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. Which of the following is the most likely immediate effect on the supply curve for renewable energy?

Accepted Answer

The supply curve shifts to the right.

Question 3

If the price elasticity of demand for a product is $$-2$$, what does this imply about consumer responsiveness?

Accepted Answer

Demand is elastic; a 1% increase in price leads to a 2% decrease in quantity demanded.

Question 4

Which of the following is a characteristic of a public good?

Accepted Answer

It is non-rival and non-excludable.

Question 5

A country experiences two consecutive quarters of negative real GDP growth. According to economic definitions, this situation is known as:

Accepted Answer

Recession

Question 6

Which formula correctly calculates the multiplier in the circular flow of income model?

Accepted Answer

$$1/(1-MPC)$$

Question 7

A monopolist is able to charge different prices to different groups of consumers for the same product. This practice is known as:

Accepted Answer

Third-degree price discrimination

Question 8

Which of the following is NOT a function of money?

Accepted Answer

Source of government revenue

Question 9

If a country’s terms of trade improve, which of the following is most likely to occur, ceteris paribus?

Accepted Answer

The country can import more goods for a given quantity of exports.

Question 10

Which of the following best explains why government intervention may lead to government failure?

Accepted Answer

Intervention can result in a net welfare loss due to unintended consequences.

Question 11

A country’s central bank raises interest rates to combat inflation. What is the most likely short-term effect on aggregate demand?

Accepted Answer

Aggregate demand decreases due to reduced investment and consumption.

Question 12

Which of the following is a source of external economies of scale?

Accepted Answer

Availability of skilled labour in an industry cluster

Question 13

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

Accepted Answer

$$5$$

Question 14

Which of the following is most likely to cause a shift to the right in the long-run aggregate supply (LRAS) curve?

Accepted Answer

A technological advancement

Question 15

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

Accepted Answer

To promote free trade by reducing barriers and resolving trade disputes

Question 16

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

Accepted Answer

Income inequality has increased.

Question 17

Which of the following is a likely effect of a competitive devaluation of a country’s currency?

Accepted Answer

Exports become cheaper and may increase, improving the current account.

Question 18

Which of the following is a limitation of using GDP per capita as a measure of living standards?

Accepted Answer

It ignores non-market transactions and income distribution.

Question 19

Which of the following best describes allocative efficiency?

Accepted Answer

Resources are allocated such that it is impossible to make someone better off without making someone else worse off.

Question 20

A government sets a minimum wage above the equilibrium wage in a competitive labour market. What is the most likely outcome?

Accepted Answer

An increase in unemployment due to excess supply of labour.

Pearson Edexcel International Advanced Level Economics: Specification and Core Concepts

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