All Free Economics MCQs with Answers

• A. of minimum wage laws
• B. There are changes in the demand for labour among different firms.
• C. Of unions
• D. All of these answers
• E. Efficiency wages may hold the wage

Explanation: Frictional unemployment arises while workers move between jobs or firms adjust their hiring, so some temporary job-search unemployment is…

• A. Maximum wage the firm is willing to pay
• B. tip necessary to get a waiter to reserve a table
• C. minimum wage the worker is willing to accept
• D. competitive equilibrium wage.

Explanation: A reservation wage is the lowest wage at which a worker is willing to accept a job.

• A. Producers are price takers
• B. consumers and producers face the same prices
• C. marginal costs and benefits are equal
• D. prices equal marginal cost and benefit
• E. All of the above

Explanation: In competitive equilibrium, price equals consumers’ marginal benefit and producers’ marginal cost, so the gains from trade are maximised.

• A. moral hazard
• B. risk aversion
• C. adverse selection
• D. a poor gamble

Explanation: Adverse selection occurs before an insurance contract when people with greater hidden risk are more likely to seek coverage.

• A. Assuming other players move first
• B. dominated by the other players
• C. given the strategies of other players
• D. that is a credible threat

Explanation: In a Nash equilibrium, each player’s strategy is optimal given the strategies chosen by all other players.

• A. behave like competitive firms
• B. agree to act together
• C. differentiate their products
• D. practice price discrimination

Explanation: Contestable markets have low barriers to entry and exit, so incumbent firms must keep prices and conduct close to competitive levels to…

• A. monopolistic competition
• B. oligopoly
• C. monopoly
• D. unfair competition

Explanation: Monopolistic competition, oligopoly and monopoly are the standard market structures of imperfect competition.

• A. inflation occurs
• B. there are externalities
• C. merit goods are produced
• D. there is excess demand

Explanation: Excess demand means buyers want more than sellers are offering at the current price, so some buyers must go without or compete through…

• A. Is provided by the government
• B. Is free
• C. Has the properties of being non-excludable and non-diminishable
• D. Gas external costs

Explanation: A public good is normally defined as non-excludable and non-rival, meaning people cannot easily be kept from using it and one person's use…

• A. Supply is price elastic
• B. Demand is price elastic
• C. Supply is stable
• D. Demand and supply are price inelastic

Explanation: Agricultural demand and supply are often relatively inelastic, so a small harvest or demand change can cause a large price movement.

• A. There is excess equilibrium
• B. There is excess supply
• C. There is excess demand
• D. There is equilibrium

Explanation: A government price fixed above equilibrium is a binding price floor. At that higher price, producers want to sell more while consumers…

• A. Judicial economic statement
• B. Positive economic statement
• C. Formative economic statement
• D. Normative economic statement

Explanation: The claim that inequality should be reduced expresses a value judgment about what ought to happen, making it a normative statement.

• A. increase equilibrium price and quantity
• B. Decrease equilibrium price and quantity
• C. Increase equilibrium price and decrease quantity
• D. Decrease equilibrium price and increase quantity

Explanation: A decrease in demand shifts the demand curve leftward; with supply unchanged, both the equilibrium price and equilibrium quantity fall.

• A. Signal
• B. Incentive
• C. Rationing device
• D. Indicator of income

Explanation: Prices signal scarcity, create incentives, and ration goods among buyers, but they do not directly indicate a person's income.

• A. Act as a signal
• B. Act as a incentive
• C. Act as a rationing device
• D. shift the demand curve

Explanation: The price mechanism signals scarcity, provides incentives, and rations goods through prices.

• A. Shifts the supply curve
• B. shifts the demand curve
• C. Leads to a contractions in supply
• D. Leads to an extension of supply

Explanation: A producer subsidy lowers the effective cost of supplying each unit, shifting the supply curve rightward.

• A. Excess supply
• B. Excess demand
• C. Equilibrium
• D. Downward pressure on prices

Explanation: A price fixed below equilibrium is a binding price ceiling. At that low price, quantity demanded exceeds quantity supplied, producing…

• A. income elastic
• B. income inelastic
• C. Price elastic
• D. Price inelastic

Explanation: With price-inelastic demand, buyers change quantity only slightly when price changes, so a supply shift has a larger effect on price than…

• A. Lead to a movement along the demand curve
• B. Shift the supply curve
• C. Shift the demand curve
• D. Lead to an extension of demand

Explanation: Income is a demand determinant, so a change in income shifts the entire demand curve rather than causing movement along it.

• A. decrease in supply
• B. increase in demand
• C. increase in supply
• D. decrease in demand

Explanation: An inferior good is purchased less when consumers become richer, so higher income causes its demand to decrease.