SOLUTION MANUAL FOR ECONOMICS STUDY
GUIDE WITH QUESTIONS AND CORRECT
ANSWERS 2026
1. In microeconomic theory, the law of diminishing marginal utility
states that:
A. Total utility decreases as consumption increases
B. Marginal utility increases with each additional unit consumed
C. Marginal utility decreases as consumption increases
D. Total utility remains constant regardless of consumption
Correct Answer: C
Explanation: The law of diminishing marginal utility states
that as a consumer consumes more units of a good, the
additional satisfaction (marginal utility) from each extra
unit declines. A is incorrect because total utility does not
necessarily decrease; B is the opposite; D is unrelated.
2. Which of the following best describes opportunity cost?
A. The monetary cost of production
B. The cost of the next best alternative foregone
C. The total accounting cost of a decision
D. The sunk cost of an investment
Correct Answer: B
Explanation: Opportunity cost is the value of the next best
alternative that is given up when making a choice. A and C
focus only on explicit costs; D refers to costs that cannot be
recovered.
3. A movement along the demand curve is caused by:
A. Changes in consumer income
B. Changes in price of related goods
,C. Changes in the price of the good itself
D. Changes in consumer preferences
Correct Answer: C
Explanation: A change in the price of the good causes
movement along the demand curve. Other factors shift the
curve, not move along it.
4. In perfect competition, firms are:
A. Price makers
B. Price takers
C. Monopoly regulators
D. Oligopolists
Correct Answer: B
Explanation: In perfect competition, firms accept market
price as given due to many sellers and homogeneous
products.
5. Inflation is best defined as:
A. A fall in prices over time
B. A sustained increase in general price level
C. A decrease in money supply
D. A rise in unemployment
Correct Answer: B
Explanation: Inflation refers to a continuous increase in the
general price level of goods and services in an economy.
6. GDP measures:
A. Total national debt
B. Total value of final goods and services produced within a country
C. Government revenue
D. Household savings
Correct Answer: B
,Explanation: GDP is the monetary value of all final goods
and services produced within a country in a given period.
7. Which of the following causes a rightward shift in the supply
curve?
A. Increase in production costs
B. Technological improvement
C. Increase in taxes
D. Decrease in number of firms
Correct Answer: B
Explanation: Technological improvement increases
productivity, increasing supply and shifting the curve
rightward.
8. Price elasticity of demand measures:
A. Change in supply due to price
B. Responsiveness of quantity demanded to price change
C. Change in income due to price
D. Total revenue change only
Correct Answer: B
Explanation: It measures how much quantity demanded
responds to a change in price.
9. A monopoly is characterized by:
A. Many sellers
B. Single seller with no close substitutes
C. Free entry and exit
D. Perfect information
Correct Answer: B
Explanation: A monopoly exists when one firm dominates
the market and barriers prevent entry.
, 10. Fiscal policy refers to:
A. Control of money supply
B. Government taxation and spending
C. Exchange rate management
D. Trade restrictions
Correct Answer: B
Explanation: Fiscal policy involves government spending
and taxation decisions.
11. In macroeconomics, unemployment is measured as:
A. People not working by choice only
B. People without jobs but actively seeking work
C. Total population minus workers
D. Retired individuals only
Correct Answer: B
Explanation: Unemployment includes those willing and able
to work but unable to find jobs.
12. A budget deficit occurs when:
A. Exports exceed imports
B. Revenue exceeds expenditure
C. Expenditure exceeds revenue
D. Savings exceed investment
Correct Answer: C
Explanation: A deficit means government spends more than
it earns.
13. The law of demand states that:
A. Price and quantity demanded move in same direction
B. Price and quantity demanded move in opposite directions
C. Supply increases with demand
D. Demand is unrelated to price
Correct Answer: B
GUIDE WITH QUESTIONS AND CORRECT
ANSWERS 2026
1. In microeconomic theory, the law of diminishing marginal utility
states that:
A. Total utility decreases as consumption increases
B. Marginal utility increases with each additional unit consumed
C. Marginal utility decreases as consumption increases
D. Total utility remains constant regardless of consumption
Correct Answer: C
Explanation: The law of diminishing marginal utility states
that as a consumer consumes more units of a good, the
additional satisfaction (marginal utility) from each extra
unit declines. A is incorrect because total utility does not
necessarily decrease; B is the opposite; D is unrelated.
2. Which of the following best describes opportunity cost?
A. The monetary cost of production
B. The cost of the next best alternative foregone
C. The total accounting cost of a decision
D. The sunk cost of an investment
Correct Answer: B
Explanation: Opportunity cost is the value of the next best
alternative that is given up when making a choice. A and C
focus only on explicit costs; D refers to costs that cannot be
recovered.
3. A movement along the demand curve is caused by:
A. Changes in consumer income
B. Changes in price of related goods
,C. Changes in the price of the good itself
D. Changes in consumer preferences
Correct Answer: C
Explanation: A change in the price of the good causes
movement along the demand curve. Other factors shift the
curve, not move along it.
4. In perfect competition, firms are:
A. Price makers
B. Price takers
C. Monopoly regulators
D. Oligopolists
Correct Answer: B
Explanation: In perfect competition, firms accept market
price as given due to many sellers and homogeneous
products.
5. Inflation is best defined as:
A. A fall in prices over time
B. A sustained increase in general price level
C. A decrease in money supply
D. A rise in unemployment
Correct Answer: B
Explanation: Inflation refers to a continuous increase in the
general price level of goods and services in an economy.
6. GDP measures:
A. Total national debt
B. Total value of final goods and services produced within a country
C. Government revenue
D. Household savings
Correct Answer: B
,Explanation: GDP is the monetary value of all final goods
and services produced within a country in a given period.
7. Which of the following causes a rightward shift in the supply
curve?
A. Increase in production costs
B. Technological improvement
C. Increase in taxes
D. Decrease in number of firms
Correct Answer: B
Explanation: Technological improvement increases
productivity, increasing supply and shifting the curve
rightward.
8. Price elasticity of demand measures:
A. Change in supply due to price
B. Responsiveness of quantity demanded to price change
C. Change in income due to price
D. Total revenue change only
Correct Answer: B
Explanation: It measures how much quantity demanded
responds to a change in price.
9. A monopoly is characterized by:
A. Many sellers
B. Single seller with no close substitutes
C. Free entry and exit
D. Perfect information
Correct Answer: B
Explanation: A monopoly exists when one firm dominates
the market and barriers prevent entry.
, 10. Fiscal policy refers to:
A. Control of money supply
B. Government taxation and spending
C. Exchange rate management
D. Trade restrictions
Correct Answer: B
Explanation: Fiscal policy involves government spending
and taxation decisions.
11. In macroeconomics, unemployment is measured as:
A. People not working by choice only
B. People without jobs but actively seeking work
C. Total population minus workers
D. Retired individuals only
Correct Answer: B
Explanation: Unemployment includes those willing and able
to work but unable to find jobs.
12. A budget deficit occurs when:
A. Exports exceed imports
B. Revenue exceeds expenditure
C. Expenditure exceeds revenue
D. Savings exceed investment
Correct Answer: C
Explanation: A deficit means government spends more than
it earns.
13. The law of demand states that:
A. Price and quantity demanded move in same direction
B. Price and quantity demanded move in opposite directions
C. Supply increases with demand
D. Demand is unrelated to price
Correct Answer: B
