Economics concepts worksheet with answers

Adam Smith's example of the pin factory illustrated the benefits of:

1. AFree trade between countries
2. BGovernment regulation
3. CThe division of labour
4. DPrice controls

Consumer surplus is:

1. AThe total amount consumers spend on a good
2. BThe difference between what consumers are willing to pay and what they actually pay
3. CThe profit that firms make from selling to consumers at prices above their production costs
4. DThe amount of goods left unsold at the end of the day

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. CThey are produced by the same firm
4. DA rise in income reduces demand for both goods at the same time

In a simple closed economy without taxes, the MPC is 0.8. The Keynesian spending multiplier is:

1. A0.8
2. B1.25
3. C5
4. D8

The price of petrol rises sharply. What happens to the demand curve for large cars?

1. AThere is a movement along it
2. BIt shifts to the right
3. CIt becomes vertical
4. DIt shifts to the left

If demand for a product is price inelastic, a price increase will:

1. ADecrease total revenue
2. BReduce quantity demanded to zero
3. CIncrease total revenue
4. DLeave total revenue unchanged

A deadweight loss represents:

1. AThe loss of total surplus when output differs from the efficient level
2. BThe tax revenue collected by the government
3. CLosses made by firms that are forced to leave the market in the long run
4. DThe profit of a monopolist

A Giffen good is one where:

1. AThe price never changes
2. BQuantity demanded rises when its price rises, because a strong income effect outweighs the substitution effect
3. CDemand rises with income, like most goods
4. DDemand rises because the good is a status symbol