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 42 of 88
- A. Signal
- B. Incentive
- C. Rationing device
- D. Indicator of income
Explanation: Prices signal scarcity, create incentives, and ration goods among buyers, but they do not directly indicate a person's income.
Correct answer: Indicator of income- A. Act as a signal
- B. Act as a incentive
- C. Act as a rationing device
- D. shift the demand curve
Explanation: The price mechanism signals scarcity, provides incentives, and rations goods through prices.
Correct answer: shift the demand curve- A. Shifts the supply curve
- B. shifts the demand curve
- C. Leads to a contractions in supply
- D. Leads to an extension of supply
Explanation: A producer subsidy lowers the effective cost of supplying each unit, shifting the supply curve rightward.
Correct answer: Shifts the supply curve- A. Excess supply
- B. Excess demand
- C. Equilibrium
- D. Downward pressure on prices
Explanation: A price fixed below equilibrium is a binding price ceiling. At that low price, quantity demanded exceeds quantity supplied, producing…
Correct answer: Excess demand- A. income elastic
- B. income inelastic
- C. Price elastic
- D. Price inelastic
Explanation: With price-inelastic demand, buyers change quantity only slightly when price changes, so a supply shift has a larger effect on price than…
Correct answer: Price inelastic- A. Lead to a movement along the demand curve
- B. Shift the supply curve
- C. Shift the demand curve
- D. Lead to an extension of demand
Explanation: Income is a demand determinant, so a change in income shifts the entire demand curve rather than causing movement along it.
Correct answer: Shift the demand curve- A. decrease in supply
- B. increase in demand
- C. increase in supply
- D. decrease in demand
Explanation: An inferior good is purchased less when consumers become richer, so higher income causes its demand to decrease.
Correct answer: decrease in demand- A. There is an increase in the quantity demanded of apples and in the supply for apples
- B. There is an increase in the demand and supply of apples.
- C. There is an increase in the demand for apples and a decrease in the supply of apples
- D. There is a decrease in the quantity demanded of apples and an increase in the supply for apples
- E. There is an increase in the demand for apples and an increase in the quantity supplied of apples.
Explanation: A shift in tastes toward apples shifts the demand curve rightward. The resulting higher equilibrium price causes an increase in quantity…
Correct answer: There is an increase in the demand for apples and an increase in the quantity supplied of apples.829. Which of the following statements is true about the impact of an increase in the price of lettuce ?
- A. Both the demand for lettuce will decrease and the equilibrium price and quantity of salad dressing will fall
- B. The supply of lettuce will decrease
- C. The demand for lettuce will decrease
- D. The equilibrium price and quantity of salad dressing will fall
- E. The equilibrium price and quantity of salad dressing will rise
Explanation: Lettuce and salad dressing are complementary goods, so a higher lettuce price reduces demand for salad dressing.
Correct answer: The equilibrium price and quantity of salad dressing will fall- A. the equilibrium quantity to rise and the equilibrium price to rise
- B. the equilibrium quantity to rise and the equilibrium price to fall
- C. the equilibrium quantity to rise and the equilibrium price to remain constant
- D. the change in the equilibrium quantity to be ambiguous and the equilibrium price to rise
- E. the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.
Explanation: An increase in both demand and supply raises the equilibrium quantity because both shifts push quantity upward.
Correct answer: the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.- A. there is a shortage and the price will rise
- B. the quantity demanded is equal to the quantity supplied and the price remains unchanged
- C. there is a shortage and the price will fall
- D. there is a surplus and the price will rise
Explanation: A price below equilibrium creates excess demand, or a shortage, because quantity demanded exceeds quantity supplied.
Correct answer: there is a shortage and the price will rise- A. an advance in the technology used to manufacture watches
- B. an increase in the price of watches
- C. All of these answers cause an increase in the supply of watches
- D. a decrease in the wage of workers employed to manufacture watches
Explanation: An increase in the price of watches changes quantity supplied through movement along the existing supply curve; it does not shift supply.
Correct answer: an increase in the price of watches- A. many buyers and sellers
- B. none of these answers
- C. firms that are price takers
- D. only one seller
Explanation: A monopoly is defined by a single seller serving the market, usually protected by barriers to entry.
Correct answer: only one seller- A. none of these answers
- B. increases the quantity supplied of that good
- C. increase the supply of that good
- D. decrease the demand for the good
- E. decrease the quantity demanded for that good
Explanation: The law of supply describes movement along the supply curve: when price rises, producers generally offer a greater quantity for sale, all…
Correct answer: increases the quantity supplied of that good- A. Complements
- B. inferior goods
- C. normal goods
- D. none of these answers
- E. Substitutes
Explanation: A higher price for blue jeans increases demand for tennis shoes because consumers can switch between the two goods.
Correct answer: Substitutes- A. increasing average cost curve, marginal cost lies above average cost
- B. increasing average cost curve, marginal cost lies below average cost
- C. decreasing average cost curve marginal cost lies above average cost
- D. decreasing average cost curve, marginal cost lies below average cost
Explanation: A natural monopoly has economies of scale over the relevant range, so its average cost falls as output increases.
Correct answer: decreasing average cost curve, marginal cost lies below average cost- A. vertical merger
- B. horizontal merger
- C. conglomerate merger
- D. hostile takeover
Explanation: A horizontal merger combines firms operating at the same stage of production in the same industry, such as two competing manufacturers.
Correct answer: horizontal merger- A. marginal cost is set equal to marginal revenue
- B. price is less than marginal cost
- C. marginal consumer benefit is less than marginal revenue
- D. there is too little output at too high a cost
Explanation: A monopolist restricts output and charges a price above marginal cost, so some mutually beneficial units are not produced.
Correct answer: there is too little output at too high a cost- A. the marginal cost of production does not equal society's marginal benefit
- B. the distribution is inequitable
- C. economic growth is low
- D. unemployment is high
Explanation: Allocative efficiency requires society's marginal benefit from the last unit to equal its marginal cost, so resources cannot be shifted to…
Correct answer: the marginal cost of production does not equal society's marginal benefit- A. some people can't count
- B. some people may not be permanent resident
- C. not all economic activity is legal
- D. We can't make value judgments to compare different people's welfare
Explanation: Comparing allocations requires judging how changes in one person's welfare should be weighed against changes in another's, which is a…
Correct answer: We can't make value judgments to compare different people's welfare