Free Microeconomics MCQs with Answers

• A. external diseconomies
• B. marginal damage
• C. public goods
• D. resource curse

Explanation: A negative externality imposes an external cost on third parties and is therefore called an external diseconomy.

• A. over fishing
• B. smoking in a public place
• C. excessive rain
• D. common use of public toilets

Explanation: Overfishing is the classic tragedy of the commons because individuals have an incentive to take fish from a shared resource, eventually…

• A. monopoly
• B. entropy
• C. industry
• D. cartel

Explanation: A cartel is an agreement among firms or countries to restrict output and influence or fix prices.

• A. General Motors, the manufacturer of automobiles
• B. Tennessee Mining Co. an iron-ore mining company
• C. Caterpillar Corp the producer of earth moving equipment
• D. Sneva Construction Co. The builder of skyscrapers

Explanation: Dumped steel makes steel produced by domestic suppliers less competitive, reducing demand for related inputs such as iron ore.

• A. average total cost
• B. average variable cost
• C. average fixed cost
• D. marginal cost

Explanation: Under the cost-based definition, dumping occurs when the export price is below the product's average total cost.

• A. predatory dumping
• B. sporadic dumping
• C. persistent dumping
• D. yearend dumping

Explanation: Predatory dumping involves temporarily selling abroad at very low prices to drive foreign competitors out, followed by possible price…

• A. domestic subsidy
• B. voluntary restraint agreement
• C. domestic content requirement
• D. tariff-rate quota

Explanation: A domestic content requirement obliges firms to produce a minimum share of a good's value within the country.

• A. does not require government taxes to finance it
• B. yields the same deadweight welfare loss as an import tariff or import quota
• C. has only a consumption effect deadweight loss
• D. has only a protective effect deadweight loss

Explanation: A production subsidy for an import-competing good encourages inefficiently high domestic production but does not directly reduce domestic…

• A. selling goods to foreigners at a price below that charged domestic consumers
• B. selling goods to foreigners at a price below the cost of production
• C. antidumping duties being levied on the imported, dumped goods
• D. All of the above

Explanation: Dumping can mean selling abroad below the domestic price or even below production cost, while importing countries may respond with…

• A. never
• B. seldom
• C. often
• D. always

Explanation: Quota licences are seldom auctioned because governments commonly allocate them administratively or to politically influential firms.

• A. quota license
• B. quota rents
• C. quota prices
• D. None of the above

Explanation: Quota rents are the extra profits created when a quota makes the domestic price higher than the foreign price.

• A. higher prices and reduced imports
• B. increased government revenue
• C. increased consumer surplus
• D. decrease producer surplus

Explanation: An import quota restricts supply from abroad, pushing the domestic price upward and reducing the quantity imported.

• A. prices
• B. quantity
• C. revenue
• D. costs

Explanation: A quota is a quantitative trade restriction, so it limits the quantity of a good that may be imported or exported during a specified…

• A. U.S oil companies and workers deserved higher incomes
• B. U.S oil was of superior quality and merited higher prices
• C. one should not be too dependent on foreign suppliers of crucial resources
• D. The U.S government needed the quota revenue to balance its budget

Explanation: Restrictions on imported oil can be justified on national-security grounds because dependence on foreign suppliers may create risks during…

• A. Capture the entire subsidy in the form of higher profits
• B. Increase their level of production
• C. reduce wages paid to domestic workers
• D. consider the subsidy as a increase in production cost

Explanation: A production subsidy lowers the effective marginal cost of producing the good, encouraging domestic firms to expand output.

• A. is a limit on the number of tariffs that a country can place on imports?
• B. uses a single tariff along with import quotas to restrict import
• C. is designed to avoid the the price increases caused by simple tariffs
• D. is a two-tier tariff system intended to restrict imports?

Explanation: A tariff-rate quota uses two tariff rates: a lower rate for imports within a specified quantity and a higher rate for imports beyond it.

• A. domestic subsidy
• B. export subsidy
• C. import quota
• D. export quota

Explanation: An import quota is a government-set maximum quantity of a foreign-produced good allowed into the country during a given period.

• A. lower the welfare of all Pakistanis
• B. lead to increases in Pakistani consumer surplus
• C. encourage Pakistan's production of competing goods
• D. encourage Pakistani workers to demand higher wages

Explanation: A foreign export subsidy lowers the price of imported goods in Pakistan, increasing the purchasing power and consumer surplus of Pakistani…

• A. more elastic in Japan, more substitutes are available from other nations
• B. more elastic in Japan, fewer substitutes are available from other; nations
• C. more inelastic in Japan; more substitutes are available from other; nations
• D. more inelastic in Japan; fewer substitutes are available from other nations

Explanation: Dumping is encouraged when demand is more elastic in the foreign market, because buyers there can switch readily among substitutes…

• A. help more than they hurt
• B. hurt more then they help
• C. are equivalent to an import quota
• D. are equivalent to an export quota

Explanation: A foreign export subsidy lowers the price paid by American consumers, increasing their consumer surplus. Although U.S.