AGRICULTURAL ECONOMICS
PRACTICE EXAM QUESTIONS WITH ANSWERS
Exam Preparation | Test Questions | Fully Explained Solutions
SECTION A: SHORT THEORY QUESTIONS
Question 1
Define economics.
Answer
Economics is the study of how individuals, firms and societies allocate scarce resources among
competing uses to satisfy unlimited human wants.
Question 2
Explain the concept of scarcity.
Answer
Scarcity refers to the situation where resources are limited while human wants are unlimited.
Because of scarcity:
• not all wants can be satisfied
• choices must be made
• opportunity costs arise.
Question 3
Define opportunity cost.
Answer
Opportunity cost is the value of the next best alternative forgone when a choice is made.
Example:
If a farmer uses land to produce maize instead of cattle, the profit from cattle production is the
opportunity cost.
Question 4
List the three main factors of production.
Answer
The three main factors of production are:
1. Natural resources (land, water, soil)
2. Human resources (labour, skills, knowledge)
3. Capital resources (machinery, equipment, buildings)
SECTION B: DEMAND AND CONSUMER THEORY
Question 5
State the law of demand.
Answer
The law of demand states that:
When the price of a good increases, quantity demanded decreases, and when the price decreases,
quantity demanded increases, holding all other factors constant.
, Question 6
Explain the difference between a change in demand and a change in quantity demanded.
Answer
Change in quantity demanded occurs when price changes, causing a movement along the demand
curve.
Change in demand occurs when other factors change, such as:
• income
• tastes and preferences
• price of substitutes
• population
This causes a shift of the demand curve.
Question 7
Define marginal utility.
Answer
Marginal utility is the additional satisfaction gained from consuming one extra unit of a good.
Formula:
MU = ΔTU / ΔQ
Where
MU = marginal utility
ΔTU = change in total utility
ΔQ = change in quantity.
SECTION C: ELASTICITY
Question 8
Define price elasticity of demand.
Answer
Price elasticity of demand measures how responsive quantity demanded is to a change in price.
Formula:
PED = (% change in quantity demanded) / (% change in price)
Question 9
Interpret the following elasticity values:
PED = 2
PED = 1
PED = 0.4
Answer
PED = 2 → Elastic demand
PED = 1 → Unitary elastic demand
PED = 0.4 → Inelastic demand
PRACTICE EXAM QUESTIONS WITH ANSWERS
Exam Preparation | Test Questions | Fully Explained Solutions
SECTION A: SHORT THEORY QUESTIONS
Question 1
Define economics.
Answer
Economics is the study of how individuals, firms and societies allocate scarce resources among
competing uses to satisfy unlimited human wants.
Question 2
Explain the concept of scarcity.
Answer
Scarcity refers to the situation where resources are limited while human wants are unlimited.
Because of scarcity:
• not all wants can be satisfied
• choices must be made
• opportunity costs arise.
Question 3
Define opportunity cost.
Answer
Opportunity cost is the value of the next best alternative forgone when a choice is made.
Example:
If a farmer uses land to produce maize instead of cattle, the profit from cattle production is the
opportunity cost.
Question 4
List the three main factors of production.
Answer
The three main factors of production are:
1. Natural resources (land, water, soil)
2. Human resources (labour, skills, knowledge)
3. Capital resources (machinery, equipment, buildings)
SECTION B: DEMAND AND CONSUMER THEORY
Question 5
State the law of demand.
Answer
The law of demand states that:
When the price of a good increases, quantity demanded decreases, and when the price decreases,
quantity demanded increases, holding all other factors constant.
, Question 6
Explain the difference between a change in demand and a change in quantity demanded.
Answer
Change in quantity demanded occurs when price changes, causing a movement along the demand
curve.
Change in demand occurs when other factors change, such as:
• income
• tastes and preferences
• price of substitutes
• population
This causes a shift of the demand curve.
Question 7
Define marginal utility.
Answer
Marginal utility is the additional satisfaction gained from consuming one extra unit of a good.
Formula:
MU = ΔTU / ΔQ
Where
MU = marginal utility
ΔTU = change in total utility
ΔQ = change in quantity.
SECTION C: ELASTICITY
Question 8
Define price elasticity of demand.
Answer
Price elasticity of demand measures how responsive quantity demanded is to a change in price.
Formula:
PED = (% change in quantity demanded) / (% change in price)
Question 9
Interpret the following elasticity values:
PED = 2
PED = 1
PED = 0.4
Answer
PED = 2 → Elastic demand
PED = 1 → Unitary elastic demand
PED = 0.4 → Inelastic demand
