WGU D089 PRINCIPLES OF ECONOMICS ACTUAL EXAM
TEST QUESTIONS AND ANSWERS SURE A+
✔✔Circular flow model - ✔✔An economic model that shows the flow of money and
goods through the economy. The most common form of this model shows the circular
flow of income between the household sector and the business sector.
✔✔Research and Development (R&D) - ✔✔Term commonly used to describe the
activities undertaken by firms and other entities such as individual entrepreneurs to
create new or improved products and processes.
✔✔Partnerships - ✔✔A legal form of business operation between two or more
individuals who share management and profits.
✔✔Mergers - ✔✔Combining two companies into a single larger company.
✔✔Financial Capital - ✔✔Most commonly refers to assets needed by a company to
provide goods or services, as measured in terms of money value.
✔✔Factors of Production - ✔✔Describes the inputs used in the production of goods or
services to make an economic profit.
✔✔Production Possibilities Frontier - ✔✔A graphical representation used by economists
to show the alternative combinations of two goods or services that an economy can
produce with the given resources and technology when the resources and technology
when the resources and technology when the resources are fully and efficiently used at
a given point in time.
✔✔Budget Constraint - ✔✔Represents all the combinations of goods and services that
a consumer may purchase given current prices within his or her given income.
✔✔Opportunity Set - ✔✔All possible combinations of consumption that someone can
afford given the price of goods and the individual's income.
✔✔Homogeneous - ✔✔A resource having one form or set of skills
✔✔Production Possibilities Frontier (PPF) - ✔✔identifies all possible combinations of
two goods or services that can be produced within the given resources and technology
when the resources are fully and efficiently used per unit of time
✔✔Heterogeneous - ✔✔A resource having two different forms or skills
✔✔Capital goods - ✔✔Goods that are used in producing other goods rather than being
bought by consumers
,✔✔Consumer goods - ✔✔Goods bought and used by consumers
✔✔Law of increasing opportunity costs - ✔✔Once all factors of production (land, labor,
and capital) are at maximum output and efficiency, producing more of one good
requires giving up an increasing amount of the other good.
✔✔Underutilizing - ✔✔The condition in which economic resources are not being used to
their full potential
✔✔Inefficient - ✔✔The underemployment of any of the four economic resources (Land,
labor, capital, or entrepreneurial ability); inefficient combinations or production are
represented using a PPC as points below the PPC
✔✔The Law of Diminishing Returns - ✔✔The point where the level of profits or benefits
gained is less than the amount of money or energy invested.
✔✔Price - ✔✔The amount of money expected, required, or given in payment for
something
✔✔Supply - ✔✔A fundamental economic concept that describes the total amount of a
specific good or service that is available to consumers
✔✔Demand - ✔✔Consumer's willingness and ability to consume a given good.
✔✔Equilibrium Price - ✔✔The price where the quantity demanded is equal to the
quantity supplied
✔✔Equilibrium quantity - ✔✔The quantity of a good or service bought at the equilibrium
price. The equilibrium quantity is the quantity produced and bought where the supply
and demand curves intersect.
✔✔Demand Elasticity - ✔✔The extent to which a change in price causes a change in
the quantity demanded- expressed as a percentage
✔✔Quantity Demanded (Qd) - ✔✔Total number of units purchased at a specific price.
✔✔Demand Schedule - ✔✔A chart that shows the number of goods or services
demanded at specific prices.
✔✔Quantity Supplied (QS) - ✔✔The quantity of a commodity that producers are willing
to sell at a particular price at a particular point in time
✔✔Factors that shift supply - ✔✔-Technology
,-Expectations
-Number of Suppliers
Government Policies and regulations.
✔✔Equilibrium - ✔✔A state where supply and demand are balanced and, in the
absence of external influences, the price and quantity will not change.
✔✔Excess supply (surplus) - ✔✔At the existing price, the quantity supplied exceeds the
quantity demanded
✔✔Excess demand (shortage) - ✔✔At the existing price, the quantity demanded
exceeds the quantity supplied.
✔✔Analyze Change in Equilibrium - Step 1 - ✔✔Draw a supply model before the
economic change took place, identifying initial equilibrium values for price and quantity.
✔✔Analyze Change in Equilibrium - Step 2 - ✔✔Decide whether the economic change
being analyzed affects demand or supply.
✔✔Analyze Change in Equilibrium - Step 3 - ✔✔Decide whether the effect on demand
or supply causes the curve to shift to the right or to the left and sketch the new demand
or supply curve on the diagram
✔✔Analyze Change in Equilibrium - Step 4 - ✔✔Identify the new equilibrium and
compare the original equilibrium price and quantity to the new equilibrium price and
quantity.
✔✔Elasticity - ✔✔An economics concept that measures responsiveness of one variable
to changes in another variable
✔✔Price Elasticity - ✔✔An economic measure of the change in the quantity demanded
or purchased of a product in relation to its price change
✔✔price elasticity of demand - ✔✔The responsiveness of the quantity demanded to a
change in price, in percentage terms ; calculated by taking the percentage change in
the quantity demanded divided by the percentage change in price.
✔✔price elasticity of supply - ✔✔The responsiveness of the quantity supplied to a
change in price, in percentage terms; calculated by taking the percentage change in the
quantity supplied divided by the percentage change in price.
✔✔Elastic Demand - ✔✔When the elasticity of demand is greater than one, indicating a
high responsiveness of the quantity demanded or to a change in price in percentage
terms.
, ✔✔Elastic Supply - ✔✔When the elasticity of supply is greater than one, indicating a
relatively high responsiveness of the quantity supplied to a change in price in
percentage terms
✔✔inelastic demand - ✔✔When the elasticity of demand is less than one indicating a
relatively low responsiveness of the quantity demanded to a change in price, in
percentage terms.
✔✔inelastic supply - ✔✔When the elasticity of supply is less than one indicating a
relatively low responsiveness of the quantity supplied to a change in price, in
percentage terms.
✔✔Unitary elasticities - ✔✔When the elasticity of demand or supply is equal to one,
indicating an equal response in the quantity demanded or supplied to a change in price,
in percentage terms.
✔✔The Law of Demand - ✔✔A fall in the price of a good or service raises the quantity
demanded and a rise in the price of a good or service lowers the quantity demanded.
✔✔Narrowly defined markets - ✔✔Markets that tend to have more elastic demand and
substitutes
✔✔Broadly defined markets - ✔✔Markets that tend to be fairly inelastic and have no
good substitutes
✔✔Impacts on Elasticity of Supply - ✔✔- Number of producers
- Availability of resources
- Technology
- Flexibility
- Time
✔✔Total Revenue (TR) - ✔✔The income that a company receives from its normal
business activities, usually from goods and services; defined as price times quantity
✔✔What happens when demand is inelastic (price elasticity less than one) - ✔✔Price
and total revenue move in the same direction
✔✔What happens when demand is elastic (price elasticity greater than one) - ✔✔Price
and total revenue move in opposite directions
✔✔What happens when demand is unit elastic (price elasticity equal exactly one) -
✔✔Total revenue remains constant when the price changes
TEST QUESTIONS AND ANSWERS SURE A+
✔✔Circular flow model - ✔✔An economic model that shows the flow of money and
goods through the economy. The most common form of this model shows the circular
flow of income between the household sector and the business sector.
✔✔Research and Development (R&D) - ✔✔Term commonly used to describe the
activities undertaken by firms and other entities such as individual entrepreneurs to
create new or improved products and processes.
✔✔Partnerships - ✔✔A legal form of business operation between two or more
individuals who share management and profits.
✔✔Mergers - ✔✔Combining two companies into a single larger company.
✔✔Financial Capital - ✔✔Most commonly refers to assets needed by a company to
provide goods or services, as measured in terms of money value.
✔✔Factors of Production - ✔✔Describes the inputs used in the production of goods or
services to make an economic profit.
✔✔Production Possibilities Frontier - ✔✔A graphical representation used by economists
to show the alternative combinations of two goods or services that an economy can
produce with the given resources and technology when the resources and technology
when the resources and technology when the resources are fully and efficiently used at
a given point in time.
✔✔Budget Constraint - ✔✔Represents all the combinations of goods and services that
a consumer may purchase given current prices within his or her given income.
✔✔Opportunity Set - ✔✔All possible combinations of consumption that someone can
afford given the price of goods and the individual's income.
✔✔Homogeneous - ✔✔A resource having one form or set of skills
✔✔Production Possibilities Frontier (PPF) - ✔✔identifies all possible combinations of
two goods or services that can be produced within the given resources and technology
when the resources are fully and efficiently used per unit of time
✔✔Heterogeneous - ✔✔A resource having two different forms or skills
✔✔Capital goods - ✔✔Goods that are used in producing other goods rather than being
bought by consumers
,✔✔Consumer goods - ✔✔Goods bought and used by consumers
✔✔Law of increasing opportunity costs - ✔✔Once all factors of production (land, labor,
and capital) are at maximum output and efficiency, producing more of one good
requires giving up an increasing amount of the other good.
✔✔Underutilizing - ✔✔The condition in which economic resources are not being used to
their full potential
✔✔Inefficient - ✔✔The underemployment of any of the four economic resources (Land,
labor, capital, or entrepreneurial ability); inefficient combinations or production are
represented using a PPC as points below the PPC
✔✔The Law of Diminishing Returns - ✔✔The point where the level of profits or benefits
gained is less than the amount of money or energy invested.
✔✔Price - ✔✔The amount of money expected, required, or given in payment for
something
✔✔Supply - ✔✔A fundamental economic concept that describes the total amount of a
specific good or service that is available to consumers
✔✔Demand - ✔✔Consumer's willingness and ability to consume a given good.
✔✔Equilibrium Price - ✔✔The price where the quantity demanded is equal to the
quantity supplied
✔✔Equilibrium quantity - ✔✔The quantity of a good or service bought at the equilibrium
price. The equilibrium quantity is the quantity produced and bought where the supply
and demand curves intersect.
✔✔Demand Elasticity - ✔✔The extent to which a change in price causes a change in
the quantity demanded- expressed as a percentage
✔✔Quantity Demanded (Qd) - ✔✔Total number of units purchased at a specific price.
✔✔Demand Schedule - ✔✔A chart that shows the number of goods or services
demanded at specific prices.
✔✔Quantity Supplied (QS) - ✔✔The quantity of a commodity that producers are willing
to sell at a particular price at a particular point in time
✔✔Factors that shift supply - ✔✔-Technology
,-Expectations
-Number of Suppliers
Government Policies and regulations.
✔✔Equilibrium - ✔✔A state where supply and demand are balanced and, in the
absence of external influences, the price and quantity will not change.
✔✔Excess supply (surplus) - ✔✔At the existing price, the quantity supplied exceeds the
quantity demanded
✔✔Excess demand (shortage) - ✔✔At the existing price, the quantity demanded
exceeds the quantity supplied.
✔✔Analyze Change in Equilibrium - Step 1 - ✔✔Draw a supply model before the
economic change took place, identifying initial equilibrium values for price and quantity.
✔✔Analyze Change in Equilibrium - Step 2 - ✔✔Decide whether the economic change
being analyzed affects demand or supply.
✔✔Analyze Change in Equilibrium - Step 3 - ✔✔Decide whether the effect on demand
or supply causes the curve to shift to the right or to the left and sketch the new demand
or supply curve on the diagram
✔✔Analyze Change in Equilibrium - Step 4 - ✔✔Identify the new equilibrium and
compare the original equilibrium price and quantity to the new equilibrium price and
quantity.
✔✔Elasticity - ✔✔An economics concept that measures responsiveness of one variable
to changes in another variable
✔✔Price Elasticity - ✔✔An economic measure of the change in the quantity demanded
or purchased of a product in relation to its price change
✔✔price elasticity of demand - ✔✔The responsiveness of the quantity demanded to a
change in price, in percentage terms ; calculated by taking the percentage change in
the quantity demanded divided by the percentage change in price.
✔✔price elasticity of supply - ✔✔The responsiveness of the quantity supplied to a
change in price, in percentage terms; calculated by taking the percentage change in the
quantity supplied divided by the percentage change in price.
✔✔Elastic Demand - ✔✔When the elasticity of demand is greater than one, indicating a
high responsiveness of the quantity demanded or to a change in price in percentage
terms.
, ✔✔Elastic Supply - ✔✔When the elasticity of supply is greater than one, indicating a
relatively high responsiveness of the quantity supplied to a change in price in
percentage terms
✔✔inelastic demand - ✔✔When the elasticity of demand is less than one indicating a
relatively low responsiveness of the quantity demanded to a change in price, in
percentage terms.
✔✔inelastic supply - ✔✔When the elasticity of supply is less than one indicating a
relatively low responsiveness of the quantity supplied to a change in price, in
percentage terms.
✔✔Unitary elasticities - ✔✔When the elasticity of demand or supply is equal to one,
indicating an equal response in the quantity demanded or supplied to a change in price,
in percentage terms.
✔✔The Law of Demand - ✔✔A fall in the price of a good or service raises the quantity
demanded and a rise in the price of a good or service lowers the quantity demanded.
✔✔Narrowly defined markets - ✔✔Markets that tend to have more elastic demand and
substitutes
✔✔Broadly defined markets - ✔✔Markets that tend to be fairly inelastic and have no
good substitutes
✔✔Impacts on Elasticity of Supply - ✔✔- Number of producers
- Availability of resources
- Technology
- Flexibility
- Time
✔✔Total Revenue (TR) - ✔✔The income that a company receives from its normal
business activities, usually from goods and services; defined as price times quantity
✔✔What happens when demand is inelastic (price elasticity less than one) - ✔✔Price
and total revenue move in the same direction
✔✔What happens when demand is elastic (price elasticity greater than one) - ✔✔Price
and total revenue move in opposite directions
✔✔What happens when demand is unit elastic (price elasticity equal exactly one) -
✔✔Total revenue remains constant when the price changes
