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Unit 4 of 5

Unit 4: Factor Markets

Study guide for CLEP CLEP Principles of Microeconomics — Unit 4: Factor Markets. Practice questions, key concepts, and exam tips.

53

Practice Questions

18

Flashcards

4

Key Topics

Key Concepts to Study

marginal revenue product
labor demand and supply
wage determination
monopsony

Sample Practice Questions

Try these 5 questions from this unit. Sign up for full access to all 53.

Q1MEDIUM

As the price of a complementary resource increases, what happens to the demand for labor?

A.

Demand for labor increases

B.

Supply of labor decreases

C.

Demand for labor remains constant

D.

Supply of labor increases

E.

Demand for labor decreases

Show Answer

Answer: E — Demand for labor decreases is correct because a higher price for a complementary resource decreases the marginal product of labor, shifting the demand for labor to the left.

Q2HARD

What is a key assumption of the marginal productivity theory of income distribution?

A.

Firms are price-takers

B.

Firms are price-makers

C.

Workers are paid a fixed wage

D.

Capital is the only factor of production

E.

Land is the most important factor of production

Show Answer

Answer: A — Firms are price-takers is correct because firms must be price-takers for marginal productivity theory to hold, as they cannot influence market prices.

Q3MEDIUM

Which factor market characteristic leads to a downward-sloping labor demand curve?

A.

Diminishing marginal product of labor

B.

Increasing returns to scale

C.

Perfectly elastic labor supply

D.

Decreasing marginal cost of production

E.

Constant returns to scale

Show Answer

Answer: A — Diminishing marginal product of labor is correct because diminishing marginal product reduces demand for labor.

Q4EASY

As the price of a factor increases, what happens to the quantity of the factor demanded?

A.

Increases

B.

Becomes infinite

C.

Remains the same

D.

Becomes zero

E.

Decreases

Show Answer

Answer: E — Decreases is correct because higher factor prices lead firms to demand less of that factor, due to the law of demand.

Q5MEDIUM

A monopsony

A.

Pays the highest wage to attract the best workers

B.

Has no market power to influence the wage

C.

Is a single buyer of labor in the market

D.

Maximizes profits by minimizing labor costs

E.

Is a perfect competitor in the labor market

Show Answer

Answer: C — Is a single buyer of labor in the market is correct because a monopsony is the sole buyer of labor.

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Study Tips for Unit 4: Factor Markets

  • 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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