Q1

If the price of a complement good rises, what happens to the demand curve for the original good?

Complements are consumed together. A rise in a complement's price reduces its demand, which in turn reduces demand for the original good — leftward shift. (Theme 1, Edexcel A)

Q2

A Pigouvian tax is designed to correct a negative production externality. It should be set equal to:

To internalise the externality, the tax must equal the MEC at the socially efficient output — bringing private cost in line with social cost. (Theme 1, Edexcel A)

Q3

Which of the following best describes price elasticity of supply (PES)?

PES = % change in Qs ÷ % change in price. It measures how responsive producers are to price changes. (Theme 1, Edexcel A)

Q4

The Bank of England raises interest rates. Which of the following is the most likely effect on aggregate demand?

Higher interest rates raise borrowing costs and reward saving, reducing C and I — two components of AD = C+I+G+(X−M), shifting AD left. (Theme 2, Edexcel A)

Q5

Which of the following would most likely increase long-run aggregate supply (LRAS)?

LRAS depends on the productive capacity of the economy. Education and infrastructure improve productivity and shift LRAS right. (Theme 2, Edexcel A)

Q6

The Phillips Curve suggests a short-run trade-off between:

The original Phillips Curve showed an inverse relationship between inflation and unemployment in the short run — lower unemployment tends to come with higher wage-push inflation. (Theme 2, Edexcel A)

Q7

A profit-maximising firm produces where:

MC = MR is the golden rule of profit maximisation — at this point, each additional unit adds as much to revenue as it costs to produce. (Theme 3, Edexcel A)

Q8

In a monopsony labour market, compared to a competitive market, the wage and employment level are:

A monopsonist (single buyer of labour) restricts employment to drive wages below the competitive level — lower wage, lower employment than the competitive equilibrium. (Theme 3, Edexcel A)

Q9

Which market structure is characterised by many firms, differentiated products, and freedom of entry in the long run?

Monopolistic competition: many firms, product differentiation, easy entry/exit, some price-setting power. Long-run normal profit only. (Theme 3, Edexcel A)

Q10

Comparative advantage theory suggests countries should specialise in goods where they have:

Comparative advantage = lower opportunity cost, not lowest absolute cost. Countries gain from specialisation and trade even if one is absolutely more efficient at everything. (Theme 4, Edexcel A)

Q11

A current account deficit means a country:

Current account deficit = the value of imports of goods, services, income and transfers exceeds exports. It must be financed by a capital/financial account surplus. (Theme 4, Edexcel A)

Q12

Which organisation is responsible for maintaining financial stability and acting as lender of last resort to the global economy?

The IMF provides emergency loans to countries facing balance of payments crises and aims to maintain global financial stability — key Theme 4 Edexcel A institution. (Theme 4, Edexcel A)

Q1

According to Edexcel B's behavioural economics, 'loss aversion' means consumers:

Kahneman and Tversky: the pain of losing £50 is felt more intensely than the pleasure of gaining £50 — central to Edexcel B's behavioural economics theme. (Theme 1, Edexcel B)

Q2

Which concept describes the tendency to rely too heavily on the first piece of information encountered when making decisions?

Anchoring = cognitive bias where initial information (the anchor) disproportionately influences subsequent judgements. Key Edexcel B behavioural concept. (Theme 1, Edexcel B)

Q3

A negative production externality leads to market failure because:

When third parties bear costs not reflected in the market price, social cost > private cost. Firms overproduce relative to the socially optimal level. (Theme 1, Edexcel B)

Q4

Cost-push inflation is caused by:

Cost-push inflation: rising input costs (wages, raw materials, energy) shift SRAS left — higher price level with lower real output. (Theme 2, Edexcel B)

Q5

The multiplier effect in Keynesian economics refers to:

Multiplier = 1 ÷ (1 − MPC). An initial injection (e.g. government spending) cycles through the economy, creating a multiplied rise in national income. (Theme 2, Edexcel B)

Q6

Which of the following is a supply-side policy aimed at reducing structural unemployment?

Structural unemployment results from a mismatch of skills. Retraining programmes improve occupational mobility — a supply-side intervention. (Theme 2, Edexcel B)

Q7

In the long run under perfect competition, firms earn:

Free entry/exit in perfect competition eliminates supernormal profit in the long run — new entrants compete away excess profit until only normal profit remains. (Theme 3, Edexcel B)

Q8

Price discrimination (third degree) requires which of the following conditions?

3rd degree PD needs: (1) monopoly power to set price, (2) identifiable groups with different PEDs, (3) markets must be separable to prevent arbitrage. (Theme 3, Edexcel B)

Q9

A 'nudge' in behavioural economics is best described as:

Thaler and Sunstein: nudges preserve freedom of choice while steering people toward better decisions through changed defaults, framing, or social norms. Core Edexcel B behavioural policy. (Theme 3, Edexcel B)

Q10

Which of the following best describes 'hot money flows'?

Hot money = short-term capital flowing between countries to exploit interest rate or exchange rate differences — can cause exchange rate volatility. (Theme 4, Edexcel B)

Q11

The Human Development Index (HDI) measures development using which three dimensions?

HDI (UNDP) combines: GNI per capita (income), mean/expected years of schooling (education), and life expectancy at birth (health). (Theme 4, Edexcel B)

Q12

A country experiencing capital flight is most likely facing:

Capital flight = rapid outflow of financial assets due to perceived risk — typically triggered by political instability, currency crises, or loss of investor confidence. (Theme 4, Edexcel B)