A Level Economics AQA Practice Exam

What does interdependence refer to in economic terms?

1. The independence of businesses in a free market

2. The reliance between two or more entities on one another

3. The competition level among firms

4. The ability of a firm to act without concern for others

The correct answer is: The reliance between two or more entities on one another

Interdependence in economic terms refers to the reliance between two or more entities on one another. This concept is vital in understanding how different economic agents, such as consumers, producers, and countries, interact within the economy. When entities are interdependent, the actions of one party can have a significant impact on the others. For example, in global trade, countries depend on each other for goods and services that they may not be able to produce as efficiently or at all. Similarly, within a market, businesses may rely on each other for supply chains, collaboration, or even competition, which can shape their strategies and economic outcomes. This interconnectedness can lead to more specialized production, a greater variety of consumer choices, and overall economic growth as entities leverage each other's strengths. In contrast, the other options present concepts that do not capture the essence of interdependence. The notion of independence reflects a scenario where entities operate without concern for one another, which is contrary to the fundamental idea of interdependence where interactions and mutual reliance are key. Competition among firms does not inherently indicate interdependence, as competing entities often focus on outperforming one another rather than collaborating. Hence, the correct understanding of interdependence highlights the mutual reliance that drives economic activity