Economics concepts worksheet with answers

Two goods are substitutes if:

1. AThey are always consumed together
2. BA rise in income reduces demand for both goods at the same time
3. CThey are produced by the same firm
4. DA rise in the price of one increases demand for the other

The phrase "ceteris paribus" means:

1. ASupply equals demand
2. BThe price is fixed
3. COther things being equal
4. DThe government does not intervene

Inflation is:

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

A minimum wage set above the equilibrium wage in a competitive labour market is predicted to cause:

1. ANo change in employment
2. BA fall in the wage rate
3. CA shortage of labour
4. DA surplus of labour (unemployment)

A negative externality occurs when:

1. AConsumers pay more for a product than it costs the firm to produce
2. BThe government taxes a product
3. CA firm makes a loss
4. DA third party bears a cost not paid by the producer or consumer

The principle of diminishing marginal utility states that:

1. ATotal satisfaction falls with each additional unit of the good that is consumed
2. BConsumers always prefer more expensive goods
3. CSatisfaction rises as income falls
4. DExtra satisfaction from each additional unit consumed tends to fall

The Fisher effect predicts that, in the long run, a permanent 2 percentage point rise in expected inflation will:

1. AHave no effect on nominal interest rates, so real interest rates fall by about 2 points
2. BRaise real interest rates by about 2 points
3. CRaise nominal interest rates by about 2 points, leaving real rates unchanged
4. DLower nominal interest rates by about 2 points

Akerlof's "market for lemons" explains how:

1. AAsymmetric information can drive good-quality products out of a market
2. BMonopolies set high prices
3. CLemons become cheaper in summer
4. DPublic goods are under-provided