All Free Economics MCQs with Answers

• A. The price covers average variable cost
• B. The price covers variable cost
• C. The price covers average fixed cost
• D. The price covers fixed costs

Explanation: In the short run, fixed costs must be paid even if output is zero, so the firm continues producing when price covers average variable…

• A. Total revenue is maximized
• B. Marginal revenue equals zero
• C. Marginal revenue equals marginal cost
• D. Marginal revenue equals average cost

Explanation: Profit rises when the revenue from an additional unit exceeds its additional cost and falls when the reverse is true.

• A. perfectly elastic demand curve
• B. perfectly inelastic demand curve
• C. perfectly elastic supply curve
• D. perfectly inelastic supply curve

Explanation: An individual perfectly competitive firm is too small to affect the market price, so it faces a horizontal, perfectly elastic demand curve…

• A. has failed
• B. works well in Utopia
• C. is widely used in sub Saharan Africa
• D. is the only way to eradicate poverty?

Explanation: Horvat’s historical assessment was that market or decentralized socialism had generally failed to provide a workable alternative in…

• A. market socialism
• B. capitalism
• C. mixed economy
• D. monopoly

Explanation: Oskar Lange’s model was market socialism: markets guide allocation, while social ownership distributes returns from productive assets more…

• A. most resource lack freedom to move to their highest value uses
• B. resources are free to move to their lowest cost uses
• C. resources owned by private entities moves to efficient use but not those owned publicly
• D. resources are privately owned by capitalists

Explanation: Central planning commonly restricts resource mobility because administrative controls determine production and allocation rather than…

• A. The monopoly profit maximization rule applies
• B. Product price equals marginal cost
• C. marginal revenue equals average cost
• D. total revenue equals total cost

Explanation: In Lange's socialist model, enterprises use the efficiency rule of producing where price equals marginal cost, ensuring that the value of…

• A. The amount of brain drain
• B. Marginal utility
• C. Marginal Product
• D. The substitutability of labor to capital

Explanation: In a competitive labor market, a worker’s wage equals the value of the marginal product of labor, meaning the extra revenue generated by…

• A. an elastic good
• B. an inferior good
• C. a normal good
• D. a luxury good

Explanation: A negative income elasticity means demand falls as income rises, which is the definition of an inferior good.

• A. price inelastic
• B. none of these
• C. unit price elastic
• D. price elastic

Explanation: Excess capacity means the firm can increase output substantially without quickly encountering capacity constraints, so its supply is…

• A. increase total revenue to farmers as a whole because the demand for food is elastic
• B. increase total revenue to farmers as whole because the demand for food is inelastic
• C. reduce total revenue to farmers as a whole because the demand for food is elastic
• D. reduce total revenue to farmers as a whole because the demand for food is inelastic

Explanation: Food demand is generally price inelastic, so a technology-driven increase in supply causes price to fall proportionately more than…

• A. demand is price inelastic
• B. supply is price elastic
• C. supply is price inelastic
• D. demand is price elastic

Explanation: A fall in supply raises price, and total revenue rises when the percentage increase in price exceeds the percentage decrease in quantity…

• A. the quantity supplied is sensitive to changes in the price of that good
• B. That quantity demanded is insensitive to changes in the price of that good
• C. the quantity demanded is sensitive to changes in the price of that good
• D. the quantity supplied is incentive to changes in the price of that good
• E. None of these

Explanation: Price elasticity of supply measures how much quantity supplied responds to a change in the good’s own price.

• A. transportation
• B. taxi rides
• C. bus tickets
• D. airline tickets

Explanation: Transportation is a broad necessity with relatively few practical substitutes, so its demand is likely to respond least to price changes.

• A. the percentage change in the quantity demanded divided by the percentage change in income.
• B. the percentage change in income divided by the percentage change in the quantity demanded
• C. the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good
• D. none of these answers

Explanation: Price elasticity compares the percentage change in quantity demanded with the percentage change in price.

• A. Supply would tend to be price elastic
• B. none of these answers
• C. demand would tend to be price inelastic
• D. demand would tend to be price elastic

Explanation: Few substitutes make it difficult for consumers to switch when the price rises, so quantity demanded changes relatively little.

• A. elastic in the upper portion and inelastic in the lower portion
• B. inelastic in the upper portion and elastic in the lower portion
• C. inelastic throughout
• D. constant along the demand curve

Explanation: On a straight-line demand curve, elasticity is not constant: the upper portion is elastic, the midpoint is unit elastic, and the lower…

• A. Rs 0 per month
• B. Rs 30 per month
• C. Rs 40 per month
• D. Either Rs 30 or Rs 40 per month because the price elasticity of demand is 1.0

Explanation: Revenue at Rs 30 is Rs 900,000, calculated as 30,000 × 30, while revenue at Rs 40 is Rs 800,000, calculated as 20,000 × 40.

• A. 1.4
• B. 0.66
• C. 0.75
• D. 2.0

Explanation: Using midpoints, the quantity change is 10,000/25,000 = 0.4 and the price change is 10/35 ≈ 0.286.

• A. infinite
• B. Zero
• C. less than 1
• D. none of these
• E. greater than 1

Explanation: Price-inelastic supply means the percentage change in quantity supplied is smaller than the percentage change in price.