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.
Last updated
1,742 questions · page 34 of 88
- A. An existing internet provider provides competition to two other providers in Dayton Ohlio
- B. The production and marketing of the Model T Ford in the 19-teens
- C. The invention of the Stanley steamer
- D. An American buying a stock in the Philippines stock market
Explanation: The Model T represented a commercially implemented new product and production method, fitting Schumpeter's broad concept of innovation.
Correct answer: The production and marketing of the Model T Ford in the 19-teens- A. based on government intervention in the means of production
- B. that originated in the United States in the 19th Century
- C. Where private owners of capital make decisions based on profit
- D. that dominated developing economies in the 19 Century
Explanation: Capitalism is characterized by private ownership of capital and production decisions guided largely by profit.
Correct answer: Where private owners of capital make decisions based on profit- A. created stationary economies of scale
- B. maintained the relationship between firms and their clients
- C. replaced price as the important
- D. limited the expansion of firms
Explanation: Baumol argued that in high-technology oligopolies, innovation can become the main competitive weapon, taking the place of price…
Correct answer: replaced price as the important- A. the development of pure science, invention innovation financing the innovation and the innovation's acceptance
- B. introducing new products modifying production functions creating credit and making profits
- C. innovation investment credit creation and economies growth
- D. patent management resource gains mature innovation and speculative gains
Explanation: Technical advance is a process running from scientific knowledge and invention to innovation, its financing and eventual acceptance or…
Correct answer: the development of pure science, invention innovation financing the innovation and the innovation's acceptance- A. Perfect competition
- B. An economy below full employment
- C. No savings or technical change
- D. No entrepreneurial function is required
Explanation: Schumpeter's stationary state is a circular-flow economy with no technical change, savings or entrepreneurial function, generally based on…
Correct answer: An economy below full employment- A. an excess demand for that currency exists in the foreign exchange market
- B. an excess supply of the currency exists in the foreign exchange market
- C. the demand for foreign exchange shifts outward to the right
- D. the demand for foreign exchange shifts backward to the left
Explanation: When the exchange-rate price is below equilibrium, buyers want more foreign currency than sellers offer.
Correct answer: an excess demand for that currency exists in the foreign exchange market- A. reduce the incentive for technological innovations to further reduce pollution.
- B. set the price of pollution.
- C. determine the demand for pollution rights.
- D. Set the quantity of pollution
Explanation: A tradable-permit system fixes the total number of permits, and therefore the permitted quantity of pollution, while allowing firms to…
Correct answer: Set the quantity of pollution668. The gas-guzzler tax that is placed on new vehicles that are very fuel inefficient is an example of ?
- A. a tradeable pollution permits.
- B. an attempt to internalize a positive externality
- C. an application of the Coase theorem
- D. an attempt to internalize a negative externality.
Explanation: Fuel-inefficient vehicles impose pollution costs on people who are not involved in the purchase, creating a negative externality.
Correct answer: an attempt to internalize a negative externality.- A. Thomas will pay Roberto between €100 and €150 and Roberto will continue to play loud music
- B. Roberto will pay Thomas €150 and Roberto will continue to play loud music
- C. Thomas will pay Roberto between €100 and €150 and Roberto will stop playing loud music
- D. Roberto will pay Thomas €100 and Roberto will stop playing loud music
Explanation: Stopping the music is efficient because Thomas's €150 valuation of quiet exceeds Roberto's €100 benefit from loud music.
Correct answer: Thomas will pay Roberto between €100 and €150 and Roberto will stop playing loud music- A. costs incurred due to lawyers' fees
- B. costs incurred to reduce the pollution
- C. costs incurred to enforce the agreement
- D. costs incurred due to a large number of parties affected by the externality
- E. All of these answers are considered transaction costs
Explanation: The cost of reducing pollution is an abatement cost, not a transaction cost of reaching and enforcing an agreement.
Correct answer: costs incurred to reduce the pollution- A. there are no transaction costs.
- B. each affected party has equal power in the negotiations.
- C. the party affected by the externality has the initial property right to be left alone.
- D. There are a large number of affected parties.
- E. the government requires them to negotiate with each other
Explanation: The Coase theorem requires negligible or zero transaction costs so that affected parties can bargain toward an efficient outcome.
Correct answer: there are no transaction costs.- A. a positive externality
- B. a technology spillover
- C. an efficient market outcome.
- D. a negative externality
Explanation: A car added to a congested urban road increases travel time for other road users without compensating them.
Correct answer: a negative externality- A. have the government take over the production of the good causing the externality
- B. ban the production of all goods creating negative externalities
- C. tax the good
- D. subsidize the good
Explanation: A tax raises the private cost of producing the good toward its full social cost, reducing the overproduction caused by the negative…
Correct answer: tax the good- A. optimal quantity to exceed the equilibrium quantity.
- B. equilibrium quantity to be either above or below the optimal quantity
- C. equilibrium quantity to equal the optimal quantity
- D. equilibrium quantity to exceed the optimal quantity
Explanation: A negative externality makes social marginal cost greater than private marginal cost, so the unregulated market produces more than the…
Correct answer: equilibrium quantity to exceed the optimal quantity- A. Pigouvian taxes, command-and-control policies, tradable pollution permits.
- B. tradable pollution permits, Pigouvian taxes, command-and-control policies
- C. tradable pollution permits command-and-control policies, Pigovian taxes.
- D. command-and-control policies, tradable pollution permits, Pigovian taxes.
- E. They would all rank equally high because the same result can be obtained from any one of the policies
Explanation: Tradable permits combine an emissions limit with flexibility, allowing the lowest-cost firms to reduce pollution and preserving incentives…
Correct answer: tradable pollution permits, Pigouvian taxes, command-and-control policies- A. an attempt to internalize a positive externality
- B. an attempt to internalize a negative externality
- C. a Pigouvian tax
- D. a command-and-control policy
Explanation: University education can create benefits for others, such as a better-educated society, so contributions that expand access support a…
Correct answer: an attempt to internalize a positive externality- A. Sets the quantity of pollution
- B. reduces the incentive for technological innovations to further reduce pollution
- C. Sets the price of pollution
- D. determines the demand for pollution rights.
Explanation: A Pigouvian tax fixes the price of emitting pollution at a charge related to the marginal external cost, while firms choose the resulting…
Correct answer: Sets the price of pollution- A. All of these answers are true
- B. Pigouvian taxes and tradable pollution permits create an efficient market for pollution.
- C. Tradable pollution permits efficiently reduce pollution only if they are initially distributed to the firms that can regulator pollution at the lowest cost.
- D. To set the quantity of pollution with tradable pollution permits, the regulator must know everything about the demand for pollution rights.
- E. Pigovian taxes are more likely to reduce pollution to a targeted amount than tradable pollution permits.
Explanation: Both taxes and tradable permits can produce an efficient pollution outcome when properly designed, but permit allocation need not…
Correct answer: Pigouvian taxes and tradable pollution permits create an efficient market for pollution.- A. It is efficient for Roberto to stop playing loud music regardless of who has the property right to the level of sound
- B. it is efficient for Roberto to continue to play loud music
- C. It is efficient for Roberto to stop playing loud music only if Thomas has the property right to peace and quiet
- D. It is efficient for Roberto to stop playing loud music only if Roberto has the property right to play loud music
Explanation: Stopping the music creates €150 of benefit for Thomas while costing Roberto only €100, so quiet is the efficient outcome regardless of the…
Correct answer: It is efficient for Roberto to stop playing loud music regardless of who has the property right to the level of sound- A. ban the good creating the externality
- B. tax the good
- C. subsidize the good
- D. have the government produce the good until the value of an additional unit is zero
Explanation: A subsidy lowers the private cost or raises the private benefit of an activity with external benefits, moving market output toward the…
Correct answer: subsidize the good