Free Microeconomics MCQs with Answers

• A. technology
• B. advertising
• C. factor endowments
• D. both (a) and (c)

Explanation: The Heckscher-Ohlin model links comparative advantage to relative factor abundance, such as land, labour, or capital.

• A. have no impact on patterns of international trade
• B. have tended to make U.S steel companies more competitive internationally
• C. can affect production costs and thus alter comparative advantages and trade patterns
• D. have been eliminated by the nations participating in NAFTA

Explanation: Different environmental rules and regulations can change firms’ production costs.

• A. Explains why the United States might export autos and import clothing
• B. Explains why the United States might export and import differentiated versions of the same product such as different types of autos
• C. Assumes that transport costs are very low or do not exist
• D. ignores seasonal considerations for agricultural goods

Explanation: Intra-industry trade is two-way trade in differentiated varieties of the same product, such as one country exporting some automobile…

• A. increase in the volume of trade
• B. Smaller gain from trade
• C. Decline in the income of home producers
• D. Decrease in the level of specialization in production

Explanation: Lower transport costs make international exchange cheaper, allowing countries to trade more and specialize more fully according to…

• A. similar endowments of natural resources
• B. similar levels of technology
• C. similar per-capita incomes
• D. similar wage levels

Explanation: Linder’s theory emphasizes demand similarity: countries with similar per-capita incomes tend to want similar manufactured products and…

• A. Devote excessive amounts of resources to agricultural production
• B. Devote insufficient amounts of resources to agricultural production
• C. Export products that are land-intensive
• D. Import products that are land-intensive

Explanation: A country relatively abundant in land has a lower opportunity cost of producing land-intensive goods.

• A. Tastes and preferences
• B. Expectations of future interest rate levels
• C. Per-capita income levels
• D. Labor productivities

Explanation: The overlapping-demand theory predicts more manufactured-goods trade when consumers in trading countries have similar purchasing power and…

• A. How economies of scale make possible a larger variety of products in international trade
• B. A transfer of wealth from domestic consumer to domestic producer as the result of trade
• C. How a natural monopoly is forced to behave more competitively with international trade
• D. How a natural monopoly is forced to behave less competitively with international trade

Explanation: Selling aircraft to both domestic and foreign airlines expands the market over which Boeing can spread its large fixed production costs.

• A. Economies of large-scale production
• B. Relative abundance of various resources
• C. Relative costs of labor
• D. Research and development expenditures

Explanation: Heckscher-Ohlin explains comparative advantage through differences in the relative abundance of productive factors such as land, labour…

• A. produced by the three largest firms in the industry
• B. produced in cement, machine tools and steel industries
• C. and labor intensities relative to labor productivity
• D. as a percentage of production and marketing

Explanation: A concentration ratio measures the share of an industry's total output produced by its largest firms, commonly the top three or four.

• A. national defense
• B. an automobile
• C. libraries
• D. fire protection

Explanation: An automobile is a private good because it is rival in use and can be excluded from non-payers.

• A. Corporate bonds
• B. Company shares
• C. All of these answers are equity finance
• D. Government bonds

Explanation: Company shares represent ownership claims, so issuing them raises equity finance.

• A. reduces; reduces
• B. reduces; increases
• C. increases; increases
• D. increases; reduces

Explanation: An upward shift in marginal cost makes each output level less profitable and reduces the profit-maximising output.

• A. Change in average revenue, increased
• B. Change in total revenue, increase by one unit
• C. change in average revenue, increased by one unit
• D. change in total revenue increased

Explanation: Marginal revenue is the change in total revenue caused by selling one additional unit of output.

• A. incur, desire
• B. pay, make
• C. charge earns
• D. minimize, maximize

Explanation: The standard assumption is that firms seek to minimise the costs of producing a given output and maximise their profit.

• A. Marginal utility
• B. Additional utility
• C. Surplus utility
• D. Bonus utility

Explanation: Marginal utility is the additional satisfaction gained from consuming one more unit of a good.

• A. Course fees and rent
• B. A loan from the bank
• C. What the student could have earned in the best job available by not studying
• D. What the student will earn after graduation

Explanation: Opportunity cost is the value of the best alternative forgone, so for a student it may be the income available from the best job they…

• A. increase
• B. not change
• C. decrease
• D. shift

Explanation: Doubling both income and all relevant prices leaves real income and relative prices unchanged, so the consumer's affordable choices and…

• A. Price elasticity of demand
• B. Cross-price elasticity of demand
• C. budget elasticity of demand
• D. income elasticity of demand

Explanation: Income elasticity of demand measures the percentage change in quantity demanded caused by a percentage change in income.

• A. The responsiveness of quantity demanded to a change in price
• B. How far a demand curve shifts
• C. a change in price
• D. a change in quantity demanded

Explanation: Price elasticity of demand is the responsiveness of quantity demanded to a change in the good's own price, usually expressed as percentage…