Economics concepts worksheet with answers

Two goods are substitutes if:

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

Deflation is:

1. AA reduction in government spending
2. BA sustained fall in the general price level
3. CA fall in the value of the currency
4. DA slowdown in the rate of inflation, with prices still rising

A good for which demand rises when income rises is called:

1. AAn inferior good
2. BA normal good
3. CA Giffen good
4. DA public good

A public good is:

1. AAny good bought by the government
2. BRival and excludable
3. CProvided only by private firms
4. DNon-rival and non-excludable

A negative externality occurs when:

1. AA firm makes a loss
2. BA third party bears a cost not paid by the producer or consumer
3. CConsumers pay more for a product than it costs the firm to produce
4. DThe government taxes a product

A Nash equilibrium is a situation where:

1. AThe players agree to cooperate through a binding contract that maximises their combined total payoff
2. BAll players achieve the highest possible total payoff
3. CNo player can improve their payoff by changing strategy alone, given the others' strategies
4. DOne player has won and the others have lost

For a normal good, when its price falls, the substitution effect and income effect:

1. ABoth increase the quantity demanded
2. BWork in opposite directions
3. CBoth decrease the quantity demanded
4. DCancel out exactly

A lump-sum tax (a fixed amount, independent of output) is imposed on a profit-maximising monopolist. In the short run, its output will:

1. AStay the same, because MR and MC do not change
2. BRise to make up for the tax
3. CFall to zero
4. DFall, because the tax raises the firm's average cost