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Unit 1: Supply and Demand

Study guide for CLEP CLEP Principles of Microeconomics — Unit 1: Supply and Demand. Practice questions, key concepts, and exam tips.

274

Practice Questions

9

Flashcards

7

Key Topics

Key Concepts to Study

law of demand
supply shifters
equilibrium price
price ceilings and floors
consumer surplus and producer surplus
deadweight loss from taxes
tax incidence (elastic vs inelastic)

Sample Practice Questions

Try these 5 questions from this unit. Sign up for full access to all 274.

Q1MEDIUM

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:

A) 10 units
B) 8 units
C) 6 units
D) 12 units
E) 4 units
Show Answer

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.

Q2EASY

In a competitive labor market, the marginal factor cost of labor is

A) Equal to the wage
B) Greater than the wage
C) Less than the wage
D) The average total cost
E) The marginal revenue product
Show Answer

Answer: A — Equal to the wage is correct because MFC equals wage.

Q3MEDIUM

What type of good is characterized by a cross-price elasticity of demand greater than 0?

A) Complement
B) Substitute
C) Normal good
D) Inferior good
E) Public good
Show Answer

Answer: B — 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.

Q4HARD

Why do economists consider economic profit a more comprehensive measure of a firm's profitability than accounting profit?

A) Because economic profit includes taxes, while accounting profit does not
B) Because economic profit includes implicit costs, which accounting profit does not
C) Because economic profit is used for tax purposes, while accounting profit is used for investment decisions
D) Because economic profit is calculated quarterly, while accounting profit is calculated annually
E) Because economic profit only considers explicit costs
Show Answer

Answer: B — 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.

Q5MEDIUM

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?

A) The first country
B) The second country
C) Both countries have an absolute advantage
D) Neither country has an absolute advantage
E) The country with the lowest wheat production
Show Answer

Answer: A — 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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Study Tips for Unit 1: Supply and Demand

  • Focus on understanding concepts, not memorizing facts — CLEP tests application
  • Practice with timed questions to build exam-day speed
  • Review explanations for wrong answers — they reveal common misconceptions
  • Use flashcards for key terms, practice questions for deeper understanding

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