ZIMBABWE SCHOOL EXAMINATIONS COUNCIL

General Certificate of Education Advance Level

ECONOMICS 9158/1

PAPER 1 Multiple Choice

NOVEMBER 2009 SESSION 1 hour 30 minutes

1. Which characteristic applies to a mixed economy?

A. It is partly run by government and partly run by individuals.

B. Prices are determined be forces of demand and supply.
C. The price mechanism alone allocates resources.
D. Goods are produced for everyone in the society.

2. The price system allocates resources through interaction of demand and supply
forces. Which one is not a function of prices?

A. signaling function
B. incentive function
C. bartering function
D. rationing function

3. In dam construction, which one is an externality?

A. dam wall holding the water

B. earthmoving equipment used
C. irrigation piping at site
D. water skiing facility in the area

4. A municipal authority budget included construction of non-income generating

facilities not taken up by the private sector. Such facilities are referred to as

A. economic goods.
B. free goods.
C. merit goods.
D. public goods.

5. Allocative efficiency is realized when

A. the economy is operating at minimum cost.

B. a gain by one does not diminish others’ welfare.
C. society gets as much from production as it puts in.
D. the economy is operating at the production possibility curve.
6. The production possibility curve below shows the production of two goods, X and
Y. Which production possibility curve shows that output increases more than
proportionately with inputs in both industries?

7.

The diagram shows economic efficiency. What type of economic efficiency is

shown by the movement of cost AC1 to AC2?

A. X – efficiency
B. Technical efficiency
C. Productive efficiency
D. Allocative efficiency
8. When government internalizes an externality it

A. levies a tax equal to excess of social cost over private cost.

B. Excludes all costs external to the firm when levying company tax.
C. Assumes all costs incurred but not covered by firms in production.
D. Enforces firms to incorporate the costs of the externality in their accounts.

9. What is effective demand for petrol?

A. amount of petrol a consumer is willing to buy at a given price

B. amount of petrol a producer is willing to sell at a given price
C. desire to buy petrol backed by the ability to do so
D. desire to buy petrol through rationing using coupons

10. Which of the following is not a normative statement?

A. The government should be more worried about unemployment in the

economy.
B. The inflation rate in Zimbabwe in November 2005 was above 400%.
C. Equitable distribution of income and wealth should lead to economic
growth in an economy.
D. The government should increase the interest rate in order to reduce the
problem of inflation.

11. The demand for a product is price elastic when

A. an increase in the price of a product raises its quantity demanded.

B. an increase in the price fo a product increases expenditure on it.
C. a fall in price increases quantity demanded of a product.
D. a fall in the price of a product increases expenditure on it.

12. Goods X and Y are related. Cross elasticity of demand for X and Y has a large
positive coefficient. When income increases, the demand for both goods also
increases. What type of goods are X and Y?

A. substitutes and normal goods

B. substitutes and inferior goods
C. complements and normal goods
D. complements and inferior goods.

13. Government macroeconomic policy objectives include efficiency and equity.

Which twin policies would be consistent with these objectives?

A. anti-corruption drive and increased value added tax

B. anti-mergers legislation and unemployment benefits payment
 C. increased PSBR and equivalent increase in taxation
D. higher progressive tax and creation of more parastatals

14. The following data is known for a country.

$ billion
GDP at market prices 620 000
GNP at market prices 520 000
GDP at factor cost 900 000
GNP at factor cost 800 000
NNP 500 000

What is the value of the allowance for indirect taxes and subsidies and the value
allowed for capital consumption?

Allowance for indirect allowance for

Taxes & subsidies capital consumption

A. $ 280 000 billion $ 300 000 billion

B. $ 300 000 billion $ 100 000 billion
C. $ 380 000 billion $ 280 000 billion
D. $ 400 000 billion $ 380 000 billion

15. The diagram shows savings function S1, the original, for an economy.

If the savings function shifts to S2, what effect will this have on the marginal
propensity to save and on the multiplier?

Effect on marginal effect on the

Propensity to save multiplier

A. increases increases
B. increases decreases
C. decreases decreases
D. decreases increases
16.

The diagram shows the interaction of demand and supply curves. Following a
shift of the supply from S1 to S2 which area represents the loss in consumer
surplus?

A. ABC
B. ADE
C. CEQ1Q2
D. BCED
17. The consumer has a choice to consume three goods, X, Y and Z in order to
maximize her utility.

The condition of equi-marginal utility will be

A. Mux = Muy = Muz

Px Pz Py

B. Mux = Muy = Muz

Py Pz Px

C. Mux = Muy = Muz

Px Py Pz

D. Mux = Muy = Muz

Pz Px Py

18. Good X has a downward sloping demand curve, the income effect of the price
change works in the opposite direction to the substitution effect and the income
effect is smaller than the substitution effect.

This is a description of
 A. a normal good.
B. an inferior good.
C. a merit good.
D. a public

19. The slope of the budget line shows

A. the marginal rate of transformation.

B. the relative prices of the two goods.
C. the marginal rate of substitution between the two goods.
D. the diminishing marginal utility as the consumer consumers more of one
good.

20. Which period is the shortest in economic theory?

A. short-run period
B. monetary period
C. long-run period
D. very long-run period

21. The firm’s cost function is given by TC = $ (20 + 10X) where TC is the total cost
and X is the level of output.

Calculate the unit cost of producing the output, given that X = 10 units.

A. $ 10
B. $ 12
C. $ 20
D. $ 120

22. Two small firms, X and Y, producing the same type of product, A, merged. What
name is given to this type of integration?

A. conglomerate
B. horizontal
C. lateral
D. vertical

23. If rates of interest rise,

A. equity prices rise.

B. price of government bonds falls.
C. the desire to hold money rises.
D. velocity of circulation of money rises.
24. The diagram shows the rate of wage increase and the rate of unemployement.

What would cause the curve to shift?

A. rise in unemployment rate

B. anticipated fall in inflation rate
C. greater differences in regional unemployment
D. higher proportion of ununionised labour

25. The population structure of countries A, B, C and D are shown below.

 In which country A, B, C or D would a government policy of high human capital
investment pay out most in the long term?

26. The firm’s short-run supply curve is the marginal cost curve

A. below the average variable cost curve.

B. above the average variable cost curve.
C. below the average total cost curve.
D. above the average total cost curve.