Economics concepts worksheet with answers

Two goods are complements if:

1. AA rise in the price of one reduces demand for the other
2. BThey have the same price
3. CDemand for both rises when the price of either one of them rises
4. DOne can easily replace the other

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

1. AThe quantity demanded falls
2. BThe quantity demanded rises
3. CSupply falls
4. DDemand shifts to the right

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

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 marginal propensity to consume is:

1. AThe interest rate on consumer loans
2. BThe average share of total income that households save over a year
3. CThe share of an extra euro of income that is spent on consumption
4. DThe total consumption in an economy

The principle of diminishing marginal utility states that:

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

The principal–agent problem arises when:

1. AAn agent acting for a principal has different goals and the principal cannot fully monitor them
2. BA buyer and seller have identical information
3. CTwo firms agree to fix prices
4. DThe government owns a firm

The Laffer curve illustrates that:

1. AHigher tax rates always increase tax revenue
2. BLower tax rates always reduce tax revenue, whatever the starting rate
3. CBeyond some point, raising tax rates can reduce total tax revenue
4. DTax revenue is unrelated to tax rates