WGU D089 PRINCIPLES OF ECONOMICS OBJECTIVE
ASSESSMENT – WESTERN GOVERNORS UNIVERSITY] ACTUAL
QUESTIONS AND CORRECT ANSWERS (VERIFIED ANSWERS)
PLUS RATIONALES 2026 Q&A | INSTANT DOWNLOAD PDF
CORE DOMAINS
• Foundations of Economics and Economic Thinking
• Supply, Demand, and Market Equilibrium
• Elasticity and Its Applications
• Consumer Choice and Utility Maximization
• Production, Costs, and Market Structures
• Macroeconomic Measurement: GDP, Inflation, and Unemployment
• Aggregate Demand, Aggregate Supply, and Macroeconomic Equilibrium
• Fiscal Policy and Government Intervention
• Money, Banking, and the Federal Reserve System
• Monetary Policy and Macroeconomic Stabilization
• International Trade, Comparative Advantage, and Exchange Rates
INTRODUCTION
This examination assesses the foundational knowledge of economics required for
the WGU D089 Principles of Economics course. The test covers microeconomic
principles including supply and demand, elasticity, consumer behavior, production
costs, and market structures, as well as macroeconomic concepts such as GDP
measurement, inflation, unemployment, fiscal and monetary policy, and
international trade. One hundred multiple-choice and scenario-based questions
evaluate the ability to apply economic models to real-world situations, interpret
graphical data, and predict the effects of policy changes. Questions require both
quantitative reasoning and conceptual understanding. Each question includes a
,verified correct answer and a detailed RATIONALE to reinforce key economic
theories. Mastery of these domains ensures readiness for the Objective
Assessment and provides a solid foundation for business and decision-making.
SECTION ONE: QUESTIONS 1–100
1. A local coffee shop observes that when it raises the price of a latte from $4
to $5, the quantity demanded falls from 200 lattes per day to 150. What is
the price elasticity of demand using the midpoint method?
A. 0.78
B. 1.29
C. 0.60
D. 2.50
Correct answer: B
RATIONALE : Midpoint formula: % change in quantity = (150-
200)/((150+200)/2) = -50/175 = -0.2857. % change in price = (5-4)/((5+4)/2)
= 1/4.5 = 0.2222. Elasticity = | -0..2222 | = 1.2857, approximately
1.29. Since elasticity >1, demand is elastic.
2. Which of the following best describes the concept of opportunity cost?
A. The total monetary cost of a decision
B. The value of the next best alternative forgone when making a choice
C. The cost of producing one additional unit of a good
D. The profit earned from an investment
Correct answer: B
RATIONALE : Opportunity cost is the value of the best alternative that is
sacrificed when a choice is made. It is not necessarily a monetary cost; it
includes all benefits forgone. It is a foundational concept in economics,
emphasizing that resources are scarce and choices have trade-offs.
3. In the market for gasoline, a government imposes a binding price ceiling
below the equilibrium price. What is the expected result?
A. A surplus of gasoline
B. A shortage of gasoline
C. No change in the market
D. An increase in the quantity supplied
, Correct answer: B
RATIONALE : A binding price ceiling set below equilibrium creates a
situation where the quantity demanded exceeds the quantity supplied,
resulting in a persistent shortage. Sellers supply less at the lower price,
while buyers want more. Gasoline price controls in the 1970s led to
shortages and long lines.
4. If the cross-price elasticity of demand between two goods is negative, the
goods are:
A. Substitutes
B. Complements
C. Inferior goods
D. Luxury goods
Correct answer: B
RATIONALE : Cross-price elasticity measures how the quantity
demanded of one good responds to a price change in another. A negative
value indicates complements: when the price of one rises, demand for the
other falls (e.g., printers and ink cartridges). Substitutes have a positive
cross-price elasticity. Inferior/luxury relate to income elasticity.
5. A firm is producing at a level where marginal cost (MC) is $10 and marginal
revenue (MR) is $15. To maximize profit, the firm should:
A. Decrease output
B. Increase output
C. Shut down immediately
D. Keep output constant
Correct answer: B
RATIONALE : Profit maximization rule for any firm: produce where MR
= MC. If MR > MC, the additional revenue from one more unit exceeds the
additional cost, so increasing output adds to profit. If MR < MC, the firm
should decrease output. The firm should continue expanding until MR =
MC.
6. Gross Domestic Product (GDP) measures:
A. The total wealth of a nation's citizens
B. The market value of all final goods and services produced within a
, country in a given period
C. The total income of all citizens, regardless of location
D. The value of all intermediate goods produced
Correct answer: B
RATIONALE : GDP is the total market value of all final goods and
services produced within a country's borders in a specific time period
(usually a year). It includes consumption, investment, government
spending, and net exports. It does not include intermediate goods to avoid
double counting. GNP measures income of citizens regardless of location.
7. Which type of unemployment is associated with workers being between
jobs or entering the labor force?
A. Cyclical unemployment
B. Structural unemployment
C. Frictional unemployment
D. Seasonal unemployment
Correct answer: C
RATIONALE : Frictional unemployment is short-term unemployment
that occurs when people are transitioning between jobs, searching for their
first job, or re-entering the labor force. It is a natural part of a dynamic
economy. Cyclical unemployment is due to economic downturns; structural
unemployment results from a mismatch of skills.
8. The Consumer Price Index (CPI) is used to measure:
A. The level of output in the economy
B. Changes in the cost of a fixed basket of goods and services purchased by
a typical urban household
C. The stock market performance
D. The unemployment rate
Correct answer: B
RATIONALE : CPI tracks the average change over time in the prices paid
by urban consumers for a market basket of consumer goods and services. It
is the most widely used measure of inflation. The GDP deflator measures
price changes for all domestically produced goods.
ASSESSMENT – WESTERN GOVERNORS UNIVERSITY] ACTUAL
QUESTIONS AND CORRECT ANSWERS (VERIFIED ANSWERS)
PLUS RATIONALES 2026 Q&A | INSTANT DOWNLOAD PDF
CORE DOMAINS
• Foundations of Economics and Economic Thinking
• Supply, Demand, and Market Equilibrium
• Elasticity and Its Applications
• Consumer Choice and Utility Maximization
• Production, Costs, and Market Structures
• Macroeconomic Measurement: GDP, Inflation, and Unemployment
• Aggregate Demand, Aggregate Supply, and Macroeconomic Equilibrium
• Fiscal Policy and Government Intervention
• Money, Banking, and the Federal Reserve System
• Monetary Policy and Macroeconomic Stabilization
• International Trade, Comparative Advantage, and Exchange Rates
INTRODUCTION
This examination assesses the foundational knowledge of economics required for
the WGU D089 Principles of Economics course. The test covers microeconomic
principles including supply and demand, elasticity, consumer behavior, production
costs, and market structures, as well as macroeconomic concepts such as GDP
measurement, inflation, unemployment, fiscal and monetary policy, and
international trade. One hundred multiple-choice and scenario-based questions
evaluate the ability to apply economic models to real-world situations, interpret
graphical data, and predict the effects of policy changes. Questions require both
quantitative reasoning and conceptual understanding. Each question includes a
,verified correct answer and a detailed RATIONALE to reinforce key economic
theories. Mastery of these domains ensures readiness for the Objective
Assessment and provides a solid foundation for business and decision-making.
SECTION ONE: QUESTIONS 1–100
1. A local coffee shop observes that when it raises the price of a latte from $4
to $5, the quantity demanded falls from 200 lattes per day to 150. What is
the price elasticity of demand using the midpoint method?
A. 0.78
B. 1.29
C. 0.60
D. 2.50
Correct answer: B
RATIONALE : Midpoint formula: % change in quantity = (150-
200)/((150+200)/2) = -50/175 = -0.2857. % change in price = (5-4)/((5+4)/2)
= 1/4.5 = 0.2222. Elasticity = | -0..2222 | = 1.2857, approximately
1.29. Since elasticity >1, demand is elastic.
2. Which of the following best describes the concept of opportunity cost?
A. The total monetary cost of a decision
B. The value of the next best alternative forgone when making a choice
C. The cost of producing one additional unit of a good
D. The profit earned from an investment
Correct answer: B
RATIONALE : Opportunity cost is the value of the best alternative that is
sacrificed when a choice is made. It is not necessarily a monetary cost; it
includes all benefits forgone. It is a foundational concept in economics,
emphasizing that resources are scarce and choices have trade-offs.
3. In the market for gasoline, a government imposes a binding price ceiling
below the equilibrium price. What is the expected result?
A. A surplus of gasoline
B. A shortage of gasoline
C. No change in the market
D. An increase in the quantity supplied
, Correct answer: B
RATIONALE : A binding price ceiling set below equilibrium creates a
situation where the quantity demanded exceeds the quantity supplied,
resulting in a persistent shortage. Sellers supply less at the lower price,
while buyers want more. Gasoline price controls in the 1970s led to
shortages and long lines.
4. If the cross-price elasticity of demand between two goods is negative, the
goods are:
A. Substitutes
B. Complements
C. Inferior goods
D. Luxury goods
Correct answer: B
RATIONALE : Cross-price elasticity measures how the quantity
demanded of one good responds to a price change in another. A negative
value indicates complements: when the price of one rises, demand for the
other falls (e.g., printers and ink cartridges). Substitutes have a positive
cross-price elasticity. Inferior/luxury relate to income elasticity.
5. A firm is producing at a level where marginal cost (MC) is $10 and marginal
revenue (MR) is $15. To maximize profit, the firm should:
A. Decrease output
B. Increase output
C. Shut down immediately
D. Keep output constant
Correct answer: B
RATIONALE : Profit maximization rule for any firm: produce where MR
= MC. If MR > MC, the additional revenue from one more unit exceeds the
additional cost, so increasing output adds to profit. If MR < MC, the firm
should decrease output. The firm should continue expanding until MR =
MC.
6. Gross Domestic Product (GDP) measures:
A. The total wealth of a nation's citizens
B. The market value of all final goods and services produced within a
, country in a given period
C. The total income of all citizens, regardless of location
D. The value of all intermediate goods produced
Correct answer: B
RATIONALE : GDP is the total market value of all final goods and
services produced within a country's borders in a specific time period
(usually a year). It includes consumption, investment, government
spending, and net exports. It does not include intermediate goods to avoid
double counting. GNP measures income of citizens regardless of location.
7. Which type of unemployment is associated with workers being between
jobs or entering the labor force?
A. Cyclical unemployment
B. Structural unemployment
C. Frictional unemployment
D. Seasonal unemployment
Correct answer: C
RATIONALE : Frictional unemployment is short-term unemployment
that occurs when people are transitioning between jobs, searching for their
first job, or re-entering the labor force. It is a natural part of a dynamic
economy. Cyclical unemployment is due to economic downturns; structural
unemployment results from a mismatch of skills.
8. The Consumer Price Index (CPI) is used to measure:
A. The level of output in the economy
B. Changes in the cost of a fixed basket of goods and services purchased by
a typical urban household
C. The stock market performance
D. The unemployment rate
Correct answer: B
RATIONALE : CPI tracks the average change over time in the prices paid
by urban consumers for a market basket of consumer goods and services. It
is the most widely used measure of inflation. The GDP deflator measures
price changes for all domestically produced goods.
