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Exam Review

Key Facts: GCE A/L Economics Exam

50 MCQs

Paper 1 Compulsory Questions

Department of Examinations, Sri Lanka

5 Hours

Total Examination Time (Paper 1 & 2)

Department of Examinations, Sri Lanka

Subject 42

Official Subject Code

Department of Examinations, Sri Lanka

3 Media

Offered in Sinhala, Tamil, & English

Ministry of Education, Sri Lanka

Commerce & Arts

Eligible Stream Pathways

National Institute of Education (NIE)

Sri Lanka GCE A/L Economics (Subject Code 21) is a two-paper national examination featuring 50 compulsory MCQs (Paper 1, 2 hours) and structured essay questions (Paper 2, 3 hours). It serves as a vital qualification for university admission across Commerce and Arts faculties.

Sample GCE A/L Economics Practice Questions

Try these sample questions to review concepts for the GCE A/L Economics exam. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.

1Which of the following fundamental economic problems arises directly from the condition of scarcity?
A.Society possesses unlimited resources but faces limited human wants
B.Technological progress completely eliminates the necessity to choose among alternative uses
C.Government centralized planning eradicates the opportunity cost of resource allocation
D.Human wants are virtually unlimited while productive resources are finite and scarce
Explanation: Scarcity is the fundamental economic reality that productive resources (land, labor, capital, and entrepreneurship) are finite, whereas human material wants are virtually unlimited. Because scarcity forces society to make choices among competing alternatives, every economic choice incurs an opportunity cost. Centrally planned economies and technological improvements may alter allocation, but they cannot eliminate scarcity.
2What primary economic concept explains why a standard Production Possibility Frontier (PPF) is concave (bowed outward) to the origin?
A.The law of constant returns to scale across all productive enterprises
B.The complete homogeneity and perfect adaptability of productive resources
C.A uniform decrease in consumer demand as aggregate production expands
D.The law of increasing marginal opportunity cost as more of a good is produced
Explanation: A PPF is concave to the origin due to the law of increasing marginal opportunity cost. Economic resources are specialized and not equally adaptable across different production activities (e.g., fertile paddy land is not equally suited for software development). As an economy shifts progressively more resources into producing one good, it must reallocate increasingly less suitable resources, sacrificing larger quantities of the alternative good.
3An economy operating on its Production Possibility Frontier (PPF) experiences a breakthrough technological innovation that applies exclusively to the manufacturing of capital goods, leaving consumer goods technology unchanged. How does the PPF respond?
A.The entire PPF shifts inward toward the origin because consumer goods output diminishes
B.The PPF shifts parallel outward along both the capital goods and consumer goods axes equally
C.The economy moves to an inefficient interior point below its original boundary
D.The PPF pivots outward along the capital goods axis while maintaining its intercept on the consumer goods axis
Explanation: When technological advancement is sector-specific, the maximum potential production of that specific sector expands. Consequently, the PPF pivots outward along the capital goods axis, reflecting greater maximum capital production, while the maximum intercept on the consumer goods axis remains unchanged because consumer goods technology is unaltered. Over time, higher capital accumulation may lead to a subsequent outward shift of both axes.
4An economy produces only two goods: Rice (units) and Garments (units). On its PPF, Combination A yields 0 Rice and 120 Garments; Combination B yields 30 Rice and 105 Garments; and Combination C yields 60 Rice and 75 Garments. What is the marginal opportunity cost of producing one unit of Rice when moving from Combination B to Combination C?
A.0.5 units of Garments
B.1.5 units of Garments
C.30 units of Garments
D.1.0 unit of Garments
Explanation: Marginal opportunity cost is calculated as the change in the sacrificed good divided by the change in the gained good: Opportunity Cost = |Delta Garments| / Delta Rice. Moving from Combination B to C, Rice production increases by 30 units (60 - 30 = 30), while Garment production falls by 30 units (105 - 75 = 30). Therefore, the opportunity cost is 30 / 30 = 1.0 unit of Garments per unit of Rice.
5Assume that Ceylon Tea and roasted coffee are close substitute beverages in Sri Lanka. If a sharp rise in international coffee prices increases domestic coffee retail prices, what will occur in the market for Ceylon Tea, ceteris paribus?
A.The quantity demanded of Ceylon Tea will fall due to a leftward movement along its demand curve
B.The supply curve of Ceylon Tea will shift rightward, causing its equilibrium price to decrease
C.The demand curve for Ceylon Tea will shift leftward, causing its equilibrium price to collapse
D.The demand curve for Ceylon Tea will shift rightward, causing its equilibrium price and quantity to rise
Explanation: Because tea and coffee are substitute goods, an increase in the price of coffee makes tea relatively cheaper. Consumers substitute away from coffee toward tea, increasing the demand for tea at every price level. This rightward shift in the tea demand curve intersects the upward-sloping supply curve at a higher equilibrium price and higher equilibrium quantity.
6The weekly market demand for locally manufactured school exercise books is given by Qd = 240 - 4P, and the market supply is given by Qs = 60 + 2P, where P is the price per book in Sri Lankan Rupees (LKR) and Q is quantity in thousands. What are the equilibrium market price and equilibrium quantity?
A.Price = LKR 20, Quantity = 160 thousand units
B.Price = LKR 40, Quantity = 80 thousand units
C.Price = LKR 50, Quantity = 40 thousand units
D.Price = LKR 30, Quantity = 120 thousand units
Explanation: Market equilibrium occurs where Qd = Qs. Setting the equations equal: 240 - 4P = 60 + 2P. Grouping terms gives 6P = 180, which yields P = LKR 30. Substituting P = 30 into the demand equation: Qd = 240 - 4(30) = 240 - 120 = 120 thousand units (and in supply, Qs = 60 + 2(30) = 120). Thus, equilibrium price is LKR 30 and quantity is 120 thousand units.
7When the price of fresh milk in Colombo increases from LKR 200 to LKR 250 per liter, the quantity demanded per week contracts from 50,000 liters to 40,000 liters. Using the initial price and quantity percentage formula, what is the price elasticity of demand (PED)?
A.-0.5
B.-1.0
C.-1.25
D.-0.8
Explanation: Price elasticity of demand = (% change in quantity demanded) / (% change in price). Percentage change in quantity = ((40,000 - 50,000) / 50,000) * 100 = -20%. Percentage change in price = ((250 - 200) / 200) * 100 = +25%. Therefore, PED = -20% / +25% = -0.8 (or an absolute value of 0.8, indicating inelastic demand).
8A retail shop reduces the price of a ceramic mug from LKR 600 to LKR 400. In response, weekly sales expand from 800 mugs to 1,200 mugs. Using the midpoint (arc elasticity) formula, what is the price elasticity of demand?
A.-0.67
B.-1.50
C.-2.00
D.-1.00
Explanation: The midpoint formula computes PED as: [(Q2 - Q1) / ((Q1 + Q2) / 2)] / [(P2 - P1) / ((P1 + P2) / 2)]. Midpoint quantity = (800 + 1,200) / 2 = 1,000; Delta Q / Q_avg = (1,200 - 800) / 1,000 = 400 / 1,000 = +0.40 (+40%). Midpoint price = (600 + 400) / 2 = 500; Delta P / P_avg = (400 - 600) / 500 = -200 / 500 = -0.40 (-40%). Thus, arc PED = +0.40 / -0.40 = -1.00.
9A bakery faces an inelastic price elasticity of demand (|PED| < 1) for its traditional roast bread. If the bakery owner decides to increase the price of bread by 15%, what will happen to the bakery's total sales revenue?
A.Total revenue will decrease because consumers will buy significantly less bread
B.Total revenue will remain exactly unchanged because bread is a staple consumer necessity
C.Total revenue will fall to zero as all consumers switch to commercial white sliced bread
D.Total revenue will increase because the percentage drop in quantity demanded is smaller than the percentage rise in price
Explanation: According to the Total Revenue Test, when demand is price inelastic (|PED| < 1), a price increase leads to a proportionately smaller reduction in quantity demanded. Because the positive revenue gain from charging a higher price per unit outweighs the negative revenue loss from fewer units sold, total revenue (P * Q) increases.
10When average household disposable income in an urban district increases from LKR 80,000 to LKR 100,000 per month, the average monthly purchase of packaged fruit juices rises from 10 liters to 14 liters. What is the income elasticity of demand (YED) and how is this good classified?
A.YED = +0.625; Normal necessity
B.YED = -1.60; Inferior good
C.YED = +0.40; Giffen good
D.YED = +1.60; Normal luxury good
Explanation: Income elasticity of demand (YED) = (% change in quantity demanded) / (% change in income). Percentage change in quantity = ((14 - 10) / 10) * 100 = +40%. Percentage change in income = ((100,000 - 80,000) / 80,000) * 100 = +25%. Therefore, YED = +40% / +25% = +1.60. Since YED > 1, the good is classified as a normal luxury good.

About the GCE A/L Economics Exam

The Sri Lanka General Certificate of Education (Advanced Level) Economics examination (Subject Code 21) is the premier national school-leaving qualification in economics administered by the Department of Examinations under the Ministry of Education. Primarily offered within the Commerce and Arts streams, this subject serves as a cornerstone for students aspiring to pursue higher education in Management Studies, Business Administration, Accounting, Economics, Social Sciences, and Law at national universities. The curriculum is developed by the National Institute of Education (NIE) and emphasizes both foundational theoretical models and real-world macroeconomic applications relevant to Sri Lanka, including Central Bank monetary instruments, fiscal deficit financing, trade agreements, and development trajectories. Candidates are evaluated on their capacity to explain economic phenomena, interpret microeconomic and macroeconomic graphs, execute precise mathematical calculations, and evaluate public economic policies.

Exam sponsor: Department of Examinations, Sri Lanka (doenets.lk). The requirements and fees below concern the certification or admission exam, separate from our free practice resources.

Assessment

The examination consists of two papers totaling 5 hours. Paper 1 contains 50 compulsory multiple-choice questions (2 hours, 100 marks scaled) designed to test breadth of knowledge, graphical analysis, and numerical problem solving. Paper 2 (3 hours, 100 marks) requires candidates to answer structured essay questions testing in-depth theoretical exposition, mathematical derivation, and Sri Lankan economic policy critique.

Time Limit

Paper 1: 2 hours; Paper 2: 3 hours (Total 5 hours)

Passing Score

Grade S or higher

Exam / Certification Fees

Free for school candidates; nominal fee for private candidates

Exam sponsor website

Reported exam pass rate: Approximately 60% to 70% of candidates achieve Grade S or higher nationwide annually.. This describes exam candidates, not OpenExamPrep users or results from using our resources. Exam sponsor website

Fees, eligibility, and exam policies can change. Confirm them with the exam sponsor before applying or paying.

Our practice resources: topics covered

We aim to reflect publicly available exam outlines and topic information in our study resources. Coverage, format, and difficulty may differ from the actual exam, and we cannot guarantee that every detail is accurate or current. Confirm exam requirements, fees, and policies with the official exam sponsor.

25%

Microeconomics and Price Mechanism

Scarcity and opportunity cost, production possibility frontier (PPF), price determination in free markets, price elasticity of demand (PED), income elasticity (YED), cross elasticity (XED), price elasticity of supply (PES), and government interventions including price ceilings, price floors, indirect taxes, and consumer/producer subsidies.

20%

Production, Cost, and Market Structures

The law of diminishing marginal returns, returns to scale, short-run and long-run cost curves (ATC, AVC, AFC, MC), perfect competition, pure monopoly, monopolistic competition, oligopoly models including kinked demand curves, market failures, negative externalities, and public goods.

25%

Macroeconomic Theory and National Income

Circular flow of income, national accounting aggregates (GDP, GNI, NNI at market price and factor cost), measurement approaches, aggregate demand (AD) and aggregate supply (AS), the Keynesian expenditure multiplier, inflationary and deflationary gaps, types of unemployment, and demand-pull and cost-push inflation.

15%

Monetary and Fiscal Policy

Functions of money, money supply aggregates (M1, M2b), the commercial banking system and credit creation multiplier, Central Bank of Sri Lanka (CBSL) monetary policy instruments (statutory reserve ratio, policy interest rates, open market operations), government budgeting, fiscal deficits, and public debt management.

15%

International Trade and Sri Lanka Economy

Theories of absolute and comparative advantage, terms of trade, trade protection instruments (tariffs, import quotas), balance of payments structure (current account, capital account, financial account), exchange rate determination, Sri Lankan economic growth patterns, post-1977 economic liberalization, and contemporary macroeconomic stabilization frameworks.

Preparing for the GCE A/L Economics Exam

What You Need to Know

  • Passing score: Grade S or higher
  • Assessment: The examination consists of two papers totaling 5 hours. Paper 1 contains 50 compulsory multiple-choice questions (2 hours, 100 marks scaled) designed to test breadth of knowledge, graphical analysis, and numerical problem solving. Paper 2 (3 hours, 100 marks) requires candidates to answer structured essay questions testing in-depth theoretical exposition, mathematical derivation, and Sri Lankan economic policy critique.
  • Time limit: Paper 1: 2 hours; Paper 2: 3 hours (Total 5 hours)
  • Exam / certification fees: Free for school candidates; nominal fee for private candidates Official sources

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Frequently Asked Questions

What is the format and duration of the GCE A/L Economics examination in Sri Lanka?

The examination consists of two written papers. Paper 1 has 50 compulsory multiple-choice questions administered over 2 hours. Paper 2 has structured and essay-type questions administered over 3 hours, where candidates choose questions across distinct sections covering microeconomics, macroeconomics, public policy, and international trade.

Are calculators permitted in Paper 1 or Paper 2 of GCE A/L Economics?

No. Non-programmable or programmable calculators are strictly prohibited in Sri Lankan GCE Advanced Level examinations, including Economics. All numerical calculations—such as price elasticity, multipliers, and national income aggregates—must be computed manually.

How are grades determined and how do they impact university admission?

Composite marks from Paper 1 and Paper 2 are converted into letter grades: A (>=75), B (65-74), C (55-64), S (35-54), and F (<35). The raw marks are standardized across districts using the Z-score method by the Department of Examinations, which the University Grants Commission (UGC) uses to allocate state university seats.

In which language media can candidates sit for the A/L Economics examination?

The examination is officially prepared and administered in Sinhala, Tamil, and English. School candidates sit in their school's authorized medium of instruction, while private candidates select their medium during the application process.

What role does the Central Bank of Sri Lanka (CBSL) data play in the examination?

Questions in both Paper 1 and Paper 2 frequently draw upon real-world Sri Lankan economic indicators, such as CBSL monetary aggregates (M1, M2b), policy interest rates (SDFR, SLFR), statutory reserve ratio (SRR), inflation indices (CCPI, NCPI), and external sector performance.