Economics concepts worksheet with answers

The Consumer Price Index (CPI) measures:

1. AThe prices that firms pay for raw materials and other inputs used in their production
2. BThe changing cost of a fixed basket of goods and services bought by households
3. CThe total value of goods produced in a country
4. DThe interest rate charged by banks

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

1. AThe division of labour
2. BGovernment regulation
3. CPrice controls
4. DFree trade between countries

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

1. ASupply falls
2. BThe quantity demanded falls
3. CDemand shifts to the right
4. DThe quantity demanded rises

In the short run, a firm in perfect competition should shut down if the market price is below:

1. AAverage fixed cost
2. BAverage variable cost
3. CAverage total cost
4. DMarginal revenue

A firm has spent €1 million on research for a product that now looks unprofitable. When deciding whether to continue, the €1 million should be:

1. AIgnored, because it is a sunk cost
2. BRecovered by raising prices
3. CAdded to the expected future costs
4. DTreated as the opportunity cost of stopping

Both supply and demand for a good increase. What can we say for certain about the new equilibrium?

1. APrice rises, but the change in quantity is uncertain
2. BQuantity rises, but the change in price is uncertain
3. CBoth price and quantity rise
4. DBoth price and quantity fall

In the Bertrand model, two firms sell identical products with the same constant marginal cost and compete on price. The equilibrium price is:

1. AZero
2. BThe monopoly price
3. CEqual to marginal cost
4. DHalfway between monopoly price and marginal cost

In the Prisoner's Dilemma, the Nash equilibrium is:

1. AThere is no equilibrium
2. BBoth players cooperate
3. COne player cooperates and the other defects, so only one of them gains
4. DBoth players defect, even though both cooperating would be better