Cambridge O Level

ECONOMICS2281/01
Paper 1 Multiple Choice For examination from 2020
SPECIMEN PAPER 45 minutes

You must answer on the multiple choice answer sheet.

*0123456789*

You will need: Multiple choice answer sheet

Soft clean eraser
Soft pencil (type B or HB is recommended)

INSTRUCTIONS
●● There are thirty questions on this paper. Answer all questions.
●● For each question there are four possible answers A, B, C and D. Choose the one you consider correct
and record your choice in soft pencil on the multiple choice answer sheet.
●● Follow the instructions on the multiple choice answer sheet.
●● Write in soft pencil.
●● Write your name, centre number and candidate number on the multiple choice answer sheet in the
spaces provided unless this has been done for you.
●● Do not use correction fluid.
●● Do not write on any bar codes.
●● You may use a calculator.

INFORMATION
●● The total mark for this paper is 30.
●● Each correct answer will score one mark. A mark will not be deducted for a wrong answer.
●● Any rough working should be done on this question paper.

This document has 10 pages. Blank pages are indicated.

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1 Using all available resources an economy produces different combinations of two types of good,
clothes and food, shown on the production possibility curve (PPC) diagram.

clothes
100 units

O
food
50 units

What does the PPC indicate?

A It is more efficient to produce more of clothes than food.

B It is only possible to increase the output of clothes by reducing the output of food.

C The best situation is to produce equal units of clothes and food.

D The cost of producing a unit of clothes is always higher than the cost of producing a unit of
food.

2 A government subsidised a new factory in a rural area to create jobs. It also provided training
courses at a college. Objectors claimed the development would destroy an area of natural beauty.

What concepts are involved in this statement?

A economic growth, resource allocation, free market equilibrium

B government intervention, monetary policy, opportunity cost

C public good, market prices, fiscal policy

D supply-side policy, negative externalities, factors of production

3 Reena makes a living by selling paintings of the town in which she lives. She sells them in an
open-air market once a week.

In order to be able to sell more pictures in a week she decides to buy a studio, pay someone to
help in the studio and try to increase demand by advertising in the local paper.

Which factors of production were changed?

A capital only

B labour and capital

C labour and land

D labour only

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4 A market consists of 10 individuals with different demand curves in a given period.

What is a calculation that could be used as part of the process to determine the market equilibrium
in that period?

A at each price add the quantities demanded by each individual

B at each quantity average the price that each individual is prepared to pay

C combine the price elasticity of demand (PED) and the price elasticity of supply (PES) at each
price

D determine the PED and multiply it by the quantity demanded

5 The diagram shows the market for a good. The equilibrium is at point X. The government fixes a
minimum price for the good at P2.

S1
price
P3
X
P1

P2
D1

O
Q3 Q1 Q2
quantity

What will happen in the market as a result?

A The market equilibrium will remain the same.

B The quantity demanded will rise to Q2.

C The quantity supplied will fall to Q3.

D There will be an excess supply.

6 How might the concept of price elasticity of demand (PED) be useful for a government?

A to determine the effect on employment of a change in income tax

B to determine the effect on government revenue of a rise in the rate of interest

C to determine the effect of providing a public good

D to determine the result of imposing a tariff on imports

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7 Governments sometimes intervene in the economy when the market fails.

What is the most likely reason why government intervention may make the situation worse?

A Government decisions can take a long time to have an effect.

B Governments consider the views of both consumers and producers.

C Governments have more resources to calculate costs and benefits than private firms.

D Governments may take decisions to reduce negative externalities.

8 Which function do central banks and commercial banks have in common?

A acting as a banker’s bank

B controlling monetary policy

C dealing with foreign exchange

D supervising the banking system

9 What may cause an individual to save a higher proportion of their income?

A a belief that the price of goods will rise in the future

B a fall in the rate of interest paid by the country’s banks

C a fear that income will fall in the future

D a rise in the individual’s wish to enjoy higher consumption immediately

10 When might a trade union be most likely to achieve a good pay deal for its members?

A when labour costs are a high percentage of the firm’s total costs

B when rival firms successfully introduce an alternative product

C when the firm is introducing capital-intensive production

D when the firm is making large profits

11 What is found in a competitive market?

A Every firm earns large profits.

B Firms with limited capital can enter the market.

C The costs of production are always lower than in a monopoly.

D There is limited choice for consumers.

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12 What benefit is likely to result from the extension of specialisation within manufacturing?

A For a consumer, there are more individually made goods available.

B For a consumer, there could be a lower cost of living.

C For an employee, job satisfaction will increase.

D For an employee, the nature of work is more varied.

13 The diagrams show the average total cost (ATC) curves of four firms and how they change as
output increases.

Which firm has the highest fixed costs?

A B C D
cost cost cost cost
ATC
ATC

ATC
ATC
O output O output O output O output

14 The table shows a firm’s total revenue and total cost at different levels of output.

Which level of output gives maximum profit?

output total revenue total cost

(units) ($) ($)
A 10 15 15
B 20 20 18
C 30 25 20
D 40 30 21

15 A large pizza chain in the US decided to sell sandwiches as well to try to increase its revenue.

Which term describes this change?

A diversification

B externalities

C horizontal merger

D vertical merger

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16 Why might a government encourage a monopoly?

A It can compete against foreign firms.

B It can have high average costs.

C It can make excessive profits.

D It can prevent innovation.

17 What is the most likely result of an increase in interest rates?

A a fall in consumer spending

B a fall in productivity

C a rise in borrowing

D a rise in investment

18 The table shows a government’s receipts from taxation.

$m
tax on company profits 100
income tax 600
import duties 30
sales tax 250

What is the total amount of revenue raised by direct taxes?

A $280m B $700m C $730m D $950m

19 Which combination of government policies is most likely to increase the rate of growth of domestic
production in an economy?

A an increase in expenditure on infrastructure and an increase in income tax

B an increase in interest rates and an increase in quotas on imported goods

C an increase in sales tax and an increase in education expenditure

D an increase in subsidies to domestic industry and an increase in tariffs

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20 The managers of a firm have to discuss the following topics.

Which topic is least likely to be directly affected by the government’s influence on the firm?

A health and safety laws

B replacing one of its managers

C the interest it pays on borrowed money

D the minimum wage it must pay its workers

21 In the construction of a consumer prices index (CPI), a total weight of 1000 is used.

If a weight of 300 is given to food and a weight of 150 is given to transport, then

A consumers are spending half as much on transport as they do on food.

B consumers must be spending more on necessities than on luxury goods.

C food prices must be rising twice as fast as transport prices.

D the weights cannot be changed until the index reaches 1000.

22 The table shows unemployment and inflation statistics for the US, Japan and Sweden for year 1
and year 2.

unemployment (%) inflation (% pa)

country
year 1 year 2 year 1 year 2
US 4.8 4.4 5.6 3.4
Japan 2.7 2.7 1.7 0.7
Sweden 2.7 3.2 8.3 6.6

Which conclusion can be made from the table?

A In year 1, the cost of living rose in the US.

B In year 1, the same number of people were unemployed in Sweden and Japan.

C The number of unemployed people decreased in all three countries.

D Unemployment and inflation moved in the same direction in Japan.

23 Why is the Human Development Index (HDI) a better indicator of comparative living standards
than Gross Domestic Product (GDP) per head?

A It includes international trade.

B It includes more measures of living standards.

C It is measured in money terms.

D It is more directly linked to economic growth.

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24 The diagram shows percentage changes in house prices in an economically developed country.

% change in
10
house prices

ry

ch

ay

y
ril

l
n

Ju
ua

Ap
ar

Ju
br

M
Fe
2017

What might have caused these changes in prices?

A an increase in government subsidies to house builders

B an increase in income

C an increase in the supply of houses

D an increase in unemployment

25 What is meant by an optimum population for a country?

A a population that balances its birth rate and its death rate

B a population that maximises output per head

C a population that results in fewest negative externalities

D a population that uses all resources available

26 What does a population pyramid of a country show?

A its age and sex distribution

B its employment pattern

C its income distribution

D its migration pattern

27 What is usually found in a developed country?

A a high GDP per head with a low level of employment

B a high level of labour skills with a low level of car ownership

C a high rate of adult literacy with a low level of poverty

D a high rate of population growth with a low level of labour productivity

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28 What is the least likely feature of globalisation?

A integration of trade

B international capital flows

C the spread of multinational companies

D unrestricted movement of labour

29 The diagrams show the composition of exports and imports of a country.

Exports Imports

goods services goods services

50% 50% 60% 40%

total exports $120 million total imports $100 million

What is true for this country?

A There is a deficit in the balance of trade in goods.

B There is a deficit in the balance of trade in services.

C There is a surplus in the balance of trade in goods.

D There is a surplus in the balance of trade in services.

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30 Countries in Europe were in a recession in 2012. World oil prices were expected to fall. In fact in
2012, oil prices rose.

Which international events might explain this?

possible causes of the possible causes of the oil

expected fall in oil prices price rise in 2012
A European industrial China increased its car
production declined production

B India invested huge amounts Japan’s economy had

in road building negative growth

C Middle East conflicts made oil Saudi Arabia increased oil

supplies uncertain production

D new oil exploration in Poland demand for alternative fuels

was successful increased

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© UCLES 2017 2281/01/SP/20