80 questions · 80 marks · ≈ 1 hour · spans 36 of 36 topics
Assembled from the topic question banks — not an official Cambridge International paperWhat identifies a finite resource?
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The resource does not renew itself.
The supply of the resource is greater than demand.
There is no opportunity cost for the resource.
There is unlimited supply of the resource.
On which factor of production does innovation directly depend?
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decisions of entrepreneurs
high inputs of capital
long hours of manual labour
plentiful supplies of land
Which of the following best explains the concept of opportunity cost?
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The total cost incurred when producing goods and services.
The cost of the next best alternative foregone when making a choice
The difference between total revenue and total expenses in a business
The cost of raw materials and labor required for production
Country X provides computers to help teachers in the classroom.
How would this technology increase the economic potential of country X?
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It improves the quality of human resources.
It reduces the amount of land required for education.
It removes the need for teachers.
It requires more teachers to do the same work.
What role do prices play in the market's allocation of resources?
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Prices reflect only the costs of production
Prices act as a means of control by the government
Prices provide signals about the relative scarcity of goods
Prices solely benefit producers, not consumers
What does a movement along the demand curve represent?
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Changes in consumer preferences
Shifts in the supply curve
Changes in the quantity demanded due to price changes
Changes in income levels
What impact does an increase in the cost of labor have on the supply curve for a product?
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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?
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Prices are too high
Prices are too low
Prices are at equilibrium
Prices are irrelevant
The diagram shows the market for sugar in Singapore with an equilibrium point of X.
Which point represents the new equilibrium after the government legislates that fizzy drinks have to halve their sugar content and two of the three sugar manufacturers decide to leave the market?
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What can be concluded from the demand curve for the product shown in the diagram?
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Price increases will raise the producers’ revenue.
Producers are unable to respond to a price rise.
The product is one with many substitutes.
There are 20 people able to buy the product.
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?
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10%
18%
15%
12%
Which of the following is an advantage of a free market system?
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Guaranteed equal distribution of wealth
Elimination of all government regulations
Efficient allocation of resources based on demand
Centralised control of production by the government
What causes market failure?
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government provision of services
social costs equal private costs
the existence of external benefits
the existence of perfect competition
Which advantage do coins have that make them more suitable than banknotes to act as money?
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They are more divisible.
They are more durable.
They are more portable.
They are more recognisable.
What is most likely to encourage the immediate purchase of an expensive item such as a new car?
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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 demand for gas in a country becomes price-inelastic.
What will happen as a result?
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Gas workers will be less likely to be successful in obtaining wage increases.
Gas workers will be more likely to be successful in obtaining wage increases.
Total expenditure on gas by consumers will fall when its price rises.
Total expenditure on gas by consumers will rise when its price falls.
The diagrams below show the demand and supply for tyres and rubber. Which of the following statements describing the diagrams is correct?
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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
The table shows the costs of a firm.
| units of output | variable costs ($) | total costs ($) |
|---|---|---|
| 10 20 30 40 | 20 50 80 110 | 80 110 140 170 |
What is the value of the firm’s fixed costs?
Choose your answer
$20
$30
$60
$80
Which combination is usually found in a monopoly?
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many buyers and many sellers
many buyers and single seller
single buyer and many sellers
single buyer and single seller
What is a common method of protecting domestic firms?
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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
One aim of government policy is to redistribute income through taxation in order to reduce inequality.
Which policy will achieve this aim?
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Impose a tax of $0.20 on every dollar earned.
Increase the tax-free allowances after which tax must be paid progressively.
Introduce a tax on all food.
Provide an incentive to earn by reducing taxes for the highest paid.
What is an example of expansionary monetary policy?
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a decrease in income tax rates
a decrease in the budget deficit
a decrease in the money supply
a decrease in the rate of interest
The government increases taxation in order to fund an increase in spending on government training schemes.
Which policy combination would this involve?
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fiscal policy and monetary policy only
fiscal policy and supply-side policy only
monetary policy and supply-side policy only
monetary policy, supply-side policy and fiscal policy
The table shows the percentage change from 2015–2016 in gross domestic product (GDP) and consumer prices for selected countries.
Which country was suffering from economic recession and inflation?
| country | GDP | consumer prices | |
|---|---|---|---|
| A B C D | Australia Brazil China Japan | +1.8 –2.9 +6.7 +1.1 | +1.3 +8.3 +2.0 –0.2 |
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A country experienced its usual August increase in the rate of unemployment. Unfortunately this was followed by the loss of jobs resulting from the regular downturn in global economic activity.
Which types of unemployment occurred?
| first type of unemployment (August) | second type of unemployment (global downturn) | |
|---|---|---|
| A B C D | cyclical frictional seasonal structural | structural seasonal cyclical frictional |
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The graph shows the rate of inflation in a country between 2000 and 2014.
What can be concluded about average prices?
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They fell throughout the period.
They peaked in 2000.
They rose each year.
They were lower in 2014 than they were in 2010.
The Human Development Index (HDI) ranks human development in countries from 0 (lowest) to 1 (highest).
What does the calculation of HDI not take into consideration?
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estimate of life expectancy at birth
information on the number of years of schooling
regional inequalities of investments in human capital
standard of living linked to income per head
Promoting economic growth helps to alleviate poverty leading to a positive impact upon economic development.
What best describes economic growth and economic development?
| Economic Growth | Economic Development | |
|---|---|---|
| A | An increase in national output as measured by real GDP | A sustained decrease in living standards for a country, for example education levels |
| B | A decrease in national output as measured by real GDP | No change in livings standards over time |
| C | A rise in the value of foreign investments | Reducing the poverty cycle |
| D | An increase in national output as measured by real GDP | The sustainable increase in living standards for a country, for example education levels |
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Which factor is most likely to reduce population growth?
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earlier marriages
higher birth rates
greater access to contraception
reduced education opportunities
What is usually found in a developed country?
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a high GDP per head with a low level of employment
a high level of labour skills with a low level of car ownership
a high rate of adult literacy with a low level of poverty
a high rate of population growth with a low level of labour productivity
How can national specialisation contribute to increased efficiency?
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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
Which action might be taken by an economy wishing to produce a greater range of products?
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concentrate on the production of primary products
encourage imports of manufactured goods
encourage investment by multinational companies
increase interest rates
What happens when a country's currency appreciates?
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Imports become more expensive, while exports become cheaper
Imports become cheaper, while exports become more expensive
Both imports and exports become cheaper
Both imports and exports become more expensive
What is a likely consequence of a current account surplus for an economy?
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higher imports may reduce domestic employment
lower exports may lead to a weaker exchange rate
increased exports may raise GDP and employment
greater foreign demand may reduce pressure on inflation
What do economies aim to achieve in tackling the economic problem of scarcity?
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equal balance between public and private sectors
equal reward for equal effort
increased competition in the use of resources
optimum allocation of finite resources
Reena makes a living by selling paintings of the town in which she lives. She sells them in an open-air market once a week.
In order to be able to sell more pictures in a week she decides to buy a studio, pay someone to help in the studio and try to increase demand by advertising in the local paper.
Which factors of production were changed?
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capital only
labour and capital
labour and land
labour only
A farmer reduces the land used to grow wheat from 80 hectares to 60 hectares and increases the use of the land for growing potatoes from 80 to 100 hectares.
What is the opportunity cost of this change?
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The output from 20 hectares used for growing potatoes.
The output from 20 hectares used for growing wheat.
The output from 60 hectares used for growing wheat.
The output from 80 hectares used for growing potatoes.
The diagram shows two production possibility curves.
Which statement about the movement from point X to point Y is correct?
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Demand for consumer goods has risen.
The opportunity cost for producing consumer goods has risen.
There has been an increase in productivity in consumer goods production.
There has been an inward shift in the production possibility curve.
Who determines what goods and services are produced in a market economy?
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consumers
employees
government
trade unions
Which of the following is not an example of government intervention in a mixed economy?
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Allowing the price mechanism to allocate resources
Providing subsidies to firms
Taxing household income
Limiting international trade
The diagram shows the demand curve for coffee in the US.
Why did the quantity demanded move from Q1 to Q2?
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Coffee became cheaper.
Incomes rose in the US.
There was a successful advertising campaign by coffee retailers.
The price of substitutes for coffee rose.
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
In a market characterised by excess supply, what is likely to happen in the absence of intervention?
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Producers will reduce prices to eliminate the excess supply
Producers will increase prices to match the excess supply
Consumers will increase demand to match the excess supply
Consumers will decrease demand to match the excess supply
In 2015, the world price of oil fell rapidly due to changes in the conditions of demand and supply. One change was the use of a new method of extraction called fracking.
Which event would not have contributed to the fall in prices?
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China’s growth slowed leading to lower oil imports.
Saudi Arabia increased the volume of its oil supplies.
UK protest groups prevented the introduction of fracking projects.
USA became more self-sufficient in oil due to fracking and reduced imports.
If many close substitutes for a product become available in the market, what is likely to happen to its price elasticity of demand?
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It would become more elastic
It would become less elastic
It would remain unchanged
It would become perfectly elastic
Which of the following would likely result in a more elastic supply?
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Unique and specialised products
Easy availability of production inputs
Limited production capacity
High storage costs
Which characteristic of a free market system refers to individuals' ability to make decisions based on their preferences and needs?
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Property ownership
Freedom of choice
Limited government intervention
Price mechanism
A government approved the construction of a new railway line connecting major cities. It would be built by a private company but be funded partly through taxation. It would create many jobs. People living on the route worried about the harm to their environment.
Which concepts are directly involved in this statement?
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excess demand and public corporation
government subsidies and perfect competition
market system and income distribution
private benefit and external cost
What is a function of a central bank?
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collecting taxes
issuing currency
providing bank accounts for individuals
setting foreign trade tariffs
What is likely to be a consequence of a significant increase in consumer credit availability on household spending?
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Decreased consumer confidence leading to reduced spending
Higher interest rates on existing loans, encouraging spending
A decrease in disposable income due to rising inflation
Increased spending in the short term, but potential long-term debt
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
Firm X supplies bricks and decides to merge with firm Y that also supplies bricks. Which form of merger has taken place?
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backward vertical
conglomerate
forward vertical
horizontal
What might cause a decrease in the price of factors of production?
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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
The table shows the output and total costs of a small firm.
| output (units) | total costs ($) |
|---|---|
| 0 1000 5000 10000 | 50000 100000 400000 600000 |
What is the average fixed cost of producing 10 000 units?
Choose your answer
$5
$6
$55
$60
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 the aim of protectionism?
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To promote free trade
To encourage good international relations
To restrict foreign competition
To reduce government intervention in trade
Which measure would indicate that an expansionary fiscal policy is being used by the government?
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cuts in government spending
higher interest rates
lower interest rates
lower taxes
What is a monetary policy measure?
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increasing interest rates
increasing taxation
reducing the power of trade unions
selling state-owned enterprises
Which of the following is a supply side policy aimed at encouraging research and development?
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High tariffs on imports
Increasing government subsidies for consumers
Reducing corporation tax
Implementing strict price controls
Economic growth is usually measured by the annual change in
Choose your answer
consumer spending.
gross domestic product.
the output of the manufacturing and construction industries.
the retail price index (RPI).
An economy is experiencing an unemployment rate of 8%. The government implements policies to stimulate economic growth and create jobs. As a result, the unemployment rate decreases to 5% over a year. What type of unemployment has likely decreased?
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Structural unemployment
Frictional unemployment
Seasonal unemployment
Cyclical unemployment
An economy is experiencing rising prices. Which government policy will help reduce consumer expenditure?
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introducing compulsory saving for income earners
investing more in building infrastructure
issuing more banknotes and coins
reducing indirect taxes
The table shows GDP and population data.
| Country | GDP ($bn) | Population (m) |
|---|---|---|
| A | 400 | 200 |
| B | 900 | 300 |
| C | 600 | 100 |
| D | 1200 | 600 |
Which country has the highest GDP per head?
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Country A
Country B
Country C
Country D
A low-income country experiences extreme poverty in its rural areas.
What is a possible cause of this?
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development of better irrigation techniques
distribution of international food aid
high trade barriers imposed by high-income countries
higher prices for agricultural produce
What does a population pyramid of a country show?
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its age and sex distribution
its employment pattern
its income distribution
its migration pattern
Which of the following factors can contribute to differences in economic development between countries?
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Similar cultural values
Equal distribution of natural resources
Access to quality education and healthcare
The same levels of technological advancement
Bangladesh specialises in textiles and exports them to the world.
Which of the following is not an advantage of national specialisation?
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Over-dependency on other countries' resources
Greater competition may increase productivity
Increased exports can result in economic growth
Economies of scale
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.
What is the most accurate definition of a foreign exchange rate?
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a rate at which exports are exchanged for imports
a rate determined by the demand and supply of the currency
a value of a currency as fixed by the government
a value of a currency expressed in terms of another currency
The table shows information from a country’s current account of its balance of payments.
| $ billion | |
|---|---|
| exports of goods imports of goods net services net primary income net secondary income | 20 24 +5 -8 -8 |
What is the country’s current account balance?
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+$1 billion
–$4 billion
–$7 billion
–$15 billion
Which of the following best describes scarcity?
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the shortage of goods in shops
unlimited wants and limited resources
the absence of free goods
high prices caused by inflation
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
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?
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60 units of consumer goods
70 units of capital goods
100 units of capital goods
180 units of consumer goods
A production possibility curve shows all of the following except?
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The opportunity cost of producing two goods
The level of government control
The potential output of an economy using all available resources
The level of efficiency in the economy
Which is not one of the three questions that needs answering when determining the economic system of a country?
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What to produce?
What kind of government do the citizens want?
How to produce it?
For whom to produce?
Which economic system combines elements of both a market economy and a planned economy?
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Command economy
Mixed economy
Primary economy
Secondary economy
Which of the following is NOT a condition that can lead to a change in the demand for a product?
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Changes in consumer income
Changes in the price of related goods
Changes in consumer preferences and tastes
Changes in production technology
What is not held constant when constructing the supply curve of a firm?
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indirect taxes and subsidies on the firm’s products
the level of technology used by the firm in production
the price of the factors of production paid for by the firm
the market price of the good produced by the firm
What is meant by equilibrium in a market?
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where products offered for sale equal consumer demand
where profit is at the expected level
where the quantity of inputs equals the quantity of output
where total costs equal total revenue
If a technological advancement reduces the cost of production for a product, what is likely to happen to its equilibrium price and quantity?
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Equilibrium price decreases, quantity decreases
Equilibrium price increases, quantity decreases
Equilibrium price decreases, quantity increases
Equilibrium price increases, quantity increases