The Principles of Microeconomics exam covers material that is usually taught in a one-semester undergraduate course in introductory microeconomics. Students will have to understand the economic principles that apply to the behaviors of consumers and businesses. The exam will propose hypothetical as well as real-world situations to test understanding and evaluation of economic decisions. Basic understanding about free markets, how they work and use resources is required. The subject matter is broad based but can be distilled to the study of behaviors of individuals and firms making decisions about the utilization of resources and the interactions between those individuals and firms.
The exam contains approximately 80 questions to be answered in 90 minutes. Some of these are pretest questions that will not be scored. The College Board sets the parameters of the exam which are listed below.
WHAT YOU NEED TO KNOW ABOUT MICROECONOMICS:
- Understanding of important economic terms and concepts
- Interpretation and manipulation of economic graphs
- Interpretation and evaluation of economic data
- Application of simple economic models
The subject matter of the Principles of Microeconomics exam is drawn from the following topics.
BASIC ECONOMIC CONCEPTS: 8-14% of the exam
- Scarcity, choice, and opportunity cost
- Production possibilities curve
- Comparative advantage, specialization, and trade
- Economic systems
- Property rights and the role of incentives
- Marginal analysis
THE NATURE and FUNCTION OF PRODUCT MARKETS: 55-70% of the exam
- Supply and Demand: 15-20%
- Market equilibrium
- Determinants of supply and demand
- Price and quantity of controls
- Elasticity
- Price, income, and cross-price elasticities of demand
- Price elasticity of supply
- Consumer surplus, producer surplus, and market efficiency
- Tax incidence and deadweight loss
- Theory of consumer choice: 5-10%
- Total utility and marginal utility
- Utility maximization: equalizing marginal utility per dollar
- Individual and market demand curves
- Income and substitution effects
- Production and Costs: 10-15%
- Production functions: short and long run
- Marginal product and diminishing returns
- Short-run costs
- Long-run costs and economies of scale
- Cost minimizing input combination
- Firm behavior and market structure: 23-33%
- Profit
- Accounting versus economic profits
- Normal profit
- Profit maximization: MR=MC rule
- Perfect competition
- Profit maximization
- Short-run supply and shut-down decision
- Firm and market behaviors in short-run and long-run equilibria
- Efficiency and perfect competition
- Monopoly
- Sources of market power
- Profit maximization
- Inefficiency of monopoly
- Price discrimination
- Oligopoly
- Interdependence, collusion, and cartels
- Game theory and strategic behavior
- Monopolistic competition
- Product differentiation and role advertising
- Profit maximation
- Short-run and long-run equilibrium
- Excess capacity and inefficiency
FACTOR MARKETS: 8-14% of the exam
- Derived factor demand
- Marginal revenue product
- Labor market and firms’ hiring of labor
- Market distribution of income
MARKET FAILURE and the ROLE OF GOVERNMENT 10-16% of the exam
- Externalities
- Marginal social benefit and marginal social cost
- Positive externalities
- Negative externalities
- Remedies
- Public goods
- Public versus private goods
- Provision of public goods
- Public policy to promote competition
- Antitrust policy
- Regulation
- Income distribution
- Equity
- Sources of income inequality
Each college sets their own credit-granting policies for the exam, so check with your college admissions office, test center, or academic adviser before taking the test.
