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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1,742 questions · page 35 of 88
- A. the regulators decide how much each polluter should reduce its pollution.
- B. no pollution of the environment is tolerated
- C. each polluter reduces its pollution an equal amount
- D. the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount
Explanation: Efficiency requires pollution reductions to be made by firms that can reduce emissions at the lowest cost, rather than requiring equal…
Correct answer: the polluters with the lowest cost of reducing pollution reduce their pollution the greatest amount- A. by allocating tradable technology permits to high technology industry.
- B. to internalize the positive externality associated with technology-enhancing industries.
- C. to help stimulate private solution to the technology externality
- D. to internalize the negative externality associated with industrial pollution
Explanation: Technology-enhancing industries can create benefits for other firms and consumers that they do not receive payment for, a positive…
Correct answer: to internalize the positive externality associated with technology-enhancing industries.- A. equilibrium quantity to exceed the optimal quantity
- B. equilibrium quantity to equal the optimal quantity
- C. optimal quantity to exceed the equilibrium quantity
- D. equilibrium quantity to be either above or below the optimal quantity
Explanation: An uninternalized positive externality means social benefit exceeds private benefit, so the market produces less than the socially…
Correct answer: optimal quantity to exceed the equilibrium quantity- A. a social cost curve that is above the supply curve (private cost curve) for a good
- B. none of these answers
- C. a social value curve that is above the demand curve (private value curve) for good
- D. a social value curve that is below the demand curve (private value curve) for a good
Explanation: With a positive externality, the good provides benefits to third parties in addition to the buyer's private benefit.
Correct answer: a social value curve that is above the demand curve (private value curve) for good685. An externality is ?
- A. the benefit that accrues to the buyer in a market
- B. the cost that accrues to the seller in a market
- C. none of these answers
- D. the compensation paid to a firm's external consultants.
- E. The uncompensated impact of one person's actions on the well-being of a bystander
Explanation: An externality is an uncompensated benefit or cost imposed by one person's actions on an uninvolved third party.
Correct answer: The uncompensated impact of one person's actions on the well-being of a bystander- A. relatively higher U.S labor productivity was associated with relatively higher U.K export ratios
- B. relatively high U.K labor productivity was associated with relatively higher U.K export ratios
- C. Labor productivity ratios and export ratios were not associated with each other
- D. None of the above
Explanation: MacDougall’s test supported the comparative-advantage link between relative labour productivity and export performance: industries with…
Correct answer: relatively high U.K labor productivity was associated with relatively higher U.K export ratios- A. The stimulus of additional investment spending as market open
- B. Economies of large scale production as markets open
- C. Additional competition made possible by the opening of markets
- D. All of the above
Explanation: Dynamic gains are longer-run benefits of trade, including stronger investment, economies of scale from larger markets, and increased…
Correct answer: All of the above- A. Trades at Canada's marginal rate of transformation
- B. Trade at Sweden's marginal rate of transformation
- C. Specializes completely in the production of its export good
- D. Specializes partially in the production of its exports goods
Explanation: Trade produces gains when the international terms of trade differ favourably from a country’s own marginal rate of transformation.
Correct answer: Trades at Canada's marginal rate of transformation- A. below the production possibility frontier
- B. on the production possibility frontier
- C. above the production possibility frontier
- D. can't tell without more information
Explanation: A community cannot maximize its standard of living while leaving resources idle, so its production must be efficient and lie on the…
Correct answer: on the production possibility frontier- A. below the production possibility frontier
- B. On the production possibility frontier
- C. above the production possibility frontier
- D. can't tell without more information
Explanation: Under autarky, the community consumes what it produces because it does not trade with other countries.
Correct answer: On the production possibility frontier- A. constant opportunity costs
- B. decreasing opportunity costs
- C. first increasing and then decreasing opportunity costs
- D. increasing opportunity costs
Explanation: A linear production possibilities frontier has a constant slope, meaning that the same quantity of one good must always be sacrificed to…
Correct answer: constant opportunity costs- A. actual differences in labor productivity between countries
- B. relative differences in labor productivity between countries
- C. Both (a) and (b)
- D. Neither (a) nor (b)
Explanation: Comparative advantage depends on relative opportunity costs, which arise from comparing productivity ratios between countries rather than…
Correct answer: relative differences in labor productivity between countries- A. Absolute advantage
- B. Comparative advantage
- C. Physical advantage
- D. Which way the wind blows
Explanation: Ricardo's model explains trade through comparative advantage, meaning each country specializes in the good it can produce at a lower…
Correct answer: Comparative advantage- A. The labor theory of value
- B. How much the autarky price differs from international terms of trade change
- C. The fact that a country must lose from trade
- D. All of the above
Explanation: Trade gains are linked to the difference between a country's autarky opportunity-cost price and the international terms of trade.
Correct answer: How much the autarky price differs from international terms of trade change695. Mercantilism ?
- A. Is the philosophy of free international trade?
- B. Was a system of export promotion and barriers to imports practiced by governments?
- C. Was praised by Adam Smith in the Wealth of Nations
- D. Both (a) and (c)
Explanation: Mercantilism promoted exports and restricted imports through government intervention, with the aim of accumulating national wealth and…
Correct answer: Was a system of export promotion and barriers to imports practiced by governments?- A. There is no basis for gainful trade for either country
- B. Both countries gain from trade
- C. Only one country gains from trade
- D. One country gain and the other country loses from trade
Explanation: When the international terms of trade lie between the two countries' opportunity costs, each country can export the good in which it has…
Correct answer: Both countries gain from trade- A. Adam Smith
- B. David Ricardo
- C. Eli Heckscher
- D. Berti IOhlin
Explanation: David Ricardo gave the earliest systematic statement of comparative advantage in his analysis of trade between England and Portugal.
Correct answer: David Ricardo- A. evidence against the classical model
- B. evidence against the Heckscher-Ohlin model
- C. Support for the Ricardian modal
- D. Support for the Heckscher-Ohlin model
Explanation: MacDougall found that countries with higher labor productivity tended to export more, which is consistent with the Ricardian model's…
Correct answer: Support for the Ricardian modal- A. Ricardian theory of comparative
- B. Heckscher Ohl in theory of comparative advantage
- C. Linder theory of overlapping demand all of the above
- D. None of these
Explanation: MacDougall compared U.S. and U.K. export patterns with relative labour productivity as an empirical test of Ricardo’s…
Correct answer: Ricardian theory of comparative- A. Theory of reciprocal demand
- B. Theory of absolute advantage
- C. Theory of comarative advantage
- D. Theory of mercantilism
Explanation: John Stuart Mill developed the theory of reciprocal demand, which explains how international demand determines the terms of trade between…
Correct answer: Theory of reciprocal demand