Economics concepts worksheet with answers

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

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

The phrase "ceteris paribus" means:

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

Two goods are substitutes if:

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

Unexpectedly high inflation tends to benefit:

1. ASavers holding cash
2. BPensioners on fixed nominal incomes
3. CBorrowers with fixed-rate loans
4. DLenders who receive fixed interest payments

The price of petrol rises sharply. What happens to the demand curve for large cars?

1. AIt shifts to the right
2. BIt becomes vertical
3. CIt shifts to the left
4. DThere is a movement along it

A firm has spent €1 million on research for a product that now looks unprofitable. When deciding whether to continue, the €1 million should be:

1. AIgnored, because it is a sunk cost
2. BRecovered by raising prices
3. CAdded to the expected future costs
4. DTreated as the opportunity cost of stopping

The "convergence hypothesis" from the Solow model predicts that:

1. AAll countries will eventually have the same population
2. BExchange rates converge to a fixed value
3. CRich countries always grow faster than poor ones, because they have more capital
4. DPoorer countries with similar fundamentals tend to grow faster than richer ones

Purchasing power parity (PPP) suggests that, in the long run, exchange rates adjust so that:

1. ATrade balances are always zero
2. BInterest rates are equal in all countries
3. CEvery currency ends up having the same nominal value as the US dollar
4. DThe same basket of goods costs the same in different countries