All Free Economics MCQs with Answers
Every Economics question in the bank, across all chapters, each with the correct answer and a written explanation. Free and unlimited, with no account needed.
4,037 questions · page 190 of 202
- A. accurately represent the true inequality of living standards
- B. understate the inequality of living standards
- C. exaggerate the inequality of living standards
- D. could exaggerate of understate the inequality of living standards depending on whether the transfers are goods or services.
Explanation: In-kind benefits such as subsidised health care or food raise recipients' living standards even though they are omitted from measured…
Correct answer: exaggerate the inequality of living standards- A. Grant right of the clean air to citizens so that firms must purchase the right to pollute
- B. Auctions off pollution permits.
- C. Regulate the amount of pollutants that firms can put in the air
- D. all of these answers
Explanation: Air pollution can be controlled through property rights, tradable pollution permits, or direct limits on emissions.
Correct answer: all of these answers- A. common resources are overconsumed
- B. public goods are underproduced
- C. private goods are under consumed
- D. natural monopolies overproduce goods.
Explanation: The Tragedy of the Commons occurs when individuals freely use a shared, non-excludable resource and ignore the cost imposed on others.
Correct answer: common resources are overconsumed- A. there are no benefits to the public since a public good is not excludable
- B. the benefits are infinite because a public good is not rival and an infinite amount of people can consume it at the same time
- C. one can never place a value on human life or the environment
- D. respondents to naires have little incentive to tell the truth.
Explanation: People may understate their willingness to pay for a public good because they can benefit without paying, creating a free-rider incentive.
Correct answer: respondents to naires have little incentive to tell the truth.- A. hot dogs at a picnic
- B. Whales in the ocean
- C. national defense
- D. apples on a tree in a public park
Explanation: National defense is non-rival because one person's protection does not reduce protection for others, and it is generally non-excludable.
Correct answer: national defense- A. it is efficient for the government to tax the resident €2,000 each and repair the road
- B. It is efficient for each neighbour to pay €3,000 to repair the section of street in front of his/her home
- C. None of these answers are true
- D. it is not efficient to have the street repaired
Explanation: The combined value is 20 × €3,000 = €60,000, which exceeds the €40,000 repair cost, so the repair is efficient.
Correct answer: it is efficient for the government to tax the resident €2,000 each and repair the road3787. A common resource is ?
- A. not rival but excludable
- B. both rival and excludable
- C. rival but not excludable
- D. neither rival nor excludable
Explanation: A common resource is rival because one person's use reduces what remains for others, but it is not readily excludable.
Correct answer: rival but not excludable- A. rise; rise
- B. rise; fall
- C. fall; fall
- D. fall; rise
Explanation: A higher VAT raises the tax-inclusive price paid by consumers and increases firms' tax-related selling costs.
Correct answer: rise; fall- A. Spending on public schools
- B. Military spending
- C. All of these answers are automatic stabilizers
- D. spending on the space shuttle
- E. Unemployment benefits
Explanation: Unemployment benefits automatically increase when unemployment rises and decrease when employment recovers, helping stabilise incomes…
Correct answer: Unemployment benefits- A. externality
- B. market imperfection
- C. deadweight burden
- D. free rider
Explanation: Broadcast signals can be received without paying, creating a free-rider problem.
Correct answer: free rider- A. public transport
- B. the national health service
- C. national defence
- D. rail transport
Explanation: National defence is non-rival and largely non-excludable, so one person’s protection does not reduce another’s and people cannot easily be…
Correct answer: national defence- A. imperfect competition
- B. taxation
- C. externalities
- D. missing markets
- E. all of the above
Explanation: Imperfect competition, distortionary taxation, externalities, and missing markets can all prevent resources from reaching an efficient…
Correct answer: all of the above3793. If my neighbour burns garden waste causing my house to fill with smoke this is an example of ?
- A. a production externality
- B. a second-best solution
- C. transaction costs
- D. a consumption externality
Explanation: Burning garden waste is a household activity that imposes smoke pollution on a neighbour, so it is a negative consumption externality.
Correct answer: a consumption externality- A. Negative externalies
- B. Positive externalities
- C. Monopolies
- D. Oligopolies
Explanation: Positive externalities create benefits for third parties that private buyers and sellers do not fully consider, so subsidies encourage…
Correct answer: Positive externalities- A. This tax will not raise much revenue either in the short term or the long term since demand is price inelastic
- B. The tax on cigarettes may not raise as much revenue as anticipated in the years to com because the demand for cigarettes is likely to become more elastic over time.
- C. This a very good way to raise revenue both in the short term and in the long term, because there are no substitutes for cigarettes.
- D. No tax revenue can be raised in this way because sellers of cigarette will just lower their price by the amount of the tax and therefore, the price of cigarettes to consumers will not change
Explanation: Inelastic demand means a cigarette tax can raise substantial revenue initially because consumption falls little.
Correct answer: The tax on cigarettes may not raise as much revenue as anticipated in the years to com because the demand for cigarettes is likely to become more elastic over time.3796. The effect of a tax to offset a negative externality will be to ____ price and ______ quantity?
- A. reduce , reduce
- B. increase, increase
- C. increase, reduce
- D. reduce, increase
Explanation: A corrective tax raises the cost of producing or consuming the activity, increasing the price paid by buyers and reducing the equilibrium…
Correct answer: increase, reduce- A. marginal costs, marginal benefits
- B. demand, supply
- C. marginal cost, marginal revenue
- D. marginal cost, average cost
Explanation: A tax creates a gap between the price paid by consumers and the price received by producers, so marginal benefit is no longer equal to…
Correct answer: marginal costs, marginal benefits- A. imperfect competition popular
- B. externalities , distortionary
- C. inequality , a first best option
- D. poor health, unnecessary
Explanation: Most taxes distort decisions by creating a wedge between buyers’ and sellers’ prices, but a tax correcting an externality can improve…
Correct answer: externalities , distortionary- A. Private good
- B. merit good
- C. public good
- D. abundant good
Explanation: A public good is both non-rival, meaning one person’s use does not reduce availability to others, and non-excludable, meaning people…
Correct answer: public good- A. externalities
- B. the free-rider problem
- C. a and b
- D. a and c
Explanation: Externalities can prevent markets from reflecting all social costs and benefits, while the free-rider problem can make people unwilling to…
Correct answer: a and b