one, then a firm can increase its revenue by
  1. Aincreasing its price.
  2. Bdecreasing its price.
  3. Cimproving packaging.
  4. Dadvertising to develop brand loyalty.

Question 21

money and banking
Assuming the reserve requirement to be 5% and that the initial deposit is $10 000, the
  1. Acredit multiplier is 5.
  2. Bcredit multiplier is 20.
  3. Camount of credit created will be $50 000.
  4. Damount of credit created will be $200 000.

Question 22

money and banking
Which of the following statements is correct?
  1. AIf the supply of money increases, the equilibrium interest rate increases, ceteris paribus.
  2. BIf the demand for money increases, the equilibrium interest rate decreases, ceteris paribus.
  3. CThe creation of money is not affected by banks' ability to relend part of the demand deposits.
  4. DThe precautionary demand for money is a function of the total income in the economy.

Question 23

monetary policy
If the Central Bank increases the bank rate,
  1. Abanks would lower their lending rates.
  2. Bcost of borrowing for the banking sector decreases.
  3. Cprivate consumption expenditure and fixed investment would decrease.
  4. Ddemand for credit would increase, resulting in a faster rate of increase in the supply of money.

Question 24

monetary policy
A decrease in the reserve asset requirement will result in
  1. Aa decrease in interest rates.
  2. Ba decrease in aggregate spending.
  3. Ca decrease in money supply.
  4. Dan increase in economic activity.

Question 25

national income accounting
If the value of net property income from abroad is positive what can be deduced?
  1. AExports exceed imports.
  2. BCapital outflows exceed capital inflows.
  3. CCapital consumption is less than gross fixed capital formation.
  4. DGross national product at factor cost is greater than gross domestic product at factor cost.

Question 26

investment and national income
Investment depends on the
  1. Alevel of savings.
  2. Bprice of treasury bills.
  3. Clevel of output.
  4. Drate of change of output.

Question 27

national income and multiplier
The diagram shows the initial savings function (S1S_1) in a closed economy. Assuming that the savings function shifts from S1S_1 to S2S_2, how is this going to affect the marginal propensity to consume and the multiplier?
  1. AThe marginal propensity to consume decreases whilst the multiplier increases.
  2. BThe marginal propensity to consume increases whilst the multiplier increases.
  3. CBoth, the marginal propensity to consume and the multiplier, increase.
  4. DBoth, the marginal propensity to consume and the multiplier, decrease.

Question 28

national income and multiplier
In the closed economy with no government sector, the multiplier is 5. By how much will consumption increase if investment increases by $500 m?
  1. A$100 m
  2. B$500 m
  3. C$2 000 m
  4. D$2 500 m

Question 29

money and banking
Commercial banks create money by
  1. Amaking loans to customers.
  2. Bcashing cheques for their customers.
  3. Ccharging customers for the services they provide.
  4. Dincreasing their reserves at the central bank.

Question 30

functions of money
Which function of money is most likely to be affected by hyperinflation?
  1. Astore of value
  2. Bmedium of exchange
  3. Cunit of account
  4. Dstandard of deferred payment

Question 31

money market and interest rates
The diagram shows the demand curves for holding money balances (LP). The money supply is MS and initial equilibrium rate of interest is r1r_1. What could have led to a fall in the rate of interest from r1r_1 to r0r_0?
  1. Aan increase in savings
  2. Ba rise in the price level
  3. Can increase in unemployment
  4. Dan increase in exports with imports constant

Question 32

exchange rates
Who would benefit from the depreciation of the Zimbabwean dollar against the South African rand?
  1. ASouth African students studying in Zimbabwe
  2. BZimbabwean holidaymakers visiting South Africa
  3. Ca South African manufacturer exporting to Zimbabwe
  4. Da South African property company owning properties in Zimbabwe.

Question 33

exchange rates
Which of the following does NOT apply to a freely floating exchange rate?
  1. AInvestment may be discouraged due to exchange rate uncertainty.
  2. BImported inflation may result as the exchange rate floats downwards.
  3. CA fall in the value of the domestic currency can reduce total revenue from export sales.
  4. DThe central bank may waste foreign reserves trying to protect the exchange rate.

Question 34

commodity markets and buffer stocks
Countries X and Y attempt to control the supply of good A on the world market to help stabilise their incomes. What condition is essential for this to stabilise their incomes effectively?
  1. AThere must be large firms in the industry.
  2. BIt must be possible to store good A and release stocks when necessary.
  3. COther countries must supply a significant percentage of the total market.
  4. DThe demand for the product must be elastic.

Question 35

cost-benefit analysis
The table shows the expected costs and benefits from four government projects. Due to scarce resources, the government can afford only one project. Which project is the government most likely to choose?
  1. AA
  2. BB
  3. CC
  4. DD

Question 36

externalities
The diagram shows quantity of a good produced as a result of market forces. What concept is illustrated at output Q0Q_0?
  1. Aexcess supply
  2. Bprice instability
  3. Ca negative externality
  4. Da government subsidy

Question 37

economic growth
Which of the following is most likely to increase a country's long-run economic growth?
  1. Agrowth in money supply
  2. Ba rise in the external value of money
  3. Can increase in the interest rate
  4. Dan inward flow of investment by foreign firms

Question 38

inflation and macroeconomics
Stagflation refers to
  1. Aanticipated rate of inflation.
  2. Bstagnation in output combined with increasing inflation.
  3. Clow inflation combined with high economic activity.
  4. Dhigh inflation combined with high level of output.

Question 39

balance of payments
Which policy is less likely to correct a balance of payment deficit?
  1. Adeflation
  2. Bimport controls
  3. Cdevaluation
  4. Dreflation

Question 40

economic growth
Which point on the graph best describes a period of reduced growth?
  1. AA
  2. BB
  3. CC
  4. DD

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