Free Microeconomics MCQs with Answers

• A. marginal revenue, marginal cost
• B. long run marginal revenue, long run marginal cost
• C. labor output ratio, capital output ratio
• D. marginal cost of labor, marginal revenue product

Explanation: A profit-maximizing firm hires labour up to the point where the extra cost of one more worker equals the extra revenue that worker…

• A. footballers give more entertainment
• B. lecturers are lazy
• C. the labor markets are imperfect
• D. top footballers are relatively scarce in relation to lecturers

Explanation: Top footballers are rare relative to the demand for their services, so their marginal revenue product and wages can be very high.

• A. there are too few teachers
• B. too few student places in higher education
• C. it is costly to acquire human capital
• D. teachers' salaries are too low

Explanation: Skilled labour is scarce because acquiring the necessary education, training, and experience requires time and financial investment.

• A. increase the wage, increase employment
• B. maintain the wage, increase employment
• C. increase the wage, lower employment
• D. maintain the wage, lower employment

Explanation: A union that restricts labour supply shifts the available labour curve leftward, raising the wage for those employed but reducing the…

• A. will not work at the offered wage
• B. would work at the going wage but can't find jobs
• C. will not work because the hours are anti-social
• D. Are not prepared to move house to get the job

Explanation: Involuntary unemployment means people are willing and able to work at the prevailing wage but cannot obtain jobs.

• A. its scrap values
• B. its depreciation
• C. the present value of the future stream of income it can earn
• D. the cost of loans

Explanation: An asset is valued by discounting the income it is expected to generate in the future back to its present value.

• A. wage differentials, skill levels
• B. technology, the ease of factor substitution
• C. government grants, international competition
• D. patents, skill shortages

Explanation: Industries use different capital intensities because their technologies differ and because they differ in how easily capital can…

• A. employees
• B. the population
• C. the factors of production
• D. the working population

Explanation: Functional distribution classifies income according to the factor that earns it, such as wages to labour, rent to land, interest to…

• A. housing gets priority
• B. industry gets priority
• C. farming gets priority
• D. the equilibrium rental rate equilibrium total demand with supply

Explanation: Land moves toward uses offering the highest return until the rental rate balances total demand with the available supply.

• A. variable, technology
• B. fixed, expectations
• C. fixed, rental rate of capital
• D. variable, interest rates

Explanation: In the short run, the existing capital stock is fixed, while in the long run firms can adjust it according to the rental rate they must…

• A. change in a company's balance sheet when it acquires new plant
• B. additional value of output from using more capital
• C. change in company's share price
• D. changing value of the capital stock

Explanation: The marginal revenue product of capital is the extra revenue generated by employing one additional unit of capital, usually found by…

• A. wage rate of capital
• B. interest charges
• C. marginal capital cost
• D. rental rate for capital

Explanation: The rental rate of capital is the opportunity cost paid for using capital services during a period.

• A. low wages, employment
• B. high wages, labor supply
• C. high wages, productivity
• D. high wages, employment

Explanation: Efficiency wages are deliberately high wages paid to encourage effort, reduce shirking and attract or retain productive workers.

• A. they tend to work in relatively unskilled jobs
• B. educational disadvantage
• C. firms are reluctant to invest in training
• D. all of the above

Explanation: Lower average incomes can reflect concentration in less-skilled jobs, educational disadvantages and employers' weaker incentives to…

• A. regional variation
• B. unionization
• C. relative danger
• D. skills

Explanation: Differences in skills and human capital are generally the most important systematic source of wage differentials because more productive…

• A. inelastic the demand for labour, they can restrict the supply of labour
• B. members they have, aggressive they behave
• C. the economy is growing, people prefer leisure
• D. the productivity is growing vacancies exist

Explanation: A union can raise wages more successfully when employers cannot easily reduce labour demand and when the union can restrict the supply of…

• A. course fees
• B. course fees and living expenses
• C. the earnings foregone
• D. Course fees living expenses and textbook

Explanation: The opportunity cost of education is the income a person gives up while studying instead of working.

• A. the tools used by workers to enhance productivity
• B. a person inherited ability
• C. the stock of expertise accumulated by a worker
• D. education

Explanation: Human capital is the accumulated stock of knowledge, skills, training, and expertise embodied in a worker.

• A. higher real wages
• B. lower fixed costs of working
• C. lower non-labour income
• D. changes in tastes between leisure and work
• E. all of the above

Explanation: Labour-force participation responds to the reward from working, the costs of working, non-labour income, and preferences between work and…

• A. Supply of labor
• B. Short-run demand curve for labor
• C. marginal cost of labour
• D. marginal revenue product of labor

Explanation: With the product price held constant, a firm's marginal revenue product of labour is proportional to the marginal physical product and…