Economics concepts worksheet with answers

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

1. ALow start-up costs
2. BPatents held by existing firms
3. CMany small firms selling identical products
4. DPerfect information for all buyers

Marginal cost is:

1. ATotal cost divided by the total number of units produced
2. BThe cost of the firm's buildings and machines
3. CThe extra cost of producing one more unit of output
4. DThe lowest price a firm can charge

The basic economic problem of scarcity means that:

1. APrices are always rising over time
2. BWants are unlimited but resources to satisfy them are limited
3. COnly poor countries need to make choices
4. DSome goods are always unavailable in shops because firms produce too little

The price of a good rises by 10% and quantity demanded falls by 20%. The price elasticity of demand is:

1. A-2, so demand is elastic
2. B-0.5, so demand is elastic
3. C-0.5, so demand is inelastic
4. D-2, so demand is inelastic

A per-unit tax is placed on a good with very inelastic demand and elastic supply. Who bears most of the tax burden?

1. AThe government
2. BIt is always split equally
3. CConsumers
4. DProducers

Education generates benefits for society beyond the individual student. Without intervention, the market will likely:

1. AStop providing education altogether
2. BOver-provide education compared with the social optimum
3. CProvide exactly the efficient amount of education, as prices reflect all benefits
4. DUnder-provide education compared with the social optimum

In the Mundell–Fleming model with perfect capital mobility and a floating exchange rate:

1. AFiscal policy is effective, but monetary policy is largely ineffective
2. BMonetary policy is effective but fiscal policy is largely ineffective
3. CBoth policies are equally effective
4. DBoth policies have no effect on output

Ricardian equivalence suggests that a debt-financed tax cut will:

1. AStrongly increase consumption, because households spend most of the tax cut through the multiplier
2. BAlways cause inflation
3. CHave little effect on spending, because households save to pay expected future taxes
4. DReduce interest rates sharply