Changes

:(E) Government does not adjust this number due to changes in the cost of living (inflation).

:(E) Government does not adjust this number due to changes in the cost of living (inflation).

Virtually none of you would know the answer to this question at first glance.  The question is not really appropriate for a microeconomics exam, but CLEP asks it anyway.  Questions about poverty, gaps between the rich and poor, and government programs are always favorites among liberal educators.  You will see many more questions about these issues than about the invisible hand or the creation of wealth.

Virtually none of you would know the answer to this question at first glance.  This question is not really appropriate for a "micro"-economics exam ("micro"-economics concerns individual buying and selling decisions), but CLEP asks it anyway.  Questions about poverty, gaps between the rich and poor, and government programs are always favorites among liberal educators.  You will see many more questions about these issues than about the invisible hand or the creation of wealth.

So what do we do when faced with this question?  Simply give up?  Move to the next question and hope it is easier?  Blindly guess at an answer?  None of the above.   

So what do we do when faced with this question?  Simply give up?  Move to the next question and hope it is easier?  Blindly guess at an answer?  None of the above.   

:(E) increase labor until the ratio of the price of the output to labor's marginal product equals the wage rate

:(E) increase labor until the ratio of the price of the output to labor's marginal product equals the wage rate

This type of question benefits from being reread.  “Capital is fixed,” according to the question.  So capital cannot be increased.  Answers (A) and (C) can be eliminated that easily.  Sounds too obvious, but many students miss this.  They fail to read and understand the question.

This type of question benefits from being reread.  “Capital is fixed,” according to the question.  So capital cannot be increased.  Answers (A) and (C) can be eliminated that easily.  Many students miss the obvious sometimes on economics exams.  They fail to read and understand the question.

Only labor can be increased, which is possible under answers (B), (D) and (E).  We've improved our odds of success to a 33% chance.  Those are good odds on a difficult question like this.  But we can improve our chances even more.

Only labor can be increased, which is possible under answers (B), (D) and (E).  We've improved our odds of success to a 33% chance.  Those are good odds on a difficult question like this.  But we can improve our chances even more.

Back to (B) and (D).  The only difference between the two is the term “value of” in (B).  Think about what “marginal product” is.  It is a quantity, not a dollar amount.  Yet we are comparing it to “wage rate,” which would be in dollars.  We need to insert “value of” to convert a quantity into equivalent dollars.  (B) is must be the correct choice because it compares dollars to dollars, while choice (D) does not.

Back to (B) and (D).  The only difference between the two is the term “value of” in (B).  Think about what “marginal product” is.  It is a quantity, not a dollar amount.  Yet we are comparing it to “wage rate,” which would be in dollars.  We need to insert “value of” to convert a quantity into equivalent dollars.  (B) is must be the correct choice because it compares dollars to dollars, while choice (D) does not.

The key to good test-taking, particularly on economics exams, is to make sure you fully understand each question before trying to answer it.

The key to good test-taking, particularly on economics exams, '''''is to make sure you fully understand each question before trying to answer it'''''.

=== CLEP Exam Bias Concerning Regulation and Efficiency===

=== CLEP Exam Bias Concerning Regulation and Efficiency===