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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701. If the autarky price of S were lower in country A than in country B then if trade were allowed ?
- A. A would likely export S to B
- B. A would likely import S from B
- C. neither country would want to trade
- D. None of the above
Explanation: A lower autarky price of S in country A indicates that A can produce S at a lower opportunity cost than B.
Correct answer: A would likely export S to B- A. Production equals consumption
- B. Exports equal imports
- C. there is no trade
- D. All of the above
Explanation: Under autarky there is no international trade, so exports and imports are both zero.
Correct answer: All of the above- A. Are more productive than their large trading partners
- B. Are less productive than their large trading partners
- C. Have demand preferences and income levels lower than their large trading partners
- D. Realize terms of trade lying near the MRTs of their large trading partners
Explanation: A small country cannot significantly influence world prices, so its terms of trade are close to the large partner’s internal relative…
Correct answer: Realize terms of trade lying near the MRTs of their large trading partners- A. Paid for all goods exported by the home country
- B. Received for all goods exported by the home country
- C. Received for exports and paid for imports
- D. Of primary products as opposed to manufactured products
Explanation: The terms of trade are measured as the price index of exports divided by the price index of imports.
Correct answer: Received for exports and paid for imports- A. constant opportunity costs
- B. decreasing opportunity costs
- C. first increasing and then decreasing opportunity costs
- D. increasing opportunity costs
Explanation: A bowed-out PPF reflects increasing opportunity cost: producing additional units of one good requires giving up progressively more of the…
Correct answer: increasing opportunity costs- A. shift out in a parallel fashion
- B. shift in a parallel fashion
- C. Become steeper
- D. Become flatter
Explanation: The slope of the price line reflects the relative price, or MRT, of S in terms of T.
Correct answer: Become steeper- A. actual differences in labor production between countries
- B. relative differences in labor productivity between countries
- C. Both (a) and (b)
- D. Neither (a) nor (b)
Explanation: Absolute advantage is based on an absolute productivity comparison, such as how much labor output differs between countries.
Correct answer: actual differences in labor production between countries- A. Only countries with low wages will export
- B. Only countries with high wages will import
- C. Countries with high wages will have higher prices
- D. All of the above are false
Explanation: Classical trade theory explains trade through productivity and opportunity-cost differences, not simply through national wage levels or…
Correct answer: All of the above are false- A. Countries will completely specialize in the production of export goods
- B. Considerable trade will occur between countries with different levels of technology
- C. Small countries could obtain of the gains from trade when trading with large countries
- D. All of the above
Explanation: Smith and Ricardo show that technology differences can create trade, specialization can be substantial, and even a small country can gain…
Correct answer: All of the above- A. Different currencies are an obstacle to international trade
- B. Goods are more mobile internationally than are resources
- C. Resources are more mobile internationally that are goods
- D. A country's exports should always exceed its imports
Explanation: International trade is feasible because goods generally cross borders more readily than productive resources such as labor and capital.
Correct answer: Goods are more mobile internationally than are resources- A. Trade would depend on difference in demand conditions
- B. Trade would depend on economies of large-scale production
- C. Trade would depend on the use of different currencies
- D. There would be no basis for gainful trade
Explanation: Identical increasing-cost production possibilities do not by themselves create comparative advantage, but different demand conditions can…
Correct answer: Trade would depend on difference in demand conditions- A. has no impact on the human capital of workers?
- B. increases human capital and the wages of workers
- C. can make any worker into a superstar
- D. only helps firms sort workers into high ability and low-ability workers.
Explanation: The human capital view treats education as an investment that raises workers’ skills and productivity, allowing them to earn higher wages.
Correct answer: increases human capital and the wages of workers- A. can make any worker into a superstar
- B. increases human capital and the wages of workers
- C. only helps firms sort workers into high ability and low-ability workers
- D. reduces the wage gap between high-skill and low-skill workers.
Explanation: The signaling view says education may not substantially increase productivity but helps employers identify and sort workers by underlying…
Correct answer: only helps firms sort workers into high ability and low-ability workers- A. unpleasant
- B. all these answers
- C. safe
- D. fun
- E. easy
Explanation: If skill and experience requirements are equal, an unpleasant job generally pays more to compensate workers for its undesirable…
Correct answer: unpleasant715. Which of the following is true regarding the earning of attractive versus unattractive workers ?
- A. Attractive people tend to earn less because attractive people are viewed as shallow and more self-absorbed and therefore, as less productive
- B. Attractive people tend to earn more because they may actually have a larger value of marginal product
- C. Attractive people tend to earn more because attractive people usually have greater human capital
- D. Attractive people tend to earn less because attractive people usually have less human capital
Explanation: Attractive workers often earn more partly because customers, employers, or colleagues may value their services more, raising their…
Correct answer: Attractive people tend to earn more because they may actually have a larger value of marginal product- A. the best professor
- B. the best writer
- C. All of these answers participate in markets that could generate a superstar
- D. The best accountant
- E. the best medical doctor
Explanation: Writing can generate superstar incomes because technology allows one highly valued writer’s work to reach a very large audience at…
Correct answer: the best writer717. In order for a market to support superstars it must have which of the following characteristics ?
- A. It must be involved in professional athletics
- B. Every customer must be indifferent to the price they pay, and the seller must be a competitor in the market for the product
- C. Every customer must be willing to pay an enormous amount for the product and the product must be a necessity
- D. Every customer must want the good supplied by the best producer and the technology must exist for the best producer to supply every customer at low cost
Explanation: A superstar market requires buyers to prefer the best producer and technology that lets that producer serve many customers at low marginal…
Correct answer: Every customer must want the good supplied by the best producer and the technology must exist for the best producer to supply every customer at low cost- A. Increase labor market discrimination because some workers can charge more for their services than other workers in a competitive market
- B. have no impact on labour market discrimination
- C. reduce labour market discrimination because non-discrimination firms will employ cheaper labour earn more profits and drive discriminating firms out of the market
- D. increase labour market discrimination because bigoted employers can charge any price they want in a competitive market to cover the cost of their discrimination
Explanation: In competitive labor markets, a non-discriminating firm can hire equally productive workers at lower wages and earn higher profits.
Correct answer: reduce labour market discrimination because non-discrimination firms will employ cheaper labour earn more profits and drive discriminating firms out of the market- A. minimum-wage laws
- B. efficiency wages
- C. unions
- D. beauty
Explanation: Minimum-wage laws, efficiency wages, and unions can keep wages above the market-clearing level.
Correct answer: beauty- A. Men have more human capital than women
- B. Employers in competitive markets are bigots
- C. Men have more job experience than women
- D. None of the above
Explanation: In competitive markets, widespread employer prejudice would raise costs for bigoted firms and create an advantage for non-discriminating…
Correct answer: Employers in competitive markets are bigots