Class Test 3 Assessment 2025-26 - Grade A Level
Candidate
Name
18-08-2025 Economics 1Hour 15Mins 40 Marks
Section A
Q1.The diagram shows the private and social costs and benefits of production in a free market
that result in market failure.
Which change in output would be necessary to overcome this market failure?
A. From K to M
B. From M to N
C. From M to L
D. From N to L
Q2.What is not a reason for imposing a tax on producers based on the amount of pollution caused
in the production process?
A. Firms have a financial incentive to reduce pollution.
B. It is relatively hard to administer and monitor this tax scheme.
C. Some firms cause less pollution than others.
D. Taxes on pollution reduce negative production externalities.
Q3.When does a more equal distribution of income occur?
A. When a country’s income tax system is made more progressive
B. When someone is made better off without making someone else worse off
C. When the best use is made of scarcer resources
D. When there is an increase in the Gini coefficient
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Candidate No. : ___________________________
Q4.The graph plots the Gini coefficient and GDP per head for three countries. What can be
concluded?
A. Average incomes are higher in country X than in country Z
B. Country X is the least developed country
C. Income is equally distributed in country Y
D. The distribution of income in country Y is more even than in country X
Q5. Which policy is most likely to reduce real wage unemployment?
A. Increasing the minimum wage
B. Subsidising firms to hire workers
C. Raising income tax for high earners
D. Encouraging trade union activity
Q6.What is likely to improve the occupational mobility of labour?
A. A decrease in income tax that increases aggregate demand
B. A decrease in unemployment benefit
C. An increase in retraining schemes for the unemployed
D. More advertising of employment vacancies in the economy
Q7. In a closed economy with no government, injections exceed withdrawals. What is the likely
short-run effect on national income?
A. National income will fall
B. The economy will move to a deflationary gap
C. National income will rise
D. Aggregate demand will remain unchanged
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Candidate No. : ___________________________
Q8.The diagram shows an economy’s production possibility curve. What causes a movement from
point X to point Y?
A. A positive output gap
B. A recession
C. Actual economic growth
D. Potential economic growth
Q9.Which policy may increase economic growth without causing inflation?
A. Giving subsidies to producers
B. Increasing government spending
C. Lowering direct taxes
D. Lowering interest rates
Q10.A government’s aim is to reduce real wage rates. Which policy should be used?
A. Award public sector workers pay increases below the rate of inflation
B. Encourage private sector pay awards to be in line with company profits
C. Introduce a minimum hourly wage for non-unionised, low-paid workers
D. Remove any restrictions on trade unions to bargain for wages
Q11.In the equation MV = PT, what change would tend to reduce the value of V (velocity of
circulation)?
A. A move to monthly rather than weekly salary payments by firms
B. An increase in interest rates
C. An increase in the use of cash machines to reduce money balances held
D. A decrease in the use of credit cards by individuals
Q12.The government increases its budget deficit and finances it by selling bonds to the non-bank
private sector. What is the likely consequence?
A. Currency will depreciate, increasing exports and reducing the trade deficit
B. The increase in real output will be limited as the multiplier is low
C. The money supply will fall, reducing aggregate demand
D. There will be a decrease in the rate of interest, causing demand-pull inflation
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Candidate Name : ___________________________
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Section B
Answer all parts of Question
Developments in the electric vehicle (EV) industry The advantage of the car is that it provides
freedom for the consumer. However, the disadvantages of car use are that it creates congestion,
carbon dioxide (CO2) and air pollution. These disadvantages led many countries to agree to
replace internal combustion engine (ICE) cars with electric vehicles (EV) from 2030.
The successful introduction of EV is dependent on the development of battery technology and
production of batteries to enable EV to drive a similar distance to ICE cars before they need re-
charging. Better electrode design, battery assembly and chemistry are all technical aspects of
battery production that could reduce costs, resulting in economies of scale from more efficient use
of capital and labour. In addition to technical economies, there may well be purchasing economies
of scale in battery production when buying raw materials and capital equipment in bulk.
Table 1.1 shows the estimated average costs of battery production for EV using two different
technologies.
The shift to EV will cause redundancies for highly skilled mechanical engineers who have
developed and refined the ICE. Often these workers are concentrated in specific areas, such as
southern Germany.
The change from ICE cars to EV may also cause difficulties for governments in two ways. First,
many countries rely on oil exports for a large part of their income. For example, Saudi Arabia
receives 45% of its gross national income (GNI) from oil exports. Secondly, other governments
place an indirect tax on petrol (gasoline) and diesel as part of their general revenue. For example,
Singapore charges S$0.41 per litre, approximately 17 % of the price.
(a) Explain what is meant by internal economies of scale, using an example from the information.
[4]
(b) Analyse, with the aid of a diagram, the likely impact of the change to EV on the labour market
for workers producing ICE in southern Germany. [4]
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Section C
Answer one question.
1. Market failure exists in all economies. Evaluate, with the aid of a diagram(s), the meaning of
market failure and two policies a government may use to correct market failure. [20]
OR
2. Evaluate, with the aid of a diagram(s), whether excess profit (supernormal profit) is always
necessary for the continued existence of firms in perfect competition and monopoly. [20]
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