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ZIMSEC A Level · 6073/3 · N2019

Economics Paper 3 November 2019

Questions
60
Total marks
300
Syllabus code
6073/3

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Questions
60
Pass mark
36
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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 resource allocation
A mixed economy is one in which resources are allocated by
  1. Athe largest firms in each industry, acting together by agreement
  2. Bthe state alone, through a single central plan covering every industry
  3. Cthe price mechanism alone, with no role at all for government
  4. Dboth the private sector and the state, each correcting the other's weaknesses

Question 102

[3 marks]Economic systems and resource allocation
The private sector is said to be allocatively efficient because firms
  1. Aproduce the goods consumers most want, since that is where profit lies
  2. Bproduce at the lowest average cost that their technology will allow
  3. Cproduce the same goods as their rivals, so consumers can compare prices
  4. Dproduce whatever quantity the government has instructed them to produce

Question 103

[3 marks]Economic systems and resource allocation
A market left entirely to the private sector allocates resources inefficiently because it
  1. Aproduces no public goods and under-produces merit goods
  2. Bproduces only the goods that consumers are willing to pay for
  3. Callows firms to enter and leave industries as profits change
  4. Dsets prices at the level where demand and supply are equal

Question 104

[3 marks]Economic systems and resource allocation
Government intervention improves the allocation of resources where a firm generates a negative externality because it
  1. Aguarantees the firm a market for the whole of the output it produces
  2. Bremoves the firm's obligation to pay any tax at all on the profits it earns
  3. Cleaves the price mechanism free to decide how much should be produced
  4. Dpushes output down towards the level at which social cost equals social benefit

Question 105

[2 marks]Economic systems and resource allocation
Productive efficiency is achieved when a firm
  1. Aemploys as many workers as it possibly can at the ruling wage
  2. Bsells the whole of its output at the highest price the market will bear
  3. Cproduces a given output at the lowest possible average cost
  4. Dproduces the goods that consumers are most willing to buy

Question 201

[3 marks]Consumer theory and indifference curve analysis
For a normal good, a fall in its price raises the quantity demanded because
  1. Aboth the income and the substitution effects work against each other
  2. Bthe income effect is positive and reinforces the substitution effect
  3. Cthe income effect is negative and offsets the substitution effect
  4. Dthe substitution effect is negative while the income effect is zero

Question 202

[3 marks]Consumer theory and indifference curve analysis
An inferior good differs from a normal good in that, for an inferior good,
  1. Athe income effect is negative and works against the substitution effect
  2. Bboth the income effect and the substitution effect are negative in sign
  3. Cthe substitution effect is positive rather than negative in its direction
  4. Da fall in price leaves the quantity demanded completely unchanged

Question 203

[3 marks]Consumer theory and indifference curve analysis
In indifference curve analysis, a consumer is in equilibrium at the point where
  1. Athe two goods are bought in exactly equal quantities by the consumer
  2. Bthe indifference curve cuts the vertical axis of the diagram
  3. Cthe budget line is tangential to the highest attainable indifference curve
  4. Dthe budget line crosses two of the consumer's indifference curves at once

Question 204

[2 marks]Consumer theory and indifference curve analysis
The main advantage of indifference curve analysis over marginal utility theory is that it
  1. Aapplies to goods bought by firms as well as by households
  2. Bcan be used even where a consumer buys only one good
  3. Cproduces a demand curve that always slopes upwards to the right
  4. Ddoes not require utility to be measured in cardinal units

Question 205

[2 marks]Consumer theory and indifference curve analysis
A limitation of indifference curve analysis as a description of real consumer behaviour is that it assumes
  1. Athe prices of the two goods concerned never change at all
  2. Bconsumers are rational, fully informed and have stable preferences
  3. Cconsumers spend the whole of their income on a single good
  4. Dthe two goods concerned are perfect substitutes for one another in use

Question 301

[3 marks]Elasticity of supply
A farmer with idle land and unused equipment finds that the supply of his crop is
  1. Aelastic, since he can bring the spare capacity into use and raise output
  2. Binelastic, since spare capacity cannot be brought into production quickly
  3. Cperfectly inelastic, since output is fixed once the season has begun
  4. Dunaffected by capacity, since supply depends only on the season's rainfall

Question 302

[3 marks]Elasticity of supply
Two farmers face the same price change. One produces fresh milk and the other produces maize that can be stored. Compared with the maize farmer, the milk producer's supply is
  1. Aless elastic, because milk cannot be stored and held back for a better price
  2. Bequally elastic, because both are agricultural rather than manufactured products
  3. Cperfectly elastic, because milk must be sold at whatever price is offered
  4. Dmore elastic, because milk can be produced again within a single day

Question 303

[3 marks]Elasticity of supply
The supply of an agricultural product is more inelastic than that of a manufactured product mainly because
  1. Aagricultural prices are controlled by government while factory prices are not
  2. Ba crop takes a whole growing season before the extra output can be delivered
  3. Cmanufacturers hold no stocks of the goods that they have produced
  4. Dfarmers are unable to obtain credit from banks to expand their output

Question 304

[2 marks]Elasticity of supply
Knowing the price elasticity of supply of his crop helps a farmer to decide
  1. Athe price at which his crop will be sold on the market
  2. Bthe quantity of the crop that consumers will wish to buy
  3. Chow much storage to build and how much labour to hire
  4. Dthe rate of tax that government will charge on his earnings

Question 305

[2 marks]Elasticity of supply
A farmer should treat a calculated elasticity of supply with caution because it is
  1. Acalculated by government rather than by the farmer himself
  2. Bthe same figure for every crop that is grown anywhere in the country
  3. Cestimated from past data, which may not describe future conditions
  4. Dalways negative, so it cannot be applied to a supply decision

Question 401

[3 marks]Contestable markets
The defining feature of a contestable market is that
  1. Athe market contains a very large number of small competing firms
  2. Bthere is complete freedom of entry and exit, and sunk costs are low
  3. Cevery firm in the market sells a product identical to its rivals' product
  4. Dthe firms in the market are prevented by law from earning abnormal profit

Question 402

[3 marks]Contestable markets
In a contestable market, existing firms are disciplined by
  1. Athe threat that new firms will enter if abnormal profits are earned
  2. Bthe number of rival firms already producing within the market
  3. Ca price ceiling imposed on the industry by the government
  4. Dthe requirement that they publish their accounts every year

Question 403

[3 marks]Contestable markets
In the long run, firms in a contestable market earn only normal profit, which means that
  1. Aprice is equal to average cost at its minimum, so productive efficiency is attained
  2. Bprice is above average cost, so the firms are earning a surplus over their costs
  3. Cprice is below average cost, so the firms are making a loss on their output
  4. Dprice is equal to the average cost of the largest firm in the market

Question 404

[2 marks]Contestable markets
Allocative efficiency in a contestable market's long-run equilibrium is shown by the fact that
  1. Aprice is equal to the marginal cost of the last unit produced
  2. Baverage revenue is greater than the average cost of production
  3. Ctotal revenue is exactly equal to the firm's total fixed cost
  4. Dmarginal cost is at the lowest point on the marginal cost curve

Question 405

[2 marks]Contestable markets
A firm in a contestable market that earns supernormal profit in the short run is
  1. Aproductively efficient but not allocatively efficient at that output
  2. Ballocatively efficient but not productively efficient at that output
  3. Cboth productively and allocatively inefficient at that level of output
  4. Dboth productively and allocatively efficient at that level of output

Question 501

[3 marks]Money, interest rates and loanable funds
A bank charges a higher rate of interest on one loan than on another mainly because of differences in
  1. Athe number of branches the bank operates in the country
  2. Bthe risk of default and the length of time to maturity
  3. Cthe currency in which the two loans have been recorded
  4. Dthe age of the two customers who applied for the loans

Question 502

[3 marks]Money, interest rates and loanable funds
Lenders build expected inflation into the interest rate they charge because
  1. Athe central bank requires the expected inflation rate to be added
  2. Bmoney repaid in future will buy less than the money lent today
  3. Cinflation reduces the amount of money available to be lent out
  4. Dinflation raises the number of borrowers who apply for loans

Question 503

[3 marks]Money, interest rates and loanable funds
Under the loanable funds theory, the equilibrium rate of interest is established by
  1. Athe largest commercial banks, acting together to set a common rate
  2. Bthe demand for loans by deficit spenders and their supply by savers
  3. Cthe central bank, which announces the rate at the start of each quarter
  4. Dthe rate of inflation expected in the economy over the coming year

Question 504

[2 marks]Money, interest rates and loanable funds
In the loanable funds market, the quantity of loans demanded is
  1. Aunaffected by the rate of interest that borrowers must pay
  2. Bequal to the quantity supplied at every possible rate of interest
  3. Cinversely related to the rate of interest that borrowers must pay
  4. Ddirectly related to the rate of interest that borrowers must pay

Question 505

[2 marks]Money, interest rates and loanable funds
Loanable funds theory explains less of the actual interest rate in Zimbabwe than in a developed economy because
  1. Athe financial market is thin and much activity lies outside the banks
  2. BZimbabwean savers are unwilling to lend at any rate of interest
  3. Cthe country has no central bank able to influence the interest rate
  4. Dinterest rates in Zimbabwe are the same for every kind of borrower

Question 601

[3 marks]Privatisation and the public sector
Privatisation is best defined as
  1. Athe running of a state-owned enterprise on strictly commercial lines
  2. Bthe transfer of a state-owned enterprise into private sector ownership
  3. Cthe sale of shares by one private company to another private company
  4. Dthe taking of a privately owned firm into the ownership of the state

Question 602

[3 marks]Privatisation and the public sector
Commercialisation of a state enterprise means that
  1. Athe enterprise is sold to private shareholders on the stock exchange
  2. Bthe state keeps ownership but the enterprise must cover its own costs
  3. Cthe enterprise is closed and its functions handed to a private firm
  4. Dthe state guarantees the enterprise a subsidy in any loss-making year

Question 603

[3 marks]Privatisation and the public sector
Nationalisation occurs when
  1. Aprivately owned firms are taken into the ownership of the state
  2. Ba state enterprise is required to operate without any subsidy
  3. Cthe state sells its shareholding in a company to private investors
  4. Da company registered abroad opens a branch inside the country

Question 604

[2 marks]Privatisation and the public sector
A benefit to government of commercialising a state enterprise is that
  1. Athe entity is freed from the obligation to publish annual accounts
  2. Bthe entity may charge whatever price it wishes without limit
  3. Cgovernment spending falls, since the entity must meet its own costs
  4. Dgovernment gains the whole of the proceeds from selling the entity

Question 605

[2 marks]Privatisation and the public sector
Commercialisation often fails to deliver the efficiency intended because
  1. Agovernment continues to rescue the entity whenever it makes a loss
  2. Bthe entity's assets are transferred to private owners at a low price
  3. Cthe entity is required to employ fewer workers than it actually needs
  4. Dcommercialised entities are barred by law from raising their prices

Question 701

[3 marks]International trade and terms of trade
A country's terms of trade improve when
  1. Athe index of its import prices rises relative to the index of its export prices
  2. Bits current account moves from a surplus into a deficit position
  3. Cthe volume of its exports rises faster than the volume of its imports
  4. Dthe index of its export prices rises relative to the index of its import prices

Question 702

[3 marks]International trade and terms of trade
An appreciation of a country's currency improves its terms of trade because it
  1. Araises the volume of exports sold and lowers the volume of imports bought
  2. Bleaves export and import prices unchanged while raising the trade balance
  3. Craises export prices in foreign currency and lowers import prices at home
  4. Dlowers export prices in foreign currency and raises import prices at home

Question 703

[3 marks]International trade and terms of trade
A fall in a country's terms of trade means that
  1. Aa given volume of its exports now exchanges for more imports
  2. Bthe country is no longer able to export any of its production
  3. Cthe country's total earnings from exports must have fallen
  4. Da given volume of its exports now exchanges for fewer imports

Question 704

[2 marks]International trade and terms of trade
A fall in the terms of trade may nevertheless leave a country better off in export earnings when
  1. Athe country's imports consist mainly of fuel, machinery and medicines
  2. Bthe fall was caused by a rise in the prices charged for its imports
  3. Cthe country's exports are made up entirely of primary products
  4. Dthe lower export prices bring a more than proportionate rise in volumes

Question 705

[2 marks]International trade and terms of trade
The terms of trade index should be interpreted with care because, being a weighted average of many prices, it does not show
  1. Athe direction in which export prices have moved over the period
  2. Bchanges in the quality of the goods that are being traded
  3. Cthe level of import prices in the base year of the index
  4. Dwhether export prices have risen faster than import prices

Question 801

[3 marks]Sectors of the economy and the informal sector
The informal sector of an economy consists of activities that are
  1. Aowned and controlled by the state and run in the public interest
  2. Bcarried on by companies listed on the country's stock exchange
  3. Cnot registered with government and outside the tax and regulatory net
  4. Dcarried on by foreign-owned firms operating inside the country

Question 802

[3 marks]Sectors of the economy and the informal sector
The private sector of an economy is made up of firms in which resources are
  1. Aowned by the state and used to maximise social welfare
  2. Bowned jointly by the state and by foreign investors together
  3. Cowned by workers who share the profits equally among themselves
  4. Downed by private individuals and used to maximise profit

Question 803

[3 marks]Sectors of the economy and the informal sector
The public sector of an economy consists of organisations that are
  1. Aowned and controlled by the state, aiming to maximise social welfare
  2. Bowned by the state but permitted to sell shares to the general public
  3. Cunregistered with government and therefore free of taxation
  4. Downed by private shareholders but subject to government regulation

Question 804

[2 marks]Sectors of the economy and the informal sector
The most important contribution of the informal sector to Zimbabwe's economy is that it
  1. Aprovides the finance that the formal banking system lends out
  2. Bprovides the largest single source of tax revenue for government
  3. Cprovides employment and income where formal jobs have collapsed
  4. Dsupplies the country's exports of minerals and of tobacco

Question 805

[2 marks]Sectors of the economy and the informal sector
The informal sector's contribution to sustained economic growth is limited because
  1. Ainformal businesses employ no workers other than their own owners
  2. Binformal businesses are prohibited from trading with formal firms
  3. Cinformal output is deducted from the national income figures
  4. Dit is largely untaxed, unrecorded and unable to reach formal finance

Question 901

[3 marks]Deflation and macroeconomic policy
To close a deflationary gap, a government would use expansionary fiscal policy, which means
  1. Araising taxes and reducing its own spending on goods and services
  2. Braising tariffs on imports and restricting the outflow of currency
  3. Craising interest rates and selling securities on the open market
  4. Dcutting taxes and increasing its own spending on goods and services

Question 902

[3 marks]Deflation and macroeconomic policy
Expansionary monetary policy is used against deflation because lower interest rates and easier credit
  1. Araise the cost of borrowing for firms wishing to invest
  2. Braise the amount households choose to save out of their incomes
  3. Craise consumption and investment spending in the economy
  4. Dreduce the quantity of money circulating in the economy

Question 903

[3 marks]Deflation and macroeconomic policy
Monetary policy loses much of its power during a deflation because
  1. Athe money supply cannot be increased once prices have begun to fall
  2. Bthe central bank is unable to lower nominal interest rates below ten percent
  3. Ccommercial banks are prohibited from lending while prices are falling
  4. Dfirms will not borrow while they expect prices to go on falling

Question 904

[2 marks]Deflation and macroeconomic policy
A tax cut may fail to close a deflationary gap because households
  1. Aare required to hand the extra income back to government
  2. Bspend the extra income entirely on goods made at home
  3. Creceive the extra income only after the gap has closed
  4. Dsave the extra income instead of spending it on goods

Question 905

[2 marks]Deflation and macroeconomic policy
Supply side policies are a slow remedy for deflation because they
  1. Araise capacity gradually and can push prices lower still
  2. Braise aggregate demand immediately but only for one year
  3. Crequire the central bank to raise its own rate of interest
  4. Dreduce the economy's productive capacity in the short run

Question 1001

[3 marks]Economic growth and development
Economic growth is described as necessary but not sufficient for economic development because growth
  1. Ais measured over a longer period than economic development is
  2. Boccurs only in countries that have already achieved development
  3. Cprovides the resources for development but need not improve people's lives
  4. Dimproves people's lives directly without any need for further policy

Question 1002

[3 marks]Economic growth and development
Economic growth promotes development chiefly because the extra output allows a country to
  1. Aborrow whatever sums it wishes without ever having to repay them
  2. Bbuild schools, clinics, roads and water systems out of its own resources
  3. Creduce the number of people who are employed in its industries
  4. Draise the prices charged for the goods that its households consume

Question 1003

[3 marks]Economic growth and development
Development also promotes growth, because a country that has developed possesses
  1. Aa currency that is fixed permanently against those of its trading partners
  2. Ba large stock of unexploited natural resources that has never been used
  3. Ca population that consumes less than it did before development began
  4. Da healthy, educated workforce and functioning institutions and finance

Question 1004

[2 marks]Economic growth and development
Economic growth may fail to bring development where the growth is accompanied by
  1. Aan improvement in the country's supply of clean drinking water
  2. Bheavy pollution, land degradation and urban congestion
  3. Ca rise in the number of children attending secondary school
  4. Dan increase in the average life expectancy of the population

Question 1005

[2 marks]Economic growth and development
Growth also fails to produce development where
  1. Athe extra output is produced by the country's own workers
  2. Boutput grows faster than the population of the country grows
  3. Cthe extra output is sold abroad as well as in the home market
  4. Dthe proceeds are captured by a small group, leaving the majority unchanged

Question 1101

[3 marks]Balance of payments
The capital account of the balance of payments records
  1. Athe value of visible exports set against the value of visible imports
  2. Bthe earnings from tourism, banking, transport and other services
  3. Cthe inflow and outflow of long-term funds and the sale or purchase of assets
  4. Dthe interest and dividends paid to foreign owners of domestic firms

Question 1102

[3 marks]Balance of payments
The balance of trade is the difference between a country's
  1. Avisible exports and visible imports over the given period
  2. Bcapital inflows and capital outflows over the given period
  3. Cgovernment revenue and government spending over the year
  4. Dtotal exports and total imports of both goods and services

Question 1103

[3 marks]Balance of payments
A government devalues its currency to correct a balance of payments deficit. The policy will succeed only if
  1. Athe sum of the elasticities of demand for exports and imports is less than one
  2. Bthe demand for the country's imports is completely inelastic
  3. Cthe country's exporters are already producing at full capacity
  4. Dthe sum of the elasticities of demand for exports and imports exceeds one

Question 1104

[2 marks]Balance of payments
To reduce a persistent balance of payments surplus, a government could
  1. Adevalue the currency, which makes its exports cheaper abroad
  2. Brevalue the currency, which makes its exports dearer abroad
  3. Cimpose tariffs and quotas on the goods that it imports
  4. Dborrow foreign currency from the International Monetary Fund

Question 1105

[2 marks]Balance of payments
Which measure to correct a balance of payments deficit works by reducing total spending in the economy rather than by switching it?
  1. Adevaluing the currency against those of trading partners
  2. Braising taxes and interest rates to cut domestic demand
  3. Cpaying a subsidy to firms that produce goods for export
  4. Dimposing a quota on the quantity of goods that may be imported

Question 1201

[3 marks]Inflationary and deflationary gaps
A deflationary gap exists in an economy when
  1. Athe general price level falls for two successive quarters of the year
  2. Bgovernment spending is less than the revenue it collects in taxation
  3. Cequilibrium national income lies below the full employment level of income
  4. Dequilibrium national income lies above the full employment level of income

Question 1202

[3 marks]Inflationary and deflationary gaps
An inflationary gap exists in an economy when
  1. Athe price level is rising more slowly than it did in the previous year
  2. Bactual national income exceeds the full employment level of income
  3. Cactual national income falls short of the full employment level of income
  4. Dthe country is running a deficit on the current account of its balance of payments

Question 1203

[3 marks]Inflationary and deflationary gaps
To close an inflationary gap, a government would use contractionary policy, that is
  1. Adevaluing the currency and easing the terms on which banks may lend
  2. Bcutting taxes, raising public spending and lowering interest rates
  3. Craising tariffs on imports and subsidising firms producing at home
  4. Draising taxes, cutting public spending and raising interest rates

Question 1204

[2 marks]Inflationary and deflationary gaps
A drawback of using an incomes policy such as a wage freeze to close an inflationary gap is that
  1. Ait raises workers' real incomes and so adds to demand once again
  2. Bit applies only to workers employed in the private sector of the economy
  3. Cit removes the incentive to work, so productivity and output fall
  4. Dit takes effect only after the inflationary gap has already closed

Question 1205

[2 marks]Inflationary and deflationary gaps
Lowering tariffs is sometimes used against an inflationary gap because cheaper imports ease demand pressure at home, but the cost of doing so is that
  1. Acustoms revenue falls and local infant industries face stiffer competition
  2. Bthe price of imported goods rises for every household in the country
  3. Cthe country's exports become dearer in its main foreign markets
  4. Dthe volume of goods available to domestic consumers falls sharply

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