OBJECTIVES
1. The action of government to forgo road construction in order to provide more health facilities denotes
A. sound economic decision
B. opportunity cost
C. practicable government policy
D. scale of preference
2. “Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”. “Ends” here refers to
A. resources
B. wants
C. choice
D. output
3. Human wants are
A. limited
B. scarce
C. unlimited
D. in grades
4. Scarcity in Economics means that resources
A. are not enough to share among the producers of goods and services
B. needed to satisfy human wants are limited
C. are never enough to share among consumers of goods and services
D. required to meet our essential wants are unlimited
5. Economics can be best defined as the study of
A. how to spend the family income efficiently
B. how to find minimum cost of production
C. the interpretation of scarce resources and data
D. how scarce resources can be used efficiently
6. Which of the following best describes the basic economic problem?
A. Choice and income
B. Wants and income
C. Scarcity and choice
D. Scarcity and income
7. An economic system in which the government owns and controls the means of production is called
A. capitalist system
B. feudal system
C. socialist system
D. mixed economy
8. In a capitalist economy, the question of what to produce is primarily determined by the
A. government agencies
B. consumers’ needs
C. manufacturers’ association
D. market forces
9. Which of the following is not a characteristic of wants?
A. Insatiability
B. Completeness
C. Competition
D. Recurrent
10. Which of these is not a central problem of the economy?
A. For whom to produce
B. How to produce
C. When to produce
D. What to produce
11. One major characteristic of a mixed economy is that
A. there is equal distribution of income
B. government and individuals take decisions
C. prices are determined by government only
D. public enterprises are absent
12. The reward for capital as a factor of production is
A. rent
B. wage
C. interest
D. profit
13. Which of the following is NOT a type of economic system?
A. Capitalism
B. Communism
C. Totalitarianism
D. Socialism
14. Which of these is not a feature of the capitalist economy?
A. Private ownership
B. Freedom of enterprise
C. Government pricing
D. Profit motive
15. A good example of a free market economy is
A. North Korea
B. United States
C. Cuba
D. China
16. The combination of factors of production in appropriate proportions to produce goods is called
A. cost of production
B. scale of preference
C. choice of technique
D. allocation of resources
17. The term “opportunity cost” refers to
A. the cost of producing an additional unit
B. the money cost of a commodity
C. the alternative forgone
D. the cost of inputs used
18. In economics, the term “utility” refers to
A. usefulness of a product
B. price of the product
C. availability of the product
D. durability of a product
19. Which of the following factors of production is affected by the vagaries of nature?
A. Land
B. Labour
C. Capital
D. Entrepreneurship
20. The problem of scarcity in economics arises because
A. there is lack of money
B. human wants are unlimited
C. resources are efficiently used
D. production is high
21. Which of the following is a direct service?
A. Teaching
B. Banking
C. Insurance
D. Transportation
22. An example of a free good is
A. gold
B. air
C. petrol
D. water in bottles
23. Economic goods are those that are
A. free of charge
B. unlimited in supply
C. scarce and have value
D. produced by the government
24. The major economic activity in the primary sector is
A. mining
B. construction
C. manufacturing
D. retailing
25. Division of labour leads to
A. self-sufficiency
B. efficiency in production
C. equal income
D. unemployment
26. Specialization is possible when
A. there is no surplus
B. workers are equally skilled
C. markets are limited
D. people concentrate on one job
27. One disadvantage of division of labour is that it
A. increases production cost
B. leads to unemployment
C. reduces skills of workers
D. leads to monotony
28. The economic system that combines features of both capitalism and socialism is
A. traditional economy
B. mixed economy
C. command economy
D. feudal economy
29. In economics, wants are described as
A. essential and basic
B. limited and scarce
C. unlimited and insatiable
D. planned and consistent
30. Which of the following statements is true of capital as a factor of production?
A. It is provided by nature
B. It cannot depreciate
C. It is man-made
D. It is a free gift of nature
31. The branch of economics that deals with the behavior of individual units is called
A. Microeconomics
B. Macroeconomics
C. International economics
D. Development economics
32. The concept of marginal utility refers to
A. the total satisfaction derived from consuming a good
B. the satisfaction gained from the last unit consumed
C. the cost of producing a good
D. the amount of goods produced in an economy
33. The demand curve is downward sloping because of the
A. law of diminishing returns
B. law of diminishing marginal utility
C. increase in population
D. increase in income
34. Which of the following is a characteristic of a perfectly competitive market?
A. Barriers to entry
B. Product differentiation
C. A large number of buyers and sellers
D. Government regulation
35. When the price of a good increases, the quantity demanded decreases. This relationship is illustrated by
A. the law of demand
B. the law of supply
C. the law of diminishing marginal utility
D. the law of diminishing returns
36. A government-imposed price ceiling leads to
A. excess supply
B. excess demand
C. efficient market equilibrium
D. a reduction in quantity supplied
37. The main function of the central bank in an economy is to
A. regulate exchange rates
B. issue currency
C. control interest rates
D. regulate the stock market
38. The consumer surplus is the difference between
A. what consumers are willing to pay and what they actually pay
B. the quantity supplied and the quantity demanded
C. the price of a good and the cost of production
D. the price of a good and the equilibrium price
39. The price elasticity of demand measures
A. how much demand changes with price
B. the relationship between price and quantity supplied
C. how much a supplier can increase supply
D. the total revenue generated from sales
40. If a product has an elastic demand, a decrease in its price will lead to
A. a decrease in quantity demanded
B. an increase in quantity demanded
C. no change in quantity demanded
D. a decrease in total revenue
41. The total cost of production is the sum of
A. fixed costs and variable costs
B. marginal cost and average cost
C. average cost and total revenue
D. total revenue and profit
42. The break-even point occurs when
A. total revenue equals total cost
B. marginal cost equals average cost
C. average revenue equals average cost
D. fixed costs are covered
43. In an oligopoly market structure, firms are
A. price takers
B. price makers
C. free to enter or exit the market
D. not aware of each other’s actions
44. The economic principle of diminishing marginal returns states that
A. as more units of a variable factor are added, total output will eventually increase at a decreasing rate
B. a firm’s profits will always increase as more units of labor are hired
C. total output will eventually increase at an increasing rate
D. profits will remain constant regardless of input changes
45. The primary reason for the existence of money in an economy is to
A. provide a store of wealth
B. serve as a medium of exchange
C. serve as a unit of account
D. reduce inflation
46. The opportunity cost of attending a university is
A. the money spent on tuition fees
B. the value of the next best alternative use of time and resources
C. the value of the education received
D. the salary earned during university years
47. A market in which there is only one seller of a product is called
A. monopolistic competition
B. perfect competition
C. an oligopoly
D. a monopoly
48. Which of the following is an example of a public good?
A. A bottle of water
B. A streetlight
C. A private school
D. A restaurant meal
49. The difference between nominal GDP and real GDP is that
A. nominal GDP includes inflation, while real GDP does not
B. real GDP includes inflation, while nominal GDP does not
C. nominal GDP is more accurate than real GDP
D. real GDP is based on market prices, while nominal GDP is adjusted for market prices
50. The primary role of the entrepreneur is to
A. provide labor
B. organize the factors of production
C. provide capital
D. monitor government policies
51. The theory that explains the determination of income and output in an economy through the interaction of aggregate demand and aggregate supply is called
A. Keynesian economics
B. Classical economics
C. Monetarist economics
D. Supply-side economics
52. The multiplier effect refers to
A. the total spending in an economy
B. the change in total income resulting from an initial change in spending
C. the relationship between investment and interest rates
D. the effect of inflation on output
53. Which of the following is a characteristic of a monopoly?
A. A large number of sellers
B. Product differentiation
C. Barriers to entry
D. Perfect information
54. Inflation occurs when
A. the general level of prices falls over time
B. there is a decrease in demand for goods and services
C. the general level of prices rises over time
D. unemployment increases in an economy
55. If a country’s currency depreciates, it means that
A. the currency becomes stronger relative to other currencies
B. the currency loses value relative to other currencies
C. inflation will automatically decrease
D. exports will become more expensive
56. A country’s trade balance is the difference between
A. exports and imports
B. the value of government spending and taxes
C. the value of domestic goods and foreign goods
D. the total money supply and foreign exchange
57. Which of the following is a likely result of a decrease in government spending in the economy?
A. Increased aggregate demand
B. Decreased aggregate demand
C. Increased inflation
D. Increased national income
58. When a firm charges different prices to different consumers for the same good or service, it is engaging in
A. price discrimination
B. price fixing
C. cost-plus pricing
D. predatory pricing
59. The central bank uses open market operations to
A. regulate the stock market
B. control inflation
C. influence the money supply
D. stabilize exchange rates
60. A tax on imports is known as
A. a tariff
B. a quota
C. an excise tax
D. a subsidy
61. The principle of comparative advantage suggests that countries should
A. produce only goods that they can produce more efficiently than others
B. specialize in producing goods where they have a lower opportunity cost
C. avoid trade with other countries
D. produce a wide variety of goods for self-sufficiency
62. Which of the following is an example of a negative externality?
A. The enjoyment of a public park
B. The pollution created by a factory
C. The benefits of education
D. The consumption of a public good
63. The production possibility frontier (PPF) shows the
A. maximum combination of goods an economy can produce given its resources
B. amount of goods produced in an economy
C. relationship between income and expenditure
D. distribution of income in an economy
64. A decrease in supply with constant demand will lead to
A. a higher equilibrium price and lower quantity
B. a lower equilibrium price and higher quantity
C. a lower equilibrium price and lower quantity
D. a higher equilibrium price and higher quantity
65. The concept of price elasticity of supply measures
A. how much supply changes in response to changes in price
B. how much demand changes in response to changes in price
C. the relationship between supply and demand
D. the effect of a tax on supply
66. A public good is defined as
A. a good that is both non-rivalrous and non-excludable
B. a good that is excludable but non-rivalrous
C. a good that is non-excludable but rivalrous
D. a good that is both rivalrous and excludable
67. In a perfectly competitive market, firms produce at the point where
A. price equals average total cost
B. marginal revenue equals average total cost
C. price equals marginal cost
D. marginal cost equals average variable cost
68. The long-run aggregate supply curve is vertical because
A. all prices in the economy are fixed in the long run
B. the economy is in full employment in the long run
C. wages and prices are flexible in the long run
D. the supply of labor is limited in the long run
69. Which of the following is NOT an example of fiscal policy?
A. Government spending
B. Taxation
C. Open market operations
D. Subsidies
70. The term “Gross Domestic Product (GDP)” refers to
A. the total income earned by a country’s residents
B. the total market value of all final goods and services produced within a country
C. the total output produced by a country’s labor force
D. the total amount of goods and services available in an economy
71. The law of demand states that, all else being equal, when the price of a good rises, the quantity demanded will:
A. increase
B. decrease
C. remain the same
D. increase then decrease
72. Which of the following would shift the demand curve for a product to the right?
A. A decrease in consumer income
B. A decrease in the price of a substitute good
C. An increase in consumer income
D. A decrease in the population of potential buyers
73. Which of the following is a consequence of a price ceiling set below the equilibrium price?
A. Shortage of goods
B. Surplus of goods
C. Efficient allocation of resources
D. Increase in producer supply
74. The concept of elasticity refers to:
A. The relationship between supply and demand
B. The responsiveness of quantity demanded or supplied to changes in price
C. The total amount of goods and services produced in an economy
D. The equilibrium level of wages in a competitive market
75. A government-imposed price floor is designed to:
A. Help consumers by lowering prices
B. Protect producers by raising prices
C. Ensure a fair distribution of goods
D. Reduce the number of goods supplied
76. A decrease in the price of raw materials will most likely cause:
A. A decrease in supply
B. An increase in supply
C. A decrease in demand
D. No change in supply
77. In the short run, a firm in a perfectly competitive market will maximize profit by producing at the output level where:
A. Marginal cost equals average total cost
B. Marginal cost equals marginal revenue
C. Average total cost is minimized
D. Marginal cost exceeds marginal revenue
78. What is the primary purpose of monetary policy?
A. To regulate government spending
B. To control inflation and stabilize the economy
C. To control income redistribution
D. To increase government revenue
79. Which of the following is most likely to lead to an increase in aggregate demand?
A. A decrease in consumer wealth
B. An increase in government spending
C. An increase in interest rates
D. A decrease in consumer confidence
80. The “invisible hand” concept, proposed by Adam Smith, refers to:
A. The role of government in economic planning
B. The automatic self-regulation of the market economy
C. The influence of monopolies on market outcomes
D. The effect of inflation on resource allocation
81. The opportunity cost of an action is defined as:
A. The total cost of the action
B. The benefit of the next best alternative that is foregone
C. The cost of the resources used in the action
D. The sum of the direct and indirect costs of the action
82. The concept of diminishing marginal returns states that:
A. As more of a variable input is added to a fixed input, total output increases at an increasing rate
B. As more of a variable input is added to a fixed input, total output eventually decreases
C. As more of a variable input is added to a fixed input, the additional output from each additional unit decreases
D. Total output will remain constant as inputs increase
83. If the government imposes a tax on a good, it will likely cause:
A. A shift of the supply curve to the left
B. A shift of the demand curve to the right
C. A shift of the demand curve to the left
D. A decrease in the equilibrium price
84. Which of the following describes a public good?
A. A good that is both excludable and rivalrous
B. A good that is non-excludable but rivalrous
C. A good that is non-excludable and non-rivalrous
D. A good that is excludable but non-rivalrous
85. Which of the following would cause a rightward shift in the long-run aggregate supply curve?
A. A decrease in the labor force
B. An increase in the capital stock
C. A decrease in the inflation rate
D. A reduction in taxes
86. The Lorenz curve is used to measure:
A. The relationship between supply and demand
B. The distribution of income or wealth in a society
C. The efficiency of government taxation policies
D. The elasticity of demand for goods
87. Which of the following is an example of a progressive tax system?
A. A flat tax rate on all income
B. A higher tax rate on high-income earners than on low-income earners
C. A sales tax applied uniformly to all purchases
D. A tax on inheritance that remains constant
88. A recession in the economy typically leads to:
A. An increase in inflation
B. An increase in unemployment
C. A decrease in consumer confidence
D. Both B and C
89. The long-run supply curve in a perfectly competitive market is:
A. Upward sloping
B. Horizontal
C. Vertical
D. Downward sloping
90. If the price elasticity of demand for a good is greater than 1, the demand is:
A. Perfectly inelastic
B. Unit elastic
C. Elastic
D. Inelastic
91. The substitution effect occurs when:
A. The price of a good changes, leading to a change in the consumer’s real income
B. The price of a good changes, leading to a change in the quantity demanded of that good relative to other goods
C. The consumer’s income changes, leading to a change in the quantity demanded
D. The price of a good changes, leading to a change in total expenditure on that good
92. A monopolist’s marginal revenue curve lies below the demand curve because:
A. The firm must lower its price to sell more output
B. The firm can sell all its output at the same price
C. The firm’s cost structure changes as output increases
D. The firm faces a perfectly elastic demand curve
93. A market structure where there are a few large firms, each having some control over prices, is known as:
A. Perfect competition
B. Monopoly
C. Oligopoly
D. Monopolistic competition
94. The aggregate expenditure model assumes that:
A. The economy is always at full employment
B. The economy is closed with no international trade
C. Government spending is the only factor that affects aggregate demand
D. The level of investment is determined solely by consumer confidence
95. Which of the following is most likely to reduce a country’s trade deficit?
A. An increase in consumer spending
B. A rise in domestic interest rates
C. A depreciation of the country’s currency
D. An increase in foreign investment
96. The main goal of supply-side economics is to:
A. Increase government spending
B. Reduce taxes on businesses and individuals
C. Decrease unemployment
D. Stabilize the business cycle through fiscal policy
97. What is the effect of a rightward shift in the demand curve on equilibrium price and quantity?
A. Equilibrium price rises, equilibrium quantity falls
B. Equilibrium price falls, equilibrium quantity rises
C. Equilibrium price rises, equilibrium quantity rises
D. Equilibrium price falls, equilibrium quantity remains constant
98. The production possibility frontier (PPF) illustrates:
A. The total output of an economy for a given time period
B. The maximum combination of goods an economy can produce given its resources
C. The division of labor in a market economy
D. The efficiency of resource allocation in a market system
99. What does the term “stagflation” refer to?
A. A period of rising inflation and high unemployment
B. A period of increasing production and low unemployment
C. A period of low inflation and high growth
D. A period of decreasing production and rising wages
100. A firm’s average total cost curve is U-shaped because:
A. Increasing production always leads to lower average costs
B. At first, increasing production reduces average total cost, but eventually, diminishing returns cause average total cost to rise
C. Average total cost increases at all levels of output
D. Average total cost decreases at all levels of output
THEORY
1. (a) Explain the concept of opportunity cost and how it applies to economic decision-making.
(b) Discuss two examples of opportunity cost in everyday life.
2. (a) What is inflation, and what are the primary causes of inflation in an economy?
(b) How can inflation affect the purchasing power of individuals?
3. (a) Define the term “market equilibrium” and explain how it is achieved.
(b) Describe the impact of a price ceiling and price floor on market equilibrium.
4. (a) Explain the difference between microeconomics and macroeconomics.
(b) Provide two examples of topics studied in each branch.
5. (a) What is the role of government intervention in a mixed economy?
(b) Discuss two reasons why government intervention may be necessary.
6. (a) Describe the law of demand and explain why demand slopes downward.
(b) What are the factors that can shift the demand curve?
7. (a) Define the term “GDP” (Gross Domestic Product) and explain its significance in measuring a country’s economic performance.
(b) What are the limitations of using GDP as a measure of well-being?
8. (a) Discuss the concept of “elasticity” in economics.
(b) How do you calculate price elasticity of demand? Provide an example.
9. (a) What is the role of money in an economy?
(b) Explain how central banks control the money supply.
10. (a) What are the different types of unemployment, and how do they affect the economy?
(b) Explain the difference between cyclical and structural unemployment.
11. (a) Describe the relationship between supply and demand in determining the price of goods and services.
(b) How do changes in technology influence supply?
12. (a) What is fiscal policy, and how does it affect the economy?
(b) Discuss the role of government spending and taxation in fiscal policy.
13. (a) Explain the concept of externalities in economics.
(b) Provide an example of a positive and a negative externality.
14. (a) What is the difference between perfect competition and monopoly?
(b) How do monopolies impact consumers compared to competitive markets?
15. (a) Define the term “budget deficit” and explain its potential consequences on the economy.
(b) Discuss the differences between a budget deficit and a national debt.
16. (a) What is the business cycle, and what are its key phases?
(b) How does the business cycle affect employment and production levels?
17. (a) Discuss the role of international trade in economic growth.
(b) What are the advantages and disadvantages of free trade?
18. (a) Explain the term “opportunity cost” with reference to a government’s decision to invest in healthcare rather than education.
(b) How does opportunity cost relate to limited resources in economics?
19. (a) What is meant by “economic efficiency,” and why is it important in economics?
(b) How can market failure impact economic efficiency?
20. (a) Explain the relationship between interest rates and investment in an economy.
(b) How can central banks use interest rates to control inflation
