Beginner Economics Question Bank – Complete

Workbook
100 questions with clear answers, diagrams, and space for your notes.

Part A – Microeconomics (50 Questions)

1. Basics of Economics (10 Questions)
Q1. Define scarcity and give one real-life example. Answer: Scarcity is limited resources vs unlimited
wants. Example: Your monthly budget can't buy every
gadget you want, so you choose.
Notes:

Q2. What is opportunity cost? Provide an example from Answer: A clear, beginner-friendly explanation with a
your daily life. practical example.
Notes:

Q3. Differentiate between positive and normative Answer: Positive economics: descriptive, testable
economics with examples. statements about 'what is' (e.g., 'A price ceiling creates
shortages'). Normative economics: value judgments
about 'what ought to be' (e.g., 'The government should
cap rent').
Notes:

Q4. List the four factors of production and explain each. Answer: Land (natural resources), Labour (human
effort), Capital (tools/machines/buildings),
Entrepreneurship (risk-taking, organizing resources).
Notes:
Q5. Draw a simple Production Possibility Curve (PPC) Answer: PPC shows the maximum combinations of two
and explain its meaning. goods an economy can produce with given resources
and technology. Points on the curve are efficient; inside
are inefficient; outside are currently unattainable. The
curve is typically bowed out due to increasing
opportunity cost.

Notes:

Q6. Explain why choices must be made in an economy. Answer: Because resources are scarce and wants are
unlimited, choosing one option means forgoing the next
best alternative—this is opportunity cost.
Notes:

Q7. Give two examples of trade-offs individuals face. Answer: Examples: (1) Studying vs. leisure time; (2)
Spending now vs. saving for later.
Notes:

Q8. Why is the study of economics important? Answer: It helps you make better choices under
scarcity, understand policies/taxes, and think in terms of
incentives and opportunity costs.
Notes:
Q9. Explain the concept of economic efficiency. Answer: Producing the maximum value from scarce
resources—no one can be made better off without
making someone else worse off (Pareto efficiency).
Notes:

Q10. Describe the relationship between scarcity and Answer: Scarcity forces choices; each choice entails
opportunity cost. giving up the next best alternative—that forgone
alternative is the opportunity cost.
Notes:
 2. Supply & Demand (15 Questions)
Q1. State the law of demand. Answer: Ceteris paribus, when price falls, quantity
demanded rises; when price rises, quantity demanded
falls (inverse relationship).
Notes:

Q2. List three factors that can shift the demand curve. Answer: Income, tastes, prices of related goods
(substitutes/complements), expectations, number of
buyers—these shift demand (not the good’s own price).
Notes:

Q3. Explain the difference between a movement along Answer: Movement along = change in quantity
and a shift of the demand curve. demanded due to the good’s own price change. Shift =
change in demand due to non-price factors (income,
tastes, etc.).
Notes:

Q4. State the law of supply. Answer: Ceteris paribus, when price rises, quantity
supplied rises; when price falls, quantity supplied falls
(direct relationship).
Notes:

Q5. List three factors that can shift the supply curve. Answer: Input costs, technology, taxes/subsidies,
expectations, number of sellers, weather/shocks—these
shift supply.
Notes:

Q6. Define market equilibrium. Answer: market equilibrium explained clearly with an
everyday example.
Notes:
Q7. Draw and explain what happens when demand Answer: A clear, beginner-friendly explanation with a
increases. practical example.

Notes:

Q8. Draw and explain what happens when supply Answer: A clear, beginner-friendly explanation with a
decreases. practical example.

Notes:
Q9. What is a price ceiling? Give one example. Answer: A legal maximum price below equilibrium
(binding) creates shortages and nonprice rationing
(queues, black markets). Example: rent control.

Notes:

Q10. What is a price floor? Give one example. Answer: A legal minimum price above equilibrium
(binding) creates surpluses. Example: minimum support
prices for crops or minimum wage (labor market).

Notes:
Q11. Define price elasticity of demand. Answer: price elasticity of demand explained clearly
with an everyday example.

Notes:

Q12. Calculate the price elasticity of demand if quantity Answer: Using the midpoint (arc) method: %∆Q =
changes from 100 to 120 when price decreases from (120−100)/((120+100)/2) = 20/110 ≈ 0.1818; %∆P =
$10 to $8. (8−10)/((8+10)/2) = −2/9 ≈ −0.2222. Elasticity = 0.1818 /
(−0.2222) ≈ −0.82. In absolute value |E| ≈ 0.82 ⇒
demand is inelastic in this range.
Notes:

Q13. What is income elasticity of demand? Answer: Responsiveness of quantity demanded to a

change in consumer income: Ey = (%∆Q)/(%∆Y).
Positive for normal goods (luxuries >1), negative for
inferior goods.

Notes:
Q14. Give one example of cross elasticity of demand. Answer: Exy = (%∆Qx)/(%∆Py). Positive ⇒ substitutes
(tea & coffee); negative ⇒ complements (cars & petrol).

Notes:

Q15. Explain why elasticity is important for businesses. Answer: A clear, beginner-friendly explanation with a
practical example.

Notes:
 3. Market Structures (10 Questions)
Q1. List four characteristics of perfect competition. Answer: Many small firms, identical products, free
entry/exit, perfect information; firms are price takers and
earn zero economic profit in the long run.
Notes:

Q2. Give one example of a monopoly. Answer: A single seller with unique product and high
entry barriers—for instance, a local water utility or
patented drug (context-specific).
Notes:

Q3. List two advantages and two disadvantages of Answer: Advantages: economies of scale, stable
monopoly. prices/long-term R&D.; Disadvantages: higher
prices/less output vs. competition, X-inefficiency, less
innovation incentives.
Notes:

Q4. What is an oligopoly? Answer: A market dominated by a few large firms with
interdependent decisions, possible collusion, and
strategic behavior (game theory).
Notes:

Q5. Give two examples of oligopoly industries. Answer: Examples: smartphones/OS, commercial
airlines, cement/steel (varies by country).
Notes:

Q6. Explain the concept of product differentiation. Answer: Firms make products appear distinct
(branding, features, quality, location) to gain some
price-setting power—key in monopolistic competition.
Notes:
Q7. Why is competition important in markets? Answer: It disciplines prices, improves quality, spurs
innovation, and allocates resources to their
highest-valued uses.
Notes:

Q8. How do prices differ in perfect competition vs Answer: Perfect competition: P = MC in long run,
monopoly? minimal profits. Monopoly: P > MC, lower output,
deadweight loss.
Notes:

Q9. Explain the role of barriers to entry in market Answer: Legal (licenses, patents), structural
structures. (economies of scale, network effects), strategic
(predatory pricing). They determine market power.
Notes:

Q10. Give one real-life example of monopolistic Answer: Many firms, differentiated products, some
competition. pricing power; examples: restaurants, clothing brands,
salons.
Notes:
 4. Market Failures & Government Intervention (15 Questions)
Q1. What is a negative externality? Give an example. Answer: A third party is harmed by
production/consumption (e.g., pollution). Private cost <
social cost ⇒ market overproduces without intervention.
Notes:

Q2. What is a positive externality? Give an example. Answer: A third party benefits (e.g., vaccinations,
education). Private benefit < social benefit ⇒ market
underproduces without support.
Notes:

Q3. Explain the difference between private goods and Answer: Private goods: rival and excludable (a
public goods. sandwich). Public goods: non-rival and non-excludable
(street lighting).
Notes:

Q4. What is a merit good? Answer: Goods society values and would like more
consumed (e.g., education, vaccines) often
underconsumed if left to markets.
Notes:

Q5. What is a demerit good? Answer: Goods society values and would like more
consumed (e.g., education, vaccines) often
underconsumed if left to markets.
Notes:

Q6. Why do public goods cause market failure? Answer: Free-rider problem: non-excludability means
people can benefit without paying, so private markets
underprovide them.
Notes:
Q7. How do taxes help reduce negative externalities? Answer: Pigovian taxes raise private cost to equal
social cost, shifting supply up/left to the socially efficient
output.
Notes:

Q8. How do subsidies encourage positive externalities? Answer: Subsidies raise private benefit / lower private
cost, shifting demand or supply to reach the socially
efficient higher output.
Notes:

Q9. What is government failure? Give an example. Answer: When intervention worsens outcomes due to
information problems, regulatory capture, unintended
incentives, or high administrative costs.
Notes:

Q10. Explain why overproduction can occur in free Answer: With negative externalities or price floors,
markets. private decisions ignore social costs, producing beyond
the social optimum.
Notes:

Q11. Explain why underproduction can occur in free Answer: With positive externalities or public goods,
markets. private benefit is below social benefit, producing less
than socially optimal.
Notes:
Q12. Draw and explain a diagram showing negative Answer: A clear, beginner-friendly explanation with a
externalities. practical example.

Notes:

Q13. Draw and explain a diagram showing positive Answer: A clear, beginner-friendly explanation with a
externalities. practical example.

Notes:

Q14. What is regulation? Give one example. Answer: Rules set by government to influence
behavior; e.g., emission standards for factories,
mandatory seatbelts, or price caps on essential drugs.
Notes:
Q15. Why might government intervention sometimes Answer: Policy may be poorly targeted, based on weak
fail? information, captured by special interests, or create new
distortions and compliance costs.
Notes:
 Part B – Macroeconomics (50 Questions)
5. Measuring the Economy (15 Questions)
Q1. Define GDP. Answer: GDP is the total market value of all final goods
and services produced within a country in a given period
(usually a year or quarter).
Notes:

Q2. Differentiate between nominal GDP and real GDP. Answer: Nominal measures output at current prices;
Real adjusts for price changes using a base-year
price—so it reflects quantity changes only.
Notes:

Q3. Calculate nominal GDP if 100 units of a product are Answer: Nominal GDP = Price × Quantity = $5 × 100 =
sold at $5 each. $500. Nominal uses current prices, no inflation
adjustment.
Notes:

Q4. If prices increase by 10% and nominal GDP rises Answer: Real growth ≈ (1 + nominal)/(1 + inflation) − 1
by 15%, what is the real GDP growth rate? = 1.15/1.10 − 1 ≈ 0.0455 (4.55%). So about 4.5% real
GDP growth.
Notes:

Q5. What is the Consumer Price Index (CPI)? Answer: CPI tracks the cost of a fixed basket of
consumer goods/services over time relative to a base
period (index = 100 in base year).
Notes:

Q6. How is inflation calculated using CPI? Answer: Inflation (%) = (CPI_t − CPI_{t−1}) / CPI_{t−1}
× 100. Example: CPI 120 to 126 ⇒ (6/120)×100 = 5%.
Notes:
Q7. List three types of unemployment. Answer: Frictional (search), Structural (mismatch),
Cyclical (business cycle). Some add Seasonal as a
fourth type.
Notes:

Q8. Define frictional unemployment. Answer: Short-term unemployment from normal job
search and transitions (e.g., a graduate seeking their
first job).
Notes:

Q9. Define structural unemployment. Answer: Mismatch between workers’ skills/locations

and jobs (e.g., automation replaces a role).
Notes:

Q10. Define cyclical unemployment. Answer: Joblessness caused by downturns in the

business cycle (recessions reduce demand).
Notes:

Q11. Calculate unemployment rate if 8 million people Answer: Unemployment rate = Unemployed / Labor
are unemployed and the labor force is 80 million. force × 100 = 8 million / 80 million × 100 = 10%.
Notes:

Q12. Why is GDP not a perfect measure of well-being? Answer: It omits non-market work, underground
economy, distribution, leisure, environmental quality,
and happiness; it’s a quantity, not quality metric.
Notes:
Q13. What is the difference between GDP and GNP? Answer: GDP = output within borders; GNP = output
produced by nationals (residents) regardless of location
(GDP + net factor income from abroad).
Notes:

Q14. Explain how inflation affects purchasing power. Answer: As prices rise, each unit of money buys fewer
goods; if income doesn’t keep up, real purchasing
power falls.
Notes:

Q15. Explain why low unemployment is desirable for an Answer: It means more output/income and less social
economy. cost, but too low can signal overheating and inflation
pressures.
Notes:
 6. Economic Growth & Development (10 Questions)
Q1. Differentiate between economic growth and Answer: Growth = increase in output (real GDP).
economic development. Development = broader improvements in living
standards (health, education, equality, institutions).
Notes:

Q2. List three factors that promote economic growth. Answer: Capital accumulation, human
capital/education, technology/innovation, good
institutions, infrastructure, openness to trade.
Notes:

Q3. Why is technology important for growth? Answer: It raises productivity—producing more output
from the same inputs—driving long-run growth.
Notes:

Q4. What is sustainable growth? Answer: Growth that meets present needs without
compromising future generations—stewarding natural
resources and limiting pollution.
Notes:

Q5. How can education improve economic Answer: Education builds human capital, raising
development? productivity, incomes, health outcomes, and enabling
technological adoption.
Notes:

Q6. Explain the role of infrastructure in growth. Answer: Transport, power, and digital networks reduce
costs, connect markets, and attract investment,
enabling larger-scale production.
Notes:
Q7. List two indicators of economic development. Answer: HDI, life expectancy, literacy/years of
schooling, poverty rates, access to clean water,
inequality measures (Gini).
Notes:

Q8. How does population growth affect development? Answer: Moderate growth can expand labor and
markets; too rapid growth can strain resources,
education, and jobs.
Notes:

Q9. What is human capital? Answer: Skills, knowledge, and health embodied in
people that raise productivity and earnings.
Notes:

Q10. Why is political stability important for growth? Answer: It reduces uncertainty, encourages
investment, improves policy continuity, and lowers risk
premiums.
Notes:
 7. Money, Banking & Monetary Policy (10 Questions)
Q1. List three functions of money. Answer: Medium of exchange, unit of account, store of
value (and sometimes standard of deferred payment).
Notes:

Q2. What is fiat money? Answer: Money with value by government decree/legal
tender, not convertible into a commodity like gold.
Notes:

Q3. What is the role of the central bank? Answer: Issue currency, act as banker to
banks/government, regulate banks, and conduct
monetary policy to achieve price stability and growth.
Notes:

Q4. List two tools of monetary policy. Answer: Policy (repo) interest rate changes, open
market operations (buy/sell bonds), reserve
requirements, forward guidance, and in some cases
QE.
Notes:

Q5. What is an interest rate? Answer: The price of borrowing/lending money

expressed as a percent per period; compensates for
time value and risk.
Notes:

Q6. How does lowering interest rates affect the Answer: Cheaper credit boosts
economy? consumption/investment, raises asset prices, weakens
the currency, and stimulates output/employment, with
lags.
Notes:
Q7. What is the reserve ratio? Answer: The share of deposits banks must hold as
reserves; higher ratios restrict lending, lower ratios
expand it.
Notes:

Q8. How does the central bank control inflation? Answer: Raise policy rates, sell bonds (OMOs), tighten
liquidity, communicate anti-inflation stance—cooling
demand and expectations.
Notes:

Q9. Explain the concept of money supply. Answer: Total money in the economy (e.g., M1, M2),
created by central bank and commercial bank lending;
influences inflation and output in the short run.
Notes:

Q10. Differentiate between expansionary and Answer: Expansionary: lower rates/increase liquidity to
contractionary monetary policy. stimulate demand. Contractionary: raise rates/reduce
liquidity to curb inflation.
Notes:
 8. Fiscal Policy & Government Budgets (10 Questions)
Q1. What is fiscal policy? Answer: Government spending and taxation choices to
influence aggregate demand, output, and employment.
Notes:

Q2. Differentiate between direct and indirect taxes. Answer: Direct: levied on income/wealth (income tax,
corporate tax). Indirect: levied on spending (GST/VAT,
excise).
Notes:

Q3. Give two examples of direct taxes. Answer: Personal income tax, corporate income tax,
property tax (varies by country).
Notes:

Q4. Give two examples of indirect taxes. Answer: GST/VAT, excise duties, customs duties
(import tariffs).
Notes:

Q5. What is expansionary fiscal policy? Answer: Government spending and taxation choices to
influence aggregate demand, output, and employment.
Notes:

Q6. What is contractionary fiscal policy? Answer: Government spending and taxation choices to
influence aggregate demand, output, and employment.
Notes:
Q7. What is a budget deficit? Answer: When government expenditures exceed
revenues in a given period; financed by borrowing
(issuing bonds).
Notes:

Q8. What is public debt? Answer: Cumulative past deficits minus

surpluses—total amount the government owes to
creditors (domestic/foreign).
Notes:

Q9. How can fiscal policy reduce unemployment? Answer: Government spending and taxation choices to
influence aggregate demand, output, and employment.
Notes:

Q10. How can fiscal policy control inflation? Answer: Government spending and taxation choices to
influence aggregate demand, output, and employment.
Notes:
 9. International Trade & Global Economy (5 Questions)
Q1. What are the benefits of international trade? Answer: Access to a wider variety of goods, lower
prices, larger markets, specialization, productivity gains,
technology transfer.
Notes:

Q2. Explain the concept of comparative advantage. Answer: A country should specialize in goods it can
produce at lower opportunity cost than others, enabling
mutually beneficial trade.
Notes:

Q3. What is a tariff? Answer: A tax on imported goods to protect domestic

industries or raise revenue; it raises domestic prices
and reduces import volumes.
Notes:

Q4. What is a quota? Answer: A quantitative limit on imports; it restricts

supply and can raise domestic prices similar to tariffs.
Notes:

Q5. How does globalization affect domestic markets? Answer: Greater competition and efficiency, access to
inputs/markets; but can pressure import-competing
industries and require worker retraining.
Notes: