2026 NECO Economics Examination Questions and Answers (Objective, Essay & Theory)
PAPER I – OBJECTIVE TEST
INSTRUCTION: Answer ALL questions. Each question is followed by four options lettered A to D. Choose the correct option for each question. The correct answer is provided immediately after each question for self-marking purposes.
Time: 1 hour
1. Economics is best defined as the study of:
A. Money and how it is printed
B. How society allocates scarce resources among competing uses
C. Government spending only
D. The stock market
Answer: B
2. The central economic problem faced by every society is:
A. Unemployment
B. Scarcity
C. Inflation
D. Taxation
Answer: B
3. Opportunity cost refers to:
A. The price of a good in the market
B. The value of the next best alternative forgone
C. The total cost of production
D. The cost of transporting goods
Answer: B
4. Which of these is NOT a factor of production?
A. Land
B. Labour
C. Capital
D. Money
Answer: D
5. A rightward shift in the demand curve for a normal good could be caused by:
A. A fall in the price of the good
B. A rise in consumer income
C. A rise in the price of the good
D. A fall in consumer income
Answer: B
6. The law of demand states that, all things being equal:
A. Price and quantity demanded move in the same direction
B. Price and quantity demanded move in opposite directions
C. Quantity demanded is unaffected by price
D. Demand always increases over time
Answer: B
7. Which market structure has a single seller with no close substitutes?
A. Perfect competition
B. Monopoly
C. Oligopoly
D. Monopolistic competition
Answer: B
8. The law of diminishing marginal utility states that:
A. Total utility falls as consumption rises
B. Each additional unit consumed yields less extra satisfaction than the one before it
C. Marginal utility is always negative
D. Utility never changes
Answer: B
9. Which of the following is NOT a function of money?
A. Medium of exchange
B. Store of value
C. Unit of account
D. Factor of production
Answer: D
10. Inflation is best described as:
A. A fall in general price levels
B. A rise in general price levels over time
C. A rise in the value of a currency
D. A one-time increase in a single good’s price
Answer: B
11. A situation where prices fall persistently is called:
A. Inflation
B. Deflation
C. Stagflation
D. Reflation
Answer: B
12. Which of these best describes perfect competition?
A. Many buyers and sellers, homogeneous products, free entry/exit
B. One seller, unique product
C. Few large firms
D. Products differentiated by branding
Answer: A
13. The tool used by a central bank to buy and sell government securities to control money supply is:
A. Reserve requirement
B. Open market operations
C. Moral suasion
D. Direct control
Answer: B
14. Division of labour refers to:
A. Sharing profits among workers
B. Breaking production into separate tasks handled by specialized workers
C. Reducing the number of workers
D. Equal pay for all workers
Answer: B
15. Which of these is an advantage of division of labour?
A. Increased monotony
B. Increased productivity
C. Increased unemployment
D. Reduced output
Answer: B
16. National income can be measured using:
A. Only the income method
B. Income, output, and expenditure methods
C. Only the expenditure method
D. Only GDP per capita
Answer: B
17. Gross Domestic Product (GDP) measures:
A. Total value of goods and services produced within a country in a period
B. Total money in circulation
C. Total exports only
D. Total government revenue
Answer: A
18. Which of these is a direct tax?
A. Value Added Tax
B. Personal Income Tax
C. Import duty
D. Excise duty
Answer: B
19. A tax whose rate increases as income increases is called:
A. Regressive tax
B. Progressive tax
C. Proportional tax
D. Indirect tax
Answer: B
20. Which of these best defines unemployment?
A. People not willing to work
B. People of working age who are actively seeking work but cannot find it
C. People who have retired
D. People working part-time
Answer: B
21. Which type of unemployment results from a mismatch between workers’ skills and available jobs?
A. Cyclical unemployment
B. Structural unemployment
C. Seasonal unemployment
D. Frictional unemployment
Answer: B
22. The balance of payments records:
A. A country’s exports only
B. All economic transactions between a country and the rest of the world
C. Government budget only
D. Domestic trade only
Answer: B
23. A favourable balance of trade occurs when:
A. Imports exceed exports
B. Exports exceed imports
C. Imports equal exports
D. There is no trade
Answer: B
24. Which of these is a feature of a monopoly?
A. Many sellers
B. Single seller with no close substitutes
C. Free entry and exit
D. Homogeneous products
Answer: B
25. The equilibrium price is the price at which:
A. Supply exceeds demand
B. Demand exceeds supply
C. Quantity demanded equals quantity supplied
D. Price is at its lowest
Answer: C
26. Which of these would cause a leftward shift in the supply curve?
A. Improved technology
B. A rise in the cost of raw materials
C. A fall in the cost of production
D. Government subsidy
Answer: B
27. Elasticity of demand measures:
A. How much a firm produces
B. The responsiveness of quantity demanded to a change in price
C. The total revenue of a firm
D. The cost of production
Answer: B
28. If a small change in price causes a large change in quantity demanded, demand is said to be:
A. Perfectly inelastic
B. Elastic
C. Inelastic
D. Unitary
Answer: B
29. Which of these is an example of a public good?
A. Bread
B. National defence
C. Clothing
D. Private car
Answer: B
30. A situation of high inflation combined with high unemployment is called:
A. Deflation
B. Stagflation
C. Reflation
D. Hyperinflation
Answer: B
31. The main aim of monetary policy is to:
A. Control government spending directly
B. Regulate money supply and interest rates to achieve economic stability
C. Collect taxes
D. Build infrastructure
Answer: B
32. Fiscal policy refers to:
A. Central bank control of money supply
B. Government use of taxation and spending to influence the economy
C. Private sector investment decisions
D. Exchange rate management only
Answer: B
33. Which of these is a feature of oligopoly?
A. Many small firms
B. A few large firms dominating the market
C. A single seller
D. Free entry with no barriers
Answer: B
34. The term “specialization” in economics refers to:
A. Producing everything a country needs
B. Focusing on the production of goods/services in which one has an advantage
C. Avoiding trade with other countries
D. Producing only for export
Answer: B
35. Comparative advantage refers to a country’s ability to produce a good:
A. At a lower opportunity cost than another country
B. In larger quantities than any other country
C. Using only domestic resources
D. At zero cost
Answer: A
36. Which of these best describes a mixed economy?
A. Entirely government-controlled
B. Entirely market-controlled
C. A combination of private enterprise and government intervention
D. No economic activity at all
Answer: C
37. Which of these is a determinant of supply?
A. Consumer income
B. Cost of production
C. Consumer taste
D. Population size
Answer: B
38. The term “exchange rate” refers to:
A. The rate at which goods are exchanged domestically
B. The value of one currency in terms of another
C. The interest rate charged by banks
D. The rate of inflation
Answer: B
39. Which of these is an example of an indirect tax?
A. Company income tax
B. Value Added Tax (VAT)
C. Personal income tax
D. Capital gains tax
Answer: B
40. The multiplier effect describes:
A. How an initial change in spending leads to a larger final change in national income
B. The effect of taxation on consumption
C. The effect of inflation on savings
D. The rate at which prices rise
Answer: A
41. Which of these is a feature of monopolistic competition?
A. Homogeneous products only
B. Many firms selling differentiated products
C. A single dominant firm
D. No advertising
Answer: B
42. A demand schedule shows:
A. The relationship between price and quantity supplied
B. The relationship between price and quantity demanded
C. Total cost of production
D. Total revenue of a firm
Answer: B
43. The term “capital” in economics refers to:
A. Money kept in savings only
B. Man-made resources used in production, such as machinery and tools
C. Natural resources
D. Human effort in production
Answer: B
44. Which of these best describes “entrepreneurship” as a factor of production?
A. Physical labour on a farm
B. The ability to organize other factors of production and take business risks
C. Government regulation of business
D. Bank lending to businesses
Answer: B
45. Devaluation of currency refers to:
A. An increase in the official value of a currency
B. A deliberate decrease in the official value of a currency relative to other currencies
C. Removing a currency from circulation
D. Printing more currency notes
Answer: B
46. Which of these is likely to reduce inflation?
A. Increased government spending without corresponding revenue
B. Contractionary monetary policy (raising interest rates)
C. Increased money supply
D. Reduced interest rates
Answer: B
47. The term “GNP” (Gross National Product) differs from GDP because it:
A. Excludes government spending
B. Includes income earned by citizens abroad and excludes foreign income earned domestically
C. Measures only exports
D. Measures only agricultural output
Answer: B
48. Which of the following best describes a “free market economy”?
A. Government controls all production decisions
B. Resources are allocated mainly through the price mechanism with minimal government interference
C. No trade takes place
D. Prices are fixed by law
Answer: B
49. Which of these is a cause of cost-push inflation?
A. Rising consumer demand
B. Rising cost of raw materials and wages
C. Falling import prices
D. Falling government spending
Answer: B
50. A country’s terms of trade improve when:
A. Export prices rise relative to import prices
B. Import prices rise relative to export prices
C. Both prices remain the same
D. Trade volume falls to zero
Answer: A
51.
A situation where the quantity demanded equals the quantity supplied is known as
A. Inflation
B. Equilibrium
C. Scarcity
D. Monopoly
Answer: B
52.
Which of the following is not a characteristic of money?
A. Durability
B. Divisibility
C. Perishability
D. Portability
Answer: C
53.
The main objective of taxation is to
A. Increase inflation
B. Generate revenue for the government
C. Reduce production
D. Eliminate all imports
Answer: B
54.
Which of the following is an example of a fixed cost?
A. Cost of raw materials
B. Wages paid per unit produced
C. Factory rent
D. Transportation of finished goods
Answer: C
55.
A country specializes in producing goods for which it has a comparative advantage because it
A. Reduces international trade
B. Increases production costs
C. Uses its resources more efficiently
D. Eliminates consumer demand
Answer: C
56.
The central bank controls the supply of money primarily to
A. Encourage smuggling
B. Maintain economic stability
C. Increase unemployment
D. Reduce agricultural production
Answer: B
57.
Which of the following is an example of indirect taxation?
A. Personal income tax
B. Company income tax
C. Value Added Tax (VAT)
D. Capital gains tax
Answer: C
58.
When the price of a commodity increases and consumers buy less of it, this illustrates the
A. Law of Supply
B. Law of Demand
C. Law of Diminishing Returns
D. Principle of Comparative Advantage
Answer: B
59.
The reward paid to an entrepreneur for organizing the factors of production is
A. Rent
B. Interest
C. Profit
D. Wage
Answer: C
60.
Which of the following is the best measure of a country’s overall economic performance?
A. Population growth
B. Gross Domestic Product (GDP)
C. Rainfall
D. Exchange rate alone
Answer: B
PAPER II – THEORY / ESSAY
INSTRUCTION: Answer any FOUR questions from this section. All questions carry equal marks. Show relevant diagrams where necessary.
Time: 2 hours 30 minutes
1. (a) Define demand and supply.
(b) With the aid of a diagram, explain how equilibrium price is determined in a free market.
(c) State three factors that can cause a shift in the demand curve.
Model Answer Guide:
(a) Demand is the quantity of a good or service consumers are willing and able to purchase at a given price over a period. Supply is the quantity producers are willing and able to offer for sale at a given price over the same period.
(b) Draw price on the vertical axis and quantity on the horizontal axis. The demand curve slopes downward from left to right (inverse price-quantity relationship); the supply curve slopes upward from left to right (direct price-quantity relationship). Equilibrium occurs where the two curves intersect, giving equilibrium price (P*) and equilibrium quantity (Q*). At this point, quantity demanded equals quantity supplied, and there is no tendency for price to change.
(c) Changes in consumer income, changes in consumer tastes/preferences, changes in the price of related goods (substitutes/complements), population changes, or seasonal factors.
2. Discuss five causes and five effects of inflation on an economy.
Model Answer Guide:
Causes: excess money supply relative to output (monetary inflation), demand-pull factors (aggregate demand exceeding aggregate supply), cost-push factors (rising costs of wages/raw materials), imported inflation (rising prices of imported goods), and deficit financing by government (printing money to cover budget deficits).
Effects: erosion of purchasing power, redistribution of income from fixed-income earners to asset owners, discouragement of savings, adverse effect on the balance of trade (exports become less competitive), and uncertainty that discourages long-term investment.
3. Explain the term “division of labour.” State three advantages and three disadvantages.
Model Answer Guide:
Division of labour is the breakdown of a production process into distinct tasks, each performed by a different worker who specializes in it, rather than one worker completing the whole process alone.
Advantages: increased productivity/output, time saved from not switching tasks, and improved skill/expertise through repetition.
Disadvantages: monotony and reduced job satisfaction, over-dependence between workers (a delay at one stage affects the whole process), and risk of structural unemployment if a specialized skill becomes obsolete.
4. (a) What is national income?
(b) Explain three methods of measuring national income.
Model Answer Guide:
(a) National income is the total monetary value of all goods and services produced in an economy over a specific period, usually one year.
(b) Income method: sums all incomes earned by factors of production – wages, rent, interest, and profit. Output/product method: sums the value of all goods and services produced across all sectors of the economy, avoiding double counting by using value added. Expenditure method: sums total spending in the economy – consumption, investment, government expenditure, and net exports (exports minus imports).
5. Explain the term “unemployment” and describe three types of unemployment with suitable examples.
Model Answer Guide:
Unemployment refers to a situation where people of working age who are willing and able to work, and are actively seeking employment, cannot find jobs.
Types: Frictional unemployment (short-term, arising from workers moving between jobs), Structural unemployment (arising from a mismatch between workers’ skills and the skills demanded by employers, e.g. due to changing technology), and Cyclical unemployment (arising from a downturn in the business cycle, where overall demand in the economy falls).
6. Explain the meaning of monopoly and state three advantages and three disadvantages of monopoly to an economy.
Model Answer Guide:
A monopoly is a market structure in which a single firm is the sole supplier of a good or service with no close substitutes, and faces significant barriers preventing other firms from entering the market.
Advantages: possible economies of scale leading to lower costs, ability to fund research and innovation from high profits, and, in some cases, more consistent product quality/standardization.
Disadvantages: higher prices for consumers due to lack of competition, potential for lower output/restricted supply, and reduced incentive to innovate due to absence of competitive pressure.
Preparation Note
This paper is designed for self-revision. To prepare effectively: understand each concept rather than memorizing isolated answers, practice writing full theory responses under timed conditions, and cross-check your objective answers against your reasoning, not just the answer key.
Continue visiting EDUJECTS.com for verified examination updates, revision guides, past question analysis, and study materials throughout the 2026 examination season.
JOIN OUR WHATSAPP GROUP https://whatsapp.com/channel/0029Vb7MCtdFXUuhbjMCNe0w
