Economics concepts worksheet with answers

Economies of scale occur when:

1. ALong-run average cost falls as output increases
2. BTotal costs fall as output increases
3. CA firm produces less to cut costs
4. DPrices rise as the firm grows

In economics, the short run is a period in which:

1. AAt least one factor of production is fixed
2. BThe firm must make a loss
3. CPrices cannot change
4. DAll factors of production can be varied

Fiscal policy uses:

1. ATrade agreements only
2. BExchange rate controls only
3. CInterest rates set by the central bank
4. DGovernment spending and taxation

A negative externality occurs when:

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

The principle of diminishing marginal utility states that:

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

A country has 950 employed people and 50 unemployed people seeking work. Its unemployment rate is:

1. A5.3%
2. B5%
3. C95%
4. D50%

For a normal good, when its price falls, the substitution effect and income effect:

1. AWork in opposite directions
2. BBoth decrease the quantity demanded
3. CBoth increase the quantity demanded
4. DCancel out exactly

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