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 73 of 88
- A. Maximizing domestic efficiency is not considered imports
- B. Maximizing consumer welfare may not be a chief priority
- C. There exist sound economic reasons for keeping one's economy isolated from other economies
- D. Economists tend to favor high protected domestic markets
Explanation: Politicians may give greater weight to organized domestic producers and visible jobs than to the broader but less politically organized…
Correct answer: Maximizing consumer welfare may not be a chief priority- A. Industries in which there are neither imports nor exports
- B. Imports competing industries
- C. Industries that sell to domestic and foreign buyers
- D. Industries that sell to only foreign buyers
Explanation: Free trade exposes import-competing industries to greater foreign competition, so firms may contract and release workers before resources…
Correct answer: Imports competing industries- A. Allows private ownership of capital
- B. Has flexible exchange rates
- C. Has fixed exchange rates
- D. conducts trade with other countries
Explanation: An open economy participates in international trade in goods and services.
Correct answer: conducts trade with other countries- A. Economies of large-scale production
- B. The specializing country behaving as a monopoly
- C. Smaller production runs resulting in lower unit costs
- D. High wages paid to foreign workers
Explanation: Specialization allows production on a larger scale, where division of labour and fixed-cost spreading can reduce average unit cost.
Correct answer: Economies of large-scale production1445. Import substitution is the replacement of ____ by domestic production _____ protection of ________?
- A. exports, subsidies
- B. exports, patents
- C. imports, high tariffs or import quotas
- D. imports, subsidies
Explanation: Import substitution aims to produce domestically what was previously imported, commonly using high tariffs or import quotas to shield…
Correct answer: imports, high tariffs or import quotas- A. imports, exports
- B. the balance of trade, zero
- C. The demand for currency the supply of currency
- D. social marginal cost, social marginal benefit
Explanation: An optimal tariff balances the gain from improved terms of trade against the domestic efficiency loss caused by the tariff.
Correct answer: social marginal cost, social marginal benefit- A. rise, rise
- B. fall, rise
- C. fall, fall
- D. rise, fall
Explanation: A tariff raises the domestic price of imported goods, so consumers buy less and domestic production expands.
Correct answer: fall, fall- A. relative factor competition
- B. relative factor mobility
- C. relative factor substitution
- D. relative factor endowments
Explanation: Countries have different relative costs mainly because they possess different relative quantities of land, labour, capital and other…
Correct answer: relative factor endowments- A. differences in technology
- B. differences in factor endowments
- C. scale economies
- D. All of the above
Explanation: Specialization can arise from technological differences, unequal factor endowments and economies of scale.
Correct answer: All of the above- A. Comparative advantage
- B. Comparative scale
- C. Economies of advantage
- D. Production possibility advantage
Explanation: Free trade allows countries to specialize in goods they produce at lower opportunity cost than other countries.
Correct answer: Comparative advantage- A. To protect infant industries
- B. To increase the level of imports
- C. To Protect strategic industries
- D. To improve the balance of payments
Explanation: Protectionism restricts imports through tariffs or other barriers, so increasing imports is not a justification for it.
Correct answer: To increase the level of imports- A. balance of trade
- B. comparative advantage
- C. balance of payments
- D. terms of trade
Explanation: A large trading bloc can use its substantial market power to influence world prices and negotiate better export and import prices.
Correct answer: terms of trade- A. common market
- B. free trade area
- C. customs union
- D. federation
Explanation: A customs union removes trade barriers among its members and applies a common external tariff to non-members.
Correct answer: customs union- A. Comparative advantage is achieved
- B. Price elasticity of imports is unity and tariff revenue is maximized
- C. import prices are the same as export prices
- D. marginal social cost equals marginal social benefit
Explanation: An optimum tariff balances the gain from improving the country’s terms of trade against the domestic distortion caused by restricting…
Correct answer: marginal social cost equals marginal social benefit- A. Side payments
- B. Tariffs
- C. subsidies
- D. export quotas
Explanation: Subsidies are government payments that lower domestic firms’ costs or raise their returns, making their goods more competitive abroad.
Correct answer: subsidies- A. The price of goods when they leave the producing country
- B. a limit on the quantity of a good that can be imported into a country
- C. a tax on imports
- D. a government payment to encourage exports
Explanation: A tariff is a tax imposed on imported goods, usually raising their domestic price and protecting competing local producers.
Correct answer: a tax on imports- A. its opportunity costs; world opportunity costs
- B. export prices; import prices
- C. Value of exports; value of imports
- D. its currency; other currencies
Explanation: The terms of trade measure the price of a country’s exports relative to the price of its imports, expressed as export prices divided by…
Correct answer: export prices; import prices- A. absolute advantage
- B. mutual advantage
- C. multilateral advantage
- D. comparative advantage
Explanation: Ricardo’s argument for free trade is based on comparative advantage: countries benefit by specializing according to relative opportunity…
Correct answer: comparative advantage- A. Ricardo Malthus theorem
- B. Heckscher Ohlin theorem
- C. Lucas-Laffer theorem
- D. Friedman Samuelson theorem
Explanation: The Heckscher-Ohlin theorem links comparative advantage to relative factor endowments.
Correct answer: Heckscher Ohlin theorem- A. Decreased productivity in U.S manufacturing
- B. High incomes of American households
- C. Relatively low interest rates in the United States
- D. High levels of investment by American corporations
Explanation: Lower productivity raises the cost of producing U.S. manufactured goods relative to foreign goods, reducing their competitiveness in world…
Correct answer: Decreased productivity in U.S manufacturing