Exam-style questions by topic — Edexcel A-Level Economics A
One verified question for each of 80 topics. These are written for this specification and checked by MasteryMind. They are not past-paper questions, and they are not from Pearson Edexcel.
Economics as a social science
A government wants to measure the effect of a rise in the minimum wage on youth unemployment. Which feature of the economy makes it hardest to treat this as a controlled scientific experiment?
Practise Economics as a social sciencePositive and normative economic statements
Two economists agree on the same estimated figures for the costs and benefits of building a new railway line, yet one recommends proceeding and the other recommends cancelling the project. What best explains this disagreement?
Practise Positive and normative economic statementsThe economic problem
A hospital trust receives a fixed annual budget and must decide how many staff to employ and how much equipment to buy. Why does this situation reflect the economic problem?
Practise The economic problemProduction possibility frontiers
An economy on its production possibility frontier produces 40 units of good X and 30 units of good Y. It moves to producing 50 units of X, and this requires giving up 5 units of Y in total. Assume each of the extra units of X requires the same sacrifice of Y. What is the opportunity cost of one additional unit of X?
Practise Production possibility frontiersSpecialisation and the division of labour
Country X has specialised heavily in producing petrol-engine cars for export. A permanent shift in world demand towards electric vehicles causes its car exports to fall sharply and many car factories close. Which of the following is the most likely consequence for Country X's labour market?
Practise Specialisation and the division of labourFree market economies, mixed economy and command economy
Adam Smith argued that individuals pursuing their own interests can unintentionally promote the wider good. Which feature of a free market economy does this argument support?
Practise Free market economies, mixed economy and command economyRational decision making
A firm is deciding how many units of a good to produce. Under the assumption of rational decision making, which objective is the firm assumed to pursue when choosing its output level?
Practise Rational decision makingAlternative views of consumer behaviour
A shopper buys a particular brand of trainers mainly because friends and work colleagues have also bought that brand. Which reason for consumers not behaving rationally does this best illustrate?
Practise Alternative views of consumer behaviourDemand
A rise in the real incomes of households leads them to buy more restaurant meals at every possible price. Which condition of demand has changed to shift the demand curve for restaurant meals to the right?
Practise DemandPrice, income and cross elasticities of demand
A rail operator raises fares by 10% and finds that over one year passenger numbers fall by 2%, but over five years they fall by 15%. Which factor best explains why demand becomes more elastic as the time period lengthens?
Practise Price, income and cross elasticities of demandSupply
A government removes a subsidy it previously paid to solar panel manufacturers. What is the most likely effect on the market supply curve for solar panels?
Practise SupplyElasticity of supply
A market's supply curve is a vertical straight line. Which value of price elasticity of supply and interpretation is correct for this curve?
Practise Elasticity of supplyPrice determination
A poor harvest reduces the supply of wheat while demand for wheat is unchanged. What is the predicted effect on the equilibrium price and quantity of wheat?
Practise Price determinationPrice mechanism
In a market where demand for a good exceeds the amount available, which statement best describes the rationing function of the price mechanism?
Practise Price mechanismConsumer and producer surplus
In a market where demand is price inelastic and supply is price elastic, an indirect tax is imposed on producers. Compared with a market where demand is price elastic and supply is price inelastic, how is the effect on consumer surplus likely to differ?
Practise Consumer and producer surplusExternalities
A chemical plant's private cost of production is 200,000 pounds per year. Its waste discharge imposes an external cost of 50,000 pounds per year on local fisheries. If the plant's output is unchanged, which statement correctly distinguishes these cost concepts?
Practise ExternalitiesPublic goods
Which combination of characteristics correctly describes a pure public good?
Practise Public goodsInformation gaps
In a health insurance market, applicants know their own risk of illness but the insurer does not. Why does this information asymmetry tend to raise the average risk of those insured?
Practise Information gapsGovernment intervention in markets
A government wants to reduce the quantity of carbon dioxide emitted by electricity generators. It sets a maximum total quantity of emissions and issues tradable allowances that each permit the release of one tonne of carbon dioxide. Firms that cut emissions below their allowance can sell the surplus to firms that exceed theirs. Which method of government intervention does this describe?
Practise Government intervention in marketsGovernment failure
A government subsidises the production of a good to encourage consumption. The subsidy is costly to administer and requires a new regulatory body to verify claims. Which cause of government failure does the cost of the new regulatory body best illustrate?
Practise Government failureEconomic growth
The Office for National Statistics measures national wellbeing in the UK. Which method does it use to capture subjective wellbeing?
Practise Economic growthInflation
Which feature of the CPI means it may not reflect the price changes experienced by a particular household?
Practise InflationEmployment and unemployment
An economy enters a deep recession and aggregate demand falls sharply. Unemployment rises across construction, retail and manufacturing at the same time. Which cause of unemployment does this pattern best illustrate?
Practise Employment and unemploymentBalance of payments
A country's current account is in deficit by £30 billion. Assume errors and omissions are zero. Taken together, what must the capital and financial accounts show?
Practise Balance of paymentsThe characteristics of AD
Consumption is £800bn and government spending is £200bn. Both rise by 10%, with no other changes in the economy and no multiplier effects. Which option gives the increase in aggregate demand from each change?
Practise The characteristics of ADConsumption (C)
An economy's households receive a tax cut that raises their disposable income, yet total consumer spending rises by less than the increase in disposable income. Which explanation is most consistent with the consumption function?
Practise Consumption (C)Investment (I)
Which term describes total spending by firms on new capital goods before any allowance is made for the wearing out of existing capital?
Practise Investment (I)Government expenditure (G)
A government decides to increase spending on infrastructure to boost aggregate demand during a slowdown. Which influence on government expenditure does this represent?
Practise Government expenditure (G)Net trade (X-M)
A country's exchange rate depreciates, while its domestic price level and its trading partners' incomes stay unchanged. Assume the volume response of exports and imports to the change in relative prices is large enough to outweigh the price effect on the trade balance. What is the most likely effect on the trade balance?
Practise Net trade (X-M)The characteristics of AS
An economy is initially in long-run equilibrium. A temporary spike in world oil prices raises firms' costs of production but does not change the economy's productive capacity. Assume that money wage rates are flexible in the long run and that aggregate demand does not change. Which sequence correctly describes the short-run and long-run effects?
Practise The characteristics of ASShort-run AS
A sustained rise in global energy prices raises the running costs of most manufacturers in an economy. What is the effect on the short-run aggregate supply curve?
Practise Short-run ASLong-run AS
A government removes planning restrictions that had delayed the building of new factories. Explain how this change in government regulation is likely to affect an economy's long-run aggregate supply.
Practise Long-run ASNational income
A household owns a house worth £250,000, has £30,000 in savings and owes £80,000 on a mortgage. It also receives £45,000 in wages each year. What is the household's wealth?
Practise National incomeInjections and withdrawals
In an economy, investment is £120 billion, government spending is £200 billion and export revenue is £90 billion. Savings are £150 billion, taxation is £180 billion and import spending is £110 billion. What is the net injection into the circular flow?
Practise Injections and withdrawalsEquilibrium levels of real national output
In the macroeconomic AD/AS model, what is meant by the equilibrium level of real national output?
Practise Equilibrium levels of real national outputCauses of growth
An economy's real GDP rises by 2% this year while its productive capacity is unchanged. What does this situation illustrate?
Practise Causes of growthOutput gaps
Over four years an economy's real GDP grows by 1%, 4%, 0% and 3%. Its long-term trend growth rate is estimated at 2% a year. Which statement correctly distinguishes actual growth from trend growth using these figures?
Practise Output gapsPossible macroeconomic objectives
A country's Gini coefficient for income falls from 0.42 to 0.34 over a decade. What does this change indicate about the country's progress towards greater income equality?
Practise Possible macroeconomic objectivesDemand-side policies
An economy is in a deep recession with spare capacity and low inflation. A government increases spending on infrastructure by borrowing. Why might the resulting rise in aggregate demand be larger than the initial spending increase?
Practise Demand-side policiesSupply-side policies
Which feature best distinguishes a market-based supply-side policy from an interventionist one?
Practise Supply-side policiesConflicts and trade- offs between objectives and policies
The short-run Phillips curve shows the relationship between which two variables?
Practise Conflicts and trade- offs between objectives and policiesSizes and types of firms
A government transfers a state-owned water company to private shareholders but keeps a regulator to cap the prices it charges. How does this change the organisation's sector and the way it is controlled?
Practise Sizes and types of firmsBusiness growth
A café chain expands by opening new branches funded from its own retained profits, rather than by buying a rival chain. Which is an advantage of this organic growth compared with growth by acquisition?
Practise Business growthDemergers
Which of the following is a likely reason why a demerger can improve a large, diversified business's efficiency?
Practise DemergersBusiness objectives
A firm's managers choose to earn a level of profit that keeps shareholders content without pursuing the highest profit attainable. Which business objective are the managers following?
Practise Business objectivesRevenue
A firm's total revenue rises from £500 to £560 when output increases from 50 to 60 units. Using the marginal revenue formula, what is the firm's marginal revenue over this change?
Practise RevenueCosts
A firm pays a fixed wage of £100 per worker per day, and wages are its only variable cost. The marginal product of the third worker is 10 units and of the fourth worker is 5 units. By how much does marginal cost change between the third and the fourth worker?
Practise CostsEconomies and diseconomies of scale
Which of the following is an example of an internal economy of scale for a single firm?
Practise Economies and diseconomies of scaleNormal profits, supernormal profits and losses
A firm currently produces where marginal revenue exceeds marginal cost. Assuming no change in the market price it faces, what happens to its total profit if it raises output towards the point where marginal revenue equals marginal cost?
Practise Normal profits, supernormal profits and lossesEfficiency
What does dynamic efficiency refer to?
Practise EfficiencyPerfect competition
In a perfectly competitive market, what happens to the price a single firm can charge if it raises its price above the market equilibrium?
Practise Perfect competitionMonopolistic competition
How does the characteristic of product differentiation affect a firm operating in a monopolistically competitive market?
Practise Monopolistic competitionOligopoly
A new firm wishes to enter an oligopolistic market dominated by three established producers. Which combination of barriers would most plausibly deter its entry?
Practise OligopolyMonopoly
A monopolist separates its customers into two sub-markets and sets a higher price in the sub-market where demand is less elastic. Compared with charging a single price to everyone, what is the effect on consumer surplus in the two sub-markets?
Practise MonopolyMonopsony
In a monopsonistic labour market, the employer faces an upward-sloping labour supply curve. What does this imply about the marginal cost of hiring an additional worker compared with the wage paid to that worker?
Practise MonopsonyContestability
A firm already operating in a market owns patents covering the production process that a new entrant would need to use. Which type of barrier to entry does this ownership represent?
Practise ContestabilityDemand for labour
A rise in the market price of the good a firm produces makes each extra worker more profitable to employ. Which effect does this have on the firm's demand for labour?
Practise Demand for labourSupply of labour
A region has 40,000 vacancies in skilled engineering roles and 40,000 unemployed workers who previously worked in retail and hospitality. Which combination of labour market failures best explains why these vacancies and unemployed workers coexist?
Practise Supply of labourGovernment intervention
Four firms each hold 25% of a market. If two of them merge and the competition authority blocks the merger, which effect on the market is the authority most likely aiming to prevent?
Practise Government interventionThe impact of government intervention
A water regulator is staffed mainly by former executives of the water companies it oversees, and it also relies on cost data supplied by those same companies when setting price caps. Which combination of limits to government intervention is present?
Practise The impact of government interventionGlobalisation
A clothing retailer moves its call centre and its design work to a lower-cost country while keeping its shops in the home market. Which factor contributing to globalisation does this mainly illustrate?
Practise GlobalisationSpecialisation and trade
Country X can produce 120 units of rice or 40 units of tea with its resources. Country Y can produce 80 units of rice or 60 units of tea. What is Country X's opportunity cost of producing one unit of tea?
Practise Specialisation and tradePattern of trade
A country's exchange rate depreciates against the currencies of its main trading partners while its domestic price level and its partners' price levels stay unchanged. Using the factors that shape trade flows, what is the most likely effect on this country's trade pattern?
Practise Pattern of tradeTerms of trade
A country's currency depreciates on foreign exchange markets. Its exports are priced in its own currency and its imports are priced in foreign currency. Assuming export prices in domestic currency and foreign import prices are unchanged, why might the depreciation worsen the country's terms of trade?
Practise Terms of tradeRestrictions on free trade
Which type of trade restriction works by placing a physical limit on the quantity of a good that may be imported into a country?
Practise Restrictions on free tradeExchange rates
Country A operates a fixed exchange rate, and its central bank announces a lower official rate against the dollar. Country B operates a floating exchange rate, and its currency falls in value because of rising imports and capital outflows. Which statement correctly classifies these two changes?
Practise Exchange ratesInternational competitiveness
Which measure of international competitiveness compares the labour cost of producing one unit of output in one country with that of another country?
Practise International competitivenessAbsolute and relative poverty
A country sets its relative poverty line at 60% of median household income. Median income is 30,000 units. What is the poverty line?
Practise Absolute and relative povertyInequality
A country's Lorenz curve moves further away from the diagonal line of perfect equality. What does this change indicate?
Practise InequalityMeasures of development
Which three dimensions are combined to construct the Human Development Index?
Practise Measures of developmentFactors influencing growth and development
A developing country's export earnings come almost entirely from one agricultural commodity. Which economic factor does this situation best illustrate?
Practise Factors influencing growth and developmentStrategies influencing growth and development
A developing country's central bank sells foreign currency reserves to slow the depreciation of its own currency, aiming to keep import prices stable. Which interventionist strategy is being used?
Practise Strategies influencing growth and developmentRole of financial markets
A country's payment system becomes slow and unreliable, so firms must wait many days to receive money owed by customers. Which function of financial markets has been weakened, and what is the likely economic consequence?
Practise Role of financial marketsMarket failure in the financial sector
In a financial market, one party to a transaction knows materially more about the quality of the asset being traded than the other party does. Which source of market failure does this situation describe?
Practise Market failure in the financial sectorRole of central banks
A commercial bank suffers a sudden loss of confidence and cannot borrow the short-term funds it needs to meet withdrawals, even though its longer-term assets are sound. Which central bank function is designed to address this situation?
Practise Role of central banksPublic expenditure
A government spends £30 billion on a new rail network, £50 billion on teachers' pay and £20 billion on unemployment benefits. Which combination correctly classifies these three items?
Practise Public expenditureTaxation
A tax charges a flat £1,000 per person regardless of income. A person earning £10,000 and a person earning £50,000 both pay £1,000. How should this tax be classified?
Practise TaxationPublic sector finances
An economy is at full capacity output and the government still runs a budget deficit. What does this situation indicate about the deficit?
Practise Public sector financesMacroeconomic policies in a global context
A government plans to raise aggregate demand by increasing spending. It bases its estimate of the output gap on data collected several months earlier, which no longer reflect current conditions in the economy. Which problem facing policymakers does this illustrate?
Practise Macroeconomic policies in a global contextAppendix 3: Quantitative skills
A composite indicator is formed by combining several separate measures into one overall index. Which statement best describes a composite indicator?
Practise Appendix 3: Quantitative skills
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