ECS1501: ECONOMICS 1A VERIFIED EXAM SOLUTIONS -
COMPREHENSIVE QUESTIONS AND ANSWERS - CURRENT
VERSION (2026/2027)
1. What is economics?
Economics is the social science that studies how individuals, firms,
governments, and societies make choices about allocating scarce
resources to satisfy unlimited wants and needs.
2. What is scarcity?
Scarcity is the fundamental economic problem that arises because
human wants are unlimited but the resources available to satisfy those
wants are limited.
3. What is the difference between microeconomics and
macroeconomics?
Microeconomics studies the behaviour of individual economic units
such as households and firms, while macroeconomics studies the
economy as a whole, focusing on aggregate variables like GDP,
inflation, and unemployment.
4. What is a positive economic statement?
A positive economic statement is an objective, factual statement about
what is, was, or will be. It can be tested and verified with data.
Example: 'An increase in price leads to a decrease in quantity
demanded.'
5. What is a normative economic statement?
, A normative economic statement expresses a value judgement about
what ought to be. It is subjective and cannot be verified purely by facts.
Example: 'The government should increase the minimum wage.'
6. What is opportunity cost?
Opportunity cost is the value of the next best alternative foregone
when making a decision. It represents the true cost of any choice.
7. What are the three basic economic questions?
Every economy must answer: (1) What to produce? (2) How to
produce it? (3) For whom to produce it?
8. What are the factors of production?
The factors of production are land (natural resources), labour (human
effort), capital (man-made productive resources), and
entrepreneurship (the ability to combine the other factors to produce
goods and services).
9. What is a production possibility frontier (PPF)?
A PPF is a curve showing the maximum combinations of two goods or
services an economy can produce when all its resources are fully and
efficiently employed.
10. What does a point inside the PPF represent?
A point inside the PPF represents productive inefficiency — the
economy is not using all its resources or is using them inefficiently.
11. What does a point outside the PPF represent?
A point outside the PPF is currently unattainable given the economy's
existing resources and technology.
12. What causes an outward shift of the PPF?
The PPF shifts outward due to economic growth, which can be caused
by an increase in the quantity or quality of resources, or by
technological advancement.
,13. What is the law of increasing opportunity cost?
As production of one good increases, the opportunity cost of producing
additional units of that good rises, because resources are not perfectly
adaptable between uses. This causes the PPF to be bowed outward
(concave).
14. What is an economic model?
An economic model is a simplified representation of reality used to
analyse and explain economic phenomena. It uses assumptions to
focus on the most important relationships.
15. What is ceteris paribus?
Ceteris paribus is a Latin phrase meaning 'all other things being equal'
or 'holding all else constant.' It is used in economics to isolate the effect
of one variable by assuming all others remain unchanged.
SECTION 2: DEMAND
16. What is demand?
Demand refers to the quantity of a good or service that consumers are
willing and able to purchase at various prices during a specific time
period.
17. State the law of demand.
The law of demand states that, ceteris paribus, as the price of a good
rises, the quantity demanded falls; and as the price falls, the quantity
demanded rises. There is an inverse (negative) relationship between
price and quantity demanded.
18. What is a demand schedule?
A demand schedule is a table showing the quantities of a good that
consumers are willing and able to buy at various prices, ceteris
paribus.
, 19. What is a demand curve?
A demand curve is a graphical representation of the demand schedule,
plotting price on the vertical axis and quantity demanded on the
horizontal axis. It slopes downward from left to right.
20. What causes a movement along the demand curve?
A movement along the demand curve is caused only by a change in the
price of the good itself. It results in a change in quantity demanded.
21. What causes a shift in the demand curve?
A shift in the demand curve is caused by a change in any of the non-
price determinants of demand, such as income, prices of related goods,
consumer tastes, consumer expectations, or the number of buyers.
22. List five determinants of demand (other than price).
The five main non-price determinants of demand are: (1) Consumer
income, (2) Prices of related goods (substitutes and complements), (3)
Consumer tastes and preferences, (4) Consumer expectations about
future prices or income, and (5) Number of buyers in the market.
23. What is a normal good?
A normal good is a good for which demand increases when consumer
income increases, and decreases when consumer income decreases.
Income and demand move in the same direction.
24. What is an inferior good?
An inferior good is a good for which demand decreases when
consumer income increases. As people become wealthier, they buy less
of the good and switch to higher-quality alternatives. Examples include
public transport and instant noodles.
25. What are substitute goods?
COMPREHENSIVE QUESTIONS AND ANSWERS - CURRENT
VERSION (2026/2027)
1. What is economics?
Economics is the social science that studies how individuals, firms,
governments, and societies make choices about allocating scarce
resources to satisfy unlimited wants and needs.
2. What is scarcity?
Scarcity is the fundamental economic problem that arises because
human wants are unlimited but the resources available to satisfy those
wants are limited.
3. What is the difference between microeconomics and
macroeconomics?
Microeconomics studies the behaviour of individual economic units
such as households and firms, while macroeconomics studies the
economy as a whole, focusing on aggregate variables like GDP,
inflation, and unemployment.
4. What is a positive economic statement?
A positive economic statement is an objective, factual statement about
what is, was, or will be. It can be tested and verified with data.
Example: 'An increase in price leads to a decrease in quantity
demanded.'
5. What is a normative economic statement?
, A normative economic statement expresses a value judgement about
what ought to be. It is subjective and cannot be verified purely by facts.
Example: 'The government should increase the minimum wage.'
6. What is opportunity cost?
Opportunity cost is the value of the next best alternative foregone
when making a decision. It represents the true cost of any choice.
7. What are the three basic economic questions?
Every economy must answer: (1) What to produce? (2) How to
produce it? (3) For whom to produce it?
8. What are the factors of production?
The factors of production are land (natural resources), labour (human
effort), capital (man-made productive resources), and
entrepreneurship (the ability to combine the other factors to produce
goods and services).
9. What is a production possibility frontier (PPF)?
A PPF is a curve showing the maximum combinations of two goods or
services an economy can produce when all its resources are fully and
efficiently employed.
10. What does a point inside the PPF represent?
A point inside the PPF represents productive inefficiency — the
economy is not using all its resources or is using them inefficiently.
11. What does a point outside the PPF represent?
A point outside the PPF is currently unattainable given the economy's
existing resources and technology.
12. What causes an outward shift of the PPF?
The PPF shifts outward due to economic growth, which can be caused
by an increase in the quantity or quality of resources, or by
technological advancement.
,13. What is the law of increasing opportunity cost?
As production of one good increases, the opportunity cost of producing
additional units of that good rises, because resources are not perfectly
adaptable between uses. This causes the PPF to be bowed outward
(concave).
14. What is an economic model?
An economic model is a simplified representation of reality used to
analyse and explain economic phenomena. It uses assumptions to
focus on the most important relationships.
15. What is ceteris paribus?
Ceteris paribus is a Latin phrase meaning 'all other things being equal'
or 'holding all else constant.' It is used in economics to isolate the effect
of one variable by assuming all others remain unchanged.
SECTION 2: DEMAND
16. What is demand?
Demand refers to the quantity of a good or service that consumers are
willing and able to purchase at various prices during a specific time
period.
17. State the law of demand.
The law of demand states that, ceteris paribus, as the price of a good
rises, the quantity demanded falls; and as the price falls, the quantity
demanded rises. There is an inverse (negative) relationship between
price and quantity demanded.
18. What is a demand schedule?
A demand schedule is a table showing the quantities of a good that
consumers are willing and able to buy at various prices, ceteris
paribus.
, 19. What is a demand curve?
A demand curve is a graphical representation of the demand schedule,
plotting price on the vertical axis and quantity demanded on the
horizontal axis. It slopes downward from left to right.
20. What causes a movement along the demand curve?
A movement along the demand curve is caused only by a change in the
price of the good itself. It results in a change in quantity demanded.
21. What causes a shift in the demand curve?
A shift in the demand curve is caused by a change in any of the non-
price determinants of demand, such as income, prices of related goods,
consumer tastes, consumer expectations, or the number of buyers.
22. List five determinants of demand (other than price).
The five main non-price determinants of demand are: (1) Consumer
income, (2) Prices of related goods (substitutes and complements), (3)
Consumer tastes and preferences, (4) Consumer expectations about
future prices or income, and (5) Number of buyers in the market.
23. What is a normal good?
A normal good is a good for which demand increases when consumer
income increases, and decreases when consumer income decreases.
Income and demand move in the same direction.
24. What is an inferior good?
An inferior good is a good for which demand decreases when
consumer income increases. As people become wealthier, they buy less
of the good and switch to higher-quality alternatives. Examples include
public transport and instant noodles.
25. What are substitute goods?
