Microeconomics: practice problems and exam questions

Supply and demand, elasticities, market equilibrium and consumer and producer behaviour, with both calculation and theory questions.

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Cram pack (PDF)Formula sheets, method steps and practice problems with full solutions, ready to print.

Topics in this course

  1. Price elasticity of demandpercentage changes · midpoint method · linear demandcalculations
  2. Economics conceptskey terms and facts · applying the concepts · cases and analysismultiple choice

Exam tips for Microeconomics

  • Use the midpoint method for elasticity when the question gives two points.
  • Elastic demand means revenue falls when the price rises.
  • Draw the graph, even when the question does not ask for one.

Worked examples

Price elasticity of demandEasy
QPDQ1​P1​Q2​P2​

When the price of a product rises by 25%, the quantity demanded falls by 5%. Find the price elasticity of demand E.

%ΔP = +25%%ΔQ = −5%

Find E

Show hints
  1. Elasticity is the percentage change in quantity divided by the percentage change in price.
  2. Price and quantity move in opposite directions, so the result is negative.
  3. E = −5/25.
Show the answer and the step-by-step solution

Price elasticity of demand measures how strongly the quantity demanded reacts to price: E = (% change in quantity)/(% change in price). It is negative for normal goods. |E| > 1 is elastic (revenue falls when price rises), |E| < 1 is inelastic.

Divide the percentage changes

E = %ΔQ/%ΔP = (−5%)/(25%) = −0.2

Answer

E = −0.2

|E| < 1: demand is inelastic.

Economics conceptsMedium

The income elasticity of demand for a good is -0.4. The good is:

  1. AA luxury good
  2. BA complement
  3. CA normal necessity
  4. DAn inferior good
Show hints
  1. Look at the sign.
  2. Two wrong answers are now crossed out. One of the remaining two is right.
Show the answer and explanation

Why this is the answer

A negative income elasticity means demand falls as income rises, which defines an inferior good; luxuries have income elasticity above 1.

Answer

D · An inferior good

How practising works

  • “Practise this course” mixes problems from all its topics, like a real exam.
  • Every problem has new values, so you learn the method instead of an answer.
  • Stuck? Open a small hint first, and the full explanation only when you need it.
  • Mock exams are timed and have no hints, and you get your score and a full review at the end.

Related courses

Business FundamentalsCorporate FinanceManagement AccountingInvestments and ValuationFinancial AccountingCFA Level I quantitative methods and fixed income practice
Practise this course for freePractise this courseTake a mock exam5 free problems every day. No card needed.