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 71 of 88
- A. distinguishes between tariffs that are effective and those that are ineffective
- B. is the minimum level at Which a tariff becomes effective in limiting imports?
- C. shows how effective a tariff is in raising revenue for the government
- D. shows the increase in value added for domestic production that a particular tariff structure makes possible, in percentage terms
Explanation: The effective rate of protection measures the percentage increase in domestic value added caused by the complete tariff structure…
Correct answer: shows the increase in value added for domestic production that a particular tariff structure makes possible, in percentage terms- A. fixed amount of money per unit traded
- B. a percentage of money per unit traded
- C. a percentage of the quantity of imports
- D. All of the above
Explanation: A specific tariff is charged as a fixed monetary amount for each physical unit imported, such as $5 per kilogram.
Correct answer: fixed amount of money per unit traded- A. valid for stereos, but nor for most products imported by Pakistan
- B. valid for most products imported by Pakistan but not for stereos
- C. deceiving since Koreans eventually spend the dollars on Pakistani goods
- D. deceiving since the dollars spent on a stereo built in the Pakistan eventually wind up overseas
Explanation: The argument misleadingly treats the initial movement of currency as a permanent loss: South Korea can use the dollars to purchase…
Correct answer: deceiving since Koreans eventually spend the dollars on Pakistani goods1404. For advanced countries such as the United States, tariffs on imported raw materials tend to be ?
- A. equals to tariffs on imported manufactured goods
- B. lower than tariffs on imported manufactured goods
- C. higher than tariffs on imported manufactured goods
- D. The highest of all tariffs
Explanation: Advanced countries commonly apply tariff escalation: raw materials face lower duties, while processed and manufactured goods face higher…
Correct answer: lower than tariffs on imported manufactured goods- A. Ad valorem tariff
- B. Specific tariff
- C. Effective tariff
- D. Compound tariff
Explanation: An ad valorem tariff is charged as a percentage of the imported item's value, such as 15 percent.
Correct answer: Ad valorem tariff- A. The purpose is to maintain protection for an indefinite time period
- B. The industry is characterized by increasing returns to scale
- C. The economy operates during a recession
- D. The protected industry provides invaluable goods during periods of war
Explanation: The national-security argument is strongest for industries supplying essential goods during war, such as defence equipment or strategic…
Correct answer: The protected industry provides invaluable goods during periods of war- A. nominal tariff rate on the final product equals the effective tariff rate on the product
- B. nominal tariff rate on the final product is greater than the effective rate on the product
- C. nominal tariff rate on the final product is less than the effective tariff rate on the final product
- D. None of the above
Explanation: The effective rate of protection measures protection of domestic value added.
Correct answer: nominal tariff rate on the final product equals the effective tariff rate on the product- A. cause foreign assemblers of computers to use more computer components that are supplied by countries other than the United States
- B. Increase the Price of computers to consumers in the United States
- C. Increase the Production of computers in the United States
- D. Increase the production of computer components in the United States
Explanation: Offshore assembly provisions reduce or remove duties on U.S.-made components assembled abroad and reimported, making those components more…
Correct answer: Increase the production of computer components in the United States- A. will always
- B. will never
- C. can sometimes
- D. None of the above
Explanation: A tariff can sometimes raise national welfare in a large country if its improvement in terms of trade exceeds the efficiency losses caused…
Correct answer: can sometimes- A. the country is a small country rather than a larger country
- B. its terms of trade improve enough
- C. The tariff enhances the welfare of its trading partners
- D. Its government's tax revenue increases because of the tariff
Explanation: For a large country, an import tariff may lower the foreign export price and improve its terms of trade.
Correct answer: its terms of trade improve enough- A. improve
- B. worsen
- C. not change
- D. any of these
Explanation: A small country takes the world price as given, so its tariff cannot reduce the foreign export price or alter its terms of trade.
Correct answer: not change- A. highest of all
- B. higher than on manufactured goods
- C. equal to tariffs on manufactured goods
- D. lower than on manufactured goods
Explanation: Developed countries generally impose lower or zero tariffs on raw materials so domestic producers can obtain inputs cheaply.
Correct answer: lower than on manufactured goods- A. consumer surplus
- B. producer surplus
- C. deadweight costs
- D. deadweight surplus
Explanation: Consumer surplus is the gap between a buyer’s willingness to pay and the price actually paid.
Correct answer: consumer surplus- A. producer surplus
- B. deadweight surplus
- C. government surplus
- D. consumer surplus
Explanation: Consumer surplus measures the benefit buyers receive when they pay less than the maximum amount they are willing and able to pay.
Correct answer: consumer surplus- A. The price of autos within the nation will rise by 10 percent
- B. The price of autos within the nation will rise by less than 10 percent
- C. The price of autos within the nation will rise by more than 10 percent
- D. The price of autos will not rise because of internal competition
Explanation: Under the small-nation assumption, the country cannot influence the world price, so a 10 percent tariff raises the domestic price by the…
Correct answer: The price of autos within the nation will rise by 10 percent- A. a regional area within which trade with foreign nations is allowed
- B. a free trade agreement among several nations
- C. designed to limit exports of manufactured goods by placing export taxes on goods made within the zone
- D. designed to promote exports by deferring imports duties on intermediate inputs and waving such duties if the final product is re-exported rather than sold domestically
Explanation: An FTZ encourages exports by allowing duties on imported intermediate inputs to be deferred, and those duties are waived when the finished…
Correct answer: designed to promote exports by deferring imports duties on intermediate inputs and waving such duties if the final product is re-exported rather than sold domestically1417. Most tariffs have ?
- A. only revenue effects
- B. only protective effects
- C. Both protective and revenue effects
- D. neither protective or revenue effects
Explanation: A tariff protects domestic producers by raising the domestic price and also generates government revenue on imported units.
Correct answer: Both protective and revenue effects- A. fixed amounts of money per unit traded
- B. a percentage of the price of the product
- C. a percentage of the quantity of imports
- D. All of the above
Explanation: An ad valorem tariff is calculated as a percentage of the imported product’s value or price.
Correct answer: a percentage of the price of the product- A. In the interest of the U.S as a whole but not in the interest of the state of Pennsylvania where steel mills are located
- B. In the interest of the U.S as a whole and in the interest of the state of Pennsylvania
- C. Not in the interest of the U.S as a whole, but it might be in the interest of the state of Pennsylvania
- D. Not in the interest of the U.S as a whole, nor in the interest of the state of Pennsylvania
Explanation: Steel protection can benefit domestic steel producers and regions such as Pennsylvania, but higher prices impose costs on consumers and…
Correct answer: Not in the interest of the U.S as a whole, but it might be in the interest of the state of Pennsylvania- A. supply is elastic, and demand is perfectly inelastic
- B. demand is elastic, and demand is perfectly inelastic
- C. both supply and demand are relatively inelastic
- D. both supply and demand are relatively elastic
Explanation: Deadweight loss is larger when buyers and sellers respond strongly to a tax, because quantity traded falls more sharply.
Correct answer: both supply and demand are relatively elastic