All Free Economics MCQs with Answers
Every Economics question in the bank, across all chapters, each with the correct answer and a written explanation. Free and unlimited, with no account needed.
4,037 questions · page 121 of 202
- A. people are rational maximizers
- B. People are reluctant to change their minds
- C. People are inconsistent over time
- D. People care about fairness
Explanation: Workers may view bonuses as fair recognition of their contribution during profitable years, and withholding them can create resentment…
Correct answer: People care about fairness- A. people give too much weight to a small number of vivid observations
- B. People are sometimes too sure of their own abilities
- C. All of these answers are actually true statements about how people make decisions.
- D. People are always rational maximizers
- E. People are reluctant to change their minds in the face of new information
Explanation: Behavioral economics shows that people may rely too heavily on vivid examples, be overconfident, and resist updating beliefs.
Correct answer: People are always rational maximizers- A. Rs20,000; Rs20,000; Rs22,000
- B. Rs1,000; Rs14,333; Rs1,000
- C. Rs20,000; Rs13,100; Rs1,000
- D. Rs1,000; Rs20,000; Rs22,000
Explanation: The median is Rs20,000 because the cumulative share first exceeds 50% at that preference, while the weighted average is Rs13,100.
Correct answer: Rs20,000; Rs13,100; Rs1,000- A. Josephine doesn't buy health insurance because it is too expensive, and she is healthy
- B. A life insurance company forces Enzo to have a medical examination prior to selling him insurance
- C. Enzo drives more recklessly after he buys car insurance
- D. Fatima chooses to attend a well-respected college
Explanation: Moral hazard occurs when insurance changes a person's behaviour after coverage is obtained, because the insurer bears part of the cost.
Correct answer: Enzo drives more recklessly after he buys car insurance- A. It must be "as seen on TV"
- B. It must be free to the signaling party
- C. It must be costly to the signaling party but less costly to the party with higher-quality product
- D. It must be applied to an inexpensive product
Explanation: A signal works when it is relatively more costly for low-quality sellers than for high-quality sellers, allowing buyers to distinguish…
Correct answer: It must be costly to the signaling party but less costly to the party with higher-quality product- A. screening
- B. signaling
- C. moral hazard
- D. adverse selection
Explanation: Screening is information gathering by the less-informed party, such as a buyer having a mechanic inspect a car.
Correct answer: screening- A. all of these answers
- B. forced contributions to a retirement plan
- C. year-end bonuses
- D. efficiency wages
Explanation: Forced retirement contributions help people overcome present bias by committing part of their current income to future needs.
Correct answer: forced contributions to a retirement plan- A. People give too much weight to a small number of vivid observations
- B. People easily change their minds when confronted with new information
- C. People enjoy going to the doctor
- D. People tend to plan ahead and follow through on their plans
Explanation: Jamil's sudden concern after his friend's death illustrates the availability or salience bias: a vivid recent event receives excessive…
Correct answer: People give too much weight to a small number of vivid observations- A. There is no rational solution
- B. 75/25
- C. 99/1
- D. 1/99
- E. 50/50
Explanation: Under the standard self-interest assumption, the proposer offers the smallest positive share, 1%, and keeps 99%, while the responder…
Correct answer: 99/1- A. The average preferred outcome wins
- B. There is no clear winner due to Arrow's Impossibility Theorem.
- C. The outcome preferred by the median voter wins
- D. The outcome preferred by the greatest number of voters wins.
Explanation: With single-peaked preferences, pairwise majority voting selects the median voter's preferred outcome: it defeats alternatives on either…
Correct answer: The outcome preferred by the median voter wins- A. The median voter always wins
- B. no dictators
- C. independence of irrelevant
- D. transitivity
Explanation: Arrow's required properties include transitivity, independence of irrelevant alternatives, and no dictatorship, but not that the median…
Correct answer: The median voter always wins- A. They pay employees with delayed compensation such as a year-end bonus
- B. They buy life insurance on their workers
- C. They pay above equilibrium wages
- D. They put hidden video cameras in the workplace
Explanation: Delayed pay, efficiency wages, and workplace monitoring discourage shirking by making hidden actions costly.
Correct answer: They buy life insurance on their workers- A. Enzo carefully chooses a special gift for Josephine
- B. Josephine earns her MBA from the Harvard Business School
- C. Lexus advertises its cars during the football World Cup Final.
- D. All of these answers are correct
Explanation: A Harvard MBA can signal ability, advertising can signal product quality, and a carefully chosen gift can reveal information about the…
Correct answer: All of these answers are correct- A. agent
- B. principle
- C. screener
- D. signaler
Explanation: In a principal-agent relationship, the agent performs work on behalf of the principal.
Correct answer: agent- A. be flat (horizontal)
- B. slope upward
- C. slope downward
- D. be U-shaped.
Explanation: Marginal cost moves inversely with marginal product: rising marginal product makes marginal cost fall, while diminishing marginal product…
Correct answer: be U-shaped.- A. average fixed cost is rising
- B. average total cost is falling
- C. average total cost is raising
- D. average total cost is minimized
Explanation: When marginal cost is below average total cost, it pulls the average downward, just as a value below an average lowers that average.
Correct answer: average total cost is falling- A. is linear (a straight line)
- B. becomes steeper as the quantity of the input increase
- C. could be any of these answers
- D. becomes flatter as the quantity of the input increase
Explanation: The slope of a production function is the marginal product of the input.
Correct answer: becomes flatter as the quantity of the input increase- A. Rs80,000
- B. Rs30,000
- C. Rs75,000
- D. Rs70,000
Explanation: Revenue is Rs100,000, while explicit costs are Rs20,000 for materials and Rs5,000 interest on the loan.
Correct answer: Rs30,000- A. average fixed cost
- B. average total cost
- C. average variable cost
- D. marginal cost
Explanation: The efficient scale is the output level at which average total cost reaches its minimum.
Correct answer: average total cost- A. an increase in average total costs
- B. diseconomies of scale
- C. economies of scale
- D. constant returns to scale
Explanation: A very small factory can usually lower its average cost by expanding and spreading fixed costs over more output, producing economies of…
Correct answer: economies of scale