$$\frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}}$$

Question 1

Which of the following best describes the economic problem of scarcity?

Accepted Answer

Unlimited wants and finite resources

Question 2

A government imposes an indirect tax on a good with highly inelastic demand. What is the likely effect on total revenue for the government?

Accepted Answer

Total revenue will increase

Question 3

Which formula is used to calculate the price elasticity of demand?

Accepted Answer

$$\frac{	ext{Percentage change in quantity demanded}}{	ext{Percentage change in price}}$$

Question 4

A production possibility frontier (PPF) shifts outward. Which of the following best explains this change?

Accepted Answer

Economic growth due to improved technology

Question 5

Which characteristic distinguishes public goods from private goods?

Accepted Answer

Non-rivalry and non-excludability

Question 6

If the marginal propensity to consume (MPC) is 0.8, what is the value of the multiplier?

Accepted Answer

$$\frac{1}{1-0.8} = 5$$

Question 7

Which of the following is a function of the price mechanism in a market economy?

Accepted Answer

Rationing, incentive, and signalling

Question 8

A firm in perfect competition is earning supernormal profits in the short run. What is likely to happen in the long run?

Accepted Answer

New firms will enter, driving profits to normal levels

Question 9

Which of the following best describes the principal-agent problem?

Accepted Answer

Conflict between owners and managers due to differing objectives

Question 10

Which equation represents the components of aggregate demand (AD)?

Accepted Answer

$$AD = C + I + G + (X - M)$$

Question 11

A country experiences a current account deficit. Which policy might help reduce this deficit?

Accepted Answer

Depreciating the currency to boost exports

Question 12

Which of the following is a cause of government failure?

Accepted Answer

Excessive administrative costs

Question 13

Which diagram would best illustrate the welfare loss from a negative externality?

Accepted Answer

A supply and demand diagram showing the difference between market equilibrium and social optimum

Question 14

Which of the following is NOT a component of the Human Development Index (HDI)?

Accepted Answer

Income inequality

Question 15

If a firm faces a downward-sloping demand curve, what does this imply about its market power?

Accepted Answer

The firm has some degree of price-setting ability

Question 16

Which of the following is a likely effect of inflation on savers?

Accepted Answer

Savers experience a reduction in the real value of their savings

Question 17

Which of the following is an example of a supply-side policy?

Accepted Answer

Improving education and skills

Question 18

A country’s currency depreciates. According to the Marshall-Lerner condition, what must be true for the current account to improve?

Accepted Answer

The sum of price elasticities of demand for exports and imports is greater than one

Question 19

Which of the following best describes a contestable market?

Accepted Answer

A market where firms can freely enter and exit

Question 20

Which of the following is a reason for the under-provision of public goods by the private sector?

Accepted Answer

The free rider problem

Pearson Edexcel Level 3 Advanced GCE in Economics A: Microeconomics and Macroeconomics Study Guide

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