Economist Interview Pack · Sample
From the pack: five questions in the style of the GES assessment centre’s short-answer exercise, with model answers and the marking points the AI marks against, and the outline of one economic-consultancy case. In the real exercise you have about three minutes a question.
Each question is marked out of 4, one mark per marking point. In the pack, your answers to the timed papers are marked by AI against these points: marks and comments only, never a rewrite.
Question 1 · Microeconomics
Using a diagram described in words, explain how a per-unit tax on cigarettes affects consumers, producers and the government, and who bears most of the burden.
Draw demand and supply with price on the vertical axis. A per-unit tax shifts supply up vertically by the amount of the tax. Quantity falls; the price consumers pay rises and the price producers keep falls, the gap being the tax. Consumer surplus and producer surplus both shrink; part of the loss becomes tax revenue (the rectangle of tax times new quantity) and the rest is a deadweight loss triangle. Because demand for cigarettes is price inelastic relative to supply, the consumer price rises by most of the tax, so smokers bear most of the burden. The deadweight loss is small, which is why such taxes raise revenue efficiently, though the reduction in smoking is also modest.
Question 2 · Microeconomics
In a market, demand is Qd = 100 - 2P and supply is Qs = 20 + 2P. Calculate the equilibrium, then the effect of a £4 per-unit tax on sellers: prices paid and received, tax revenue and deadweight loss.
Equilibrium: 100 - 2P = 20 + 2P, so 4P = 80, P = 20 and Q = 60. With the tax, sellers receive P - 4, so supply becomes Qs = 20 + 2(P - 4) = 12 + 2P. Setting 100 - 2P = 12 + 2P gives 4P = 88, so consumers pay P = 22 and Q = 56. Producers receive 22 - 4 = 18. The burden is shared equally (£2 each) because the slopes are equal. Revenue = 4 x 56 = £224. Deadweight loss = 0.5 x 4 x (60 - 56) = £8.
Question 3 · Macroeconomics
Explain how a rise in Bank Rate is expected to reduce inflation.
A rise in Bank Rate feeds through to market interest rates, raising borrowing costs for households and firms and the return on saving. This reduces consumption, especially of durables and through higher mortgage payments, and reduces business investment. Higher rates also lower asset prices, cutting wealth, and tend to appreciate the exchange rate, making imports cheaper and exports less competitive. Lower aggregate demand opens a negative output gap, which reduces pressure on wages and prices, and a credible central bank also lowers inflation expectations. The effect works with long and variable lags, often estimated at one to two years, and its strength depends on how many borrowers have fixed-rate loans.
Question 4 · Econometrics and data
A regression on fictional survey data gives: ln(hourly wage) = 1.50 + 0.08 x years of education, with a standard error of 0.02 on the education coefficient. Interpret the coefficient, test whether it is statistically significant, and explain why it may not be the causal return to education.
Because the dependent variable is in logs, each extra year of education is associated with approximately 8% higher hourly wages (exactly 100 x (e^0.08 - 1), about 8.3%). The t-statistic is 0.08/0.02 = 4, above 1.96, so the coefficient is significantly different from zero at the 5% level. It may not be causal because of omitted variable bias: ability and family background are likely to raise both education and wages, so the estimate partly captures them and is probably biased upwards. Other concerns include measurement error in education and selection. Identifying a causal effect would require, for example, a natural experiment such as a change in the school-leaving age.
Question 5 · International trade
Using a diagram described in words, explain the welfare effects of a tariff on imported steel for a small open economy such as the UK.
Draw domestic demand and supply, with a horizontal world supply line at the world price, below the domestic equilibrium. Under free trade, consumers buy at the world price, domestic firms supply a small quantity and the rest is imported. A tariff raises the domestic price by the tariff. Domestic production rises, consumption falls and imports shrink. Consumer surplus falls by the area between the two prices up to consumption. Of this loss, part goes to domestic producers as extra producer surplus, part to government as tariff revenue (tariff times remaining imports), and two triangles are deadweight losses: one from inefficient domestic production, one from lost consumption. Net welfare falls, although steel jobs may be protected; downstream users of steel also face higher costs.
Consultancy case outline · Market definition
Two of the larger makers of oat-based breakfast bars, Hearthfield and Brightmorrow, want to merge. Their advisers say the relevant market is all breakfast snacks, so their combined share is small. The authority suspects oat bars alone might be a market. You have a few minutes. How would you test whether oat bars are a relevant market, and what would you need to know?
On these numbers a hypothetical monopolist of oat bars would find a 5% rise profitable (predicted loss about 9% against a critical loss of 11.1%), so oat bars look like a relevant market and the parties' wider breakfast-snacks market is not supported. The answer depends on the elasticity estimate and its precision, on whether the linear approximation holds, and on whether a 10% SSNIP or a different price benchmark changes the picture.
In the pack the AI case interviewer reveals the data only when you ask for it, and pushes back on each step.
Independent preparation, not affiliated with or endorsed by the Government Economic Service, the Civil Service or any firm named. The case uses a fictional firm and numbers.