The Multiple Choice Questions Blog

Which of the following is a normative statement?

Select ONE answer:

1. Increased government spending cannot reduce unemployment
2. The imposition of import tariffs will reduce unemployment
3. A policy of controlling inflation which results in increased unemployment is undesirable
4. The level of social security benefits is the primary factor influencing the level of unemployment
5. Increased government spending will lead to higher taxes

Give and explain 3 positive economic statements?

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This is multiple choice question is suitable for Economics KS5 classes.

The answer is 3 – You should know the basic distinction between normative and positive statements. This question tests whether you can apply that knowledge. At first, it seems that you have to have a huge level of knowledge. It covers various aspects of employment policy, inflation, and even international trade policy. But don’t panic. It isn’t very hard if you know the meaning of normative and positive. Recall that a positive statement is one that can, in principle, be tested by reference to evidence. A normative statement cannot be so tested.  Now look at option 1 again – You do not have to have a view about the effect of government spending on employment, you just have to recognise that in principle it is possible to test this assertion by examining data relating to government spending and unemployment levels. Exactly the same argument applies to statement 2 – In this case, the evidence is very strong. Import tariffs tend to increase unemployment, but the issue is not whether the statement is correct – It is whether it is testable. Statement 4 & 5 are also clearly testable in principle. Now look at 3 once more – The word ‘undesirable’ is the key, as the word begs the question: desirable in whose eyes? Statement 3 can’t be tested by evidence.

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Which of the following conditions must be satisfied if a good is to be supplied through the market?

Select ONE answer:

1. There are a large number of buyers and sellers
2. There are no restrictions on the entry of new firms into the industry
3. The goods supplied by different suppliers are homogeneous
4. Those unwilling to pay for the good can be excluded from the benefits
5. There are lots of market signals

Give the advantages and disadvantages of a centrally planned economy?

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This is multiple choice question is suitable for Economics KS5 classes.

The answer is 4 – The key to this question is in understanding the term ‘market’. It does not say ‘supplied through a perfectly competitive market’. Consider answers 1, 2, and 3. These are all necessary if a good is to be supplied under conditions of perfect competition. But now look again at 4 – If a producer cannot exclude people from the benefits of his output he cannot oblige them to pay. This is a feature of a public good of course.

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In principle, which of the following is an advantage of a planned economy?

Select ONE answer:

1. The lack of market signals
2. Decisions are taken on the basis of social costs and benefits
3. Production is characterised by decreasing returns to scale
4. The government always balances the budget
5. The pattern of production reflects the preferences of consumers

Give the advantages and disadvantages of a mixed economy?

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This is multiple choice question is suitable for Economics KS5 classes.

The answer is 2 – A planned economy has been shown to have considerable weaknesses. As this has become clear many countries have moved away from this system to a more market orientated one. But here the question asks for what, in principle, might be an advantage and by implication a disadvantage of a market system. 5 is an advantage of a market system. Now look at 4 – Market systems certainly do not guarantee this but neither does a planned system. Now look again at 3 – Different industries rather than different systems are characterised by decreasing returns to scale. So perhaps 2 will give us the right answer. Yes, private producers work on the basis of maximising private (profit maximising) benefits and tend to ignore external benefits. It takes a government to internalise these external benefits by, for example, imposing indirect taxes. A planned economy can, in principle, take these into account when planning output levels.

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In a centrally planned economy, which of the following would be most likely to explain the failure of particular industries to achieve their output targets?

Select ONE answer:

1. The lack of market signals
2. A change in consumer tastes
3. An increase in the savings ratio
4. A deficiency in aggregate effective demand
5. Miscalculation of the interdependence between industries

Give the advantages and disadvantages of a free market economy?

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This is multiple choice question is suitable for Economics KS5 classes.

The answer is 5 – You spend much time developing a basic understanding of how a market economy functions but it can help to look at how a centrally planned economy might work (or not) so it is good to know the advantages and disadvantages of such a system. Think about the advantages of a market system. Industries cope with a change in taste via changes in market prices, with changes in the savings ratio by changes in interest rates and with changes in aggregate demand by raising and lowering output and prices (see answers 2, 3 and 4). Now look again at 5. This is a key problem in a planned economy, where output plans are made by the state. In a market economy, governments don’t set output targets and problems of interdependence between industries are dealt with via price adjustments of intermediate outputs. So the answer we arrive at is 5.

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Which one of the following is a distinctive feature of a pure public good?

Select ONE answer:

1. It is free to consumers
2. It is produced by the state
3. It is produced at zero cost
4. Greater consumption by one person implies less by another
5. Nobody can be excluded from consuming it

Give 3 examples of a pure public good and explain your reasonings?

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This is multiple choice question is suitable for Economics KS5 classes.

The answer is 5 – Some MCQs involve knowing the definition of an important economic term. Here it’s the term ‘public good’. 2 is a believable answer in that the state provides goods for members of the public, but you have to know that this is not the meaning of the term. 3 has to be wrong, as the production of any good involves the use of scarce resources and cannot, therefore, be produced at zero cost. 4 is also plausible and wrong, as it is the exact opposite of a public good but It is true of a private good (if you consume an apple then I cannot consume it). Now consider 5 – This is one of the key features of a public good i.e. if street lighting is provided, for example, one cannot prevent people from consuming it.

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The workers in a factory currently earn £240 for a 40 hour week. The management offers them a choice between either a straight 10% wage increase or an increase in the weekly wage to £260 along with a reduction in hours from 40 to 39 hours.

Disregarding the value of leisure time, what is the opportunity cost to each worker of opting for the 39 hour week?

Select ONE answer:

1. £4.00
2. £6.00
3. £20.00
4. £24.00
5. £30.00

Show your workings to arrive at your answer, and explain and justify your reasons?

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This is multiple choice question is suitable for Economics KS5 classes.

The answer is 1 – Opportunity Cost is a key concept in economics and its principle applies to many areas of economic activity. Here it’s applied to wages. As in this question, you will often need to make simple calculations so a calculator might be handy.  Option one is an increase of 10% of 240 pounds = 24 pounds. To get this what does the worker have to give up, that is, the opportunity cost? The pay increase if the extra leisure hour is taken is 260-240 pounds = 20 pounds per week. So the lost income through opting for the extra leisure hour is 4 pounds, the opportunity cost. Checking the other options you can see that both 3 and 4 are plausible but wrong answers because both figured in our calculations. To be good at MCQs you have to think with precision!

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