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ZIMSEC A Level · 6073/1 · N2019

Economics Paper 1 November 2019

Questions
40
Syllabus code
6073/1

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Questions
40
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

economic systems
Which of the following is an advantage of free market economy?
  1. Aunderpricing leading to an over consumption of goods and services
  2. Bproduction is characterized by increasing returns
  3. Cconsumer preferences are reflected in the pattern of production
  4. Ddecisions are taken on the basis of social cost and benefits

Question 2

production possibility frontier

The production possibility frontier of a country producing two goods P and Q is given by

Q+50P=250Q + 50P = 250

What is the opportunity cost of producing one more unit of P

  1. A5 Q
  2. B50 Q
  3. C200 Q
  4. D250 Q

Question 3

income and substitution effects
For which good does substitution effect override negative income effect when price changes?
  1. Aa normal good
  2. Ban inferior good
  3. Ca luxurious good
  4. Da habit forming good

Question 4

supply

The diagram below shows the market conditions for onions. [Diagram: price on the vertical axis and quantity on the horizontal axis. The demand curve DD slopes downwards. Two parallel upward sloping supply curves are drawn, the lower right one labelled SS0SS_0 and the upper left one labelled SS1SS_1.]

What causes a shift of the supply curve from SS0SS_0 to SS1SS_1?

  1. Aa decrease in the cost of production
  2. Ban increase in the subsidies paid to farmers
  3. Can increase in the price of onions per kg
  4. Dthe removal of a tax on substitutes for onions

Question 5

market equilibrium

The demand function for a product in a market is Qd=14−PQ_d = 14 - P and the supply function is Qs=−10+PQ_s = -10 + P.

The equilibrium level of output is

  1. A2
  2. B4
  3. C12
  4. D24

Question 6

budget line

The graph below shows a budget line:

m=XPx+YPym = XP_x + YP_y
Where m is the money income
PxP_x is the price of product X
PyP_y is the price of product Y

[Diagram: good Y on the vertical axis with intercept 20 and good X on the horizontal axis with intercept 16, joined by a straight downward sloping budget line.]

Given that m = $200, calculate the slope of the budget line.

  1. A0.8
  2. B1.25
  3. C10
  4. D12.50

Question 7

costs and normal profit

A firm's average variable costs are $3 at an output level of 2 000. Its total fixed costs are $2 000.

For the firm to earn normal profits, which price should it charge per unit?

  1. A$1
  2. B$2
  3. C$3
  4. D$4

Question 8

shut down condition
In the short run, the shut down condition of a firm occurs when
  1. Aaverage revenue cannot cover average costs.
  2. Btotal revenue cannot cover total costs.
  3. Caverage revenue cannot cover average costs.
  4. Daverage revenue cannot cover average variable costs.

Question 9

monopoly

The diagram below shows the cost and revenue curves of a monopoly. [Diagram: cost and revenue on the vertical axis and quantity on the horizontal axis, with outputs A, B, C and D marked along the axis from left to right. The downward sloping AR curve and the steeper downward sloping MR curve both start from the same point on the vertical axis; MR cuts the quantity axis at C. The U-shaped MC curve cuts MR from below at output A.]

Of the points A, B, C or D, which would be the firm's revenue maximizing output?

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

Question 10

elasticity of supply
Which of the following diagrams A, B, C or D illustrates an inelastic supply curve? [Four diagrams, each with price on the vertical axis and quantity on the horizontal axis. A shows an upward sloping SS starting from a point on the price axis. B shows a vertical SS. C shows a horizontal SS. D shows an upward sloping SS through the origin.]
  1. AA
  2. BB
  3. CC
  4. DD

Question 11

production and costs
Marginal product of a variable factor is at a maximum when the
  1. Atotal cost is at maximum.
  2. Baverage cost and marginal cost of production are equal.
  3. Caverage cost of a variable factor is at minimum.
  4. Dmarginal cost of the variable factor is at minimum.

Question 12

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

Question 13

market failure

The revenue received from visitors to Great Zimbabwe Ruins is insufficient to meet maintenance costs.

Why should the government continue to incur such high maintenance costs?

  1. Athere is no market for Great Zimbabwe Ruins
  2. Bthe supply of such properties are inelastic
  3. Cthe social benefits derived exceed cost of the maintenance
  4. Dthe social costs of the maintenance exceed private costs incurred

Question 14

public goods
Which of the following is provided by the government entirely due to market failure?
  1. Aagricultural support to farmers
  2. Bfree health services to the children and the elderly
  3. Cretirement benefits to the elderly
  4. Dpublic drainage system

Question 15

national income determination

In an open economy

consumption is $60 million
investment is $20 million
government expenditure is $10 million
exports are $15 million

Imports are 10% of domestic output.

What is the level of GDP?

  1. A10.5
  2. B94.5
  3. C95.5
  4. D115

Question 16

the multiplier

In a closed economy with no government, the consumption function is given as

C=100+0.72YC = 100 + 0.72 Y

What is the value of the multiplier?

  1. A0,28
  2. B0,72
  3. C1,39
  4. D3,57

Question 17

deflationary gap
A deflationary gap in the economy is measured by
  1. Achange in injections needed to reach full employment.
  2. Bthe public sector borrowing requirements.
  3. Cthe rate of deflation in the economy.
  4. Dthe rate of unemployment in the economy.

Question 18

demand for money
Other things being equal, the quantity of money demanded by economic agents will increase with
  1. Aa decrease in the national income.
  2. Ba decrease in the price level.
  3. Ca decrease in the rate of interest.
  4. Dan increase in money substitutes such as plastic money.

Question 19

monetary policy
A Central Bank adopts a tight monetary policy when it
  1. Abuys security from the market.
  2. Breduces the minimum lending rate.
  3. Csells securities to the economic agents.
  4. Drequires a decrease in special deposits at the Central Bank.

Question 20

comparative advantage
The principle of comparative advantage refers to
  1. Afactor costs of production.
  2. Btotal costs of production.
  3. Copportunity cost of production.
  4. Dvariable costs of production.

Question 21

trade protection
Which of the following is not a reason for government to impose import quotas?
  1. Ato retaliate against other countries.
  2. Bto prevent dumping in the economy.
  3. Cto protect unemployment in the economy.
  4. Dto raise tax revenue for the government.

Question 22

macroeconomic policy

Zimbabwe is experiencing a balance of payment deficit and a high inflation rate.

What is the appropriate policy measure to correct the above?

  1. Areduce direct taxes
  2. Bremove import duties
  3. Cincrease domestic interest rates
  4. Dincrease the money supply in the economy.

Question 23

exchange rate systems
If the Zimbabwean government sets a fixed parity for its currency against other currencies it loses effective control over its
  1. Atax rate.
  2. Bmoney supply
  3. Ctariffs on import
  4. Dlevel of government expenditure

Question 24

unemployment
Technological unemployment in an economy is controlled by
  1. Athe provision of retraining schemes.
  2. Breduction in the level of direct taxation.
  3. Ca reduction in the level of indirect taxation.
  4. Dthe provision of loans by the banks.

Question 25

profit maximisation
Which of the following points A, B, C or D in the diagram below is the profit maximising output? [Diagram: costs and revenue on the vertical axis and quantity on the horizontal axis, with outputs A, B, C and D marked from left to right. MR is a horizontal line. The U-shaped MC curve falls through MR at output A, reaches its minimum at output B and then rises back through MR at output C, with D just beyond it.]
  1. AA
  2. BB
  3. CC
  4. DD

Question 26

Keynesian equilibrium
In a three sector Keynesian model, equilibrium occurs when
  1. AI=SI = S
  2. BI+G=S+TI + G = S + T
  3. CI−S=G−TI - S = G - T
  4. DS+T−M=G+I+XS + T - M = G + I + X

Question 27

demand for labour
Demand for labour is elastic when
  1. Alabour and capital can be substituted.
  2. Blabour force is immobile.
  3. Cdemand for the final product which labour produces is inelastic.
  4. Dlabour costs are only a small proportion of total costs.

Question 28

monopsony

In the diagram below MRPL is a firm's marginal revenue product of labour. SS is its supply curve and MFC is its Marginal Factor Cost curve of labour. [Diagram: wage rate on the vertical axis with W4W_4, W1W_1, W2W_2 and W3W_3 marked from the top down, quantity of labour on the horizontal axis with L1L_1 and L2L_2 marked. MRPL slopes downwards. AFC = SS slopes upwards and MFC is steeper and above it. MFC cuts MRPL at employment L1L_1, at which the supply curve gives wage W3W_3; MRPL cuts AFC = SS at employment L2L_2 and wage W2W_2.]

Assuming that the firm is a monopsony, what is the degree of labour exploitation?

  1. AW1W_1 to W2W_2
  2. BW1W_1 to W3W_3
  3. CW1W_1 to W4W_4
  4. DW2W_2 to W4W_4

Question 29

credit creation
If the cash reserve requirement of the banking system is 20% and banks hold no excess reserves then the value of credit multiplier will be
  1. A0.2
  2. B2
  3. C5
  4. D20

Question 30

supply side policies
The following are supply side policy measures except
  1. Aincrease in subsidies.
  2. Bincrease in income tax.
  3. Cimproved quality of labour.
  4. Dprivatization and deregulation.

Question 31

welfare loss
Which one of the following areas A, B, C or D shows welfare loss due to overproduction of a commodity. [Diagram: cost and benefit on the vertical axis and quantity on the horizontal axis. The upward sloping MSC curve and the downward sloping MSB curve cross in the middle of a small square that is divided by the two curves into four labelled areas: A on the left, B at the top, C on the right and D at the bottom.]
  1. AA
  2. BB
  3. CC
  4. DD

Question 32

economic integration
An economic integration which has an overall monetary authority for the whole economic block is the
  1. Acustoms union.
  2. Bcommon market.
  3. Ceconomic union.
  4. Dfree trade area.

Question 33

the accelerator
Which concept is being referred to if for every unit of desired sales there is need of three units of capital stock to produce it
  1. AGDP deflator.
  2. Bterms of trade.
  3. Cthe multiplier.
  4. Dthe accelerator.

Question 34

central banking
In a dollarized economy, the Central Bank gives up its ability to
  1. Aact as a banker's bank.
  2. Bmonitor and supervisor the banking sector.
  3. Cact as a lender of last resort.
  4. Dborrow money from the market to cover budget deficit.

Question 35

consumer surplus

The diagram below shows a product market with OP as equilibrium price. [Diagram: price on the vertical axis with M at the top, N below it and P below that; quantity on the horizontal axis. The demand curve runs down from M and the supply curve S slopes upwards, crossing at point y at the equilibrium price P. A dashed horizontal line at N, labelled price ceiling, lies above the equilibrium and meets the demand curve at X and the supply curve at Z.]

Government imposes a maximum price of ON and the consumer surplus becomes

  1. AMNX
  2. BMPY
  3. COPY
  4. DXYZ

Question 36

productive efficiency
A condition necessary to achieve productive efficiency is
  1. Aaverage revenue be equal to marginal cost.
  2. Baverage revenue be equal to average total cost.
  3. Cprice be equal to the minimum point of average cost.
  4. Dprice be equal to the cost of producing the last unit.

Question 37

price elasticity of demand
What will increase as a result of a price reduction for a good whose price elasticity of demand is unitary?
  1. Aquantity demanded
  2. Bexpenditure on substitutes
  3. Ctotal revenue earned
  4. Dexpenditure on the good

Question 38

measures of central tendency

The profits made by a business man over a period of five months are shown in the table below.

MONTHJANFEBMARCHAPRILMAY
PROFIT$607$440$1 090$318$4 790

Identify the month with the median profit.

  1. AApril
  2. BMarch
  3. CFebruary
  4. DJanuary

Question 39

measures of central tendency

A consumer bought four chocolates for $15. She later bought another chocolate for $2,50.

What is the mean cost of all the chocolates?

  1. A$3,15
  2. B$3,50
  3. C$3,75
  4. D$12,50

Question 40

measures of central tendency
Which statement describes the mode?
  1. AThe most frequently appearing score.
  2. BThe maximum score less the minimum score.
  3. CThe score located at the mathematical centre of a distribution.
  4. DThe score at the 50th percentile or in the middle when the scores are ordered.

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