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 123 of 202
- A. inferior effect
- B. normal effect
- C. substitution effect
- D. complementary effect
- E. income effect
Explanation: A price change has a substitution effect when it changes the relative attractiveness of goods and moves the consumer along the same…
Correct answer: substitution effect- A. a complementary good
- B. an inferior good
- C. a normal good
- D. a substitute goodEconomics
Explanation: A normal good has positive income elasticity of demand, meaning its quantity demanded rises as consumer income rises.
Correct answer: a normal good2443. Which of the following is true about the consumer's optimum consumption bundle? At the optimum ?
- A. the slope of the indifference curve equals the slope of the budget constraint
- B. the indifference curve is tangent to the budget constraint
- C. the relative prices of the two goods equals the marginal rate of substitution
- D. none of these answers are true
- E. all of these answers are true
Explanation: At an interior consumer optimum, the indifference curve is tangent to the budget line, so their slopes are equal and the marginal rate of…
Correct answer: all of these answers are true- A. Indifference curves are downward sloping
- B. indifference curves are bowed outward
- C. Indifference curves do not cross each other
- D. Higher indifference curve is preferred to lower ones
Explanation: Standard indifference curves are convex to the origin, often described as bowed inward, because the marginal rate of substitution usually…
Correct answer: indifference curves are bowed outward- A. right angles
- B. bowed outward
- C. straight lines
- D. nonexistent
- E. bowed inward
Explanation: Perfect substitutes provide a constant trade-off between goods, so the consumer is willing to replace one with the other at a fixed rate.
Correct answer: straight lines- A. an indifference curve
- B. the budget constraint
- C. the marginal rate of substitution
- D. the consumption limits
Explanation: The budget constraint identifies the combinations of goods that a consumer can afford given income and prices.
Correct answer: the budget constraint2447. For a competitive firm, its short run supply curve is ______ and its long run supply curve is _____?
- A. SMC, LMC
- B. SMC above SAVC, LMC above LAC
- C. SMC below SAVC, LMC above LAC
- D. SMC below SAVC, LMC bellow LAC
Explanation: In the short run, a competitive firm's supply curve is its marginal cost curve above the minimum of average variable cost, because it…
Correct answer: SMC above SAVC, LMC above LAC- A. price is greater than short run average total cost
- B. price is between short run average total cost and short run average variable cost
- C. price is less than short run average variable cost
- D. profit is zeroEconomics
Explanation: A firm shuts down in the short run when price falls below average variable cost, because it cannot cover even its variable operating…
Correct answer: price is less than short run average variable cost- A. Short run opportunity costs, profit
- B. Short run variable costs, profit
- C. Short run average variable costs, profit
- D. Short run average variable costs, profit run average fixed costs
Explanation: Average total cost includes both average variable cost and average fixed cost: SRATC = SRAVC + SRAFC.
Correct answer: Short run average variable costs, profit run average fixed costs- A. greater than average cost, greater than average cost
- B. less than average cost, greater than average cost
- C. less than average cost, less than average cost
- D. greater than average cost, less than average cost
Explanation: Marginal cost pulls the average cost downward when it is below average cost and pushes it upward when it is above average cost.
Correct answer: less than average cost, greater than average cost- A. increasing returns to scale
- B. decreasing returns to scale
- C. constant returns to scale
- D. the minimum efficient scale
Explanation: A falling long-run average cost curve means that increasing the scale of production reduces average cost.
Correct answer: increasing returns to scale- A. Demand is perfectly elastic
- B. Products are homogeneous
- C. Marginal revenue = price
- D. The marginal revenue is below the demand curve and diverges
Explanation: Monopolistic competition gives each firm a downward-sloping demand curve because its product is differentiated, so marginal revenue lies…
Correct answer: The marginal revenue is below the demand curve and diverges- A. the minimum of their average-total-cost curves
- B. all of these answers are correct
- C. their efficient scale
- D. zero economic profit
- E. intersection of marginal cost and marginal revenue
Explanation: In long-run competitive equilibrium, entry and exit lead to zero economic profit, operation at the minimum of ATC, and production at the…
Correct answer: all of these answers are correct- A. perfectly inelastic
- B. perfectly elastic
- C. upward sloping
- D. downward sloping
Explanation: When a scarce input becomes more expensive as the industry expands, firms face rising costs, producing an upward-sloping long-run supply…
Correct answer: upward sloping- A. marginal revenue
- B. marginal cost
- C. average total cost
- D. average revenue
Explanation: In the long run, all costs are avoidable, so a firm exits when its price cannot cover average total cost.
Correct answer: average total cost- A. variable costs of staying open are less than the total revenue due to staying open.
- B. total costs of staying open are less than the total revenue due to staying open
- C. variable costs of staying open are greater than the total revenue due to staying open
- D. total costs of staying open are greater than the total revenue due to staying open
Explanation: The store should close temporarily when the revenue from remaining open is less than its variable costs, as staying open would add to its…
Correct answer: variable costs of staying open are greater than the total revenue due to staying open- A. Upward-sloping portion of the average total cost curve
- B. upward-sloping portion of the average variable cost curve
- C. portion of the marginal cost curve that lies above the average total cost curve.
- D. entire marginal cost curve.
- E. portion of the marginal-cost curve that lies above the average variable cost curve
Explanation: A competitive firm supplies output where price covers marginal cost, but only while price is at least average variable cost.
Correct answer: portion of the marginal-cost curve that lies above the average variable cost curve- A. price equals average variable cost
- B. marginal revenue equals average revenue
- C. marginal cost equals total revenue
- D. marginal cost equals marginal revenue
Explanation: Profit rises while the revenue from one more unit exceeds its cost, and falls when that cost is higher.
Correct answer: marginal cost equals marginal revenue- A. doubles.
- B. more than double
- C. less than doubles.
- D. cannot be determined because the price of the good may rise or fall
Explanation: A competitive firm is a price taker, so doubling output leaves the market price unchanged and doubles total revenue, since total revenue…
Correct answer: doubles.- A. All of these answers are characteristic of a competitive market
- B. The are many buyers and sellers in the market
- C. The goods offered for sale are largely the same.
- D. Firms generate small but positive economic profits in the long run
- E. Firms can freely enter or exit the market
Explanation: Free entry and exit eliminate positive economic profit in the long run, leaving firms with normal profit.
Correct answer: Firms generate small but positive economic profits in the long run