WGU D089 Principles of Economics Exam Questions - Verified & Rationalized Answers - Market Structures & International
Trade - A+ Graded
WGU D089 Principles of Economics | 300+ Questions | Verified and Rationalized Answers | Different Title 4
TABLE OF CONTENTS
1. I. Foundations - Scarcity Choice Opportunity Cost Next Best Alternative Explicit Implicit Costs PPF
2. II. Demand and Supply - Law Demand Inverse Price Quantity, Law Supply Direct, Shifts vs Movement Along, Equilibrium Surplus Shortage
3. III. Elasticity - Price Elasticity Demand Midpoint Formula Percent Delta Q / Percent Delta P Elastic greater than 1 Inelastic less than 1
Unitary 1, Income Elasticity Normal Inferior, Cross Price Substitutes Complements, Supply Elasticity Time Horizon
4. IV. Consumer Behavior - Law Diminishing Marginal Utility, Consumer Surplus Willingness to Pay Minus Price
5. V. Production and Costs - Short Run vs Long Run, Fixed Variable Costs, MC MR AC, Economies Scale
6. VI. Market Structures - Perfect Competition P=MC, Monopoly MR=MC Price from Demand, Monopolistic Competition, Oligopoly
7. VII. GDP Measurement - Final Goods Services Within Country, Nominal Current Prices vs Real Constant Prices GDP Deflator
Nominal/Real*100, Excludes Intermediate Used Financial Non-Market
8. VIII. Inflation and Unemployment - CPI Basket vs GDP Deflator All Goods, Natural Rate Frictional Structural Cyclical Zero Full Employment,
Types Inflation Demand Pull Cost Push
9. IX. AD-AS Model - AD C+I+G+NX, SRAS LRAS Vertical Full Employment, Supply Shock Oil Stagflation Inflation Up Output Down
10. X. Fiscal Policy - Expansionary Increase G Decrease T Close Recessionary Gap Increase AD, Contractionary Decrease G Increase T
Close Inflationary Gap, Crowding Out Interest Rate Reduces Private Investment
11. XI. Money and Banking - Functions Medium Exchange Unit Account Store Value Deferred Payment, Federal Reserve Tools Fed Funds
Rate Reserve Requirement Open Market Buy Sell Bonds
12. XII. Monetary Policy - Expansionary Decrease Fed Funds Rate Decrease Reserve Buy Bonds Increase Money Supply Decrease Interest
Rate, Contractionary Increase Rate Increase Reserve Sell Bonds
13. XIII. Phillips Curve - Short Run Inverse Inflation Unemployment, Long Run Vertical Natural Rate NAIRU Expectations-Augmented
14. XIV. International Trade - Comparative Advantage Lower Opportunity Cost Basis Specialization, Absolute Advantage More Output, Trade
Barriers Tariffs Quotas
15. XV. Practice Questions - Each Asked Like Real WGU D089 Exam
16. XVI. Answer Key with Verified and Rationalized Answers A+ Graded
,WGU D089 PRINCIPLES OF ECONOMICS - PRACTICE QUESTIONS - EACH QUESTION ASKED LIKE REAL EXAM
Based on WGU D089 Principles of Economics Competency - Microeconomics Macroeconomics Policy. High Yield.
1. Monopoly profit maximization where?
A. MR=MC - monopoly MR less than P due to downward demand, produces where MR=MC then charges demand price
B. MC=0
C. P=MC
D. MR greater than P
Answer: A
Rationale: Monopoly MR=MC profit max, price from demand greater than MR.
2. A coffee shop raises price from $4 to $5 and quantity demanded falls from 100 to 80 cups per day. What is price elasticity of demand and
type?
A. Inelastic 0.5
B. Perfectly elastic
C. Perfectly inelastic
D. Elastic - price elasticity = (Delta Q/Qavg)/(Delta P/Pavg) = (-20/90)/(1/4.5)= -1.0 unitary elastic
Answer: D
Rationale: Elasticity mid-point: Qavg 90, Pavg 4.5, percent Delta Q -22.2 percent, percent Delta P 22.2 percent, elasticity -1 unitary elastic.
3. What is consumer surplus?
A. Price paid
B. Producer gain
C. No surplus
D. Difference between willingness to pay and actual price paid - area below demand above price
Answer: D
Rationale: Consumer surplus willingness to pay minus price paid below demand above price.
4. What is comparative advantage?
A. No trade benefit
B. Absolute advantage
C. Produce more
D. Ability to produce at lower opportunity cost - basis for trade specialization
Answer: D
Rationale: Comparative advantage lower opportunity cost basis trade.
5. What does Federal Reserve use for contractionary monetary policy?
A. Decrease reserve requirement
B. Increase federal funds rate, increase reserve requirement, sell bonds open market operations - decrease money supply increase interest rate
C. Buy bonds
D. Decrease interest rate
Answer: B
Rationale: Contractionary monetary increase fed funds rate increase reserve requirement sell bonds decrease money supply.
6. Elasticity of supply determinants?
A. Only price
B. Time horizon, availability inputs, excess capacity, storability - more elastic long run
C. Only demand
D. No determinants
Answer: B
Rationale: Supply elasticity time horizon inputs capacity storability.
7. What is consumer surplus?
A. Difference between willingness to pay and actual price paid - area below demand above price
B. Price paid
C. No surplus
D. Producer gain
Answer: A
Rationale: Consumer surplus willingness to pay minus price paid below demand above price.
8. What is comparative advantage?
A. Absolute advantage
B. Ability to produce at lower opportunity cost - basis for trade specialization
C. Produce more
D. No trade benefit
Answer: B
Rationale: Comparative advantage lower opportunity cost basis trade.
9. What is natural rate of unemployment includes?
,A. Only structural
B. Only cyclical
C. Frictional plus structural - natural rate around 4-5 percent, cyclical 0 at full employment
D. Zero unemployment
Answer: C
Rationale: Natural rate frictional plus structural, cyclical 0 at full employment.
10. What is crowding out?
A. No crowding
B. Increases investment
C. No effect
D. Expansionary fiscal increases interest rate reduces private investment I - crowding out reduces multiplier effectiveness
Answer: D
Rationale: Crowding out fiscal increase interest rate reduces private investment.
11. What is opportunity cost?
A. Only money cost
B. Sunk cost
C. Value of next best alternative forgone when making a choice - includes explicit and implicit costs
D. No cost
Answer: C
Rationale: Opportunity cost next best alternative forgone explicit plus implicit.
12. What is natural rate of unemployment includes?
A. Zero unemployment
B. Only cyclical
C. Only structural
D. Frictional plus structural - natural rate around 4-5 percent, cyclical 0 at full employment
Answer: D
Rationale: Natural rate frictional plus structural, cyclical 0 at full employment.
13. What is natural rate of unemployment includes?
A. Only cyclical
B. Zero unemployment
C. Frictional plus structural - natural rate around 4-5 percent, cyclical 0 at full employment
D. Only structural
Answer: C
Rationale: Natural rate frictional plus structural, cyclical 0 at full employment.
14. What causes shift in demand vs movement along demand?
A. Only price shifts
B. Same
C. No shift
D. Movement along caused by price change, shift caused by income tastes expectations number buyers price related goods - demand shifter
Answer: D
Rationale: Movement along price change, shift income tastes expectations buyers related goods.
15. Elasticity of supply determinants?
A. Only demand
B. No determinants
C. Time horizon, availability inputs, excess capacity, storability - more elastic long run
D. Only price
Answer: C
Rationale: Supply elasticity time horizon inputs capacity storability.
16. What is comparative advantage?
A. Absolute advantage
B. Ability to produce at lower opportunity cost - basis for trade specialization
C. Produce more
D. No trade benefit
Answer: B
Rationale: Comparative advantage lower opportunity cost basis trade.
17. What causes shift in demand vs movement along demand?
A. No shift
B. Only price shifts
C. Same
D. Movement along caused by price change, shift caused by income tastes expectations number buyers price related goods - demand shifter
Answer: D
, Rationale: Movement along price change, shift income tastes expectations buyers related goods.
18. What is opportunity cost?
A. No cost
B. Value of next best alternative forgone when making a choice - includes explicit and implicit costs
C. Only money cost
D. Sunk cost
Answer: B
Rationale: Opportunity cost next best alternative forgone explicit plus implicit.
19. What is difference between nominal GDP and real GDP?
A. No difference
B. Nominal uses current prices, real uses base year constant prices adjusted for inflation - real = nominal/GDP deflator*100
C. Real includes inflation
D. Same
Answer: B
Rationale: Nominal current prices, real constant base year prices inflation-adjusted.
20. What is natural rate of unemployment includes?
A. Only structural
B. Frictional plus structural - natural rate around 4-5 percent, cyclical 0 at full employment
C. Only cyclical
D. Zero unemployment
Answer: B
Rationale: Natural rate frictional plus structural, cyclical 0 at full employment.
21. Monopoly profit maximization where?
A. MC=0
B. MR=MC - monopoly MR less than P due to downward demand, produces where MR=MC then charges demand price
C. MR greater than P
D. P=MC
Answer: B
Rationale: Monopoly MR=MC profit max, price from demand greater than MR.
22. What is law of diminishing marginal utility?
A. Utility always increases
B. No diminishing
C. As consumption of good increases, additional satisfaction from each extra unit decreases
D. Utility constant
Answer: C
Rationale: Diminishing marginal utility extra unit less satisfaction.
23. What is law of diminishing marginal utility?
A. No diminishing
B. As consumption of good increases, additional satisfaction from each extra unit decreases
C. Utility constant
D. Utility always increases
Answer: B
Rationale: Diminishing marginal utility extra unit less satisfaction.
24. What does Federal Reserve use for contractionary monetary policy?
A. Buy bonds
B. Decrease interest rate
C. Increase federal funds rate, increase reserve requirement, sell bonds open market operations - decrease money supply increase interest rate
D. Decrease reserve requirement
Answer: C
Rationale: Contractionary monetary increase fed funds rate increase reserve requirement sell bonds decrease money supply.
25. A coffee shop raises price from $4 to $5 and quantity demanded falls from 100 to 80 cups per day. What is price elasticity of demand and
type?
A. Inelastic 0.5
B. Elastic - price elasticity = (Delta Q/Qavg)/(Delta P/Pavg) = (-20/90)/(1/4.5)= -1.0 unitary elastic
C. Perfectly elastic
D. Perfectly inelastic
Answer: B
Rationale: Elasticity mid-point: Qavg 90, Pavg 4.5, percent Delta Q -22.2 percent, percent Delta P 22.2 percent, elasticity -1 unitary elastic.
26. What is opportunity cost?
A. Sunk cost
B. No cost
Trade - A+ Graded
WGU D089 Principles of Economics | 300+ Questions | Verified and Rationalized Answers | Different Title 4
TABLE OF CONTENTS
1. I. Foundations - Scarcity Choice Opportunity Cost Next Best Alternative Explicit Implicit Costs PPF
2. II. Demand and Supply - Law Demand Inverse Price Quantity, Law Supply Direct, Shifts vs Movement Along, Equilibrium Surplus Shortage
3. III. Elasticity - Price Elasticity Demand Midpoint Formula Percent Delta Q / Percent Delta P Elastic greater than 1 Inelastic less than 1
Unitary 1, Income Elasticity Normal Inferior, Cross Price Substitutes Complements, Supply Elasticity Time Horizon
4. IV. Consumer Behavior - Law Diminishing Marginal Utility, Consumer Surplus Willingness to Pay Minus Price
5. V. Production and Costs - Short Run vs Long Run, Fixed Variable Costs, MC MR AC, Economies Scale
6. VI. Market Structures - Perfect Competition P=MC, Monopoly MR=MC Price from Demand, Monopolistic Competition, Oligopoly
7. VII. GDP Measurement - Final Goods Services Within Country, Nominal Current Prices vs Real Constant Prices GDP Deflator
Nominal/Real*100, Excludes Intermediate Used Financial Non-Market
8. VIII. Inflation and Unemployment - CPI Basket vs GDP Deflator All Goods, Natural Rate Frictional Structural Cyclical Zero Full Employment,
Types Inflation Demand Pull Cost Push
9. IX. AD-AS Model - AD C+I+G+NX, SRAS LRAS Vertical Full Employment, Supply Shock Oil Stagflation Inflation Up Output Down
10. X. Fiscal Policy - Expansionary Increase G Decrease T Close Recessionary Gap Increase AD, Contractionary Decrease G Increase T
Close Inflationary Gap, Crowding Out Interest Rate Reduces Private Investment
11. XI. Money and Banking - Functions Medium Exchange Unit Account Store Value Deferred Payment, Federal Reserve Tools Fed Funds
Rate Reserve Requirement Open Market Buy Sell Bonds
12. XII. Monetary Policy - Expansionary Decrease Fed Funds Rate Decrease Reserve Buy Bonds Increase Money Supply Decrease Interest
Rate, Contractionary Increase Rate Increase Reserve Sell Bonds
13. XIII. Phillips Curve - Short Run Inverse Inflation Unemployment, Long Run Vertical Natural Rate NAIRU Expectations-Augmented
14. XIV. International Trade - Comparative Advantage Lower Opportunity Cost Basis Specialization, Absolute Advantage More Output, Trade
Barriers Tariffs Quotas
15. XV. Practice Questions - Each Asked Like Real WGU D089 Exam
16. XVI. Answer Key with Verified and Rationalized Answers A+ Graded
,WGU D089 PRINCIPLES OF ECONOMICS - PRACTICE QUESTIONS - EACH QUESTION ASKED LIKE REAL EXAM
Based on WGU D089 Principles of Economics Competency - Microeconomics Macroeconomics Policy. High Yield.
1. Monopoly profit maximization where?
A. MR=MC - monopoly MR less than P due to downward demand, produces where MR=MC then charges demand price
B. MC=0
C. P=MC
D. MR greater than P
Answer: A
Rationale: Monopoly MR=MC profit max, price from demand greater than MR.
2. A coffee shop raises price from $4 to $5 and quantity demanded falls from 100 to 80 cups per day. What is price elasticity of demand and
type?
A. Inelastic 0.5
B. Perfectly elastic
C. Perfectly inelastic
D. Elastic - price elasticity = (Delta Q/Qavg)/(Delta P/Pavg) = (-20/90)/(1/4.5)= -1.0 unitary elastic
Answer: D
Rationale: Elasticity mid-point: Qavg 90, Pavg 4.5, percent Delta Q -22.2 percent, percent Delta P 22.2 percent, elasticity -1 unitary elastic.
3. What is consumer surplus?
A. Price paid
B. Producer gain
C. No surplus
D. Difference between willingness to pay and actual price paid - area below demand above price
Answer: D
Rationale: Consumer surplus willingness to pay minus price paid below demand above price.
4. What is comparative advantage?
A. No trade benefit
B. Absolute advantage
C. Produce more
D. Ability to produce at lower opportunity cost - basis for trade specialization
Answer: D
Rationale: Comparative advantage lower opportunity cost basis trade.
5. What does Federal Reserve use for contractionary monetary policy?
A. Decrease reserve requirement
B. Increase federal funds rate, increase reserve requirement, sell bonds open market operations - decrease money supply increase interest rate
C. Buy bonds
D. Decrease interest rate
Answer: B
Rationale: Contractionary monetary increase fed funds rate increase reserve requirement sell bonds decrease money supply.
6. Elasticity of supply determinants?
A. Only price
B. Time horizon, availability inputs, excess capacity, storability - more elastic long run
C. Only demand
D. No determinants
Answer: B
Rationale: Supply elasticity time horizon inputs capacity storability.
7. What is consumer surplus?
A. Difference between willingness to pay and actual price paid - area below demand above price
B. Price paid
C. No surplus
D. Producer gain
Answer: A
Rationale: Consumer surplus willingness to pay minus price paid below demand above price.
8. What is comparative advantage?
A. Absolute advantage
B. Ability to produce at lower opportunity cost - basis for trade specialization
C. Produce more
D. No trade benefit
Answer: B
Rationale: Comparative advantage lower opportunity cost basis trade.
9. What is natural rate of unemployment includes?
,A. Only structural
B. Only cyclical
C. Frictional plus structural - natural rate around 4-5 percent, cyclical 0 at full employment
D. Zero unemployment
Answer: C
Rationale: Natural rate frictional plus structural, cyclical 0 at full employment.
10. What is crowding out?
A. No crowding
B. Increases investment
C. No effect
D. Expansionary fiscal increases interest rate reduces private investment I - crowding out reduces multiplier effectiveness
Answer: D
Rationale: Crowding out fiscal increase interest rate reduces private investment.
11. What is opportunity cost?
A. Only money cost
B. Sunk cost
C. Value of next best alternative forgone when making a choice - includes explicit and implicit costs
D. No cost
Answer: C
Rationale: Opportunity cost next best alternative forgone explicit plus implicit.
12. What is natural rate of unemployment includes?
A. Zero unemployment
B. Only cyclical
C. Only structural
D. Frictional plus structural - natural rate around 4-5 percent, cyclical 0 at full employment
Answer: D
Rationale: Natural rate frictional plus structural, cyclical 0 at full employment.
13. What is natural rate of unemployment includes?
A. Only cyclical
B. Zero unemployment
C. Frictional plus structural - natural rate around 4-5 percent, cyclical 0 at full employment
D. Only structural
Answer: C
Rationale: Natural rate frictional plus structural, cyclical 0 at full employment.
14. What causes shift in demand vs movement along demand?
A. Only price shifts
B. Same
C. No shift
D. Movement along caused by price change, shift caused by income tastes expectations number buyers price related goods - demand shifter
Answer: D
Rationale: Movement along price change, shift income tastes expectations buyers related goods.
15. Elasticity of supply determinants?
A. Only demand
B. No determinants
C. Time horizon, availability inputs, excess capacity, storability - more elastic long run
D. Only price
Answer: C
Rationale: Supply elasticity time horizon inputs capacity storability.
16. What is comparative advantage?
A. Absolute advantage
B. Ability to produce at lower opportunity cost - basis for trade specialization
C. Produce more
D. No trade benefit
Answer: B
Rationale: Comparative advantage lower opportunity cost basis trade.
17. What causes shift in demand vs movement along demand?
A. No shift
B. Only price shifts
C. Same
D. Movement along caused by price change, shift caused by income tastes expectations number buyers price related goods - demand shifter
Answer: D
, Rationale: Movement along price change, shift income tastes expectations buyers related goods.
18. What is opportunity cost?
A. No cost
B. Value of next best alternative forgone when making a choice - includes explicit and implicit costs
C. Only money cost
D. Sunk cost
Answer: B
Rationale: Opportunity cost next best alternative forgone explicit plus implicit.
19. What is difference between nominal GDP and real GDP?
A. No difference
B. Nominal uses current prices, real uses base year constant prices adjusted for inflation - real = nominal/GDP deflator*100
C. Real includes inflation
D. Same
Answer: B
Rationale: Nominal current prices, real constant base year prices inflation-adjusted.
20. What is natural rate of unemployment includes?
A. Only structural
B. Frictional plus structural - natural rate around 4-5 percent, cyclical 0 at full employment
C. Only cyclical
D. Zero unemployment
Answer: B
Rationale: Natural rate frictional plus structural, cyclical 0 at full employment.
21. Monopoly profit maximization where?
A. MC=0
B. MR=MC - monopoly MR less than P due to downward demand, produces where MR=MC then charges demand price
C. MR greater than P
D. P=MC
Answer: B
Rationale: Monopoly MR=MC profit max, price from demand greater than MR.
22. What is law of diminishing marginal utility?
A. Utility always increases
B. No diminishing
C. As consumption of good increases, additional satisfaction from each extra unit decreases
D. Utility constant
Answer: C
Rationale: Diminishing marginal utility extra unit less satisfaction.
23. What is law of diminishing marginal utility?
A. No diminishing
B. As consumption of good increases, additional satisfaction from each extra unit decreases
C. Utility constant
D. Utility always increases
Answer: B
Rationale: Diminishing marginal utility extra unit less satisfaction.
24. What does Federal Reserve use for contractionary monetary policy?
A. Buy bonds
B. Decrease interest rate
C. Increase federal funds rate, increase reserve requirement, sell bonds open market operations - decrease money supply increase interest rate
D. Decrease reserve requirement
Answer: C
Rationale: Contractionary monetary increase fed funds rate increase reserve requirement sell bonds decrease money supply.
25. A coffee shop raises price from $4 to $5 and quantity demanded falls from 100 to 80 cups per day. What is price elasticity of demand and
type?
A. Inelastic 0.5
B. Elastic - price elasticity = (Delta Q/Qavg)/(Delta P/Pavg) = (-20/90)/(1/4.5)= -1.0 unitary elastic
C. Perfectly elastic
D. Perfectly inelastic
Answer: B
Rationale: Elasticity mid-point: Qavg 90, Pavg 4.5, percent Delta Q -22.2 percent, percent Delta P 22.2 percent, elasticity -1 unitary elastic.
26. What is opportunity cost?
A. Sunk cost
B. No cost
