PEARSON EDEXCEL LEVEL 3 ADVANCED GCE IN ECONOMICS B
2026 EXAM 150 QUESTIONS AND CORRECT ANSWERS
COVERING MOST TESTED TOPICS | A+ GRADED,
1. Which of the following best defines opportunity cost?
☑ A. The value of the next best alternative forgone
☐ B. The total cost of production
☐ C. The money cost of a good
☐ D. The benefit gained from consumption
Rationale: Opportunity cost measures what is sacrificed when making a choice.
2. If demand for a good is price elastic, an increase in price will cause:
☑ A. Total revenue to fall
☐ B. Total revenue to rise
☐ C. Total revenue to stay the same
☐ D. No change in quantity demanded
Rationale: With elastic demand, quantity demanded falls proportionally more than price rises.
3. Which factor is most likely to make demand more price inelastic?
☑ A. The good being a necessity
☐ B. Many close substitutes
☐ C. A long time period
☐ D. Luxury status
Rationale: Necessities are harder to reduce consumption of when prices rise.
4. Which market structure is allocatively efficient in the long run?
☑ A. Perfect competition
☐ B. Monopoly
☐ C. Oligopoly
☐ D. Monopolistic competition
Rationale: Allocative efficiency occurs where P = MC, which holds in perfect competition.
5. A negative externality of consumption occurs when:
☑ A. Social costs exceed private costs
,☐ B. Private benefits exceed social benefits
☐ C. Social benefits exceed private benefits
☐ D. Producers gain excess profit
Rationale: Negative externalities create external costs not reflected in market prices.
6. Which policy is most appropriate to reduce pollution?
☑ A. An indirect tax on the polluting good
☐ B. A subsidy for producers
☐ C. Reducing interest rates
☐ D. Increasing income tax
Rationale: Indirect taxes internalise external costs and reduce overconsumption.
7. Gross Domestic Product (GDP) measures:
☑ A. The value of all final goods and services produced within a country
☐ B. National wealth
☐ C. Household income
☐ D. Living standards
Rationale: GDP is an output measure, not a direct measure of welfare.
8. Demand-pull inflation is most likely caused by:
☑ A. Excess aggregate demand
☐ B. Rising productivity
☐ C. Falling wages
☐ D. Increased unemployment
Rationale: When AD grows faster than AS, prices rise.
9. Which policy is controlled by the central bank?
☑ A. Monetary policy
☐ B. Fiscal policy
☐ C. Supply-side policy
☐ D. Trade policy
Rationale: Central banks control interest rates and money supply.
,10. A rise in interest rates is likely to:
☑ A. Reduce consumption and investment
☐ B. Increase borrowing
☐ C. Increase aggregate demand
☐ D. Reduce unemployment
Rationale: Higher rates discourage borrowing and spending.
11. Structural unemployment is caused by:
☑ A. A mismatch of skills in the labour market
☐ B. Seasonal changes in demand
☐ C. A fall in aggregate demand
☐ D. Workers between jobs
Rationale: Structural unemployment is long-term and linked to economic change.
12. Which is a benefit of free trade?
☑ A. Greater consumer choice and lower prices
☐ B. Higher government protection
☐ C. Reduced competition
☐ D. Higher tariffs
Rationale: Free trade increases efficiency through comparative advantage.
13. A tariff placed on imports will most likely:
☑ A. Increase domestic prices
☐ B. Increase world efficiency
☐ C. Reduce government revenue
☐ D. Increase consumer surplus
Rationale: Tariffs raise prices and reduce consumption.
14. The Human Development Index (HDI) measures:
☑ A. Living standards using income, education, and health
☐ B. Total national output
☐ C. Inflation rates
☐ D. Income inequality only
Rationale: HDI provides a broader measure of development than GDP.
, 15. A key aim of supply-side policies is to:
☑ A. Increase productive capacity
☐ B. Reduce aggregate demand
☐ C. Increase government spending
☐ D. Control inflation directly
Rationale: Supply-side policies improve efficiency and long-term growth.
16. Which factor is most likely to cause an inward shift of the demand curve?
☑ A. A fall in consumer income for a normal good
☐ B. A rise in population
☐ C. A fall in price
☐ D. Increased advertising
Rationale: Lower income reduces demand for normal goods at all prices.
17. Price elasticity of demand measures:
☑ A. Responsiveness of quantity demanded to a change in price
☐ B. Change in demand due to income
☐ C. Responsiveness of supply to price
☐ D. Total consumer spending
Rationale: PED shows sensitivity of demand to price changes.
18. If PED = –0.4, demand is:
☑ A. Price inelastic
☐ B. Price elastic
☐ C. Unit elastic
☐ D. Perfectly elastic
Rationale: PED less than 1 in absolute value is inelastic.
19. Which situation is most likely to create economies of scale?
☑ A. Increased specialisation of labour
☐ B. Higher advertising costs
2026 EXAM 150 QUESTIONS AND CORRECT ANSWERS
COVERING MOST TESTED TOPICS | A+ GRADED,
1. Which of the following best defines opportunity cost?
☑ A. The value of the next best alternative forgone
☐ B. The total cost of production
☐ C. The money cost of a good
☐ D. The benefit gained from consumption
Rationale: Opportunity cost measures what is sacrificed when making a choice.
2. If demand for a good is price elastic, an increase in price will cause:
☑ A. Total revenue to fall
☐ B. Total revenue to rise
☐ C. Total revenue to stay the same
☐ D. No change in quantity demanded
Rationale: With elastic demand, quantity demanded falls proportionally more than price rises.
3. Which factor is most likely to make demand more price inelastic?
☑ A. The good being a necessity
☐ B. Many close substitutes
☐ C. A long time period
☐ D. Luxury status
Rationale: Necessities are harder to reduce consumption of when prices rise.
4. Which market structure is allocatively efficient in the long run?
☑ A. Perfect competition
☐ B. Monopoly
☐ C. Oligopoly
☐ D. Monopolistic competition
Rationale: Allocative efficiency occurs where P = MC, which holds in perfect competition.
5. A negative externality of consumption occurs when:
☑ A. Social costs exceed private costs
,☐ B. Private benefits exceed social benefits
☐ C. Social benefits exceed private benefits
☐ D. Producers gain excess profit
Rationale: Negative externalities create external costs not reflected in market prices.
6. Which policy is most appropriate to reduce pollution?
☑ A. An indirect tax on the polluting good
☐ B. A subsidy for producers
☐ C. Reducing interest rates
☐ D. Increasing income tax
Rationale: Indirect taxes internalise external costs and reduce overconsumption.
7. Gross Domestic Product (GDP) measures:
☑ A. The value of all final goods and services produced within a country
☐ B. National wealth
☐ C. Household income
☐ D. Living standards
Rationale: GDP is an output measure, not a direct measure of welfare.
8. Demand-pull inflation is most likely caused by:
☑ A. Excess aggregate demand
☐ B. Rising productivity
☐ C. Falling wages
☐ D. Increased unemployment
Rationale: When AD grows faster than AS, prices rise.
9. Which policy is controlled by the central bank?
☑ A. Monetary policy
☐ B. Fiscal policy
☐ C. Supply-side policy
☐ D. Trade policy
Rationale: Central banks control interest rates and money supply.
,10. A rise in interest rates is likely to:
☑ A. Reduce consumption and investment
☐ B. Increase borrowing
☐ C. Increase aggregate demand
☐ D. Reduce unemployment
Rationale: Higher rates discourage borrowing and spending.
11. Structural unemployment is caused by:
☑ A. A mismatch of skills in the labour market
☐ B. Seasonal changes in demand
☐ C. A fall in aggregate demand
☐ D. Workers between jobs
Rationale: Structural unemployment is long-term and linked to economic change.
12. Which is a benefit of free trade?
☑ A. Greater consumer choice and lower prices
☐ B. Higher government protection
☐ C. Reduced competition
☐ D. Higher tariffs
Rationale: Free trade increases efficiency through comparative advantage.
13. A tariff placed on imports will most likely:
☑ A. Increase domestic prices
☐ B. Increase world efficiency
☐ C. Reduce government revenue
☐ D. Increase consumer surplus
Rationale: Tariffs raise prices and reduce consumption.
14. The Human Development Index (HDI) measures:
☑ A. Living standards using income, education, and health
☐ B. Total national output
☐ C. Inflation rates
☐ D. Income inequality only
Rationale: HDI provides a broader measure of development than GDP.
, 15. A key aim of supply-side policies is to:
☑ A. Increase productive capacity
☐ B. Reduce aggregate demand
☐ C. Increase government spending
☐ D. Control inflation directly
Rationale: Supply-side policies improve efficiency and long-term growth.
16. Which factor is most likely to cause an inward shift of the demand curve?
☑ A. A fall in consumer income for a normal good
☐ B. A rise in population
☐ C. A fall in price
☐ D. Increased advertising
Rationale: Lower income reduces demand for normal goods at all prices.
17. Price elasticity of demand measures:
☑ A. Responsiveness of quantity demanded to a change in price
☐ B. Change in demand due to income
☐ C. Responsiveness of supply to price
☐ D. Total consumer spending
Rationale: PED shows sensitivity of demand to price changes.
18. If PED = –0.4, demand is:
☑ A. Price inelastic
☐ B. Price elastic
☐ C. Unit elastic
☐ D. Perfectly elastic
Rationale: PED less than 1 in absolute value is inelastic.
19. Which situation is most likely to create economies of scale?
☑ A. Increased specialisation of labour
☐ B. Higher advertising costs
