Free Microeconomics MCQs with Answers

• A. worse off; worse off
• B. better off; better off
• C. better off; worse off
• D. equal, unequal

Explanation: Pareto efficiency means no feasible reallocation can make at least one person better off without making someone else worse off.

• A. a wining strategy
• B. a losing strategy
• C. a players best strategy when moving first
• D. a player's best strategy whatever the strategies adopted by rivals

Explanation: A dominant strategy gives a player the best payoff regardless of which strategy the rival chooses.

• A. players are better of to act independently
• B. monopoly is better than competition
• C. people will always cheat
• D. players are better off if they co-operate

Explanation: The Prisoner's Dilemma shows that individually rational choices can leave both players worse off than mutual cooperation would.

• A. The oligopolist believes that competitors will match output increase but not output reduction
• B. The oligopolist believes that competitors will match price increase but not output reduction
• C. The oligopolist believers that competitors will match price cuts but not price rises
• D. The oligopolist believes that competitors will match price increase but not output increase

Explanation: In the kinked-demand model, rivals are expected to match a price cut but not a price rise.

• A. long run marginal cost
• B. short run marginal cost
• C. long run average cost
• D. long run marginal cost

Explanation: A natural monopoly has economies of scale over a large output range, so its long-run average cost keeps declining as output expands.

• A. research
• B. cost-saving
• C. technical advance
• D. all of the above

Explanation: Monopoly profits can finance research, cost-saving measures, and technological improvements, which may strengthen the firm's cost or…

• A. goods are sold at prices above legal or official price.
• B. buyers and/or sellers are not paying taxes as they should
• C. illegal substances are sold
• D. transactions are not recorded in the GDP figures.

Explanation: A black market operates outside official price and legal controls, commonly selling goods above the legally permitted price.

• A. quantity demanded will be greater than quantity supplied
• B. quantity demanded will be less than quantity supplied
• C. demand will be less than supply.
• D. quantity demanded will equal quantity supplied .

Explanation: Below the equilibrium price, consumers want to buy more than producers are willing to sell, creating excess demand or a shortage.

• A. supply exceeds demand
• B. a surplus exists
• C. there is perfectly inelastic demand for the good
• D. demand exceeds supply

Explanation: Rationing is needed when demand exceeds the available supply, because not every willing buyer can obtain the good at the prevailing price.

• A. a maximum price usually set by government that sellers may charge for a good
• B. the different between the initial equilibrium price and the equilibrium price after a decrease in supply
• C. a minimum price usually set by government that sellers must charge for a good
• D. a minimum price that consumers are willing to pay for a good.

Explanation: A price ceiling is a legally imposed maximum price that sellers may charge.

• A. There is under-consumption in the free market
• B. There is over consumption in the free market
• C. The government may tax to decrease production
• D. Society could be made off it less was produced

Explanation: A positive externality gives benefits to third parties, so the social benefit exceeds the private benefit and the free market produces too…

• A. Supply is price elastic
• B. Demand is price inelastic
• C. The government buys up all the excess production
• D. All output must be sold at a maximum price

Explanation: When demand for agricultural products is price inelastic, a rise in supply causes a proportionately larger fall in price than the rise in…

• A. Not provided in the free market economy
• B. Under provided in the free market economy
• C. Over provided in the free market economy
• D. Provided free

Explanation: Merit goods such as education and healthcare provide benefits that consumers may undervalue, including wider social benefits.

• A. There is excess equilibrium
• B. There is excess supply
• C. There is excess demand
• D. There is equilibrium

Explanation: A government-fixed price below equilibrium is a binding price ceiling, so buyers demand more than sellers supply.

• A. The price consumers are willing to pray for a unit
• B. The cost of providing a unit
• C. The profits made by a firm
• D. The difference the price a consumer pays for an item and the price he/she is willing to pay

Explanation: Consumer surplus is the difference between what a consumer is willing to pay and what the consumer actually pays.

• A. A change in technology
• B. A change in the number of producers
• C. A shift in demand
• D. A change in costs

Explanation: A movement along the supply curve occurs when the product’s price changes, while factors such as technology, producer numbers and costs…

• A. A change in income
• B. A change in the number of buyers
• C. A change in advertising
• D. A shift in supply

Explanation: A movement along the demand curve results from a change in the product’s own price.

• A. An fall in demand
• B. An increase in supply
• C. improvements in production technology
• D. An increase in demand

Explanation: An increase in demand shifts the demand curve rightward and raises the equilibrium price when supply slopes upward.

• A. Lead to a movement along the supply curve
• B. Shift the demand curve
• C. Shift the supply curve
• D. Lead to an extension of supply

Explanation: Lower production costs improve the profitability of supplying each quantity, so the entire supply curve shifts rightward.

• A. A higher equilibrium price and output
• B. A lower equilibrium price and higher output
• C. A lower equilibrium price and output
• D. A higher equilibrium price and lower output

Explanation: With supply unchanged, increased demand shifts the demand curve to the right.