Economics concepts worksheet with answers

Which statement is a normative statement?

1. AUnemployment fell to 4% in June
2. BThe government should raise the minimum wage
3. CThe minimum wage rose by 3% last year
4. DHigher prices reduce quantity demanded

Economies of scale occur when:

1. ALong-run average cost falls as output increases
2. BA firm produces less to cut costs
3. CPrices rise as the firm grows
4. DTotal costs fall as output increases

Fixed costs are costs that:

1. ADo not change with the level of output in the short run
2. BRise in proportion to each unit produced
3. CAre paid only when the firm makes a profit
4. DCan be avoided entirely by producing nothing in the short run

Crowding out refers to:

1. AHigher government borrowing raising interest rates and reducing private investment
2. BToo many firms entering a market
3. COvercrowded public services
4. DImports replacing domestic production

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

The marginal propensity to consume is:

1. AThe total consumption in an economy
2. BThe interest rate on consumer loans
3. CThe share of an extra euro of income that is spent on consumption
4. DThe average share of total income that households save over a year

Why is the real-world government spending multiplier usually smaller than the simple 1/(1 − MPC)?

1. AGovernments cannot borrow money
2. BTaxes, imports and crowding out leak part of each round of spending
3. CConsumers never spend extra income
4. DThe MPC is always above 1

A regulator forces a natural monopoly to set price equal to marginal cost. The likely problem is that:

1. AThe firm makes very large profits
2. BConsumers face a shortage, because demand exceeds supply at that price
3. CThe firm makes a loss because average cost is above marginal cost
4. DOutput falls below the monopoly level