Principles of Microeconomics

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CLEP® Principles of Microeconomics Examination Guide

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The Principles of Microeconomics exam covers economic principles applying to individual consumers and businesses.

2018 CLEP Official Study Guide

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This study guide provides practice questions for all 33 CLEP® exams. The ideal resource for taking more than one exam. Offered only by the College Board.

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Principles of Microeconomics

Overview

The Principles of Microeconomics exam covers material that is usually taught in a one-semester undergraduate course in introductory microeconomics, including economic principles that apply to the behavioral analysis of individual consumers and businesses. You will be required to apply analytical techniques to hypothetical as well as real-world situations and to analyze and evaluate economic decisions. You're expected to demonstrate an understanding of how free markets work and allocate resources efficiently, how individual consumers make economic decisions to maximize utility, and how individual firms make decisions to maximize profits. You must be able to identify the characteristics of the different market structures and analyze the behavior of firms in terms of price and output decisions. You should also be able to evaluate the outcome in each market structure with respect to economic efficiency, identify cases in which private markets fail to allocate resources efficiently, and explain how government intervention fixes or fails to fix the resource allocation problem. It is also important to understand the determination of wages and other input prices in factor markets, and be able to analyze and evaluate the distribution of income.

The exam contains approximately 80 questions to be answered in 90 minutes. Some of these are pretest questions that will not be scored. Any time test takers spend on tutorials and providing personal information is in addition to the actual testing time.

Knowledge and Skills Required

Questions on the Principles of Microeconomics exam require test takers to demonstrate one or more of the following abilities.

  • Understanding of important economic terms and concepts
  • Interpretation and manipulation of economic graphs
  • Interpretation and evaluation of economic data
  • Application of simple economic models

The subject matter of the Principles of Microeconomics exam is drawn from the following topics. The percentages next to the main topics indicate the approximate percentage of exam questions on that topic.

Basic Economic Concepts (8%–14%)

  • Scarcity, choice, and opportunity cost
  • Production possibilities curve
  • Comparative advantage, specialization, and trade
  • Economic systems
  • Property rights and the role of incentives
  • Marginal analysis

The Nature and Functions of Product Markets (55%–70%)

15%–20% Supply and demand

  • Market equilibrium
  • Determinants of supply and demand
  • Price and quantity controls
  • Elasticity
  • Price, income, and cross-price elasticities of demand
  • Price elasticity of supply
  • Consumer surplus, producer surplus, and market efficiency
  • Tax incidence and deadweight loss

5%–10% Theory of consumer choice

  • Total utility and marginal utility
  • Utility maximization: equalizing marginal utility per dollar
  • Individual and market demand curves
  • Income and substitution effects

10%–15% Production and costs

  • Production functions: short and long run
  • Marginal product and diminishing returns
  • Short-run costs
  • Long-run costs and economies of scale
  • Cost minimizing input combination

23%–33% Firm behavior and market structure

Profit

  • Accounting versus economic profits
  • Normal profit
  • Profit maximization: MR=MC rule

Perfect competition

  • Profit maximization
  • Short-run supply and shut-down decision
  • Firm and market behaviors in short-run and long-run equilibria
  • Efficiency and perfect competition

Monopoly

  • Sources of market power
  • Profit maximization
  • Inefficiency of monopoly
  • Price discrimination

Oligopoly

  • Interdependence, collusion, and cartels
  • Game theory and strategic behavior

Monopolistic competition

  • Product differentiation and role of advertising
  • Profit maximization
  • Short-run and long-run equilibrium
  • Excess capacity and inefficiency

Factor Markets (8%–14%)

  • Derived factor demand
  • Marginal revenue product
  • Labor market and firms' hiring of labor
  • Market distribution of income

Market Failure and the Role of Government (10%–16%)

Externalities

  • Marginal social benefit and marginal social cost
  • Positive externalities
  • Negative externalities
  • Remedies

Public goods

  • Public versus private goods
  • Provision of public goods

Public policy to promote competition

  • Antitrust policy
  • Regulation

Income distribution

  • Equity
  • Sources of income inequality

Study Resources

Most textbooks used in college-level introductory microeconomics courses cover the topics in the outline given earlier, but the approaches to certain topics and the emphases given to them may differ. To prepare for the Principles of Microeconomics exam, it is advisable to study one or more college textbooks, which can be found in most college bookstores. When selecting a textbook, check the table of contents against the knowledge and skills required for this test.

There are many introductory economics textbooks that vary greatly in difficulty. Some books are published in one-volume editions that cover both microeconomics and macroeconomics; some of the texts listed here are published in two-volume editions, with one volume covering macroeconomics and the other microeconomics. A companion study guide/workbook is available for most textbooks. The study guides typically include brief reviews, definitions of key concepts, problem sets, and multiple-choice test questions with answers. Many publishers also make available computer-assisted learning packages as companions to these texts.

Textbooks

A survey conducted by CLEP found that the following textbooks are among those used by college faculty who teach the equivalent course. You might purchase one or more of these online or at your local college bookstore.

  • Arnold, Macroeconomics, Concise Edition, and Microeconomics, Concise Edition (South-Western)
  • Bade and Parkin, Foundations of Macroeconomics and Foundations of Microeconomics (Addison Wesley)
  • Baumol and Blinder, Microeconomics: Principles & Policy (South-Western)
  • Case and Fair, Principles of Macroeconomics and Principles of Microeconomics (Prentice-Hall)
  • Colander, Macroeconomics and Microeconomics (McGraw-Hill)
  • Frank and Bernanke, Principles of Macroeconomics, Brief Edition, and Principles of Microeconomics, Brief Edition (McGraw-Hill)
  • Gottheil, Principles of Macroeconomics (Thomson/Cengage)
  • Krugman and Wells, Macroeconomics and Microeconomics (Worth)
  • Lipsey, Ragan, and Storer, Macroeconomics and Microeconomics (Addison Wesley)
  • Mankiw, Brief Principles of Macroeconomics and Brief Principles of Microeconomics (South-Western)
  • McConnell and Brue, Macroeconomics and Microeconomics (McGraw-Hill)
  • McEachern, ECON for Macroeconomics and ECON for Microeconomics (South-Western)
  • Salvatore, Schaum's Outline of Microeconomics (McGraw-Hill)
  • Samuelson and Nordhaus, Macroeconomics and Microeconomics (McGraw-Hill)
  • Schiller, The Macro Economy Today and The Micro Economy Today (McGraw-Hill)
  • Stiglitz and Walsh, Principles of Macroeconomics and Principles of Microeconomics (W.W. Norton)
  • Taylor and Weerapana, Principles of Macroeconomics and Principles of Microeconomics (South-Western)

Online Resources

These resources, compiled by the CLEP test development committee and staff members, may help you study for your exam. However, none of these sources are designed specifically to provide preparation for a CLEP exam. The College Board has no control over their content and cannot vouch for accuracy.

To broaden your knowledge of economic issues, you may read relevant articles published in the economics periodicals that are available in most college libraries. Magazines like The Economist and newspapers like The Wall Street Journal and The New York Times, along with local papers, may also enhance your understanding of economic issues.

Score Information

Credit Granting Score for Principles of Microeconomics

ACE Recommended Score*: 50
Semester Hours: 3

Each institution reserves the right to set its own credit-granting policy, which may differ from that of ACE. Contact your college as soon as possible to find out the score it requires to grant credit, the number of credit hours granted, and the course(s) that can be bypassed with a satisfactory score.

*The American Council on Education’s College Credit Recommendation Service (ACE CREDIT) has evaluated CLEP processes and procedures for developing, administering, and scoring the exams. The score listed above is equivalent to a grade of C in the corresponding course. The American Council on Education, the major coordinating body for all the nation’s higher education institutions, seeks to provide leadership and a unifying voice on key higher education issues and to influence public policy through advocacy, research, and program initiatives. Visit the ACE CREDIT website for more information.