Principles of Microeconomics

The Principles of Microeconomics examination is conducted to test the concepts taught in a one-semester undergraduate course in microeconomics. Microeconomics involves analyzing the behavioral aspect of individual consumers and businesses in an economy. The Principles of Microeconomics examination involves testing the candidate’s ability to apply analytical techniques in real-world or hypothetical situations for analyzing and evaluating economic decisions. To pass the Principles of Microeconomics examination, candidates need to have a thorough knowledge of major economic terms, interpretation and evaluation of economic data and graphs, and application of various economic models.
The examination on Principles of Microeconomics tests the candidate’s ability to demonstrate an understanding of the working of free markets. They need to be able to understand the way an individual makes decisions to maximize utility and the manner in which organizations make decisions to maximize profits. They need to demonstrate a thorough understanding of the different market structures and the behavior of organizations while making price and output decisions. They need to understand how free markets allocate resources to maximize efficiency, and the manner in which governments intervene while fixing or failing to fix resource allocation problems. The candidates appearing for the Principles of Microeconomics examination should know how input prices and wages are determined in free markets. They must also be able to analyze and interpret the distribution of income.

Principles of Microeconomics: Examination Pattern

The examination comprises 80 questions that need to be answered in 90 minutes. There are some pretest questions that are not scored.
The major concepts tested in the Principles of Microeconomics examination and a percentage-wise breakup of questions for each topic is given below:

Basic Economic Concepts: 8-14%

• Production Possibilities curve
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• Comparative advantage, specialization and trade
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• Property rights and the role of incentives
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• Economics systems
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• Scarcity, choice, and opportunity cost
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• Marginal analysis

Nature and Functions of Product Markets: 55–70%

Supply and Demand: 15–20%

• Market equilibrium
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• Elasticity
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• Price elasticity of supply
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• Income, price, and cross-price elasticities of demand
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• Determinants of demand and supply
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• Deadweight loss and tax incidence
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• Quantity and price controls
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• Producer surplus, consumer surplus, and market efficiency

Production and Costs: 10–15%

• Cost minimizing input combination
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• Short and long run production functions
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• Short-run costs
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• Marginal product and diminishing returns
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• Long-run costs and economies of scale

Theory of Consumer Choice: 5–10%

• Utility maximization: equalizing marginal utility per dollar
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• Market and individual demand curves
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• Income and substitution effects
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• Total utility and marginal utility

Firm Behavior and Market Structure: 25–35%

• Profit including accounting versus economic profits, normal profit, and profit maximization: MR=MC rule
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• Perfect competition including profit maximization, short-run supply and shut-down decision, firm and market behaviors in short-run and long-run equilibrium, and efficiency and perfect competition
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• Monopoly including sources of market power, profit maximization, inefficiency of monopoly, and price discrimination
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• Oligopoly including interdependence, collusion and cartels, and game theory and strategic behavior
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• Monopolistic competition including product differentiation and role of advertising, profit maximization, short-run and long-run equilibria, and excess capacity and inefficiency

Market Failure and the Role of the Government: 12-18%

• Externalities
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• Remedies
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• Negative externalities
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• Positive externalities
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• Marginal social benefit and marginal social cost

Public Policy to Promote Competition

• Regulation
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• Antitrust policy

Public Goods

• Provision of public goods
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• Public versus private goods

Income Distribution

• Sources of income inequality
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• Equity

Factor Markets: 10–18%

• Market distribution of income
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• Derived factor demand
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• Labor market and firms’ hiring of labor
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• Marginal revenue product

Principles of Microeconomics Examination: Scores

Once the examination is complete, an unofficial report is made available to the examinees. This score report depicts the examinee’s score on a scale of 20 to 80. As per the American Council of Examination, students get credit for the examination on getting a score of 50 or above. While scoring, there is no differentiation between unanswered questions and those answered incorrectly. Therefore, it is advisable to answer all the questions. A section of the questions are pretest questions and do not contribute to the overall score of the examinee. These questions are included in the examination for the purpose of developing future versions of the examination.