WGU D089 Principles of Economics OA Exam Prep |
Latest Update 2026/2027 | 200 Practice Questions &
Detailed Answers | Verified Answers with Rationales |
A+ Graded
SECTION I: THE ECONOMIC WAY OF THINKING (Questions 1–40)
1. What is the fundamental economic problem that forces societies to make choices about production
and consumption?
A) Inflation
B) Unemployment
C) Scarcity
D) Inequality
Correct Answer: C) Scarcity
Rationale: Scarcity is the core economic problem—the gap between limited resources and unlimited
human wants. Because resources are finite while desires are infinite, every society must choose what to
produce, how to produce it, and for whom to produce it. Inflation, unemployment, and inequality are
consequences of scarcity, not the basic problem itself.
2. A student chooses to study for an extra hour instead of going to a movie. The enjoyment forgone
from the movie is an example of:
A) Marginal benefit
B) Sunk cost
,C) Opportunity cost
D) Fixed cost
Correct Answer: C) Opportunity cost
Rationale: Opportunity cost is the value of the nextbest alternative given up when a decision is made.
The movie's enjoyment is the forgone alternative. Marginal benefit refers to the additional gain from
one more unit. Sunk costs are unrecoverable past expenses. Fixed costs do not vary with production
levels.
3. Which branch of economics studies the behavior of individual households and firms in allocating
scarce resources?
A) Macroeconomics
B) Positive economics
C) Normative economics
D) Microeconomics
Correct Answer: D) Microeconomics
Rationale: Microeconomics focuses on individual decisionmaking units—households and firms—and
how they interact in markets. Macroeconomics studies economywide phenomena such as inflation,
unemployment, and GDP. Positive economics describes "what is," while normative economics prescribes
"what ought to be."
4. According to the ten principles of economics, what is the first principle?
,A) People respond to incentives
B) Everyone faces tradeoffs
C) Trade can benefit everyone
D) Markets are a sound method of organizing economic activity
Correct Answer: B) Everyone faces tradeoffs
Rationale: The first principle states that because of scarcity, individuals, businesses, and governments
must constantly make choices, giving up one thing to obtain another. The other options are valid
principles but appear later in the list—incentives (4th), trade (5th), and markets (6th).
5. Which principle explains why a government might tax cigarettes to reduce smoking?
A) People respond to incentives
B) Printing too much money causes prices to rise
C) There is a shortrun tradeoff between inflation and unemployment
D) A nation's standard of living depends on its ability to produce
Correct Answer: A) People respond to incentives
Rationale: The fourth principle states that people respond to incentives. A cigarette tax raises the price,
creating a disincentive to purchase, which reduces the quantity demanded. The other principles address
inflation, the Phillips curve, and productivity.
6. Which principle states that a country's standard of living depends on its ability to produce goods and
services?
, A) Markets are a sound method of organizing economic activity
B) Governments may be able to improve market outcomes
C) A nation's standard of living depends on its ability to produce
D) Printing too much money causes prices to rise
Correct Answer: C) A nation's standard of living depends on its ability to produce
Rationale: The eighth principle directly links productivity—the amount of goods and services produced
per unit of labor—to a nation's standard of living. Higher productivity allows for higher consumption and
income.
7. Which of the following is a positive economic statement?
A) The government should increase the minimum wage.
B) Increasing the minimum wage may reduce employment.
C) The minimum wage is too low.
D) Everyone deserves a living wage.
Correct Answer: B) Increasing the minimum wage may reduce employment.
Rationale: A positive statement describes what is and can be tested with evidence. "Increasing the
minimum wage may reduce employment" is a testable claim. The other statements are normative—they
express opinions about what ought to be.
8. The production possibilities frontier (PPF) shows:
Latest Update 2026/2027 | 200 Practice Questions &
Detailed Answers | Verified Answers with Rationales |
A+ Graded
SECTION I: THE ECONOMIC WAY OF THINKING (Questions 1–40)
1. What is the fundamental economic problem that forces societies to make choices about production
and consumption?
A) Inflation
B) Unemployment
C) Scarcity
D) Inequality
Correct Answer: C) Scarcity
Rationale: Scarcity is the core economic problem—the gap between limited resources and unlimited
human wants. Because resources are finite while desires are infinite, every society must choose what to
produce, how to produce it, and for whom to produce it. Inflation, unemployment, and inequality are
consequences of scarcity, not the basic problem itself.
2. A student chooses to study for an extra hour instead of going to a movie. The enjoyment forgone
from the movie is an example of:
A) Marginal benefit
B) Sunk cost
,C) Opportunity cost
D) Fixed cost
Correct Answer: C) Opportunity cost
Rationale: Opportunity cost is the value of the nextbest alternative given up when a decision is made.
The movie's enjoyment is the forgone alternative. Marginal benefit refers to the additional gain from
one more unit. Sunk costs are unrecoverable past expenses. Fixed costs do not vary with production
levels.
3. Which branch of economics studies the behavior of individual households and firms in allocating
scarce resources?
A) Macroeconomics
B) Positive economics
C) Normative economics
D) Microeconomics
Correct Answer: D) Microeconomics
Rationale: Microeconomics focuses on individual decisionmaking units—households and firms—and
how they interact in markets. Macroeconomics studies economywide phenomena such as inflation,
unemployment, and GDP. Positive economics describes "what is," while normative economics prescribes
"what ought to be."
4. According to the ten principles of economics, what is the first principle?
,A) People respond to incentives
B) Everyone faces tradeoffs
C) Trade can benefit everyone
D) Markets are a sound method of organizing economic activity
Correct Answer: B) Everyone faces tradeoffs
Rationale: The first principle states that because of scarcity, individuals, businesses, and governments
must constantly make choices, giving up one thing to obtain another. The other options are valid
principles but appear later in the list—incentives (4th), trade (5th), and markets (6th).
5. Which principle explains why a government might tax cigarettes to reduce smoking?
A) People respond to incentives
B) Printing too much money causes prices to rise
C) There is a shortrun tradeoff between inflation and unemployment
D) A nation's standard of living depends on its ability to produce
Correct Answer: A) People respond to incentives
Rationale: The fourth principle states that people respond to incentives. A cigarette tax raises the price,
creating a disincentive to purchase, which reduces the quantity demanded. The other principles address
inflation, the Phillips curve, and productivity.
6. Which principle states that a country's standard of living depends on its ability to produce goods and
services?
, A) Markets are a sound method of organizing economic activity
B) Governments may be able to improve market outcomes
C) A nation's standard of living depends on its ability to produce
D) Printing too much money causes prices to rise
Correct Answer: C) A nation's standard of living depends on its ability to produce
Rationale: The eighth principle directly links productivity—the amount of goods and services produced
per unit of labor—to a nation's standard of living. Higher productivity allows for higher consumption and
income.
7. Which of the following is a positive economic statement?
A) The government should increase the minimum wage.
B) Increasing the minimum wage may reduce employment.
C) The minimum wage is too low.
D) Everyone deserves a living wage.
Correct Answer: B) Increasing the minimum wage may reduce employment.
Rationale: A positive statement describes what is and can be tested with evidence. "Increasing the
minimum wage may reduce employment" is a testable claim. The other statements are normative—they
express opinions about what ought to be.
8. The production possibilities frontier (PPF) shows:
