All Free Economics MCQs with Answers

• A. How economies of scale make possible a larger variety of products in international trade
• B. A transfer of wealth from domestic consumer to domestic producer as the result of trade
• C. How a natural monopoly is forced to behave more competitively with international trade
• D. How a natural monopoly is forced to behave less competitively with international trade

Explanation: Selling aircraft to both domestic and foreign airlines expands the market over which Boeing can spread its large fixed production costs.

• A. Economies of large-scale production
• B. Relative abundance of various resources
• C. Relative costs of labor
• D. Research and development expenditures

Explanation: Heckscher-Ohlin explains comparative advantage through differences in the relative abundance of productive factors such as land, labour…

• A. produced by the three largest firms in the industry
• B. produced in cement, machine tools and steel industries
• C. and labor intensities relative to labor productivity
• D. as a percentage of production and marketing

Explanation: A concentration ratio measures the share of an industry's total output produced by its largest firms, commonly the top three or four.

• A. national defense
• B. an automobile
• C. libraries
• D. fire protection

Explanation: An automobile is a private good because it is rival in use and can be excluded from non-payers.

• A. Corporate bonds
• B. Company shares
• C. All of these answers are equity finance
• D. Government bonds

Explanation: Company shares represent ownership claims, so issuing them raises equity finance.

• A. reduces; reduces
• B. reduces; increases
• C. increases; increases
• D. increases; reduces

Explanation: An upward shift in marginal cost makes each output level less profitable and reduces the profit-maximising output.

• A. Change in average revenue, increased
• B. Change in total revenue, increase by one unit
• C. change in average revenue, increased by one unit
• D. change in total revenue increased

Explanation: Marginal revenue is the change in total revenue caused by selling one additional unit of output.

• A. incur, desire
• B. pay, make
• C. charge earns
• D. minimize, maximize

Explanation: The standard assumption is that firms seek to minimise the costs of producing a given output and maximise their profit.

• A. Marginal utility
• B. Additional utility
• C. Surplus utility
• D. Bonus utility

Explanation: Marginal utility is the additional satisfaction gained from consuming one more unit of a good.

• A. Course fees and rent
• B. A loan from the bank
• C. What the student could have earned in the best job available by not studying
• D. What the student will earn after graduation

Explanation: Opportunity cost is the value of the best alternative forgone, so for a student it may be the income available from the best job they…

• A. increase
• B. not change
• C. decrease
• D. shift

Explanation: Doubling both income and all relevant prices leaves real income and relative prices unchanged, so the consumer's affordable choices and…

• A. Price elasticity of demand
• B. Cross-price elasticity of demand
• C. budget elasticity of demand
• D. income elasticity of demand

Explanation: Income elasticity of demand measures the percentage change in quantity demanded caused by a percentage change in income.

• A. The responsiveness of quantity demanded to a change in price
• B. How far a demand curve shifts
• C. a change in price
• D. a change in quantity demanded

Explanation: Price elasticity of demand is the responsiveness of quantity demanded to a change in the good's own price, usually expressed as percentage…

• A. 80 units
• B. 320 units
• C. 60 units
• D. 120 units

Explanation: A price elasticity of supply of 4 means a 15% price rise produces a 60% rise in quantity supplied, since 4 multiplied by 15% equals 60%.

• A. Lead to a contraction of supply
• B. Lead to an expansion of supply
• C. Lead to a shift in supply outwards (i.e more supplied at each and every price)
• D. Lead to a higher equilibrium and lower equilibrium quantity

Explanation: Higher productivity lowers the unit cost of production and enables firms to supply more at every price.

• A. Shift demand outwards
• B. Shift demand inwards
• C. Shift supply outwards so more is supplied at each and every price, all other things unchanged
• D. Shift supply inwards

Explanation: Higher production costs reduce the amount firms are willing to supply at each price, shifting the supply curve inward or leftward.

• A. A price elasticity of supply greater than one
• B. A price elasticity of supply equal to one
• C. A price elasticity of supply less than one
• D. A positive price elasticity of supply

Explanation: For a straight-line supply curve passing through the origin, the percentage change in quantity supplied equals the percentage change in…

• A. Supply is price elastic
• B. Supply is income elastic
• C. Price elasticity of demand is -2
• D. Price elasticity of supply is -2

Explanation: Price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price: 8% ÷ 4% = 2.

• A. The price elasticity of demand is negative the income elasticity of demand is negative
• B. The price elasticity of demand is positive the income elasticity of demand is negative
• C. The price elasticity of demand is negative the income elasticity of demand is positive
• D. The price elasticity of demand is positive; the income elasticity of demand is positive

Explanation: A normal good has positive income elasticity because demand rises when income rises.

• A. An increase in price must raise profits
• B. An increase in price decrease revenue
• C. An increase in price increase revenue
• D. A decrease in price reduces sales

Explanation: When demand is price inelastic, the percentage fall in quantity demanded is smaller than the percentage rise in price.