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WGU D089 OBJECTIVE ASSESSMENT:
PRINCIPLES OF ECONOMICS ACTUAL
EXAM PREP 2026 ALL QUESTIONS AND
CORRECT DETAILED ANSWERS ALREADY
A GRADED WITH EXPERT FEEDBACK
|NEW AND REVISED
1. If the price of coffee increases and consumer income is unchanged, the
demand curve for tea (a substitute) will most likely:
A. Shift left
B. Shift right
C. Move down along the demand curve
D. Not change
If coffee and tea are substitutes, higher coffee prices increase demand for
tea, shifting its demand curve right.
2. The law of diminishing marginal utility implies that:
A. Total utility always decreases with consumption
B. Marginal utility increases with each additional unit
C. Marginal utility eventually falls as more units are consumed
D. Consumers will always consume infinite units
As consumers consume more, additional satisfaction (marginal utility)
eventually declines.
3. Price elasticity of demand measures:
A. The slope of supply curve only
B. The responsiveness of quantity demanded to price changes
C. Changes in consumer tastes over time
D. The relationship between price and income
Elasticity quantifies how much quantity demanded responds to price
changes.
4. If demand is perfectly inelastic, a tax on the good will mostly be borne by:
A. Producers only
B. Consumers (buyers)
C. Somebody else entirely
D. Neither — quantity rises dramatically
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With perfectly inelastic demand, consumers buy the same quantity
regardless of price, so they bear most of the tax incidence.
5. A binding price ceiling set below equilibrium leads to:
A. Surpluses
B. Equilibrium price increase
C. Shortages
D. Increased producer surplus
When a price ceiling is below equilibrium, quantity demanded exceeds
quantity supplied causing shortages.
6. A monopolist maximizes profit by producing where:
A. Price = marginal cost
B. Average total cost is minimized
C. Marginal revenue = marginal cost
D. Marginal revenue = price
Profit maximization for any firm occurs where MR = MC; monopolist
then sets price on demand curve.
7. In perfect competition, in the long run firms earn:
A. Positive economic profits
B. Zero economic profits (normal profit)
C. Negative profits always
D. Monopoly rents
Free entry and exit eliminate economic profits in the long run, leaving
normal returns.
8. Comparative advantage exists when a country can produce a good:
A. With absolute superiority in all goods
B. At a lower opportunity cost than another country
C. Using fewer resources than another country in everything
D. Only with identical production capabilities
Comparative advantage depends on opportunity cost, not absolute
productivity.
9. The production possibilities frontier (PPF) is bowed outward when:
A. Resources are identical across goods
B. Production exhibits constant opportunity cost
C. Resources are specialized so opportunity costs increase
D. No trade-offs exist
Specialized resources cause increasing opportunity costs, producing a
concave PPF.
10.Consumer surplus is best described as:
A. Producer’s net revenue
B. Government tax revenue
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C. The difference between what consumers are willing to pay and what
they actually pay
D. Total market output
Consumer surplus measures the extra benefit consumers receive over
price paid.
11.If a firm’s total revenue equals its total cost, economic profit is:
A. Positive
B. Negative
C. Zero (normal profit)
D. Indeterminate without more information
Economic profit accounts for opportunity costs; when TR = TC, economic
profit is zero.
12.A natural monopoly is most likely when:
A. There are many small firms competing
B. One firm has decreasing average costs over the range of demand
C. Fixed costs are negligible
D. Network effects are absent
Natural monopoly arises from high fixed costs and decreasing AC over
market demand, favoring one provider.
13.The cross-price elasticity of demand between two goods is negative; goods
are:
A. Substitutes
B. Normal goods
C. Complements
D. Inferior goods
A negative cross-price elasticity indicates that an increase in the price of
one reduces demand for the other — complements.
14.A firm facing diminishing marginal returns will see its marginal cost:
A. Decrease forever
B. Eventually increase
C. Remain constant
D. Become negative
Diminishing marginal returns mean additional output costs more, raising
marginal cost.
15.In the short run, a firm should continue producing if:
A. Price < average variable cost
B. Price < average total cost
C. Price ≥ average variable cost (cover variable costs)
D. Price = zero
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If price covers variable costs, continuing may minimize losses vs. shutting
down which incurs fixed costs only.
16.Which scenario best exemplifies moral hazard?
A. A consumer overpays for a product
B. A firm faces productivity shocks
C. An insured driver takes greater risks because losses are covered
D. A buyer has imperfect information about product quality
Moral hazard refers to insured parties changing behavior because they do
not bear full consequences.
17.If the marginal propensity to consume (MPC) is 0.8, the spending multiplier
is:
A. 1.2
B. 0.8
C. 5
D. 0.2
Multiplier = 1 / (1 - MPC) = 1 / (1 - 0.8) = 5.
18.Real GDP differs from nominal GDP because real GDP:
A. Uses current year prices only
B. Is adjusted for inflation using base-year prices
C. Excludes investment
D. Measures money supply
Real GDP controls for price changes, measuring real output over time.
19.The Consumer Price Index (CPI) is used to measure:
A. Unemployment rate
B. Inflation as experienced by consumers
C. National debt
D. Interest rate trends
CPI tracks changes in prices of a fixed basket of consumer goods and
services.
20.Structural unemployment results from:
A. Temporary decline in demand only
B. Friction in job search only
C. Mismatch between worker skills and job requirements
D. Seasonal variation alone
Structural unemployment stems from changes in the economy that make
some skills obsolete.
21.The natural rate of unemployment consists of:
A. Only cyclical unemployment
B. Frictional + structural unemployment
C. Zero unemployment
WGU D089 OBJECTIVE ASSESSMENT:
PRINCIPLES OF ECONOMICS ACTUAL
EXAM PREP 2026 ALL QUESTIONS AND
CORRECT DETAILED ANSWERS ALREADY
A GRADED WITH EXPERT FEEDBACK
|NEW AND REVISED
1. If the price of coffee increases and consumer income is unchanged, the
demand curve for tea (a substitute) will most likely:
A. Shift left
B. Shift right
C. Move down along the demand curve
D. Not change
If coffee and tea are substitutes, higher coffee prices increase demand for
tea, shifting its demand curve right.
2. The law of diminishing marginal utility implies that:
A. Total utility always decreases with consumption
B. Marginal utility increases with each additional unit
C. Marginal utility eventually falls as more units are consumed
D. Consumers will always consume infinite units
As consumers consume more, additional satisfaction (marginal utility)
eventually declines.
3. Price elasticity of demand measures:
A. The slope of supply curve only
B. The responsiveness of quantity demanded to price changes
C. Changes in consumer tastes over time
D. The relationship between price and income
Elasticity quantifies how much quantity demanded responds to price
changes.
4. If demand is perfectly inelastic, a tax on the good will mostly be borne by:
A. Producers only
B. Consumers (buyers)
C. Somebody else entirely
D. Neither — quantity rises dramatically
,Page 2 of 61
With perfectly inelastic demand, consumers buy the same quantity
regardless of price, so they bear most of the tax incidence.
5. A binding price ceiling set below equilibrium leads to:
A. Surpluses
B. Equilibrium price increase
C. Shortages
D. Increased producer surplus
When a price ceiling is below equilibrium, quantity demanded exceeds
quantity supplied causing shortages.
6. A monopolist maximizes profit by producing where:
A. Price = marginal cost
B. Average total cost is minimized
C. Marginal revenue = marginal cost
D. Marginal revenue = price
Profit maximization for any firm occurs where MR = MC; monopolist
then sets price on demand curve.
7. In perfect competition, in the long run firms earn:
A. Positive economic profits
B. Zero economic profits (normal profit)
C. Negative profits always
D. Monopoly rents
Free entry and exit eliminate economic profits in the long run, leaving
normal returns.
8. Comparative advantage exists when a country can produce a good:
A. With absolute superiority in all goods
B. At a lower opportunity cost than another country
C. Using fewer resources than another country in everything
D. Only with identical production capabilities
Comparative advantage depends on opportunity cost, not absolute
productivity.
9. The production possibilities frontier (PPF) is bowed outward when:
A. Resources are identical across goods
B. Production exhibits constant opportunity cost
C. Resources are specialized so opportunity costs increase
D. No trade-offs exist
Specialized resources cause increasing opportunity costs, producing a
concave PPF.
10.Consumer surplus is best described as:
A. Producer’s net revenue
B. Government tax revenue
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C. The difference between what consumers are willing to pay and what
they actually pay
D. Total market output
Consumer surplus measures the extra benefit consumers receive over
price paid.
11.If a firm’s total revenue equals its total cost, economic profit is:
A. Positive
B. Negative
C. Zero (normal profit)
D. Indeterminate without more information
Economic profit accounts for opportunity costs; when TR = TC, economic
profit is zero.
12.A natural monopoly is most likely when:
A. There are many small firms competing
B. One firm has decreasing average costs over the range of demand
C. Fixed costs are negligible
D. Network effects are absent
Natural monopoly arises from high fixed costs and decreasing AC over
market demand, favoring one provider.
13.The cross-price elasticity of demand between two goods is negative; goods
are:
A. Substitutes
B. Normal goods
C. Complements
D. Inferior goods
A negative cross-price elasticity indicates that an increase in the price of
one reduces demand for the other — complements.
14.A firm facing diminishing marginal returns will see its marginal cost:
A. Decrease forever
B. Eventually increase
C. Remain constant
D. Become negative
Diminishing marginal returns mean additional output costs more, raising
marginal cost.
15.In the short run, a firm should continue producing if:
A. Price < average variable cost
B. Price < average total cost
C. Price ≥ average variable cost (cover variable costs)
D. Price = zero
, Page 4 of 61
If price covers variable costs, continuing may minimize losses vs. shutting
down which incurs fixed costs only.
16.Which scenario best exemplifies moral hazard?
A. A consumer overpays for a product
B. A firm faces productivity shocks
C. An insured driver takes greater risks because losses are covered
D. A buyer has imperfect information about product quality
Moral hazard refers to insured parties changing behavior because they do
not bear full consequences.
17.If the marginal propensity to consume (MPC) is 0.8, the spending multiplier
is:
A. 1.2
B. 0.8
C. 5
D. 0.2
Multiplier = 1 / (1 - MPC) = 1 / (1 - 0.8) = 5.
18.Real GDP differs from nominal GDP because real GDP:
A. Uses current year prices only
B. Is adjusted for inflation using base-year prices
C. Excludes investment
D. Measures money supply
Real GDP controls for price changes, measuring real output over time.
19.The Consumer Price Index (CPI) is used to measure:
A. Unemployment rate
B. Inflation as experienced by consumers
C. National debt
D. Interest rate trends
CPI tracks changes in prices of a fixed basket of consumer goods and
services.
20.Structural unemployment results from:
A. Temporary decline in demand only
B. Friction in job search only
C. Mismatch between worker skills and job requirements
D. Seasonal variation alone
Structural unemployment stems from changes in the economy that make
some skills obsolete.
21.The natural rate of unemployment consists of:
A. Only cyclical unemployment
B. Frictional + structural unemployment
C. Zero unemployment
