Economics Oxbridge Interview Questions

Genuine-difficulty economics questions to help you prepare for your Oxford/Cambridge interview, written and illustrated by our Oxbridge-graduate tutors.

Question 1
A straight beach one kilometre long has sunbathers spread evenly along its whole length. Two ice-cream vans sell an identical product at the same fixed price, each sunbather walks to whichever van is nearer, and the vans may park anywhere. Each van wants to maximise its number of customers. Where do the two vans end up locating, and is that outcome efficient for the sunbathers? What changes if a third van is added?

Show a hint

Imagine the sunbathers spread evenly along the beach, with the two vans starting far apart. Each van captures everyone nearer to it, so ask how a van could move to steal some of its rival's customers. Where do they end up when neither can gain by moving again, and is that good for the sunbathers who now have to walk?

Question 2
You and a stranger you will never meet again can share £100. You propose how to divide it between the two of you; the stranger then either accepts, and you each receive the amounts you proposed, or rejects, in which case you both get nothing. Only one offer is made and there is no further bargaining. If the stranger is purely self-interested and rational, what should you offer? Does your answer change once you allow that real people, not perfectly rational ones, are playing?

Show a hint

First treat the stranger as a cold calculator: if any positive amount beats nothing, what is the smallest sum they would still accept, and what does that imply you should offer? Then ask what real people actually do when an offer feels unfair, and what that says about the assumption of pure self-interest.

Question 3
Why might a law forcing everyone to wear seatbelts lead to more accidents?

Show a hint

A seatbelt clearly makes a given crash more survivable, so think about how a driver who feels safer might change the way they drive. Separate the effect on harm per accident from the effect on the number of accidents, and consider who bears any extra risk that results.

Question 4
A new country introduces its own currency. How does the world decide what it’s worth?

Show a hint

An exchange rate is just a price, set by who wants to hold the currency against who wants to sell it. Ask what would create demand for a brand-new currency, such as buying that country's goods or assets, and what traders and the central bank would watch to judge its value.

Question 5
How would you estimate the demand curve for a product you’d never seen?

Show a hint

You want to know how the quantity sold responds to price. Think about what you could deliberately vary and what you could observe, for example charging different prices in comparable places or at comparable times, and what would make that comparison fair.

Question 6
A painter wants to sell a single painting in a small town and is weighing two methods. Under the first, each interested buyer submits one sealed bid, and the highest bidder buys the painting at their own bid. Under the second, she sells numbered raffle tickets at a fixed price each and draws one at random, with the holder winning the painting. Buyers value the painting differently and each knows their own valuation. Which method is likely to raise more money, and what does the answer depend on?

Show a hint

Under the sealed bid, who ends up with the painting, and how does what they pay relate to how much they value it? Under the raffle the winner is random, so ask whether the person who values it most tends to win. Compare what each method does both to the price paid and to who gets the item.

Question 7
A fair coin is flipped repeatedly until it first lands heads, at which point you stop. Assuming each flip is independent and the coin is unbiased, how many flips will this take on average (in expectation)?

Show a hint

Call the expected number of flips \(E\). With probability one half you finish on the very first flip. Otherwise you have used one flip and face exactly the same situation again. Turn that single sentence into an equation for \(E\) and solve it.

Question 8
CEO pay has risen from 50:1 to 300:1 versus average pay. Should government intervene? Now argue the opposite.

Show a hint

Build the case for intervention first: think about fairness, incentives, and whether the pay reflects genuine value created. Then argue the other side just as hard: what might justify the rise, and what could go wrong if a government tried to set pay directly? Aim to make each side as strong as it can be.

Question 9
Could an economy run entirely on services, with no manufacturing?

Show a hint

Ask what a service economy still needs from elsewhere, and whether making nothing physical is really a problem if the country can trade. Think about comparative advantage and what it would exchange for the goods it no longer produces itself.

Question 10
If money were redistributed equally to everyone overnight, what would happen?

Show a hint

Money is a claim on goods, not the goods themselves. Ask what happens to prices if everyone suddenly has different spending power but the quantity of goods is unchanged, and how people's incentives to work, save and invest might respond afterwards.

Ten more to go

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Question 11
Why is deflation considered dangerous?

Show a hint

Think about how you would behave if you expected prices, including wages and the value of money, to keep falling. Consider what that expectation does to people's willingness to spend now, and what falling prices do to the real burden of money already owed.

Question 12
How would you model the spread of a fad or fashion mathematically?

Show a hint

Ask what makes one more person adopt the fad. If it spreads by contact between adopters and non-adopters, write down how the number of new adopters in a short interval depends on how many already have it and how many do not. Then think about what shape the growth takes over time.

Question 13
Five perfectly rational pirates, ranked strictly by seniority, have 100 gold coins to divide. The most senior pirate proposes how to split all 100 coins. Every pirate (including the proposer) then votes for or against; if at least half vote in favour, the proposal passes and the gold is divided accordingly. If it fails, the proposer is thrown overboard and the next most senior pirate makes a proposal under the same rule, and so on. Each pirate values, in strict order: first staying alive, then getting as much gold as possible, and finally, all else equal, throwing other pirates overboard. Every pirate knows all the others are perfectly rational. What should the most senior pirate propose?

Show a hint

Work backwards from the simplest case. Ask what happens if only the two most junior pirates are left, then use that to work out what three would do, then four, then five. At each stage the proposer needs only enough votes to survive, so think about whom it is cheapest to win over.

Question 14
A monopolist can perfectly price-discriminate. Is there any welfare loss?

Show a hint

Welfare loss usually comes from sales that ought to happen but do not, because the single price sits above some buyers' willingness to pay. Now ask what changes if the seller can charge each buyer exactly their own value, so nobody willing to pay something is turned away. Then consider who captures the gains.

Question 15
A study shows graduates earn more, and a minister claims university causes higher earnings. What’s wrong with that?

Show a hint

Ask what else might already differ between people who go to university and people who do not, before any teaching happens. Then think about what evidence would let you separate the effect of the degree itself from the characteristics of the people who choose to pursue it.

Question 16

A firm produces a quantity \( q \) of a good and sells all of it at a fixed market price \( p \). It is a price-taker, so \( p \) is a positive constant it cannot influence. Its total cost of producing \( q \) is \( C(q) = aq^{2} + b \), where \( a \) and \( b \) are positive constants and \( q \ge 0 \). Write the firm's profit as a function of \( q \), find the \( q \) that maximises profit in terms of \( p \) and \( a \), prove it is a maximum rather than a minimum, and describe how the optimal output changes as \( p \) rises.

Show a hint

Profit is revenue minus cost, so write it as a function of \(q\) using the price and the given cost function. Differentiate with respect to \(q\) and set the result to zero to find the candidate output, then use the second derivative to confirm it is a maximum. Finally, read off how that output responds when \(p\) rises.

Question 17
Is rational self-interest always good for society, and when does it fail?

Show a hint

Start from the idea that a voluntary trade tends to benefit both parties. Then look for situations where one person's choice imposes costs on others who are not part of the deal, and ask what that does to the outcome for society as a whole.

Question 18
Is inflation always bad? Why don’t governments try to abolish it entirely?

Show a hint

Separate steady, expected inflation from sudden or unpredictable inflation. Ask who gains and who loses when prices rise, and why a small positive rate might actually be safer for an economy than aiming for exactly zero.

Question 19
Why is income per head 50–100 times higher in the US than in Malawi?

Show a hint

A worker's output depends on far more than effort. Think about what each worker has to work with, such as tools, machinery, infrastructure, education and institutions, and how those advantages compound over decades to produce such large differences.

Question 20
Can addiction be rational?

Show a hint

Decide first what "rational" means, for example choosing consistently to maximise your own satisfaction over time. Then ask whether someone could knowingly take up a habit while correctly anticipating its future costs, and identify exactly where that picture starts to strain.

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