Economics concepts worksheet with answers

A budget deficit occurs when:

1. ATotal government debt falls
2. BA firm's costs exceed its revenue
3. CGovernment spending exceeds government revenue in a year
4. DThe value of imports exceeds the value of exports in a year

Two goods are substitutes if:

1. AA rise in the price of one increases demand for the other
2. BThey are always consumed together
3. CA rise in income reduces demand for both goods at the same time
4. DThey are produced by the same firm

Economies of scale occur when:

1. APrices rise as the firm grows
2. BTotal costs fall as output increases
3. CLong-run average cost falls as output increases
4. DA firm produces less to cut costs

A per-unit tax is placed on a good with very inelastic demand and elastic supply. Who bears most of the tax burden?

1. AProducers
2. BThe government
3. CConsumers
4. DIt is always split equally

A country has 950 employed people and 50 unemployed people seeking work. Its unemployment rate is:

1. A5%
2. B50%
3. C95%
4. D5.3%

The price of a good rises by 10% and quantity demanded falls by 20%. The price elasticity of demand is:

1. A-0.5, so demand is elastic
2. B-2, so demand is elastic
3. C-2, so demand is inelastic
4. D-0.5, so demand is inelastic

The Lerner index (P − MC)/P for a profit-maximising monopolist equals 1/|PED|. If |PED| = 4, the price is:

1. AEqual to marginal cost
2. B4 times marginal cost
3. C25% above marginal cost, as a share of price
4. D75% above marginal cost, as a share of price

A liquidity trap is a situation where:

1. AInflation is very high and rising
2. BThe central bank raises interest rates sharply to fight high and rapidly rising inflation
3. CBanks have no money left to lend
4. DInterest rates are near zero and further monetary expansion has little effect on demand