Cambridge O Level Economics: The mixed economic system and government intervention (2281) – 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 of the Cambridge O Level Economics syllabus for examination in 2026: the mixed economic system and government intervention. All figures are invented and illustrative. If a method is unfamiliar, work through the study guide before trying these. The revision notes give quick recall. Course links: Cambridge O Level Economics hub and printable checklist. The free 10-minute diagnostics show where to start.

Questions

1. State what is meant by a mixed economic system. [2]

2. In Country W, the demand for rented flats is Qd = 700 − 20P and the supply is Qs = −200 + 25P, where P is the monthly rent in hundreds and Q is the number of flats.

(a) Calculate the equilibrium rent and quantity. [2] (b) The government sets a maximum rent of 16. Calculate the shortage of flats. [3] (c) Explain one problem the maximum rent may cause for people looking for a flat. [2]

3. In Country X, the demand for cassava is Qd = 800 − 25P and the supply is Qs = −100 + 20P, where P is the price per tonne and Q is thousands of tonnes.

(a) Work out the equilibrium price and quantity. [2] (b) A minimum price of 24 is set. Calculate the surplus. [3] (c) Calculate the cost to the government of buying the whole surplus. [1] (d) Calculate farmers’ total revenue before the policy and after it, if the government buys the surplus. [2]

4. In Country V, labour demand is Ld = 1000 − 50W and labour supply is Ls = −200 + 70W, where W is the hourly wage and L is hundreds of workers.

(a) Calculate the equilibrium wage and quantity of labour. [2] (b) A minimum wage of 12 is set. Work out how many workers are left unemployed. [3] (c) Calculate the total pay of employed workers before and after, and state what this shows about the policy. [3]

5. In Country Y, the market for its currency, the zeta, has demand Qd = 600 − 40P and supply Qs = −100 + 60P, where P is foreign units per zeta and Q is millions of zeta.

(a) Find the equilibrium exchange rate and the quantity of zeta traded. [2] (b) The central bank fixes the rate at 8. Calculate the surplus of zeta. [3] (c) Calculate the foreign currency the central bank must spend to hold the rate at 8. [2] (d) Explain one effect of the rate of 8 on the country’s exporters. [2]

6. In a market in Country U, Qd = 900 − 30P and Qs = −150 + 20P, where P is the price per unit and Q is units.

(a) Calculate the equilibrium price and quantity. [2] (b) A tax of 5 per unit is placed on sellers. Find the new price and quantity. [3] (c) Calculate how much of the tax is borne by consumers and by producers per unit. [2] (d) Calculate the government’s tax revenue. [1] (e) Calculate price elasticity of demand and of supply at the original equilibrium (to 2 decimal places) and use them to explain why producers bear the larger share. [3]

7. In Country T, Qd = 390 − 10P and Qs = −90 + 20P for a product with external benefits.

(a) Find the market equilibrium before any subsidy. [2] (b) The government pays a subsidy of 3 per unit to sellers. Find the new price and quantity once the subsidy is paid. [3] (c) Calculate the change per unit in the price paid by consumers and the amount received by producers. [2] (d) Calculate the cost to the government. [1]

8. A government owns a loss-making bus company. It loses 30 a year and could be sold for 450.

(a) Calculate how many years of losses equal the sale price. [1] (b) Explain two likely benefits of privatising the company. [4] (c) Explain one reason why privatisation might not benefit passengers. [2]

9. A government limits the amount of smoke that factories may release.

(a) Identify the market failure this regulation tackles. [1] (b) Explain two difficulties in applying the regulation. [4]

10. A government has a budget of 360 to spend on clinics, which cost 24 each, and classroom blocks, which cost 45 each.

(a) Calculate the maximum number of clinics it could build. [1] (b) It builds 6 clinics. Calculate how many whole classroom blocks it can then afford. [3] (c) Calculate the opportunity cost of one extra clinic in classroom blocks, to 2 decimal places. [2]

11. Country A puts a tax on sweetened biscuits, which it treats as a demerit good. Before the tax a packet costs 50 and 250 packets a month are sold. The tax is 6 a packet and sellers pass on all of it. Price elasticity of demand is −0.4.

(a) Find the percentage rise in the price. [1] (b) Calculate the new quantity sold. [2] (c) Calculate the tax revenue. [1] (d) Evaluate whether the tax is an effective way to reduce consumption. [5]

Answers

1. Resources are allocated through private-sector markets and the price mechanism [1], with the government (public sector) also making allocation decisions [1]. [2] Examiner insight: Name both sectors in the definition, saying “private and public” explicitly.

2. (a) 700 − 20P = −200 + 25P gives 900 = 45P [1], so P = 20 and Q = 300 [1]. [2] (b) At 16, Qd = 700 − 320 = 380 [1] and Qs = −200 + 400 = 200 [1]. Shortage = 180 flats [1]. [3] (c) Only 200 flats are supplied but 380 wanted, so some tenants cannot find a flat [1] and may pay illegal extra payments, because demand for 200 flats would support a rent of 25 (700 − 20P = 200) [1]. [2] Examiner insight: A named problem needs a short reason connected to the numbers. “Black markets” alone is only a label.

3. (a) 800 − 25P = −100 + 20P gives 900 = 45P [1], so P = 20 and Q = 300 [1]. [2] (b) Qd = 800 − 600 = 200 [1] and Qs = −100 + 480 = 380 [1]. Surplus = 180 thousand tonnes [1]. [3] (c) 24 × 180 = 4,320 [1]. [1] (d) Before: 20 × 300 = 6,000 [1]. After: 24 × 380 = 9,120 [1]. [2] Examiner insight: Farmers sell their whole supply once the government buys the surplus, so use Qs, not Qd.

4. (a) 1000 − 50W = −200 + 70W gives 1,200 = 120W [1], so W = 10 and L = 500 hundreds [1]. [2] (b) Ld = 1000 − 600 = 400 [1] and Ls = −200 + 840 = 640 [1]. Unemployment = 240 hundreds = 24,000 workers [1]. [3] (c) Before: 10 × 500 = 5,000 [1]. After: 12 × 400 = 4,800 [1]. Total pay falls although the hourly wage rises, because the fall in jobs outweighs the higher wage, so some workers lose [1]. [3] Examiner insight: The units matter here. The workings are in hundreds, so the final answer should be converted to workers.

5. (a) 600 − 40P = −100 + 60P gives 700 = 100P [1], so P = 7 and Q = 320 million [1]. [2] (b) Qd = 600 − 320 = 280 [1] and Qs = −100 + 480 = 380 [1]. Surplus = 100 million zeta [1]. [3] (c) The bank must buy 100 million zeta [1] at 8 each, so 8 × 100 = 800 million foreign units [1]. [2] (d) Foreign buyers must pay more foreign currency for each zeta [1], so exports become dearer and sales and revenue fall [1]. [2] Examiner insight: Say which currency is spent: the central bank pays out foreign currency, not zeta.

6. (a) 900 − 30P = −150 + 20P gives 1,050 = 50P [1], so P = 21 and Q = 270 [1]. [2] (b) New supply Qs = −150 + 20(P − 5) = −250 + 20P [1]. Then 1,150 = 50P [1], so P = 23 and Q = 210 [1]. [3] (c) Consumers: 23 − 21 = 2 [1]. Producers: 5 − 2 = 3 [1]. [2] (d) 5 × 210 = 1,050 [1]. [1] (e) PED = 30 × 21 / 270 = 2.33 (in size) [1]. PES = 20 × 21 / 270 = 1.56 [1]. Demand is more elastic, so consumers cut purchases sharply when the price rises and sellers cannot pass on as much, so producers bear more [1]. [3] Examiner insight: Link the burden to the relative elasticities. Calculating them without a comparison leaves the explanation unfinished.

7. (a) 390 − 10P = −90 + 20P gives 480 = 30P [1], so P = 16 and Q = 230 [1]. [2] (b) New supply Qs = −90 + 20(P + 3) = −30 + 20P [1]. Then 390 − 10P = −30 + 20P gives P = 14 [1] and Q = 250 [1]. [3] (c) Consumers pay 14, which is 2 less [1]. Producers receive 14 + 3 = 17, which is 1 more [1]. [2] (d) 3 × 250 = 750 [1]. [1] Examiner insight: Producers receive the market price plus the subsidy, not the market price alone.

8. (a) 450 / 30 = 15 years [1]. [1] (b) Benefit one: the profit motive gives managers an incentive to cut costs [1], which may improve efficiency and service [1]. Benefit two: the government receives 450 from the sale [1], and it stops paying annual losses, so funds can go to other uses [1]. [4] (c) A private owner may cut unprofitable routes or raise fares to make a profit [1], so passengers in remote areas may lose their service [1]. [2] Examiner insight: Develop each benefit or drawback with a because-chain rather than listing a bare point.

9. (a) External cost (negative externality) [1]. [1] (b) Difficulty one: monitoring is costly, because inspectors are needed to measure emissions [1], and firms may hide breaches if penalties are weak [1]. Difficulty two: compliance raises costs [1], so firms may raise prices, cut jobs or relocate [1]. [4] Examiner insight: This asks about the policy, so avoid describing the harm smoke does.

10. (a) 360 / 24 = 15 clinics [1]. [1] (b) 6 × 24 = 144 [1]. 360 − 144 = 216 [1]. 216 / 45 = 4.8, so 4 whole blocks [1]. [3] (c) 24 / 45 [1] = 0.53 blocks [1]. [2] Examiner insight: Round down for whole buildings, and show the division so the reader sees where 4 came from.

11. (a) (6 / 50) × 100 = 12% [1]. [1] (b) Quantity change = −0.4 × 12 = −4.8% [1]. New quantity = 250 × 0.952 = 238 packets [1]. [2] (c) 6 × 238 = 1,428 [1]. [1] (d) The tax reduces sales by only 12 packets, 4.8%, because demand is inelastic [1]. It raises 1,428, which could fund health spending [1]. Consumers on low incomes pay a larger share of their income, so it is regressive [1]. Other measures such as information campaigns or limits on sales to children could work alongside it [1]. Judgement: the tax is effective as a revenue source but weak at cutting consumption unless the rate is higher or substitutes are available [1]. [5] Examiner insight: Use the figures from parts (a) to (c) as evidence for your conclusion, and avoid a one-sided answer.

Where marks are usually lost

• Using the equilibrium quantity instead of the gap between demand and supply at the controlled price.
• Treating a minimum price as a shortage or a maximum price as a surplus.
• Using Qd instead of Qs for revenue when the government buys the surplus.
• Shifting supply by the tax or subsidy in the wrong direction when forming the new equation.
• Giving the producer’s receipt after a tax as the market price.
• Leaving out units when the working is in hundreds.
• Listing advantages and drawbacks of privatisation without explaining why they happen.
• Ending an evaluation without a judgement tied to the case.

Next steps

• Re-read the study guide and revision notes.
• Check the Cambridge O Level Economics hub and the printable checklist.
• Take the free 10-minute diagnostics to see which topics need work.
• Ask about a free trial class.

Official syllabus

Cambridge O Level Economics 2281 syllabus for examination in 2026, published by Cambridge University Press and Assessment (Cambridge International Education), section 2.11.