Free Microeconomics MCQs with Answers

• A. an advance in technology
• B. an increase in the labor force
• C. an increase in the capital stock
• D. a reduction in unemployment

Explanation: A reduction in unemployment uses existing resources more fully and moves the economy toward its existing frontier, but does not expand…

• A. The study of very large industries is a topic within macroeconomics
• B. Macroeconomics is concerned with economy-wide phenomena
• C. Microeconomics is a building block for macroeconomics
• D. Microeconomics and macroeconomics cannot be entirely separated

Explanation: Microeconomics studies individual consumers, firms, and industries, including very large industries; size alone does not make an issue…

• A. A reduction in unemployment benefits will reduce the unemployment benefits will reduce the unemployment rate.
• B. The rate of inflation should be reduced because it robs the elderly of their savings.
• C. The unemployment rate should be reduced because unemployment robs individuals of their dignity.
• D. The state should increase subsidies to universities because the future of our country depends on education.

Explanation: Statement (a) is positive because it predicts a cause-and-effect relationship that can be tested with evidence.

• A. a shift in the production possibilities frontier outward.
• B. a movement from inside the curve toward the curve.
• C. a shift in the production possibilities frontier inward
• D. a movement along a production possibilities frontier toward capital goods.

Explanation: Economic growth expands an economy’s productive capacity, represented by an outward shift of the production possibilities frontier.

• A. inefficient
• B. normative
• C. unattainable
• D. efficient

Explanation: Every point on the production possibilities frontier represents productive efficiency because available resources are fully and…

• A. labor
• B. land
• C. money
• D. capital

Explanation: The standard factors of production are land, labor, capital, and entrepreneurship.

• A. A lawyer employed by Renault addressing the impact of air bags on passenger safety.
• B. An economist permanently employed at a leading university analyzing the impact of bank regulations on lending to small businesses
• C. An economist employed by the Trades union congress doing research on the impact of trade policy on workers' wages
• D. A radio talk show host collecting data from listeners on how capital markets respond to taxation

Explanation: A university economist is most likely to conduct independent research using systematic data and testable methods.

• A. To address the impact to taxes on income distribution an economist assumes that everyone earns the same income.
• B. To address the impact of money growth on inflation, an economist assumes that money is strictly coins.
• C. To model the benefits of trade. an economist assumes that there are two people and two goods
• D. To estimate the speed at which a beach ball falls, a physicist assumes that if falls in a vacuum.

Explanation: Assuming two people and two goods simplifies trade theory while preserving its essential mechanism, comparative advantage.

• A. Usually made of wood and plastic
• B. built with assumptions.
• C. useless if they are simple.
• D. created to duplicate reality.

Explanation: Economic models are simplified representations of reality built from assumptions, allowing economists to isolate important relationships.

• A. If Susan works for BAe Systems and receives a salary payment, the transaction takes place in the market for good and services.
• B. If BAe Systems sells a military aircraft, the transaction takes place in the market for factors for production
• C. None of these
• D. The factors of production are owned by households

Explanation: Households own the factors of production, such as labor, land, and capital, and supply them to firms through factor markets.

• A. the scientist be objective
• B. The scientific use precision equipment.
• C. only correct theories are tested
• D. only theories are tested.
• E. the scientist uses test tubes and have clean lab.

Explanation: Objectivity is essential to the scientific method because evidence must be evaluated without letting personal beliefs determine the…

• A. restrict; promote
• B. restrict; restrict
• C. promote; promote
• D. promote; restrict

Explanation: Antimonopoly legislation aims to promote competition by preventing excessive market power, while market regulation commonly restricts…

• A. nationalized; privatized
• B. natural monopoly; potentially competitive
• C. cartel; a sellers' market
• D. monopolistic competition duopoly

Explanation: Electricity transmission and distribution networks have natural-monopoly characteristics because one network can serve the market more…

• A. extended warranties offer value for money.
• B. the cost of repair will usually exceed the cost of the warranty
• C. they are paid commission on each extended warranty they sell.
• D. They are concerned about customer satisfaction.

Explanation: Sales employees are often paid commission on extended warranties, giving them a direct financial incentive to promote them.

• A. firms producing the same product
• B. firms at various stages in production process.
• C. firm producing complementary products
• D. firms producing unrelated products.

Explanation: A conglomerate merger combines firms from unrelated industries or product markets.

• A. increasing market power is the best way to achieve efficiency.
• B. competition is the best way to achieve efficiency.
• C. public ownership is the best way to achieve efficiency
• D. regulation is the best way to achieve efficiency.

Explanation: Antimonopoly policy rests on the view that competition pressures firms to lower costs, improve quality, and use resources efficiently.

• A. low; low
• B. high; high
• C. low; high
• D. high; low

Explanation: Cars provide some external benefits, but these are generally small compared with the external costs imposed through congestion, pollution…

• A. Spain
• B. Belgium
• C. USA
• D. UK

Explanation: The referenced comparative data show car ownership per 1,000 people falling in the United States during 1990–1999, unlike the countries…

• A. deregulation
• B. making markets contestable
• C. natural monopoly.
• D. cross-subsidization.

Explanation: Allowing firms from one utility industry to enter another makes the market open to potential competitors, which is the idea of…

• A. removes barriers to entry
• B. imposes higher standards of conduct
• C. removes barriers to entry and minimum product quality standards
• D. breaks up private sector monopolies.

Explanation: Deregulation means removing government-imposed restrictions, especially barriers to entry and mandatory operating or product standards.