A Level Economics (A2) MCQs with answers
Practise A Level Economics (A2) (9708) with 420 exam-style MCQs, each with the answer and a short explanation. Every test is marked the moment you finish and shows your score chapter by chapter, so you know what to revise next. It is free and needs no sign-up.
420 questions · 5 chapters
What each chapter covers 5 chapters
The questions follow the syllabus chapter by chapter. You can test the whole subject or one chapter at a time.
- The price system and the microeconomy 135 questionsUtility, Indifference curves and budget lines, Efficiency and market failure, Private costs and benefits, externalities and social costs and benefits, Types of cost, revenue and profit, short-run and long-run production, Different market structures, Growth and survival of firms, Differing objectives and policies of firms
- Government microeconomic intervention 64 questionsGovernment policies to achieve efficient resource allocation and correct market failure, Equity and redistribution of income and wealth, Labour market forces and government intervention
- The macroeconomy 83 questionsThe circular flow of income, Economic growth and sustainability, Employment/unemployment, Money and banking
- Government macroeconomic intervention 45 questionsGovernment macroeconomic policy objectives, Links between macroeconomic problems and their interrelatedness, Effectiveness of policy options to meet all macroeconomic objectives
- International economic issues 93 questionsPolicies to correct disequilibrium in the balance of payments, Exchange rates, Economic development, Characteristics of countries at different levels of development, Relationship between countries at different levels of development, Globalisation
Sample A Level Economics (A2) MCQs with answers 12 questions
12 questions from the test, one or two from each chapter. Try each one, then open the answer.
1. The owners of a profitable family firm decide not to expand it, although they could. What is the most likely reason?
- A
they prefer to keep control of the firm and a manageable workload
- B
small firms enjoy greater economies of scale than large firms
- C
expanding would automatically turn the firm into a natural monopoly
- D
the law prevents small firms from growing beyond a fixed size
Show answer
Answer: A. Many firms stay small by choice: owners may value independence, control and a manageable workload more than extra profit. Economies of scale favour large firms, not small ones.
2. In a competitive labour market, a trade union negotiates a wage above the equilibrium. If the demand for labour does not change, what is the likely effect?
- A
the wage rises but employment falls
- B
the wage and employment both rise
- C
the wage rises and employment is unchanged
- D
employment rises but the wage falls
Show answer
Answer: A. At the higher wage firms move up their demand curve and employ fewer workers. A union can raise both wages and employment only in special cases, such as bargaining with a monopsony employer.
3. In a closed economy with no government sector, the marginal propensity to consume is 0.75. Investment rises by $40m. What is the eventual increase in national income?
- A
$120m
- B
$160m
- C
$30m
- D
$10m
Show answer
Answer: B. The multiplier is 1 ÷ (1 − 0.75) = 4, so national income rises by 4 × $40m = $160m. $120m is only the extra consumption generated in later rounds; it leaves out the first $40m of investment spending.
4. Which is the best statement of a government's economic growth objective?
- A
the fastest possible growth of nominal GDP in every year
- B
steady growth of real GDP close to the trend rate of growth of potential output
- C
growth of real GDP that is well above the growth of potential output in every year
- D
a rise in the share of manufacturing in GDP
Show answer
Answer: B. Governments aim for sustained real growth in line with the growth of productive capacity. Growth persistently above potential causes inflation, and nominal GDP can rise just because prices rise.
5. A country's GDP is $800bn, its net primary income from abroad is −$30bn and its capital consumption (depreciation) is $70bn. What are its GNI and NNI?
- A
GNI $830bn and NNI $760bn
- B
GNI $770bn and NNI $700bn
- C
GNI $770bn and NNI $840bn
- D
GNI $800bn and NNI $730bn
Show answer
Answer: B. GNI = GDP + net primary income from abroad = 800 − 30 = $770bn; NNI = GNI − depreciation = 770 − 70 = $700bn. $830bn adds the net outflow of income as if it were an inflow.
6. What is the short-run supply curve of a firm in perfect competition?
- A
the whole of its marginal cost curve
- B
its marginal cost curve above minimum average variable cost
- C
its average variable cost curve above minimum marginal cost
- D
its average total cost curve above minimum average variable cost
Show answer
Answer: B. The firm produces where P = MC, so its marginal cost curve shows the quantity supplied at each price. Below minimum AVC it produces nothing, so only the part of the MC curve above that point is its supply curve.
7. A government believes that each unit of a good gives an external benefit of $10, so it pays a subsidy of $10 per unit. In fact the marginal external benefit is constant at $4 per unit. What is the result?
- A
output rises but remains below the socially optimal level
- B
output rises to exactly the socially optimal level
- C
output rises beyond the social optimum, causing a welfare loss
- D
output falls below the free market level
Show answer
Answer: C. A subsidy of $4 would have been enough to reach the optimum. The $10 subsidy pushes output past it, onto units whose marginal social cost exceeds their marginal social benefit: government failure caused by imperfect information.
8. Commercial banks keep a reserve ratio of 12.5%. A customer deposits $400 of new cash. What is the maximum possible increase in total bank deposits?
- A
$3,200
- B
$2,800
- C
$450
- D
$50
Show answer
Answer: A. The bank credit multiplier is 1 ÷ 0.125 = 8, so deposits can rise by up to 8 × $400 = $3,200. Of this, $2,800 is newly created by lending; the original $400 is held as reserves.
9. A country's consumer price index rises from 125 to 150. By how much does the internal value of its money change?
- A
it falls by 20%
- B
it falls by 25%
- C
it rises by about 17%
- D
it falls by about 17%
Show answer
Answer: D. The internal value of money varies inversely with the price level: 125 ÷ 150 = 0.833, a fall of about 16.7%. The price level rose by 20%, but the purchasing power of money fell by a smaller percentage.
10. Which feature is essential for a monetary union?
- A
a common external tariff on goods from non-members
- B
free trade in goods only, with each member keeping its own currency
- C
a single currency, with one central bank setting monetary policy
- D
a single fiscal policy, with one tax system for all member countries
Show answer
Answer: C. In a monetary union members share a currency, so one central bank sets interest rates for all of them. Fiscal policy can remain national; harmonising it is a feature of full economic union.
11. A chocolate manufacturer takes over a cocoa plantation. What type of integration is this?
- A
forward vertical integration
- B
backward vertical integration
- C
horizontal integration
- D
conglomerate integration
Show answer
Answer: B. The firm has joined with a business at an earlier stage of its own production chain, its raw material supplier, so this is backward vertical integration.
12. Which statement best shows the difference between efficiency and equity?
- A
an allocation in which everyone has an equal share must be Pareto optimal
- B
an allocation can be Pareto optimal even if a few people own almost everything
- C
an equitable allocation of resources is always productively efficient
- D
a market where price equals marginal cost gives every household the same income
Show answer
Answer: B. Pareto optimality requires only that no one can gain without someone losing, which can hold for a very unequal distribution. Efficiency concerns how well resources are used; equity concerns whether the distribution is fair.
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