How to use these microeconomics practice questions
These questions are designed for active practice, not passive reading. For each one, identify the model first, select the answer, then use the explanation to check the condition that decides the result.
There is no single international microeconomics exam format. Your university or examining body may use multiple-choice questions, calculations, short answers or essays, so check the official course specification for the format, permitted calculator and syllabus. The questions below cover common undergraduate topics and use standard economic notation.
In MySummaries, a question set can be generated from the definitions, diagrams and worked examples on your own revision board. The first question tests opportunity cost and comparative choice.
An economy can produce either 40 tonnes of wheat or 20 tonnes of steel using all its resources. If it moves from producing 40 tonnes of wheat to producing 30 tonnes, what is the opportunity cost of the wheat produced?
The economy gives up 10 tonnes of wheat and moves along a linear frontier where 40 tonnes of wheat corresponds to 20 tonnes of steel. The opportunity cost is therefore 10 × (20/40) = 5 tonnes of steel. The strongest distractor is 10 tonnes of steel: that treats the tonnes of wheat forgone as though they were steel.
The key is to express opportunity cost in the other good, not in the good being reduced. This is also the logic behind comparative advantage: compare relative opportunity costs rather than absolute output.
Demand and elasticity
The next two questions test whether you can distinguish a movement along a demand curve from a shift, and whether you can calculate elasticity using percentage changes.
The price of coffee falls while the price of tea, a substitute, remains unchanged. Which outcome is most likely, ceteris paribus?
A fall in the price of coffee changes quantity demanded and produces a movement down the existing demand curve. A change in the price of a substitute would shift demand, but the price of coffee itself does not. The strongest distractor is demand shifting right: that would be more likely after a rise in the price of tea, not after a fall in coffee's own price.
This distinction prevents a common diagram error. A change in the good's own price changes quantity demanded; income, tastes, expectations and prices of related goods can shift demand.
The price of a product rises from $10 to $12 and quantity demanded falls from 100 units to 80 units. Using the midpoint method, what is the absolute value of price elasticity of demand?
The percentage change in quantity is 20/90 = 22.2%. The percentage change in price is 2/11 = 18.2%. Elasticity is 22.2/18.2 = approximately 1.22, so demand is elastic over this interval. The strongest distractor is 0.82, which reverses the ratio by dividing the percentage price change by the percentage quantity change.
When elasticity is greater than one, quantity responds proportionately more than price. For a price rise over an elastic section of demand, total revenue tends to fall; for an inelastic section, it tends to rise.
Market intervention and externalities
The following questions test price controls, tax incidence and the difference between private and social costs.
A government sets a legal maximum price below the competitive equilibrium price for rental housing. If the ceiling is enforced and binding, what is the immediate market result?
At the controlled price, quantity demanded exceeds quantity supplied, creating a shortage. The strongest distractor is a surplus, which would result from a binding price floor above equilibrium, not a price ceiling below it. In practice, non-price allocation and informal markets may also develop, but the basic model predicts a shortage.
Always ask whether a control is binding. A maximum price above equilibrium does not constrain the market, while a binding ceiling creates excess demand.
A per-unit tax is imposed on a market where demand is relatively inelastic and supply is relatively elastic. Which group is likely to bear the larger economic burden of the tax?
The less elastic side of the market bears the larger incidence because it has fewer opportunities to reduce its quantity. Consumers face a larger rise in the price paid when demand is relatively inelastic. The strongest distractor is producers: the more elastic side can adjust quantity more readily and therefore tends to bear less of the burden.
The statutory assignment of a tax to buyers or sellers does not determine its economic incidence. Elasticities do. The same principle applies to subsidies, with the larger benefit generally going to the less elastic side.
A factory's production creates air pollution. At the market output, the marginal social cost is greater than the marginal private cost. Compared with the unregulated market outcome, the socially efficient output is most likely to be:
With a negative production externality, marginal social cost equals marginal private cost plus the marginal external cost. The social optimum is where marginal social benefit equals marginal social cost, so the output is lower than the market quantity when the external cost is positive. The strongest distractor is unchanged output: that ignores the additional cost imposed on third parties.
A corrective tax can move the private incentive towards the social optimum if it reflects the marginal external cost. Do not assume the efficient output is zero; it may still be worthwhile to produce when the social benefit exceeds the total social cost.
Costs and firm decisions
These questions focus on calculations that are often lost through mixing up fixed, variable, average and marginal costs.
A firm's total cost is $250 when it produces 10 units. Its fixed cost is $100. What are average fixed cost and average variable cost at this output?
Average fixed cost is fixed cost divided by output: $100/10 = $10. Variable cost is $250 − $100 = $150, so average variable cost is $150/10 = $15. The strongest distractor reverses the two averages, confusing the fixed-cost calculation with the variable-cost calculation.
Write the identities before calculating: total cost equals fixed cost plus variable cost; average cost equals total cost divided by output; and average fixed cost falls as output rises, provided fixed cost is unchanged.
A perfectly competitive firm has a minimum average variable cost of $12. In the short run, the market price is $9. Ignoring any other constraints, what should the firm do?
If price is below minimum average variable cost, revenue cannot cover variable costs at any positive output. The firm should shut down in the short run and produce zero, while still paying unavoidable fixed costs. The strongest distractor is producing where price equals marginal cost: that rule applies only when price covers the minimum average variable cost.
Keep short-run shutdown separate from long-run exit. Shutdown is a temporary output decision when fixed costs remain unavoidable; exit is leaving the industry when the firm cannot cover its relevant long-run costs.
Market power and strategic behaviour
The final two questions test monopoly choice and a simple Nash equilibrium.
A monopolist faces demand P = 100 − Q and has constant marginal cost of $20. There are no other costs. What output and price maximise profit?
Total revenue is 100Q − Q², so marginal revenue is 100 − 2Q. Set MR equal to MC: 100 − 2Q = 20, giving Q = 40. Substitution into demand gives P = $60. The strongest distractor is Q = 60 and P = $40, which does not satisfy MR = MC; it confuses the demand equation with the marginal-revenue equation.
For a linear demand curve, marginal revenue has the same intercept and twice the slope. A profit-maximising monopolist chooses quantity where MR equals MC, then uses the demand curve to find the price consumers will pay.
Two firms choose High or Low advertising. Pay-offs are listed as (Firm A, Firm B): High/High = (4,3), High/Low = (8,1), Low/High = (2,5), Low/Low = (6,4). Which outcome is the Nash equilibrium?
For Firm A, High gives 4 rather than 2 when B chooses High, and 8 rather than 6 when B chooses Low, so High is dominant. For Firm B, High gives 3 rather than 1 when A chooses High, and 5 rather than 4 when A chooses Low, so High is also dominant. The Nash equilibrium is therefore High/High. The strongest distractor is Low/Low: it gives both firms a reasonable pay-off, but neither firm's action is a best response to the other's Low choice.
A Nash equilibrium is a set of strategies where neither player gains by changing strategy alone. It need not maximise combined pay-offs, and it need not be the only equilibrium in a more complex game.
Review the errors, not just the score
After completing the set, classify each error. Was it a definition error, an algebra error, a diagram error, or a failure to apply the correct condition? Then revisit only the relevant section of your notes and answer a similar question again.
A low score on a frequently tested topic deserves earlier review than a single careless error on a topic you otherwise handle consistently. Turn repeated errors into one-sentence rules, such as “tax incidence falls more heavily on the less elastic side” or “a binding price ceiling creates a shortage”.
You lost this mark twice: a competitive firm with price below minimum average variable cost should do what in the short run?
Answer the remediation prompt without reopening the explanation. If you can state the condition and apply it to a new number, return the topic to your normal spaced practice. If not, rebuild the relevant graph or calculation from first principles.
How MySummaries helps
MySummaries can turn your own microeconomics lecture notes, textbook extracts and worked tutorials into a revision board, then generate question practice from that material. It can also schedule missed concepts for later review, so your next session targets elasticity, externalities or cost curves rather than presenting another random set. Start at portal.mysummaries.app.