AQA A-Level Economics Predicted Papers | Exam
QUESTIONs, Model Answers & Mark Scheme
(2026/2027)
QUESTION 1
A market exhibits a negative externality in consumption. Which of the
following is true at the free-market equilibrium compared to the socially
optimal equilibrium?
• A. Marginal Social Benefit equals Marginal Social Cost
• B. Output is lower than the socially optimal level
• C. Output is higher than the socially optimal level
• D. Marginal Private Benefit equals Marginal Social Benefit
Correct Answer: C. Output is higher than the socially optimal level
Detailed Rationale: When a negative externality in consumption exists
(e.g., smoking or driving a petrol car), the Marginal Social Benefit (MSB)
is less than the Marginal Private Benefit (MPB) at each quantity. The
free market operates where MPB equals Marginal Private Cost (MPC),
leading to over-consumption and an output level higher than the
socially optimal level where MSC equals MSB.
QUESTION 2
If the marginal propensity to save (MPS) is 0.2, the marginal propensity
to tax (MPT) is 0.1, and the marginal propensity to import (MPM) is 0.2,
what is the value of the national income multiplier?
, • A. 1.25
• B. 2.0
• C. 2.5
• D. 5.0
Correct Answer: B. 2.0
1
Detailed Rationale: The multiplier (𝑘) is calculated as , where MPW
MPW
is the marginal propensity to withdraw. MPW = MPS + MPT + MPM =
1
0.2 + 0.1 + 0.2 = 0.5. Therefore, the multiplier is = 2.0.
0.5
QUESTION 3
The cross-elasticity of demand (XED) between good X and good Y is
+2.5. If the price of good X increases by 10%, what will happen to the
demand for good Y?
• A. Demand for good Y will increase by 25%
• B. Demand for good Y will decrease by 25%
• C. Demand for good Y will increase by 4%
• D. Demand for good Y will decrease by 4%
Correct Answer: A. Demand for good Y will increase by 25%
Detailed Rationale: Cross-elasticity of demand is calculated as
% change in quantity demanded of good Y
. Rearranging the formula:
% change in price of good X
% change in quantity of Y = XED × % change in price of X =
2.5 × 10% = +25%. A positive XED indicates that goods X and Y are
substitutes.
,QUESTION 4
Which of the following represents a supply-side policy that is classified
as interventionist rather than market-based?
• A. Deregulation of product markets
• B. Cutting corporation tax to stimulate business investment
• C. Government provision and funding of state education and
training schemes
• D. Privatization of state-owned utilities
Correct Answer: C. Government provision and funding of state
education and training schemes
Detailed Rationale: Interventionist supply-side policies involve direct
government action to overcome market failures or boost productive
capacity, such as state-funded education, infrastructure spending, and
industrial policy. Options A, B, and D are market-based policies designed
to unleash free-market forces.
QUESTION 5
A firm operating in a perfectly competitive market maximizes its profit
where:
• A. Total revenue is at its maximum
• B. Marginal revenue equals marginal cost, and price equals
marginal cost
• C. Average revenue equals average total cost
• D. Price is set above marginal cost to generate abnormal profits
, Correct Answer: B. Marginal revenue equals marginal cost, and price
equals marginal cost
Detailed Rationale: All firms maximize profit where 𝑀𝐶 = 𝑀𝑅. In a
perfectly competitive market, firms are price takers, meaning demand is
perfectly elastic and price equals marginal revenue (𝑃 = 𝐴𝑅 = 𝑀𝑅).
Thus, profit maximization occurs where 𝑃 = 𝑀𝐶.
QUESTION 6
An economy experiences a negative output gap. Which of the following
conditions is most likely to prevail?
• A. Actual GDP exceeds potential GDP, creating inflationary
pressures
• B. Actual GDP is below potential GDP, leading to cyclical
unemployment and spare capacity
• C. The rate of inflation is accelerating rapidly due to wage-push
factors
• D. The current account of the balance of payments is in deep
deficit due to overheating
Correct Answer: B. Actual GDP is below potential GDP, leading to
cyclical unemployment and spare capacity
Detailed Rationale: A negative output gap occurs when actual
economic output is less than the economy's long-term potential output.
This indicates underutilization of resources, resulting in cyclical
unemployment and spare capacity.
QUESTION 7
QUESTIONs, Model Answers & Mark Scheme
(2026/2027)
QUESTION 1
A market exhibits a negative externality in consumption. Which of the
following is true at the free-market equilibrium compared to the socially
optimal equilibrium?
• A. Marginal Social Benefit equals Marginal Social Cost
• B. Output is lower than the socially optimal level
• C. Output is higher than the socially optimal level
• D. Marginal Private Benefit equals Marginal Social Benefit
Correct Answer: C. Output is higher than the socially optimal level
Detailed Rationale: When a negative externality in consumption exists
(e.g., smoking or driving a petrol car), the Marginal Social Benefit (MSB)
is less than the Marginal Private Benefit (MPB) at each quantity. The
free market operates where MPB equals Marginal Private Cost (MPC),
leading to over-consumption and an output level higher than the
socially optimal level where MSC equals MSB.
QUESTION 2
If the marginal propensity to save (MPS) is 0.2, the marginal propensity
to tax (MPT) is 0.1, and the marginal propensity to import (MPM) is 0.2,
what is the value of the national income multiplier?
, • A. 1.25
• B. 2.0
• C. 2.5
• D. 5.0
Correct Answer: B. 2.0
1
Detailed Rationale: The multiplier (𝑘) is calculated as , where MPW
MPW
is the marginal propensity to withdraw. MPW = MPS + MPT + MPM =
1
0.2 + 0.1 + 0.2 = 0.5. Therefore, the multiplier is = 2.0.
0.5
QUESTION 3
The cross-elasticity of demand (XED) between good X and good Y is
+2.5. If the price of good X increases by 10%, what will happen to the
demand for good Y?
• A. Demand for good Y will increase by 25%
• B. Demand for good Y will decrease by 25%
• C. Demand for good Y will increase by 4%
• D. Demand for good Y will decrease by 4%
Correct Answer: A. Demand for good Y will increase by 25%
Detailed Rationale: Cross-elasticity of demand is calculated as
% change in quantity demanded of good Y
. Rearranging the formula:
% change in price of good X
% change in quantity of Y = XED × % change in price of X =
2.5 × 10% = +25%. A positive XED indicates that goods X and Y are
substitutes.
,QUESTION 4
Which of the following represents a supply-side policy that is classified
as interventionist rather than market-based?
• A. Deregulation of product markets
• B. Cutting corporation tax to stimulate business investment
• C. Government provision and funding of state education and
training schemes
• D. Privatization of state-owned utilities
Correct Answer: C. Government provision and funding of state
education and training schemes
Detailed Rationale: Interventionist supply-side policies involve direct
government action to overcome market failures or boost productive
capacity, such as state-funded education, infrastructure spending, and
industrial policy. Options A, B, and D are market-based policies designed
to unleash free-market forces.
QUESTION 5
A firm operating in a perfectly competitive market maximizes its profit
where:
• A. Total revenue is at its maximum
• B. Marginal revenue equals marginal cost, and price equals
marginal cost
• C. Average revenue equals average total cost
• D. Price is set above marginal cost to generate abnormal profits
, Correct Answer: B. Marginal revenue equals marginal cost, and price
equals marginal cost
Detailed Rationale: All firms maximize profit where 𝑀𝐶 = 𝑀𝑅. In a
perfectly competitive market, firms are price takers, meaning demand is
perfectly elastic and price equals marginal revenue (𝑃 = 𝐴𝑅 = 𝑀𝑅).
Thus, profit maximization occurs where 𝑃 = 𝑀𝐶.
QUESTION 6
An economy experiences a negative output gap. Which of the following
conditions is most likely to prevail?
• A. Actual GDP exceeds potential GDP, creating inflationary
pressures
• B. Actual GDP is below potential GDP, leading to cyclical
unemployment and spare capacity
• C. The rate of inflation is accelerating rapidly due to wage-push
factors
• D. The current account of the balance of payments is in deep
deficit due to overheating
Correct Answer: B. Actual GDP is below potential GDP, leading to
cyclical unemployment and spare capacity
Detailed Rationale: A negative output gap occurs when actual
economic output is less than the economy's long-term potential output.
This indicates underutilization of resources, resulting in cyclical
unemployment and spare capacity.
QUESTION 7
