ZIMBABWE SCHOOL EXAMINATIONS COUNCIL

A’ LEVEL ECONOMICS

PAPER 1

NOV 2002

1. The diagram below shows the transformation curve of an economy

Good x
Transformation curve

Good Y

Why is the curve a straight line?

a. Resources are fully utilized

b. The marginal rate of transformation is decreasing
c. The marginal rate of transformation is constant
d. The economy is experiencing diminishing returns

2. If Zimbabwe is experiencing a recession, what will be the effect of rising

unemployment among school leavers?

a. an increase in productivity
b. an upsurge in the spread of Aids among teenagers
c. an increase in the drop out rate in secondary schools
d. a reduction in the drop out rate in secondary schools
3. Production decisions are always made at the margin because

a. the marginal output is always very small

b. producers face the problem of resource scarcity.
c. Decisions about production are made by private owners of resources
d. Profit is always maximized when price is equated to marginal cost

4. In the equations below, MRSa and MRSb denote the marginal rates of substitution for
goods A and B respectively, while Pa and Pb are the prices of goods A and B
respectively.

Utility is maximised when:

a. MRSa = Pa
MRSb Pb

b. MRSa = Pb
MRSb Pa

c. MRSa = MRSb
Pb

d. MRSb = MRSa
Pa

5. Assuming many young Zimbabweans would prefer to have restaurant meal than a
home prepared one, which of the following would not change their demand for
restaurant meals?

a. a change in the incomes of consumers

b. a change in the quality of home cooking
c. a change in the price of a restaurant meal
d. a change in the cost of electricity for domestic use

6. The diagram below shows the demand curve for a given good.
Price
Demand curve

0 quantity

The price elasticity along the demand curve is

a. constant throughout
b. equal to the ratio of prices
c. decreasing with a fall in price
d. equal to the slope of the demand curve

7. Which supply curve A, B, C or D on the diagram below does not have constant
elasticity?
D
C

Price B

Quantity supplied

8. In the diagram below, D0 and D1, S0 and S1 represent the original and subsequent
demand and supply curves, respectively. P 0 is the original equilibrium price.
 Price D0 D1 S0

S1

P0
P1

Quantity

What could have caused the price to fall to P 1?

a. external economies of scale

b. internal diseconomies of scale
c. increasing returns to the variable factor
d. diminishing returns to the variable factor

9. The short – run supply curve of an individual firm is

a. the average cost curve

b. the average variable cost curve
c. the marginal cost curve above the average total cost curve
d. the marginal cost curve above the average variable cost curve
10. The diagram below shows a perfect price discriminating monopolist

Which statement about production is true as shown in the diagram?

a. the firm breaks even when producing oq units

b. the firm makes supernormal profits when producing oq units
c. output oq is lower than would be produced by a single price monopolist
d. production cannot take place the average total cost is less than the average
revenue at all levels

11. The supply of mangoes on the market tends to be more inelastic in the

a. long run
b. short run
c. very long run
d. momentary period

12. In the short run, the total costs of a firm are given as TC = $ (8000 + 20x 2) where x is
the level of output

If the actual output produced is 10 units, what are the firm’s average fixed costs and
average variable costs?

Average fixed costs Average variable costs

$ $
a. 400 100
b. 800 200
c. 4 000 1 000
d. 8 000 2 000

13. The diagram below shows the short run total cost (TC) and total revenue (TR)
schedules of a perfectly competitive firm. The broken line labeled X is parallel to TR.

At what output range would the firm rather close down than continue producing?

a. OS
b. OR
c. OQ
d. QR

14. Past expenses, for example, sunk costs are irrelevant to decisions about supply
because

a. opportunity costs incurred are not important in decision making

b. past expenses reduce profits if they are included in decision making
c. opportunities available in the present are not affected by past expenses
d. opportunities that will have to be forgone will determine supply decisions
15. The demand and supply conditions for maize are shown in the diagram below

If the government intervenes and fixes a maximum price to protect consumers, the
effective supply curve will pass through

a. acP1
b. acS
c. bdP2
d. bdS

16. The Zimbabwe Football Association (ZIFA) usually increases the price of soccer
tickets when there is an international match because

a. the higher the price the greater the utility derived from the game
b. the price paid to international players is very high due to high economic rent
c. ZIFA wants people to watch the match since entertainment is a merit good
d. The seating capacity of the sports stadium will not match the increase in
demand for the tickets

17. Human capital can be defines as

a. employees of a firm
b. machinery used by human beings in a firm
c. capital owned by people employed in the private sector
d. skills, abilities and knowledge possessed by people in a firm.
18. The diagram below shows the demand and supply curves in a labour market.

Which area measures economic rent and transfer earnings when the market is in
equilibrium?

Economic rent Transfer earnings

a. abd bcd
b. abd oadq
c. acd bcd
d. acd oadq

19. Labour unions may not be able to increase of their individual members when

a. there are too many unions

b. competition for labour among employers is very high
c. their members face competition from non – unionized labour
d. international labour regulations do not allow wage bargaining
20. A firm is in equilibrium when the last cent spent on each factor is equal to the
marginal revenue productivity of each factor

This principle is called

a. equity
b. marginal analysis
c. diminishing returns
d. equi- marginal returns

21. Which area on the diagram below shows community surplus?

a. abd
b. acb
c. bcd
d. odbe

22. The demand and supply functions of a commodity are given by the equations

Qd = 24 – 2P

Qs = -6 + 8P

If a subsidy of $5.00 per unit is paid to produces the equilibrium price would be

a. $2.50
 b. $3.00
c. $3.50
d. $5.00

23. Police protection is provided by the government

a. to minimize inefficiency in the police force

b. to create jobs for the unemployed school leavers
c. because it is cheaper to hire government police units
d. because it cannot be adequately financed through voluntary contributions

24. In economy with a progressive tax system, there is an increase in before tax incomes:

After tax incomes will

a. decrease less than proportionately

b. decrease more than proportionately
c. increase less than proportionately
d. increase more than proportionately

25. Which action by the government may increase the supply of farm produce on the
Zimbabwean market?

a. granting subsidies to producers

b. levying a specific tax on farm produce
c. increasing the sales tax on farm produce
d. imposing a price ceiling at which farm produce may be sold

26. Zimbabwe and Zambia are two SADC countries each capable of producing two
commodities X and Y as shown below:

Country Hours of labour required to produce 1 unit

X Y
Zimbabwe X1 7
Zambia 54 21

If neither country has a comparative advantage in either commodity the missing figure X 1
is
 a. 18
b. 26
c. 33
d. 40

27. How is expenditure by foreign tourists recorded in the Balance of Payments

Accounts?

a. a credit in the invisible account

b. a debit in the invisible account
c. a credit in the visible trade account
d. a debit in the visible trade account

28. Following an increase in output, investment increases by a certain percentage. This is

explained by the

a. multiplier effect
b. investment ratio
c. accelerator principle
d. marginal return on capital

29. The diagram below shows Y1 as the full employment level of income and AD0 AD1
and AD2 represent the aggregate demand at different levels of income.
If the aggregate demand is AD2, the inflationary gap is shown by

a. bd
b. cb
c. ce
d. dc

30. The diagram below shows an economy experiencing an inflationary gap.

Assuming that the marginal propensity to consume is a constant and that autonomous
consumption becomes zero, then the economy is now

a. in a recession
b. in an inflationary gap
c. in a deflationary gap
d. at full employment equilibrium

31. In a closed economy with no government expenditure, C = 50 + 0.75Y and

Investment = 1*, where C = consumption and Y = Income.

If the equilibrium income is $500 million what is the level of investment?

a. $50m
b. $75m
 c. $425
d. $925

32. Which change must be made to convert Gross Domestic Product at market prices to
Net National at factor cost?

Depreciation Net property income Net subsidies

from abroad
A - + -
B - + +
C + - +
D + - -

33. The gross domestic product of a country is $3 billion and the price index stands at
150.

What is the country’s gross domestic product, valued in the prices of the base year of the
price index?

a. $1,0 billion
b. $2,0 billion
c. $3,0 billion
d. $4,5 billion

34. If the Central Bank maintains a policy of high interests rates to cure inflation,
further increases in interest rates with a flexible exchange rate system will lead to

a. currency appreciation
b. an increase in investment
c. a decrease in capital investment
d. improvement in the BOP position in future

35. The inflation rate in Zimbabwe has been on average above 50% for the period 1999 –
2001. Which action by government would be consistent with a policy to reduce the
demand for credit?

a. a reduction in interest rates

b. a reduction in the reserve ratio of the commercial banks
c. a decrease in the amount of special deposits held by the central bank
d. a decrease in the repayment period on hire purchase transaction
36. The Zimbabwean government has often gazetted minimum wages for domestic and
farm workers since 1980.

Why has this been the case?

a. so that workers may not be overpaid

b. so that workers may not lose their jobs
c. because the workers have low productivity
d. because the workers have worker bargaining power

37. Shortages of fuel and foreign currency have caused many firms to close down or
streamline operations. Governments have often assisted the retrenched by providing
retraining schemes. This suggests the existence of

a. cyclical unemployment
b. seasonal unemployment
c. structural unemployment
d. demand deficiency unemployment

38. Which one of the following is an inflationary fiscal measure?

a. reducing taxes
b. reducing interest rates
c. increasing the money supply
d. reducing government expenditure

39. Which policy tends to reduce both the rate of inflation and a balance of payments
deficit?

a. an increase in import tariffs

b. a reduction in government spending
c. a rise in the country’s exchange rate
d. a reduction in the level of interest rates

40. The average prices as measured by the consumer price index doubled between 1980
and 1990 while the price of 1kg of tomatoes rose from $6,00 to $9,00

The cost of 1kg of tomatoes in 1990 was

a. the same as it was in 1980

b. half much as it was in 1980
c. three quarters of what it was in 1980
d. indeterminate because the tomatoes in 1990 were of poor quality