PRACTICE EXAM QUESTIONS
Microeconomics – Exam Preparation
PART A — CONCEPTUAL QUESTIONS
Question 1
Explain why technological innovation after the Industrial Revolution increased living standards.
Key points expected:
• Technology increases productivity
• Higher productivity increases wages
• Firms produce more output per worker
• Economic growth raises living standards
Question 2
Define opportunity cost and give an example.
Answer structure:
Opportunity cost is the value of the next best alternative that must be given up when making a
decision.
Example:
Choosing to study instead of working means the wage you could have earned is the opportunity
cost.
Question 3
Explain the difference between absolute advantage and comparative advantage.
Answer structure
Absolute advantage:
A country can produce more output with the same resources.
Comparative advantage:
A country produces a good at a lower opportunity cost.
Trade occurs because of comparative advantage, not absolute advantage.
, PART B — CALCULATION QUESTIONS
Question 4
A person chooses between two options:
Concert benefit = 100
Ticket cost = 40
Babysitting wage = 50
Calculate:
Opportunity cost
Economic cost
Net benefit
Solution
Opportunity cost:
OC = 50
Economic cost:
Economic Cost = Direct Cost + Opportunity Cost
Economic Cost = 40 + 50 = 90
Net benefit:
Net Benefit = Benefit − Economic Cost
Net Benefit = 100 − 90 = 10
Question 5
Country A produces:
Cars = 10
Wheat = 2
Calculate the opportunity cost of 1 car.
Solution
OC(car) = Wheat / Cars
OC =
OC = 0.2 wheat
Country A has comparative advantage in cars if this opportunity cost is lower.
Microeconomics – Exam Preparation
PART A — CONCEPTUAL QUESTIONS
Question 1
Explain why technological innovation after the Industrial Revolution increased living standards.
Key points expected:
• Technology increases productivity
• Higher productivity increases wages
• Firms produce more output per worker
• Economic growth raises living standards
Question 2
Define opportunity cost and give an example.
Answer structure:
Opportunity cost is the value of the next best alternative that must be given up when making a
decision.
Example:
Choosing to study instead of working means the wage you could have earned is the opportunity
cost.
Question 3
Explain the difference between absolute advantage and comparative advantage.
Answer structure
Absolute advantage:
A country can produce more output with the same resources.
Comparative advantage:
A country produces a good at a lower opportunity cost.
Trade occurs because of comparative advantage, not absolute advantage.
, PART B — CALCULATION QUESTIONS
Question 4
A person chooses between two options:
Concert benefit = 100
Ticket cost = 40
Babysitting wage = 50
Calculate:
Opportunity cost
Economic cost
Net benefit
Solution
Opportunity cost:
OC = 50
Economic cost:
Economic Cost = Direct Cost + Opportunity Cost
Economic Cost = 40 + 50 = 90
Net benefit:
Net Benefit = Benefit − Economic Cost
Net Benefit = 100 − 90 = 10
Question 5
Country A produces:
Cars = 10
Wheat = 2
Calculate the opportunity cost of 1 car.
Solution
OC(car) = Wheat / Cars
OC =
OC = 0.2 wheat
Country A has comparative advantage in cars if this opportunity cost is lower.
