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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1361. For an inferior 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: An inferior good has negative income elasticity because demand falls as income rises, while its price elasticity of demand is normally…
Correct answer: The price elasticity of demand is negative: the income elasticity of demand is negative- A. 550 units
- B. 500 units
- C. 450 units
- D. 490 units
Explanation: The 20% price rise multiplied by elasticity of -0.5 causes a 10% fall in quantity demanded.
Correct answer: 450 units- A. 3000
- B. 7000
- C. 5500
- D. 4500
Explanation: A 20% income rise with income elasticity of +2 produces a 40% rise in sales. Forty percent of 5,000 is 2,000, so sales become 7,000 units.
Correct answer: 7000- A. Reduces revenue
- B. Leaves revenue unchanged
- C. Increase revenue
- D. Reduces costs
Explanation: With unit price elasticity of demand, the percentage change in quantity exactly offsets the percentage change in price.
Correct answer: Leaves revenue unchanged- A. Demand is price inelastic
- B. The good is inferior
- C. Income elasticity is -2
- D. The product is normal
Explanation: Income rises by 10% and quantity demanded rises by 20%, giving positive income elasticity of +2.
Correct answer: The product is normal- A. Demand is inversely related to income
- B. Demand is inversely related to price
- C. Demand is directly related to price
- D. Demand is inversely related to the price of substitutes
Explanation: A Veblen good is sought partly for its prestige, so a higher price can make it more desirable and increase demand.
Correct answer: Demand is directly related to price- A. Shift demand for Product A outwards
- B. Shift demand for product A inwards
- C. Shift supply for product A outwards
- D. Shift supply for product A inwards
Explanation: A complement is consumed together with the product, so a higher price reduces its demand and consequently reduces demand for Product A.
Correct answer: Shift demand for product A inwards- A. Total utility is zero
- B. An additional unit of consumption will decrease total utility
- C. An additional unit of consumption will increase total utility
- D. Total utility is maximized
Explanation: Marginal utility is the addition to total utility from one more unit; when it reaches zero, total utility has reached its maximum.
Correct answer: Total utility is maximized- A. -4
- B. 0.25
- C. 4
- D. -0.25
Explanation: Cross-price elasticity equals the percentage change in quantity demanded of beef divided by the percentage change in the price of chicken…
Correct answer: 0.25- A. ratio of the change in price to the change in quantity demanded.
- B. ratio of the percentage change in quantity demanded to the percentage change in price.
- C. ratio of the change in quantity demanded to the change in price.
- D. ratio of the percentage change in price to the percentage change in quantity demanded.
Explanation: Price elasticity of demand measures responsiveness, so it is calculated as percentage change in quantity demanded divided by percentage…
Correct answer: ratio of the percentage change in quantity demanded to the percentage change in price.- A. quantity demanded equals quantity supplied
- B. quantity demanded is less than quantity supplied
- C. quantity supplied is greater than quantity demanded
- D. quantity demanded is greater than quantity supplied
Explanation: Market equilibrium occurs where buyers' planned purchases equal sellers' planned sales at the prevailing price.
Correct answer: quantity demanded equals quantity supplied- A. a decrease in the quantity supplied of
- B. a decrease in the supply of
- C. an increase in the quantity supplied of
- D. an increase in the supply of
Explanation: Cheaper computer chips reduce firms' production costs, so they are willing to supply more personal computers at every price.
Correct answer: an increase in the supply of- A. A change in wealth
- B. A change in the price of compact discs
- C. A change in income.
- D. A change in the price of pre-recorded cassette tapes
Explanation: A change in the price of compact discs causes movement along their existing demand curve, not a shift of that curve.
Correct answer: A change in the price of compact discs- A. perfect substitutes
- B. complements
- C. unrelated goods.
- D. substitutes.
Explanation: If the price of Y falls and demand for Z rises, consumers are likely using Y and Z together, so they are complements.
Correct answer: complements- A. incomes, tastes, and the price of other goods.
- B. income, tastes, and the price of the good.
- C. income and tastes
- D. tastes and the price of other goods
Explanation: A demand curve isolates the effect of the good's own price, so income, tastes, and prices of other goods are held constant.
Correct answer: incomes, tastes, and the price of other goods.- A. The ceteris paribus effect
- B. The diminishing marginal utility effect.
- C. The substitution effect
- D. The income effect
Explanation: The substitution effect occurs when a fall in a good's price makes it relatively cheaper than alternatives, leading consumers to…
Correct answer: The substitution effect- A. as prices rise, demand decrease
- B. as prices fall, quantity demanded increase
- C. as prices fall demand increases
- D. as prices rise, quantity demanded increases
Explanation: The law of demand describes an inverse relationship between price and quantity demanded, with other factors held constant.
Correct answer: as prices fall, quantity demanded increase- A. there is no income effect when tax rates are changed
- B. the income effect of a wage change is greater than the substitution effect of a wage change.
- C. there is no substitution effect when tax rates are changed
- D. the substitution effect of a wage change is greater than the income effect of a wage change
Explanation: A lower tax rate raises the after-tax reward from working, creating a substitution effect toward labor.
Correct answer: the substitution effect of a wage change is greater than the income effect of a wage change- A. maximize producer surplus
- B. are efficient
- C. are inefficient
- D. are equitable
Explanation: An externality means that some costs or benefits fall on third parties and are not reflected in the market price.
Correct answer: are inefficient- A. are equitable.
- B. are efficient
- C. maximize consumer surplus
- D. are inefficient
Explanation: Market power allows a producer to restrict output and charge a price above marginal cost.
Correct answer: are inefficient