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ZIMSEC A Level · 6073/3 · J2025

Economics Paper 3 June 2025

Questions
36
Total marks
300
Syllabus code
6073/3

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Questions
36
Pass mark
22
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Answer every question in the printed order, get marked at the end, then see the answers.

The questions

Question 101

[2 marks]Economic systems and the basic economic questions
In a mixed economy, the question of what to produce is settled for ordinary private goods mainly by
  1. Aa national plan drawn up by a central planning ministry each year.
  2. Bthe historic pattern of output, which is held steady from year to year.
  3. Cconsumer spending, since a rising price signals profit and draws resources in.
  4. Dan agreement among the largest firms about how to share out the market.

Question 102

[2 marks]Economic systems and the basic economic questions
The state, rather than the market, supplies goods such as street lighting and national defence because
  1. Athey cost so little to produce that a private firm would gain nothing from them.
  2. Bconsumers dislike them and would refuse to buy them at any price offered.
  3. Cthe law of diminishing returns applies to them more sharply than to other goods.
  4. Dno private firm can charge for them, since nobody can be excluded from the benefit.

Question 103

[2 marks]Economic systems and the basic economic questions
The strongest theoretical objection to allocating resources by central plan rather than by price is that the planner
  1. Ais obliged to produce only capital goods and never any consumer goods.
  2. Blacks the information that price and profit generate about relative scarcity.
  3. Ccannot raise enough revenue through taxation to fund the plan's spending.
  4. Dmust charge higher prices than a private firm would charge for the same good.

Question 201

[2 marks]Elasticity of demand
A clothing retailer finds that a 10 per cent cut in its prices raises its sales volume by 25 per cent. Its total revenue will
  1. Arise, because demand is price elastic so volume grows faster than price falls.
  2. Bstay unchanged, because the price and the quantity movements exactly offset.
  3. Cfall, since price and quantity move in the same direction along a demand curve.
  4. Dfall, because the loss on each garment sold outweighs the extra volume sold.

Question 202

[2 marks]Elasticity of demand
Demand for low cost second hand clothing rises when household incomes in the economy fall. This tells us that such clothing
  1. Ais a Giffen good whose demand curve slopes upward throughout its range.
  2. Bis an inferior good with a negative income elasticity of demand.
  3. Cis a normal good with an income elasticity of demand above one.
  4. Dhas a cross elasticity of demand of zero with every other garment.

Question 203

[2 marks]Elasticity of demand
A government placing an import duty on clothing will collect little revenue, and pass little of the burden to consumers, if demand for clothing is
  1. Ahighly price elastic, so buyers switch away rather than pay the higher price.
  2. Bhighly price inelastic, so buyers keep purchasing much the same quantity as before.
  3. Cof unitary elasticity, so total spending on clothing is left exactly unchanged.
  4. Dperfectly inelastic, so the quantity bought does not respond to the price at all.

Question 301

[2 marks]Consumer behaviour, utility and income and substitution effects
A consumer spending a fixed income on two goods maximises total utility at the point where
  1. Athe total utility obtained from each of the two goods is the same.
  2. Bthe price of each good is equal to the marginal utility that good yields.
  3. Cthe marginal utility of each good has fallen to zero for the last unit bought.
  4. Dthe marginal utility per dollar spent is equal across both of the goods.

Question 302

[2 marks]Consumer behaviour, utility and income and substitution effects
The substitution effect of a fall in the price of a good
  1. Araises the quantity demanded, for a normal good and an inferior good alike.
  2. Boperates only when the consumer's money income rises at the same time.
  3. Cis negative for a normal good and positive for an inferior good.
  4. Dreduces the quantity demanded whenever the good has close substitutes available.

Question 303

[2 marks]Consumer behaviour, utility and income and substitution effects
A Giffen good has an upward sloping demand curve because
  1. Aits negative income effect is large enough to outweigh the substitution effect.
  2. Bconsumers judge its quality by its price and so buy more as the price rises.
  3. Cit has no substitutes at all, so the substitution effect on it is exactly zero.
  4. Dits substitution effect is negative and outweighs a positive income effect.

Question 401

[2 marks]Costs, revenue, profit and efficiency
Normal profit is treated as a cost of production because it is
  1. Athe surplus a firm earns once every one of its accounting costs has been met.
  2. Bfixed by the industry regulator as the highest return that a firm may retain.
  3. Cthe opportunity cost of enterprise, the minimum return needed to stay in the industry.
  4. Dthe amount a firm must set aside by law before any dividend can be paid to owners.

Question 402

[2 marks]Costs, revenue, profit and efficiency
In a perfectly competitive industry with free entry, abnormal profit earned in the short run
  1. Ais removed by the regulator, which caps the price that each firm may charge.
  2. Bgrows larger over time as the successful firms expand their share of the market.
  3. Cis competed away as new firms enter and drive the market price down to average cost.
  4. Dis retained indefinitely, since each firm's product differs from that of its rivals.

Question 403

[2 marks]Costs, revenue, profit and efficiency
A profit maximising monopolist is allocatively inefficient because it produces the output at which
  1. Amarginal cost equals marginal revenue, which lies below the price charged.
  2. Btotal revenue is at its maximum rather than where total cost is at its lowest.
  3. Caverage cost is at its lowest point on the long run average cost curve.
  4. Dmarginal cost has risen above the price that is charged to the consumer.

Question 501

[2 marks]Labour markets, wage determination and trade unions
An individual's supply curve of labour can bend backwards at high wage rates because
  1. Athe income effect of a wage rise outweighs the substitution effect, so leisure is taken.
  2. Bincome tax takes the whole of any additional earnings above that wage level.
  3. Cthe substitution effect of a wage rise grows stronger as the wage gets higher.
  4. Demployers reduce the hours they offer once the wage passes a certain level.

Question 502

[2 marks]Labour markets, wage determination and trade unions
The supply of labour to an occupation such as medicine is inelastic in the short run mainly because
  1. Aprofessional bodies set the wage rather than allowing the market to set it.
  2. Bthe demand for medical care hardly changes from one year to the next.
  3. Cthe qualifications take years to obtain, so extra doctors cannot be produced quickly.
  4. Dthe work is unpleasant, so few people are willing to consider entering it.

Question 503

[2 marks]Labour markets, wage determination and trade unions
A trade union bargaining with a monopsonist employer can raise the wage without cutting employment because that employer was previously
  1. Apaying above the competitive wage and hiring more workers than it actually needed.
  2. Bunable to sell its output at a price that covered the wage it was already paying.
  3. Cprevented by law from employing more than a fixed number of workers in total.
  4. Dpaying below the value of labour's marginal product and hiring fewer workers than a competitive market would.

Question 601

[2 marks]Privatisation, commercialisation and the public sector
A frequently cited danger of privatising a state owned utility is that
  1. Athe government loses the tax revenue that the utility previously paid to it.
  2. Ba state monopoly simply becomes a private monopoly free to raise its prices.
  3. Cthe utility's employees become entitled to redundancy pay from the state.
  4. Dthe asset must be sold at a price above its independently assessed value.

Question 602

[2 marks]Privatisation, commercialisation and the public sector
Commercialisation differs from privatisation in that under commercialisation the enterprise
  1. Ais closed down and its assets are distributed among competing private firms.
  2. Bis exempted from paying tax so that it can compete on level terms with private rivals.
  3. Cstays in state ownership but is required to cover its costs out of its own revenue.
  4. Dis sold outright to private investors through a public offer of its shares.

Question 603

[2 marks]Privatisation, commercialisation and the public sector
Requiring a state water utility to charge economic prices rather than heavily subsidised ones improves allocative efficiency because
  1. Athe price then reflects the cost of supply, so water is no longer over-consumed.
  2. Bit guarantees that every household in the country will be connected to the network.
  3. Cthe utility can then pay higher wages and so attract more skilled engineers to it.
  4. Dgovernment revenue rises, which reduces the need to borrow from abroad each year.

Question 701

[2 marks]Exchange rate systems
The central requirement for successfully defending a fixed exchange rate is that the country holds
  1. Aa trade surplus with every one of its main trading partners each year.
  2. Ba domestic inflation rate that is well above the anchor country's rate.
  3. Csufficient foreign exchange reserves to buy its own currency when it weakens.
  4. Da large stock of gold that has been valued at the official exchange rate.

Question 702

[2 marks]Exchange rate systems
A country that pegs its currency to the United States dollar thereby gives up
  1. Athe ability to levy tariffs on goods that are imported from the United States.
  2. Ban independent monetary policy, since interest rates must be set to defend the peg.
  3. Cthe right to hold reserves in any currency other than the United States dollar.
  4. Dcontrol over its fiscal deficit, which is then determined by the anchor country.

Question 703

[2 marks]Exchange rate systems
If domestic inflation runs well above the anchor country's while a peg is held, the likely result is that exports
  1. Aare switched to the anchor country, which absorbs the whole of the resulting surplus.
  2. Bbecome cheaper abroad, so the country's trade balance steadily improves over time.
  3. Care unaffected, because the nominal exchange rate itself has not been changed.
  4. Dlose competitiveness as the real exchange rate appreciates, so the peg comes under strain.

Question 801

[2 marks]Aggregate demand and national income measurement
Imports are subtracted in the expression AD = C + I + G + (X - M) because they represent
  1. Adomestic spending on foreign output, which adds nothing to domestic production.
  2. Bgoods that have already been counted once within consumption expenditure C.
  3. Ca payment of tax to a foreign government rather than to the domestic government.
  4. Doutput that is produced at home but consumed by residents of another country.

Question 802

[2 marks]Aggregate demand and national income measurement
A state pension paid to a retired person is excluded from government expenditure G in the national accounts because it is
  1. Afinanced by borrowing rather than out of the government's own tax revenue.
  2. Ba transfer payment, not a payment for any currently produced good or service.
  3. Ccounted instead as part of investment, since it adds to the saving of households.
  4. Dspending on a service that the government has bought from the private sector.

Question 803

[2 marks]Aggregate demand and national income measurement
Real GDP per head understates the standard of living in an economy with a large subsistence and informal sector because it
  1. Ais an average, so it conceals how the income is distributed among the households.
  2. Bincludes spending on cleaning up pollution as though it were a genuine gain in welfare.
  3. Cvalues output at the prices of the base year rather than at the current year's prices.
  4. Dcounts only marketed output, so unrecorded production is left out of the total entirely.

Question 901

[2 marks]Price indices, inflation and the functions of money
The weights used in a consumer price index are derived from
  1. Athe rate at which the price of each item changed over the course of the previous year.
  2. Bthe relative prices of the items making up the basket in the chosen base year.
  3. Ca household expenditure survey showing the share of spending going to each item.
  4. Dthe quantity of each item that the country as a whole produces in a given year.

Question 902

[2 marks]Price indices, inflation and the functions of money
A consumer price index is set at 100 in the base year so that
  1. Aeach item in the basket carries the same weight in the first year that is measured.
  2. Blater index values read directly as a percentage of the base year's price level.
  3. Cthe index can never fall below zero in any of the periods measured afterwards.
  4. Dthe inflation rate in the base year is itself recorded as exactly 100 per cent.

Question 903

[2 marks]Price indices, inflation and the functions of money
The function of money that hyperinflation destroys most directly and immediately is money's role as a
  1. Amedium of exchange, since money is refused in every transaction from the outset.
  2. Bunit of account, since the currency is withdrawn from circulation by law.
  3. Cstandard of deferred payment, since all existing debts are cancelled outright.
  4. Dstore of value, since cash and bank balances lose purchasing power by the day.

Question 1001

[2 marks]Income and wealth distribution and redistributive policy
A progressive income tax narrows the distribution of income because
  1. Ait is levied on what a household spends rather than on the income it earns.
  2. Bthe revenue raised is returned in equal shares to all of those who paid it.
  3. Cthe proportion of income taken in tax rises as a taxpayer's income rises.
  4. Devery taxpayer pays the same amount of tax regardless of the income earned.

Question 1002

[2 marks]Income and wealth distribution and redistributive policy
The main reason progressive income taxation does little to reduce inequality in an economy such as Zimbabwe's is that
  1. Ahigh earners receive most of their income in the form of capital gains instead.
  2. Bmost earners work in the informal sector, which the income tax net does not reach.
  3. Cthe top rate of income tax is set lower than the rates in neighbouring countries.
  4. Dthe revenue collected is spent on defence rather than on health and education.

Question 1003

[2 marks]Income and wealth distribution and redistributive policy
Redistributing land is described as addressing the distribution of wealth rather than of income because land is
  1. Avalued at the price it would fetch abroad rather than at its price in the local market.
  2. Ba flow of earnings received by a household over the course of a single year.
  3. Cowned collectively by the state and therefore cannot belong to a household at all.
  4. Da stock of productive assets held at a point in time, not a flow received over a period.

Question 1101

[2 marks]Macro-economic objectives and exchange rate policy
Governments target a low positive rate of inflation rather than zero inflation because a small positive rate
  1. Araises the tax revenue that is collected from every transaction in the economy.
  2. Bguarantees that unemployment will settle at its frictional minimum level.
  3. Cleaves room for relative prices and real wages to adjust, and keeps deflation at a distance.
  4. Dmakes exports cheaper abroad and so improves the country's balance of payments.

Question 1102

[2 marks]Macro-economic objectives and exchange rate policy
Expansionary demand management aimed at reducing unemployment typically conflicts with the objective of
  1. Aa fairer distribution of income, which worsens as the level of employment rises.
  2. Ba balanced budget, which is not affected by the level of national income.
  3. Ceconomic growth, which falls as aggregate demand in the economy rises.
  4. Dprice stability, since stronger demand tends to pull the rate of inflation upward.

Question 1103

[2 marks]Macro-economic objectives and exchange rate policy
Holding an official exchange rate above the rate the market would set reliably produces
  1. Aa surplus of foreign currency, which the central bank is then obliged to buy up.
  2. Ba fall in the domestic price of imported fuel and machinery over the following year.
  3. Can immediate rise in export earnings, since exporters receive more per unit sold.
  4. Da parallel market, as foreign currency is rationed and then traded outside the official channel.

Question 1201

[2 marks]Fiscal policy, taxation and devaluation
A rise in income tax lowers equilibrium national income by more than the tax rise itself because
  1. Agovernment spending must be cut by the same amount that tax revenue has risen.
  2. Bthe initial fall in consumption is multiplied through successive rounds of spending.
  3. Cthe tax is levied again each time that the money changes hands within the economy.
  4. Dfirms respond by raising their prices, which reduces the real value of total output.

Question 1202

[2 marks]Fiscal policy, taxation and devaluation
Tax revenue falling in a recession and rising in a boom, with no policy decision taken at all, is an example of
  1. Aa discretionary fiscal policy aimed at managing the level of aggregate demand.
  2. Ban automatic stabiliser, which dampens the fluctuations in national income.
  3. Cthe balanced budget multiplier operating on the level of government expenditure.
  4. Dthe crowding out of private investment by additional government borrowing.

Question 1203

[2 marks]Fiscal policy, taxation and devaluation
A devaluation improves a country's trade balance only if the sum of the price elasticities of demand for its exports and its imports
  1. Ais greater than one, which is the Marshall-Lerner condition.
  2. Bis exactly equal to zero, so that the volumes traded do not respond to price at all.
  3. Cequals the ratio of exports to imports in the year before the devaluation took place.
  4. Dis less than one, which is the usual case for an exporter of primary commodities.

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