IGCSE Economics Paper-1: Specimen Questions with Answers 59 - 60 of 64

Question 59

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Question

MCQ▾

A tax levied at 5 percent on the first $1000 of income, 10 percent on the next $2000 and 12 percent on the next $3000 would be:

Choices

Choice (4)
a.Proportional
b.Progressive
c.Regressive
d.Digressive

Answer

b.

Explanation

In the question, the rate of tax is increasing as the income level is increasing. Therefore, it is progressive tax system.

  • A progressive tax imposes a higher percentage of tax on taxpayers who have higher level of income.
    • Example: The U. S. income tax system.
  • A progressive tax system aims at reducing the burden of tax on the people who cannot afford to pay high rate of taxes. That leaves more money with the low-wage earners, who are likely to spend all of that money on essential goods and stimulate the process of economics growth.
  • As the highest rate of taxes is levied on the highest income earners. A progressive tax system tends to collect more amounts of taxes than proportional taxes or regressive taxes.

Question 60

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Question

MCQ▾

The theory, which states that the nation can strengthen their economic well-being by producing goods, which they can produce more efficiently than any other country. Choose the correct option

Choices

Choice (4)
a.Factor endowment theory
b.Theory of comparative cost
c.Theory of absolute advantage
d.International product life cycle theory

Answer

c.

Explanation

  • Adam Smith gives the theory of absolute advantage. This theory states the principle of absolute advantage where a country can produce commodities more efficiently at a lower cost than its competitors.
  • According to Adam Smith, a country should produce only those goods or services in which they have absolute advantage.
    • For example: Canada, which is rich in low cost land, has an absolute advantage in agricultural production in comparison to other countries.

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