All Free Economics MCQs with Answers

• A. a teenage worker with few qualifications.
• B. A manual worker with fifteen years of work experience
• C. A professional worker with university degree.
• D. All there are equally likely to find it difficult to get a job

Explanation: Teenage workers with few qualifications are more likely to have productivity near the legal minimum, so a higher minimum wage makes…

• A. the minimum wage
• B. rent controls
• C. restricting petrol prices to Rs100 per litre when the equilibrium price is Rs150 per litre
• D. All of these answers are price floors

Explanation: A price floor is a legal minimum price, and the minimum wage is a minimum price for labour.

• A. the buyers
• B. Neither buyers nor sellers desire a price floor.
• C. the sellers
• D. Both buyers and sellers desire a price floor.

Explanation: Sellers generally favour price floors because a binding floor keeps the market price above equilibrium and can raise the price they…

• A. always determines the price at which a good must be sold
• B. sets a legal maximum on the price at which a good can be sold
• C. is not a binding constraint if it is set above the equilibrium price
• D. sets a legal minimum on the price at which a good can be sold

Explanation: A price floor establishes the lowest legal price at which a good or service may be sold.

• A. a shortage or a surplus depending on whether the price ceiling is set above or below the equilibrium price
• B. a surplus
• C. a shortage
• D. an equilibrium

Explanation: A binding price ceiling is set below equilibrium, so the quantity demanded exceeds the quantity supplied.

• A. Clothing
• B. food
• C. housing
• D. entertainment

Explanation: Tax incidence falls more heavily on the less elastic side of the market; entertainment is commonly treated as having relatively elastic…

• A. both supply and demand are inelastic
• B. demand is elastic, and supply are inelastic
• C. both supply and demand are elastic
• D. demand is inelastic, and supply is elastic

Explanation: Buyers bear more of a tax when demand is inelastic and supply is elastic, because buyers reduce their purchases only slightly while…

• A. both supply and demand are elastic
• B. both supply and demand are inelastic
• C. demand is inelastic and supply in elastic
• D. demand is elastic, and supply is inelastic

Explanation: Sellers bear more of a tax when supply is inelastic and demand is elastic, because sellers cannot easily reduce the quantity supplied…

• A. a decrease in the price buyers pay, an increase in the price sellers receive, and a decrease in the quantity sold
• B. an increase in the price buyers pay a decrease in the price sellers receive, and an increase in the quantity sold
• C. a decrease in the price buyers pay, an increase in the price sellers receive and an increase in the quantity sold
• D. an increase in the price buyers pay a decrease in the price sellers receive and a decrease in the quantity sold

Explanation: A tax creates a wedge between the price buyers pay and the lower net price sellers receive, while reducing the quantity traded.

• A. supply curve downward by the size of the tax per unit.
• B. Supply curve upward by the size of the tax per unit
• C. demand curve upward by the size of the tax per unit.
• D. demand curve downward by the size of the tax per unit

Explanation: A tax collected from buyers reduces the amount they are willing to pay sellers by the tax per unit, so the demand curve shifts downward by…

• A. A significant increase in the demand for petrol could cause the price ceiling to become a binding constraint.
• B. A significant increase in the supply for petrol could cause the price ceiling to become a binding constraint.
• C. There will be a shortage of petrol
• D. There will be surplus of petrol

Explanation: At Rs150, the ceiling is above the Rs100 equilibrium price, so it is initially nonbinding.

• A. demand is inelastic and supply in elastic
• B. supply is inelastic, and demand is elastic
• C. both supply and demand are elastic
• D. both supply and demand are inelastic

Explanation: A binding price floor creates a surplus because quantity supplied exceeds quantity demanded.

• A. The shortage created by the price ceiling is greater in the short ran than in the long run.
• B. The surplus created by the price ceiling is greater in the short run than in the long run
• C. The surplus created by the price ceiling is greater in the long run than in the short run
• D. The shortage created by the price ceiling is greater in the long run than in the short run

Explanation: A binding ceiling creates a shortage, and both demand and supply generally become more responsive over time.

• A. There may be long lines of buyers waiting for apartments
• B. Landlords may discriminate among apartment renters
• C. Landlords may be offered bribes to rent apartments
• D. there will be a storage of housing
• E. the quality of apartments will improve

Explanation: Rent controls below equilibrium create a housing shortage, queues, discrimination, bribes, and often lower maintenance or quality.

• A. above the equilibrium price
• B. below the equilibrium price
• C. precisely at the equilibrium price
• D. at any price because all price ceilings are binding constraints

Explanation: A price ceiling binds only when it prevents the market from reaching equilibrium, which requires setting it below the equilibrium price.

• A. Wages rise, and rental rates fall
• B. Wages rise, and rental rates rise
• C. Wages fall, and rental rates rise
• D. Wages fall, and rental rates fall

Explanation: The destruction of people reduces labor supply, pushing wages upward. Since the surviving capital becomes relatively more abundant, its…

• A. left and decreases the wage
• B. right and decreases the wage
• C. right and increases the wage
• D. left and increases the wage

Explanation: A higher automobile price raises the value of the output produced by autoworkers, shifting the derived demand for their labor to the…

• A. the wage, the rental price of capital and the rental price of land are all equal
• B. the marginal product of labor equals zero and the production function is maximized
• C. the value of the marginal product of labor equals the wage
• D. the marginal product of labor equals the wage

Explanation: A profit-maximizing firm hires labor while the value of the marginal product of labor exceeds the wage.

• A. Slopes downward because an increase in the production of output reduces the price at which the output can be sold in a competitive market, thereby reducing the value of the marginal producing the value of the marginal product as more of the factor is use
• B. Slopes downward due to the factor's diminishing marginal product
• C. slopes upward due to the factor's increasing marginal product
• D. is perfectly elastic (horizontal) if the factor market is perfectly competitive

Explanation: A firm's factor demand slopes downward because the factor's marginal product normally diminishes as more of it is employed, reducing its…

• A. supply curve of capital
• B. demand curve for capital
• C. production function
• D. marginal cost curve

Explanation: A competitive firm hires capital up to the point where the value of its marginal product equals the rental price of capital.