Economics concepts worksheet with answers

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

1. AThe quantity demanded falls
2. BSupply falls
3. CDemand shifts to the right
4. DThe quantity demanded rises

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

1. AMany small firms selling identical products
2. BPatents held by existing firms
3. CLow start-up costs
4. DPerfect information for all buyers

Economies of scale occur when:

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

Crowding out refers to:

1. AHigher government borrowing raising interest rates and reducing private investment
2. BToo many firms entering a market
3. CImports replacing domestic production
4. DOvercrowded public services

The price of a good rises by 10% and quantity demanded falls by 20%. The price elasticity of demand is:

1. A-2, so demand is inelastic
2. B-2, so demand is elastic
3. C-0.5, so demand is inelastic
4. D-0.5, so demand is elastic

A negative externality occurs when:

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

A monopolist maximises profit where:

1. AMarginal revenue equals marginal cost
2. BTotal revenue is at its maximum
3. CAverage cost is at its minimum
4. DPrice equals marginal cost

A liquidity trap is a situation where:

1. AThe central bank raises interest rates sharply to fight high and rapidly rising inflation
2. BInflation is very high and rising
3. CBanks have no money left to lend
4. DInterest rates are near zero and further monetary expansion has little effect on demand