Free Microeconomics MCQs with Answers

• A. Production technology
• B. Consumption decisions
• C. how society decides what how and for whom to produce
• D. the best way to run society

Explanation: Economics studies how scarce resources are allocated among unlimited wants, including what to produce, how to produce it, and for whom.

• A. provides no information because prices in a market system are managed by planning boards.
• B. tells consumers to buy less pork
• C. tells producers to produce more beef.
• D. tells consumers to buy more beef.

Explanation: A higher beef price signals stronger returns to beef producers, encouraging them to supply more beef.

• A. With a large enough computer, central planners could guide production more efficiently than markets.
• B. Market participants act as if guided by an invisible hand to produce outcomes that maximize social welfare
• C. The strength of a market system is that it tends to distribute resources evenly across consumers.
• D. Taxes help prices communicate costs and benefits to producers and consumers.

Explanation: The invisible-hand principle says that self-interested market decisions can coordinate resources toward greater overall welfare when…

• A. inoculations against disease
• B. cigarettes
• C. food
• D. education
• E. stereo equipment

Explanation: Food generally provides mainly private benefits, while inoculations, education, cigarettes, and stereo equipment can create significant…

• A. the action is ethical
• B. The action produces marginal costs that exceed marginal benefits.
• C. The action produces marginal benefits that exceed marginal costs.
• D. The action makes money for the person.

Explanation: A rational person undertakes an action when its marginal benefit is greater than its marginal cost, because the additional gain then…

• A. economical
• B. unlimited
• C. Efficient
• D. Scarce

Explanation: Trade-offs arise because human wants exceed the resources available to satisfy them.

• A. The richest 10 per cent of the population has had a bigger percentage increase in incomes over the past 10 years than the poorest 10 percent
• B. Inflation is rising
• C. The proportion of people's income paid in taxes is higher under this government than under the previous one.
• D. Inequality in the distribution of income is a more serious problem than unemployment

Explanation: Option d expresses a value judgment about which problem is more serious, so it cannot be settled by facts alone.

• A. income
• B. income and wealth
• C. wealth
• D. wage and interest income

Explanation: A household's command over goods and services in a free market depends on both its current income and its accumulated wealth.

• A. points outside the production possibility curve
• B. either points inside or outside the production possibility curve.
• C. points on the production possibility curve
• D. points inside the production possibility curve.

Explanation: Less than full employment means that available resources are not being fully used, so production is below its possible maximum.

• A. the cost incurred in the past before we make a decision about what to do in the future.
• B. a cost that cannot be avoided. regardless of what is done in the future
• C. that which we forgo, or give up, when we make a choice or a decision.
• D. the additional benefit of buying an additional unit of a product

Explanation: Opportunity cost is the value of the next-best alternative sacrificed when a choice is made.

• A. average
• B. expected
• C. total
• D. marginal

Explanation: A student should study when the additional benefit from studying exceeds the additional, or marginal, cost such as forgone leisure or…

• A. aggregate demand
• B. firms
• C. Consumers
• D. industries.

Explanation: Microeconomics studies individual consumers, firms, and particular industries or markets.

• A. Scarcity
• B. Money
• C. Consumption
• D. Allocation

Explanation: Scarcity is the fundamental economic problem because human wants are unlimited while resources are limited.

• A. Has supply but not demand
• B. Has demand but not supply
• C. Has supply and demand
• D. Has market forces and government intervention

Explanation: A mixed economy combines market forces with government intervention in allocating resources.

• A. Market forces
• B. Government intervention
• C. A mixture of government intervention and the free market
• D. The creation of unlimited resources

Explanation: Economic problems arise because resources are scarce relative to unlimited wants; creating unlimited resources would remove the scarcity…

• A. substitute good, inferior good
• B. normal good inferior good
• C. inferior good normal good
• D. normal good, complementary good

Explanation: Higher income usually raises demand for normal goods but reduces demand for inferior goods, which consumers replace as their purchasing…

• A. substitute good
• B. complementary good
• C. bargain
• D. inferior good

Explanation: When A becomes more expensive and consumers buy more B, the two goods serve similar purposes and are substitutes.

• A. incomes
• B. prices of related goods
• C. tastes
• D. all of the above

Explanation: A demand curve shifts when a non-price determinant changes, such as income, the prices of related goods, or consumer tastes.

• A. the price of related goods consumer income
• B. consumer incomes, tastes
• C. the costs of production bank opening hours
• D. the price of related goods preferences

Explanation: Production costs affect supply rather than demand, while bank opening hours are not a standard determinant of market demand.

• A. Demand
• B. Supply
• C. Excess demand
• D. Excess supply

Explanation: Demand is the quantities buyers are willing and able to purchase at different possible prices, usually represented by a demand schedule or…