All Free Economics MCQs with Answers

• A. Economic profit
• B. Accounting profit
• C. Normal profit
• D. Supernormal profit

Explanation: Breaking even after all economic costs, including opportunity costs, means economic profit is zero.

• A. marginal cost to increase, output to fall
• B. marginal revenue to increase output to fall
• C. opportunity cost to increase the firm will close
• D. average cost will rise output will increase ____ output and an upward shift in marginal revenue ____ output

Explanation: Higher wage costs raise the firm's variable and marginal costs, making each additional unit less profitable at the former output.

• A. costs are minimized
• B. revenue is maximized
• C. average cost is less than average revenue
• D. marginal cost equals marginal revenue

Explanation: Profit is maximised at the output where marginal revenue equals marginal cost, provided marginal cost is rising through that point.

• A. Supply curve
• B. Market demand curve
• C. Demand curve
• D. Market supply curve

Explanation: Adding the quantities demanded by all consumers at each price produces the market demand curve.

• A. Status
• B. Prestige
• C. Utility
• D. Self-esteem

Explanation: Consumers are assumed to use goods and services to obtain utility, meaning satisfaction or wants fulfillment.

• A. increase quantity demanded, reduce quantity demanded
• B. increase quantity demanded, increases quantity demanded
• C. reduce quantity demanded, reduce quantity demanded
• D. reduce quantity demanded, increase quantity demanded

Explanation: A price increase lowers the consumer’s real purchasing power, so the income effect reduces demand for a normal good.

• A. negative income elasticity income elasticity greater than 1
• B. income elasticity greater than 1, negative income elasticities
• C. Positive income elasticities, negative income elasticities
• D. None of the above

Explanation: Inferior goods have negative income elasticity because demand falls as income rises, while luxury goods have income elasticity greater…

• A. substitutes inferior
• B. normal, complements
• C. substitutes complements
• D. normal, inferior

Explanation: A positive cross-price elasticity means the goods are substitutes, since a rise in the price of one increases demand for the other.

• A. inelastic; increase
• B. elastic; increase
• C. elastic, decrease
• D. none of the above

Explanation: When demand is elastic, the percentage increase in quantity demanded exceeds the percentage fall in price, so total consumer spending…

• A. +2
• B. +0.5
• C. -2
• D. -0.5

Explanation: Price rises by 20% while quantity supplied rises by 10%, so price elasticity of supply is 10% ÷ 20% = +0.5.

• A. Demand shifts outwards
• B. The supply curve shifts inwards
• C. The quantity supplied falls when the price falls
• D. The supply curve shifts outwards

Explanation: A contraction of supply is a movement along the supply curve caused by a fall in price, resulting in a lower quantity supplied.

• A. In the short run rather than the long run
• B. If factors of production are relatively immobile between industries
• C. If there are very few producers
• D. If it is easy to expand output

Explanation: Supply is more price elastic when producers can readily expand output in response to a price rise.

• A. The quantity consumers would like to buy in an ideal world
• B. The quantity producers are willing and able to sell at each and every price all other things unchanged
• C. The quantity producers are willing and able to sell at each and every income all other things unchanged
• D. The quantity producers are willing and able to sell at each and every point in time all other things unchanged

Explanation: A supply curve shows the quantity producers are willing and able to sell at every possible price, with other factors held constant.

• 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: An inferior good has negative income elasticity because demand falls as income rises, while its price elasticity of demand is normally…

• A. 550 units
• B. 500 units
• C. 450 units
• D. 490 units

Explanation: The 20% price rise multiplied by elasticity of -0.5 causes a 10% fall in quantity demanded.

• A. 3000
• B. 7000
• C. 5500
• D. 4500

Explanation: A 20% income rise with income elasticity of +2 produces a 40% rise in sales. Forty percent of 5,000 is 2,000, so sales become 7,000 units.

• A. Reduces revenue
• B. Leaves revenue unchanged
• C. Increase revenue
• D. Reduces costs

Explanation: With unit price elasticity of demand, the percentage change in quantity exactly offsets the percentage change in price.

• A. Demand is price inelastic
• B. The good is inferior
• C. Income elasticity is -2
• D. The product is normal

Explanation: Income rises by 10% and quantity demanded rises by 20%, giving positive income elasticity of +2.

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

Explanation: A Veblen good is sought partly for its prestige, so a higher price can make it more desirable and increase demand.

• A. Shift demand for Product A outwards
• B. Shift demand for product A inwards
• C. Shift supply for product A outwards
• D. Shift supply for product A inwards

Explanation: A complement is consumed together with the product, so a higher price reduces its demand and consequently reduces demand for Product A.