Ivy Software MBA PrepWorks Fundamentals of Economics 2026 | Exam Questions, Correct Answers & Complete Solutions

Ivy Software MBA PrepWorks Fundamentals
of Economics 2026 | Exam Questions,
Correct Answers & Complete Solutions
Ivy Software MBA PrepWorks Fundamentals of Economics 2026 | Exam
Questions, Correct Answers & Complete Solutions



DOCUMENT OVERVIEW

• This study guide contains 200 carefully crafted multiple-choice questions designed
to assess your understanding of fundamental economic principles, theories, and
applications relevant to MBA-level study

• Use this material by working through questions systematically, reviewing detailed
rationales for both correct and incorrect options to deepen your conceptual
understanding and build confidence for your exam



SECTION 1: PRINCIPLES OF ECONOMICS & BASIC CONCEPTS

1. The primary concern of economics as a discipline is to address which of the
following fundamental problems?

A) How to maximize government spending

B) How to allocate scarce resources among unlimited wants

C) How to eliminate poverty completely

D) How to increase the money supply constantly

E) How to reduce the working hours for all employees

✓ CORRECT ANSWER: B) How to allocate scarce resources among unlimited
wants

Rationale: Economics fundamentally addresses the problem of scarcity—the reality
that resources (labor, capital, land, time) are limited while human wants and needs
are unlimited. This core economic problem drives all production and distribution
decisions. Option A incorrectly focuses on government spending rather than
resource allocation. Option C is a policy goal, not the discipline's primary concern.

,Options D and E are specific policy objectives, not fundamental economic problems
that economics addresses.



2. Which economic system relies primarily on price signals and market
mechanisms to allocate resources?

A) Command economy

B) Planned economy

C) Market economy

D) Barter economy

E) Feudal economy

✓ CORRECT ANSWER: C) Market economy

Rationale: A market economy uses price signals, supply and demand, and profit
incentives to allocate resources efficiently without central planning. Producers
respond to market prices to decide what to produce, and consumers use prices to
decide what to buy. Command and planned economies (options A and B) rely on
government central planning. A barter economy (option D) relies on direct
exchange of goods. A feudal economy (option E) was based on land ownership and
social hierarchy, not price mechanisms.



3. What is the opportunity cost of a decision?

A) The total amount of money spent on the decision

B) The value of the next best alternative foregone

C) The time it takes to make the decision

D) The total revenue generated from the decision

E) The inflation rate at the time of the decision

✓ CORRECT ANSWER: B) The value of the next best alternative foregone

,Rationale: Opportunity cost is a fundamental economic concept representing what
you give up when you choose one option over another. If you choose to attend
graduate school, the opportunity cost includes the salary you would have earned
working. Option A confuses opportunity cost with explicit costs. Option C focuses
on time, not value. Option D and E are unrelated economic metrics that don't
define opportunity cost.



4. An economy operates at its production possibilities frontier (PPF) when:

A) Resources are unemployed or underutilized

B) The economy is producing at maximum efficiency with full employment

C) Inflation exceeds acceptable levels

D) The government is spending more than it collects in taxes

E) Consumer spending is at its highest level

✓ CORRECT ANSWER: B) The economy is producing at maximum efficiency
with full employment

Rationale: The PPF represents the maximum combination of goods an economy
can produce with available resources and technology. Operating at the PPF means
all resources are fully employed and efficiently allocated. Operating inside the PPF
(option A) indicates underutilization. Options C, D, and E describe economic
conditions unrelated to the PPF concept.



5. Which of the following represents a positive economic statement?

A) The government should lower taxes to stimulate economic growth

B) The minimum wage is unfairly low and should be increased immediately

C) When the price of gasoline rises, the quantity demanded decreases

D) Society would be better off with less pollution

E) Healthcare should be provided free to all citizens

, ✓ CORRECT ANSWER: C) When the price of gasoline rises, the quantity
demanded decreases

Rationale: Positive economics deals with factual, testable statements about how the
economy works ("what is"). Option C is a factual statement about price and quantity
relationships that can be verified empirically. All other options are normative
statements ("what ought to be"), expressing value judgments about policy and
desirability. Positive statements describe reality; normative statements prescribe
what should happen.



SECTION 2: SUPPLY & DEMAND

6. The law of demand states that, all else equal:

A) As price increases, quantity demanded increases

B) As price decreases, quantity supplied increases

C) As price increases, quantity demanded decreases

D) As price increases, consumer income increases

E) As price increases, production costs decrease

✓ CORRECT ANSWER: C) As price increases, quantity demanded decreases

Rationale: The law of demand is a fundamental economic principle showing the
inverse relationship between price and quantity demanded. When prices rise,
consumers buy less (quantity demanded falls), and vice versa. Option A reverses
this relationship. Option B confuses demand with supply. Options D and E describe
different economic relationships unrelated to the law of demand.



7. Which of the following would cause a rightward shift of the demand curve
for automobiles?

A) An increase in the price of automobiles

B) An increase in consumer income (assuming automobiles are normal goods)