A-Level Economics — Questions and Answers
Question 1: In Singapore's A-Level Economics, what is the concept of 'scarcity'?
- Not having enough money
- The fundamental economic problem that human wants are unlimited but resources are limited (Correct answer)
- A shortage of goods in shops
- Having too many resources
Correct answer: The fundamental economic problem that human wants are unlimited but resources are limited
Scarcity is the central economic problem — unlimited human wants versus limited productive resources. This creates the need for choice and opportunity cost, which is the foundation of economics.
Question 2: What determines the price elasticity of demand for a good?
- Only the price of the good
- Availability of substitutes, proportion of income spent, necessity vs luxury, and time period (Correct answer)
- Only the income of consumers
- Only the cost of production
Correct answer: Availability of substitutes, proportion of income spent, necessity vs luxury, and time period
Price elasticity of demand depends on multiple factors: availability of close substitutes (more substitutes = more elastic), proportion of income, whether the good is a necessity or luxury, and the time period considered.
Question 3: What is a 'market failure' in the context of Singapore economics?
- When a business goes bankrupt
- When the free market fails to allocate resources efficiently, leading to a welfare loss (Correct answer)
- When share prices fall
- When consumers refuse to buy goods
Correct answer: When the free market fails to allocate resources efficiently, leading to a welfare loss
Market failure occurs when the price mechanism fails to achieve allocative efficiency. Examples include externalities, public goods, merit/demerit goods, and imperfect information.
Question 4: How does Singapore's government use the Certificate of Entitlement (COE) system to manage car ownership?
- By setting a fixed car price
- By limiting the number of new vehicles through a quota system where COEs are bidded for (Correct answer)
- By banning car imports
- By subsidising public transport only
Correct answer: By limiting the number of new vehicles through a quota system where COEs are bidded for
The COE system is a quota mechanism where the government controls the number of new vehicles by issuing a fixed number of COEs that must be bidded for. This manages road congestion in land-scarce Singapore.
Question 5: What is 'comparative advantage' in international trade?
- A country that produces the most of a good
- A country's ability to produce a good at a lower opportunity cost than another country (Correct answer)
- Having more natural resources
- Having lower wages than other countries
Correct answer: A country's ability to produce a good at a lower opportunity cost than another country
Comparative advantage means a country can produce a good at a lower opportunity cost relative to another country. Even if one country is better at producing everything (absolute advantage), trade based on comparative advantage benefits both.
Question 6: What is the multiplier effect in Singapore's macroeconomic context?
- Doubling of prices
- An initial injection of spending leads to a more than proportionate increase in national income through successive rounds of spending (Correct answer)
- Increasing tax rates multiplied by income
- The effect of population growth on GDP
Correct answer: An initial injection of spending leads to a more than proportionate increase in national income through successive rounds of spending
The multiplier effect occurs when an initial increase in spending (investment, government expenditure, exports) generates successive rounds of income and spending, magnifying the impact on GDP.
A-Level Economics
In Singapore's A-Level Economics, what is the concept of 'scarcity'?