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 67 of 88
- A. 80 units
- B. 320 units
- C. 60 units
- D. 120 units
Explanation: A price elasticity of supply of 4 means a 15% price rise produces a 60% rise in quantity supplied, since 4 multiplied by 15% equals 60%.
Correct answer: 320 units- A. Lead to a contraction of supply
- B. Lead to an expansion of supply
- C. Lead to a shift in supply outwards (i.e more supplied at each and every price)
- D. Lead to a higher equilibrium and lower equilibrium quantity
Explanation: Higher productivity lowers the unit cost of production and enables firms to supply more at every price.
Correct answer: Lead to a shift in supply outwards (i.e more supplied at each and every price)- A. Shift demand outwards
- B. Shift demand inwards
- C. Shift supply outwards so more is supplied at each and every price, all other things unchanged
- D. Shift supply inwards
Explanation: Higher production costs reduce the amount firms are willing to supply at each price, shifting the supply curve inward or leftward.
Correct answer: Shift supply inwards- A. A price elasticity of supply greater than one
- B. A price elasticity of supply equal to one
- C. A price elasticity of supply less than one
- D. A positive price elasticity of supply
Explanation: For a straight-line supply curve passing through the origin, the percentage change in quantity supplied equals the percentage change in…
Correct answer: A price elasticity of supply equal to one- A. Supply is price elastic
- B. Supply is income elastic
- C. Price elasticity of demand is -2
- D. Price elasticity of supply is -2
Explanation: Price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price: 8% ÷ 4% = 2.
Correct answer: Supply is price elastic1326. For a normal good ?
- A. The price elasticity of demand is negative the income elasticity of demand is negative
- B. The price elasticity of demand is positive the income elasticity of demand is negative
- C. The price elasticity of demand is negative the income elasticity of demand is positive
- D. The price elasticity of demand is positive; the income elasticity of demand is positive
Explanation: A normal good has positive income elasticity because demand rises when income rises.
Correct answer: The price elasticity of demand is negative the income elasticity of demand is positive- A. An increase in price must raise profits
- B. An increase in price decrease revenue
- C. An increase in price increase revenue
- D. A decrease in price reduces sales
Explanation: When demand is price inelastic, the percentage fall in quantity demanded is smaller than the percentage rise in price.
Correct answer: An increase in price increase revenue- A. Demand is price elastic
- B. Demand is price inelastic
- C. The demand curve is downward sloping
- D. An increase in income will reduce the quantity demanded
Explanation: A negative price elasticity means price and quantity demanded move in opposite directions, which is represented by a downward-sloping…
Correct answer: The demand curve is downward sloping- A. The products are substitutes and demand is cross price elastic
- B. The products are substitutes and demand is cross price inelastic
- C. The products are complements and demand is cross price elastic
- D. The products are complements and demand is cross price inelastic
Explanation: A negative cross elasticity shows that the goods are complements: a rise in the price of one reduces demand for the other.
Correct answer: The products are complements and demand is cross price elastic- A. The price elasticity of demand is -2
- B. The good is inferior
- C. Income elasticity is + 0.5
- D. Income elasticity is + 2
Explanation: Using the usual initial-value percentage method, price falls by 10% while quantity demanded rises by 20%, giving elasticity of 20% ÷ −10%…
Correct answer: The price elasticity of demand is -2- A. Demand is inversely related to income
- B. Demand in inversely related to price
- C. Demand is directly related to price
- D. Demand is inversely related to the price of substitutes
Explanation: For an inferior good, consumers generally buy less of it as their income increases and more as income falls.
Correct answer: Demand is inversely related to income- A. Shift demand outwards
- B. Shift demand inwards
- C. A contractions of demand
- D. An extension of demand
Explanation: With other factors unchanged, a price increase causes a movement along the same demand curve and reduces quantity demanded, called a…
Correct answer: A contractions of demand- A. Shift demand for an inferior product outward
- B. shift demand for an inferior product inward
- C. shift supply for an inferior product outward
- D. Shift supply for an inferior product inward
Explanation: Inferior goods have negative income elasticity, so higher income reduces their demand.
Correct answer: shift demand for an inferior product inward- A. Utility is at a maximum with the first unit
- B. Increasing units of consumption increase the marginal utility
- C. Marginal product will fall as more units are consumed
- D. Total utility will rise at a falling rate as more units are consumed
Explanation: With diminishing marginal utility, each additional unit adds less utility than the previous one, so total utility continues to rise at a…
Correct answer: Total utility will rise at a falling rate as more units are consumed1335. A fall in price ?
- A. Will cause an inward shift of demand
- B. Will cause an outward shift of supply
- C. May be caused by a fall in demand
- D. Leads to a higher level of production
Explanation: A fall in demand shifts the demand curve left and normally lowers the equilibrium price.
Correct answer: May be caused by a fall in demand- A. Quantity setting
- B. price fixing
- C. price rationing
- D. quantity adjustment.
Explanation: Price rationing occurs when price allocates a scarce good to buyers willing and able to pay the most.
Correct answer: price rationing1337. If the cross-price elasticity of demand between two goods is negative, then the two goods are ?
- A. normal goods
- B. unrelated goods
- C. Substitutes.
- D. Complements
Explanation: A negative cross-price elasticity means that when the price of one good rises, demand for the other falls, indicating complementary goods.
Correct answer: Complements- A. elastic
- B. perfectly elastic
- C. unitarily elastic
- D. inelastic.
Explanation: The absolute percentage change in quantity demanded is greater than the price change, 25% compared with 22%, so elasticity is greater than…
Correct answer: elastic1339. The price of apples falls by 5% and quantity demanded increases by 6% This means that demand is ?
- A. zero elastic
- B. elastic
- C. perfectly elastic
- D. inelastic
Explanation: Quantity demanded changes by 6% in response to a 5% price change, giving an elasticity of 6/5, or 1.2 in absolute terms.
Correct answer: elastic- A. a decrease in supply.
- B. a rise in income
- C. a fall in the number of substitute goods
- D. a rise in the price of inputs
Explanation: A decrease in supply tends to raise equilibrium price, causing a contraction in quantity demanded, shown as movement leftward along the…
Correct answer: a decrease in supply.