Economics concepts worksheet with answers

Which body sets monetary policy for the euro area?

1. AThe European Commission
2. BThe European Parliament
3. CThe European Central Bank
4. DThe national finance ministries

Two goods are substitutes if:

1. AThey are produced by the same firm
2. BThey are always consumed together
3. CA rise in income reduces demand for both goods at the same time
4. DA rise in the price of one increases demand for the other

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

1. APatents held by existing firms
2. BMany small firms selling identical products
3. CPerfect information for all buyers
4. DLow start-up costs

If demand for a product is price inelastic, a price increase will:

1. ADecrease total revenue
2. BReduce quantity demanded to zero
3. CLeave total revenue unchanged
4. DIncrease total revenue

A minimum wage set above the equilibrium wage in a competitive labour market is predicted to cause:

1. ANo change in employment
2. BA surplus of labour (unemployment)
3. CA fall in the wage rate
4. DA shortage of labour

A price ceiling set below the equilibrium price typically causes:

1. AA surplus
2. BAn increase in supply
3. CNo change in the market
4. DA shortage

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

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

The Laffer curve illustrates that:

1. ATax revenue is unrelated to tax rates
2. BHigher tax rates always increase tax revenue
3. CLower tax rates always reduce tax revenue, whatever the starting rate
4. DBeyond some point, raising tax rates can reduce total tax revenue