ECS1500 ECONOMICS REAL QUESTIONS + DETAILED ANSWERS -
LATEST VERSION - TOP RATED
Q1. What is economics?
ANSWER Economics is the study of how individuals, businesses, and
societies allocate scarce resources to satisfy unlimited wants and needs.
Q2. What is scarcity?
ANSWER Scarcity is the fundamental economic problem that arises because
resources are limited but human wants are unlimited.
Q3. What is a resource?
ANSWER A resource is any input used in the production of goods and
services, including land, labour, capital, and entrepreneurship.
Q4. What are the four factors of production?
ANSWER The four factors of production are land (natural resources), labour
(human effort), capital (machinery and equipment), and entrepreneurship (risk-
taking and innovation).
Q5. What is opportunity cost?
ANSWER Opportunity cost is the value of the next best alternative that is
forgone when a choice is made.
Q6. What is the production possibilities frontier (PPF)?
ANSWER The PPF is a graph that shows the maximum combinations of two
goods or services an economy can produce when all resources are fully and
efficiently employed.
Q7. What does a point inside the PPF represent?
ANSWER A point inside the PPF represents productive inefficiency —
resources are not being fully or efficiently utilised.
Q8. What does a point outside the PPF represent?
ANSWER A point outside the PPF is currently unattainable given existing
resources and technology.
,Q9. What causes an outward shift of the PPF?
ANSWER Economic growth — such as improvements in technology,
increases in resources, or better education — causes the PPF to shift outward.
Q10. What is the difference between microeconomics and macroeconomics?
ANSWER Microeconomics studies individual decision-making units
(households, firms), while macroeconomics studies the economy as a whole
(GDP, inflation, unemployment).
Q11. What is a positive economic statement?
ANSWER A positive economic statement is a factual, objective claim that can
be tested and verified, e.g., 'Unemployment rose by 2% last year.'
Q12. What is a normative economic statement?
ANSWER A normative economic statement is a value judgment or opinion
about what ought to be, e.g., 'The government should increase the minimum
wage.'
Q13. What is ceteris paribus?
ANSWER Ceteris paribus is a Latin phrase meaning 'all other things being
equal,' used to isolate the effect of one variable on another.
Q14. What is the economic problem?
ANSWER The economic problem is the challenge of allocating scarce
resources among unlimited wants, requiring choices about what, how, and for
whom to produce.
Q15. What is a trade-off?
ANSWER A trade-off is the sacrifice of one option for another when making
a decision due to limited resources.
Q16. What is specialisation?
ANSWER Specialisation occurs when individuals or countries focus on
producing goods or services in which they have an advantage, leading to greater
efficiency.
Q17. What is comparative advantage?
ANSWER Comparative advantage is the ability to produce a good at a lower
opportunity cost than another producer.
Q18. What is absolute advantage?
ANSWER Absolute advantage is the ability to produce more of a good or
service than a competitor using the same amount of resources.
, Q19. What are the three basic economic questions?
ANSWER What to produce? How to produce it? For whom to produce it?
Q20. What is an economic model?
ANSWER An economic model is a simplified representation of reality used to
analyse economic behaviour and make predictions.
Topic 2: Demand
Q21. What is demand?
ANSWER Demand is the quantity of a good or service that consumers are
willing and able to purchase at various prices during a specific period.
Q22. State the law of demand.
ANSWER The law of demand states that, ceteris paribus, as the price of a
good rises, the quantity demanded falls, and vice versa.
Q23. Why does demand slope downward?
ANSWER Demand slopes downward due to the substitution effect
(consumers switch to cheaper alternatives) and the income effect (higher prices
reduce purchasing power).
Q24. What is the substitution effect?
ANSWER The substitution effect refers to consumers switching to cheaper
substitutes when the price of a good increases.
Q25. What is the income effect?
ANSWER The income effect refers to the change in quantity demanded
resulting from the change in real purchasing power caused by a price change.
Q26. What are the determinants (shifters) of demand?
ANSWER The determinants of demand include income, prices of related
goods, consumer tastes, expectations, and the number of buyers.
Q27. What happens to the demand curve when consumer income increases
(for a normal good)?
ANSWER The demand curve shifts to the right, indicating an increase in
demand at every price level.
Q28. What is a normal good?
ANSWER A normal good is one for which demand increases as consumer
income rises (positive income-demand relationship).
LATEST VERSION - TOP RATED
Q1. What is economics?
ANSWER Economics is the study of how individuals, businesses, and
societies allocate scarce resources to satisfy unlimited wants and needs.
Q2. What is scarcity?
ANSWER Scarcity is the fundamental economic problem that arises because
resources are limited but human wants are unlimited.
Q3. What is a resource?
ANSWER A resource is any input used in the production of goods and
services, including land, labour, capital, and entrepreneurship.
Q4. What are the four factors of production?
ANSWER The four factors of production are land (natural resources), labour
(human effort), capital (machinery and equipment), and entrepreneurship (risk-
taking and innovation).
Q5. What is opportunity cost?
ANSWER Opportunity cost is the value of the next best alternative that is
forgone when a choice is made.
Q6. What is the production possibilities frontier (PPF)?
ANSWER The PPF is a graph that shows the maximum combinations of two
goods or services an economy can produce when all resources are fully and
efficiently employed.
Q7. What does a point inside the PPF represent?
ANSWER A point inside the PPF represents productive inefficiency —
resources are not being fully or efficiently utilised.
Q8. What does a point outside the PPF represent?
ANSWER A point outside the PPF is currently unattainable given existing
resources and technology.
,Q9. What causes an outward shift of the PPF?
ANSWER Economic growth — such as improvements in technology,
increases in resources, or better education — causes the PPF to shift outward.
Q10. What is the difference between microeconomics and macroeconomics?
ANSWER Microeconomics studies individual decision-making units
(households, firms), while macroeconomics studies the economy as a whole
(GDP, inflation, unemployment).
Q11. What is a positive economic statement?
ANSWER A positive economic statement is a factual, objective claim that can
be tested and verified, e.g., 'Unemployment rose by 2% last year.'
Q12. What is a normative economic statement?
ANSWER A normative economic statement is a value judgment or opinion
about what ought to be, e.g., 'The government should increase the minimum
wage.'
Q13. What is ceteris paribus?
ANSWER Ceteris paribus is a Latin phrase meaning 'all other things being
equal,' used to isolate the effect of one variable on another.
Q14. What is the economic problem?
ANSWER The economic problem is the challenge of allocating scarce
resources among unlimited wants, requiring choices about what, how, and for
whom to produce.
Q15. What is a trade-off?
ANSWER A trade-off is the sacrifice of one option for another when making
a decision due to limited resources.
Q16. What is specialisation?
ANSWER Specialisation occurs when individuals or countries focus on
producing goods or services in which they have an advantage, leading to greater
efficiency.
Q17. What is comparative advantage?
ANSWER Comparative advantage is the ability to produce a good at a lower
opportunity cost than another producer.
Q18. What is absolute advantage?
ANSWER Absolute advantage is the ability to produce more of a good or
service than a competitor using the same amount of resources.
, Q19. What are the three basic economic questions?
ANSWER What to produce? How to produce it? For whom to produce it?
Q20. What is an economic model?
ANSWER An economic model is a simplified representation of reality used to
analyse economic behaviour and make predictions.
Topic 2: Demand
Q21. What is demand?
ANSWER Demand is the quantity of a good or service that consumers are
willing and able to purchase at various prices during a specific period.
Q22. State the law of demand.
ANSWER The law of demand states that, ceteris paribus, as the price of a
good rises, the quantity demanded falls, and vice versa.
Q23. Why does demand slope downward?
ANSWER Demand slopes downward due to the substitution effect
(consumers switch to cheaper alternatives) and the income effect (higher prices
reduce purchasing power).
Q24. What is the substitution effect?
ANSWER The substitution effect refers to consumers switching to cheaper
substitutes when the price of a good increases.
Q25. What is the income effect?
ANSWER The income effect refers to the change in quantity demanded
resulting from the change in real purchasing power caused by a price change.
Q26. What are the determinants (shifters) of demand?
ANSWER The determinants of demand include income, prices of related
goods, consumer tastes, expectations, and the number of buyers.
Q27. What happens to the demand curve when consumer income increases
(for a normal good)?
ANSWER The demand curve shifts to the right, indicating an increase in
demand at every price level.
Q28. What is a normal good?
ANSWER A normal good is one for which demand increases as consumer
income rises (positive income-demand relationship).
