CHINHOYI UNIVERSITY OF TECHNOLOGY
SCHOOL OF BUSINESS SCIENCES &MANAGEMENT
DEPARTMENT OF MARKETING
DEGREE : BACHELOR OF SCIENCE (HONS) DEGREE IN INTERNATIONAL MARKETING
COURSE : PRINCIPLES OF ECONOMICS (SUPPLEMENTARY)
CODE : CUIM 120
DATE : JUNE \ JULY 2019
DURATION : 3 HOURS
Information to candidate:
1. Answer all questions in Section A
2. Answer THREE (3) questions in Section B
3. Each question carries 20 marks in section B
4. Section A carries 40 marks
5. Begin each question on a new page
Section A (40 Marks) Multiple Choice
Answer all questions
1. Free market economy is an
A. The problem of choice.
B. Unlimited wants versus unlimited resources.
C. Limited wants versus limited resources
D. When resources are never enough to satisfy all the wants
E. Economic systems driven by prices.
2. Which of the following statement are true about mixed economy?
i) Price system decides on what to produce
ii) There is a private sector and a public sector
iii) All resources are used to produce one good.
A. i) and ii) only
B. i) and iii) only
C. i) only
D. ii) only
E. all of the statement are true
3. when the economy reaches full employment
A. The production of one good is easier than the other goods.
B. Resources are ease to find
C. There is scarcity
D. Increase in the production of one good will result in less of another.
E. Production and consumption never equal.
4. In the circular flow of income the following is true
i) Household receive income from the firm for providing goods and services.
ii) The three flows of the economy are production, spending and consumption
iii) Spending occurs when firm are paying for goods and services
A. i) only
B. ii) only
C. iii) only
D. all of the statements
E. none of the statement
5. an example of a stock variable is
A. The amount that is consumed by all the households.
B. A flow variable
C. Wealth
D. Quantity the households are willing and able to buy at a given price and period.
E. A particular quantity given a price
6. The law of demand state that
A. Households buy more when prices are low
B. Price and quantity are negatively related ceteris paribus
C. Firms sell more when prices are high
D. Many firms will produce more given a good season.
E. When demand increases firms produce more.
7. Which of the following statements will NOT shift the demand curve of rice to the right?
A. An increase in the civil servants’ salaries
B. A increase in the price of sadza and potatoes
C. The government has announced that they have difficulties in the production of rice in the
country
D. An increase in the price of rice fertilizer
E. It has been announced that eating of rice will reduce stomach cancer by 90%.
8. In the market of pork there is a price increase while quantity is uncertain when
A. There is an outbreak of a disease that kills pigs and the health official say pork is good for
healthy reproduction.
B. There is a new method of producing a fully grown pig in 4 weeks
C. The number of producer of pork has increased and the households now favour pork to other
meats.
D. The government put a price controls on the price of pork and the price of beef has increased
sharply
E. There are media reports that pork could be banned in the economy due to its negative
health effects.
9. Unitary elastic mean
A. Quantity demanded responses more than the price changes.
B. Quantity demanded responses less than the price changes.
C. Quantity demanded responses same as the price changes.
D. Quantity demanded does not responses to price changes.
E. Quantity demanded changes without any change in prices.
10. If a good has price of 5 and a quantity 200, then the price increases to 7 and the quantity
decreases to 180, its price elasticity of demand is
A. 3.171
B. 1.3
C. 0.315
D. 1
E. 0
11. Sugar has an income elasticity of zero because
A. It is price inelastic
B. It has no substitutes
C. It is a necessity
D. It has one complement
E. None of the above
12. Which of the following statements NOT true?
i) When marginal revenue is positive, the demand function is price elastic
ii) At zero marginal revenue the price elasticity is equal to one
iii) When the average revenue is zero the demand curve perfectly price in elastic
A. i) only
B. ii) only
C. iii) only
D. all the statement are true
E. none of the statements are true
13. consumer surplus is
A. total satisfaction derived from consuming a good or a service
B. Additional satisfaction derived from consuming an extra unit of a good or service.
C. The price paid for labour
D. The price paid for a good in the super market
E. Is the difference between the market price and the monetary value of marginal utility
14. The difference between what the producer is will to receive and what the market is paying
for
A. Is called producer surplus
B. Is called octal satisfaction derived from buying the good?
C. Is called consumer surplus
D. Is called consumer equilibrium.
E. Is called level of satisfaction
15. Which of the following is/are NOT characteristics of an indifference curve?
i) It is concave to the origin
ii) There is diminishing marginal rate of substitution along the indifference curve.
iii) When price increase the satisfaction decreases
A. i) and ii) only
B. ii) only
C. i), ii) and iii
D. )iii) only
E. all of them are characteristics
16. The marginal utility of spending a dollar on a good should be equal the marginal utility of
spending a dollar on all the goods, this defines
A. producer surplus
B. producer equilibrium
C. consumer equilibrium
D. consumer surplus
E. none of the above
17. Given consumer equilibrium, an increase in the price will make the household to buy less
because
A. marginal utility will decrease
B. the household will have to increase marginal utility of the good in order to maintain the
consumer equilibrium
C. the household will have to reduce marginal utility of the good in order to maintain the
consumer equilibrium
D. marginal utility will increase for every goo consumed
E. the consumer is happy
18. A good that has substitution effect that has the same effect as the income effect is
A. normal good
B. inferior good
C. giffen good
D. tangible good
E. consumer good
19. An industry is
A. a period that is less than a year.
B. a group of firms producing similar products.
C. a very large firm
D. capital and labour used in production.
E. none of the above.
20. The total product is increasing when
A. average product is rising
B. changing marginal product
C. marginal product is positive
D. marginal product being greater than the average product
E. marginal product being less than the total product
21. Diminishing marginal productivity of labour shows that
A. labour is tired
B. the firm is shutting down
C. there is efficient use of the fixed factor
D. there no room for employment in the firm
E. Total output is at its maximum.
22. A monopoly produces a
A. Homogenous good
B. Differentiated good
C. marginal cost equal total average cost
D. Unique good
E. Good that is never used for investment
23. Allocative efficiency occurs when a firm
A. Produces at the minimum of the average total cost
B. Produces at the minimum of the average variable cost
C. Produces were price equal to marginal cost
D. Produces where marginal revenue is zero
E. Produces where average costs are zero
24. When marginal cost is less than marginal revenue, the firm should
i) Reduce output to maximise profits
ii) Increase output to maximise profits
iii) Leave it at that since its making marginal profit
A. i) only
B. ii) only
C. iii) only
D. i) or ii)
E. none of the above
25. Which one of the following is a characteristic in for a monopolistic competitive firm?
i) the firm produces a unique product
ii) the firm produces a homogenous product
iii) the produces a differentiated product
A. i) only
B. ii) only
C. iii) only
D. all of the above
E. None of the above.
26. Three approaches to national income accounting are
A. income, production and revenue
B. income, spending and production
C. cost, revenue and resources
D. production, expenditure and resources
E. real, nominal and production
27. gross domestic income at factor cost
A. gross domestic income minus depreciation
B. gross domestic income divided by prices
C. gross domestic income minus taxes plus subsidies
D. net domestic income plus factor income from abroad minus factor income from abroad
E. gross domestic income plus illegal activities
28. Which of the following SHOULD NOT BE include in the national income accounts?
A. illegal output
B. informal sector output
C. none market activities
D. transactions on second hand goods
E. gross investment
29. Which of the following makes production undesirable?
A. government transfers
B. illegal activities
C. none market activities
D. pollution
E. Informal sector production.
30. Which of the following is NOT a macroeconomic objective?
A. economic growth
B. price stability
C. external stability
D. unemployment
E. equitable distribution of income
31. Which of the following is a type of inflation in Zimbabwe?
A. Consumption
B. Labour
C. cost push
D. government spending
E. net exports
32. Gross Domestic product is not a good measure of social welfare because
A. Of non market activities
B. Of second hand goods
C. It causes government transfer
D. It causes pollution
E. it depends on government spending
33. The following are the three withdrawals from the circular flow of income
A. savings, taxation and imports
B. savings, income and spending
C. production, spending and income
D. investment, government spending and exports
E. investment, taxation, and imports
34. money is an asset, which means money is a
A. medium of exchange
B. store of value
C. standard of deferred payments
D. unit of account
E. to create labour
35. Three motives to demand money are
A. transactionary, speculative, precautionary
B. speculative, precautionary and investment
C. consumption, investment and transactionary
D. demand, speculative and precautionary
E. interest, speculative and precautionary
36. demand for many depends on
A. central bank
B. banks
C. income and interest rates
D. the external sector
E. aggregate supply
37. There is a sudden decrease GDP in the economy,
A. interest rate will increase
B. wages will rise
C. shop will lose their market
D. demand for money will decrease
E. aggregate supply will shift to the right
38. Inflation rate is
A. a rate of increase in prices
B. an increase in prices
C. an increase in prices by government
D. reduction in output
E. and increase in unemployment
39. The following are level of inflation....EXCEPT.
i) creeping inflation
ii) double digit
iii) demand pull
iv) hyper
A. i) only
B. ii) only
C. iii) only
D. iv) only
E. all of the above and not inflation levels
40. The following are types of inflation
A. creeping, demand pull, cost push
B. demand pull, cost push, and structural
C. hyper, demand pull and cost push
D. structural , cost push and double digit
E. hyper, creeping and cost push
Section B (60 Marks)
Choose Any Three (3) Questions
Question one
a) Using diagrams explain the five characteristics of price elasticity of demand.
[10 marks]
b) Using examples the uses of the concept of price elasticity of demand. [10 marks]
Question two
a) Explain the relationship between cost curves and production curves. [10 marks]
b) What differentiates a perfect competitive firm from a monopoly firm?
[10 marks]
Question three
a) Explain the four reasons for national income accounts’ inaccuracy. [8 marks]
b) State and explain any four terms used in national income accounts. [12 marks]
Question four
Discuss the notion that the demand for money depends on income and interest rates.
[20 marks]
CHINHOYI UNIVERSITY OF TECHNOLOGY
SCHOOL OF BUSINESS SCIENCES &MANAGEMENT
DEPARTMENT OF MARKETING
DEGREE : BACHELOR OF SCIENCE (HONS) DEGREE IN INTERNATIONAL MARKETING
COURSE : PRINCIPLES OF ECONOMICS (MAIN)
CODE : CUIM 120
DATE : JUNE \ JULY 2019
DURATION : 3 HOURS
Information to candidate:
1. Answer all questions in Section A
2. Answer THREE (3) questions in Section B
3. Each question carries 20 marks in section B
4. Section A carries 40 marks
5. Begin each question on a new page
Section A (40 Marks) Multiple Choice
Answer all questions
1. Which combination of events must increase the level of scarcity in an economy?
A. discovery of new oil reserves and higher saving ratios
B. improved application of technology and new invention
C. uncertain weather patterns and a fashion for greater consumption
D. more efficient power generation and a reduced birth rate.
2. The use of minimum resources per unit in production means the firm is
A. Productive efficient
B. Making profit
C. Allocative efficient
D. Producing maximum output.
3. The problem of choice arises because
A. There is Inflation
B. There is unemployment
C. Resources are never enough to satisfy all the wants
D. There is cash shortages
4. Rationality is
A. the increase in all goods
B. use of resources to maximise satisfaction
C. use up all resources
D. Resources are never ending
5. Function of money is a store of value and as
A. As cash for consumption
B. As cash for production
C. A unit of account
D. As a resource
6. A worker can make 10 hats or 5 pairs of shoes in a day. In the market, three hats can
be sold at the same price as two pairs of shoes. The worker should make
A. 6hats and 2 pairs of shoes daily.
B. shoes only.
C. 4 hats and 3 pairs of shoes daily.
D. hats only
7. What could cause the demand curve of public transport to shift?
A. The costs of running the individual’s car fall.
B. The individual is no longer able to drive.
C. The price of public transport falls.
D. The public transport services are reduced.
8. The table shows the price elasticity of demand for four goods and services.
Price
product
elasticity
motorcycles –1.6
telephone calls –1.0
football tickets –0.3
light bulbs 0.0
If the price of each item increased by 1%, for which items would the total expenditure
increase?
A. football tickets and light bulbs
B. football tickets only
C. motorcycles and telephone calls
D. motorcycles only
9. What is the value of the price elasticity of demand when the marginal revenue is
Zero.
A. Zero
B. -0.5
C. -1
D. Infinity
10. Given that 100 units at $20 and 50 units at $40. The good’s demand is
A. Price elastic
B. Price inelastic
C. Unitary elastic
D. Perfectly elastic
11. The price of a good doubles but consumers are able to reduce consumption by only
10%.
This is an example of
A. excess supply.
B. inelastic demand.
C. market disequilibrium.
D. market failure.
12. In a market there is a surplus of a good. Which change would cause the market to
come to an equilibrium?
A. a decrease in demand
B. a fall in price
C. a government minimum price
D. an increase in supply
13. The market for sugar is in equilibrium. A disease affects the sugar crop and
newspapers report harmful health effects of consuming sugar.
Which combination of changes in demand and supply matches these events?
supply demand price quantity
A falls falls Uncertain Decrease
B falls rises Decrease Uncertain
C rises falls Increase Uncertain
D rises rises uncertain Increase.
14. The law of diminishing marginal utility states that,
A. higher consumption will always lead to greater utility
B. higher consumption will cause utility to increase at an decreasing rate
C. higher consumption will increase utility but only up to a point; after that utility
will start to decrease
D. it is valid to measure utility in utils
15. Which of the following goods is most likely to display increasing marginal utility over
some range?
A. chicken during the 1920s, when it was considered a luxury good
B. paint, which you need in an amount sufficient to paint at least one entire room
C. lobsters, which are so expensive that you must eat two to get your money's worth
D. all of the above
16. The principle of diminishing marginal utility means that when Sarah eats pizza, her
satisfaction from the second slice of pizza is probably
A. greater than that from the first
B. equal to that from the first
C. less than that from the first
D. not comparable to that from the first
17. James finds a new job that doubles his income. He adjusts his consumption. From
this we know that for every inferior good James buys
A. James's marginal utility per dollar will rise
B. James's marginal utility per dollar will fall
C. James's marginal utility per dollar will stay constant
D. James's total utility will fall
18. You go to an "all-you-can-eat" buffet. If you maximize utility, the marginal utility of
the last bite that you eat will be
A. equal to the price of the buffet
B. as high as possible
C. zero
D. dependent on how much you like the buffet
19. variable costs are:
A. payment for total fixed factor.
B. Payment of variable factors.
C. "payments" for self-employed resources.
D. always greater in the short run than in the long run.
20. Which would be an implicit cost for a firm? The cost:
A. of worker wages and salaries for the firm.
B. paid for leasing a building for the firm.
C. paid for production supplies for the firm.
D. of wages foregone by the owner of the firm.
21. If a firm's revenues just cover all its opportunity costs, then:
A. normal profit is zero.
B. economic profit is zero.
C. total revenues equal its explicit costs.
D. total revenues equal its implicit costs.
22. Suppose a firm sells its product at a price lower than the opportunity cost of the
inputs used to produce it. Which is true?
A. The firm will earn accounting and economic profits.
B. The firm will face accounting and economic losses.
C. The firm will face an accounting loss, but earn economic profits.
D. The firm may earn accounting profits, but will face economic losses.
23. Investment is the purchase of capital equipment, inventories, and:
A. Structures
B. Nondurable goods.
C. Depreciation.
D. Import investment.
24. Which of the following would be considered an investment expenditure?
A. The Smiths buy a home that was built in 1990.
B. The federal government pays the salary of a captain in the Air Force.
C. Jacks Boat Storage buys a new boat lift.
D. Chairs-R-Us buys a used lathe to manufacture chairs.
25. For purposes of calculating GDP, which of the following payments is not included in
the government spending component?
A. Social security payments.
B. Wages paid by a local government to its road crew.
C. Wages paid by a state government to the workers in its welfare department
D. The federal government’s purchase of a submarine from a shipbuilder.
26. Spending on capital equipment, inventories, and structures is referred to as:
A. Consumption expenditure (C).
B. Investment expenditure (I).
C. Government expenditure (G).
D. Expenditure on net exports (X - M)
27. Aggregate demand in an economy may decrease as a result of an increase in
A. consumption expenditure.
B. government expenditure.
C. import expenditure.
D. investment expenditure.
28. Which characteristic of money is most essential if it is to serve effectively as a store
of value?
A. Divisibility
B. Liquidity
C. Portability
D. Scarcity
29. Demand for money depends on
A. interest
B. income.
C. Exchange rates.
D. Interest rates and income
30. Three economic agent that affect money supply
A. Public, government, bank.
B. Public, banks, central bank.
C. Central bank, banks.
D. Any commercial bank.
31. Which of the following is characteristics of central bank
A. Take deposits from the public.
B. Lender of the last resort.
C. Increase investment
D. Charging taxation on people’s incomes
32. The function of the Required Reserve Ratio is to
A. Remove money supply.
B. To control credit creation.
C. Lend money to Banks
D. None of the above.
33. The table shows the CPI rate of inflation (%) in the US from 2006 to 2013.
20 20 20 20 20 20 20 20
06 07 08 09 10 11 12 13
2.5 4.1 0.1 2.7 1.5 3.0 1.7 2.0
% % % % % % % %
What can be concluded from the figures about the period 2006 to 2013?
A. There was one year of constant prices.
B. There were three years of deflation.
C. There were only four years of inflation.
D. There were eight years of rising living costs.
34. How might an increase in the general price level lead to a rise in real household
expenditure?
A. By increasing the expectations of further price increases
B. By increasing the level of real household debts
C. By increasing the level of real wages
D. By increasing the spending on exports
35. Between 2011 and 2013, high street retailers reported that expenditure on home-
produced and imported goods was reduced. Consumers did not take out loans as the
economy was in a recession.
What is the likely result of this?
A. A decline in the deficit in the trade account
B. A decline in the level of savings
C. A decline in terms of trade.
D. A decline in employment
36. Who would be included in the labour force?
A. Bruce, a full-time student not looking for work
B. Holly, an unpaid homemaker
C. Dave, who does not have a job, but is looking for work
D. None of the above are included in the labour force.
37. Who would be included in the labor force?
A. Karen, who works most of the week in a steel factory
B. Beth, who is waiting for her new job at the bank to start
C. Dave, who does not have a job, but is looking for work.
D. All of the above are included in the labor force.
38. Rick loses his job and immediately begins looking for another. Ceteris paribus,
A. the unemployment rate is unaffected, and the labor-force participation rate
increases.
B. the unemployment rate decreases, and the labor-force participation rate is
unaffected.
C. the unemployment rate increases, and the labor-force participation rate decreases.
D. the unemployment rate increases, and the labor-force participation rate is
unaffected.
39. A decrease in demand will leads to
A. Frictional unemployment
B. Cyclical unemployment
C. Seasonal unemployment
D. Structural unemployment
40. Some people are counted as out of the labour force because they make no serious
effort to look for work. However, some of these people may want to work even
though they are too discouraged to make serious effort to look for work. If these
persons were counted as unemployed instead of out of the labour force,
A. Both the unemployment rate and labour-force participation rate would be higher.
B. The unemployment rate would be higher and the labour-force participation rate
would be lower.
C. The unemployment rate would be lower and the labour-force participation rate
would be higher.
D. None of the above are correct.
Section B (60 Marks)
Choose any three questions
Question one
a) Analyse how resources are allocated in a free market economy. [10 marks]
b) It is advised that economies should use the market system. Do you agree? Explain.
[10marks]
Question two
a) Using diagrams explain the difference between monopolistic competition and
perfect competition. [10 marks]
b) A monopoly will produce when its demand curve is elastic because marginal revenue
will be greater than zero; at the same the good produced is said to be inelastic.
Explain. [10 marks]
Question three
a) State and explain the motives to demand money. [9 marks]
b) How do banks influence money supply. [11 marks]
Question four
a) State and explain the effects of inflation in Zimbabwe [12 marks]
b) Briefly discuss three types of unemployment. [8 marks]
