Microeconomics Practice Questions With Answers
Twelve microeconomics practice questions with answers and explanations from the course deck, from elasticity and costs to market structures and trade.
This set has 12 questions from Encodr's free microeconomics course, taken from 12 different units so you can see how the course moves from budget constraints to market structures to trade. Each one is a real card from the deck, quoted as it appears there, with the card's own explanation.
How to use it: cover the answer and commit to one before you read on. Writing or saying your answer first is what makes the practice work. The testing effect is the reason a miss that you then correct sticks better than a passive reread, and a wrong guess is useful information about where to study next.
Mark any question you got wrong and come back to it in a few days rather than the same evening, which is the point of spacing.
Elasticity questions like numbers 4 and 5 have a calculation side too: the price elasticity calculator and the price elasticity explainer show every step of the midpoint method.
The questions
1. Unit 2, Choice in a World of Scarcity
Only the price of bus tickets rises; the burger price and Alphonso's budget stay the same. What happens to his budget constraint?
- A. It pivots inward along the ticket axis
- B. It shifts inward, parallel to itself
- C. It pivots inward along the burger axis
- D. It stays exactly where it was before
Answer: A. It pivots inward along the ticket axis
Why: The most burgers he can afford ($10 / $2 = 5) is unchanged, but the most tickets falls, so the line pivots inward around the burger intercept.
2. Unit 3, Demand and Supply
The only price at which quantity demanded equals quantity supplied is called the _____.
Answer: equilibrium price
Why: At that price the plans of buyers and sellers agree, so there is no pressure for the price to change.
3. Unit 4, Labor and Financial Markets
Businesses become much more confident about future sales and profits. What happens in the market for financial capital?
- A. Demand shifts right and the interest rate rises
- B. Demand shifts left and the interest rate falls
- C. Supply shifts right and the interest rate falls
- D. Supply shifts left and the interest rate rises
Answer: A. Demand shifts right and the interest rate rises
Why: Confident firms want to borrow for new factories and research, so demand for financial capital shifts right, raising the interest rate and the quantity lent. The late-1990s tech boom is an example.
4. Unit 5, Elasticity
A firm faces elastic demand for its product and wants more total revenue. What should it do?
- A. Lower its price
- B. Raise its price
- C. Keep its price unchanged
- D. Raise price and cut output
Answer: A. Lower its price
Why: With elastic demand, a price cut raises quantity by a larger percentage than the price falls, so total revenue rises.
5. Unit 5, Elasticity
True or false: Whoever legally sends an excise tax to the government bears most of its burden.
Answer: False
Why: Legal responsibility does not decide who bears a tax. The split depends only on the elasticities of demand and supply.
6. Unit 6, Consumer Choices
A company changes its retirement plan so that new employees are enrolled automatically unless they choose to opt out. Economists call this:
- A. a nudge
- B. a mandate
- C. mental accounting
- D. loss aversion
Answer: A. a nudge
Why: Automatic enrollment with an opt-out steers people toward saving while keeping their freedom to choose.
7. Unit 7, Production Costs and Industry Structure
What are economies of scale?
Answer: Falling long-run average cost as output rises
Why: A larger scale of production lowers the cost of each unit, as at warehouse stores.
8. Unit 8, Perfect Competition
Which condition gives allocative efficiency in a perfectly competitive market?
Answer: Price equals marginal cost (P = MC)
Why: At P = MC, what buyers will pay for the last unit equals what it costs society to make it.
9. Unit 9, Monopoly
In a natural monopoly, at what part of the long-run average cost (LRAC) curve does market demand run out?
- A. At the very lowest point of the LRAC curve
- B. On the flat, constant-returns stretch of the LRAC curve
- C. On the downward-sloping part of the LRAC curve
- D. On the upward-sloping part of the LRAC curve
Answer: C. On the downward-sloping part of the LRAC curve
Why: Average cost is still falling where demand runs out, so one large firm always produces more cheaply than two smaller ones would.
10. Unit 10, Monopolistic Competition and Oligopoly
True or false: In long-run equilibrium, a monopolistically competitive firm produces at the lowest point of its average total cost curve.
Answer: False
Why: Its demand curve slopes down, so it touches ATC on ATC's downward-sloping part, to the left of the minimum. The firm is not productively efficient.
11. Unit 11, Monopoly and Antitrust Policy
A market has 18 firms. Their shares in percent are: one at 16, one at 10, one at 8, seven at 6 each, and eight at 3 each. What is the HHI? Give the answer as a whole number.
- A. 100
- B. 456
- C. 465
- D. 744
Answer: D. 744
Why: HHI = 16^2 + 10^2 + 8^2 + 7 x 6^2 + 8 x 3^2 = 256 + 100 + 64 + 252 + 72 = 744.
12. Unit 19, International Trade
True or false: A country with an absolute disadvantage in every good still has a comparative advantage in some good.
Answer: True
Why: Comparative advantage compares opportunity costs, which are relative. Its disadvantage is smallest in some good, and that good is its comparative advantage.
Reading your result
Do not just count your total. Note which units your misses came from, and whether each was a wrong fact, a wrong formula or a misread setup. A cluster in one unit means that unit needs a proper pass through its note cards. Scattered misses on setup usually mean you are answering too fast. Redo the missed ones after a gap of a few days, not straight away, and see how many you can now explain rather than merely recognize.
Where to go next
Twelve questions only sample the course. The full deck covers all 20 units with note cards that teach each chapter before the questions start. What's in Principles of Microeconomics maps every unit, and how to study for microeconomics suggests an order and pace. To keep what you just practiced, put these topics on a schedule with the free study schedule generator.
Encodr turns this into a habit: study anything in a feed, and it schedules the rest.
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