Economics concepts worksheet with answers

Which statement is a normative statement?

1. AUnemployment fell to 4% in June
2. BThe minimum wage rose by 3% last year
3. CHigher prices reduce quantity demanded
4. DThe government should raise the minimum wage

Inflation is:

1. AAn increase in the money supply, whatever happens to prices
2. BA sustained rise in the general price level
3. CA rise in the price of one product
4. DA fall in unemployment

Monopolistic competition is a market with:

1. AMany firms selling differentiated products, with free entry
2. BMany firms selling identical products with no branding or advertising
3. COne firm and high barriers to entry
4. DA few firms selling identical products

Crowding out refers to:

1. AImports replacing domestic production
2. BOvercrowded public services
3. CHigher government borrowing raising interest rates and reducing private investment
4. DToo many firms entering a market

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. AAdded to the expected future costs
2. BTreated as the opportunity cost of stopping
3. CRecovered by raising prices
4. DIgnored, because it is a sunk cost

The marginal cost curve cuts the average total cost curve:

1. ANever, as the two curves are parallel
2. BAt the minimum point of average total cost
3. CWhere average total cost equals zero
4. DAt the maximum point of average total cost

Under perfect (first-degree) price discrimination, the monopolist:

1. ACharges every consumer the same price
2. BProduces less than a single-price monopolist, creating a larger deadweight loss
3. CCaptures all consumer surplus and produces the efficient output
4. DCreates the largest possible deadweight loss

A monopolist faces demand P = 100 − Q and has constant marginal cost of 20. What are its profit-maximising output and price?

1. AQ = 80, P = 20
2. BQ = 40, P = 60
3. CQ = 40, P = 20
4. DQ = 50, P = 50