Economics concepts worksheet with answers

The Consumer Price Index (CPI) measures:

1. AThe total value of goods produced in a country
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 interest rate charged by banks

Fixed costs are costs that:

1. ACan be avoided entirely by producing nothing in the short run
2. BAre paid only when the firm makes a profit
3. CDo not change with the level of output in the short run
4. DRise in proportion to each unit produced

A budget deficit occurs when:

1. AGovernment spending exceeds government revenue in a year
2. BThe value of imports exceeds the value of exports in a year
3. CA firm's costs exceed its revenue
4. DTotal government debt falls

A firm has spent €1 million on research for a product that now looks unprofitable. When deciding whether to continue, the €1 million should be:

1. ARecovered by raising prices
2. BTreated as the opportunity cost of stopping
3. CIgnored, because it is a sunk cost
4. DAdded to the expected future costs

A Gini coefficient of 0 indicates:

1. AZero economic growth
2. BPerfect inequality of income
3. CZero unemployment
4. DPerfect equality of income

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

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

The time-inconsistency problem in monetary policy (Kydland and Prescott) is a key argument for:

1. AFixing the money supply at zero growth
2. BGovernments setting interest rates directly, especially before elections
3. CAbolishing central banks entirely
4. DIndependent central banks with a credible commitment to low inflation

Akerlof's "market for lemons" explains how:

1. ALemons become cheaper in summer
2. BMonopolies set high prices
3. CAsymmetric information can drive good-quality products out of a market
4. DPublic goods are under-provided