Unit 1 of 5
Study guide for CLEP CLEP Principles of Microeconomics — Unit 1: Supply and Demand. Practice questions, key concepts, and exam tips.
265
Practice Questions
30
Flashcards
7
Key Topics
Try these 5 questions from this unit. Sign up for full access to all 265.
A firm is experiencing diminishing returns when the marginal product of the 5th worker is 8 units and the marginal product of the 6th worker is:
10 units
8 units
6 units
12 units
4 units
Answer: C — 6 units is correct because if the firm is experiencing diminishing returns, the marginal product of the 6th worker must be less than the marginal product of the 5th worker, which was 8 units.
In a competitive labor market, the marginal factor cost of labor is
Equal to the wage
Greater than the wage
Less than the wage
The average total cost
The marginal revenue product
Answer: A — Equal to the wage is correct because MFC equals wage.
What type of good is characterized by a cross-price elasticity of demand greater than 0?
Complement
Inferior good
Normal good
Substitute
Public good
Answer: D — Substitute is correct because a cross-price elasticity of demand greater than 0 indicates that the demand for one good increases when the price of another good increases, which is characteristic of substitute goods.
Why do economists consider economic profit a more comprehensive measure of a firm's profitability than accounting profit?
Because economic profit includes taxes, while accounting profit does not
Because economic profit is calculated quarterly, while accounting profit is calculated annually
Because economic profit is used for tax purposes, while accounting profit is used for investment decisions
Because economic profit includes implicit costs, which accounting profit does not
Because economic profit only considers explicit costs
Answer: D — Economic profit including implicit costs is correct because it provides a more complete picture of a firm's costs and, therefore, its true profitability, since it accounts for both explicit and implicit costs.
A country can produce either 100 units of wheat or 50 units of textiles. Another country can produce either 80 units of wheat or 80 units of textiles. Which country has an absolute advantage in producing wheat?
Neither country has an absolute advantage
The second country
Both countries have an absolute advantage
The first country
The country with the lowest wheat production
Answer: D — Absolute advantage refers to the ability to produce more of a good than another country. The first country can produce 100 units of wheat, while the second country can only produce 80 units.
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