ZIMBABWE SCHOOL EXAMINATIONS COUNCIL

GCE A’ LEVEL

ECONOMICS

PAPER 1

MULTIPLE CHOICE

JUNE 2011
5. The price of mealie meal rises from $10 000 to $20 000 and quantity
demanded of mealie – meal changes from 100 000 to 95 000. Which
diagram A, B, C or D reflects the demand for mealie- meal?

6. The income elasticity of demand for a good is 5. If demand rises by 50%,

income would have changed by how much?

a. 0.1%
b. 0.5%
c. 10%
d. 25%

7. A consumer derives satisfaction from consuming two goods, clothes and

food. The original budget constraint is XY and the new budget constraint is
XZ. With a budget of $500 000 and prices at:

1 unit of clothes $5 000

1 unit of food $2 500
Which diagram A, B, C or D reflects the changes when food price falls to $2 000
per unit?

8. A consumer’s budget is constrained at $200 000. She buys goods X and Y,

whose prices are $2 000 and $1 250 respectively. If her budget rises to $300
000 and prices of goods X and Y change such that the new budget
constraint cuts the ‘X’ axis at 200 and ‘Y’ axis at 120, what are the new
prices of goods X and Y?

X Y
A $1 500 $2 500
B $1 800 $1 000
C $2 500 $1 500
D $3 000 $2 500

9. The diagram below shows the total product (TP) curve for a firm.
At which level of employment of labour A, B, C or D will average product (AP) be
at maximum?

10. Santa Fresh operates a bakery whose total variable cost (TVC) is
$2 000 000, average total cost (ATC) is $5 000 and average fixed cost (AFC)
is $3 000. What is the firm’s output?

a. 250 units
b. 400 units
c. 666 units
d. 1 000 units

14. Minimum efficient scale refers to where

a. a given size plant is used to full capacity
b. the firm can avoid making a loss
c. the firm’s operations just break even
d. the firm’s average costs start rising.

15. The savings function of a closed economy with no government is given by

the equation S = -$500 + 0.3 Y. If the level of the national income is $5 000,
what is the average propensity to consume?

a. 0.3
b. 0.6
c. 0.7
d. 0.8

16. The gross domestic product of a country is $3 000 billion and the price
index stands at 120. What is the country’s real gross domestic product?

a. $1 000 bn
b. $2 000 bn
c. $2 500 bn
 d. $3 000 bn

17. What does the slope of the consumption function measure?

a. the marginal propensity to save
b. the marginal propensity to consume
c. the average propensity to consume
d. the average propensity to save

18. A fall in the velocity of circulation leaves the price level unchanged. What
could explain this?
a. a fall in the price of output
b. a fall in the level of employment
c. a rise in the money supply
d. a rise in the volume of transactions

19. A manufacturer faces a quota on its exports to a large foreign market. What
strategy would help to increase sales revenue to this market?
a. establishing and subsidizing a dealer network in the foreign market
b. improving the quality of the products it products
c. setting up a manufacturing plant in the foreign market
d. reducing the price of exports to that market

14. Minimum efficient scale refers to where

a. a given size plant is used to full capacity
b. the firm can avoid making a loss
c. the firm’s operations just break even
d. the firm’s average costs start rising
15. The savings function of a closed economy with no government is given by
the equation S = -$500 + 0.3Y. If the level of the national income is $5 000,
what is the average propensity to consume?

a. 0.3
b. 0.6
c. 0.7
d. 0.8

16. The gross domestic product of a country is $3 000 billion and the price
index stands at 120. What is the country’s real gross domestic product?
a. $1 000 bn
b. $2 000 bn
c. $2 500 bn
d. $3 000 bn

17. What does the slope of the consumption function measure?

a. the marginal propensity to save
b. the marginal propensity to consume
c. the average propensity to consume
d. the average propensity to save.

18. A fall in the velocity of circulation leaves the price level unchanged. What
could explain this?
a. a fall in the price of output
b. a fall in the level of employment
c. a rise in the money supply
d. a rise in the volume of transactions

19. A manufacturer faces a quota on its exports to a large foreign market. What
strategy would help to increase sales revenue to this market?

a. establishing and subsidizing a dealer network in the foreign market.

b. improving the quality of the products it produces
c. setting up a manufacturing plant in the foreign market
d. reducing the price of exports to that market
20. Which of the following should be provided by the government because of
market failure?

a. Free education
b. Street lighting
c. Free diesel to new farmers
d. Old age pension benefits

21.What might cause a favourable balance in a country if the exchange rate

remains unchanged?

a. a fall in the price of exports

b. an improvement in the terms of trade
c. an increase in the price of imports
d. a constant level of real income per head

22. A firm finds it costly to run and maintain a machine it bought a decade ago.
What should the firm nor consider when it wants to dispose of the
machine?

a. Wages of machine operators

b. The cost price of the machine to the firm
c. Current market price of the machine
d. Electricity charges to run the machine

23. In an open economy where

Y = aggregate output of domestically produced goods

I = investment
C = consumption
G = government expenditure
T = taxes
M = imports
X = exports
Which of the following equation shows the equilibrium of the country?

a. C+I+G=Y
b. C+I+G+M–X=Y
c. C+I+G+X–M=Y
d. C+I+G–T+M–X=Y

24. Given that the price of transport is a country has gone up, the government
has reacted by increasing subsidies for public transport. Which of the
following will result from the government’s move?

a. an increase in taxes
b. lower bus fares
c. an increase in traffic congestion
d. a lot of workers will go to work

25. In a given year the money income rose by 6% while the price level rose by
5%. What can be concluded from this?

a. a real decreased by 1%
b. the volume of output increased by 1%
c. the money supply increased by 11%
d. the income velocity of circulation decreased by 1%

26. The table below gives information about a country’s national income and
some of its components.

$bn
National income 500
Consumer spending 200
Investment spending 100
Government spending 150
Imports 125

What is the value of exports?

a. $175 bn
b. $125 bn
c. $50 bn
d. $25 bn

27. An economy has a balance of payments surplus and a low of inflation. What
would be the appropriate action for a government to take?
a. reduce the money supply
b. reduce interest rates
c. impose tariffs on imports
d. appreciate the currency

28. A government believes that consumers derive greater benefit from a good
than consumers themselves perceive. To which category does the good
belong?

a. free goods
b. merit goods
c. public goods
d. normal goods

29. Which of the following is not an automatic stabilizer of national income?

a. social security contributions

b. old age pensions
c. taxes on expenditure
d. unemployment benefits

30. Which of the following is an externality arising from tobacco smoking?

a. the burden on the health services delivery system
b. the amount paid by tobacco smokers
c. subsidies paid to tobacco farmers
d. tax revenue on tobacco
30. On the diagram below Yf represents full employment level of national
income.

Which statement best describes this economy?

a. the economy is in equilibrium and all resources will be employed
b. government income increases its expenditure
c. there is a deflationary gap
d. there is an inflationary gap

32. The liquidity preference is drawn on the assumption that

a. the money supply is fixed
b. there is a liquidity trap
c. the transaction demand for money is constant
d. the rate of interest varies directly with bond prices

33. When a diagram is drawn showing the circular flow of payments between
households and business, the two major markets are

a. goods and services

b. capital and labour
c. capital and land
d. consumer goods and factor resources.

34. The table below shows relationships between income and tax paid.
Tax Income
$ $
10 10 000
20 50 000
30 90 000
Which type of tax is illustrated in the table?

a. neutral
b. progressive
c. regressive
d. proportional

35. Suppose that

C = 0.5 of GDP
I = 100
G = 140
X = 60
M = 10% of GDP

Then, equilibrium GDP equals

a. 500
b. 600
c. 750
d. 790

36. The payment made to a factor of production over and above that necessary
to keep the factor in its present use is

a. consumer surplus
b. economic rent
c. normal profit
d. opportunity cost

37. The difference between gross national product and net national product is
a. subsidies
b. depreciation
c. indirect taxes
d. net property income from abroad
38. Ceteris Paribus, what is likely to result from a reduction in interest rates?
a. a capital inflow
b. a fall in investment
c. an appreciation of the currency
d. an increase in consumption

39. Which of the following statements best describes a rational consumer?

a. one who weighs up the costs and benefits of each good consumed
b. one who has brand loyalty of certain commodities
c. one who always buys valuable goods
d. one who maximizes total utility

40. Which of the following is not a valid reason for government intervention in
agriculture?

a. uncertainty may discourage farming

b. unstable prices may disadvantage consumers
c. fluctuating prices cause fluctuating farm incomes
d. consumers need a variety of commodities through competition