$$ PED = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}} $$

Question 1

Which of the following best describes the concept of 'opportunity cost' in economics?

Accepted Answer

The value of the next best alternative foregone when a choice is made.

Question 2

A government introduces a subsidy for renewable energy production. What is the most likely immediate effect on the supply curve for renewable energy?

Accepted Answer

The supply curve will shift to the right.

Question 3

Which formula correctly calculates the price elasticity of demand (PED)?

Accepted Answer

$$ PED = \frac{\% 	ext{ change in quantity demanded}}{\% 	ext{ change in price}} $$

Question 4

A country experiences two consecutive quarters of negative economic growth. According to the specification, this situation is defined as:

Accepted Answer

A recession

Question 5

Which of the following is NOT a function of money?

Accepted Answer

A source of government revenue

Question 6

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

Accepted Answer

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

Question 7

Which of the following best explains why public goods are not provided by the private sector?

Accepted Answer

They are non-rival and non-excludable, leading to the free-rider problem.

Question 8

A government sets a maximum price below the equilibrium price for bread. What is the most likely outcome?

Accepted Answer

A shortage of bread

Question 9

Which of the following is a likely cause of cost-push inflation?

Accepted Answer

An increase in wages or raw material costs

Question 10

A country’s central bank raises interest rates. What is the most likely short-term effect on aggregate demand (AD)?

Accepted Answer

AD will decrease due to lower consumption and investment.

Question 11

Which of the following is a characteristic of a perfectly competitive market?

Accepted Answer

Products are homogeneous.

Question 12

If a firm’s total revenue is $$5000 and its total cost is 4000$$, what is its profit?

Accepted Answer

$$ 1000 $$

Question 13

Which of the following policies is considered a supply-side policy?

Accepted Answer

Increasing government spending on infrastructure

Question 14

Which of the following best describes the 'ceteris paribus' assumption in economic modeling?

Accepted Answer

Only one variable changes while others are held constant.

Question 15

A country’s Gini coefficient increases from 0.30 to 0.45. What does this indicate?

Accepted Answer

Income inequality has increased.

Question 16

Which of the following is a likely effect of a government running a persistent fiscal deficit?

Accepted Answer

An increase in public sector borrowing

Question 17

Which of the following is an example of an external cost?

Accepted Answer

Air pollution from a factory affecting nearby residents’ health.

Question 18

If the price of a substitute good increases, what is the likely effect on the demand for the original good?

Accepted Answer

Demand for the original good will increase.

Question 19

Which of the following is a limitation of using GDP per capita to compare living standards between countries?

Accepted Answer

It ignores non-market transactions and income distribution.

Question 20

Which of the following best describes the main role of the World Trade Organization (WTO)?

Accepted Answer

To promote free trade and resolve trade disputes between countries

Pearson Edexcel International Advanced Level Economics: Specification & Core Concepts

Study Guide - Practice Questions