Economics concepts worksheet with answers

Demand is called "price elastic" when the absolute value of its price elasticity is:

1. ALess than 1
2. BGreater than 1
3. CExactly 0
4. DExactly 1

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

1. ADemand shifts to the right
2. BThe quantity demanded rises
3. CSupply falls
4. DThe quantity demanded falls

A cartel is:

1. AA group of firms that agree to coordinate prices or output
2. BA single firm that controls the whole market for a product or service
3. CA government agency that regulates prices
4. DA trade union that negotiates wages

If the ECB raises its main interest rate, the most likely short-term effect is:

1. AHigher borrowing and spending, which adds to inflationary pressure
2. BLower borrowing and spending, reducing inflationary pressure
3. CAn immediate rise in GDP
4. DA fall in the value of the euro

Overfishing in international waters is an example of:

1. AThe tragedy of the commons
2. BA Giffen good
3. CPrice discrimination
4. DA natural monopoly

A negative externality occurs when:

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

The Coase theorem states that, if property rights are clearly defined and transaction costs are low:

1. AExternalities cannot be corrected without direct government regulation or a Pigouvian tax
2. BThe polluter must always compensate the victim
3. CGovernments must always tax externalities
4. DPrivate bargaining can reach an efficient outcome regardless of who holds the rights

A regulator forces a natural monopoly to set price equal to marginal cost. The likely problem is that:

1. AConsumers face a shortage, because demand exceeds supply at that price
2. BOutput falls below the monopoly level
3. CThe firm makes very large profits
4. DThe firm makes a loss because average cost is above marginal cost