All Free Economics MCQs with Answers

• A. at the efficient scale and charge a price equal to marginal cost
• B. at the efficient scale and charge a price above marginal cost
• C. With excess capacity and charge a price above marginal cost
• D. With excess capacity and charge a price equal to marginal cost

Explanation: Product differentiation gives a monopolistically competitive firm a downward-sloping demand curve, so its profit-maximizing price exceeds…

• A. marginal revenue and then use the demand curve to determine the price consistent with this quantity
• B. average total cost and then use the supply curve to determine the price consistent with this quantity
• C. marginal revenue and then use the supply curve to determine the price consistent with this quantity
• D. average total cost and then use the demand curve to determine the price consistent with this quantity

Explanation: The firm first chooses output where marginal revenue equals marginal cost, which maximizes profit.

• A. the monopolist faces a downward-sloping demand curve while the monopolistic competitor faces an elastic demand curve
• B. the monopolist charges a price above marginal cost while the monopolistic competitor charges a price equal to marginal cost
• C. The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run
• D. Both the monopolist and the monopolistic competitor operate at the efficient scale

Explanation: Both market structures allow price to exceed marginal cost, but free entry in monopolistic competition eliminates economic profit in the…

• A. free entry and exit
• B. long run economic profits
• C. many sellers
• D. differentiated products

Explanation: Monopolistic competition has many sellers, differentiated products, and relatively free entry and exit, but entry eventually eliminates…

• A. capital increasingly replaces labor
• B. technological change compensates for capital depletion
• C. costs rise, leaving less capital for future investment
• D. contingent valuation becomes critical

Explanation: The Limits to Growth argues that diminishing natural resources raise production costs and reduce the resources available for future…

• A. biological diversity is dominant in agricultural production
• B. the globe's water pollution affects plankton
• C. the earth's atmosphere traps infrared radiation
• D. climatic changes occur naturally in the forest

Explanation: The greenhouse effect occurs when atmospheric gases absorb and re-radiate outgoing infrared energy, trapping heat near the Earth's…

• A. rivalry and exclusion in consumption
• B. nonrivalry and nonexclusion in consumption
• C. rivalry but nonexclusion in production
• D. nonrivalry but exclusion in usage

Explanation: A public good is non-rival because one person's use does not reduce availability to others, and non-excludable because users cannot easily…

• A. population growth leads to rigid land rights
• B. participants will organize their transactions
• C. violence displacement erosion and poverty are minimized
• D. individuals overuse of the biosphere is curtailed

Explanation: Coase's theorem states that with clearly defined, enforceable property rights and negligible transaction costs, affected parties can…

• A. external economies
• B. negative externalities
• C. internal spillover
• D. social distortion

Explanation: Pollution imposes health and environmental costs on people who were not parties to the transaction, so it is a negative externality.

• A. capital accumulation
• B. common property resources
• C. non-producible
• D. output

Explanation: Land and naturally occurring resources are non-produced inputs because they are not created through the production process.

• A. includes genetic species ecosystem and functional diversities
• B. refers to diversifying earth's nonrenewable resource
• C. refers to reconstruction of tropical rainforests
• D. refers to biological effects on commercial plantation

Explanation: Biodiversity means variety at several biological levels, including genes, species, ecosystems, and functional roles.

• A. natural resource that cannot be reproduced in the future if we fail to preserve them now
• B. obtaining intellectual property rights for products
• C. natural extinction of various species in DCs
• D. industrialization replacing agriculture in LDCs

Explanation: Irreversibility means that destroying a natural asset or species may prevent its recovery or reproduction in the future.

• A. markets distortions
• B. defective economic policies
• C. inadequate property
• D. the expansion of capitalism

Explanation: Panayotou identifies market distortions, defective policies, and weak or inadequate property rights as sources of environmental…

• A. external diseconomies
• B. marginal damage
• C. public goods
• D. resource curse

Explanation: A negative externality imposes an external cost on third parties and is therefore called an external diseconomy.

• A. over fishing
• B. smoking in a public place
• C. excessive rain
• D. common use of public toilets

Explanation: Overfishing is the classic tragedy of the commons because individuals have an incentive to take fish from a shared resource, eventually…

• A. monopoly
• B. entropy
• C. industry
• D. cartel

Explanation: A cartel is an agreement among firms or countries to restrict output and influence or fix prices.

• A. General Motors, the manufacturer of automobiles
• B. Tennessee Mining Co. an iron-ore mining company
• C. Caterpillar Corp the producer of earth moving equipment
• D. Sneva Construction Co. The builder of skyscrapers

Explanation: Dumped steel makes steel produced by domestic suppliers less competitive, reducing demand for related inputs such as iron ore.

• A. average total cost
• B. average variable cost
• C. average fixed cost
• D. marginal cost

Explanation: Under the cost-based definition, dumping occurs when the export price is below the product's average total cost.

• A. predatory dumping
• B. sporadic dumping
• C. persistent dumping
• D. yearend dumping

Explanation: Predatory dumping involves temporarily selling abroad at very low prices to drive foreign competitors out, followed by possible price…

• A. domestic subsidy
• B. voluntary restraint agreement
• C. domestic content requirement
• D. tariff-rate quota

Explanation: A domestic content requirement obliges firms to produce a minimum share of a good's value within the country.