Economics concepts worksheet with answers

The Consumer Price Index (CPI) measures:

1. AThe interest rate charged by banks
2. BThe prices that firms pay for raw materials and other inputs used in their production
3. CThe changing cost of a fixed basket of goods and services bought by households
4. DThe total value of goods produced in a country

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

1. ASupply falls
2. BThe quantity demanded rises
3. CDemand shifts to the right
4. DThe quantity demanded falls

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

1. AExactly 0
2. BLess than 1
3. CExactly 1
4. DGreater than 1

The principle of diminishing marginal utility states that:

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

Overfishing in international waters is an example of:

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

A sharp rise in world oil prices leading to higher inflation is an example of:

1. ADeflation
2. BDemand-pull inflation
3. CCost-push inflation
4. DDisinflation

A lump-sum tax (a fixed amount, independent of output) is imposed on a profit-maximising monopolist. In the short run, its output will:

1. ARise to make up for the tax
2. BStay the same, because MR and MC do not change
3. CFall to zero
4. DFall, because the tax raises the firm's average cost

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

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