Economics concepts worksheet with answers

Monopolistic competition is a market with:

1. AA few firms selling identical products
2. BMany firms selling identical products with no branding or advertising
3. COne firm and high barriers to entry
4. DMany firms selling differentiated products, with free entry

The Consumer Price Index (CPI) measures:

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

Which body sets monetary policy for the euro area?

1. AThe European Central Bank
2. BThe European Commission
3. CThe European Parliament
4. DThe national finance ministries

Unexpectedly high inflation tends to benefit:

1. ALenders who receive fixed interest payments
2. BBorrowers with fixed-rate loans
3. CPensioners on fixed nominal incomes
4. DSavers holding cash

In perfect competition in the long run, firms earn:

1. AMonopoly profits
2. BLarge economic profits
3. CZero economic profit
4. DLosses forever

A Nash equilibrium is a situation where:

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

The "paradox of thrift" suggests that if all households try to save more during a recession:

1. ATotal income may fall, so total saving does not rise
2. BInterest rates will rise sharply
3. CInvestment and growth will rise immediately
4. DInflation will increase

The principal–agent problem arises when:

1. AAn agent acting for a principal has different goals and the principal cannot fully monitor them
2. BThe government owns a firm
3. CTwo firms agree to fix prices
4. DA buyer and seller have identical information