Essentials of Economics 6th
Edition Krugman & Wells Test
Bank – Questions, Answers &
Rationales 2026/2027
Guaranteed Pass (GRADED
A+)
Question 1: What is the fundamental economic problem faced
by all societies?
A. Inflation
B. Scarcity
C. Unemployment
D. Monopoly
Answer: B. Scarcity
Rationale: Scarcity exists because resources are limited while
human wants are unlimited. This forces individuals and societies
to make choices about how resources are allocated.
Question 2: What is the opportunity cost of a decision?
A. The money spent on a product
B. The total value of all alternatives
C. The value of the next best alternative forgone
D. The cost of production
,Answer: C. The value of the next best alternative forgone
Rationale: Opportunity cost represents what must be given up
when one choice is made instead of another.
Question 3: Which of the following would cause a movement
along a demand curve?
A. Change in consumer income
B. Change in population
C. Change in price of the good
D. Change in consumer preferences
Answer: C. Change in price of the good
Rationale: A change in the good's own price causes movement
along the demand curve, while other factors shift the curve.
Question 4: If consumer income increases and a product is a
normal good, what happens to demand?
A. Demand decreases
B. Demand remains unchanged
C. Demand increases
D. Supply increases
Answer: C. Demand increases
Rationale: For normal goods, higher incomes lead consumers to
purchase more of the product.
Question 5: What is equilibrium in a competitive market?
,A. When supply exceeds demand
B. When demand exceeds supply
C. When quantity demanded equals quantity supplied
D. When prices are fixed
Answer: C. When quantity demanded equals quantity supplied
Rationale: Market equilibrium occurs when buyers and sellers
agree on a price where quantity demanded equals quantity
supplied.
Question 6: Which market structure is characterized by many
firms selling identical products?
A. Monopoly
B. Oligopoly
C. Monopolistic Competition
D. Perfect Competition
Answer: D. Perfect Competition
Rationale: Perfect competition involves many firms producing
identical products with easy market entry and exit.
Question 7: Gross Domestic Product (GDP) measures:
A. Total wealth of citizens
B. Total value of final goods and services produced within a
country
C. Government spending only
D. Household income only
Answer: B. Total value of final goods and services produced
within a country
, Rationale: GDP is the standard measure of a country's total
economic output over a specific period.
Question 8: Inflation refers to:
A. A decrease in economic growth
B. A rise in unemployment
C. A sustained increase in the general price level
D. A decline in consumer spending
Answer: C. A sustained increase in the general price level
Rationale: Inflation occurs when average prices of goods and
services rise over time, reducing purchasing power.
Question 9: What is comparative advantage?
A. Producing more than another producer
B. Producing at a lower opportunity cost than another producer
C. Producing the highest-quality goods
D. Having the largest workforce
Answer: B. Producing at a lower opportunity cost than
another producer
Rationale: Comparative advantage allows countries and
individuals to benefit from specialization and trade.
Question 10: The primary goal of monetary policy is to:
A. Set tax rates
B. Control government spending
C. Influence money supply and interest rates
D. Regulate international trade
Edition Krugman & Wells Test
Bank – Questions, Answers &
Rationales 2026/2027
Guaranteed Pass (GRADED
A+)
Question 1: What is the fundamental economic problem faced
by all societies?
A. Inflation
B. Scarcity
C. Unemployment
D. Monopoly
Answer: B. Scarcity
Rationale: Scarcity exists because resources are limited while
human wants are unlimited. This forces individuals and societies
to make choices about how resources are allocated.
Question 2: What is the opportunity cost of a decision?
A. The money spent on a product
B. The total value of all alternatives
C. The value of the next best alternative forgone
D. The cost of production
,Answer: C. The value of the next best alternative forgone
Rationale: Opportunity cost represents what must be given up
when one choice is made instead of another.
Question 3: Which of the following would cause a movement
along a demand curve?
A. Change in consumer income
B. Change in population
C. Change in price of the good
D. Change in consumer preferences
Answer: C. Change in price of the good
Rationale: A change in the good's own price causes movement
along the demand curve, while other factors shift the curve.
Question 4: If consumer income increases and a product is a
normal good, what happens to demand?
A. Demand decreases
B. Demand remains unchanged
C. Demand increases
D. Supply increases
Answer: C. Demand increases
Rationale: For normal goods, higher incomes lead consumers to
purchase more of the product.
Question 5: What is equilibrium in a competitive market?
,A. When supply exceeds demand
B. When demand exceeds supply
C. When quantity demanded equals quantity supplied
D. When prices are fixed
Answer: C. When quantity demanded equals quantity supplied
Rationale: Market equilibrium occurs when buyers and sellers
agree on a price where quantity demanded equals quantity
supplied.
Question 6: Which market structure is characterized by many
firms selling identical products?
A. Monopoly
B. Oligopoly
C. Monopolistic Competition
D. Perfect Competition
Answer: D. Perfect Competition
Rationale: Perfect competition involves many firms producing
identical products with easy market entry and exit.
Question 7: Gross Domestic Product (GDP) measures:
A. Total wealth of citizens
B. Total value of final goods and services produced within a
country
C. Government spending only
D. Household income only
Answer: B. Total value of final goods and services produced
within a country
, Rationale: GDP is the standard measure of a country's total
economic output over a specific period.
Question 8: Inflation refers to:
A. A decrease in economic growth
B. A rise in unemployment
C. A sustained increase in the general price level
D. A decline in consumer spending
Answer: C. A sustained increase in the general price level
Rationale: Inflation occurs when average prices of goods and
services rise over time, reducing purchasing power.
Question 9: What is comparative advantage?
A. Producing more than another producer
B. Producing at a lower opportunity cost than another producer
C. Producing the highest-quality goods
D. Having the largest workforce
Answer: B. Producing at a lower opportunity cost than
another producer
Rationale: Comparative advantage allows countries and
individuals to benefit from specialization and trade.
Question 10: The primary goal of monetary policy is to:
A. Set tax rates
B. Control government spending
C. Influence money supply and interest rates
D. Regulate international trade
