Top 5 CFA Level 1 Microeconomics Questions (2026)

Top 5 CFA Level 1 Practice Questions on Microeconomics for 2026

Mastering microeconomics is not just beneficial; it is crucial for acing the CFA Level 1 exam. With a significant portion of the exam dedicated to economics, focusing on microeconomic principles can enhance your understanding and boost your performance. Here we delve into the top 5 practice questions that are vital for your 2026 prep. By thoroughly understanding these concepts, you can approach the exam with confidence.

1. Understanding Demand and Supply Analysis

Demand and supply analysis is the cornerstone of microeconomics. It illustrates how markets function and how various factors influence prices and quantities of goods.

• Key Concepts:
• Law of Demand: As prices fall, the quantity demanded rises, and vice versa.
• Law of Supply: As prices rise, the quantity supplied increases, and vice versa.
• Market Equilibrium: The point where the quantity demanded equals the quantity supplied.

Example Practice Question: What happens to the equilibrium price and quantity of a good when there is an increase in consumer income, assuming the good is a normal good?

Practical Tips:

Draw demand and supply curves to visually understand shifts caused by various factors.

Use real-world examples, such as the impact of a minimum wage increase on the labour market, to contextualise these concepts.

2. Elasticity of Demand and Supply

Elasticity measures how responsive the quantity demanded or supplied is to changes in price, income, or other factors. It is crucial for understanding consumer behaviour and pricing strategies.

• Types of Elasticity:
• Price Elasticity of Demand (PED): Measures the responsiveness of quantity demanded to a change in price.
• Income Elasticity of Demand (YED): Measures the responsiveness of quantity demanded to a change in consumer income.
• Cross-Price Elasticity of Demand (XED): Measures how the quantity demanded of one good responds to the price change of another good.

Example Practice Question: If the price of a substitute good increases, what is the expected effect on the quantity demanded of the original good?

Practical Tips:

Familiarise yourself with the formulas for calculating different types of elasticity.

Consider real-life scenarios, such as the impact of a tax on cigarettes, to understand elasticity in action.

3. Market Structures and Their Implications

Understanding market structures is essential for predicting market behaviour and pricing strategies. The CFA exam often tests knowledge of different market forms:

• Perfect Competition: Many firms, identical products, and no barriers to entry.
• Monopoly: One firm dominates the market, often leading to higher prices.
• Oligopoly: A few firms control the market, often leading to strategic interactions (like price wars).

Example Practice Question: In a monopoly market, what is the relationship between price, marginal cost, and marginal revenue?

Practical Tips:

Compare different market structures through case studies to see their real-world applications.

Create comparison charts to summarise characteristics, advantages, and disadvantages of each market structure.

4. Cost Analysis in the Short and Long Run

Cost analysis is a critical area where many candidates need improvement. Understanding the differences between short-run and long-run costs can significantly impact a firm's decision-making processes.

• Short-Run Costs: Include variable costs that change with the level of output and fixed costs that remain constant.
• Long-Run Costs: All costs are variable; firms can adjust all inputs.

Example Practice Question: How does a firm's average total cost curve behave as output increases in the short run?

Practical Tips:

Practice calculating total, average, and marginal costs to strengthen your understanding.

Use graphical illustrations to track how costs behave as production levels change.

5. The Break-Even Analysis

Break-even analysis is vital for determining the point at which total revenue equals total costs, meaning that the business neither makes a profit nor incurs a loss. This concept is essential for understanding business sustainability and operational efficiency.

• Key Components:
• Fixed Costs: Costs that do not change with the level of output.
• Variable Costs: Costs that vary directly with output.
• Break-Even Point (BEP): The output level at which total revenue equals total costs.

Example Practice Question: If a company's fixed costs are £10,000, variable costs are £5 per unit, and the selling price is £10 per unit, what is the break-even point in units?

Practical Tips:

Regularly practice break-even calculations and understand how changes in fixed and variable costs affect the BEP.

Consider the implications of break-even analysis on pricing strategies and cost management.

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Don’t wait until exam day! Start preparing today with our comprehensive study materials and ensure your success in the 2026 CFA Level 1 exam. By mastering these microeconomic principles through targeted practice questions, you will enhance your understanding and confidence, setting yourself on the path to success.