Economics concepts worksheet with answers

Which of these is a barrier to entry into a market?

1. AMany small firms selling identical products
2. BPerfect information for all buyers
3. CLow start-up costs
4. DPatents held by existing firms

Economies of scale occur when:

1. APrices rise as the firm grows
2. BA firm produces less to cut costs
3. CLong-run average cost falls as output increases
4. DTotal costs fall as output increases

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

The principle of diminishing marginal utility states that:

1. AConsumers always prefer more expensive goods
2. BTotal satisfaction falls with each additional unit of the good that is consumed
3. CExtra satisfaction from each additional unit consumed tends to fall
4. DSatisfaction rises as income falls

In the long run in monopolistic competition, firms typically:

1. AEarn large economic profits protected by entry barriers
2. BEarn zero economic profit and have excess capacity
3. CProduce at the minimum of average total cost
4. DCharge a price equal to marginal cost

A negative externality occurs when:

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

In Spence's job market signalling model, education can be valuable to employers even if it does not raise productivity because:

1. AIt is less costly for high-ability workers to acquire, so it reveals their type
2. BIt guarantees that every graduate is highly productive
3. CEmployers are required by law to hire graduates
4. DIt reduces the wages employers must pay

Akerlof's "market for lemons" explains how:

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