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ZIMSEC A Level · 9158/3 · J2008

Economics Paper 3 June 2008

Questions
26
Total marks
65
Syllabus code
9158/3

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Questions
26
Pass mark
16
Sit this paper

Answer every question in the printed order, get marked at the end, then see the answers.

The questions

Question 101

[1 marks]economic systems
State the term for the mechanism that allocates resources in a market economy through the interaction of supply and demand, rather than through central government planning.

Answer this when you sit the paper.

Question 201

[1 marks]returns to scale and economies of scale
Constant returns to scale occurs when a proportionate increase in all the inputs used in production leads to an increase in output that is...
  1. Aproportionately smaller than the increase in inputs
  2. Bproportionately equal to the increase in inputs
  3. Cproportionately greater than the increase in inputs
  4. Dimpossible to measure without price data

Question 202

[1 marks]returns to scale and economies of scale
Diminishing returns to scale occurs when a proportionate increase in all the inputs used in production leads to an increase in output that is...
  1. Aimpossible to measure without price data
  2. Bproportionately greater than the increase in inputs
  3. Cproportionately smaller than the increase in inputs
  4. Dexactly equal to the increase in inputs

Question 203

[1 marks]returns to scale and economies of scale
As a firm grows beyond its minimum efficient scale, average costs can start to rise because of problems such as managerial inefficiency and poor communication between departments. State the term for this.

Answer this when you sit the paper.

Question 301

[1 marks]elasticity of supply
Which of the following tends to make the price elasticity of supply of a good more elastic?
  1. AA longer time period available for producers to adjust output
  2. BHigh perishability of the product, limiting how long it can be stored
  3. CA shorter time period available for producers to adjust output
  4. DLow levels of spare production capacity among firms

Question 302

[1 marks]elasticity of supply
State the term for the unused productive capacity a firm holds, which allows it to raise output quickly when demand rises, making its supply more price elastic.

Answer this when you sit the paper.

Question 401

[1 marks]imperfect competition and monopoly
Which market structure is characterised by many firms selling differentiated products, with freedom of entry into and exit from the industry?
  1. AOligopoly
  2. BMonopoly
  3. CPerfect competition
  4. DMonopolistic competition

Question 402

[1 marks]imperfect competition and monopoly
Which market structure is dominated by a small number of large firms whose pricing and output decisions are interdependent?
  1. APerfect competition
  2. BMonopoly
  3. COligopoly
  4. DMonopolistic competition

Question 501

[1 marks]demand theory and elasticity
For a normal good, when its price falls, how do the substitution effect and the income effect act on the quantity demanded?
  1. AThey act in opposite directions, so the overall effect is uncertain
  2. BThey both act to increase the quantity demanded
  3. CThey both act to decrease the quantity demanded
  4. DOnly the substitution effect changes the quantity demanded

Question 502

[1 marks]demand theory and elasticity
For an inferior good, when its price falls, how does the income effect act on the quantity demanded?
  1. AIt increases quantity demanded more strongly than the substitution effect
  2. BIt increases quantity demanded, reinforcing the substitution effect
  3. CIt has no effect on quantity demanded at all
  4. DIt decreases quantity demanded, working against the substitution effect

Question 503

[1 marks]demand theory and elasticity
If demand for a firm's good is price elastic, a fall in the price of that good will cause the firm's total revenue to...
  1. Arise, since quantity demanded rises more than proportionately than price falls
  2. Bfall, since quantity demanded rises less than proportionately
  3. Cstay unchanged, since the two effects exactly cancel out
  4. Dfall, since price and revenue move in the same direction

Question 601

[1 marks]factor pricing and rent theory
Which term describes a payment to a factor of production that is in excess of its transfer earnings, i.e. above its opportunity cost?
  1. AMarginal revenue product
  2. BEconomic rent
  3. CQuasi rent
  4. DConsumer surplus

Question 602

[1 marks]factor pricing and rent theory
Which term describes a surplus earned by a factor of production in the short run, because its supply is temporarily fixed, that disappears once supply can adjust in the long run?
  1. AEconomic rent
  2. BQuasi rent
  3. CTransfer earnings
  4. DProducer surplus

Question 603

[1 marks]factor pricing and rent theory
State the term for the minimum payment required to keep a factor of production in its current use, equal to what it could earn in its next best alternative use.

Answer this when you sit the paper.

Question 701

[1 marks]economic growth and macroeconomic policy
Nominal economic growth is measured as an increase in a country's GDP or GNP...
  1. Ameasured only in real per capita terms
  2. Bafter adjusting fully for inflation
  3. Cadjusted for changes in population size
  4. Dat current prices, without adjusting for inflation

Question 702

[1 marks]economic growth and macroeconomic policy
State the term for growth in a country's GDP or GNP that has been adjusted for inflation, so that it reflects a genuine increase in the volume of output.

Answer this when you sit the paper.

Question 801

[1 marks]price controls
A government imposes a maximum price, or price ceiling, on a good mainly in order to...
  1. Areduce the total quantity of the good that is supplied
  2. Bincrease the profits earned by producers of the good
  3. Ckeep an essential good affordable for low-income consumers
  4. Dguarantee producers a minimum level of income

Question 802

[1 marks]price controls
A government imposes a minimum price, or price floor, on a good mainly in order to...
  1. Aprotect producers' incomes, for example through agricultural price supports
  2. Bmake the good more affordable to consumers
  3. Celiminate the market surplus created by the policy
  4. Dreduce the cost of production faced by firms

Question 803

[1 marks]price controls
When a government sets a maximum price below the market equilibrium price, a shortage of the good can result. State the term for the illegal, unofficial market that can then emerge, where the good is traded above the legal price.

Answer this when you sit the paper.

Question 901

[1 marks]inflation
Inflation caused mainly by excess aggregate demand in the economy, relative to its productive capacity, is known as...
  1. Acost-push inflation
  2. Bdemand-pull inflation
  3. Cstructural inflation
  4. Dimported inflation

Question 902

[1 marks]inflation
Inflation caused mainly by rising production costs, such as higher wages or higher import prices, being passed on to consumers is known as...
  1. Acost-push inflation
  2. Bmonetary inflation
  3. Cdemand-pull inflation
  4. Dhyperinflation

Question 1001

[1 marks]international trade and balance of payments
Import substitution is an industrialisation strategy in which a country protects its domestic industries mainly in order to...
  1. Aattract foreign direct investment into export industries
  2. Blower tariffs on all categories of imported goods
  3. Cproduce, domestically, goods that were previously imported
  4. Dincrease its exports of primary commodities

Question 1002

[1 marks]international trade and balance of payments
A country devalues its currency mainly in order to correct a balance of payments deficit by...
  1. Araising the exchange rate against other currencies
  2. Breducing domestic inflation directly
  3. Cmaking its exports cheaper and its imports more expensive
  4. Dmaking its imports cheaper and its exports more expensive

Question 1101

[1 marks]market failure and government intervention
Which of the following is an example of a market failure that may justify government intervention in the price mechanism?
  1. AAn equal distribution of income among all consumers
  2. BA perfectly competitive market structure with many small firms
  3. CA market with perfect information among all participants
  4. DA negative externality, such as pollution from a factory

Question 1102

[1 marks]market failure and government intervention
State the term for a cost or benefit of an economic activity that falls on a third party not directly involved in the transaction, and is not reflected in the market price.

Answer this when you sit the paper.

Question 1201

[1 marks]national income and welfare
If a country's population grows faster than its Gross National Product (GNP), what happens to GNP per capita, the average income per person?
  1. AIt falls
  2. BIt cannot be determined without further data
  3. CIt rises
  4. DIt stays the same

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