11 markeasy
What is the basic economic problem?
Choose your answer
excess supply of goods and services
lack of profits
recession
scarcity of resources
Economics — 2020 Syllabus
Practice Paper 1 (Cambridge International IGCSE Economics)
Exam code:045560 questions · 60 marks · ≈ 60 min · spans 39 of 39 topics
Assembled from the topic question banks — not an official Cambridge International paper21 markeasy
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
31 markhard
A company is considering whether to invest in research and development (R&D) for a new product line or allocate resources to expand its existing product line. The R&D investment is expected to cost $5 million and could lead to high returns. The expansion of the existing product line would cost $3 million. What is the opportunity cost of choosing to expand the existing product line?
Choose your answer
The potential returns from the R&D investment
The cost of expanding the existing product line - $3m
The combined cost of R&D and expanding the product line - $8m
The potential benefits from the expansion of the product line
41 markmedium
The diagram shows the production possibility curve (PPC) for an economy.
What will happen to the opportunity cost of producing more units of consumer goods in terms of capital goods as the economy moves down its PPC from point X to point Z?
Choose your answer
It will decrease continuously from point X to point Z.
It will decrease up to point Y and then increase towards point Z.
It will increase continuously from point X to point Z.
It will increase up to point Y and then decrease towards point Z.
51 markhard
A central bank adjusts interest rates to influence borrowing and spending in the economy - as a result the demand for luxury Swiss watches falls.
Which combination correctly describes these two statements?
| Statement 1 | Statement 2 | |
|---|---|---|
| A B C D | macroeconomic statement macroeconomic statement microeconomic statement microeconomic statement | macroeconomic statement microeconomic statement macroeconomic statement microeconomic statement |
Choose your answer
61 markmedium
In a private market system certain goods and services would not be available unless the government intervened.
What does this identify in a private market?
Choose your answer
market distribution
market equilibrium
market failure
market structure
71 markeasy
Which of the following is not an example of government intervention in a mixed economy?
Choose your answer
Allowing the price mechanism to allocate resources
Providing subsidies to firms
Taxing household income
Limiting international trade
81 markmedium
The economic question of 'How should goods/services be produced in an economy?' refers to:
Choose your answer
Whether production should be capital intensive or labour intensive
Whether the economy should be in the tertiary sector
Whether raw materials should be imported
Whether the goods should be produced for wealthy households
91 markhard
Which of the following is NOT a condition that can lead to a change in the demand for a product?
Choose your answer
Changes in consumer income
Changes in the price of related goods
Changes in consumer preferences and tastes
Changes in production technology
101 markhard
Which of the following factors is likely to cause a rightward shift in the supply curve for smartphones?
Choose your answer
An increase in the cost of raw materials used in smartphone production
A increase in the wages of smartphone assembly workers
A decrease in consumer demand for smartphones
A technological breakthrough that increases smartphone production efficiency
111 markeasy
What is meant by the equilibrium price in the market for a good?
Choose your answer
the average price paid by consumers
the price at which maximum profit is made
the price at which the producer breaks even
the price at which the supply and demand curves intersect
121 markhard
The diagram shows the global market for copper with an equilibrium point of X.
Which point represents the new equilibrium after the copper producers’ costs increase and there is rapid global economic growth?
Choose your answer
131 markmedium
A mobile (cell) phone operator increases the price of making calls on its network. After the price increase, the revenue of the mobile phone operator falls by 10%. What is the price elasticity of demand (PED) for the mobile operator’s service?
Choose your answer
elastic
inelastic
perfectly elastic
unit elastic
141 markhard
A product with a price elasticity of supply (PES) of 1.2 experiences a 15% decrease in price. By what percentage will the quantity supplied change?
Choose your answer
10%
18%
15%
12%
151 markhard
What is a key feature of a free market system in terms of government intervention?
Choose your answer
Extensive regulation of businesses
Minimal interference in market transactions
Government ownership of resources
Heavy taxation of individuals
161 markeasy
What is not normally a function of the central bank of a country?
Choose your answer
acting as lender of last resort
issuing notes and coins
operating the government’s monetary policy
setting the government’s budget
171 markeasy
Which of the following factors typically encourages household spending?
Choose your answer
High interest rates
Low consumer confidence
Uncertain economic conditions
Seasonal sales and discounts
181 markeasy
Carlos has been offered a new job with a large multinational company. He is undecided whether to accept the position.
What is a non-wage factor he might consider?
Choose your answer
bonus payments
holiday entitlement
overtime rate
salary level
191 markmedium
What would put a trade union in a strong bargaining position to negotiate higher wages for its members in a particular firm?
Choose your answer
The demand for the product produced by the workers has an inelastic demand.
The economy is experiencing high unemployment.
The proportion of the firm’s workers in the union is low.
Wage costs are a high proportion of total costs for firms in the industry.
201 markeasy
Firm X supplies bricks and decides to merge with firm Y that also supplies bricks. Which form of merger has taken place?
Choose your answer
backward vertical
conglomerate
forward vertical
horizontal
211 markhard
The diagrams below show the demand and supply for tyres and rubber. Which of the following statements describing the diagrams is correct?
Choose your answer
In the tyre market, the increased demand for tyres is represented by a shift in the demand curve from D1 to D2
Rubber is a natural resource (land) & there is now decreased demand from the firm for rubber in order to meet higher levels of tyre production
The demand for tyres is derived demand from the demand for rubber
If a tyre manufacturer benefits from increased demand for their tyres, they will require less rubber to meet the demand
221 markhard
A firm producing bicycles has the following costs at different levels of output.
| output | total fixed costs ($) | total variable costs ($) |
|---|---|---|
| 10 20 30 | 300 300 300 | 800 1500 3300 |
What happens to the average total cost over this range of output?
Choose your answer
It falls continuously.
It falls then rises.
It rises continuously.
It rises then falls.
231 markhard
The table shows characteristics of a market.
What are the characteristics of a monopoly market?
| Minimum market share | Barriers to entry | Number of sellers | Role of firm | |
|---|---|---|---|---|
| A B C D | 50% 25% 13% 25% | low high low high | many single many single | price taker price maker price taker price taker |
Choose your answer
241 markhard
What is a common method of protecting domestic firms?
Choose your answer
Removing all trade barriers and tariffs
Encouraging foreign investment without any restrictions
Providing financial assistance to foreign competitors
Imposing tariffs and quotas on imported goods
251 markmedium
A government increases the rate of income tax in order to pay for extra transfer payments, including cash benefits to the poor.
What must occur as a result of this?
Choose your answer
It changes the distribution of income.
It ensures the equality of incomes.
It leads to more people paying income taxes.
It reduces the level of unemployment.
261 markhard
The table shows the tax that an individual would pay at different levels of disposable income.
| disposable income ($) | 10 000 | 20 000 | 30 000 | 40 000 |
|---|---|---|---|---|
| tax ($) | 0 | 2000 | 4000 | 6000 |
Which type of tax is shown in the table?
Choose your answer
corporation tax
indirect tax
progressive tax
regressive tax
271 markhard
How does a central bank use quantitative easing as part of its monetary policy?
Choose your answer
By decreasing the money supply through open market sales
By raising interest rates to control inflation
By purchasing financial assets to increase the money supply
By reducing government spending to stimulate the economy
281 markmedium
How is an increase in the total supply of an economy shown on a PPC diagram?
Choose your answer
Inward shift
No change in PPC
Change from consumer to capital goods
Outward Shift
291 markmedium
A country has the highest GDP per head in the world.
What is this information most likely to suggest about the country?
Choose your answer
It has the world’s biggest economy.
It has the world’s fastest economic growth rate.
It has the world’s greatest size of population.
It has the world’s highest standard of living.
301 markmedium
What is an example of someone who lost their job because of structural unemployment?
Choose your answer
Aneesha lost her job as an engineer when her firm had to make redundancies in a recession.
Jamie lost his job as an ice cream seller during the winter months when little ice cream was sold.
Sunjeev decided to stop working and claim benefits when the government increased unemployment benefits.
Sunjit lost his job as a bank worker when the bank replaced his job with a new computer system.
311 markhard
The graph shows the rate of inflation in a country between 2000 and 2014.
What can be concluded about average prices?
Choose your answer
They fell throughout the period.
They peaked in 2000.
They rose each year.
They were lower in 2014 than they were in 2010.
321 markeasy
Why is the Human Development Index (HDI) a better indicator of comparative living standards than Gross Domestic Product (GDP) per head?
Choose your answer
It includes international trade.
It includes more measures of living standards.
It is measured in money terms.
It is more directly linked to economic growth.
331 markmedium
What is the purpose of progressive taxation?
Choose your answer
An incentive for higher income individuals to work more and earn more income
To generate tax revenue for the government from all income levels equally
To redistribute wealth and reduce income inequality
To encourage investment and savings among lower income individuals
341 markhard
What policy might a government implement to address falling birth rates?
Choose your answer
Increase access to contraceptives
Increase taxes on families with children
Provide financial incentives for childbirth
Implement strict immigration controls
351 markeasy
What is a typical characteristic of a developing country?
Choose your answer
equal distribution of income and wealth
good medical care
high gross domestic product per head
high reliance on natural resources
361 markmedium
How can national specialisation contribute to increased efficiency?
Choose your answer
By spreading resources across various industries
By focusing on producing a limited range of goods
By reducing the overall production volume
By increasing economic inequality
371 markhard
What would reduce the volume of international trade in the world economy?
Choose your answer
a German bank making a loan to a Nigerian company
a Japanese car manufacturer establishing a factory in the Czech Republic
the Canadian government introducing quotas on Malaysian electronics products
the Swedish government granting aid to Somalia
381 markhard
The world demand for oil is price-inelastic and oil is paid for in US dollars. If the price of oil falls rapidly, how might it affect the exchange rate of the US dollar?
| market for US dollar | exchange rate for US dollar | |
|---|---|---|
| A B C D | greater demand for US$ greater supply of US$ less demand for US$ less supply of US$ | value increases value falls value falls value increases |
Choose your answer
391 markeasy
Which measure would a government take to reduce a current account deficit?
Choose your answer
increase tariffs
increase value added tax
reduce income tax
reduce domestic subsidies
401 markmedium
What do economies aim to achieve in tackling the economic problem of scarcity?
Choose your answer
equal balance between public and private sectors
equal reward for equal effort
increased competition in the use of resources
optimum allocation of finite resources
411 markhard
What is most likely to increase the occupational mobility of labour?
Choose your answer
building more houses
increased spending on re-training schemes
increased total government spending
increasing the information on job availability
421 markmedium
In recent years more golf courses, which use large quantities of water, have opened in China. What may be the opportunity cost of this?
Choose your answer
cost of water
loss of farmland
sales of golf equipment
wages of golf course staff
431 markhard
The diagram shows a production possibility curve (PPC) for a country. The country moved from position X to position Y on the PPC.
What is the most likely reason for this change?
Choose your answer
Firms have decided to increase investment in technology.
New economic resources have been discovered in the country.
The government has brought about an increase in living standards.
The government has encouraged long-term economic growth.
441 markeasy
Which area of economics is concerned with the overall performance and behaviour of the entire economy?
Choose your answer
Microeconomics
Macroeconomics
International economics
Environmental economics
451 markmedium
What suggests that there is market failure?
Choose your answer
high producer profits
high retail prices
lack of competition
low levels of investment
461 markeasy
Which situation indicates a mixed economy?
Choose your answer
Economic activity is controlled entirely by the private sector.
Individual choices are unaffected by government actions.
Services are provided by both private and public sectors.
The government carries out all planning and decision making.
471 markeasy
What do markets use to facilitate the allocation of resources?
Choose your answer
Government-imposed quotas
Centralised government planning
Supply and demand
The basic economic problem
481 markeasy
When the price of a product decreases, what is likely to happen along the demand curve?
Choose your answer
A shift to the left
A movement to the right
A movement upward
No change in position
491 markhard
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?
Choose your answer
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
501 markmedium
What does it mean when a market is in disequilibrium?
Choose your answer
Supply and demand are balanced
Excess supply or demand exists
The market is not functional
Prices are fixed by the government
511 markmedium
If a substitute good becomes more expensive, what effect does this have on the equilibrium price and quantity of the original good?
Choose your answer
Equilibrium price decreases, quantity decreases
Equilibrium price increases, quantity increases
Equilibrium price increases and the quantity decreases
Equilibrium price decreases and quantity increases
521 markeasy
If the price elasticity of demand for a good is greater than 1, how would you classify its elasticity?
Choose your answer
Perfectly inelastic
Relatively inelastic
Unit elastic
Relatively elastic
531 markeasy
Which of the following would likely result in a more elastic supply?
Choose your answer
Unique and specialised products
Easy availability of production inputs
Limited production capacity
High storage costs
541 markhard
Which characteristic of a free market system refers to individuals' ability to make decisions based on their preferences and needs?
Choose your answer
Property ownership
Freedom of choice
Limited government intervention
Price mechanism
551 markhard
What would be least likely to act as a store of value during a period of rapid inflation?
Choose your answer
cash
gold
property
shares
561 markhard
Which of the following factors would likely have a negative impact on household saving?
Choose your answer
An increase in disposable income due to a raise in the minimum wage
A decrease in interest rates on savings accounts
The introduction of a new tax incentive for retirement savings
A rise in consumer confidence leading to increased spending
571 markmedium
What could affect the size of the labour force in an economy?
Choose your answer
the existence of a trade union
the government’s immigration policy
the quality of university graduates
the ratio of male to female employees
581 markhard
How might trade unions impact a firms competitive advantage?
Choose your answer
By pressuring for lower product prices to attract more customers
By advocating for higher profit margins for businesses
By increasing labor costs and potentially reducing profitability
By encouraging firms to invest more in advertising
591 markhard
What does the term 'market share' mean in the context of the relative size of firms?
Choose your answer
The total number of employees in a company
The proportion of total industry revenue earned by a firm
The physical size of a firm's facilities and offices
The range of products/services in a firm's product portfolio.
601 markmedium
What is the main difference between capital-intensive production and labour-intensive production?
Choose your answer
the market structure of the production process
the output that the production process creates
the resources on which the production relies
the size of the firm that uses the production process