All Free Economics MCQs with Answers

• A. Demand is price elastic
• B. Demand is price inelastic
• C. The demand curve is downward sloping
• D. An increase in income will reduce the quantity demanded

Explanation: A negative price elasticity means price and quantity demanded move in opposite directions, which is represented by a downward-sloping…

• A. The products are substitutes and demand is cross price elastic
• B. The products are substitutes and demand is cross price inelastic
• C. The products are complements and demand is cross price elastic
• D. The products are complements and demand is cross price inelastic

Explanation: A negative cross elasticity shows that the goods are complements: a rise in the price of one reduces demand for the other.

• A. The price elasticity of demand is -2
• B. The good is inferior
• C. Income elasticity is + 0.5
• D. Income elasticity is + 2

Explanation: Using the usual initial-value percentage method, price falls by 10% while quantity demanded rises by 20%, giving elasticity of 20% ÷ −10%…

• A. Demand is inversely related to income
• B. Demand in inversely related to price
• C. Demand is directly related to price
• D. Demand is inversely related to the price of substitutes

Explanation: For an inferior good, consumers generally buy less of it as their income increases and more as income falls.

• A. Shift demand outwards
• B. Shift demand inwards
• C. A contractions of demand
• D. An extension of demand

Explanation: With other factors unchanged, a price increase causes a movement along the same demand curve and reduces quantity demanded, called a…

• A. Shift demand for an inferior product outward
• B. shift demand for an inferior product inward
• C. shift supply for an inferior product outward
• D. Shift supply for an inferior product inward

Explanation: Inferior goods have negative income elasticity, so higher income reduces their demand.

• A. Utility is at a maximum with the first unit
• B. Increasing units of consumption increase the marginal utility
• C. Marginal product will fall as more units are consumed
• D. Total utility will rise at a falling rate as more units are consumed

Explanation: With diminishing marginal utility, each additional unit adds less utility than the previous one, so total utility continues to rise at a…

• A. Will cause an inward shift of demand
• B. Will cause an outward shift of supply
• C. May be caused by a fall in demand
• D. Leads to a higher level of production

Explanation: A fall in demand shifts the demand curve left and normally lowers the equilibrium price.

• A. Quantity setting
• B. price fixing
• C. price rationing
• D. quantity adjustment.

Explanation: Price rationing occurs when price allocates a scarce good to buyers willing and able to pay the most.

• A. normal goods
• B. unrelated goods
• C. Substitutes.
• D. Complements

Explanation: A negative cross-price elasticity means that when the price of one good rises, demand for the other falls, indicating complementary goods.

• A. elastic
• B. perfectly elastic
• C. unitarily elastic
• D. inelastic.

Explanation: The absolute percentage change in quantity demanded is greater than the price change, 25% compared with 22%, so elasticity is greater than…

• A. zero elastic
• B. elastic
• C. perfectly elastic
• D. inelastic

Explanation: Quantity demanded changes by 6% in response to a 5% price change, giving an elasticity of 6/5, or 1.2 in absolute terms.

• A. a decrease in supply.
• B. a rise in income
• C. a fall in the number of substitute goods
• D. a rise in the price of inputs

Explanation: A decrease in supply tends to raise equilibrium price, causing a contraction in quantity demanded, shown as movement leftward along the…

• A. price to fall
• B. quantity supplied to decrease.
• C. price to rise
• D. quantity demanded to increase

Explanation: Excess demand means buyers want more than sellers offer at the current price, creating upward pressure on price.

• A. As the price of calculators rise, the quantity supplied of calculators decreases, ceteris paribus.
• B. As the price of calculators calls the supply of calculators increases, ceteris paribus.
• C. As the price of calculators rise, the quantity supplied of calculators increases, ceteris paribus.
• D. As the price of calculators rise, the supply of calculators increases ceteris paribus.

Explanation: The law of supply states that, other things equal, a higher price leads producers to offer a greater quantity for sale.

• A. an inferior good
• B. a normal good
• C. a complementary good
• D. a substitute good

Explanation: A normal good is one whose demand moves in the same direction as income, so demand falls when income falls.

• A. complements
• B. substitutes
• C. inferior
• D. nromal

Explanation: For substitutes, a fall in the price of one good makes consumers buy less of the other, shifting its demand downward.

• A. Pepsi's advertising is not as effective as in the past .
• B. The price of Coca Cola has increased,
• C. Pepsi consumers had an increase in income.
• D. The price of Pepsi increased

Explanation: A decrease in quantity demanded means movement along Pepsi's existing demand curve, which is caused by an increase in Pepsi's own price.

• A. have few substitutes.
• B. are normal goods
• C. have few complementary goods.
• D. have many complementary goods.

Explanation: The prediction that demand will rise with consumers' incomes is accurate if chairs are normal goods.

• A. Should increase output
• B. Should reduce output
• C. will require further information on how to respond
• D. Should not change output

Explanation: An increase in both marginal revenue and marginal cost does not by itself show whether producing another unit is profitable.