Free Microeconomics MCQs with Answers
1,742 Microeconomics MCQs from Economics, each with the correct answer and a written explanation of why it is correct. Free and unlimited, with no account needed.
Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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- A. a substitute good
- B. a normal good
- C. a complementary good
- D. an inferior good
Explanation: An inferior good has a negative income effect: when income rises, consumers buy less of it.
Correct answer: an inferior good- A. rises
- B. stays the same
- C. could rise or fall depending on the relative prices of the two goods.
- D. falls
Explanation: A bowed-inward, or convex, indifference curve reflects diminishing marginal willingness to substitute one good for the other.
Correct answer: rises- A. the budget constraint crosses the indifference curve
- B. the two highest indifference curves cross
- C. the consumer reaches the highest indifference curve subject to remaining on the budget constraint
- D. the consumer has reached the highest indifference curve
Explanation: The consumer chooses the highest indifference curve that can still be reached with the available income.
Correct answer: the consumer reaches the highest indifference curve subject to remaining on the budget constraint- A. the marginal rate of substitution
- B. the marginal rate of trade-off.
- C. the trade-off rates
- D. the marginal rate of indifference
Explanation: The slope of an indifference curve measures how much of one good the consumer is willing to give up for another while maintaining the same…
Correct answer: the marginal rate of substitution585. Which of the following is not true regarding the outcome of a consumer's optimization process ?
- A. The marginal utility per dollar spent on each good is the same
- B. The marginal rate of substitution between goods is equal to the ratio of the prices between goods
- C. The consumer's indifference curve is tangent to his budget constraint
- D. The consumer has reached his highest indifference curve subject to his budget constraint
- E. The consumer is indifferent between any two points on his budget constraint
Explanation: Points on the same indifference curve provide equal utility, but different points on a budget line generally lie on different indifference…
Correct answer: The consumer is indifferent between any two points on his budget constraint- A. right shoes and left shoes
- B. petrol from BP and petrol from shell
- C. kit-Kat chocolate snacks and Twix chocolate snacks
- D. coke and Pepsi
Explanation: Right and left shoes are strong complements because one has little use without the other.
Correct answer: right shoes and left shoes- A. will always increase the quantity of labor supplied
- B. will increase the amount of labor supplied if the substitution effect outweighs the income effect
- C. will increase the amount of labor supplied if the income effect outweighs the substitution effect
- D. will always decrease the amount of labor supplied
Explanation: A higher wage makes work more attractive relative to leisure, creating a substitution effect that raises labour supplied, but the higher…
Correct answer: will increase the amount of labor supplied if the substitution effect outweighs the income effect- A. inferior effect
- B. normal effect
- C. substitution effect
- D. complementary effect
- E. income effect
Explanation: A price change has a substitution effect when it changes the relative attractiveness of goods and moves the consumer along the same…
Correct answer: substitution effect- A. a complementary good
- B. an inferior good
- C. a normal good
- D. a substitute goodEconomics
Explanation: A normal good has positive income elasticity of demand, meaning its quantity demanded rises as consumer income rises.
Correct answer: a normal good590. Which of the following is true about the consumer's optimum consumption bundle? At the optimum ?
- A. the slope of the indifference curve equals the slope of the budget constraint
- B. the indifference curve is tangent to the budget constraint
- C. the relative prices of the two goods equals the marginal rate of substitution
- D. none of these answers are true
- E. all of these answers are true
Explanation: At an interior consumer optimum, the indifference curve is tangent to the budget line, so their slopes are equal and the marginal rate of…
Correct answer: all of these answers are true- A. Indifference curves are downward sloping
- B. indifference curves are bowed outward
- C. Indifference curves do not cross each other
- D. Higher indifference curve is preferred to lower ones
Explanation: Standard indifference curves are convex to the origin, often described as bowed inward, because the marginal rate of substitution usually…
Correct answer: indifference curves are bowed outward- A. right angles
- B. bowed outward
- C. straight lines
- D. nonexistent
- E. bowed inward
Explanation: Perfect substitutes provide a constant trade-off between goods, so the consumer is willing to replace one with the other at a fixed rate.
Correct answer: straight lines- A. an indifference curve
- B. the budget constraint
- C. the marginal rate of substitution
- D. the consumption limits
Explanation: The budget constraint identifies the combinations of goods that a consumer can afford given income and prices.
Correct answer: the budget constraint594. For a competitive firm, its short run supply curve is ______ and its long run supply curve is _____?
- A. SMC, LMC
- B. SMC above SAVC, LMC above LAC
- C. SMC below SAVC, LMC above LAC
- D. SMC below SAVC, LMC bellow LAC
Explanation: In the short run, a competitive firm's supply curve is its marginal cost curve above the minimum of average variable cost, because it…
Correct answer: SMC above SAVC, LMC above LAC- A. price is greater than short run average total cost
- B. price is between short run average total cost and short run average variable cost
- C. price is less than short run average variable cost
- D. profit is zeroEconomics
Explanation: A firm shuts down in the short run when price falls below average variable cost, because it cannot cover even its variable operating…
Correct answer: price is less than short run average variable cost- A. Short run opportunity costs, profit
- B. Short run variable costs, profit
- C. Short run average variable costs, profit
- D. Short run average variable costs, profit run average fixed costs
Explanation: Average total cost includes both average variable cost and average fixed cost: SRATC = SRAVC + SRAFC.
Correct answer: Short run average variable costs, profit run average fixed costs- A. greater than average cost, greater than average cost
- B. less than average cost, greater than average cost
- C. less than average cost, less than average cost
- D. greater than average cost, less than average cost
Explanation: Marginal cost pulls the average cost downward when it is below average cost and pushes it upward when it is above average cost.
Correct answer: less than average cost, greater than average cost- A. increasing returns to scale
- B. decreasing returns to scale
- C. constant returns to scale
- D. the minimum efficient scale
Explanation: A falling long-run average cost curve means that increasing the scale of production reduces average cost.
Correct answer: increasing returns to scale- A. Demand is perfectly elastic
- B. Products are homogeneous
- C. Marginal revenue = price
- D. The marginal revenue is below the demand curve and diverges
Explanation: Monopolistic competition gives each firm a downward-sloping demand curve because its product is differentiated, so marginal revenue lies…
Correct answer: The marginal revenue is below the demand curve and diverges- A. the minimum of their average-total-cost curves
- B. all of these answers are correct
- C. their efficient scale
- D. zero economic profit
- E. intersection of marginal cost and marginal revenue
Explanation: In long-run competitive equilibrium, entry and exit lead to zero economic profit, operation at the minimum of ATC, and production at the…
Correct answer: all of these answers are correct