All Free Economics MCQs with Answers

• A. Only countries with low wages will export
• B. Only countries with high wages will import
• C. Countries with high wages will have higher prices
• D. All of the above are false

Explanation: Classical trade theory explains trade through productivity and opportunity-cost differences, not simply through national wage levels or…

• A. Countries will completely specialize in the production of export goods
• B. Considerable trade will occur between countries with different levels of technology
• C. Small countries could obtain of the gains from trade when trading with large countries
• D. All of the above

Explanation: Smith and Ricardo show that technology differences can create trade, specialization can be substantial, and even a small country can gain…

• A. Different currencies are an obstacle to international trade
• B. Goods are more mobile internationally than are resources
• C. Resources are more mobile internationally that are goods
• D. A country's exports should always exceed its imports

Explanation: International trade is feasible because goods generally cross borders more readily than productive resources such as labor and capital.

• A. Trade would depend on difference in demand conditions
• B. Trade would depend on economies of large-scale production
• C. Trade would depend on the use of different currencies
• D. There would be no basis for gainful trade

Explanation: Identical increasing-cost production possibilities do not by themselves create comparative advantage, but different demand conditions can…

• A. has no impact on the human capital of workers?
• B. increases human capital and the wages of workers
• C. can make any worker into a superstar
• D. only helps firms sort workers into high ability and low-ability workers.

Explanation: The human capital view treats education as an investment that raises workers’ skills and productivity, allowing them to earn higher wages.

• A. can make any worker into a superstar
• B. increases human capital and the wages of workers
• C. only helps firms sort workers into high ability and low-ability workers
• D. reduces the wage gap between high-skill and low-skill workers.

Explanation: The signaling view says education may not substantially increase productivity but helps employers identify and sort workers by underlying…

• A. unpleasant
• B. all these answers
• C. safe
• D. fun
• E. easy

Explanation: If skill and experience requirements are equal, an unpleasant job generally pays more to compensate workers for its undesirable…

• A. Attractive people tend to earn less because attractive people are viewed as shallow and more self-absorbed and therefore, as less productive
• B. Attractive people tend to earn more because they may actually have a larger value of marginal product
• C. Attractive people tend to earn more because attractive people usually have greater human capital
• D. Attractive people tend to earn less because attractive people usually have less human capital

Explanation: Attractive workers often earn more partly because customers, employers, or colleagues may value their services more, raising their…

• A. the best professor
• B. the best writer
• C. All of these answers participate in markets that could generate a superstar
• D. The best accountant
• E. the best medical doctor

Explanation: Writing can generate superstar incomes because technology allows one highly valued writer’s work to reach a very large audience at…

• A. It must be involved in professional athletics
• B. Every customer must be indifferent to the price they pay, and the seller must be a competitor in the market for the product
• C. Every customer must be willing to pay an enormous amount for the product and the product must be a necessity
• D. Every customer must want the good supplied by the best producer and the technology must exist for the best producer to supply every customer at low cost

Explanation: A superstar market requires buyers to prefer the best producer and technology that lets that producer serve many customers at low marginal…

• A. Increase labor market discrimination because some workers can charge more for their services than other workers in a competitive market
• B. have no impact on labour market discrimination
• C. reduce labour market discrimination because non-discrimination firms will employ cheaper labour earn more profits and drive discriminating firms out of the market
• D. increase labour market discrimination because bigoted employers can charge any price they want in a competitive market to cover the cost of their discrimination

Explanation: In competitive labor markets, a non-discriminating firm can hire equally productive workers at lower wages and earn higher profits.

• A. minimum-wage laws
• B. efficiency wages
• C. unions
• D. beauty

Explanation: Minimum-wage laws, efficiency wages, and unions can keep wages above the market-clearing level.

• A. Men have more human capital than women
• B. Employers in competitive markets are bigots
• C. Men have more job experience than women
• D. None of the above

Explanation: In competitive markets, widespread employer prejudice would raise costs for bigoted firms and create an advantage for non-discriminating…

• A. marginal revenue, marginal cost
• B. long run marginal revenue, long run marginal cost
• C. labor output ratio, capital output ratio
• D. marginal cost of labor, marginal revenue product

Explanation: A profit-maximizing firm hires labour up to the point where the extra cost of one more worker equals the extra revenue that worker…

• A. footballers give more entertainment
• B. lecturers are lazy
• C. the labor markets are imperfect
• D. top footballers are relatively scarce in relation to lecturers

Explanation: Top footballers are rare relative to the demand for their services, so their marginal revenue product and wages can be very high.

• A. there are too few teachers
• B. too few student places in higher education
• C. it is costly to acquire human capital
• D. teachers' salaries are too low

Explanation: Skilled labour is scarce because acquiring the necessary education, training, and experience requires time and financial investment.

• A. increase the wage, increase employment
• B. maintain the wage, increase employment
• C. increase the wage, lower employment
• D. maintain the wage, lower employment

Explanation: A union that restricts labour supply shifts the available labour curve leftward, raising the wage for those employed but reducing the…

• A. will not work at the offered wage
• B. would work at the going wage but can't find jobs
• C. will not work because the hours are anti-social
• D. Are not prepared to move house to get the job

Explanation: Involuntary unemployment means people are willing and able to work at the prevailing wage but cannot obtain jobs.

• A. its scrap values
• B. its depreciation
• C. the present value of the future stream of income it can earn
• D. the cost of loans

Explanation: An asset is valued by discounting the income it is expected to generate in the future back to its present value.

• A. wage differentials, skill levels
• B. technology, the ease of factor substitution
• C. government grants, international competition
• D. patents, skill shortages

Explanation: Industries use different capital intensities because their technologies differ and because they differ in how easily capital can…