WGU D089 Principles of Economics – Objective Assessment
Study Guide Comprehensive Question Bank with Verified
Answers & Rationales
SECTION 1: FUNDAMENTAL ECONOMIC CONCEPTS (1–18)
1. The basic economic problem that all societies face is:
A. How to eliminate inflation
B. How to allocate scarce resources to satisfy unlimited wants
C. How to achieve full employment
D. How to maximize government revenue
Answer: B
RATIONALE : Scarcity—the condition where unlimited human wants exceed
limited resources—is the fundamental economic problem. Every society must
decide what to produce, how to produce, and for whom to produce. This is the
core of economics.
2. The opportunity cost of going to college includes:
A. Tuition and fees only
B. The value of goods and services you could have purchased with the money
spent on college
C. The wages you could have earned by working instead of attending college
D. Both B and C
Answer: D
RATIONALE : Opportunity cost is the value of the next best alternative forgone. It
includes both explicit costs (tuition, fees) and implicit costs (foregone wages). The
full opportunity cost includes everything given up to attend college.
3. Which of the following is a positive economic statement?
A. The government should increase the minimum wage
B. Inflation is too high
,C. An increase in the minimum wage will reduce employment among teenagers
D. Taxes should be lowered to stimulate economic growth
Answer: C
RATIONALE : A positive statement is objective and testable (what "is"). A
normative statement is subjective and value-based (what "ought to be"). Option C
is a cause-and-effect claim that can be tested with data. Options A, B, and D
express opinions about what should be done.
4. A production possibilities frontier (PPF) that is bowed outward from the
origin illustrates:
A. Constant opportunity costs
B. Increasing opportunity costs
C. Decreasing opportunity costs
D. Zero opportunity costs
Answer: B
RATIONALE : A bowed-out (concave) PPF indicates that opportunity costs increase
as more of one good is produced. This occurs because resources are not equally
efficient in producing all goods. A straight-line PPF indicates constant opportunity
costs.
5. An economy operating inside its production possibilities frontier is:
A. Achieving full employment
B. Producing efficiently
C. Producing inefficiently or underutilizing resources
D. Experiencing economic growth
Answer: C
RATIONALE : A point inside the PPF indicates that the economy is not using all
available resources or not using them efficiently (e.g., unemployment, idle
factories). Points on the PPF are efficient. Points outside are unattainable with
current resources.
,6. Economic growth is represented on a production possibilities frontier by:
A. A movement from a point inside the curve to a point on the curve
B. A movement along the curve
C. An outward shift of the entire curve
D. A movement from one point on the curve to another point on the curve
Answer: C
RATIONALE : Economic growth (an increase in the capacity to produce) is shown
by an outward shift of the PPF. This can result from increases in resources (labor,
capital) or technological progress. Movements along the curve or from inside to
on the curve do not represent growth.
7. In a market economy, the three fundamental economic questions are
primarily answered by:
A. Government planning committees
B. Tradition and custom
C. The interaction of buyers and sellers in markets
D. A combination of government and tradition
Answer: C
RATIONALE : In a market (capitalist) economy, the decisions of what, how, and for
whom to produce are made through decentralized interactions of households and
firms in product and factor markets, guided by prices. Command economies use
central planning. Traditional economies rely on custom.
8. The circular flow model shows that households:
A. Supply goods and services in the product market
B. Demand resources in the factor market
C. Supply resources in the factor market and demand goods and services in the
product market
D. Supply both goods and resources
Answer: C
RATIONALE : In the circular flow model, households own the factors of production
(labor, land, capital) and supply them to firms in the factor market. In return, they
, receive income, which they use to demand goods and services in the product
market. Firms supply goods and demand resources.
9. The law of increasing opportunity costs explains why the PPF is:
A. A straight line
B. Bowed outward (concave to the origin)
C. Bowed inward (convex to the origin)
D. A horizontal line
Answer: B
RATIONALE : The law of increasing opportunity costs states that as production of
a good increases, the opportunity cost of producing an additional unit rises. This
occurs because resources are not perfectly adaptable to all uses. The result is a
PPF that is concave to the origin.
10. "Ceteris paribus" is a Latin phrase meaning:
A. "Let the buyer beware"
B. "After this, therefore because of this"
C. "All other things being equal" or "holding other factors constant"
D. "The unseen hand"
Answer: C
RATIONALE : Ceteris paribus is a key assumption in economic modeling. It allows
economists to isolate the effect of one variable by holding all other relevant
factors constant. Without this assumption, it would be difficult to establish causal
relationships.
11. A point on a nation's production possibilities frontier represents:
A. An unattainable combination of goods
B. Inefficient use of resources
C. Full employment and productive efficiency
D. A recessionary gap
Study Guide Comprehensive Question Bank with Verified
Answers & Rationales
SECTION 1: FUNDAMENTAL ECONOMIC CONCEPTS (1–18)
1. The basic economic problem that all societies face is:
A. How to eliminate inflation
B. How to allocate scarce resources to satisfy unlimited wants
C. How to achieve full employment
D. How to maximize government revenue
Answer: B
RATIONALE : Scarcity—the condition where unlimited human wants exceed
limited resources—is the fundamental economic problem. Every society must
decide what to produce, how to produce, and for whom to produce. This is the
core of economics.
2. The opportunity cost of going to college includes:
A. Tuition and fees only
B. The value of goods and services you could have purchased with the money
spent on college
C. The wages you could have earned by working instead of attending college
D. Both B and C
Answer: D
RATIONALE : Opportunity cost is the value of the next best alternative forgone. It
includes both explicit costs (tuition, fees) and implicit costs (foregone wages). The
full opportunity cost includes everything given up to attend college.
3. Which of the following is a positive economic statement?
A. The government should increase the minimum wage
B. Inflation is too high
,C. An increase in the minimum wage will reduce employment among teenagers
D. Taxes should be lowered to stimulate economic growth
Answer: C
RATIONALE : A positive statement is objective and testable (what "is"). A
normative statement is subjective and value-based (what "ought to be"). Option C
is a cause-and-effect claim that can be tested with data. Options A, B, and D
express opinions about what should be done.
4. A production possibilities frontier (PPF) that is bowed outward from the
origin illustrates:
A. Constant opportunity costs
B. Increasing opportunity costs
C. Decreasing opportunity costs
D. Zero opportunity costs
Answer: B
RATIONALE : A bowed-out (concave) PPF indicates that opportunity costs increase
as more of one good is produced. This occurs because resources are not equally
efficient in producing all goods. A straight-line PPF indicates constant opportunity
costs.
5. An economy operating inside its production possibilities frontier is:
A. Achieving full employment
B. Producing efficiently
C. Producing inefficiently or underutilizing resources
D. Experiencing economic growth
Answer: C
RATIONALE : A point inside the PPF indicates that the economy is not using all
available resources or not using them efficiently (e.g., unemployment, idle
factories). Points on the PPF are efficient. Points outside are unattainable with
current resources.
,6. Economic growth is represented on a production possibilities frontier by:
A. A movement from a point inside the curve to a point on the curve
B. A movement along the curve
C. An outward shift of the entire curve
D. A movement from one point on the curve to another point on the curve
Answer: C
RATIONALE : Economic growth (an increase in the capacity to produce) is shown
by an outward shift of the PPF. This can result from increases in resources (labor,
capital) or technological progress. Movements along the curve or from inside to
on the curve do not represent growth.
7. In a market economy, the three fundamental economic questions are
primarily answered by:
A. Government planning committees
B. Tradition and custom
C. The interaction of buyers and sellers in markets
D. A combination of government and tradition
Answer: C
RATIONALE : In a market (capitalist) economy, the decisions of what, how, and for
whom to produce are made through decentralized interactions of households and
firms in product and factor markets, guided by prices. Command economies use
central planning. Traditional economies rely on custom.
8. The circular flow model shows that households:
A. Supply goods and services in the product market
B. Demand resources in the factor market
C. Supply resources in the factor market and demand goods and services in the
product market
D. Supply both goods and resources
Answer: C
RATIONALE : In the circular flow model, households own the factors of production
(labor, land, capital) and supply them to firms in the factor market. In return, they
, receive income, which they use to demand goods and services in the product
market. Firms supply goods and demand resources.
9. The law of increasing opportunity costs explains why the PPF is:
A. A straight line
B. Bowed outward (concave to the origin)
C. Bowed inward (convex to the origin)
D. A horizontal line
Answer: B
RATIONALE : The law of increasing opportunity costs states that as production of
a good increases, the opportunity cost of producing an additional unit rises. This
occurs because resources are not perfectly adaptable to all uses. The result is a
PPF that is concave to the origin.
10. "Ceteris paribus" is a Latin phrase meaning:
A. "Let the buyer beware"
B. "After this, therefore because of this"
C. "All other things being equal" or "holding other factors constant"
D. "The unseen hand"
Answer: C
RATIONALE : Ceteris paribus is a key assumption in economic modeling. It allows
economists to isolate the effect of one variable by holding all other relevant
factors constant. Without this assumption, it would be difficult to establish causal
relationships.
11. A point on a nation's production possibilities frontier represents:
A. An unattainable combination of goods
B. Inefficient use of resources
C. Full employment and productive efficiency
D. A recessionary gap
