AQA A LEVEL ECONOMICS
PRACTICE EXAM
Question 1: Which of the following would cause an outward shift of a country's
production possibility frontier?
Choices:
1) An increase in the rate of unemployment 2) A reduction in the retirement age 3) An increase in the quality of capital goods 4) A shift in consumer preferences towards capital goods
Correct Answer: An increase in the quality of capital goods
Explanation: An outward shift of the PPF represents economic growth and an increase in productive capacity, which is achieved through an increase in the quality or quantity of factors of production, such as improved capital goods.Page 1
Question 2: If the cross-price elasticity of demand between Good X and Good Y is -1.5, what can be concluded about the two goods?
Choices:
1) They are strong substitutes 2) They are strong complements 3) Good X is a luxury and Good Y is a necessity 4) They are unrelated goods
Correct Answer: They are strong complements
Explanation: A negative cross-price elasticity of demand indicates that the goods are complements. A value of -1.5 suggests a relatively strong complementary relationship.
Question 3: In behavioral economics, what term describes consumers using mental
shortcuts or rules of thumb to make decisions?
Choices:
1) Utility maximization 2) Asymmetric information 3) Heuristics 4) Moral hazard
Correct Answer: Heuristics
Explanation: Heuristics are mental shortcuts or rules of thumb that simplify decision-making, which behavioral economists argue explains bounded rationality.Page 2
Question 4: At what point does a �rm's average cost (AC) curve begin to rise?
Choices:
1) When marginal cost exceeds average cost 2) When total �xed costs begin to increase 3) When marginal product is maximized 4) When average variable cost is minimized
Correct Answer: When marginal cost exceeds average cost
Explanation: The average cost curve is pulled up when the cost of producing an additional unit (marginal cost) is greater than the average cost of all previous units.Question 5: Which of the following is a key characteristic of a natural monopoly?
Choices:
1) It experiences constant returns to scale 2) Its long-run average cost falls over the entire range of market demand 3) It faces a perfectly elastic demand curve 4) It produces where marginal cost equals average revenue Correct Answer: Its long-run average cost falls over the entire range of market demand Explanation: A natural monopoly occurs when continuous economies of scale exist up to the point of market demand, making it most e�cient for a single �rm to supply the entire market.Page 3