Basic Economics Practice Questions
30 free Basic Economics practice questions for the Static GK. Tap an option to answer — you get instant feedback, the correct answer, and a detailed explanation for every question.
What is economics primarily concerned with?
- A Production of goods only
- B Distribution of wealth only
- C Scarcity and choice
- D Taxation only
Correct answer: Scarcity and choice
Economics studies how individuals and societies allocate scarce resources. It focuses on decision-making under scarcity.
What does GDP stand for?
- A Gross Domestic Product
- B General Domestic Price
- C Global Development Plan
- D Gross Development Process
Correct answer: Gross Domestic Product
GDP stands for Gross Domestic Product. It measures the total value of goods and services produced within a country.
Which factor of production includes human effort?
- A Land
- B Capital
- C Labor
- D Entrepreneurship
Correct answer: Labor
Labor refers to human effort used in production. It includes both physical and mental work.
What is the law of demand?
- A Demand increases when price decreases
- B Price increases when demand increases
- C Supply increases when price decreases
- D Demand is constant
Correct answer: Demand increases when price decreases
The law of demand states that as price falls, quantity demanded increases, assuming other factors remain constant.
What is inflation?
- A Decrease in prices
- B Increase in unemployment
- C A general rise in prices
- D Increase in production
Correct answer: A general rise in prices
Inflation refers to a sustained rise in the general price level. It reduces the purchasing power of money.
Which organization controls monetary policy in India?
- A SEBI
- B RBI
- C SBI
- D Finance Ministry
Correct answer: RBI
The Reserve Bank of India (RBI) controls monetary policy. It regulates money supply and interest rates.
What is opportunity cost?
- A Total cost of producing the goods
- B Cost of labor and materials
- C Value of next best alternative
- D Cost of finished goods
Correct answer: Value of next best alternative
Opportunity cost is the value of the next best alternative forgone. It represents the trade-off in decision-making.
Which market structure has many buyers and sellers with identical products?
- A Monopolistic competition
- B Oligopoly
- C Perfect competition
- D Duopoly
Correct answer: Perfect competition
Perfect competition has many buyers and sellers offering identical products. No single participant can influence price.
What is a monopoly?
- A Multiple sellers
- B Single seller
- C Two sellers
- D Many buyers
Correct answer: Single seller
A monopoly exists when there is only one seller in the market. This seller has significant control over prices.
What does 'supply' refer to in economics?
- A Consumer demand for goods and services
- B Quantity of goods available for sale
- C Price of goods
- D Profit earned
Correct answer: Quantity of goods available for sale
Supply refers to the quantity of a good that producers are willing to sell at various prices. It depends on production conditions.
Which type of unemployment occurs due to lack of demand in the economy?
- A Seasonal unemployment
- B Frictional unemployment
- C Cyclical unemployment
- D Structural unemployment
Correct answer: Cyclical unemployment
Cyclical unemployment arises during economic downturns. It is caused by reduced demand for goods and services.
What is a budget deficit?
- A When revenue exceeds expenditure
- B When expenditure exceeds revenue
- C When taxes are reduced
- D When imports exceed exports
Correct answer: When expenditure exceeds revenue
A budget deficit occurs when government spending exceeds its revenue. It may lead to borrowing or increased debt.
Which economic system is based on private ownership and free markets?
- A Socialism
- B Capitalism
- C Communism
- D Mixed economy
Correct answer: Capitalism
Capitalism is characterized by private ownership of resources and market-driven decisions. Prices are determined by supply and demand.
What is the function of banks in an economy?
- A Produce goods for trade
- B Provide loans and accept deposits
- C Control prices of goods and services
- D Create financial laws
Correct answer: Provide loans and accept deposits
Banks accept deposits and provide loans. They play a key role in financial intermediation and economic growth.
What does 'per capita income' mean?
- A Total income of a country
- B Government income
- C Income from exports
- D Income per person
Correct answer: Income per person
Per capita income is the average income per person in a country. It is calculated by dividing total income by population.
Which term refers to the total demand for goods and services in an economy?
- A Aggregate demand
- B Aggregate supply
- C Fiscal policy
- D National income
Correct answer: Aggregate demand
Aggregate demand represents the total demand for goods and services in an economy. It includes consumption, investment, government spending, and net exports.
What is 'deflation'?
- A Increase in prices
- B Increase in income
- C Decrease in supply
- D Decrease in prices
Correct answer: Decrease in prices
Deflation is a decrease in the general price level. It can lead to reduced spending and economic slowdown.
Which type of tax is paid by individuals on their income or wealth?
- A Indirect tax
- B Custom duty
- C Direct tax
- D GST
Correct answer: Direct tax
Direct taxes are paid directly by individuals to the government. Examples include income tax.
What is 'import'?
- A Selling goods to foreign countries
- B Producing goods locally
- C Exporting services
- D Buying goods from other countries
Correct answer: Buying goods from other countries
Imports refer to goods and services purchased from other countries. They are part of international trade.
What is 'export'?
- A Buying goods from other countries
- B Producing goods locally
- C Distributing goods domestically
- D Selling goods to other countries
Correct answer: Selling goods to other countries
Exports are goods and services sold to other countries. They bring foreign exchange into the economy.
In economics, goods for which demand rises as consumer income falls are known as what?
- A Inferior goods
- B Complementary goods
- C Luxury goods
- D Normal goods
Correct answer: Inferior goods
Inferior goods have an inverse relationship with income: as income falls, demand for them rises, and as income rises, demand falls.
What does the term 'fiscal policy' refer to?
- A The central bank's control over interest rates and the overall money supply in the economy
- B The regulation of foreign exchange rates by commercial banks
- C The government's use of taxation and public spending to influence the economy
- D The setting of minimum wages across various industrial sectors
Correct answer: The government's use of taxation and public spending to influence the economy
Fiscal policy involves government decisions on taxation and spending to influence economic activity, unlike monetary policy which is managed by the central bank.
Which of the following is a characteristic of a monopoly market?
- A Many firms sell differentiated products
- B Firms are price takers at market price
- C A single seller dominates the whole market
- D Buyers have full information on substitutes
Correct answer: A single seller dominates the whole market
A monopoly is characterised by a single seller controlling the entire supply of a product with no close substitutes, giving the firm significant power to set prices.
The price at which the quantity demanded equals the quantity supplied is called the what?
- A The ceiling above clearing
- B The floor price below the natural rate
- C The market equilibrium price
- D The marginal price of the last unit
Correct answer: The market equilibrium price
At the equilibrium price, quantity demanded exactly equals quantity supplied, so there is no shortage or surplus in the market.
What does Gross National Product (GNP) measure that GDP does not?
- A Net income earned by residents abroad
- B The total value of all imported goods
- C The depreciation of capital goods used up
- D Only output within the country's borders
Correct answer: Net income earned by residents abroad
GNP equals GDP plus net income earned by a nation's residents from abroad, whereas GDP counts only output produced within a country's borders.
The concept of price elasticity of demand measures which of the following?
- A The total revenue a firm earns from its output
- B Responsiveness of quantity demanded to price
- C The rate at which prices rise economy-wide
- D The gap between highest and lowest prices
Correct answer: Responsiveness of quantity demanded to price
Price elasticity of demand measures how much the quantity demanded of a good changes in response to a change in its price.
In economics, what does the term 'marginal utility' refer to?
- A Total satisfaction from consuming an entire stock of a good
- B Extra satisfaction from consuming one more unit
- C The average benefit across all units
- D The minimum quantity to satisfy a need
Correct answer: Extra satisfaction from consuming one more unit
Marginal utility is the additional satisfaction a consumer derives from consuming one more unit of a good or service.
Which situation best describes an economic recession?
- A A sustained rise in the general price level
- B A broad decline in economic activity
- C A rapid expansion of output
- D A rise in exports over imports
Correct answer: A broad decline in economic activity
A recession is a significant, widespread decline in economic activity, typically marked by falling output and rising unemployment over a sustained period.
The law of diminishing marginal returns states that as more of one input is added while others are held constant, eventually what happens?
- A Each added unit of input adds less to output
- B Total output falls straight to zero
- C Average cost keeps decreasing without any limit
- D Each input unit doubles the output
Correct answer: Each added unit of input adds less to output
The law of diminishing marginal returns holds that beyond a point, adding more of a variable input to fixed inputs yields progressively smaller increases in total output.
What is the primary purpose of a subsidy provided by a government?
- A To raise revenue by taxing the sale of luxury products
- B To lower the cost of producing or consuming a good
- C To restrict imports by imposing high duties
- D To limit the quantity firms may sell
Correct answer: To lower the cost of producing or consuming a good
A subsidy is a government payment that reduces the cost of producing or consuming a good, often to encourage its supply or make it more affordable.