PRINCIPLES OF ECONOMICS EXAMINATION
TEST 2026 QUESTIONS WITH ANSWERS
GRADED A+
◉ Define Circular-Flow Diagram. Answer: The Circular-Flow Diagram
is a visual model of the economy that shows how money flows through
markets among households and firms (without tax)
◉ What is Economic Principle #1? Answer: PRINCIPLE #1: PEOPLE
FACE TRADE-OFFS:
To get one thing, we usually have to give up another thing
◉ What is Economic Principle #2? Answer: PRINCIPLE #2: THE
COST OF SOMETHING IS WHAT YOU GIVE UP TO GET IT:
Decisions require comparing costs and benefits of
alternatives
◉ Define Opportunity Cost. Answer: The Opportunity Cost of an item is
what you give up to
obtain that item.
, ◉ What is Economic Principle #3? Answer: PRINCIPLE #3:
RATIONAL PEOPLE THINK AT THE MARGIN:
People make decisions by comparing costs and
benefits at the margin
◉ Define Marginal Changes. Answer: Marginal changes are small,
incremental adjustments to
an existing plan of action
◉ What is Economic Principle #4? Answer: PRINCIPLE #4: PEOPLE
RESPOND TO INCENTIVES:
Marginal changes in costs or benefits motivate people
to respond
◉ What is Economic Principle #5? Answer: PRINCIPLE #5: TRADE
CAN MAKE EVERYONE BETTER OFF:
Competition results in gains from trading
Trade allows people to specialize in what they do best
◉ What is Economic Principle #6? Answer: PRINCIPLE #6:
MARKETS ARE USUALLY A GOOD WAY TO
ORGANIZE ECONOMIC ACTIVITY:
Households decide what to buy and who to work for
TEST 2026 QUESTIONS WITH ANSWERS
GRADED A+
◉ Define Circular-Flow Diagram. Answer: The Circular-Flow Diagram
is a visual model of the economy that shows how money flows through
markets among households and firms (without tax)
◉ What is Economic Principle #1? Answer: PRINCIPLE #1: PEOPLE
FACE TRADE-OFFS:
To get one thing, we usually have to give up another thing
◉ What is Economic Principle #2? Answer: PRINCIPLE #2: THE
COST OF SOMETHING IS WHAT YOU GIVE UP TO GET IT:
Decisions require comparing costs and benefits of
alternatives
◉ Define Opportunity Cost. Answer: The Opportunity Cost of an item is
what you give up to
obtain that item.
, ◉ What is Economic Principle #3? Answer: PRINCIPLE #3:
RATIONAL PEOPLE THINK AT THE MARGIN:
People make decisions by comparing costs and
benefits at the margin
◉ Define Marginal Changes. Answer: Marginal changes are small,
incremental adjustments to
an existing plan of action
◉ What is Economic Principle #4? Answer: PRINCIPLE #4: PEOPLE
RESPOND TO INCENTIVES:
Marginal changes in costs or benefits motivate people
to respond
◉ What is Economic Principle #5? Answer: PRINCIPLE #5: TRADE
CAN MAKE EVERYONE BETTER OFF:
Competition results in gains from trading
Trade allows people to specialize in what they do best
◉ What is Economic Principle #6? Answer: PRINCIPLE #6:
MARKETS ARE USUALLY A GOOD WAY TO
ORGANIZE ECONOMIC ACTIVITY:
Households decide what to buy and who to work for
