Free Microeconomics MCQs with Answers

• A. a tax on salt
• B. a tax on cigarettes
• C. a tax on petrol
• D. a tax on cruise line ticketsTax Preparation & Planning

Explanation: A tax creates the greatest deadweight loss in a market with relatively elastic demand or supply.

• A. B + C + E + F
• B. B
• C. B + C
• D. A

Explanation: The buyers’ share of the tax burden is represented by area B, the vertical gap between the original market price and the price buyers pay…

• A. D
• B. A
• C. A + B + E
• D. A + B +C + D

Explanation: After the tax, consumer surplus is the area below the demand curve and above the price paid by buyers, which is area A.

• A. C + D + F
• B. A
• C. A + B + E
• D. D + C + B

Explanation: Without a tax, consumers pay the single equilibrium price, so consumer surplus includes all the area below demand and above that price…

• A. an import subsidy
• B. a quota
• C. comparative advantage
• D. an export subsidy

Explanation: An export subsidy can make exporting profitable even when the social cost of producing the exported units exceeds their value to domestic…

• A. overproduce, under consume
• B. Overproduce, overconsume
• C. underproduce, under consume
• D. underproduce, overconsume

Explanation: A tariff raises the domestic price above the world price, so domestic producers expand output while consumers reduce consumption.

• A. Comparative advantage
• B. High exchange rates
• C. trade barriers
• D. trade quotas

Explanation: When opportunity costs differ internationally, each country can produce some goods at a relatively lower sacrifice than others.

• A. 0.4A
• B. 2.5A
• C. 10A
• D. 1B

Explanation: Producing 1 unit of B sacrifices 10/4, or 2.5, units of A. Therefore, the opportunity cost of 1B is 2.5A.

• A. employ many young or untrained workers
• B. are competing with well-established overseas firms
• C. are not yet large enough to achieve economies of scale
• D. use a new technology

Explanation: An infant industry is newly developing and may not yet have enough output to obtain economies of scale.

• A. a quota
• B. dumping
• C. a tariff
• D. an export subsidy

Explanation: A quota is a direct quantitative limit on the amount of a good that may be imported during a period.

• A. technological change
• B. competitions with foreign suppliers
• C. development of tourism
• D. lower tariffs

Explanation: Foreign competition pressures domestic firms to reduce costs, improve quality, and become more efficient, which is a central advantage of…

• A. resource; resource
• B. foreign exchange money
• C. opportunity; opportunity
• D. money; opportunity

Explanation: Comparative advantage is determined by relative opportunity cost, not by absolute resource or money costs.

• A. The industrial policies of governments
• B. different sizes of the countries
• C. different factor endowment between countries
• D. the different tastes and preferences of people in different countries

Explanation: Differences in factor endowments, such as land, labour, capital and natural resources, create different production costs and help explain…

• A. services and white-collar jobs
• B. manufacturing and blue-collar jobs
• C. natural resource extraction and mining jobs
• D. agriculture and farming jobs

Explanation: The globalization wave beginning in the 1980s was strongly supported by information technology and expanded the international outsourcing…

• A. Import-competing industries
• B. Industries that are only exporters
• C. Industries that sell domestically as well as export
• D. industries that neither import nor export

Explanation: Removing tariffs exposes import-competing industries to cheaper foreign goods, so they may reduce output and employment in the short run.

• A. Imported, but not exported
• B. Exported, but not imported
• C. Imported and exported
• D. Neither exported nor imported

Explanation: The United States both exports domestically produced commercial aircraft, such as Boeing jets, and imports foreign aircraft, such as…

• A. Increase all domestic costs and prices
• B. Keep all domestic costs and prices at the same level
• C. Lessen the amount of competition facing home manufacturers
• D. Increase the amount of competition facing home manufacturers

Explanation: Imports give domestic consumers alternatives to home-produced goods, while exports expose domestic firms to foreign competitors.

• A. Monopoly in the home market becomes an oligopoly in the world market
• B. Oligopoly in the home market becomes a monopoly in the world market
• C. Purely competitive firm in the home market becomes an oligopolist
• D. purely competitive firm in the home market becomes a monopolist

Explanation: International trade enlarges the relevant market, so a domestic monopoly may face several foreign competitors and become an oligopoly in…

• A. The less mobile the country's resources
• B. The more mobile the country's resources
• C. The lower the country's initial living standard
• D. The higher the country's initial living standard

Explanation: Trade shifts production toward expanding industries and away from import-competing industries, causing adjustment losses for some groups.

• A. Increased competition for world producers
• B. A wider selection of products for consumers
• C. The utilization of the most efficient production methods
• D. Relatively high wages levels for all domestic workers

Explanation: Free trade can increase competition, product variety and productive efficiency, but it does not guarantee relatively high wages for every…