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 199 of 202
3961. Which situation best illustrates an adverse monetary policy transmission effect on investment?
- A. Higher interest rates make borrowing for capital projects more expensive
- B. Lower interest rates reduce the cost of financing new machinery
- C. Higher household income increases demand for consumer goods
- D. Lower import prices reduce the cost of foreign raw materials
Explanation: When monetary tightening raises interest rates, firms face a higher cost of borrowing and may cancel or delay investment projects.
Correct answer: Higher interest rates make borrowing for capital projects more expensive- A. current account balance
- B. government budget balance
- C. trade tariff revenue
- D. nominal exchange rate
Explanation: The national income accounting identity states that saving minus domestic investment equals net exports, which broadly corresponds to the…
Correct answer: current account balance- A. An increase in output produced by better worker skills and technology
- B. An increase in output caused only by a larger working population
- C. An increase in the number of hours worked with unchanged productivity
- D. An increase in production caused by using more land with unchanged methods
Explanation: Intensive growth means producing more output from each unit of input through higher productivity.
Correct answer: An increase in output produced by better worker skills and technology- A. Rotates outward toward the cheaper good
- B. Shifts outward parallel to itself
- C. Rotates inward away from the cheaper good
- D. Shifts inward parallel to itself
Explanation: A fall in one price increases the maximum amount of that good the consumer can buy, while the other intercept stays unchanged.
Correct answer: Rotates outward toward the cheaper good- A. Equal for all goods purchased
- B. Greater for the most expensive good
- C. Equal to total utility from each good
- D. Greater for the good bought in largest quantity
Explanation: At an interior utility maximum, the marginal utility gained from the last rupee spent is equal across goods.
Correct answer: Equal for all goods purchased- A. Total fixed cost
- B. Total variable cost
- C. Marginal cost
- D. Average variable cost
Explanation: Fixed cost is tied to fixed inputs and does not vary with output in the short run.
Correct answer: Total fixed cost- A. Cannot be recovered after it is incurred
- B. Changes directly with the output level
- C. Is avoided when production temporarily stops
- D. Equals the firm's opportunity cost
Explanation: A sunk cost has already been incurred and cannot be recovered, so it should not affect current production decisions.
Correct answer: Cannot be recovered after it is incurred- A. Differentiated but close substitutes
- B. Identical with no close substitutes
- C. Controlled by a single public authority
- D. Produced under a binding price ceiling
Explanation: Monopolistic competition combines many sellers with product differentiation, such as differences in quality, design or location.
Correct answer: Differentiated but close substitutes- A. Restricting total output and raising price
- B. Expanding total output until price is zero
- C. Making each member a price taker
- D. Removing all barriers to new entry
Explanation: A cartel attempts to act like a monopoly by limiting industry output and charging a higher price.
Correct answer: Restricting total output and raising price- A. A surplus of the product
- B. A shortage of the product
- C. A fall in the legal minimum price
- D. An unchanged quantity supplied and demanded
Explanation: At a price above equilibrium, sellers want to supply more than buyers want to purchase.
Correct answer: A surplus of the product- A. Higher-risk people are more likely to seek coverage
- B. Insured people take greater risks after coverage begins
- C. Insurers reduce premiums after every claim
- D. Low-risk people always receive more compensation
Explanation: Adverse selection arises before an agreement, when people with higher expected losses are more likely to purchase insurance.
Correct answer: Higher-risk people are more likely to seek coverage- A. A consumer's purchase harms a third party
- B. A producer's output benefits another producer
- C. A consumer receives all benefits from a purchase
- D. A firm pays every cost created by production
Explanation: A negative consumption externality imposes an uncompensated cost on someone outside the transaction, such as noise affecting neighbours.
Correct answer: A consumer's purchase harms a third party- A. Each additional worker to add more output than the previous one
- B. Total output to fall below its previous level
- C. Average fixed cost to rise with every worker
- D. The firm's fixed inputs to become variable immediately
Explanation: A rising marginal product means the extra output from each additional worker is increasing.
Correct answer: Each additional worker to add more output than the previous one- A. Minimum price the seller is willing to accept
- B. Maximum price the buyer is willing to pay
- C. Average total cost at the market output
- D. Marginal revenue from the final unit sold
Explanation: Producer surplus is the area or gain received above the minimum price at which producers are willing to supply a product.
Correct answer: Minimum price the seller is willing to accept- A. A smaller percentage in the opposite direction
- B. An equal percentage in the opposite direction
- C. An equal percentage in the same direction
- D. No percentage change in either direction
Explanation: Unitary price elasticity means the absolute percentage change in quantity demanded equals the percentage change in price.
Correct answer: An equal percentage in the opposite direction- A. Decrease because purchasing power falls
- B. Increase because consumers switch between them
- C. Remain unchanged because prices are unrelated
- D. Increase only when both goods are inferior
Explanation: Substitute goods can perform similar functions, so consumers shift toward the relatively cheaper good.
Correct answer: Increase because consumers switch between them- A. Total revenue
- B. Level of output
- C. Total cost
- D. Marginal product
Explanation: An isoquant shows alternative combinations of inputs, such as labour and capital, that yield an equal quantity of output.
Correct answer: Level of output- A. At its maximum
- B. At its minimum
- C. Equal to average fixed cost
- D. Equal to total fixed cost
Explanation: When marginal cost is below average variable cost, it pulls average variable cost down.
Correct answer: At its minimum- A. Large economies of scale over the relevant market range
- B. Many firms producing identical products
- C. Perfect information among all buyers
- D. Free entry and exit for competing firms
Explanation: A natural monopoly arises when one firm can supply the market at a lower average cost than several smaller firms.
Correct answer: Large economies of scale over the relevant market range- A. Its product is differentiated from competing products
- B. The government fixes its selling price
- C. It faces no potential competitors
- D. Its marginal cost is permanently zero
Explanation: Product differentiation gives a firm some control over its price and can attract loyal customers, allowing short-run economic profit.
Correct answer: Its product is differentiated from competing products