Cambridge IGCSE Economics: The mixed economic system and government intervention (0455) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover section 2.11 (the mixed economic system and government intervention) of the Cambridge IGCSE Economics (0455) syllabus for examination in 2026. All countries, firms and figures are invented and illustrative. Learn the content first from the study guide or the revision notes. Course pages: Cambridge IGCSE Economics hub, printable checklist and free 10-minute diagnostics.

Questions

1. Define the term mixed economic system. [2]

2. In Country G the market for cooking gas has demand Qd = 90 − 3P and supply Qs = −30 + 7P, where P is the price per cylinder.

(a) Calculate the equilibrium price and quantity. [2] (b) The government sets a maximum price of 10. Calculate the shortage. [3] (c) Explain one consequence of the shortage for consumers. [2]

3. In Country H the market for a farm crop has demand Qd = 110 − 5P and supply Qs = −10 + 10P. The government sets a minimum price of 10.

(a) Calculate the surplus. [3] (b) The government buys the whole surplus. Calculate the cost. [1] (c) Explain one drawback of this policy for the government. [2]

4. In Country I the labour market has demand Ld = 180 − 10W and supply Ls = −20 + 15W, where W is the hourly wage and labour is measured in hundreds of workers.

(a) Calculate the equilibrium wage and employment. [2] (b) A minimum wage of 9 is introduced. Calculate the unemployment, in workers. [3] (c) Calculate the percentage fall in employment. [2] (d) State one benefit of the minimum wage. [1]

5. In Country J the demand for and supply of its currency, the kuri, are Qd = 400 − 50P and Qs = 100 + 100P, where P is the price in foreign currency units per kuri and quantities are in millions.

(a) Calculate the equilibrium exchange rate and quantity. [2] (b) The central bank sets a minimum price of 2.5. Calculate the excess supply of kuri. [3] (c) Calculate the foreign currency the central bank spends to buy this excess. [1] (d) Explain why the central bank cannot keep the minimum price indefinitely. [2]

6. In Country K, a good has demand Qd = 150 − 6P and supply Qs = −30 + 12P. The government imposes an indirect tax of 3 per unit.

(a) Calculate the equilibrium price and quantity before the tax. [2] (b) Write the new supply equation and calculate the new equilibrium price and quantity. [3] (c) Calculate the tax revenue. [1] (d) Calculate how much of the revenue is paid by consumers and how much by producers. [2]

7. In Country L, a good has demand Qd = 160 − 8P and supply Qs = −20 + 12P. The government pays a subsidy of 2.5 per unit.

(a) Calculate the equilibrium price and quantity before the subsidy. [2] (b) Calculate the new equilibrium price and quantity. [3] (c) Calculate the cost of the subsidy. [1] (d) Calculate the percentage increase in quantity, to one decimal place. [2]

8. The government of Country M is considering privatising its state-owned rail network.

(a) Distinguish between privatisation and nationalisation. [2] (b) Explain two possible drawbacks of privatising the rail network. [4]

9. The government of Country N has a budget of 150 for new health clinics, each costing 3.0.

(a) Calculate how many clinics it could build with the whole budget. [1] (b) It builds 30 clinics and spends the rest on schools costing 2.5 each. Calculate how many schools it can build. [3] (c) Explain why a government may provide a public good directly. [2] (d) Explain one implication for firms of a law limiting factory emissions. [2]

10. Evaluate whether an indirect tax is more effective than regulation in reducing consumption of a demerit good. [8]

11. Evaluate the effectiveness of government intervention in overcoming the drawbacks of a market economic system. [9]

Answers

1. An economic system in which resources are allocated partly by the private sector through markets and the price mechanism [1] and partly by the public sector, meaning government decisions [1]. [2] Examiner insight: A definition earns credit when it names both sectors; naming only the market, or only the government, describes a different system.

2. (a) 90 − 3P = −30 + 7P, so 120 = 10P [1]. P = 12, Q = 54 [1]. (b) At 10: Qd = 90 − 30 = 60 [1]; Qs = −30 + 70 = 40 [1]; shortage = 20 [1]. (c) Only 40 can be supplied, so some buyers cannot get a cylinder [1]. Some may pay above 10 on a black market, or queue [1]. [7] Examiner insight: Checking that 10 is below the equilibrium of 12 before calculating shows you know a maximum price only binds below equilibrium.

3. (a) At 10: Qd = 110 − 50 = 60 [1]; Qs = −10 + 100 = 90 [1]; surplus = 30 [1]. (b) 30 × 10 = 300 [1]. (c) The 300 has an opportunity cost, since it could have funded other services [1]. The surplus must also be stored or disposed of, which adds cost [1]. [6] Examiner insight: A drawback is stronger when you name the cost and what it displaces, rather than saying only that it is expensive.

4. (a) 180 − 10W = −20 + 15W, so 200 = 25W [1]. W = 8, L = 100 hundred (10,000 workers) [1]. (b) Ld = 180 − 90 = 90 [1]; Ls = −20 + 135 = 115 [1]; unemployment = 25 hundred = 2,500 workers [1]. (c) Change = 90 − 100 = −10, divided by the original 100 [1]; 10% fall [1]. (d) Workers who keep their jobs earn a higher wage (9 instead of 8) [1]. [8] Examiner insight: Labour is in hundreds, so quoting 25 rather than 2,500 workers is a typical slip; show the unit conversion.

5. (a) 400 − 50P = 100 + 100P, so 300 = 150P [1]. P = 2, Q = 300 million [1]. (b) At 2.5: Qd = 400 − 125 = 275 [1]; Qs = 100 + 250 = 350 [1]; excess supply = 75 million [1]. (c) 75 × 2.5 = 187.5 million foreign currency units [1]. (d) The central bank pays for the excess from its reserves of foreign currency [1]. Reserves are limited, so they run out and the minimum price cannot be defended [1]. [8] Examiner insight: Say whose reserves are used; “the government runs out of money” is vaguer than foreign currency reserves.

6. (a) 150 − 6P = −30 + 12P, so 180 = 18P [1]. P = 10, Q = 90 [1]. (b) New supply Qs = −30 + 12(P − 3) = −66 + 12P [1]. 150 − 6P = −66 + 12P, so 216 = 18P [1]. P = 12, Q = 78 [1]. (c) 3 × 78 = 234 [1]. (d) Consumers: (12 − 10) × 78 = 156 [1]. Producers: (3 − 2) × 78 = 78 [1]. [8] Examiner insight: Producers receive the new price minus the tax (9), so their loss is 1 per unit, not 3; the two shares must add to the revenue.

7. (a) 160 − 8P = −20 + 12P, so 180 = 20P [1]. P = 9, Q = 88 [1]. (b) New supply Qs = −20 + 12(P + 2.5) = 10 + 12P [1]. 150 = 20P, so P = 7.5 [1] and Q = 100 [1]. (c) 2.5 × 100 = 250 [1]. (d) (100 − 88) ÷ 88 [1] = 0.136, so 13.6% [1]. [8] Examiner insight: The subsidy is paid on the new quantity of 100, not the old quantity of 88.

8. (a) Privatisation is the transfer of ownership from the public sector to the private sector [1]; nationalisation is the transfer from the private sector to the public sector [1]. (b) Drawback one: unprofitable lines may be closed [1], leaving some communities with no service [1]. Drawback two: fares may rise [1], if a single private operator has monopoly power and no competitor [1]. [6] Examiner insight: Each drawback needs a reason; naming “higher prices” alone, without why the private owner would raise them, earns less than a developed point.

9. (a) 150 ÷ 3.0 = 50 [1]. (b) 30 × 3.0 = 90 [1]; 150 − 90 = 60 [1]; 60 ÷ 2.5 = 24 schools [1]. (c) Public goods are non-excludable, so people can use them without paying [1]; private firms cannot make a profit and so will not supply them [1]. (d) Firms face compliance costs, such as new equipment [1], which may raise their costs and prices or cut profits [1]. [8] Examiner insight: An implication is a consequence, so link the rule to what happens to the firm, not merely to what the rule says.

10. Tax: raises the price of the good, so quantity demanded falls [1]. The fall depends on elasticity: if demand is inelastic, consumption barely changes [1]. It raises revenue which can fund health care or education [1]. Consumers of lower income bear more of the burden [1]. Regulation: a limit or ban directly cuts consumption [1]. It needs inspection and penalties, which cost money [1], and a ban can create an illegal market [1]. Judgement: a tax is better where demand is elastic and revenue is wanted; regulation is better where the harm is severe and enforcement is possible [1]. [8] Examiner insight: Answers that reach a conclusion tied to a condition, such as elasticity or enforcement ability, read as evaluation rather than a list of features.

11. Maximum price makes essentials affordable but causes a shortage [1]. Minimum price or wage helps producers or workers but creates a surplus or unemployment [1]. Taxes raise the price of demerit goods and the revenue [1], but are less effective if demand is inelastic [1]. Subsidies raise consumption of merit goods [1] but have an opportunity cost [1]. Direct provision secures public goods [1], but the government may lack information, so intervention can misallocate resources (government failure) [1]. Judgement: intervention is effective where it targets the specific failure, is set at the right level and its costs are lower than the benefit [1]. [9] Examiner insight: Use named measures with specific consequences; a general claim that government “helps” or “hurts” does not show analysis.

Where marks are usually lost

• Setting a maximum price above equilibrium, or a minimum below it.
• Reporting the wrong gap: shortage is Qd − Qs, surplus is Qs − Qd.
• Using the original quantity instead of the new quantity for tax revenue or subsidy cost.
• Moving the demand curve for a tax or subsidy.
• Forgetting units, such as hundreds of workers or millions of currency units.
• Describing a policy without a consequence or a reason.
• Evaluation that stops at a list of points, or a verdict that names no condition.
• Confusing privatisation and nationalisation.

Next steps

• Revise with the revision notes and re-read the study guide.
• Tick off topics on the printable checklist and browse the course hub.
• Try all free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge IGCSE Economics 0455 syllabus for examination in 2026, Cambridge University Press & Assessment (Cambridge International), version 2, section 2.11.