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 64 of 88
- A. None of these answers are true
- B. All of these answers are true
- C. They dislike bad things more than the like comparable good things
- D. The utility they would lose from losing a Rs50 bet would exceed the utility they would gain from winning a Rs 50 bet
- E. Their utility function exhibit the property of diminishing marginal utility of wealth
Explanation: Risk aversion is represented by a concave utility function, meaning diminishing marginal utility of wealth and a greater utility loss from…
Correct answer: All of these answers are true- A. increases the present value of future returns from investment and increases investment
- B. decreases the present value of future return from investment and decreases investment
- C. decreases the present value of future returns from investment and increase investment
- D. increases the present value of future returns from investment and decreases investment
Explanation: A higher interest rate increases the discount rate, so the present value of future investment returns falls.
Correct answer: decreases the present value of future return from investment and decreases investment- A. Rs400.00
- B. Rs 104.00
- C. Rs 121.67
- D. Rs 123.98
Explanation: Compound interest gives future value = 100 × (1.04)^5 = Rs121.665, which rounds to Rs121.67.
Correct answer: Rs 121.67- A. stock markets tend to be inefficient
- B. all of these answers
- C. index funds are able to buy undervalued stocks
- D. actively managed funds trade more often and charge fees for their alleged expertise
Explanation: Active funds often trade more frequently and charge management fees, creating costs that an index fund largely avoids.
Correct answer: actively managed funds trade more often and charge fees for their alleged expertise- A. shares are overvalued
- B. people behave irrationally when choosing shares
- C. markets reflect all available information in a rational way
- D. shares are undervalued
Explanation: Under informationally efficient markets, new information is rapidly incorporated into share prices, leaving price changes difficult to…
Correct answer: markets reflect all available information in a rational way- A. None of these answers
- B. An increase in expected dividends
- C. A reduction in aggregate risk
- D. A reduction in the interest rate
- E. All of these answers
Explanation: Share value rises when expected dividends increase, when risk falls, or when the interest rate falls because future payments are…
Correct answer: All of these answers- A. shares tend to be overvalued
- B. the stock market is informationally efficient so share prices should follow a random walk
- C. All of these answers
- D. fundamental analysis is a valuable tool for increasing one's returns from investing in shares
Explanation: The efficient markets hypothesis says available information is already reflected in share prices, so predictable excess returns from…
Correct answer: the stock market is informationally efficient so share prices should follow a random walk- A. lower return and a lower level or risk
- B. lower return and a higher level of risk
- C. higher return and a lower level or risk
- D. higher return and a higher level of risk
Explanation: Replacing some shares with government bonds normally lowers the portfolio’s expected return because bonds generally offer less return, but…
Correct answer: lower return and a lower level or risk- A. uncertainty associated with the entire economy
- B. uncertainty associated with specific companies
- C. risk associated with adverse selection
- D. risk associated with moral hazard
Explanation: Idiosyncratic risk is firm-specific risk, such as a product failure or management problem affecting one company.
Correct answer: uncertainty associated with specific companies- A. increasing the rate of return within their portfolio
- B. diversifying their portfolio
- C. All of these answers help reduce risk
- D. buying insurance
Explanation: A higher rate of return does not by itself reduce risk and may involve accepting greater risk.
Correct answer: increasing the rate of return within their portfolio- A. Rs 43,456,838
- B. Rs 53,406,002
- C. Rs 34,538,902
- D. Rs 39,604,682
Explanation: The maximum acceptable cost is the present value of the future return: Rs50 million divided by 1.06⁴, which is approximately Rs39.605…
Correct answer: Rs 39,604,682- A. future value
- B. fair value
- C. present value
- D. compound value
- E. beginning value
Explanation: Present value converts a future payment into its equivalent amount today using the prevailing interest rate.
Correct answer: present value- A. abundant
- B. scarce
- C. neither
- D. can't tell without more information
Explanation: Trade tends to benefit a country’s abundant factor and reduce the relative return to its scarce factor under the factor-price-equalization…
Correct answer: scarce- A. The prices of trade goods to be lower than when there are no transportation costs
- B. specialization to stop when the production costs of the trading partners equalize
- C. The volume of trade to be less than when there are no transportation costs
- D. The gains from trade to be greater than when there are no transportation costs
Explanation: Transportation costs raise the effective cost of trading and make some potential exchanges unprofitable, so the volume of trade falls…
Correct answer: The volume of trade to be less than when there are no transportation costs- A. pursue free trade as a policy that leads to maximum global efficiency
- B. grant subsidies to firms offering potential comparative advantage
- C. provide loans to domestic workers in exporting industries
- D. increase interest rates on loans made to firms in import-competing industries
Explanation: Industrial-policy advocates support government assistance to industries believed capable of developing comparative advantage, commonly…
Correct answer: grant subsidies to firms offering potential comparative advantage- A. U.S exports are capital intensive relative to U.S imports
- B. U.S imports are labor intensive relative to U.S exports
- C. U.S exports are neither labor nor capital intensive
- D. None of the above
Explanation: Leontief found the apparent paradox that U.S. exports were relatively labor-intensive while U.S.
Correct answer: None of the above- A. tastes and preferences
- B. technology levels
- C. factor indowments
- D. Both A and B
Explanation: The Heckscher-Ohlin model commonly holds tastes and preferences and production technology constant across countries, while allowing factor…
Correct answer: Both A and B- A. countries with different factor endowments but similar technologies and preferences will have a strong basis for trade with each other
- B. countries with tend to specialize but not completely in their comparative advantage good
- C. reciprocal demand leads to an equilibrium terms of trade by inducing change in both demand and supply
- D. All of the above
Explanation: Heckscher-Ohlin trade is based on differing factor endowments under similar technologies and preferences, and it generally predicts…
Correct answer: All of the above- A. supply condition only
- B. demand conditions only
- C. supply and demand conditions
- D. can't tell without more information
Explanation: With identical tastes, demand patterns are the same, so comparative advantage comes from relative production conditions, including…
Correct answer: supply condition only- A. research and development subsidies
- B. loan guarantees
- C. low interest rate loans
- D. All of the above
Explanation: Governments seeking to build domestic comparative advantage may subsidize research and development, guarantee loans, or offer loans at…
Correct answer: All of the above