Economics Paper 1 November 2018

The diagram below shows a competitive market changing to a monopolistic market. [Diagram: price on the vertical axis and quantity on the horizontal axis, with a downward sloping AR curve, a steeper downward sloping MR curve and an upward sloping MC curve. MR cuts MC at point d, directly below quantity $Q_1$; the AR curve at $Q_1$ gives price $P_1$ at point b. MC cuts AR at point c, at quantity $Q_2$ and price $P_2$. Point a lies on the $P_2$ line directly above $Q_1$.]

The resulting loss of economic welfare is shown by area

The diagram below shows the market for cigarettes. $S_1$ is the initial supply curve and $S_2$ is the supply curve after tax. [Diagram: price in dollars on the vertical axis with values 2.00, 2.20 and 3.00 marked, and quantity in millions on the horizontal axis with 10 and 12 marked. Demand D slopes down; $S_1$ and $S_2$ slope up, $S_2$ lying above $S_1$ by the amount of the tax. D cuts $S_1$ at quantity 12 and price 2.20; D cuts $S_2$ at quantity 10 and price 3.00; at quantity 10 the price on $S_1$ is 2.00.]

How much revenue is raised by the government through tax imposition?

In a closed economy with no government, households spend three quarters of every change in a dollar on consumption.

What is the value of the multiplier?

Study the graph below and answer the question that follows. [Diagram: cost on the vertical axis and output on the horizontal axis, showing a U-shaped AC curve, a lower U-shaped AVC curve and an upward sloping MC curve. Point X lies on the MC curve at a cost level below the AC curve but above the AVC curve.]

When a firm is operating at point X in the short run, it is most likely going to

The diagram below shows leakages and injections in a closed economy that has a marginal propensity to save of 0,2 and a marginal propensity to tax of 0,2. [Diagram: injections and withdrawals in dollars on the vertical axis and real GDP in dollars on the horizontal axis, with 350, 400 and 500 marked. A horizontal injections line J cuts an upward sloping withdrawals line W at a real GDP of 500. A vertical full employment line stands at a real GDP of 400.]

By how much should injections be reduced to achieve equilibrium at full employment level?

In many countries, the bulk of the national income is enjoyed by very few people?

Which of the following relationships in measure of central tendency best illustrates the above situation?

Below are the supply and demand curves for agricultural products in an economy. [Diagram: price on the vertical axis and quantity on the horizontal axis, with an upward sloping S curve and a downward sloping D curve meeting at equilibrium price $P_e$ and quantity $Q_e$. A dashed horizontal line labelled minimum price is drawn above $P_e$, so that quantity supplied exceeds quantity demanded at that price.]

Minimum prices lead to

In the diagram below $1C_1$ and $1C_2$ are individual indifference curves and AB, CD and AE are budget lines. [Diagram: budget line AB is the original one and is tangent to indifference curve $1C_1$ at point a, at quantity $q_0$. After the price change the budget line is AE, tangent to the higher indifference curve $1C_2$ at point c, at quantity $q_2$. The dashed line CD is drawn parallel to AE and tangent to $1C_1$ at point b, at quantity $q_1$.]

Which movement represents an income effect of a price change of Good Y?

The graph below shows the demand and supply curves of the Zimbabwean Dollar (Z$) on the foreign exchange market. [Diagram: quantity of Zimbabwean dollars on the horizontal axis, with an upward sloping supply curve S and the demand curve shifting outward from D to $D_1$, raising the exchange rate.]

What causes the rise in the value of the Zimbabwean Dollar (Z$)?

Zimbabwe and Botswana produce two goods as shown in the table.

From their output, it can be concluded that

The Reserve Bank of Zimbabwe operates a floating exchange rate regime and increases the domestic interest rate.

What effect does this have on the exchange rate of the dollar?

Composition of taxes in Zimbabwe are shown in the pie chart below. [Pie chart with six segments: income tax 24%, value added 15%, import duties 10%, excise taxes x, others 10% and corporation tax y.]

If import duty is twice as much as excise tax. What is the percentage contribution of corporation tax in the economy.