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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1141. In a tariff and import quota lead to equivalent increase in the domestic price of steel, then ?
- A. The quota results in efficiency reductions but the tariff does not
- B. The tariff results in efficiency reductions but the quota does not
- C. They have identical impact on how much is produced and consumed
- D. They have identical impact on how income is distributed
Explanation: If a tariff and quota raise the domestic price by the same amount, they produce the same domestic quantity supplied and quantity demanded.
Correct answer: They have identical impact on how much is produced and consumed1142. If a tariff and import quota lead to equivalent increases in the domestic price of steel, then ?
- A. the quota results in efficiency reductions but the tariff does not
- B. The tariff results in efficiency reductions but the quota does not
- C. They have different impacts on how much is produced and consumed
- D. They have different impacts on how income is distributed
Explanation: A tariff and quota can produce the same domestic price, output, and consumption, so their efficiency effects are similar.
Correct answer: They have different impacts on how income is distributed- A. Prisoner's Dilemma
- B. Monopoly Cell
- C. Jailhouses Sentences
- D. Jury Box
Explanation: The Prisoner's Dilemma is a standard game-theory model showing how individually rational choices can produce a worse collective outcome.
Correct answer: Prisoner's Dilemma- A. Rs 85
- B. Rs 75
- C. Rs 80
- D. Rs 60
Explanation: With separate pricing, the profit-maximizing prices are Rs60 for the textbook and Rs15 for the guide, giving a combined price of Rs75.
Correct answer: Rs 75- A. has a legitimate purpose of stopping discount retailers from free riding on the services provided by full services retailers?
- B. is price fixing and, therefore is prohibited by law
- C. is price fixing and therefore, is prohibited by law and enhances the market power of the producer
- D. enhances the market power of the producer
Explanation: Supporters of resale price maintenance argue that it prevents discount retailers from free riding on services such as demonstrations and…
Correct answer: has a legitimate purpose of stopping discount retailers from free riding on the services provided by full services retailers?- A. output in the market tends to fall because each firm must cut back on production
- B. the price in the market moves further from marginal cost
- C. collusion is more likely to occur because a larger number of firms can place pressure on any firm that defects
- D. The price in the market moves closer to marginal cost
Explanation: As more firms enter an oligopoly, competition generally becomes stronger and the market outcome approaches perfect competition.
Correct answer: The price in the market moves closer to marginal cost- A. more than the level produced by a monopoly and less than the level produced by a competitive market
- B. less than the level produced by a monopoly and more than the level produced by a competitive market
- C. less than the level produce by either monopoly or a competitive market
- D. more than the level produced by either monopoly or a competitive market
Explanation: An oligopolist recognizes that expanding output affects the market price, so it produces more than a monopolist but less than firms in a…
Correct answer: more than the level produced by a monopoly and less than the level produced by a competitive market- A. Should produce more units
- B. has maximized profits.
- C. is in a Nash equilibrium
- D. Should produce fewer units
- E. should exit the industry.
Explanation: The output effect is the gain from selling one more unit, while the price effect is the loss from lowering the price on existing units.
Correct answer: Should produce more units- A. monopolistic competition
- B. monopoly
- C. perfect competition
- D. oligopoly
Explanation: Monopolistic competition has many sellers offering differentiated products, such as brands that serve similar needs but are not identical.
Correct answer: monopolistic competition1150. In a cartel ?
- A. Firms compete against each other
- B. Price wars are common
- C. Firms use price to win market share from competitors
- D. Firms collude
Explanation: A cartel is an agreement among firms to coordinate decisions such as price or output instead of competing independently.
Correct answer: Firms collude- A. There is a kink in the marginal cost curve
- B. Demand is price inelastic
- C. Demand is price elastic
- D. non-price competition is likely
Explanation: The kinked-demand model explains rigid prices: rivals follow a price cut but may not follow a price increase.
Correct answer: non-price competition is likely- A. Firms cooperate
- B. Firms act as part of cartel
- C. Firms are competitive
- D. Firms are not profit maximisers
Explanation: The kinked-demand model assumes rival firms will match a price decrease but not a price increase, creating a kink and price rigidity in an…
Correct answer: Firms are competitive- A. Limit
- B. Factor
- C. Quota
- D. Quotient
Explanation: A quota is a fixed limit assigned to a cartel member's production or sales. The other terms do not refer to an allocated production amount.
Correct answer: Quota1154. Laws that make it illegal for firms to conspire to raise prices or reduce production are known as ?
- A. antimonopoly laws
- B. all of these answers
- C. anti-collusion laws
- D. pro-competition laws
- E. antitrust laws
Explanation: Antitrust laws prohibit practices such as price-fixing, collusion and agreements to restrict output.
Correct answer: antitrust laws- A. Rs 60
- B. Rs 90
- C. Rs 85
- D. Rs 75
Explanation: The two bundle valuations are Rs90 for Raheel and Rs85 for Mariam, so pricing the bundle at Rs85 sells to both and earns Rs170.
Correct answer: Rs 85- A. all of these answers
- B. if additional firms enter of the oligopoly
- C. because antitrust laws (also known as competition laws) make collusion illegal
- D. because, in the case of oligopoly self-interest is in conflict with cooperation.
Explanation: Collusion is undermined by new entry, legal bans under antitrust laws, and each firm's incentive to secretly increase output or cut price.
Correct answer: all of these answers- A. Nash equilibrium
- B. dominant strategy.
- C. cartel
- D. collusion solution
Explanation: A Nash equilibrium occurs when every oligopolist chooses the best strategy given the strategies already chosen by the others.
Correct answer: Nash equilibrium- A. more than the price charged by either monopoly or a competitive market
- B. less than the price charged by either monopoly or a competitive market
- C. more than the price charged by a monopoly and less then the price charged by a competitive market
- D. less than the price charged by a monopoly and more than the price charged by a competitive market
Explanation: With independent profit-maximising output choices, an oligopoly produces more than a monopoly but less than perfect competition.
Correct answer: less than the price charged by a monopoly and more than the price charged by a competitive market1159. As the number of sellers in an oligopoly grows larger, an oligopolistic market looks more like ?
- A. monopoly
- B. a competitive market
- C. monopolistic competition
- D. a collusion solution
Explanation: As more sellers enter, each firm's influence over market price falls and the market outcome moves closer to perfect competition.
Correct answer: a competitive market- A. the same as if it were served by competitive firms.
- B. efficient because cooperation improves efficiency
- C. the same as if it were served by a monopoly.
- D. known as a Nash equilibrium
Explanation: A successful cartel coordinates firms to restrict total output and charge the joint-profit-maximising price.
Correct answer: the same as if it were served by a monopoly.