ECN 801 FINAL EXAM | QUESTIONS AND ANSWERS | 2026
UPDATE | WITH COMPLETE SOLUTIONS – TMU.
Q1. Fundamental Economic Problem
What is the fundamental economic problem that all societies face?
A) High cost of living in developed nations
B) Unequal distribution of wealth
C) Conflict between labor and business owners
D) Scarcity of resources relative to unlimited wants
**Answer:** D. Scarcity of resources relative to unlimited wants.
**Rationale:** Scarcity is the core concept in economics. It means society has
limited resources and cannot produce all the goods and services people wish to
have. This forces individuals and societies to make choices about how to allocate
resources. The other options are important economic issues, but scarcity is the
fundamental problem.
### Q2. Microeconomics vs. Macroeconomics
Which of the following is a topic studied in microeconomics?
A) The overall price level in the economy
B) The pricing decisions of a pharmaceutical company
C) The national unemployment rate
D) The rate of economic growth
**Answer:** B. The pricing decisions of a pharmaceutical company.
**Rationale:** Microeconomics focuses on the behavior of individual economic
units like households and firms, including their pricing decisions. The other options
(overall price level, national unemployment, economic growth) are topics of
macroeconomics, which studies the economy as a whole.
, ### Q3. Circular Flow Model
In the circular flow model, spending on goods and services flows from:
A) Firms to the government as taxes
B) The foreign sector to the domestic goods market
C) Households to firms through the product market
D) Firms to households as wages and rent
**Answer:** C. Households to firms through the product market.
**Rationale:** In the product market, households are buyers (spending money on
goods and services) and firms are sellers (receiving money in exchange for
products). This flow of spending from households to firms represents revenue for
businesses. In contrast, money also flows from firms to households in the form of
wages and rent through the factor market, but that's not what the question asks.
### Q4. Production Possibilities Frontier (PPF)
If an economy is operating at a point inside its production possibilities frontier (PPF),
it indicates:
A) The economy has achieved productive efficiency
B) The economy is producing beyond its current capacity
C) Resources are not being fully employed or used efficiently
D) Technology has improved
**Answer:** C. Resources are not being fully employed or used efficiently.
**Rationale:** Points inside the PPF are attainable but represent inefficiency,
such as during a recession when some resources (labor, capital) are idle. The PPF
shows the maximum combinations of goods an economy can produce using its
resources fully and efficiently. Therefore, a point inside the curve indicates
underutilization of resources.
### Q5. Future Value (Compound Interest)
UPDATE | WITH COMPLETE SOLUTIONS – TMU.
Q1. Fundamental Economic Problem
What is the fundamental economic problem that all societies face?
A) High cost of living in developed nations
B) Unequal distribution of wealth
C) Conflict between labor and business owners
D) Scarcity of resources relative to unlimited wants
**Answer:** D. Scarcity of resources relative to unlimited wants.
**Rationale:** Scarcity is the core concept in economics. It means society has
limited resources and cannot produce all the goods and services people wish to
have. This forces individuals and societies to make choices about how to allocate
resources. The other options are important economic issues, but scarcity is the
fundamental problem.
### Q2. Microeconomics vs. Macroeconomics
Which of the following is a topic studied in microeconomics?
A) The overall price level in the economy
B) The pricing decisions of a pharmaceutical company
C) The national unemployment rate
D) The rate of economic growth
**Answer:** B. The pricing decisions of a pharmaceutical company.
**Rationale:** Microeconomics focuses on the behavior of individual economic
units like households and firms, including their pricing decisions. The other options
(overall price level, national unemployment, economic growth) are topics of
macroeconomics, which studies the economy as a whole.
, ### Q3. Circular Flow Model
In the circular flow model, spending on goods and services flows from:
A) Firms to the government as taxes
B) The foreign sector to the domestic goods market
C) Households to firms through the product market
D) Firms to households as wages and rent
**Answer:** C. Households to firms through the product market.
**Rationale:** In the product market, households are buyers (spending money on
goods and services) and firms are sellers (receiving money in exchange for
products). This flow of spending from households to firms represents revenue for
businesses. In contrast, money also flows from firms to households in the form of
wages and rent through the factor market, but that's not what the question asks.
### Q4. Production Possibilities Frontier (PPF)
If an economy is operating at a point inside its production possibilities frontier (PPF),
it indicates:
A) The economy has achieved productive efficiency
B) The economy is producing beyond its current capacity
C) Resources are not being fully employed or used efficiently
D) Technology has improved
**Answer:** C. Resources are not being fully employed or used efficiently.
**Rationale:** Points inside the PPF are attainable but represent inefficiency,
such as during a recession when some resources (labor, capital) are idle. The PPF
shows the maximum combinations of goods an economy can produce using its
resources fully and efficiently. Therefore, a point inside the curve indicates
underutilization of resources.
### Q5. Future Value (Compound Interest)
