Question 1: A market structure dominated by a few large firms that are interdependent in their pricing decisions is called an _____.
Topic: Market Structures
- cartel
- duopoly
- competition
- oligopoly (Correct Answer)
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How do markets work? Why do prices change? Microeconomics zooms in on individual decisions and market interactions. It's economics at the human scale; and it explains so much about daily life.
Understand how markets really work
Written by the Flying Prep Team
Reviewed by Alex Stone, who earned 99 credits via CLEP & DSST
This exam is perfect for anyone curious about how markets and businesses work. If you've wondered about pricing strategies, consumer choices, or business decisions, you're ready. Basic math skills help, but advanced math isn't required.
Content breakdown:
Expect many graph-based questions testing supply/demand shifts and cost curve analysis.
A score of 50 earns credit at most institutions
Scores of 60+ demonstrate excellent microeconomic understanding
CLEP scores are valid for 20 years
Microeconomics starts with big ideas applied to small decisions. You'll master scarcity, trade-offs, and marginal analysis - the economist's way of thinking. The production possibilities curve shows society's constraints, while supply and demand explain how markets coordinate millions of individual decisions. These aren't just abstract concepts; they're tools for understanding every economic choice you make.
The supply and demand model is the workhorse of microeconomics! This section goes deep on how markets work - equilibrium, surpluses, shortages, and the magic of price adjustments. You'll analyze consumer and producer surplus, understand elasticity (how responsive buyers and sellers are to price changes), and see why prices move as they do. It's the model that explains more economic phenomena than any other.
Why do you buy what you buy? This section reveals the economics behind consumer decisions. You'll explore utility (satisfaction), budget constraints, and how rational consumers maximize happiness given limited income. The theory explains demand curves and predicts how consumption changes with prices and income. It's your own shopping behavior through an economist's eyes.
How do firms turn inputs into outputs, and what determines their costs? This section covers production functions, diminishing returns, and the various cost curves (fixed, variable, marginal, average). You'll understand economies of scale and why costs shape business decisions. Whether you're running a lemonade stand or a Fortune 500 company, these principles apply.
Not all markets are created equal! This section compares perfect competition, monopoly, monopolistic competition, and oligopoly. You'll see how market structure affects pricing, profits, and efficiency. Why do some industries have many small firms while others are dominated by giants? How do monopolies harm consumers? The answers reveal how market power shapes economic outcomes.
Labor, land, and capital - the factors of production have their own markets! This section explains what determines wages, rent, and interest. You'll understand derived demand (firms hire workers because customers want products), marginal revenue product, and why some workers earn more than others. It's the economics of your paycheck.
Markets are powerful but imperfect. This section covers externalities (when transactions affect bystanders), public goods (that markets undersupply), and other market failures. You'll explore government interventions - taxes, subsidies, regulations - and evaluate when they help and when they make things worse. It's where economics meets policy debates about the proper role of government.
Preparing your assessment...
Week 1: Economic Foundations Start with basic concepts: scarcity, opportunity cost, marginal analysis (thinking at the margin). Understand the production possibilities frontier.
Week 2: Supply & Demand Mastery This is crucial! Learn what shifts supply and demand curves, how to find equilibrium, and what happens when markets aren't at equilibrium. Practice, practice, practice.
Week 3: Elasticity How sensitive are buyers and sellers to price changes? Learn price elasticity of demand and supply. Understand determinants of elasticity and how to calculate it.
Week 4: Consumer Theory & Production How do consumers maximize utility? How do firms produce goods? Study budget constraints, indifference curves (at basic level), and production functions.
Week 5: Costs Master short-run and long-run cost curves: total, average, marginal. Know the relationships between curves. This is heavily tested in market structure analysis.
Week 6: Market Structures Study perfect competition, monopoly, monopolistic competition, and oligopoly. For each: how does the firm choose output? What's the long-run outcome? How efficient is it?
Week 7: Factor Markets & Market Failure Labor, capital, and land markets; how are they similar to product markets? How different? Then externalities, public goods, and government policy responses.
Week 8: Integration & Practice Full practice exams. Connect concepts; a policy change affects supply or demand, which affects prices and quantities, which affects firm behavior...
Pro Tips:
1 month
For those with some economics background.
~12 hours/week
2 months
Recommended for most students.
~7 hours/week
3 months
Steady progress for busy schedules.
~4 hours/week
Two valid IDs, one government-issued with photo and signature. On-screen calculator provided if needed.
Retakes available after 3 months. Use your score report to identify weak areas.
The exam requires solid analytical skills and comfort with graph interpretation. Market Structures and Supply and Demand analysis form the core challenge - you'll need to quickly identify market types and predict firm behavior. The mathematical content is moderate, involving elasticity calculations and profit maximization, but not advanced calculus. Students often struggle with Consumer Choice Theory's indifference curves and the nuanced differences between market structures. Success depends more on understanding economic logic and relationships than memorizing formulas. With focused preparation on the heavily-weighted topics, most test-takers find it manageable. The one-minute-per-question pace requires efficient problem-solving rather than deep contemplation.
ACE recommends 50 as the minimum passing score, but your college sets the actual requirement. Most institutions accept 50-53 for full credit, though competitive programs may require 55 or higher. Check with your academic advisor or registrar for specific requirements. The scaled score ranges from 20-80, with 50 representing roughly 60-65% of questions answered correctly. Since there's no penalty for wrong answers, attempt every question to maximize your raw score. Your score report shows pass/fail immediately after testing, with the numerical score appearing only on official transcripts sent to colleges. Focus your preparation on reaching the 50-point threshold rather than pursuing a perfect score.
Study duration depends on your economics background and target score. Business professionals with market analysis experience typically need 40-60 hours focusing on formal economic theory and graph interpretation skills they use intuitively. Those with some college-level economics or quantitative coursework should plan 65-85 hours to master all topic areas thoroughly. Complete beginners need 100-130 hours to build foundational understanding of economic principles and develop graph analysis proficiency. Concentrate 40% of study time on Market Structures and Supply and Demand since they comprise 43% of exam questions. Consistent daily practice over 6-12 weeks produces better retention than intensive cramming. Include practice tests in your final two weeks to build timing skills and identify remaining knowledge gaps.
Start with Market Structures and Supply and Demand since they represent 43% of questions. Use economics textbooks with strong graph presentations rather than just reading materials - visual learning is crucial for this exam. Practice drawing supply and demand curves, cost function graphs, and market equilibrium diagrams until you can sketch them quickly. Work through numerical problems calculating elasticity, marginal cost, and profit maximization rather than just reading examples. Take multiple practice tests to develop timing skills and identify weak areas. Focus on understanding the logic behind economic relationships rather than memorizing isolated facts. Create comparison charts for different market structures showing their key characteristics, pricing behavior, and efficiency outcomes. Spend extra time on topics that integrate multiple concepts, like how government intervention affects market outcomes.
No calculus is required. The mathematical content involves basic algebra, percentages, and graph interpretation. You'll calculate price elasticity using the midpoint method, determine profit-maximizing output levels, and analyze consumer surplus changes. The most complex calculations involve optimization problems using marginal analysis - finding where marginal revenue equals marginal cost or where marginal utility per dollar is equal across goods. Graph reading skills are more important than computational ability. You'll interpret slope changes, identify equilibrium points, and analyze shifts in supply and demand curves. While some questions involve numerical problem-solving, the emphasis is on understanding economic relationships and applying logical reasoning. A basic calculator may be provided for computational questions, though most problems are designed for mental math or simple calculations.
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