Economics concepts worksheet with answers

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 falls
3. CSupply falls
4. DThe quantity demanded rises

Fiscal policy uses:

1. AInterest rates set by the central bank
2. BGovernment spending and taxation
3. CTrade agreements only
4. DExchange rate controls only

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

1. AGreater than 1
2. BExactly 0
3. CLess than 1
4. DExactly 1

In the short run, a firm in perfect competition should shut down if the market price is below:

1. AAverage fixed cost
2. BAverage variable cost
3. CMarginal revenue
4. DAverage total cost

Overfishing in international waters is an example of:

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

The principle of diminishing marginal utility states that:

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

The "Taylor principle" says that, to stabilise inflation, a central bank should respond to a 1 percentage point rise in inflation by:

1. AKeeping the nominal rate unchanged
2. BRaising the nominal interest rate, but by less than 1 percentage point
3. CCutting the nominal rate
4. DRaising the nominal interest rate by more than 1 percentage point

In the Prisoner's Dilemma, the Nash equilibrium is:

1. ABoth players defect, even though both cooperating would be better
2. BBoth players cooperate
3. CThere is no equilibrium
4. DOne player cooperates and the other defects, so only one of them gains