AS LEVEL ECONOMICS A: THE UK
ECONOMY: PERFORMANCE AND POLICIES
PRACTICE EXAMINATION 2026
QUESTIONS WITH ANSWERS GRADED A+
◍ Absolute advantage.
Answer: When a country's output of a product per unit of input is greater
than that of any other country.
◍ Absolute poverty.
Answer: When a person does not have the income or wealth to fulfil their
basic needs.
◍ Aid.
Answer: The transfer of resources from one country to another.
◍ Allocative efficiency.
Answer: Where the price of a good is equal to the price consumers are
willing to pay. This occurs when all resources are allocated efficiently.
◍ Asymmetric information.
Answer: Where buyers have more information than sellers in a market, or
vice versa.
◍ Automatic stabilisers.
Answer: Parts of fiscal policy that automatically react to changes in the
economic cycle.
◍ Average Cost (AC).
Answer: The cost of production per unit of output.
◍ Average Revenue (AR).
, Answer: The revenue per unit sold.
◍ Backward vertical integration.
Answer: Where a firm merges with or takes over a firm further back in the
production process.
◍ Bank rate.
Answer: The official rate of interest set by the central bank (e.g. by the
Monetary Policy Committee of the Bank of England)
◍ Aggregate demand(AD).
Answer: The total level of demand in an economy at any given price at a
moment in time
◍ Barriers to entry.
Answer: Potential difficulties that make it hard for firms to enter a market.
◍ Barriers to exit.
Answer: Potential difficulties that make it hard for firms to leave a market.
◍ Black market.
Answer: Economic activity that occurs without taxation and government
intervention.
◍ Budget deficit.
Answer: When government spending exceeds tax revenues.
◍ Budget surplus.
Answer: When tax revenues exceed government spending.
◍ Capital account of the balance of payments.
Answer: A part of the balance of payments that shows transfers of
non-monetary and fixed assets into and out of the economy.
◍ Cartel.
Answer: A group of products who collude to limit output in order to keep
prices high.
◍ Central bank.
, Answer: The institution responsible for issuing banknotes in an economy,
acting as a lender of last resort, and implementing monetary policy.
◍ Ceteris paribus.
Answer: All other things remaining equal
◍ Circular flow of income.
Answer: The flow of national output, income and expenditure between firms
and households.
◍ Command economy.
Answer: An economy where only the government determines the allocation
of resources.
◍ Comparative advantage.
Answer: When the opportunity cost of producing a good or service is lower
than that of any other country.
◍ Competition policy.
Answer: Government policy aimed at reducing monopoly power in order to
increase efficiency and to ensure fairness for consumers.
◍ Concentration ratio.
Answer: A measure of the dominance of firms in a market.
◍ Conglomerate integration.
Answer: Where a firm merges with or takes over a firm in a completely
different market.
◍ Consumer surplus.
Answer: The difference between the price a consumer pays and the price
they were willing to pay.
◍ Consumption.
Answer: The purchase of goods and services.
◍ Contestability.
Answer: The degree to which new entrants find it easy to enter the market.
, ◍ Cost-push inflation.
Answer: Inflation caused by rising costs of production.
◍ Cross elasticity of demand (XED).
Answer: A measure of the responsiveness of demand of one good/service to
a change in price of another good/service.
◍ Current account of the balance of payments.
Answer: A part of the balance of payments that consists of: trade in goods,
trade in services, primary income and secondary income.
◍ Cyclical unemployment.
Answer: Unemployment caused by a lack of demand in the economy.
◍ Deflation.
Answer: The sustained fall in the average price of goods and services in an
economy over a period of time.
◍ Demand-pull inflation.
Answer: Inflation caused by increased demand in the economy.
◍ Demand-side policy.
Answer: Government policy that aims to alter aggregate demand in the
economy.
◍ Demerger.
Answer: Where a firm sells of a part/parts of its business to create separate
firms.
◍ Deregulation.
Answer: Removing government legislation that could restrict competition.
◍ Derived demand.
Answer: The demand for a good or service due to its use in making another
good or service.
◍ Developed countries.
Answer: Relatively rich, industrialised countries with a high GDP per capita.
ECONOMY: PERFORMANCE AND POLICIES
PRACTICE EXAMINATION 2026
QUESTIONS WITH ANSWERS GRADED A+
◍ Absolute advantage.
Answer: When a country's output of a product per unit of input is greater
than that of any other country.
◍ Absolute poverty.
Answer: When a person does not have the income or wealth to fulfil their
basic needs.
◍ Aid.
Answer: The transfer of resources from one country to another.
◍ Allocative efficiency.
Answer: Where the price of a good is equal to the price consumers are
willing to pay. This occurs when all resources are allocated efficiently.
◍ Asymmetric information.
Answer: Where buyers have more information than sellers in a market, or
vice versa.
◍ Automatic stabilisers.
Answer: Parts of fiscal policy that automatically react to changes in the
economic cycle.
◍ Average Cost (AC).
Answer: The cost of production per unit of output.
◍ Average Revenue (AR).
, Answer: The revenue per unit sold.
◍ Backward vertical integration.
Answer: Where a firm merges with or takes over a firm further back in the
production process.
◍ Bank rate.
Answer: The official rate of interest set by the central bank (e.g. by the
Monetary Policy Committee of the Bank of England)
◍ Aggregate demand(AD).
Answer: The total level of demand in an economy at any given price at a
moment in time
◍ Barriers to entry.
Answer: Potential difficulties that make it hard for firms to enter a market.
◍ Barriers to exit.
Answer: Potential difficulties that make it hard for firms to leave a market.
◍ Black market.
Answer: Economic activity that occurs without taxation and government
intervention.
◍ Budget deficit.
Answer: When government spending exceeds tax revenues.
◍ Budget surplus.
Answer: When tax revenues exceed government spending.
◍ Capital account of the balance of payments.
Answer: A part of the balance of payments that shows transfers of
non-monetary and fixed assets into and out of the economy.
◍ Cartel.
Answer: A group of products who collude to limit output in order to keep
prices high.
◍ Central bank.
, Answer: The institution responsible for issuing banknotes in an economy,
acting as a lender of last resort, and implementing monetary policy.
◍ Ceteris paribus.
Answer: All other things remaining equal
◍ Circular flow of income.
Answer: The flow of national output, income and expenditure between firms
and households.
◍ Command economy.
Answer: An economy where only the government determines the allocation
of resources.
◍ Comparative advantage.
Answer: When the opportunity cost of producing a good or service is lower
than that of any other country.
◍ Competition policy.
Answer: Government policy aimed at reducing monopoly power in order to
increase efficiency and to ensure fairness for consumers.
◍ Concentration ratio.
Answer: A measure of the dominance of firms in a market.
◍ Conglomerate integration.
Answer: Where a firm merges with or takes over a firm in a completely
different market.
◍ Consumer surplus.
Answer: The difference between the price a consumer pays and the price
they were willing to pay.
◍ Consumption.
Answer: The purchase of goods and services.
◍ Contestability.
Answer: The degree to which new entrants find it easy to enter the market.
, ◍ Cost-push inflation.
Answer: Inflation caused by rising costs of production.
◍ Cross elasticity of demand (XED).
Answer: A measure of the responsiveness of demand of one good/service to
a change in price of another good/service.
◍ Current account of the balance of payments.
Answer: A part of the balance of payments that consists of: trade in goods,
trade in services, primary income and secondary income.
◍ Cyclical unemployment.
Answer: Unemployment caused by a lack of demand in the economy.
◍ Deflation.
Answer: The sustained fall in the average price of goods and services in an
economy over a period of time.
◍ Demand-pull inflation.
Answer: Inflation caused by increased demand in the economy.
◍ Demand-side policy.
Answer: Government policy that aims to alter aggregate demand in the
economy.
◍ Demerger.
Answer: Where a firm sells of a part/parts of its business to create separate
firms.
◍ Deregulation.
Answer: Removing government legislation that could restrict competition.
◍ Derived demand.
Answer: The demand for a good or service due to its use in making another
good or service.
◍ Developed countries.
Answer: Relatively rich, industrialised countries with a high GDP per capita.
