O Level Economics chapter 1: The basic economic problem MCQs with answers
By Team Megalecture · Updated 4 Nov 2026
44 exam-style questions on The basic economic problem, each with the answer and a short explanation. Ten of them are below to try. The chapter test draws ten fresh questions each time and is marked the moment you finish, with your score by topic.
The nature of the basic economic problem11 questions
Factors of production11 questions
Opportunity cost10 questions
Production possibility curve (PPC) diagrams12 questions
Ten The basic economic problem questions with answers
Try each one, then open the answer. These ten stay the same; the test draws new ones every time.
1. What does a point outside an economy's current PPC show?
A
an output reached by moving resources between the goods
B
the most efficient output of the two goods
C
an output it cannot reach with its current resources
D
an output at which some resources are unemployed
Show answer
Answer: C. Points beyond the PPC are unattainable until the quantity or quality of resources, or technology, improves. Moving resources between goods only moves the economy along the curve.
2. An economy with a bowed-out PPC moves along the curve, producing more and more food and less and less clothing. What happens to the opportunity cost of each extra unit of food?
A
it falls, as farmers become more skilled with practice
B
it stays the same, as the total amount of resources is fixed
C
it falls, as fewer resources are left in clothing
D
it rises, as resources less suited to farming are moved into it
Show answer
Answer: D. The resources moved first are those best suited to farming. Later, resources better suited to clothing must be moved, so each extra unit of food costs more clothing.
3. A country uses more of its resources this year to make capital goods, such as machinery, and fewer to make consumer goods. What is the most likely consequence for its PPC in future years?
A
it will shift inwards, because fewer consumer goods are made
B
the economy will move to a point inside it
C
it will shift outwards, so more of both goods can be made
D
it will stay the same, because total resources are fixed
Show answer
Answer: C. Extra capital goods add to the country's stock of capital, raising its productive capacity. This shifts the PPC outwards in future, which is economic growth.
4. Amna, a factory worker, has 16 waking hours each day to divide between paid work and leisure. Why is this an example of the basic economic problem?
A
work is a free good because anyone is able to do it
B
her time is limited, so more work means less leisure
C
her wants are fixed, so she can satisfy all of them
D
leisure has no opportunity cost because nobody pays for it
Show answer
Answer: B. Time is a scarce resource: every extra hour of work is an hour of leisure given up. Leisure does have an opportunity cost, which is the pay she could have earned.
5. What does an economist mean by scarcity?
A
a product is sold at a very high price
B
a product has sold out in the shops and cannot be bought anywhere
C
there are not enough resources to produce everything people want
D
only people with high incomes can afford a product
Show answer
Answer: C. Scarcity means wants are greater than the resources available to satisfy them. It applies to every good that uses resources, not only to goods that have sold out or are expensive.
6. A student has Rs 3,000. She could buy a textbook, a concert ticket or a pair of shoes, each costing Rs 3,000. Her first choice is the textbook, her second the concert ticket and her third the shoes. She buys the textbook. What is her opportunity cost?
A
the concert ticket
B
Rs 3,000
C
the concert ticket and the shoes
D
the shoes
Show answer
Answer: A. The opportunity cost is the next best alternative given up, which is her second choice, the concert ticket. The shoes were only her third choice.
7. Which would reduce the quantity of capital in an economy?
A
firms buy new equipment for their factories
B
workers are trained to use computers
C
interest rates on business loans fall
D
machinery wears out and is not replaced
Show answer
Answer: D. Capital that wears out (depreciates) and is not replaced by new investment reduces the stock of capital. Lower interest rates would encourage firms to invest in more capital.
8. Which pairing of a factor of production and its reward is correct?
A
labour – profit
B
enterprise – profit
C
capital – rent
D
enterprise – interest
Show answer
Answer: B. The rewards are: land – rent, labour – wages, capital – interest, enterprise – profit.
9. A student can either work extra hours in a shop at Rs 500 an hour or spend the time revising for an exam. Which change would increase the opportunity cost of an hour of revision?
A
the shop cuts the number of hours it offers
B
the shop raises its pay to Rs 600 an hour
C
the price of the student's textbook falls
D
the exam is moved to a later date
Show answer
Answer: B. The opportunity cost of revising is the pay given up. If the pay per hour rises, each hour of revision costs more in earnings forgone.
10. Every economy must decide what to produce and how to produce it. What is the third basic economic question?
A
when to produce
B
where to produce
C
how much to charge buyers
D
for whom to produce
Show answer
Answer: D. The three basic economic questions are what to produce, how to produce and for whom to produce. Answering them decides how scarce resources are allocated.
The basic economic problem: questions students ask
How many The basic economic problem MCQs are there?
44, each with the answer and a short explanation, across 4 topics: The nature of the basic economic problem, Factors of production, Opportunity cost, Production possibility curve (PPC) diagrams. Every chapter test draws ten of them, so you can take it many times.
Is the O Level Economics chapter 1 test free?
Yes. The test, the answers and the explanations are free and need no sign-up. Sign in only if you want your scores kept across devices.
How is the chapter test marked?
The moment you press Finish: your score, the right answer and an explanation for every question, and the ones you got wrong saved in My mistakes to retry.
