10 free sample questions with answers and explanations. See how you'd score on the real CLEP exam.
If a country's Gini coefficient increases from 0.4 to 0.6, what can be inferred about its income distribution?
Income inequality has decreased
Income inequality has remained the same
Income inequality has increased
The country has achieved perfect income equality
The country has no income distribution
Explanation
Increased income inequality is correct because a higher Gini coefficient indicates a greater disparity in income distribution among the population.
What is the Gini coefficient for a country with a perfectly equal income distribution?
0.2
0.5
0
0.8
1
Explanation
0 is correct because a Gini coefficient of 0 represents a situation where all individuals have the same income, indicating perfect income equality.
A country has a Lorenz curve that is close to the line of perfect equality. What can be inferred about this country's income distribution?
It has a high level of income inequality
It has a moderate level of income inequality
It has a low level of income inequality
It has no income distribution
It has an unknown level of income inequality
Explanation
A low level of income inequality is correct because a Lorenz curve close to the line of perfect equality indicates that income is distributed relatively evenly among the population.
What does a Gini coefficient of 0 represent?
Perfect income inequality
Moderate income inequality
Perfect income equality
No income distribution
Extreme poverty
Explanation
0 is correct because a Gini coefficient of 0 represents a situation where all individuals have the same income, indicating perfect income equality.
Which government agency is responsible for enforcing antitrust laws in the United States?
Federal Trade Commission (FTC)
Department of Justice (DOJ)
Securities and Exchange Commission (SEC)
Federal Reserve
Both A and B
Explanation
Both the Federal Trade Commission (FTC) and the Department of Justice (DOJ) is correct because both agencies play a role in enforcing antitrust laws, with the FTC focusing on civil enforcement and the DOJ handling criminal enforcement, thereby ensuring that antitrust laws are enforced comprehensively.
What is the purpose of the Sherman Antitrust Act of 1890?
To regulate international trade
To promote mergers and acquisitions
To prevent monopolies and promote competition
To control prices
To protect small businesses
Explanation
Preventing monopolies and promoting competition is correct because the Sherman Antitrust Act was enacted to prevent the formation of monopolies and to promote competition, thereby protecting consumers and ensuring that markets remain competitive, since monopolies can lead to higher prices and reduced innovation.
What is the main goal of antitrust policy?
To promote mergers and acquisitions
To protect small businesses
To promote competition and prevent monopolies
To regulate international trade
To control prices
Explanation
Promoting competition and preventing monopolies is correct because antitrust policy aims to ensure that markets remain competitive, which benefits consumers by providing them with more choices and lower prices, since competition leads to innovation and efficiency.
Which of the following is an example of a free-rider problem?
A person paying for a public park
A person consuming a common resource
A person buying a private good
A person using a public park without paying for it
A person producing a public good
Explanation
Using a public park without paying for it is correct because it illustrates a situation where an individual benefits from a public good without contributing to its cost, thereby becoming a free-rider, since the non-excludable nature of the public park makes it difficult to prevent non-payers from using it.
A public good is characterized by which of the following?
Rivalry and excludability
Non-rivalry and excludability
Rivalry and non-excludability
Non-rivalry and non-excludability
Decreasing marginal utility
Explanation
Non-rivalry and non-excludability are correct because public goods can be consumed by multiple people simultaneously without diminishing the consumption of others, and it is difficult or impossible to exclude non-payers from consumption, by applying the definition of public goods.
What occurs when a person benefits from a public good without paying for it?
Externality
Market failure
Free-rider problem
Opportunity cost
Scarcity
Explanation
The free-rider problem is correct because it describes a situation where an individual benefits from a public good or service without contributing to its cost, by applying the concept of non-excludability.