80 questions · 80 marks · ≈ 1 hour · spans 39 of 39 topics
Assembled from the topic question banks — not an official Cambridge International paperWhich of the following is not a consequence of the basic economic problem of scarcity?
Choose your answer
The need for individuals and societies to make choices and trade-offs
The potential for economic growth and technological advancements
The emergence of opportunity cost in decision making
The ability to satisfy all human wants and needs without constraints
What is not a factor of production?
Choose your answer
a $20 banknote
an office
a photocopier
a secretary
Microeconomics focuses on the study of:
Choose your answer
The overall economy and its output
Individual consumers and firms
Government policies and regulations
Global trade and international relations
The diagram shows the equilibrium market price PE and quantity QE for rice in a country.
Which government action could cause the market price for rice to become ?
Choose your answer
encouraging the export of rice from the country
imposing a maximum price below the market price for rice
providing a subsidy to farmers to produce more rice
reducing import tariffs on rice
What role does the private sector play in a mixed economic system?
Choose your answer
It controls all economic activities
It has no influence on resource allocation
Along with the government it is also involved in resource allocation
It is completely excluded from economic decision-making
In a competitive market, what is the role of the price mechanism in allocating resources?
Choose your answer
It allocates resources based on the government's resource allocation plan
It allocates resources according to the preferences of producers
It allocates resources to those who have the greatest ability to pay
It allocates resources to the most efficient producers based on consumer demand
The diagram shows the demand curve for coffee in the US.
Why did the quantity demanded move from Q1 to Q2?
Choose your answer
Coffee became cheaper.
Incomes rose in the US.
There was a successful advertising campaign by coffee retailers.
The price of substitutes for coffee rose.
There has been a movement upwards along the supply curve of a product.
What is the most likely explanation for this?
Choose your answer
Consumer incomes have fallen.
New technology has made the product cheaper to produce.
The government has imposed a tax on the product.
The price of a substitute has increased.
What happens in the market when there is excess demand?
Choose your answer
Prices decrease to eliminate the excess demand
Prices increase to eliminate the excess demand
Prices remain unchanged as buyers and sellers negotiate
Both buyers and sellers exit the market
The table shows the quantity demanded and supplied for a commodity at different prices.
| price ($) | quantity demanded | quantity supplied |
|---|---|---|
| 10 9 8 7 6 | 100 210 400 500 600 | 800 700 600 500 400 |
What would happen to the equilibrium price if the quantity supplied increased by 200 units at each price?
Choose your answer
It would decrease by $1.
It would decrease by $2.
It would increase by $1.
It would increase by $2.
In Portugal, the response to changes in the price of French cheese are considered to be unit elastic.
Which diagram illustrates this situation?
Choose your answer
A central bank acts as a lender of last resort especially in times of financial crisis.
What is the purpose of this function?
Choose your answer
to cover credit card debts of consumers
to provide liquidity to the banking system
to remove failing banks from the financial system
to safeguard the profits of the banking system
What is usually considered to be an advantage to a firm of using division of labour?
Choose your answer
high labour turnover
increased mechanisation
movement of labour between tasks
need for quality control
What is a 'collective bargaining agreement' negotiated by trade unions?
Choose your answer
An agreement between workers of different industries
An agreement between a company and its competitors
An agreement between a trade union and government agencies
An agreement between a trade union and an employer regarding terms of employment
Which type of business is always in the public sector?
Choose your answer
monopoly
multinational corporation
public corporation
public limited company
All countries need to produce food.
Which type of agriculture would make the best use of the resources of developing and developed economies?
| developing | developed | |
|---|---|---|
| A B C D | capital-intensive capital-intensive labour-intensive labour-intensive | capital-intensive labour-intensive capital-intensive labour-intensive |
Choose your answer
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
$2000
Which characteristic can exist both in monopoly and in a competitive market?
Choose your answer
freedom of entry
many buyers
many sellers
perfectly elastic demand curve
What are the three levels of government intervention in a mixed economy?
| A | Local | Supply Side | International |
|---|---|---|---|
| B | Local | National | Monetary |
| C | International | Exchange rates | Local |
| D | International | Local | National |
Choose your answer
What is a positive impact of economic growth?
Choose your answer
Economic growth leads to higher unemployment rates
Economic growth reduces job opportunities
Economic growth creates new jobs and lowers unemployment
Economic growth has no effect on employment
The table shows the amount of tax paid as income rises in four countries, A–D.
Which country has a progressive tax?
| amount of tax (US$) 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 can a central bank increase in order to reduce consumer borrowing?
Choose your answer
commercial bank deposits
government spending
the exchange rate
the rate of interest
Which of the following is a potential drawback of supply-side policies?
Choose your answer
Excessive government spending
They have no impact on economic growth
They often result in higher inflation rates
They focus on income redistribution over economic efficiency
In 2016, Romania had an increase in its real gross domestic product of 4.8%.
What must this mean about the Romanian economy?
Choose your answer
Living standards increased by 4.8%.
Total consumer income increased by 4.8%.
Total output of all goods and services adjusted for inflation increased by 4.8%.
Total output of manufactured goods adjusted for inflation increased by 4.8%.
Which activity takes place in the tertiary sector?
Choose your answer
assembling computers
giving legal advice
harvesting grain
making bread
The diagram shows percentage (%) changes in prices and wages over time.
What does the diagram indicate?
Choose your answer
Inflation is proportionately related to wage levels.
The gap between wages and prices is constant.
Wages are highest in 2010.
Wage earners have increasingly less purchasing power.
Why was the Human Development Index (HDI) introduced as a measure of the standard of living?
Choose your answer
Education and healthcare are important contributors to the standard of living.
GDP per head only measures development.
Inequality can only be measured by HDI.
Literacy rates are not an effective measure of the standard of living.
Which of the following best describes the poverty cycle?
Choose your answer
A short-term rise in poverty caused by natural disasters
The increase in poverty due to overpopulation
The self-reinforcing pattern where poverty is passed down through generations
A decrease in poverty during periods of economic growth.
Iran has recently experienced a natural increase in population.
What is the most likely cause of this increase?
Choose your answer
Emigration exceeded immigration.
Immigration exceeded emigration.
The birth rate exceeded the death rate.
The death rate exceeded the birth rate.
The table shows the percentage share of GDP held by the richest 20% and poorest 20% of the population in each country.
Which country had the greatest extremes of income and poverty?
| country | richest 20% | poorest 20% | |
|---|---|---|---|
| A B C D | Ghana Nigeria Senegal South Africa | 41.7% 55.7% 48.2% 64.8% | 8.4% 4.4% 6.4% 2.9% |
Choose your answer
What is the primary characteristic of regional specialisation?
Choose your answer
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
Protectionist policies reduce the level of global economic growth.
What is a possible reason for this?
Choose your answer
Incomes earned from trading decline.
Tariffs encourage trade.
The average cost of production decreases.
The production possibility of an economy expands.
What is a floating exchange rate?
Choose your answer
An exchange rate that is fixed by the government
An exchange rate that is determined solely by market forces
An exchange rate used in bartering between countries
An exchange rate that is set by international organisations
It is estimated that in 2016 the Olympic Games in Rio, Brazil attracted over 600 000 foreign visitors.
What is likely to have been the result of this number of visitors?
Choose your answer
a depreciation of Brazil’s currency
a fall in Brazil’s rate of inflation
an increase in the Brazilian government’s budget deficit
a reduction in Brazil’s deficit on the current account of its balance of payments
Which of the following economic systems is most directly affected by the basic economic problem of scarcity?
Choose your answer
Market economy
Traditional economy
Command economy
Mixed economy
John owns a bakery and produces various types of bread. To meet the increasing demand, he decides to invest in modern baking machines. He also hires skilled bakers to improve the production process and quality of bread. Which factors of production were changed?
Choose your answer
Land and Labor
Labor and Capital
Capital and Entrepreneurship
Entrepreneurship and Land
A deposit of shale oil is discovered in an area of farming. The following estimates are made for a ten-year period.
What is the opportunity cost of using the land only for farming?
Choose your answer
$25 billion
$30 billion
$35 billion
$45 billion
The diagram shows the production possibility curve (PPC) of an economy producing at point X.
What would be the opportunity cost of moving from point X to produce only consumer goods?
Choose your answer
60 units of consumer goods
70 units of capital goods
100 units of capital goods
180 units of consumer goods
Which of the following statements is the most true?
Choose your answer
A consumer is a macroeconomic decision maker
Competition between firms is likely to influence the average price level
The government is one of the key macroeconomic decision makers in an economy
The behaviour of firms is usually analysed from a macroeconomic point of view
China has built a new railway in Kenya from the capital, Nairobi, to the seaport of Mombasa. Kenya must repay the cost of the railway to China. Journey time has been reduced significantly but fares have increased and farmers have lost agricultural land along the new line.
Who bears the external costs of this operation?
Choose your answer
China who built the new railway
farmers who have lost agricultural land
Kenya who must repay the cost to China
passengers who pay the higher fare
In a mixed economic system, government intervention is primarily aimed at:
Choose your answer
Completely replacing market forces
Correcting market failures and promoting social welfare
Reducing consumer choices
Eliminating private ownership of resources
Who determines what goods and services are produced in a market economy?
Choose your answer
consumers
employees
government
trade unions
What is the key distinction between individual demand and market demand?
Choose your answer
Individual demand reflects the demand of producers, while market demand reflects consumers
Individual demand is the sum of all consumers' demands, while market demand is the demand of a single consumer
Individual demand represents the quantity demanded by a single consumer, while market demand represents the sum of all consumers' quantities demanded
Individual demand and market demand are synonymous terms in economics
What impact does an increase in the cost of labor have on the supply curve for a product?
Choose your answer
It shifts the supply curve to the right
It shifts the supply curve to the left
It causes a movement along the supply curve to the right
It causes a movement along the supply curve to the left
What does a surplus or excess supply indicate in the market?
Choose your answer
Prices are too high
Prices are too low
Prices are at equilibrium
Prices are irrelevant
In 2018 the UK government introduced a tax on the production of sugary drinks. How would this affect the market for sugary drinks as shown on a demand and supply diagram?
| demand curve for sugary drinks | supply curve of sugary drinks | |
|---|---|---|
| A B C D | contraction in demand extension in demand shift to the left shift to the right | shift to the left shift to the right contraction in supply extension in supply |
Choose your answer
If many close substitutes for a product become available in the market, what is likely to happen to its price elasticity of demand?
Choose your answer
It would become more elastic
It would become less elastic
It would remain unchanged
It would become perfectly elastic
Which of the following factors does not influence the price elasticity of supply?
Choose your answer
The mobility of the factors of production
The availability of substitutes
Spare capacity
The time period involved
Which of the following is a characteristic of a free market system?
Choose your answer
Equal distribution of resources
Centralised government control over production
Price ceilings and floors set by authorities
Competition among producers for consumer business
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
What is most likely to encourage the immediate purchase of an expensive item such as a new car?
Choose your answer
anticipating a fall in the rate of inflation
expecting interest rates to fall
making it easier to obtain a loan
needing to plan for unexpected emergencies
The table shows the change in real incomes for a number of occupations between 1985 and 2015.
| occupation | change in real income % |
|---|---|
| doctors lawyers accountants bricklayers bus and coach drivers fork-lift truck drivers | 153 114 60 37 19 -5 |
What can be concluded from the table?
Choose your answer
All occupations were better off in 2015 than in 1985.
Fork-lift truck drivers earned the lowest wages in 2015.
Doctors have earned more than lawyers since 1985.
Professionals received higher percentage increases in income than manual workers.
Which task is not a function of a trade union?
Choose your answer
agreeing the minimum number to be employed on a particular job
deciding on the level of a national minimum wage
negotiating working hours and conditions of work
providing legal advice on unfair dismissal
A mining company bought another mining company.
How may this integration be described?
Choose your answer
diversification
horizontal merger
specialisation
vertical merger
What might cause a decrease in the price of factors of production?
Choose your answer
Increased demand for the final goods and services
A shortage of labour and other inputs
Reduced costs of production materials
Technological advancements that reduce the need for labour
When is profit maximisation achieved?
Choose your answer
when average fixed cost is at a minimum
when average revenue is at a maximum
when the firm produces the largest output it can with the resources it has available
when there is the greatest possible difference between total revenue and total cost
Which combination of characteristics correctly describes a monopoly?
| barriers to entry | economies of scale | |
|---|---|---|
| A B C D | high high low low | possible impossible possible impossible |
Choose your answer
What is a common role of local government?
Choose your answer
Monitoring international trade
National defense and security
Provision of public goods like refuse collection
Monetary policy
What are two aims that a government normally pursues when managing the performance of the whole economy?
Choose your answer
to encourage an increase in production and to prevent high inflation
to ensure no one is unemployed and to reduce exports
to give everyone equal incomes and to increase government revenue
to protect the environment and to reduce interest rates
Which form of taxation always takes an increasing percentage of the taxpayer’s income as it rises?
Choose your answer
indirect
progressive
proportionate
regressive
What is likely to assist a government’s policy of reducing inflation?
Choose your answer
allowing businesses to borrow money for longer periods
encouraging the public to spend more money
increasing lending to members of the public
raising the interest rate on credit card borrowing
How can vested interests limit the success of supply-side policy measures such as privatisation?
Choose your answer
By encouraging open competition among industries
By promoting innovation and entrepreneurship
By resisting changes that threaten established benefits
By facilitating efficient resource allocation
What is the most likely result of a sustained increase in Gross Domestic Product (GDP)?
Choose your answer
a decrease in living standards
a decrease in the budget surplus
an increase in tax revenues
an increase in unemployment
Some governments in the European Union are trying to reduce unemployment.
What should increase to achieve this?
Choose your answer
imports of goods
interest rates
public sector spending
taxation of firms
What is most likely to cause a rise in the rate of inflation in an economy?
Choose your answer
a fall in import prices
a fall in wage rates
a rise in the level of government spending
a rise in the level of unemployment
Why is real GDP per capita often used as an indicator of living standards?
Choose your answer
It reflects the total population of a country
It considers only the economic output of a nation
It takes into account changes in both GDP and inflation
It provides insights into the average income of citizens
Developing countries are sometimes given aid by charities and foreign governments.
Which aid programme would be least likely to lead to long-term economic growth?
Choose your answer
the building of an irrigation system
the construction of a new airport
the distribution of gifts of food
the training of technical staff
What causes the birth rate to fall in a country?
Choose your answer
Fewer women work.
Infant mortality rates rise.
Medical supplies and healthcare improve.
The optimum population increases.
Which change, as a percentage of GDP, would be unlikely to be found in a country as it develops?
Choose your answer
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 benefit might a country gain from being a global leader in a specific industry?
Choose your answer
Reduced international competition
Increased dependence on multiple industries
Greater bargaining power in trade negotiations
Greater risk of economic shocks
A newspaper headline stated ‘Free trade helps the world’s poorest’.
Why might this be correct?
Choose your answer
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?
Choose your answer
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 is most likely to happen if South Korea builds a factory in Switzerland that becomes profitable?
Choose your answer
South Korea’s imports of goods will decrease.
South Korea’s investment income will increase.
Switzerland’s trade balance in goods will worsen.
Switzerland’s trade balance in services will improve.
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
What would an economist regard as an example of the factor of production capital?
Choose your answer
an individual’s purchase of stocks and shares
borrowing by a firm to pay for electricity
the building by a firm of a new factory
total savings by individuals in a country
The diagram shows the production possibility curve (PPC) of an economy producing at point X.
What would be the opportunity cost of moving from point X to produce only capital goods?
Choose your answer
60 units of consumer goods
70 units of capital goods
100 units of capital goods
180 units of consumer goods
Using all available resources an economy produces different combinations of two types of good, clothes and food, shown on the production possibility curve (PPC) diagram.
What does the PPC indicate?
Choose your answer
It is more efficient to produce more of clothes than food.
It is only possible to increase the output of clothes by reducing the output of food.
The best situation is to produce equal units of clothes and food.
The cost of producing a unit of clothes is always higher than the cost of producing a unit of food.
An individual consumer decides to purchase fewer luxury goods due to an increase in their prices.
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
A major highway has been built at a cost of US$175 million between Nairobi, Kenya and its suburbs. This reduces travel time and increases safety, but there are environmental problems for small enterprises along its route.
Who bears the external costs of this project?
Choose your answer
the authorities who paid for the highway
the commuters who travel to work in Nairobi
the construction companies that built the highway
the small enterprises along the route
One of the reasons for adopting a mixed economic system is:
Choose your answer
Elimination of public goods
Ensuring absolute private ownership of resources
Balancing economic growth and income redistribution
Promoting monopolies through unrestricted competition