All Free Economics MCQs with Answers

• A. receives the benefits of a good but avoids paying for it.
• B. pays for a good but fails to receive any benefit from the good
• C. fails to produce goods but is allowed to consume goods.
• D. produces a good but fails to receive payment for the good

Explanation: A free rider enjoys the benefits of a good without contributing to its cost.

• A. the rivalness problem
• B. the public goods problem
• C. the Tragedy of the Commons.
• D. The free-rider problem.

Explanation: Public goods are non-excludable, so people can benefit without paying, creating the free-rider problem.

• A. rival but not excludable
• B. neither rival nor excludable
• C. not rival but excludable
• D. both rival and excludable

Explanation: A natural monopoly typically supplies a good or service with high fixed costs and low marginal costs, making consumption largely non-rival…

• A. neither rival nor excludable
• B. rival but not excludable.
• C. both rival but excludable
• D. not rival but excludable

Explanation: A public good is both non-rival, so one person's use does not reduce another's, and non-excludable, so non-payers cannot easily be…

• A. excess baggage
• B. a free rider
• C. a costly rider
• D. a common resource
• E. an unwelcome rider

Explanation: A viewer who receives the benefit of a broadcast while avoiding the licence fee is a free rider.

• A. a good produced by a natural monopoly
• B. a private good
• C. a public good
• D. a common resource

Explanation: A toll makes the road excludable, while congestion makes one driver's use reduce the road space available to others, making it rival.

• A. government regulation
• B. that prices are not low enough so firms over produce
• C. that prices are not high enough, so people overconsume
• D. that property rights have not been well established

Explanation: Efficient markets require clearly defined and enforceable property rights so owners have incentives to use resources efficiently.

• A. rival but not excludable
• B. not rival but excludable
• C. both rival excludable
• D. neither rival nor excludable

Explanation: A private good is both rival and excludable: consumption by one person leaves less for others, and owners can prevent non-payers from…

• A. rival
• B. a good produced by a natural monopoly
• C. a common resource
• D. excludable

Explanation: A good is rival when one person's consumption leaves less available for others.

• A. increasing the wage in the Unionized sector, Which may create a decrease in the supply of workers in the non-unionized sector
• B. Increasing the demand for workers in the Unionized sector
• C. decreasing the demand for workers in the Unionized sector
• D. Increasing the wage in the Unionized sector which may create an increase in the supply of workers in the non-unionized sector

Explanation: A union wage above the competitive level can push some workers into the non-unionised sector, increasing labour supply there and putting…

• A. Raise the wage for insiders above the competitive equilibrium
• B. Lower the wage of local outsiders
• C. Offset the market power of a large firm that is the dominant employer in a region
• D. Threaten a strike but don't actually follow through so there are not lost hours of work

Explanation: A union can improve efficiency by countering the monopsony power of a dominant regional employer, which otherwise may suppress wages and…

• A. At equilibrium wages workers sleep when the boss is not looking because workers are not deeply concerned about being fired
• B. At equilibrium wages workers often quit to find better jobs.
• C. At equilibrium wages only minimally qualified workers apply for the job
• D. At equilibrium wages, workers cannot afford a healthy diet so they fall asleep at work due to a lack of energy
• E. All of these answers

Explanation: Efficiency wages can reduce shirking, employee turnover and adverse selection, while higher pay may also help workers afford better…

• A. Establishing worker training Programs
• B. Establishing right-to-work laws
• C. Reducing unemployment benefits
• D. Establishing employment agencies
• E. Raising the minimum wage

Explanation: A binding minimum wage raises labour costs and can reduce the quantity of labour demanded, increasing unemployment among affected workers.

• A. The quantity of labour supplied will exceed the quantity of labour demanded and there will be Unemployment
• B. Unions will likely Strike and the wage will fall to equilibrium
• C. The quantity of labour demanded will exceed the quantity of labour supplied and there will be a labour shortage
• D. The quality of workers in the applicant pool will tend to fall

Explanation: When the wage is above equilibrium, more people want to work than firms want to hire. The resulting excess supply of labour is unemployment.

• A. Help all teenagers because they receive a higher wage than they would otherwise
• B. have no impact on unemployment as long as it is set above the competitive equilibrium wage
• C. Create more Unemployment is high-skill job markets than in low-skill job markets
• D. Create more unemployment in low-skill job markets than in high-skill job markets

Explanation: Minimum-wage workers are concentrated in low-skill labour markets, where a binding wage floor commonly creates a larger employment…

• A. People lack information
• B. People do not want to work
• C. People do not have the right skills to work
• D. People cannot afford to move location

Explanation: Occupational immobility occurs when workers cannot move between occupations because they lack the required qualifications or skills.

• A. Wages are a small proportion of total costs
• B. Demand for the final product is price elastic
• C. It is easy to replace labour
• D. Capital is a good substitute for labour

Explanation: Labour demand is less responsive to wage changes when wages form only a small share of total costs, because labour-cost changes have…

• A. A lower equilibrium wage and lower quantity of labour
• B. A lower equilibrium wage and higher quantity of labour
• C. A higher equilibrium wage and higher quantity of labour
• D. A higher equilibrium wage and lower quantity of labour

Explanation: A decrease in labour supply shifts the supply curve leftward. The new equilibrium has a higher wage but a lower quantity of labour employed.

• A. Unemployment due to unions
• B. Unemployment due to efficiency wages
• C. Frictional Unemployment
• D. Unemployment due to minimum-wage laws

Explanation: Frictional unemployment exists because workers take time to search for and match with suitable jobs, even when wages are at the…

• A. Paying above the competitive equilibrium wage tends to cause workers to shirk their responsibilities
• B. Firms do not have a choice about whether they pay efficiency wages or not because these wages are determined by law
• C. Paying the lowest possible wage is always the most efficient (Profitable)
• D. Paying above the competitive equilibrium wage may improve worker health lower worker turnover improve worker quality and increase worker effort

Explanation: Efficiency-wage theory explains above-equilibrium pay through benefits such as better worker health, lower turnover, improved applicant…