WGU D089 Principles of Economics ACTUAL EXAM STUDY GUIDE 2025/2026 COMPLETE QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES || 100% GUARANTEED PASS <RECENT VERSION>

WGU D089 Principles of Economics OA ACTUAL EXAM STUDY GUIDE 2025/2026 COMPLETE QUESTIONS AND CORRECT DETAILED ANSWERS WITH RATIONALES || 100% GUARANTEED PASS &lt;RECENT VERSION&gt; 1. Macroeconomics - ANSWER A branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole 2. Microeconomics - ANSWER A branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms 3. Scarcity - ANSWER The basic economic problem; the gap between limited, scarce , resources and theoretically limitless wants 4. Opportunity cost - ANSWER The next best alternative that is given up when a choice is made 5. Think at the margin - ANSWER Thinking about what the next step or an additional action means for a person 6. Marginal benefit - ANSWER The incremental increase in the benefit to a consumer caused by the consumption of one additional unit of a good or service 7. Principles of Economics #1 - ANSWER Everyone faces trade-offs 8. Principles of Economics #2 - ANSWER The cost of something is determined by what you give up to get it 9. Principles of Economics #3 - ANSWER Rational people think at the margin 10. Principles of Economics #4 - ANSWER People respond to incentives 11. Principles of Economics #5 - ANSWER Trade can benefit everyone 12. Principles of Economics #6 - ANSWER Markets are a sound method of organizing economic activity 13. Principles of Economics #7 - ANSWER Governments may be able to improve market outcomes 14. Principles of Economics #8 - ANSWER A nation's standard of living depends on it's ability to produce. 15. Principles of Economics #9 - ANSWER Printing too much money causes prices to rise 16. Principles of Economics #10 - ANSWER There is a short-run trade-off between inflation and unemployment 17. Economic systems - ANSWER A system of the production, resource allocation, and distribution of goods and services within a society or a given geographic area 18. opportunity cost - ANSWER = The value of what you give up / The value of what you gain 19. Elasticity of Demand - ANSWER ed= % of change in Quantity / % of change in Price 20. Elasticity of Supply - ANSWER es= % of change in Quanity / % of change in Price 21. Elastic - ANSWER ed or es &gt; 1 22. Unit Elastic - ANSWER ed or es = 1 23. Inelastic - ANSWER ed or es &lt;1 24. Total Revenue - ANSWER = Price x Quantity 25. Accounting Profit - ANSWER = Total Revenue - Explicit Costs 26. Economic Revenue - ANSWER = Total Revenue - Explicit Costs - Implicit Costs 27. Total Cost - ANSWER = Total Variable Costs + Total Fixed Costs 28. Average Fixed Cost - ANSWER = Total Fixed Cost / Quantity 29. Average Variable Cost - ANSWER = Total Variable Cost / Quantity 30. Average Total Cost - ANSWER = Total Cost / Quantity = (Fixed Cost / Quantity) + (Variable Cost / Quantity) 31. Marginal cost - ANSWER = Change in Total Cost / Change in Quantity 32. Profit - ANSWER = (Price-Average Cost) x Quantity 33. Profit Maximization - ANSWER Marginal Revenue = Marginal Cost. 34. Produce More Quantity - ANSWER Profit &gt; Marginal Revenue = Marginal Cost 35. Perfectly Competitive Market - ANSWER Profit = Marginal Revenue = Marginal Cost 36. Monopolistic Competition - ANSWER Profit = Average Total Cost &gt; Marginal Revenue = Marginal Cost 37. Oligopoly - ANSWER Profit &gt; Average Total Cost &gt; Marginal Revenue = Marginal Cost 38. Monopoly - ANSWER Profit &gt; Marginal Revenue = Marginal Cost 39. Gross Domestic Product (GDP) - ANSWER = Consumption + Investments + Government Spending + (Exports - Imports) 40. GDP Per Capita - ANSWER GDP / Population 41. Unemployment Rate - ANSWER = (Unemployed People / Total Labor Force) x 100 42. Labor Force Participation Rate - ANSWER = (Total Labor Force / Total Adult Population) x 100 43. Traditional Economy - ANSWER An economic system that relies on customs, history, and time-honored beliefs. Tradition guides economic decisions such as production and distribution 44. Command Economy - ANSWER An economic system in which production, investment, prices, and incomes are determined centrally by a government 45. Market Economy - ANSWER An economic system in which the decisions regarding investments, production, and distribution are guided by the price signals created by the forces of supply and demand 46. Mixed Economy - ANSWER An economic system in which both private enterprise and a degree of state monopoly (Usually in public services, defense, infrastructure, and basic industries) co-exist 47. When is the Production Possibilities Frontier (PPF) a straight line? - ANSWER When the factors of production are homogeneous 48. When does the Production Possibilities Frontier (PPF) have a bowed-out shape caused by increasing opportunity cost? - ANSWER When the factors of production are heterogeneous 49. On the production possibilities frontier, what must be sacrificed to produce more of one good? - ANSWER The production of the other good 50. What can shift the production possibilities frontier outward, making what was previously unattainable attainable? - ANSWER Technological advances, an increase in resource quality or quantity, and an increase in trade 51. What happens if the source of inefficiency is eliminated? - ANSWER Production can be increased. 52. What happens when a circumstance such as excessive unemployment results in a country producing less than it could from its available resources? - ANSWER An inefficient outcome occurs 53. What is a situational decision in which you lose one quality, quantity, or property in return for gaining something else called? - ANSWER Trade off 54. What must be thoroughly evaluated to make a trade-off decision? - ANSWER The marginal benefits and marginal costs of each option. 55. What forces you to make trade-offs? - ANSWER Scarcity 56. If the inputs of production are underutilized, is a decrease in production of the other good required when increasing production to the point that the output combinations sit on the production possibilities frontier? - ANSWER No 57. How is opportunity cost calculated? - ANSWER By dividing the amount of a good you have given up by the amount of the good you have gained. 58. How does opportunity cost appear along a linear production possibilities frontier? - ANSWER As a constant 59. What is happening to opportunity cost along a bowed out production possibilities frontier? - ANSWER Is it increasing 60. What goods do countries trade? - ANSWER Those goods for which they have the lowest opportunity cost to produce 61. What does a rise in the price of a good almost always cause? - ANSWER A decrease in the quantity demanded 62. What does a fall in the price of a good almost always cause? - ANSWER An increase in the quantity demanded 63. What is the inverse relationship between price and quantity known as? - ANSWER The law of demand 64. What does the law of demand assume? - ANSWER That all variables that affect demand, other than price, remain constant 65. What is a demand curve? - ANSWER a graphical representation depicting the relationship between a good or service's price and the quantities consumers are willing to buy at those prices. 66. What is a demand schedule? - ANSWER A table view of the price quantity pairings that compose the demand curve 67. What will result in movement along a demand curve (up or down)? - ANSWER A change in price - a change in quantity demanded 68. What will result in a shift in a demand curve (left or right)? - ANSWER A change in a non-price - a change in demand 69. What causes changes in demand (shifts in the demand curve)? - ANSWER - Changes in consumer income, tastes, and preferences - The size of the population - prices of other goods such as complements and substitutes - expectations about the future. 70. What fundamental similarity do nearly all demand curves share? - ANSWER They slope down from left to right 71. What is the positive relationship between price and quantity known as? - ANSWER The law of supply 72. What does the law of supply assume? - ANSWER That all variables affecting supply, other than price, remain constant 73. What does a rise in the price of a good or service increase? - ANSWER The quantity supplied of that good or service 74. What does a supply curve depict? - ANSWER The relationship between the price of a good or service and the quantities companies are willing to sell at those prices 75. What is a supply schedule? - ANSWER A table view of the price-quantity pairing that compose the supply curve. 76. What will suppliers do to adjust for non-price changes related to the determinants of supply? - ANSWER Shift production 77. What will suppliers do to adjust for price-related changes on the supply curve? - ANSWER Move production levels 78. what are changes in supply (shifts in the supply curve) caused by? - ANSWER Prices of inputs, technology,expectations, number of sellers, and government policies and regulations 79. What fundamental similarity do nearly all supply curves share? - ANSWER They slope up from left to right 80. When does the equilibrium price and equilibrium quantity occur? - ANSWER Where the supply and demand curves cross. 81. When does equilibrium occur? - ANSWER When the quantity demanded is equal to the quantity supplied 82. Why would the price be below the equilibrium level? - ANSWER The quantity demanded will exceed the quantity supplied. -- Excess demand or a shortage will exist. 83. What is occurring if the price is above the equilibrium level? - ANSWER The quantity supplied will exceed the quantity demanded. -- Excess supply or a surplus will exist 84. When does the equilibrium in the market change? - ANSWER When an event shifts either the supply or demand curve 85. What does price elasticity measure? - ANSWER The responsiveness of the quantity demanded or supplied of a good to a change in its price. 86. How is price elasticity of demand calculated? - ANSWER % change in quantity demand / % change in price 87. What are the three ways to describe elasticity? - ANSWER - Elastic (Quantity is very responsive) - Unit Elastic (equal change in quantity) - Inelastic (Quantity is not very responsive) 88. What is indicated by an elastic demand or supply curve? - ANSWER The quantity demanded or supplied responds to price changes in a greater than proportional manner. 89. What is indicated by an inelastic demand or supply curve? - ANSWER A given percentage change in price will cause a smaller percentage change in the quantity demanded or supplied. 90. What is indicated by a unitary elasticity demand or supply curve? - ANSWER A given percentage change in price leads to an equal percentage change in the quantity demanded or supplied. 91. What happens if demand is inelastic? - ANSWER An increase in price causes an increase in total revenue. 92. What happens if demand is elastic? - ANSWER An increase in price causes a decrease in total revenue 93. Why would a price floor or a price ceiling be imposed? - ANSWER It will prevent a market from adjusting to its equilibrium price and quantity and thus will create an inefficient outcome 94. What is the outcome of a price ceiling being set below the equilibrium price? - ANSWER Quantity demanded will exceed quantity supplied and excess demand or shortages will result. 95. What is the outcome of a price floor being set above the equilibrium price? - ANSWER Quantity supplied will exceed quantity demanded and excess supply or surpluses will result. 96. When might government-imposed price controls have a positive effect - ANSWER If they are used to correct an existing market failure 97. What happens when price controls are applied to well-functioning markets? - ANSWER The market outcome is inefficient 98. What happens to market outcomes when information about the quality of products is imperfect? - ANSWER Market outcomes will be inefficient 99. What does a buyer rely on to judge the quality of products when confronted with imperfect information? - ANSWER Price 100. What are firms paying for when they make payments to households in the circular flow model? Wages and salaries Goods and services Dividends from investments Factors for production - ANSWER Factors for production Correct! Factors for production, primarily capital and labor, flow from households to firms. 101. What does the circular flow diagram illustrate? Diminishing returns Macroeconomic payments Opportunity cost curve Production possibilities curve - ANSWER Macroeconomic payments Correct! Macroeconomic payments are wages, salaries, and rents. 102. How does the expanded circular flow diagram incorporate interactions with other countries? It illustrates taxes and subsidies. It includes the federal deficit. It incorporates imports and exports. It calculates tariffs and quotas. - ANSWER It incorporates imports and exports. Correct! Imports and exports are a direct component of GDP measured as part of macroeconomics. These flows include exports, imports, and borrowing from other countries. 103. Which measure combines the four sources of expenditures in the circular flow model? Aggregate demand Disposable income Accumulated surplus Structural deficit - ANSWER Aggregate demand Correct! Aggregate demand is the sum of the four sources of buying and selling within the circular flow model. 104. Which form of spending contributes the greatest amount to gross domestic product (GDP) in the United States? Net export expenditures Government expenditures Investment expenditures Consumption expenditures - ANSWER Consumption expenditures Correct! For the United States, consumption expenditures on final goods and services greatly exceed all other spending and accounts for around two thirds of the value of GDP. 105. Which description illustrates a business cycle that starts from a trough? The output of the economy moves from a trough to a recession, followed by a peak until it returns to another trough. The output of the economy moves from a trough to an expansion, then to a peak followed by a recession until it returns to another trough. The output of the economy moves from a trough to a peak, followed by an expansion until it returns to another trough. The output of the economy moves from a trough to a contraction, then to a peak followed by a recession until it returns to another trough. . - ANSWER The output of the economy moves from a trough to an expansion, then to a peak followed by a recession until it returns to another trough. Correct! All phases of the business cycle are captured. It begins with its first low point (the first trough), moves to its next high point (the peak), then there is downward movement (the recession), and finally moves to its next low point (the second trough) 106. A consumer buys a bed for $1,000. The bed is assembled in the United States, but the manufacturer used $200 worth of materials that were imported from another country. In addition, the manufacturer used $300 of materials that were bought from suppliers in the United States. How is the value of the bed counted in gross domestic product (GDP) for the United States using the expenditure approach? The purchase price of $1,000 is counted in consumption expenditures, and $200 of the material imported is subtracted from net export expenditures. The purchase price of $1,000 is counted in consumption expenditures, and $200 of the material imported is added to net export expenditures. Seven hundred dollars ($700) of the purchase price is counted in consumption expenditures, and $200 of the material imported is subtracted from net export expenditures. Three hundred dollars ($300) of the purchase price is counted in consumptio - ANSWER The purchase price of $1,000 is counted in consumption expenditures, and $200 of the material imported is subtracted from net export expenditures. Correct! The $1,000 includes the value of all intermediate goods used to make the bed. However, to account for the $200 of value that was imported, net exports decrease by that value. 107. An economist wants to compare the standard of living between different countries. Which measure should be used for this purpose? Aggregate supply Aggregate demand Real GDP per capita Real GDP per year - ANSWER Real GDP per capita Correct! Real GDP per capita provides an estimation of inflation adjusted GDP for each citizen. This is a reasonable measure for standard of living. 108. A reporter is discussing current record low unemployment, and an economist mentions that the numbers being reported leave out individuals who have stopped looking for work. Which group is being referred to by the economist? Frictional unemployment Discouraged workers Structural unemployment Hidden workers - ANSWER Discouraged workers Correct! Discouraged workers refers to individuals who have become given up finding a job and have stopped looking for employment. This group does not appear in unemployment calculations. 109. An economist is interested in identifying individuals who may have employment but who cannot access the employment they desire. Which topic is this economist studying? Discouraged unemployment Structural unemployment Hidden unemployment Frictional unemployment - ANSWER Hidden unemployment Correct! Hidden unemployment is the gap between employment that individuals have and the employment that they desire. 110. An economist is conducting a study on the number of people without work because they have left one job to look for another that is a better match for their skills. Which topic is this economist studying? Natural rate of unemployment Cyclical unemployment Frictional unemployment Structural unemployment - ANSWER Frictional unemployment Correct! Frictional unemployment refers to the unemployment that is a result of individuals switching jobs. 111. Many economists are worried about the potential for an increase in unemployment that would occur if there is a major recession. Which problem is causing this concern? Natural rate of unemployment Structural unemployment Frictional unemployment Cyclical unemployment - ANSWER Cyclical unemployment Correct! Cyclical unemployment is when people are unemployed as a result of an economic downturn. 112. A 22-year-old recent college graduate feels confident that she will not have to worry about unemployment as much as other age groups. The graduate believes that because she is young, she can be more versatile and that she will more easily avoid unemployment. Is this college graduate correct in this assumption? Yes, because individuals in the 20-24 age group have the lowest unemployment rate in recessions Yes, because individuals in the 19 and under age group have the lowest unemployment rate in a strong economy No, because individuals in the 55+ age group have the lowest unemployment rate over time No, because individuals in the 25-54 age group have the lowest unemployment rate over time - ANSWER No, because individuals in the 55+ age group have the lowest unemployment rate over time Correct! Individuals in the 55+ age group consistently have the lowest unemployment rate. 113. Which term describes the average price of goods and services most commonly purchased in the United States? Consumer price index Shoe leather costs Purchasing power Hyperinflation - ANSWER Consumer price index Correct! This is the average price of the goods and services mostly commonly purchased in the United States. 114. What is the highest weighted factor in the consumer price index (CPI)? Food Housing Medical care Education - ANSWER Housing Correct! Housing is the highest weighted factor in the CPI. 115. Individuals living in a country experiencing hyperinflation are spending much of their time traveling back and forth to the bank so they can hold less cash to battle the effects of inflation. Which term describes what this group is experiencing? Shoe leather costs Menu cost Substitution cost - ANSWER Shoe leather costs Cost of living adjustments Correct! This is the total cost in dollars and time that people spend trying to avoid the negative effects of inflation. This is often managed by traveling back and forth to the bank. 116. Retail stores operating in a country with high inflation experience added costs and must keep changing their prices to account for the effects of inflation. Which factor is being managed by these retail stores? Quality goods bias Menu costs Substitution bias Shoe leather costs - ANSWER Menu costs Correct! This is the cost firms pay because they must keep changing their prices to reflect inflation's impact. 117. An employer has agreed to give a 3% pay raise to all employees because inflation for the past year was 3%. What is the term used for this type of pay raise? Disposable income Cost of living adjustment Hyperinflation Shoe leather costs . - ANSWER Cost of living adjustment Correct! This is an increase in pay sufficient to keep up with inflation 118. The economists show ABC Company the comparison of gross domestic production (GDP) between Country A and the company's home country. Real GDP for Country A is US$9,500,000, and ABC's home country GDP is US$11,200,000 for the previous year. The population in Country A is 150 million, and ABC's home country's population is 225 million. Why is Country A's standards of living better than ABC Company's home country? ABC Company's home country economy is larger on a per capita basis. Country A's economy is larger on a per capita basis. Country A's economy is smaller based on real GDP. ABC Company's home country economy is smaller based on real GDP. - ANSWER Country A's economy is larger on a per capita basis. Correct! GDP per capita for Country A is US$63,333.33 versus US$49,777.78 for ABC Company's home country.