Below is a set of sample revision test questions—with multiple‐choice options and detailed
rationales—that are inspired by key themes in "Essentials of Economics, 12th Edition" by Schiller.
These questions cover topics such as opportunity cost, supply and demand, elasticity, market
structures, and national income, among others. Use these to assess your understanding and reasoning
skills as you review major economic principles.
Revision Test Questions
Question 1: Opportunity Cost
Which of the following best describes “opportunity cost”?
A. The money spent on the next best alternative
B. The benefit of the next best alternative that is foregone
C. The total cost of all alternatives available
D. The monetary cost of a decision
Answer & Rationale:
Correct Answer: B
Rationale: Opportunity cost is defined as the benefit that is lost when one alternative is chosen over
another. It is not simply the money spent, but the value of the next best alternative forgone. This
concept is foundational in economics and is crucial for understanding trade-offs in decision-making.
Question 2: Law of Demand
The law of demand states that, ceteris paribus, an increase in price will lead to:
A. An increase in quantity demanded
B. A decrease in quantity demanded
C. No change in quantity demanded
D. An increase in supply
Answer & Rationale:
Correct Answer: B
Rationale: According to the law of demand, when the price of a good increases (assuming all other
factors remain constant), consumers will purchase less of that good, resulting in a decrease in quantity
demanded. This inverse relationship between price and quantity demanded is a fundamental concept in
microeconomics.
Question 3: Elasticity of Demand
If a product has an elasticity of demand greater than 1, this indicates that the product is:
A. Inelastic
B. Unitary elastic
C. Elastic
D. Perfectly inelastic
, Answer & Rationale:
Correct Answer: C
Rationale: A demand elasticity greater than 1 means that the percentage change in quantity demanded
is larger than the percentage change in price. This signifies that consumers are sensitive to price
changes, making the product elastic. Understanding elasticity helps in predicting how price changes
affect total revenue.
Question 4: Market Structures
Which market structure is characterized by many firms selling identical products and having no
barriers to entry?
A. Monopoly
B. Oligopoly
C. Monopolistic competition
D. Perfect competition
Answer & Rationale:
Correct Answer: D
Rationale: In perfect competition, many firms sell an identical (homogeneous) product, and there are no
significant barriers to entry or exit. This results in firms being price takers, with the market determining
the equilibrium price. This concept is pivotal when analyzing market efficiency and resource allocation.
Question 5: Gross Domestic Product (GDP)
GDP is defined as:
A. The total income earned by a nation’s residents
B. The sum of all private consumption, investment, government spending, and net exports
C. The total value of all goods and services produced within a country
D. Both B and C
Answer & Rationale:
Correct Answer: D
Rationale: GDP can be calculated by summing consumption, investment, government spending, and net
exports (exports minus imports). It also represents the total market value of all final goods and services
produced within a country during a given period. Both definitions (B and C) capture essential elements
of GDP.
Question 6: Comparative Advantage
Comparative advantage refers to:
A. A country’s ability to produce more of a product than another
B. Producing a good at a lower opportunity cost than another country
rationales—that are inspired by key themes in "Essentials of Economics, 12th Edition" by Schiller.
These questions cover topics such as opportunity cost, supply and demand, elasticity, market
structures, and national income, among others. Use these to assess your understanding and reasoning
skills as you review major economic principles.
Revision Test Questions
Question 1: Opportunity Cost
Which of the following best describes “opportunity cost”?
A. The money spent on the next best alternative
B. The benefit of the next best alternative that is foregone
C. The total cost of all alternatives available
D. The monetary cost of a decision
Answer & Rationale:
Correct Answer: B
Rationale: Opportunity cost is defined as the benefit that is lost when one alternative is chosen over
another. It is not simply the money spent, but the value of the next best alternative forgone. This
concept is foundational in economics and is crucial for understanding trade-offs in decision-making.
Question 2: Law of Demand
The law of demand states that, ceteris paribus, an increase in price will lead to:
A. An increase in quantity demanded
B. A decrease in quantity demanded
C. No change in quantity demanded
D. An increase in supply
Answer & Rationale:
Correct Answer: B
Rationale: According to the law of demand, when the price of a good increases (assuming all other
factors remain constant), consumers will purchase less of that good, resulting in a decrease in quantity
demanded. This inverse relationship between price and quantity demanded is a fundamental concept in
microeconomics.
Question 3: Elasticity of Demand
If a product has an elasticity of demand greater than 1, this indicates that the product is:
A. Inelastic
B. Unitary elastic
C. Elastic
D. Perfectly inelastic
, Answer & Rationale:
Correct Answer: C
Rationale: A demand elasticity greater than 1 means that the percentage change in quantity demanded
is larger than the percentage change in price. This signifies that consumers are sensitive to price
changes, making the product elastic. Understanding elasticity helps in predicting how price changes
affect total revenue.
Question 4: Market Structures
Which market structure is characterized by many firms selling identical products and having no
barriers to entry?
A. Monopoly
B. Oligopoly
C. Monopolistic competition
D. Perfect competition
Answer & Rationale:
Correct Answer: D
Rationale: In perfect competition, many firms sell an identical (homogeneous) product, and there are no
significant barriers to entry or exit. This results in firms being price takers, with the market determining
the equilibrium price. This concept is pivotal when analyzing market efficiency and resource allocation.
Question 5: Gross Domestic Product (GDP)
GDP is defined as:
A. The total income earned by a nation’s residents
B. The sum of all private consumption, investment, government spending, and net exports
C. The total value of all goods and services produced within a country
D. Both B and C
Answer & Rationale:
Correct Answer: D
Rationale: GDP can be calculated by summing consumption, investment, government spending, and net
exports (exports minus imports). It also represents the total market value of all final goods and services
produced within a country during a given period. Both definitions (B and C) capture essential elements
of GDP.
Question 6: Comparative Advantage
Comparative advantage refers to:
A. A country’s ability to produce more of a product than another
B. Producing a good at a lower opportunity cost than another country
