Economics concepts worksheet with answers

Price elasticity of demand measures:

1. AHow much firms can raise their prices
2. BHow responsive quantity demanded is to a change in price
3. CHow quickly prices change over time
4. DHow responsive quantity supplied is to changes in consumer income

Demand is called "price elastic" when the absolute value of its price elasticity is:

1. AGreater than 1
2. BExactly 0
3. CExactly 1
4. DLess than 1

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 interest rate charged by banks
4. DThe total value of goods produced in a country

A savings account pays a nominal interest rate of 6% and inflation is 4%. The approximate real interest rate is:

1. A24%
2. B2%
3. C10%
4. D1.5%

A Nash equilibrium is a situation where:

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

When a central bank buys government bonds from banks in open market operations, it usually:

1. AHas no effect on the money supply
2. BRaises tax revenue for the government
3. CIncreases bank reserves and the money supply
4. DReduces bank reserves and so shrinks the money supply

For a normal good, when its price falls, the substitution effect and income effect:

1. AWork in opposite directions
2. BCancel out exactly
3. CBoth increase the quantity demanded
4. DBoth decrease the quantity demanded

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