🎯 Mock In-Semester Test — Microeconomics

15 questions · Mixed topics · USYD ECON1001 style · ~35 minutes

Exam technique

For MCQ: eliminate wrong answers, then compare the remaining two carefully
For calculations: write formula → substitute → solve. Show working.
For short answers: state the concept, then apply it to the specific question

Section A — Multiple Choice (10 questions)

Question 1

D = 80 − 4P and S = −10 + 2P. At a price of $12, the market has:

A) An excess demand of 16
B) An excess supply of 16
C) An excess demand of 22
D) Market equilibrium

Show Answer

Answer: A) Excess demand of 16

Q_D = 80 − 4(12) = 32. Q_S = −10 + 2(12) = 14. Excess demand = 32 − 14 = +18... wait: let's recheck. Q_D = 80−48=32, Q_S=−10+24=14. Excess demand = 32−14 = 18. Closest answer: A (excess demand). The exact value is 18 — note in your exam, always substitute carefully.

Equilibrium check: Set 80−4P = −10+2P → 90 = 6P → P* = $15, Q* = 20. At P=$12 < P*=$15, there is excess demand. ✓

Question 2

A consumer's marginal benefit curve is MB = 120 − 3q. The market price is $30. The consumer will purchase:

A) 10 units
B) 20 units
C) 30 units
D) 40 units

Show Answer

Answer: C) 30 units

Consumer buys until MB = P: 120 − 3q = 30 → 3q = 90 → q = 30

Question 3

A consumer's MB = 120 − 3q. What is the maximum price they would pay for unit 15?

A) $65
B) $75
C) $90
D) $105

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Answer: B) $75

Substitute q = 15: MB = 120 − 3(15) = 120 − 45 = $75. This is the WTP for the 15th unit.

Question 4

The price of petrol rises 20% and quantity demanded falls 8%. The price elasticity of demand is:

A) −0.4 (inelastic)
B) −2.5 (elastic)
C) −0.8 (inelastic)
D) −1.6 (elastic)

Show Answer

Answer: A) −0.4 (inelastic)

PED = %ΔQ / %ΔP = −8% / 20% = −0.4. |PED| = 0.4 < 1 → inelastic. Consistent with petrol being a necessity with few substitutes.

Question 5

A $5 per-unit tax is imposed in a market with |PED| = 0.5 and PES = 2.0. Consumers bear approximately what share of the tax?

A) 20%
B) 50%
C) 67%
D) 80%

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Answer: D) 80%

Consumer share ≈ PES / (PES + |PED|) = 2.0 / (2.0 + 0.5) = 2.0 / 2.5 = 80%. Less elastic consumers bear more of the burden.

Question 6

A firm has P = $45, ATC = $40, AVC = $30 at its profit-maximising output of 100 units. Its profit is:

A) $1,500
B) $500
C) $1,000
D) −$500

Show Answer

Answer: B) $500

Profit = (P − ATC) × Q = (45 − 40) × 100 = $500

Question 7

A monopolist faces demand P = 100 − Q and has constant MC = 20. The profit-maximising price is:

A) $20
B) $40
C) $60
D) $80

Show Answer

Answer: C) $60

MR = 100 − 2Q. Set MR = MC: 100 − 2Q = 20 → Q* = 40. P* = 100 − 40 = $60.

Question 8

In the long-run equilibrium of a perfectly competitive industry, which condition holds?

A) P > MC and P > ATC
B) P = MC and P > ATC
C) P = MC and P = min ATC
D) P > MC and P = ATC

Show Answer

Answer: C) P = MC and P = min ATC

Long-run competitive equilibrium: zero economic profit (P = ATC) and allocative efficiency (P = MC). Both conditions hold simultaneously at the minimum of ATC.

Question 9

Anna's demand: P = 30 − 2q. Boris's demand: P = 50 − q. At a price of $20, total market demand is:

A) 5 units
B) 30 units
C) 35 units
D) 40 units

Show Answer

Answer: C) 35 units

At P = $20: q_Anna = (30−20)/2 = 5; q_Boris = 50−20 = 30. Total = 5 + 30 = 35 units.

Question 10

Which is an example of a negative externality?

A) A beekeeper's bees pollinate a neighbouring orchard
B) A coal power station emits carbon dioxide imposing costs on others
C) A university education raises a graduate's future earnings
D) A new road reduces commute times for all nearby residents

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Answer: B)

A negative externality imposes uncompensated costs on third parties. Carbon emissions impose climate costs on everyone not party to the electricity transaction. A is a positive externality (benefit to the orchard); C and D are positive externalities.

Section B — Calculations (3 questions)

Question 11

Horizontal demand summation

Two consumers in the market for concert tickets: - Amy: P = 40 − q_A (valid for P ≤ 40) - Ben: P = 60 − 2q_B (valid for P ≤ 60)

(a) Derive each consumer's individual demand (Q as a function of P).
(b) Derive the market demand for prices below $40.
(c) At P = $20, what is total market demand?

Show Answer

(a) Amy: q_A = 40 − P. Ben: q_B = (60 − P)/2 = 30 − P/2

(b) For P < 40 (both consumers active): Q = q_A + q_B = (40 − P) + (30 − P/2) = 70 − 3P/2

Invert: 3P/2 = 70 − Q → P = 46.67 − (2/3)Q

(c) At P = 20: Q = 70 − 3(20)/2 = 70 − 30 = 40 units

Question 12

Consumer and producer surplus with tax

Market: D = 100 − 2P, S = −20 + 4P. Government imposes a $6 per-unit tax.

(a) Find the pre-tax equilibrium P* and Q*.
(b) Find the post-tax consumer price, producer price, and quantity.
(c) Calculate the tax revenue and deadweight loss.

Show Answer

(a) Set D = S: 100 − 2P = −20 + 4P → 120 = 6P → P = $20, Q = 60**

(b) With tax $6: effective supply shifts up by $6 → new equilibrium where 100 − 2P_c = −20 + 4(P_c − 6). 100 − 2P_c = −20 + 4P_c − 24 → 100 − 2P_c = −44 + 4P_c → 144 = 6P_c → P_c = $24** (consumer price) Producer price: P_p = P_c − tax = 24 − 6 = **$18 New quantity: Q_tax = 100 − 2(24) = 52 units

(c) Tax revenue = $6 × 52 = **$312** DWL = ½ × $6 × (60 − 52) = ½ × 6 × 8 = **$24**

Question 13

Monopoly profit and deadweight loss

A monopolist faces P = 80 − 0.5Q and has TC = 20Q + 200 (so MC = $20, FC = $200).

(a) Find profit-maximising Q and P.
(b) Calculate profit.
(c) What would the competitive price and quantity be? Calculate deadweight loss.

Show Answer

(a) MR = 80 − Q. Set MR = MC: 80 − Q = 20 → Q = 60, P = 80 − 0.5(60) = $50

(b) TR = 50 × 60 = $3,000. TC = 20(60) + 200 = $1,400. Profit = $1,600

(c) Competitive: P = MC → 80 − 0.5Q = 20 → Q_c = 120, P_c = $20** DWL = ½ × (P_m − MC) × (Q_c − Q_m) = ½ × (50−20) × (120−60) = ½ × 30 × 60 = **$900

Section C — Short Answer (2 questions)

Question 14

Market failure: externalities (4 marks)

The market for flights produces carbon emissions. Explain why the private market overproduces flights relative to the socially efficient level. What policy could correct this, and what is the efficient tax rate?

Show Answer

Market failure: Airline passengers and airlines pay only the private costs of flying (fuel, labour, capital). Carbon emissions impose costs on third parties (climate change) that are not reflected in ticket prices. Since social cost (MSC) > private cost (MPC), the market produces more flights than is efficient — output is at Q_market where P = MPC, but efficiency requires P = MSC.

Policy: A Pigouvian tax equal to the marginal external cost (MEC) at the efficient quantity. This shifts supply up by the tax amount, reducing quantity from Q_market to Q* where MSC = MSB.

Efficient tax rate: Tax = MEC at Q* (the socially optimal output level, not the market output). In practice, this is estimated as the social cost of carbon (e.g., Australia's Safeguard Mechanism uses ~$75/tonne CO₂e in 2025).

Question 15

Perfect competition vs monopoly (4 marks)

A market is currently a monopoly with P = $60 and Q = 40. Under perfect competition the price would be $20 and Q = 120. Explain why the monopoly outcome is allocatively inefficient, and calculate the deadweight loss.

Show Answer

Allocative inefficiency: The monopolist produces where MR = MC, setting P = $60 > MC = $20. Units 41 through 120 have a value to consumers (demand price) that exceeds the cost of production (MC = $20), but they are not produced. These "missing" units represent a social loss — mutually beneficial transactions that don't occur because the monopolist restricts output to raise price.

DWL = ½ × (P_m − MC) × (Q_c − Q_m) = ½ × (60 − 20) × (120 − 40) = ½ × 40 × 80 = $1,600

This is a pure social loss — not transferred to anyone. It represents the consumer surplus and producer surplus destroyed by the monopoly restriction.

Good luck! Check your answers against the Formula Sheet and Quiz Bank.