60 questions · 60 marks · ≈ 60 min · spans 36 of 36 topics
Assembled from the topic question banks — not an official Cambridge International paperWhich of the following best explains how the basic economic problem of scarcity influences the production of goods and services?
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Scarcity encourages businesses to produce only luxury goods to maximise profits
Scarcity necessitates the efficient allocation of resources to meet diverse consumer needs
Scarcity reduces the need for specialized labor as fewer goods can be produced
Scarcity ensures that businesses produce goods only for the wealthiest segment of society
What is most likely to increase the occupational mobility of labour?
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building more houses
increased spending on re-training schemes
increased total government spending
increasing the information on job availability
If a farmer decides to allocate more land to grow wheat instead of corn, what is the opportunity cost of this decision?
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The additional revenue generated from selling the extra wheat
The potential profits from growing corn on the same land
The cost of purchasing more seeds and fertiliser for wheat cultivation
The value of the land allocated to wheat farming
The diagram shows a production possibility curve (PPC) for an economy that produces both capital goods and consumer goods. At which point will the economy show the highest potential for sustained long run economic growth?
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In a market economy, which factor most determines the allocation of resources?
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Centralised government planning
Individual consumer preferences and choices
The influence of public corporations
The imposition of government taxes
Governments sometimes intervene in the economy when the market fails.
What is the most likely reason why government intervention may make the situation worse?
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Government decisions can take a long time to have an effect.
Governments consider the views of both consumers and producers.
Governments have more resources to calculate costs and benefits than private firms.
Governments may take decisions to reduce negative externalities.
When the price of a product decreases and leads to an increase in the quantity demanded, what type of movement along the demand curve is this called?
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Expansion of demand
Contraction of demand
Elastic demand
Inelastic demand
What can cause the supply curve for a product to shift to the right?
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an increase in demand for the product
an increase in government subsidies to producers
an increase in indirect taxes on the product
an increase in the costs of production
How do market forces typically respond to a shortage?
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Prices decrease to eliminate the shortage
Prices increase to eliminate the shortage
Prices remain unchanged despite the shortage
Producers reduce supply to address the shortage
The diagram shows the market for a firm making clothing with an initial equilibrium of X.
What will be the new equilibrium if there is a successful advertising campaign by a rival firm and an increase in workers’ wages?
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The initial price of a product was $80, and the initial quantity demanded was 200 units. After a price increase to $120, the quantity demanded decreased to 150 units. Calculate the price elasticity of demand.
Choose your answer
2
0.5
1.25
0.75
Which of the following factors does not influence the price elasticity of supply?
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The mobility of the factors of production
The availability of substitutes
Spare capacity
The time period involved
Which characteristic of a free market system promotes competition among businesses and individuals?
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Government ownership of key industries
Centralised planning of production
Price controls set by authorities
Freedom of choice
What suggests that there is market failure?
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high producer profits
high retail prices
lack of competition
low levels of investment
Which of the following is a function of money?
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it is durable
it provides a store of value
it is portable
it is divisible
Which of the following factors typically encourages household spending?
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High interest rates
Low consumer confidence
Uncertain economic conditions
Seasonal sales and discounts
Why does specialisation increase the productivity of employees?
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Average cost of production increases.
Staff turnover is high.
Time is saved by not moving between tasks.
Workers lose interest in their job.
A large bakery buys a flour mill.
Which form of integration is this?
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conglomerate
conglomerate
vertical backwards
vertical forwards
How does technology improve productivity?
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Technology has no impact on productivity
Technology can lead to decreased efficiency
Technology can enhance efficiency and output
Technology only affects managers decisions
A firm has fixed costs of $1000. The table shows the variable cost at different levels of output.
| output (units) | 1 | 2 | 3 | 4 |
|---|---|---|---|---|
| variable cost ($) | 100 | 190 | 270 | 350 |
If the goods are sold for $500 each, how much profit will be made from the sale of 4 units?
Choose your answer
$650
$1000
$1650
$2000
What is characteristic of a monopoly market structure?
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A monopolist may determine the price of its product.
A monopolist’s product has many substitutes.
There are no external costs.
There is easy entry into the market.
What is a trade-off between economic growth and environmental sustainability?
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Economic growth doesn't impact environmental sustainability
Economic growth can harm the environment but improve social well-being
Economic growth has no impact on social well-being
Economic growth can always coexist with perfect environmental sustainability
The table shows the tax that an individual would pay at different levels of disposable income.
| disposable income ($) | 10 000 | 20 000 | 30 000 | 40 000 |
|---|---|---|---|---|
| tax ($) | 0 | 2000 | 4000 | 6000 |
Which type of tax is shown in the table?
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corporation tax
indirect tax
progressive tax
regressive tax
Which of the following is not a strength of monetary policy?
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The Bank of England is independent from the government
It only considers a short term outlook
It targets inflation & maintains stable prices
Depreciating the currency can increase exports
How would government spending on education be classified?
| fiscal policy | monetary policy | supply-side policy | |
|---|---|---|---|
| A B C D | no no yes yes | no yes no yes | yes no yes no |
Choose your answer
The table shows the rates of unemployment and real GDP growth for an economy in 2014 and 2018.
| 2014 | 2018 | |
|---|---|---|
| rate of unemployment(%) | 3 | 10 |
| rate of real GDP growth (%) | 4 | –2 |
Which combination of policy measures would be most effective in returning the economy to the 2014 level of economic activity?
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a decrease in direct taxes and an increase in the rate of interest
a decrease in government expenditure and an increase in the rate of interest
an increase in direct taxes and a decrease in the rate of interest
an increase in government expenditure and a decrease in the rate of interest
The diagrams show Italy’s unemployment rate and GDP per head.
When do Italy’s unemployment rate and GDP per head rise at the same time?
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2000–2001
2007–2008
2009–2010
2014–2015
Rates of inflation and deflation are measured using a consumer prices index (CPI) over a period of time.
The table shows average rates of CPI for Japan from 2010–2014.
| year | change in CPI |
|---|---|
| 2010 2011 2012 2013 2014 | –0.72 –0.28 –0.03 0.36 2.75 |
In which period did Japan experience deflation followed by inflation?
Choose your answer
2010–2011
2011–2012
2012–2013
2013–2014
The table shows some economic indicators.
Which combination of indicators is most likely to represent a developed country?
| size of primary sector (% of GDP) | birth rate (births per 1000) | literacy rate (% of population) | |
|---|---|---|---|
| A B C D | 3 3 27 33 | 10 22 32 35 | 98 65 56 70 |
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Which factor below can contribute to poverty in developing countries?
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High levels of foreign direct investment
Rapid population growth
Access to advanced technology
Stable political institutions
Which factor in the world’s low-income countries limits their economic development?
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balance of payments surpluses
high saving ratios
large inflows of foreign investment
rapid population growth
Which change, as a percentage of GDP, would be unlikely to be found in a country as it develops?
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an increase in average incomes and a decrease in unemployment
an increase in manufacturing production and an increase in shipping services
an increase in subsistence farming and a decrease in financial services
an increase in tourism and a decrease in the export of agricultural products
What is the primary characteristic of regional specialisation?
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Producing a single type of good for both domestic and international markets
Focusing on producing goods that utilise advanced technology
Producing goods that cater exclusively to local market demands
Engaging in trade activities between regions of a country
A newspaper headline stated ‘Free trade helps the world’s poorest’.
Why might this be correct?
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Employment will be focused in hi-tech industries.
Environmental disasters will be avoided.
Free trade reduces competitiveness for domestic firms.
The cost of living is likely to go down with free trade.
Which of the following is not a disadvantage of a a Fixed Exchange Rate Mechanism?
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In order to maintain the fixed exchange rate, the Central Bank has to regularly intervene in the currency market
Changing the interest rate to influence the exchange rate can reduce consumption
Even with increasing demand, the price of its exports will remain fixed as the currency will not appreciate with more demand
Intervening in the currency market can be an expensive policy
What would cause a rise in the deficit on the current account of the balance of payments?
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a fall in foreign direct investment into the country
a fall in interest earned on overseas investment by the country
a fall in the value of imported manufactured goods into the country
a rise in the revenue earned from tourism in the country
What is the basic economic problem?
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excess supply of goods and services
lack of profits
recession
scarcity of resources
Which combination of a factor of production and its factor income is not correct?
| factor of production | factor income | |
|---|---|---|
| A | capital | interest |
| B | enterprise | profit |
| C | labour | dividends |
| D | land | rent |
Choose your answer
Samira is deciding whether to spend her evening watching a movie or studying for her upcoming exam. If she chooses to watch the movie, what is the opportunity cost of her decision?
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The enjoyment and entertainment she gets from watching the movie
The knowledge and understanding she gains from studying for her exam
The time and money spent on going to the movie theatre
The potential grade she could have earned on the exam
The diagram shows a production possibility curve (PPC).
What would cause the curve to shift inwards?
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A natural disaster such as an earthquake
More resources are discovered within the country
The workers in the country gain new skills and become more productive
New technology increases the efficient use of resources
What do markets use to facilitate the allocation of resources?
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Government-imposed quotas
Centralised government planning
Supply and demand
The basic economic problem
Which of the following best describes a mixed economic system?
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A system where the government controls all economic activities
A system where all economic decisions are made by private individuals and firms
A system that combines elements of both market and planned economies
A system that relies solely on the price mechanism for resource allocation
Petrol (fuel) retailers in a country have noticed a sharp increase in sales in August when many people take their holidays.
Why might this take place?
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Consumers’ demand curve for petrol shifts to the left in August.
Consumers’ demand curve for petrol shifts to the right in August.
Oil refineries increase their output in August.
Travel companies increase their hotel prices in August.
If a natural disaster destroys a significant portion of a country's agricultural land, what is the likely impact on the supply of food products?
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Supply would increase due to higher prices
Supply would decrease due to lower prices
Supply would remain unchanged due to government intervention
Supply would decrease due to reduced production capacity
What does a decrease in both demand and supply lead to in terms of equilibrium price and quantity?
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Equilibrium price falls, quantity is indeterminate
Equilibrium price rises, quantity falls
Equilibrium price falls, quantity falls
Equilibrium price is indeterminate, quantity falls
What effect does an increase in the number of suppliers have on the equilibrium price and quantity of a product?
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Equilibrium price decreases, quantity increases
Equilibrium price increases, quantity decreases
Equilibrium price and quantity both decrease
Equilibrium price and quantity both increase
The price of a good increased by $10, resulting in a decrease in quantity demanded by 8%. If the initial price was $80 and the initial quantity demanded was 120 units, calculate the price elasticity of demand
Choose your answer
0.64
1.56
0.83
1.0
Which of the following is a likely determinant of the price elasticity of supply (PES) of tomatoes?
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the availability of storage facilities
the level of consumer incomes
the number of substitute goods
the rate of interest
Which characteristic of a free market system encourages individuals to work hard and innovate?
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Price controls to ensure fairness
Government ownership of key industries
Equal distribution of wealth
Potential for profit through self-interest
Coal production in the UK has declined in recent years. One reason given for this is that the social cost of coal production is too high.
What best describes the social cost of coal production?
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all the benefits of coal production minus all the costs of coal production
the cost of the environmental damage caused by coal production
the cost to the government of subsidising the coal industry
the private costs of coal production plus the external costs of coal production
An African government has abandoned its own dollar and now uses the US dollar as its currency.
Why would such a policy have been necessary?
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Commercial banks restricted their lending.
Consumers only used credit cards rather than paper money.
Its own dollar no longer acted as a store of value.
The central bank controlled the issue of money too tightly.
A musician has a choice of playing for an orchestra in either Germany or England. Which combination of incomes and cost of living is most likely to cause her to choose the German orchestra?
| Incomes and cost of living in Germany compared with those in England | |||
|---|---|---|---|
| pre-tax (gross) income | after-tax (net) income | cost of living | |
| A B C D | higher higher lower lower | higher lower higher higher | higher lower higher lower |
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What could affect the size of the labour force in an economy?
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the existence of a trade union
the government’s immigration policy
the quality of university graduates
the ratio of male to female employees
A computer chip manufacturer expands by taking over a computer chip designer.
Of what is this an example?
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backward vertical integration
diversifying integration
forward vertical integration
horizontal integration
Which factor will lead to long-term productivity growth in an economy?
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A decrease in technological advancements
An increase in regulations and bureaucratic processes
Growth in human capital through education and training
A decrease in capital investment
Why is the energy supply industry dominated by very large firms in many economies?
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Government controls prevent the exploitation of consumers.
High fixed capital costs exist.
Labour-intensive production techniques are used.
Non-price advertising increases competition.
Which characteristic can exist both in monopoly and in a competitive market?
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freedom of entry
many buyers
many sellers
perfectly elastic demand curve
What is absolute poverty?
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Occurs when household income is a certain % below median incomes e.g. 65% below
A record of all the financial transactions that occur between it and the rest of the world
Someone who does not have a job & are actively seeking one
When household income is below a level that would allow the consumption of the basic necessities for life e.g. food, shelter
The table shows the amount of tax paid as income rises in four countries, A–D.
Which country has a progressive tax?
| amount of tax (US$) paid on income of: | |||||
|---|---|---|---|---|---|
| 10 000 | 20 000 | 30 000 | 40 000 | 50 000 | |
| A B C D | 2 000 2 000 4 000 4 000 | 4 000 6 000 4 500 7 000 | 6 000 12 000 5 000 9 000 | 8 000 18 000 5 500 10 000 | 10 000 25 000 6 000 12 000 |
Choose your answer
What is the most likely result of an increase in interest rates?
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a fall in consumer spending
a fall in productivity
a rise in borrowing
a rise in investment