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CLEP cheat sheet

CLEP Principles of Microeconomics cheat sheet

A condensed reference for the formulas, graph-reading rules, and must-know facts most worth reviewing before exam day.

Formulas and rules to know

  • Profit maximization: produce where MR = MC. This is the most-tested rule on the exam.
  • Price elasticity of demand: percent change in quantity / percent change in price (use the midpoint formula). Greater than 1 is elastic, less than 1 is inelastic.
  • Total-revenue test: if price rises and total revenue falls, demand is elastic; if price rises and total revenue rises, demand is inelastic.
  • Utility maximization: set MU/P equal across goods (MUx / Px = MUy / Py).
  • Costs: ATC = TC / Q, AVC = VC / Q, MC = change in TC / change in Q. Profit = total revenue - total cost (economic profit also subtracts opportunity cost).
  • Factor markets: hire where marginal revenue product (MRP = marginal product x price) equals the wage.

Graphs that matter

  • Supply and demand: a shift moves the whole curve; a movement is along it. Price ceiling below equilibrium causes a shortage; price floor above causes a surplus; taxes and controls create deadweight loss.
  • Cost curves: marginal cost intersects ATC and AVC at their minimum points. AFC always falls as output rises.
  • Perfect competition: the firm is a price taker, P = MR = MC, and earns zero economic (normal) profit in the long run.
  • Monopoly: MR lies below the demand curve; the monopolist produces where MR = MC, then sets price up on the demand curve, creating deadweight loss.

The four market structures at a glance

  • Perfect competition: many firms, identical product, price taker, zero long-run economic profit.
  • Monopoly: one firm, high barriers, price maker, deadweight loss, can earn long-run profit.
  • Monopolistic competition: many firms, differentiated products, some price control, zero long-run economic profit.
  • Oligopoly: few interdependent firms; use game theory and Nash equilibrium; outcomes depend on rivals' choices.
  • Externalities: negative externalities overproduce (tax to correct), positive externalities underproduce (subsidize to correct).

Practice this first: Supply, demand, and equilibrium — Shifts versus movements, price ceilings/floors, and surplus/shortage are the base layer for everything else.

Now put it to work — practice CLEP Principles of Microeconomics free

Reviewing the sheet is step one. Passers are usually hitting about 70-80% on realistic practice before test day (CLEP costs about $93, with a 3-month retake lockout on a miss), so the fastest way to know you are ready is to start answering real questions.