Economics concepts worksheet with answers

Market failure occurs when:

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

Inflation is:

1. AA rise in the price of one product
2. BA sustained rise in the general price level
3. CAn increase in the money supply, whatever happens to prices
4. DA fall in unemployment

Two goods are substitutes if:

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

A country has 950 employed people and 50 unemployed people seeking work. Its unemployment rate is:

1. A50%
2. B95%
3. C5.3%
4. D5%

Unexpectedly high inflation tends to benefit:

1. ABorrowers with fixed-rate loans
2. BLenders who receive fixed interest payments
3. CSavers holding cash
4. DPensioners on fixed nominal incomes

A currency depreciation tends to:

1. AMake imports cheaper
2. BReduce the price of all domestic goods and make imports cheaper
3. CMake exports cheaper abroad and imports more expensive
4. DHave no effect on trade

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. AFall, because the tax raises the firm's average cost
2. BFall to zero
3. CStay the same, because MR and MC do not change
4. DRise to make up for the tax

Under a fixed exchange rate with free capital movement, a country:

1. ALoses control of independent monetary policy
2. BCan set any interest rate it likes
3. CMust have a budget surplus
4. DCannot trade with other countries