IGCSE Economics 0455 Paper 1 Practice Paper (Multiple Choice, 30 marks)

2026-10-29

30 questions · 30 marks · 45 minutes

This is an original multiple-choice practice paper written for the IGCSE Economics 0455 syllabus (the basic economic problem, allocation of resources, microeconomic decision makers, government aims and policies, economic development and international trade). Choose the best answer for each question. Each question carries 1 mark and there is no negative marking.

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Question paper PDF Answer key PDF

Questions

Question 1 (1 mark)
Ming spends one hour revising instead of working part time for $60 an hour. What is the opportunity cost of that hour of revision?

A. the $60 he could have earned

B. the hour of time itself

C. $60 plus the cost of his textbooks

D. the knowledge gained from revision

Question 2 (1 mark)
An economy produces only food and machines. Farm technology improves while industrial technology is unchanged. What happens to the production possibility curve?

A. the whole curve shifts outward

B. the food intercept moves out while the machine intercept is unchanged

C. the whole curve shifts inward

D. the curve becomes a vertical straight line

Question 3 (1 mark)
Which of the following is a positive statement?

A. the minimum wage should rise to $50 an hour

B. the government should spend more on education

C. the unemployment rate rose to 4% last quarter

D. rich people ought to pay more tax

Question 4 (1 mark)
The price of a good rises by 10% and quantity demanded falls by 25%. What is the (absolute) price elasticity of demand?

A. 25

B. 0.4

C. 1.0

D. 2.5

Question 5 (1 mark)
If demand for a good is price elastic, what happens to total revenue when the price is cut?

A. it rises, because quantity sold increases proportionally more than the price falls

B. it falls, because revenue per unit is lower

C. it is unchanged, because the demand curve is vertical

D. it rises then falls back to the original level

Question 6 (1 mark)
A good has an income elasticity of demand of -0.8. When consumer income rises, demand for the good …

A. rises, so it is a normal good

B. falls, so it is an inferior good

C. is unchanged, so it is a necessity

D. rises, so it is a luxury good

Question 7 (1 mark)
The price of a raw material used to make a good rises, other things equal. What happens to equilibrium price and quantity?

A. price falls, quantity falls

B. price rises, quantity rises

C. price rises, quantity falls

D. price falls, quantity rises

Question 8 (1 mark)
The government gives producers a subsidy per unit. What is the most likely short-run effect?

A. the demand curve shifts right and the market price rises

B. the supply curve shifts left and the market price rises

C. the demand curve shifts left and the market price falls

D. the supply curve shifts right and the market price falls

Question 9 (1 mark)
If the government sets a price ceiling below the equilibrium price, what appears in the market?

A. a shortage

B. the equilibrium is unchanged

C. black-market trading disappears

D. a surplus

Question 10 (1 mark)
What is the main benefit of division of labour?

A. workers gain more job satisfaction

B. productivity rises and average cost falls

C. the unemployment rate falls

D. inventories increase

Question 11 (1 mark)
Demand for restaurant kitchen staff is a derived demand because it …

A. is set by the bargaining power of trade unions

B. is fixed directly by the size of the local population

C. is derived from consumers demand for the meals the restaurant sells

D. is set by the statutory minimum wage

Question 12 (1 mark)
What is the main objective of a private-sector firm?

A. to provide public goods

B. to stabilise the general price level

C. to maximise social welfare

D. to maximise profit

Question 13 (1 mark)
A firm doubles its output and average cost falls from $40 to $32. By what percentage does average cost fall?

A. 20%

B. 25%

C. 32%

D. 8%

Question 14 (1 mark)
Which feature best describes a monopoly market?

A. many firms selling a homogeneous product

B. a single firm with high barriers to entry

C. only two firms with free entry

D. firms are price takers

Question 15 (1 mark)
When government intervention makes resource allocation worse than the market outcome, this is called …

A. a public good

B. market failure

C. government failure

D. an externality

Question 16 (1 mark)
A factory pollutes and harms nearby residents, and there is no government action. Compared with the social optimum, output will be …

A. equal to the optimum

B. equal to zero

C. below the optimum, with too high a price

D. above the optimum, with too low a price

Question 17 (1 mark)
Education is often treated as a merit good mainly because …

A. consumers tend to underestimate the private and social benefits

B. its production cost is necessarily zero

C. it has no external benefits at all

D. only the government can produce it

Question 18 (1 mark)
A rise in government spending combined with tax cuts is which kind of policy?

A. contractionary fiscal policy

B. expansionary fiscal policy

C. expansionary monetary policy

D. supply-side policy

Question 19 (1 mark)
Assembly work moves abroad and local assembly workers lose their jobs. Which type of unemployment is this?

A. frictional unemployment

B. cyclical unemployment

C. structural unemployment

D. seasonal unemployment

Question 20 (1 mark)
Aggregate demand keeps growing faster than aggregate supply. Which type of inflation is most likely?

A. deflation

B. a rise in unemployment

C. cost-push inflation

D. demand-pull inflation

Question 21 (1 mark)
The consumer price index rises from 220 to 231. What is the inflation rate?

A. 5%

B. 11%

C. 4.8%

D. 231%

Question 22 (1 mark)
A country has a GDP of US$48 billion and a population of 40 million. What is GDP per capita?

A. $1,200

B. $12,000

C. $120,000

D. $12

Question 23 (1 mark)
A country has a current account deficit. This means that …

A. saving exceeds investment

B. total exports of goods and services exceed imports

C. total imports of goods and services exceed exports

D. government spending exceeds tax revenue

Question 24 (1 mark)
What is the most likely effect of a depreciation of the domestic currency?

A. both export and import prices are unchanged

B. domestic inflation necessarily falls

C. exports become dearer and imports cheaper

D. exports become cheaper and imports dearer, so export competitiveness rises

Question 25 (1 mark)
An imported good costs $200 landed and the government charges a 15% ad valorem tariff. What is the price after the tariff?

A. $230

B. $300

C. $185

D. $215

Question 26 (1 mark)
Members of a free trade area normally …

A. allow completely free movement of factors of production

B. remove tariffs among themselves but keep their own external tariffs

C. use a single currency

D. adopt a common external tariff

Question 27 (1 mark)
Which of the following is NOT part of the Human Development Index?

A. life expectancy

B. mean years of schooling

C. the unemployment rate

D. income per capita

Question 28 (1 mark)
In a place there are 200,000 people aged 0-14, 150,000 aged 65 and over, and 650,000 aged 15-64. What is the dependency ratio?

A. 185.7%

B. 65%

C. 30.8%

D. 53.8%

Question 29 (1 mark)
What is the main benefit to a host country when a multinational company builds a factory there?

A. inflow of foreign direct investment, technology transfer and jobs

B. exports necessarily fall

C. local firms profits necessarily rise

D. natural population growth speeds up

Question 30 (1 mark)
What is the definition of sustainable development?

A. economic growth of 5% every year

B. meeting present needs without harming the ability of future generations to meet theirs

C. stopping all industrial production

D. developing only the service sector

Full answers and explanations are in the answer key PDF. Allow about 90 seconds per question, as in the real Paper 1.