All Free Economics MCQs with Answers

• A. Exporting
• B. Joint venturing
• C. Licensing
• D. Direct investment

Explanation: Direct investment involves the greatest commitment and control in a foreign market because the firm owns or establishes production…

• A. Need recognition
• B. Information search
• C. Evaluation of alternative
• D. Postpurchase behaviour

Explanation: Cognitive dissonance is the doubt or discomfort a buyer may feel after making a purchase, especially when considering rejected…

• A. Marketing intelligence
• B. Marketing research
• C. Customer profiles
• D. Internal databases

Explanation: Internal databases contain information already collected within the organisation, such as sales and customer records, so they are usually…

• A. efficiency analysis
• B. partial equilibrium analysis
• C. general equilibrium analysis
• D. equity analysis

Explanation: General equilibrium analysis studies how markets and decisions are interdependent, so a change in one market can affect many others.

• A. Marginal benefit equals marginal damage cost
• B. marginal benefits equals marginal social cost
• C. marginal benefit equals marginal private cost
• D. marginal social cost equals marginal external cost

Explanation: A person making a private decision continues an activity while its marginal benefit exceeds its marginal private cost, stopping where the…

• A. technically efficient.
• B. inefficient.
• C. potentially efficient
• D. unequivocally Pareto optimal

Explanation: A change is potentially efficient under the Kaldor-Hicks criterion when the gains are large enough that winners could theoretically…

• A. The coase theorem
• B. Arrow's impossibility theorem
• C. the drop -in-the bucket problem.
• D. the free rider problem

Explanation: The Coase theorem states that, with well-defined property rights and negligible transaction costs, private parties may bargain to an…

• A. non-rival in consumption and their benefits are nonexcludable:
• B. rival in consumption and their benefits are excludable
• C. rival in consumption and their benefits are non-excludable
• D. non-rival in consumption and their benefits excludable

Explanation: Private goods are both rival and excludable: one person's consumption reduces what remains for others, and owners can prevent non-payers…

• A. households do not have perfect information
• B. firms are not price takers in input markets
• C. firms are not price takers in the output market
• D. all of the above

Explanation: The efficiency result for unregulated markets depends on competitive price-taking behaviour and adequate information.

• A. industry equilibrium analysis
• B. specific equilibrium analysis
• C. partial equilibrium analysis
• D. general equilibrium analysis

Explanation: Partial equilibrium analysis studies the effect of a policy in one market while holding conditions in other markets broadly constant.

• A. less than the efficient level of output
• B. more than the efficient level of output
• C. so that consumer surplus is zero
• D. the efficient level of output

Explanation: Because consumption creates benefits for others, social benefit exceeds the consumer's private benefit.

• A. marginal damage cost
• B. marginal social cost
• C. marginal private cost
• D. marginal external cost

Explanation: Marginal social cost is the total extra cost to society from producing one more unit, including both the producer's marginal private cost…

• A. raising the price of X.
• B. production less X
• C. Producing more X
• D. Increasing the cost of producing X

Explanation: Price represents the marginal benefit of the good, so PX greater than MCX means the extra benefit from another unit exceeds its extra…

• A. Revenue - fixed costs
• B. Fixed cost + revenue
• C. Revenue - sales
• D. Revenue - total costs

Explanation: Profit is the surplus left after subtracting all costs of production from revenue, so fixed and variable costs are both included in total…

• A. Do not exist in monopoly
• B. Cannot exist in oligopoly
• C. Do not exist in monopolistic competition
• D. Do exist in perfect competition

Explanation: Monopolistic competition permits relatively free entry and exit, so significant barriers to entry are absent in the standard model.

• A. No profit is being made
• B. Total revenue equals total cost
• C. Profits are maximised
• D. Producing another unit would increase profits

Explanation: Profit rises while the revenue from an extra unit exceeds its cost and falls when that cost is higher, so the maximum occurs where…

• A. covers fixed costs
• B. covers variable costs
• C. covers total costs
• D. covers revenue

Explanation: In the short run, fixed costs must be paid even if output is zero, so production should continue when revenue covers variable costs.

• A. They will aim to leave the industry
• B. Other firms will join the industry
• C. The revenue equal total costs
• D. No profit is made is accounting terms

Explanation: Normal profit means total revenue covers both explicit and implicit costs, so economic profit is zero.

• A. Reduce output
• B. Increase output
• C. Leave output where it is:
• D. Increase costs

Explanation: When marginal revenue is below marginal cost, the last units add more to cost than to revenue.

• A. Total cost is falling
• B. Total cost is increasing at a falling rate
• C. Total cost is falling at a falling rate
• D. Total cost is increasing at an increasing rate

Explanation: A positive marginal cost means each extra unit increases total cost, while falling marginal cost means those increases become…