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IFoA Subject CB2 Business Economics practice questions are available now; exam metadata is being verified.
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2026 Statistics
Key Facts: IFoA CB2 Exam
3h 20m
Exam Time
IFoA curriculum
45%
Microeconomics Weight
IFoA CB2 syllabus
45%
Macroeconomics Weight
IFoA CB2 syllabus
~150 hrs
Recommended Study
IFoA
3
Syllabus Areas
IFoA CB2 syllabus
Word CBT
Exam Format
IFoA curriculum
IFoA Subject CB2 Business Economics is a Core Principles subject delivered as a 3 hour 20 minute computer-based (Word) exam combining short multiple-choice items with longer structured-answer questions. The current syllabus weights microeconomics and macroeconomics at roughly 45% each, with around 10% on economic models and historical applications. The IFoA recommends about 150 study hours, sets the pass mark for each sitting rather than publishing a fixed percentage, and lists current fees on its exam fees schedule.
Sample IFoA CB2 Practice Questions
Try these sample questions to test your IFoA CB2 exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.
1A market is initially in equilibrium. If consumer incomes rise and the good is a normal good, what happens to the equilibrium price and quantity, all else equal?
A.Both price and quantity rise
B.Price rises but quantity falls
C.Both price and quantity fall
D.Price falls but quantity rises
Explanation: A rise in income increases demand for a normal good, shifting the demand curve rightward. Along an upward-sloping supply curve, this raises both the equilibrium price and the equilibrium quantity.
2The price elasticity of demand for a product is measured as -0.4. A firm raises the price by 10%. What is the approximate effect on quantity demanded and total revenue?
A.Quantity rises 4%; total revenue rises
B.Quantity falls 4%; total revenue rises
C.Quantity falls 4%; total revenue falls
D.Quantity falls 25%; total revenue falls
Explanation: Elasticity of -0.4 means demand is inelastic: a 10% price rise reduces quantity by only 4%. Because the proportional price rise exceeds the proportional quantity fall, total revenue increases when price rises for an inelastic good.
3Cross-price elasticity of demand between Good X and Good Y is calculated as +1.8. What does this indicate about the relationship between the two goods?
A.They are unrelated
B.They are complements
C.They are substitutes
D.Good X is an inferior good
Explanation: A positive cross-price elasticity means a rise in the price of Y increases demand for X, the defining feature of substitute goods. The large magnitude (1.8) indicates they are close substitutes.
4According to the law of diminishing marginal utility, as a consumer increases consumption of a good, holding other consumption constant, the marginal utility from each additional unit:
A.Becomes negative immediately
B.Increases at an increasing rate
C.Remains constant
D.Eventually falls
Explanation: The law of diminishing marginal utility states that, beyond some point, each additional unit consumed yields less extra satisfaction than the previous unit. Marginal utility eventually falls, though it need not become negative.
5A consumer maximises utility subject to a budget constraint. At the optimum interior solution, the ratio of marginal utilities of two goods equals:
A.The ratio of the goods' prices
B.Unity for all goods
C.The income elasticity ratio
D.The ratio of total utilities
Explanation: Utility maximisation requires the marginal rate of substitution to equal the price ratio: MUx/MUy = Px/Py. Equivalently, marginal utility per pound is equalised across goods, so the marginal-utility ratio equals the price ratio.
6An indifference curve for two normal goods is typically convex to the origin. This convexity reflects:
A.A constant marginal rate of substitution
B.A diminishing marginal rate of substitution
C.Perfect substitutability between the goods
D.That the goods are economic bads
Explanation: Convexity to the origin reflects a diminishing marginal rate of substitution: as a consumer holds more of one good, they are willing to give up less of the other to gain a further unit. This produces the bowed-in shape.
7When the price of a good falls, the substitution effect for a normal good always:
A.Reverses the income effect
B.Reduces the quantity demanded
C.Increases the quantity demanded
D.Leaves quantity demanded unchanged
Explanation: The substitution effect always moves consumption toward the good that has become relatively cheaper. When price falls, the substitution effect raises quantity demanded of that good, regardless of whether it is normal or inferior.
8A Giffen good is best characterised by which of the following?
A.A good with perfectly elastic demand
B.A normal good with negative cross-price elasticity
C.A luxury good with high income elasticity
D.An inferior good whose demand rises as its price rises
Explanation: A Giffen good is a strongly inferior good for which the negative income effect outweighs the substitution effect. As a result, the quantity demanded rises when its own price rises, giving an upward-sloping demand curve.
9A firm's total cost is TC = 200 + 10Q. What are its average fixed cost and marginal cost at an output of 50 units?
A.AFC = 4; MC = 10
B.AFC = 10; MC = 4
C.AFC = 14; MC = 10
D.AFC = 4; MC = 14
Explanation: Fixed cost is 200, so AFC = 200/50 = 4. Marginal cost is the derivative of total cost with respect to output, which is the constant 10 here. Hence AFC = 4 and MC = 10.
10In the short run, the law of diminishing marginal returns implies that as a firm adds more of a variable input to fixed inputs, eventually the:
A.Marginal cost falls continuously
B.Marginal product of the variable input falls
C.Total product falls immediately
D.Average fixed cost rises
Explanation: Diminishing marginal returns means that, beyond some point, each additional unit of the variable input adds less to output than the previous unit, so its marginal product falls. This causes marginal cost to rise as output expands.
About the IFoA CB2 Practice Questions
Verified exam format metadata for IFoA Subject CB2 Business Economics is pending. The practice questions above remain available while official exam length, timing, passing score, fee, and administrator details are reviewed.