Economics concepts worksheet with answers

A common rule of thumb defines a recession as:

1. AA year with inflation above 5%
2. BTwo consecutive quarters of falling real GDP
3. CAny month with rising unemployment
4. DA fall in the stock market of 10%

Market failure occurs when:

1. AThe free market allocates resources inefficiently
2. BThe stock market falls sharply
3. CPrices rise in a market
4. DA firm goes bankrupt

According to the law of demand, when the price of a normal good rises (other things equal):

1. AThe quantity demanded falls
2. BSupply falls
3. CThe quantity demanded rises
4. DDemand shifts to the right

Comparative advantage means a country should specialise in goods it can produce:

1. AOnly for its own consumption
2. BMore cheaply in absolute terms than every other country
3. CWith the most workers
4. DAt a lower opportunity cost than other countries

The law of diminishing marginal returns states that:

1. ALong-run average costs always fall as output rises
2. BTotal output always falls as more workers are hired
3. CAdding more of a variable input to a fixed input eventually lowers the extra output per unit added
4. DConsumers get less satisfaction as prices rise

In perfect competition in the long run, firms earn:

1. AMonopoly profits
2. BLosses forever
3. CLarge economic profits
4. DZero economic profit

A Giffen good is one where:

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

Moral hazard arises when:

1. APrices are too high for poor consumers
2. BTwo firms collude on price
3. COne party changes behaviour after a contract because they do not bear the full consequences
4. DA buyer cannot observe product quality before buying, so low-quality sellers dominate the market