All Free Economics MCQs with Answers

• A. Should produce more units
• B. has maximized profits.
• C. is in a Nash equilibrium
• D. Should produce fewer units
• E. should exit the industry.

Explanation: The output effect is the gain from selling one more unit, while the price effect is the loss from lowering the price on existing units.

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

Explanation: Monopolistic competition has many sellers offering differentiated products, such as brands that serve similar needs but are not identical.

• A. Firms compete against each other
• B. Price wars are common
• C. Firms use price to win market share from competitors
• D. Firms collude

Explanation: A cartel is an agreement among firms to coordinate decisions such as price or output instead of competing independently.

• A. There is a kink in the marginal cost curve
• B. Demand is price inelastic
• C. Demand is price elastic
• D. non-price competition is likely

Explanation: The kinked-demand model explains rigid prices: rivals follow a price cut but may not follow a price increase.

• A. Firms cooperate
• B. Firms act as part of cartel
• C. Firms are competitive
• D. Firms are not profit maximisers

Explanation: The kinked-demand model assumes rival firms will match a price decrease but not a price increase, creating a kink and price rigidity in an…

• A. Limit
• B. Factor
• C. Quota
• D. Quotient

Explanation: A quota is a fixed limit assigned to a cartel member's production or sales. The other terms do not refer to an allocated production amount.

• A. antimonopoly laws
• B. all of these answers
• C. anti-collusion laws
• D. pro-competition laws
• E. antitrust laws

Explanation: Antitrust laws prohibit practices such as price-fixing, collusion and agreements to restrict output.

• A. Rs 60
• B. Rs 90
• C. Rs 85
• D. Rs 75

Explanation: The two bundle valuations are Rs90 for Raheel and Rs85 for Mariam, so pricing the bundle at Rs85 sells to both and earns Rs170.

• A. all of these answers
• B. if additional firms enter of the oligopoly
• C. because antitrust laws (also known as competition laws) make collusion illegal
• D. because, in the case of oligopoly self-interest is in conflict with cooperation.

Explanation: Collusion is undermined by new entry, legal bans under antitrust laws, and each firm's incentive to secretly increase output or cut price.

• A. Nash equilibrium
• B. dominant strategy.
• C. cartel
• D. collusion solution

Explanation: A Nash equilibrium occurs when every oligopolist chooses the best strategy given the strategies already chosen by the others.

• A. more than the price charged by either monopoly or a competitive market
• B. less than the price charged by either monopoly or a competitive market
• C. more than the price charged by a monopoly and less then the price charged by a competitive market
• D. less than the price charged by a monopoly and more than the price charged by a competitive market

Explanation: With independent profit-maximising output choices, an oligopoly produces more than a monopoly but less than perfect competition.

• A. monopoly
• B. a competitive market
• C. monopolistic competition
• D. a collusion solution

Explanation: As more sellers enter, each firm's influence over market price falls and the market outcome moves closer to perfect competition.

• A. the same as if it were served by competitive firms.
• B. efficient because cooperation improves efficiency
• C. the same as if it were served by a monopoly.
• D. known as a Nash equilibrium

Explanation: A successful cartel coordinates firms to restrict total output and charge the joint-profit-maximising price.

• A. monopolistically competitive
• B. a monopoly
• C. an oligopoly
• D. competitive

Explanation: A market dominated by a few major firms, such as the named hand-tool producers, is an oligopoly.

• A. Each individual firm profit maximizes
• B. There may be an incentive to cheat
• C. The industry as a whole is loss making
• D. There is no need to police agreements

Explanation: Cartel members agree to restrict competition, but each firm can gain extra sales by secretly cutting price or exceeding its quota.

• A. Firms are assumed to act independently
• B. Firms are assumed to cooperate with each other
• C. Firms collude as part of cartel
• D. Firms consider the actions of others before deciding what to do

Explanation: Game theory studies decisions in which the payoff to one firm depends on what rival firms do.

• A. monopolistic competition
• B. Competitively monopolistic
• C. Duopoly
• D. Oligopoly

Explanation: An oligopoly exists when a small number of firms supply most of a market, giving each firm enough influence that its decisions affect its…

• A. Boys as young as 8 years old tend or herd animals, weed pick and sell produce
• B. Children place more economic demands on a peasant family than an urban family
• C. Major financial security is usually provided by sons
• D. The cost of education entertainment and travel is low

Explanation: In peasant societies, children often contribute labour and provide future support, so they are not usually described as placing greater…

• A. production possibility curve
• B. marginal inequality curve
• C. sen curve
• D. Lorenz curve

Explanation: A Lorenz curve plots the cumulative share of income received by cumulative population groups and reveals the degree of inequality.

• A. individuals' accomplishments
• B. individuals' capabilities
• C. individuals' wealth
• D. individuals' education

Explanation: Amartya Sen evaluates welfare mainly through people's capabilities, meaning their real freedoms to achieve valued ways of living.