Economics concepts worksheet with answers

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

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

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

1. ASupply falls
2. BThe quantity demanded falls
3. CThe quantity demanded rises
4. DDemand shifts to the right

Which statement is a normative statement?

1. AUnemployment fell to 4% in June
2. BHigher prices reduce quantity demanded
3. CThe minimum wage rose by 3% last year
4. DThe government should raise the minimum wage

The income elasticity of demand for a good is -0.4. The good is:

1. AAn inferior good
2. BA luxury good
3. CA complement
4. DA normal necessity

In the long run in monopolistic competition, firms typically:

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

In perfect competition in the long run, firms earn:

1. ALarge economic profits
2. BLosses forever
3. CZero economic profit
4. DMonopoly profits

Under a fixed exchange rate with free capital movement, a country:

1. ACannot trade with other countries
2. BCan set any interest rate it likes
3. CMust have a budget surplus
4. DLoses control of independent monetary policy

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

1. AIndependent central banks with a credible commitment to low inflation
2. BGovernments setting interest rates directly, especially before elections
3. CAbolishing central banks entirely
4. DFixing the money supply at zero growth