Economics concepts worksheet with answers

Monopolistic competition is a market with:

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

What is opportunity cost?

1. AThe price of a product during a sale
2. BThe value of the best alternative given up when making a choice
3. CThe total money spent on a purchase, including any taxes and fees
4. DThe cost of starting a new business

A good for which demand rises when income rises is called:

1. AA normal good
2. BAn inferior good
3. CA public good
4. DA Giffen good

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

The marginal cost curve cuts the average total cost curve:

1. AAt the minimum point of average total cost
2. BNever, as the two curves are parallel
3. CAt the maximum point of average total cost
4. DWhere average total cost equals zero

Unexpectedly high inflation tends to benefit:

1. ALenders who receive fixed interest payments
2. BPensioners on fixed nominal incomes
3. CSavers holding cash
4. DBorrowers with fixed-rate loans

A deadweight loss represents:

1. AThe profit of a monopolist
2. BThe tax revenue collected by the government
3. CLosses made by firms that are forced to leave the market in the long run
4. DThe loss of total surplus when output differs from the efficient level

In the Mundell–Fleming model with perfect capital mobility and a floating exchange rate:

1. AFiscal policy is effective, but monetary policy is largely ineffective
2. BBoth policies are equally effective
3. CBoth policies have no effect on output
4. DMonetary policy is effective but fiscal policy is largely ineffective