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ZIMSEC A Level · 9158/1 · N2015

Economics Paper 1 November 2015

Questions
39 of 40
Syllabus code
9158/1

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Questions
39
Pass mark
24
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Answer every question in the printed order, get marked at the end, then see the answers.

The questions

Question 1

Resource allocation
In an economy, resources are allocated through the following except
  1. Acarrying out surveys.
  2. Bcost-benefit analysis.
  3. Cself-interest motive.
  4. Dsocietal interest motive.

Question 2

Production possibility curve

The diagram below shows the Production Possibility Curve (PPC) of an economy.

A shift from XY to XZ may imply that there is

  1. Aa decrease in consumption.
  2. Ban improvement in technology.
  3. Can increase in demand for consumer goods.
  4. Dan increase in demand for capital goods.

Question 3

Profit maximisation
A profit-maximising firm will always produce at point
  1. AS.
  2. BT.
  3. CP.
  4. DQ.

Question 4

Consumer surplus

The diagram below relates to demand for a good.

When the price of the good increases from P0 to P1, the consumer surplus will fall by

  1. AP0XY.
  2. BP1WX.
  3. CP0P1WY.
  4. Dq1q0YZ.

Question 5

Price elasticity of demand

A producer wishes to increase total revenue by reducing price.

Price 20, Total Revenue 1 000; Price 15, Total Revenue 1 000; Price 10, Total Revenue 1 000.

These results show that the price elasticity of demand is

  1. Aunitary.
  2. Bperfectly elastic.
  3. Cperfectly inelastic.
  4. Drelatively elastic.

Question 6

Real income
A worker's wage increased by 7,5% but at the same time the price level rose by 2,5%. The effect on the worker's real income rose by
  1. A18,75%.
  2. B10%.
  3. C5%.
  4. D3%.

Question 7

Diminishing returns
What is the relationship between product curves at the point where diminishing marginal returns set in?
  1. ATotal product curve is below the average product curve.
  2. BMarginal product curve cuts the average product curve.
  3. CMarginal product curve is above the average product curve.
  4. DAverage product curve is above the marginal product curve.

Question 8

Market structures
Which of the following characteristics are common to both monopoly and monopolistic competition?
  1. Anature of the product
  2. Bnature of the demand curve
  3. Cnumber of firms in an industry
  4. Ddegrees of freedom of entry and exit of firms

Question 9

Opportunity cost

The schedule below is based on the consumption of apples and bananas by an individual.

Bananas 3, 4; Apples 11, 8.

What is the consumer's opportunity cost of consuming the fourth banana?

  1. A0,27
  2. B0,50
  3. C2,0
  4. D3,0

Question 10

Price controls

The diagram below shows the market for maize with a legal price of OP.

What could cause the new equilibrium to shift to the level of the set price?

  1. Aadvertising campaign for mealie meal
  2. Bbumper harvest of maize
  3. Cincrease in subsidies to maize farmers
  4. Dincrease in the price of rice

Question 11

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

Question 12

National income accounting
If given Gross Domestic Product (GDP) at factor cost, then Gross Domestic Product (GDP) at market prices is calculated by adding
  1. Anet property income from abroad.
  2. Bsubsidies and subtracting taxes on expenditure.
  3. Ctaxes on expenditure and subtracting subsidies.
  4. Dgovernment expenditure and subtracting gross investment.

Question 13

Keynesian cross
In the diagram below, after an increase in the autonomous component of desired Aggregate Expenditure (AE) from AE0 to AE1, what will be the new equilibrium?
  1. AA
  2. BB
  3. CC
  4. DD

Question 15

Equilibrium national income
Given that consumption = 50 + 0,8Y, Government Expenditure = 300, Investment = 500 and net exports = 600 - 0,2Y, what is the value of the equilibrium income?
  1. A1 375
  2. B1 750
  3. C2 750
  4. D3 625

Question 16

Backward-bending labour supply

The graph below shows the supply of labour.

Which of the following determines the shape of the curve?

  1. AA worker prefers more leisure time as wages increase.
  2. BA worker prefers more labour hours as wages increase.
  3. CThe substitute effect is now equal to the income effect.
  4. DMarginal utility of work is greater than marginal utility of the wage.

Question 17

Balance of payments
The current account in the balance of payments includes
  1. Aforeign aid.
  2. Bhot money flows.
  3. Cnet property income from abroad.
  4. Dtransfer of ownership of fixed assets.

Question 18

Economic integration
The difference between a customs union and a common market is that only a
  1. Acustoms union is a trading bloc.
  2. Bcustoms union removes tariffs and quotas on internal trade.
  3. Ccommon market allows free movement of factors of production between members.
  4. Dcommon market establishes common barriers to trade with the rest of the world.

Question 19

Monopsony
What will be the marginal factor cost (MFC) faced by the monopsonist by increasing the wage paid to the 11th worker from 200to200 to 250?
  1. A$50
  2. B$250
  3. C$750
  4. D$2 750

Question 20

Shut-down point
The condition that would cause a perfectly competitive firm to shut down in the short run is when price
  1. Aequals marginal cost.
  2. Bequals marginal revenue.
  3. Cis less than marginal cost.
  4. Dis less than average variable cost.

Question 21

Least-cost combination of factors
When all factors of production are variable, firms using factors A and B and given their marginal products (MP) and prices (P), a firm in order to maximise profits should produce where
  1. AMP_A / P_A = MP_B / P_B.
  2. BMP_A / MP_B = P_B / P_A.
  3. CMP_A / P_B = MP_B / P_A.
  4. DP_A / MP_A = MP_B / P_B.

Question 22

Short-run costs
In the shortrun, the total revenue of a firm must cover
  1. Afixed costs.
  2. Bvariable costs.
  3. Ctotal costs.
  4. Dmarginal costs.

Question 23

Protectionism
Which of the following is an effect of imposing a quota?
  1. Areducing domestic production
  2. Breducing government tax revenue
  3. Clowering amounts consumed and imported
  4. Dlowering prices of domestically produced goods

Question 24

Income and substitution effects

The diagram below relates to the consumption of meat in relation to other goods.

The substitution effect of a price fall in meat is represented by a movement from

  1. Aq0 to q2.
  2. Bq1 to q2.
  3. Cq0 to q1.
  4. Dq2 to q0.

Question 25

Credit creation

A new deposit of $1 billion is placed in a bank. The cash ratio is 20%.

How much does the money supply increase by assuming that there are no leakages?

  1. A$1 billion
  2. B$5 billion
  3. C$10 billion
  4. D$20 billion

Question 26

Public goods
Public goods are unlikely to be provided by the private sector because
  1. Athe consumption of the good creates negative externalities.
  2. Bthe exclusion principle does not apply to public goods.
  3. Cnon-payers can be excluded from the consumption of the goods.
  4. Dthe production of the goods create negative externalities.

Question 27

Profit maximisation

The diagram below shows the Total Revenue (TR) and Total Cost (TC) curves of a firm.

What is the profit-maximising output?

  1. A0q0
  2. B0q1
  3. C0q2
  4. D0q3

Question 28

Indirect taxation and elasticity
Excise taxes on tobacco lead to significant government revenue because
  1. Athe supply of tobacco is elastic.
  2. Bsupply of tobacco is inelastic.
  3. Cthe demand for tobacco is inelastic.
  4. Dthe demand for tobacco is elastic.

Question 29

Near money
Forms of near money include the following except
  1. Acoupons.
  2. Btreasury bills.
  3. Ccredit cards.
  4. Dfixed account deposits with Building Societies.

Question 30

Monopolistic competition

The diagram below relates to a monopolistic competition operating in the short run.

Total profits are shown by the area.

  1. AP0P1wx
  2. BP0P2yx
  3. CP1P2yw
  4. D0qyP2

Question 31

Fiscal policy
In an economy operating at full employment, government can reallocate resources from private to public employment by
  1. Aincreasing taxes and reducing government expenditure.
  2. Bincreasing taxes and increasing government expenditure.
  3. Creducing taxes and reducing government expenditure.
  4. Dreducing taxes and increasing government expenditure.

Question 32

Demand-pull inflation
One of the solutions of reducing unemployment is to stimulate aggregate demand. If the national income is at full employment level, this will lead to a
  1. ABalance of Payments (BOP) deficit.
  2. Bgovernment budget deficit.
  3. Creduced economic growth.
  4. Drise in inflation.

Question 33

Terms of trade
A country's demand curve for imports is inelastic. Import prices rise by 5% while export prices decrease by 5%. The country's Terms of Trade (TOT) will
  1. Aincrease by 5%.
  2. Bdecrease by 5%.
  3. Cincrease by 10%.
  4. Ddecrease by 10%.

Question 34

Fiscal policy under fixed exchange rates

What are the long run effects of increasing government spending where there are fixed exchange rates and perfect capital mobility on domestic price level and trade deficit?

(Domestic price level, Trade deficit)

  1. Aincrease, increase
  2. Bincrease, decrease
  3. Cdecrease, decrease
  4. Ddecrease, increase

Question 35

Deflation
Deflation involves
  1. Adecreasing domestic interest rate.
  2. Bdecreasing level of money supply.
  3. Cincreasing government expenditure.
  4. Dincreasing taxes.

Question 36

Real GDP

The table below relates to an economy producing goods A and B.

Year 2011: Good A 10 units at price 10, Good B 20 units at price 20. Year 2012: Good A 50 units at price 20, Good B 100 units at price 50.

The real Gross Domestic Product (GDP) for 2012 is

  1. A1 000.
  2. B2 500.
  3. C5 500.
  4. D6 000.

Question 37

Economic rent

The diagram below relates to supply and demand for labour.

The shaded area represents

  1. Aeconomic rent.
  2. Bproducer surplus.
  3. Cquasi-rent.
  4. Dtransfer earnings.

Question 38

Growth and development
Some countries are said to have economic growth without economic development. What factors only influence economic development in a country?
  1. Ahigh Gross Domestic Product and increased external trade
  2. Bincreased leisure hours and low infant mortality rate
  3. Cincreased quantity of resources and improved technology
  4. Dhigh employment rate and increased quantity of resources

Question 39

Balance of payments

An economy has the following figures on its balance of payments account.

$ (m): Current account -1 100; Capital account +1 500; Balancing item +400.

The official financing is

$ (m)

  1. A+ 400.
  2. B+ 800.
  3. C- 400.
  4. D- 800.

Question 40

Policy conflicts
When aggregate demand is reduced to control inflation and a balance of payments position, this may clash with policy objectives of
  1. Aeconomic growth and full employment.
  2. Bequitable wealth and income redistribution.
  3. Cexchange rates stability and increased Gross Domestic Product.
  4. Dincreased investment and economic development.

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