WGU - D089 Principles of Economics 300+ (Fully Updated 2026/2027)
Exam Questions + Verified & Rationalized Answers A+ Graded
1. What is the fundamental economic problem?
A) Inflation
B) Scarcity
C) Unemployment
D) Recession
Answer: B
Rationale:
Scarcity is the fundamental economic problem because human wants are unlimited, but resources are
limited. This forces individuals and societies to make choices about how to allocate resources. Inflation,
unemployment, and recession are economic issues that arise from scarcity, but they are not the fundamental
problem itself.
2. What is opportunity cost?
A) The monetary cost of a good
B) The value of the next best alternative forgone
C) The total cost of production
D) The cost of producing one more unit
Answer: B
Rationale:
Opportunity cost is the value of the next best alternative that must be given up when making a choice. It
reflects the trade-off involved in any decision. The monetary cost is the explicit price, total cost is sum of all
costs, and marginal cost is the cost of one additional unit.
3. Which of the following best describes marginal analysis?
A) Comparing total benefits and total costs
B) Examining the additional benefits and additional costs of a decision
C) Analyzing average costs
D) Measuring sunk costs
Answer: B
,Rationale:
Marginal analysis involves evaluating the additional (marginal) benefits and additional (marginal) costs of a
choice. Rational decision-makers compare marginal benefit to marginal cost. Total benefit/cost comparison
is for overall decisions, average costs are per-unit, and sunk costs are past costs that should be ignored.
4. In a market economy, what primarily determines what goods and services are produced?
A) Government planning
B) Consumer preferences and prices
C) Tradition
D) Central bank decisions
Answer: B
Rationale:
In a market economy, resources are allocated through the price mechanism. Consumer preferences drive
demand, and prices signal producers what to produce. Government planning is characteristic of a command
economy, tradition of a traditional economy, and central bank decisions affect monetary policy, not
production decisions directly.
5. What is the law of demand?
A) As price increases, quantity demanded increases
B) As price increases, quantity demanded decreases
C) As income increases, demand increases
D) As price increases, supply increases
Answer: B
Rationale:
The law of demand states that, all else equal, there is an inverse relationship between price and quantity
demanded. When price rises, quantity demanded falls, and vice versa. This is due to the substitution and
income effects. The other options describe the law of supply or income effects.
6. Which of the following would cause a shift in the demand curve for coffee?
A) A change in the price of coffee
B) A change in the price of tea
C) A change in the quantity supplied of coffee
D) A change in the price of coffee beans
2
,Answer: B
Rationale:
A change in the price of a substitute good (tea) causes the demand curve for coffee to shift. A change in the
price of coffee itself causes a movement along the demand curve. A change in quantity supplied is a
movement along the supply curve. A change in input price shifts the supply curve.
7. What is the law of supply?
A) As price increases, quantity supplied increases
B) As price increases, quantity supplied decreases
C) As price increases, demand increases
D) As price increases, demand decreases
Answer: A
Rationale:
The law of supply states that, all else equal, there is a direct relationship between price and quantity
supplied. Higher prices provide an incentive for producers to supply more. The other options are incorrect
or refer to demand.
8. What is market equilibrium?
A) When quantity demanded exceeds quantity supplied
B) When quantity supplied exceeds quantity demanded
C) When quantity demanded equals quantity supplied
D) When price is zero
Answer: C
Rationale:
Market equilibrium occurs at the price where the quantity demanded by consumers equals the quantity
supplied by producers. At this price, there is no shortage or surplus. The other options describe
disequilibrium situations.
9. If the market price is above equilibrium, what will happen?
A) A shortage will occur
B) A surplus will occur
C) Demand will increase
D) Supply will decrease
3
, Answer: B
Rationale:
If price is above equilibrium, quantity supplied exceeds quantity demanded, creating a surplus. This puts
downward pressure on price until equilibrium is reached. A shortage occurs when price is below
equilibrium.
10. What is price elasticity of demand?
A) The responsiveness of quantity demanded to a change in price
B) The responsiveness of quantity supplied to a change in price
C) The responsiveness of demand to a change in income
D) The responsiveness of supply to a change in input prices
Answer: A
Rationale:
Price elasticity of demand measures how much quantity demanded changes in response to a change in price.
It is calculated as percentage change in quantity demanded divided by percentage change in price. The other
options refer to elasticity of supply, income elasticity, or cross-price elasticity.
11. If demand is elastic, a price increase will:
A) Increase total revenue
B) Decrease total revenue
C) Not change total revenue
D) Increase quantity demanded
Answer: B
Rationale:
When demand is elastic (elasticity > 1), a price increase leads to a proportionally larger decrease in quantity
demanded, causing total revenue to fall. When demand is inelastic, a price increase raises total revenue.
When unit elastic, total revenue remains unchanged.
12. Which of the following goods is likely to have inelastic demand?
A) Luxury cars
B) Insulin for diabetics
C) Restaurant meals
D) Vacation travel
4
Exam Questions + Verified & Rationalized Answers A+ Graded
1. What is the fundamental economic problem?
A) Inflation
B) Scarcity
C) Unemployment
D) Recession
Answer: B
Rationale:
Scarcity is the fundamental economic problem because human wants are unlimited, but resources are
limited. This forces individuals and societies to make choices about how to allocate resources. Inflation,
unemployment, and recession are economic issues that arise from scarcity, but they are not the fundamental
problem itself.
2. What is opportunity cost?
A) The monetary cost of a good
B) The value of the next best alternative forgone
C) The total cost of production
D) The cost of producing one more unit
Answer: B
Rationale:
Opportunity cost is the value of the next best alternative that must be given up when making a choice. It
reflects the trade-off involved in any decision. The monetary cost is the explicit price, total cost is sum of all
costs, and marginal cost is the cost of one additional unit.
3. Which of the following best describes marginal analysis?
A) Comparing total benefits and total costs
B) Examining the additional benefits and additional costs of a decision
C) Analyzing average costs
D) Measuring sunk costs
Answer: B
,Rationale:
Marginal analysis involves evaluating the additional (marginal) benefits and additional (marginal) costs of a
choice. Rational decision-makers compare marginal benefit to marginal cost. Total benefit/cost comparison
is for overall decisions, average costs are per-unit, and sunk costs are past costs that should be ignored.
4. In a market economy, what primarily determines what goods and services are produced?
A) Government planning
B) Consumer preferences and prices
C) Tradition
D) Central bank decisions
Answer: B
Rationale:
In a market economy, resources are allocated through the price mechanism. Consumer preferences drive
demand, and prices signal producers what to produce. Government planning is characteristic of a command
economy, tradition of a traditional economy, and central bank decisions affect monetary policy, not
production decisions directly.
5. What is the law of demand?
A) As price increases, quantity demanded increases
B) As price increases, quantity demanded decreases
C) As income increases, demand increases
D) As price increases, supply increases
Answer: B
Rationale:
The law of demand states that, all else equal, there is an inverse relationship between price and quantity
demanded. When price rises, quantity demanded falls, and vice versa. This is due to the substitution and
income effects. The other options describe the law of supply or income effects.
6. Which of the following would cause a shift in the demand curve for coffee?
A) A change in the price of coffee
B) A change in the price of tea
C) A change in the quantity supplied of coffee
D) A change in the price of coffee beans
2
,Answer: B
Rationale:
A change in the price of a substitute good (tea) causes the demand curve for coffee to shift. A change in the
price of coffee itself causes a movement along the demand curve. A change in quantity supplied is a
movement along the supply curve. A change in input price shifts the supply curve.
7. What is the law of supply?
A) As price increases, quantity supplied increases
B) As price increases, quantity supplied decreases
C) As price increases, demand increases
D) As price increases, demand decreases
Answer: A
Rationale:
The law of supply states that, all else equal, there is a direct relationship between price and quantity
supplied. Higher prices provide an incentive for producers to supply more. The other options are incorrect
or refer to demand.
8. What is market equilibrium?
A) When quantity demanded exceeds quantity supplied
B) When quantity supplied exceeds quantity demanded
C) When quantity demanded equals quantity supplied
D) When price is zero
Answer: C
Rationale:
Market equilibrium occurs at the price where the quantity demanded by consumers equals the quantity
supplied by producers. At this price, there is no shortage or surplus. The other options describe
disequilibrium situations.
9. If the market price is above equilibrium, what will happen?
A) A shortage will occur
B) A surplus will occur
C) Demand will increase
D) Supply will decrease
3
, Answer: B
Rationale:
If price is above equilibrium, quantity supplied exceeds quantity demanded, creating a surplus. This puts
downward pressure on price until equilibrium is reached. A shortage occurs when price is below
equilibrium.
10. What is price elasticity of demand?
A) The responsiveness of quantity demanded to a change in price
B) The responsiveness of quantity supplied to a change in price
C) The responsiveness of demand to a change in income
D) The responsiveness of supply to a change in input prices
Answer: A
Rationale:
Price elasticity of demand measures how much quantity demanded changes in response to a change in price.
It is calculated as percentage change in quantity demanded divided by percentage change in price. The other
options refer to elasticity of supply, income elasticity, or cross-price elasticity.
11. If demand is elastic, a price increase will:
A) Increase total revenue
B) Decrease total revenue
C) Not change total revenue
D) Increase quantity demanded
Answer: B
Rationale:
When demand is elastic (elasticity > 1), a price increase leads to a proportionally larger decrease in quantity
demanded, causing total revenue to fall. When demand is inelastic, a price increase raises total revenue.
When unit elastic, total revenue remains unchanged.
12. Which of the following goods is likely to have inelastic demand?
A) Luxury cars
B) Insulin for diabetics
C) Restaurant meals
D) Vacation travel
4
