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 39 of 88
- A. the return to any factor of production that is in fixed supply
- B. the profit earned by the owner of any housing unit.
- C. the amount paid each year by a tenant for an apartment
- D. any profit earned by stockholders when they sell their stock
Explanation: Economic rent is the payment to a factor whose supply is fixed or highly inelastic, such as land.
Correct answer: the return to any factor of production that is in fixed supply- A. the Rs500 weekly salary that he has forgone to search for another job
- B. The Rs500 weekly salary that he has forgone and the monetary costs incurred by continuing to search
- C. Rs difference between the weekly salary he finally accepts and the Rs500 weekly salary that he has forgone
- D. Rs0, since he is currently unemployed
Explanation: The opportunity cost of continuing the search includes the Rs500 weekly wage forgone plus any monetary expenses of searching.
Correct answer: The Rs500 weekly salary that he has forgone and the monetary costs incurred by continuing to search- A. occupational differentials
- B. search differentials
- C. job differentials.
- D. compensating differentials
Explanation: Compensating differentials are wage differences that offset better or worse job characteristics, such as risk, unpleasant conditions, or…
Correct answer: compensating differentials- A. reduce the supply of labour.
- B. increase the demand for labour
- C. increase the supply of labour
- D. have no effect on the supply of labour
Explanation: A higher wage makes leisure more costly in terms of forgone earnings, creating a substitution effect toward work.
Correct answer: increase the supply of labour- A. leisure becomes less expensive and households buy more of it
- B. leisure becomes more expensive and households buy more of it
- C. leisure becomes more expensive and households buy less of it
- D. leisure becomes less expensive and households buy less of it.
Explanation: When wages rise, each hour of leisure means giving up more earnings, so leisure becomes more expensive.
Correct answer: leisure becomes more expensive and households buy less of it- A. output demand
- B. indirect demand
- C. derived demand
- D. the value of the marginal product of auto workers.
Explanation: The demand for labour used to produce cars depends on consumers' demand for cars.
Correct answer: derived demand- A. transitory income is a good measure of the distribution of living standards
- B. none of these answers
- C. permanent income is a good measure of the distribution of living standards.
- D. life-cycle income is a good measure of the distribution of living standards.
- E. current annual income is a good measure of the distribution of living standards.
Explanation: With perfect borrowing and lending, people can convert income received at different ages into a smooth lifetime consumption path.
Correct answer: permanent income is a good measure of the distribution of living standards.- A. increase a worker's current income and permanent income
- B. reduce a worker's current income but not necessarily their permanent income
- C. affect neither the current nor the permanent income of a worker
- D. reduce a worker's permanent income but not their current income
Explanation: A recession directly lowers earnings during the unemployment period, so current income falls.
Correct answer: reduce a worker's current income but not necessarily their permanent income- A. impoverished countries to impoverished countries
- B. impoverished countries to wealthy countries
- C. wealthy countries to wealthy countries
- D. wealthy countries to impoverished countries
Explanation: Guest-worker schemes generally move labor temporarily from countries with lower wages and fewer job opportunities to countries offering…
Correct answer: impoverished countries to wealthy countries- A. electrician unions in the high-paying nations
- B. electrician unions in the low paying nations
- C. electrician employers in the high-paying nations
- D. electricians who stay in the low paying nations
Explanation: Electricians entering a high-wage country increase the available labor supply and may put downward pressure on existing electricians’…
Correct answer: electrician unions in the high-paying nations- A. decrease wage rates in the low-paying nations
- B. decrease productivity and real output in the world
- C. increase business or capitalist incomes in the high-paying nations
- D. increase business or capitalist incomes in the low-paying nations
Explanation: Migration into high-wage countries expands labor supply there, which can reduce wages while increasing the return to complementary capital…
Correct answer: increase business or capitalist incomes in the high-paying nations- A. adds to the pre-existing productive capacity
- B. enters markets neither parent could have entered individually
- C. yields cost reductions unavailable to parent firms
- D. gives rise to increased amounts of market power
Explanation: A joint venture can create welfare losses when it increases market power, allowing the new firm to restrict output and charge prices above…
Correct answer: gives rise to increased amounts of market power- A. enjoy unfair advantage in taxation
- B. export jobs by shifting technology overseas
- C. export jobs by shifting investment overseas
- D. operating at output levels where scale economies occur
Explanation: U.S. labor unions commonly accuse multinationals of gaining tax advantages and moving jobs, technology, or investment abroad.
Correct answer: operating at output levels where scale economies occur- A. cannot benefit from the advantage of comparative advantage
- B. may raise political problems in countries where their subsidiaries operate
- C. can only invest at home but not overseas
- D. can only invest overseas but not at home
Explanation: Multinational subsidiaries can affect host-country policy, employment, taxation, and control of strategic industries, creating political…
Correct answer: may raise political problems in countries where their subsidiaries operate- A. increase the transfer of technology between nations
- B. make it harder to nations to foster activities of comparative advantage
- C. always enjoy political harmony in nations where their subsidiaries operate
- D. require governmental subsidies in order to conduct worldwide operations
Explanation: Multinational corporations transmit technology, management methods, and production know-how across borders through investment and…
Correct answer: increase the transfer of technology between nations- A. sharing research and development cost among corporations
- B. forestalling protectionism against imports
- C. establishing work rules promoting higher labor productivity
- D. operating at diseconomy-of-scale output levels
Explanation: Joint ventures can share research costs, reduce resistance to foreign imports, and improve labor practices or productivity.
Correct answer: operating at diseconomy-of-scale output levels- A. the construction of a new auto assembly plant overseas
- B. the acquisition of an existing steel mill overseas
- C. the purchase of bonds or stock issued by a textile company overseas
- D. the creation of a wholly owned business firm overseas
Explanation: Buying overseas bonds or shares is generally foreign portfolio investment, because it does not necessarily give the investor managerial…
Correct answer: the purchase of bonds or stock issued by a textile company overseas- A. marginal cost pricing
- B. full cost pricing
- C. price discrimination
- D. transfer pricing
Explanation: Transfer pricing is the price charged for goods, services, or inputs exchanged between related companies within the same multinational…
Correct answer: transfer pricing- A. multinational corporation
- B. international joint venture
- C. horizontal merger
- D. vertical merger
Explanation: An international joint venture is a newly created business owned by two or more companies, often formed for a particular project or a…
Correct answer: international joint venture- A. exporting American jobs by investing overseas
- B. exporting American jobs by keeping investment in the U.S
- C. importing cheap foreign workers by shifting U.S investment overseas
- D. importing cheap foreign workers by keeping U.S investment at home
Explanation: Labor unions commonly argue that overseas investment shifts production abroad and therefore exports jobs that might otherwise be available…
Correct answer: exporting American jobs by investing overseas