All Free Economics MCQs with Answers

• A. Perfectly inelastic
• B. Unit elastic
• C. Perfectly elastic
• D. Equal to marginal cost

Explanation: Total revenue reaches its maximum where the absolute value of price elasticity of demand is one.

• A. Positive economic profit permanently
• B. Zero economic profit with excess capacity
• C. Zero accounting revenue with no output
• D. A guaranteed loss below average cost

Explanation: Entry and exit tend to eliminate economic profit in the long run. Product differentiation leaves each firm facing a downward-sloping…

• A. A smaller share of the tax
• B. A larger share of the tax
• C. No share of the tax
• D. The entire tax by definition

Explanation: The less elastic side has fewer practical alternatives and therefore is less able to change its quantity.

• A. Higher and priced lower
• B. Lower and priced higher
• C. Equal and priced lower
• D. Higher and priced higher

Explanation: A monopoly restricts output below the competitive level and charges a price above marginal cost.

• A. Workers' personal savings
• B. Demand for the firm's output
• C. Government's tax collection
• D. Firm's historical wage bill

Explanation: Firms hire labour because workers help produce goods and services that consumers demand.

• A. A change in the product's own price
• B. A change in the price of raw materials
• C. A change in production technology
• D. A change in the number of sellers

Explanation: A change in the product's own price changes the quantity supplied and causes movement along the existing supply curve.

• A. Substitute goods
• B. Complementary goods
• C. Normal goods
• D. Inferior goods

Explanation: A negative cross-price elasticity means that a rise in the price of one good reduces demand for the other.

• A. It normally rises continuously
• B. It normally remains unchanged
• C. It normally falls as fixed cost spreads
• D. It first falls and then becomes zero

Explanation: Average fixed cost equals total fixed cost divided by output. Since fixed cost does not change in the short run, producing more units…

• A. Revenue earned from selling total output
• B. Extra revenue from selling one more unit
• C. Revenue remaining after paying variable cost
• D. Revenue divided by the number of workers

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

• A. Sells a unique product
• B. Controls the market supply
• C. Accepts the market price
• D. Can prevent new firms entering

Explanation: A perfectly competitive firm is a price taker because its individual output is too small to influence the market price.

• A. Produces beyond the efficient output
• B. Charges a price below marginal cost
• C. Restricts output below the efficient level
• D. Faces a perfectly elastic demand curve

Explanation: A single-price monopolist restricts output and charges a price above marginal cost.

• A. All inputs become fixed
• B. All costs become sunk
• C. All inputs can be adjusted
• D. Market demand becomes vertical

Explanation: The long run is a period in which the firm can adjust all inputs and exit the industry.

• A. Property rights are unclear and bargaining is costly
• B. Property rights are clear and transaction costs are low
• C. The government fixes every market price
• D. Consumers have identical income levels

Explanation: The Coase theorem states that clearly assigned property rights and low transaction costs can allow affected parties to bargain toward an…

• A. A direct tax is imposed on income or wealth, while an indirect tax is imposed on spending
• B. A direct tax is collected by provinces, while an indirect tax is collected by the federation
• C. A direct tax is always progressive, while an indirect tax is always regressive
• D. A direct tax is voluntary, while an indirect tax is compulsory

Explanation: A direct tax is imposed directly on the person or organisation legally responsible for paying it, such as income tax.

• A. Falls as the taxpayer's income increases
• B. Remains unchanged as the taxpayer's income increases
• C. Rises as the taxpayer's income increases
• D. Depends only on the taxpayer's age

Explanation: Under progressive taxation, higher-income taxpayers pay a larger proportion of their income in tax.

• A. A privately owned restaurant meal
• B. A national defence service
• C. A cinema ticket for one customer
• D. A pair of shoes sold in a market

Explanation: National defence is generally non-excludable and non-rival in consumption, so one person's protection does not substantially reduce…

• A. To purchase machinery for a government department
• B. To provide income or support without receiving a current good or service in return
• C. To raise the market price of imported goods
• D. To repay the principal of public debt

Explanation: Transfer payments, such as pensions or certain income-support payments, redistribute purchasing power without a current exchange of goods…

• A. Collects more tax revenue than its total expenditure
• B. Has total expenditure greater than its revenue, excluding borrowing receipts
• C. Has a trade deficit with other countries
• D. Repays more public debt than it issues

Explanation: A fiscal deficit exists when government expenditure exceeds its non-borrowed receipts, requiring financing through borrowing or other…

• A. A deficit is a yearly flow, while public debt is an accumulated stock
• B. A deficit is an accumulated stock, while public debt is a yearly flow
• C. A deficit refers only to foreign borrowing, while public debt refers only to domestic borrowing
• D. A deficit is private borrowing, while public debt is household saving

Explanation: A budget deficit measures the shortfall during a particular period, usually one financial year.

• A. It increases producers' costs and reduces supply
• B. It lowers effective costs and can increase supply
• C. It eliminates the need for taxation in the economy
• D. It automatically converts the good into a public good

Explanation: A production subsidy lowers the effective cost of producing the targeted good, which can encourage firms to supply more of it.