I read Tariq's answer and had some thoughts. Contractions, taking two words and shortening them by deleting letters and creating one word with an apostrophe, are acceptable in English everyday conversation, including work, as well as informal writing such as personal letters, poetry and literature. They are informal and therefore not the accepted form for technical or formal writing. Your two sentences actually mean different things to me. Isn't it a pencil (or more formally, Is it not a pencil or Is not it a pencil)?, implies that it is obvious to the speaker that the item is a pencil. While the speaker states a question, it is really most often an emphatic statement that might be "It is a pencil. Isn't that obvious?" Is it a pencil? Implies that the speaker really is not sure of the answer to the question and it is therefore a true question. If you said, "No it is a pen." they would not be surprised by that. Is it a pencil?

"Isn't it a pencil?" = I thought it was definitely a pencil. Is it something else, then? "Is it a pencil?" = I don't know. Maybe it is a pencil. Tell me.

Thanks for these great answers. I have to add a thought, because it's rather a pet peeve of mine, namely the response to tag questions asked in the negative. In some cultures, where the word "no" might be considered too abrupt to be polite, the response to a tag question asked in the negative will often be "yes" when it should be "no". I know this is confusing. If I were to ask,"We aren't having class next week, are we?", the answer would almost always be "yes". The correct answer should be, "No, we aren't."

I think right answer would be "Is it a pencil, (isn't it)?"