Economics concepts worksheet with answers

What is opportunity cost?

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

According to the law of demand, when the price of a normal good rises (other things equal):

1. AThe quantity demanded rises
2. BThe quantity demanded falls
3. CDemand shifts to the right
4. DSupply falls

GDP measures:

1. AThe value of all exports only
2. BThe total market value of final goods and services produced in a country in a period
3. CThe government's budget
4. DThe total wealth and savings held by a country's citizens and firms at the end of a year

The principle of diminishing marginal utility states that:

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

Both supply and demand for a good increase. What can we say for certain about the new equilibrium?

1. ABoth price and quantity rise
2. BBoth price and quantity fall
3. CQuantity rises, but the change in price is uncertain
4. DPrice rises, but the change in quantity is uncertain

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

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

Price discrimination by a firm requires that:

1. AIts costs differ for each customer
2. BAll consumers have identical elasticity of demand and buy the same amount
3. CIt has market power, can separate markets and prevent resale
4. DIt operates in perfect competition

The time-inconsistency problem in monetary policy (Kydland and Prescott) is a key argument for:

1. AAbolishing central banks entirely
2. BFixing the money supply at zero growth
3. CGovernments setting interest rates directly, especially before elections
4. DIndependent central banks with a credible commitment to low inflation