All Free Economics MCQs with Answers

• A. quantity demanded will be greater than quantity supplied
• B. quantity demanded will be less than quantity supplied
• C. demand will be less than supply.
• D. quantity demanded will equal quantity supplied .

Explanation: Below the equilibrium price, consumers want to buy more than producers are willing to sell, creating excess demand or a shortage.

• A. supply exceeds demand
• B. a surplus exists
• C. there is perfectly inelastic demand for the good
• D. demand exceeds supply

Explanation: Rationing is needed when demand exceeds the available supply, because not every willing buyer can obtain the good at the prevailing price.

• A. a maximum price usually set by government that sellers may charge for a good
• B. the different between the initial equilibrium price and the equilibrium price after a decrease in supply
• C. a minimum price usually set by government that sellers must charge for a good
• D. a minimum price that consumers are willing to pay for a good.

Explanation: A price ceiling is a legally imposed maximum price that sellers may charge.

• A. There is under-consumption in the free market
• B. There is over consumption in the free market
• C. The government may tax to decrease production
• D. Society could be made off it less was produced

Explanation: A positive externality gives benefits to third parties, so the social benefit exceeds the private benefit and the free market produces too…

• A. Supply is price elastic
• B. Demand is price inelastic
• C. The government buys up all the excess production
• D. All output must be sold at a maximum price

Explanation: When demand for agricultural products is price inelastic, a rise in supply causes a proportionately larger fall in price than the rise in…

• A. Not provided in the free market economy
• B. Under provided in the free market economy
• C. Over provided in the free market economy
• D. Provided free

Explanation: Merit goods such as education and healthcare provide benefits that consumers may undervalue, including wider social benefits.

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

Explanation: A government-fixed price below equilibrium is a binding price ceiling, so buyers demand more than sellers supply.

• A. The price consumers are willing to pray for a unit
• B. The cost of providing a unit
• C. The profits made by a firm
• D. The difference the price a consumer pays for an item and the price he/she is willing to pay

Explanation: Consumer surplus is the difference between what a consumer is willing to pay and what the consumer actually pays.

• A. A change in technology
• B. A change in the number of producers
• C. A shift in demand
• D. A change in costs

Explanation: A movement along the supply curve occurs when the product’s price changes, while factors such as technology, producer numbers and costs…

• A. A change in income
• B. A change in the number of buyers
• C. A change in advertising
• D. A shift in supply

Explanation: A movement along the demand curve results from a change in the product’s own price.

• A. An fall in demand
• B. An increase in supply
• C. improvements in production technology
• D. An increase in demand

Explanation: An increase in demand shifts the demand curve rightward and raises the equilibrium price when supply slopes upward.

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

Explanation: Lower production costs improve the profitability of supplying each quantity, so the entire supply curve shifts rightward.

• A. A higher equilibrium price and output
• B. A lower equilibrium price and higher output
• C. A lower equilibrium price and output
• D. A higher equilibrium price and lower output

Explanation: With supply unchanged, increased demand shifts the demand curve to the right.

• A. The impact on both price and quantity is ambiguous
• B. Price will decrease, quantity is ambiguous.
• C. price will increase, quantity will decrease
• D. price will increase, quantity is ambiguous.
• E. Price will increase, quantity will increase

Explanation: Buyers expecting a higher future price increase current demand, while sellers hold back current supply, so price rises from both shifts.

• A. price will decrease, quantity is ambiguous
• B. The impact on both price and quantity is ambiguous.
• C. Price will increase, quantity will increase
• D. price will increase, quantity will decrease
• E. price will increase, quantity is ambiguous.

Explanation: The frost shifts supply left, while stronger tastes for orange juice shift demand right.

• A. the change in the equilibrium quantity to be ambiguous and the equilibrium price to fall.
• B. the equilibrium quantity to rise and the equilibrium price to rise
• C. the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous
• D. the equilibrium quantity to rise and the equilibrium price to fall
• E. the equilibrium quantity to rise and the equilibrium price to remain constant

Explanation: An increase in both supply and demand raises equilibrium quantity because both shifts push quantity upward.

• A. there is a shortage and the price will fall
• B. the quantity demanded is equal to the quantity supplied supplied and the price remains unchanged
• C. there is surplus and the price will rise
• D. there is a shortage and the price will rise
• E. there is a surplus and the price will fall

Explanation: At the equilibrium price, buyers wish to purchase exactly the amount sellers wish to sell, so there is neither a shortage nor a surplus…

• A. there is a surplus and the price will rise
• B. there is a shortage and the price will fall
• C. there is a shortage and the price will rise
• D. The quantity demanded is equal to the quantity supplied and the price remains unchanged
• E. there is a surplus and the price will fall

Explanation: A price above equilibrium causes quantity supplied to exceed quantity demanded, creating a surplus.

• A. a normal good
• B. none of these answers
• C. an inferior good
• D. a substitute good

Explanation: A good whose demand falls when consumer income rises is an inferior good. Normal goods show the opposite income-demand relationship.

• A. firms that set their own prices
• B. only one seller.
• C. at least a few sellers.
• D. many buyers and sellers.

Explanation: Perfect competition requires many buyers and sellers, with no individual participant large enough to control the market price.