Pre-assessment: Principles of Economics (INO1) | Answered latest 2025/26 - WGU.

Pre-assessment: Principles of Economics (INO1) (PINO) 1. Which set of questions is answered when a society decides how to distribute its scarce resources? Your Answer Correct Answer • What, when, and how to produce goods and services • How, why, and when to produce goods and services • What, why, and for whom to produce goods and services • What, how, and for whom to produce goods and services 2. A local government is making public policy decisions about spending funds. The residents have differing opinions on whether the funds should be used for road repair, school expansion, health care increases, or the construction of a senior center. The local government must decide the priority. Which economic question is this decision an example of? Your Answer Correct Answer • What to produce • Why to produce it • How to produce it • When to produce it 3. A newspaper is trying to help citizens understand economic principles. Which misconception should the article address? Your Answer Correct Answer • Consistent rising prices often results in inflation of goods and services. • Printing too much money causes the price of goods to increase. • Increasing the money supply raises the standard of living for consumers in the long run. • Inflation decreases the value of money and makes goods more expensive. 4. Which scenario covers a topic included in microeconomics? Your Answer Correct Answer • As a result of a hard freeze, the price of cherries increases. • An economist compares the gross domestic product between the United States and China. • The government changes the tax policy to boost economic growth in the United States. • The Federal Reserve responds to an increase in inflation by changing the interest rate. 5. What accurately characterizes capital? Your Answer Correct Answer • It is in the form of cash. • It is reliant on a natural resource. • It must be in the form of physical objects. • It can be in the form of intellectual discoveries. 6. Why is the circular flow model used? Your Answer Correct Answer • To describe how factors of production affect growth and decline • To illustrate how capitalism and socialism differ as an economic form • To describe the interaction of businesses and households in marketsYour Answer Correct Answer • To illustrate primarily the use of labor and natural resources in an economy 7. What is a result of increasing opportunity costs? Your Answer Correct Answer • To consume more of one good, a consumer becomes more and more efficient. • To produce more of one good, the economy gives up more and more of other goods. • As an economy produces a greater variety of goods, the cost of each good increases. • When consumers do not want what producers make, increased opportunity for trade is missed. 8. How would a production possibility frontier be drawn for an economy that produces two goods with homogeneous resources? Your Answer Correct Answer • As a constant slope, downward from left to right • As a ray out of the origin, with a constant slope • As a semicircle centered on the origin, sloping downward from left to right • As a limited line, downward from left to right, that does not touch either axis 9. A company is operating at a point inside its production possibility frontier. Which conclusion is accurate about this company? Your Answer Correct Answer • The economy of the company will grow too fast. • The resources of the company are being inefficiently utilized. • The company's resources are being used in the most efficient manner. • The production possibilities frontier for the company will shift outward. 10. A country produces two goods (A and B) and currently operates on the bowed out production possibilities frontier. What is the relationship between the productions of Good A and Good B? Your Answer Correct Answer • If production of Good A increases, then production of Good B will decrease. • If production of Good A increases, then production of Good B will increase. • If production of Good A is constant, then production of B will increase. • If production of Good A is constant, then production of B will decrease. 11. A local farm grows apples and oranges. Production possibilities for this farm are provided in the following figure:Assume that this farm operates at Option B. What happens to the production of apples and oranges if the farm decides to move to Option D? Your Answer Correct Answer • Production of apples will decrease by 50 pounds, and production of oranges will decrease by 45 pounds. • Production of apples will increase by 50 pounds, and production of oranges will increase by 15 pounds. • Production of apples will increase by 100 pounds, and production of oranges will increase by 60 pounds. • Production of apples will decrease by 100 pounds, and production of oranges will decrease by 15 pounds. 12. A group of roommates decides to buy pizza together. The table below shows the quantity of pizza demanded at different price levels: Demand for Pizza After a Drop in Price Price of Pizza Quantity Demanded (per slice) (in slices) $0.50 20 $0.75 15 $1.00 10 $1.25 5 $1.50 0 The prize of pizza was originally $1.25 per slice, but it is now on sale for $0.75 per slice. How will the price change affect the quantity of pizza slices demanded? Your Answer Correct Answer • The quantity demanded of pizza slices will decrease by 5 slices. • The quantity demanded of pizza slices will increase by 10 slices. • The quantity demanded of pizza slices will decrease by 10 slices. • The quantity demanded of pizza slices will increase by 5 slices. 13. Which description accurately characterizes demand? Your Answer Correct Answer • Changes in buyers’ expectations will shift the demand curve, and changes in buyers’ income will result in a movement along the curve. • Changes in the price of a substitute good will shift the demand curve, and changes in buyers’ tastes and preferences will result in a movement along the curve. • Changes in the number of buyers in a market will shift the demand curve, and changes in the price of a complement good will result in a movement along the curve.Your Answer Correct Answer • Changes in income will shift the demand curve, and changes in the market price of the good will result in a movement along the curve. 14. Which statement is true about the law of demand, all else being equal? Your Answer Correct Answer • A rise in price will likely increase the quantity demanded. • A fall in price will likely increase the quantity demanded. • A fall in price will likely decrease the quantity demanded. • A rise in price will not have any impact on quantity demanded. 15. What is the name of a table depicting the relationship between the prices of a product and the quantities that consumers are willing to buy at those prices? Your Answer Correct Answer • Demand schedule • Demand curve • Law of demand • Demand factors 16. Which outcome is expected regarding the hot cocoa industry when the cost of cocoa from South America increases in price, making it more expensive to U.S. businesses? Your Answer Correct Answer • Consumers will start to buy hot cocoa mix to make in their own homes. • Consumers will increase hot cocoa purchases while out at a coffee shop. • Consumers will feel a rise in price, but it will not affect the quantity demanded. • Consumers will decrease hot cocoa purchases both to make at home or while out. 17. When a resident heard of an expected tornado, the individual ran to the store to stock up on survival items including bread, peanut butter, batteries, and water. Which statement is likely to occur on the demand graph in response to this situation? Your Answer Correct Answer • A shift to the right due to an increase in demand in expectation of a shortage • A shift to the left due to an increase in demand in expectation of a shortage • A downward shift along the demand curve in expectation of a shortage • A price decrease as sellers understand that people need these survival items 18. Why do markets with excess demand move toward equilibrium? Your Answer Correct Answer • Excess demand produces excess supply over time. • Excess demand declines as prices fall. • Consumers are willing to pay higher prices, and firms will seek higher profits. • New market entrants will leave the industry. 19. Which statement describes how higher input costs affect equilibrium in the market for a good? Your Answer Correct Answer • They increase demand, causing prices to rise. • They reduce supply, causing prices to rise. • They increase supply, causing prices to fall. • They reduce demand, causing prices to fall.20. The market price of a product increased by 7%. The absolute value of the price elasticity of demand for this product is 3.8. What is the percent of change in quantity demanded? Your Answer Correct Answer • 1.8% decrease • 26.6% decrease • 73.4% increase • 98.2% increase 21. The average price of eggs increases from $1.10 to $1.30. In response, the quantity supplied increases from 220 to 260 eggs. The elasticity of supply is equal to 1. Which term describes the price elasticity of this supply? Your Answer Correct Answer • Elastic • Inelastic • Unit elastic • Perfectly inelastic 22. Why does a price ceiling cause market failure? Your Answer Correct Answer • It reduces the number of exchanges that take place without any shifts in the curve. • It reduces the quantity demanded by consumers without any shifts in the curve. • It increases the cost to an amount consumers cannot afford. • It increases exchanges to an allocative efficient quantity. 23. Where does a price floor need to be set to create a surplus? Your Answer Correct Answer • Above the market equilibrium price • Below the market equilibrium price • Below the marginal external cost • Above the marginal external cost 24. Which type of law causes a price floor? Your Answer Correct Answer • Minimum wage • Rent control • Automotive warranties • Mandatory service contracts 25. Which outcome is caused by adverse selection in the used car market? Your Answer Correct Answer • Sellers of poorly maintained cars admitting that their cars are poorly maintained • Only poorly maintained cars being available for sale • A higher price for well-maintained cars • A lower price for poorly maintained cars 26. A local store sells products that have been imported from a country with a reputation for producing low quality electronics. To encourage buyers to purchase the electronic products, the seller offers customers the opportunity to pay a fee and have any required repairs or replacement done for free within the next two years. Which concept is this seller using?Your Answer Correct Answer • Warranty • Equilibrium • Service contract • Money-back guarantee 27. How does market competition provide incentives for innovation? Your Answer Correct Answer • Firms can earn higher profits from new products. • New ideas cannot be easily copied from competitors. • Research and development investment is minimal. • Technology increases barriers to entry for firms. 28. How should a government overcome the inefficiencies created by negative externalities? Your Answer Correct Answer • Regulate the minimum age students can leave school to 15 • Provide a private taxicab company a $1.50 subsidy for each rider • Place a $2 tax on each item produced that contains harmful chemicals • Place legal limits on quantity of goods that can be recycled 29. Which result occurs when adding additional variable inputs according to the law of diminishing marginal returns? Your Answer Correct Answer • Larger increases in output from each unit of input • Cost per unit of output dropping by larger amounts • Cost per unit of output dropping by smaller amounts • Smaller increases in output from each unit of input 30. Why is a firm's total costs in the long run always as low or lower than in the short run? Your Answer Correct Answer • In the long run, a firm has fixed costs but no variable costs. • In the short run, a firm has variable costs but no fixed costs. • In the long run, a firm can alter its use of all factors of production. • In the short run, a firm cannot alter its use of the factors of production. 31. What are firms trying to accomplish when they choose particular combinations of inputs such as land, labor, and capital? Your Answer Correct Answer • To maximize the quantity, or output, of products sold • To maximize the marginal cost of producing the products sold • To maximize the difference between total revenue and total costs • To maximize total revenue generated from the products sold 32. Which effect is observed along the total cost curve as it becomes steeper? Your Answer Correct Answer • Diminishing depreciation • Diminishing marginal returns • Increasing depreciationYour Answer Correct Answer • Increasing marginal returns 33. Which situation occurs for a firm in the long run? Your Answer Correct Answer • The quantities of all inputs are variable. • • • The firm will be unable to build a bigger plant. • • • The economic efficiency is achieved. • • • The quantities of all inputs are constant. • • 34. The market demand for high-end eyeglass frames is currently at 5,000 units per month, and identical firms operating in this market are facing constant returns to scale in the product range of 500 to 1,000 units per month. There are currently 10 firms supplying frames to the market. While prices of frames have not changed, their market demand has decreased to 4,500 units per month. Which change should be expected in the number of firms supplying frames to this market in the long run? Your Answer Correct Answer • A decline in the number of firms; one to five firms will exit the market. • An increase in the number of firms; one to five firms will enter the market. • No potential change in the number of firms but an increase in production. • No potential change in the number of firms but a decrease in production. 35. Which type of market is characterized by firms with no market power for any individual firm? Your Answer Correct Answer • Oligopoly • Monopoly • Perfect competition • Monopolistic competition 36. Generic drugs start appearing after pharmaceutical firms’ patents expire. These generic drugs have the same formulation as name-brand drugs, but they are priced below name-brand medications. Producing generic drugs requires a significant capital investment to establish a modern manufacturing facility and established distribution networks. What is the market structure for these drugs? Your Answer Correct Answer • Monopoly • Oligopoly • Perfect competition • Monopolistic competition 37. How do firms in a perfectly competitive market maximize profits when facing perfectly elastic demand for their products? Your Answer Correct Answer • Firms choose how much to produce. • Firms choose their product prices. • Firms change short-term use of fixed inputs. • Firms choose to advertise. 38. What is an outcome of a perfectly competitive market?Your Answer Correct Answer • Firms will experience zero long-run economic profits. • Firms will experience positive long-run economic profits. • It is the least productively efficient in the long run. • It is the least allocatively efficient in the long run. 39. An individual firm is considering entering a perfectly competitive market. The average total cost of the firm is lower than the market price. What will result if the firm enters the market? Your Answer Correct Answer • The firm will enter the market and make a positive economic profit. • The firm will enter the market and make a negative economic profit. • The firm will not enter the market because it will be very difficult to overcome entry barriers. • The firm will not enter the market because it would be a price taker. 40. When will a monopolist choose to produce one more unit of a product? Your Answer Correct Answer • When marginal revenue exceeds marginal cost • • • When marginal cost exceeds marginal revenue • • • If the total revenue exceeds total cost • • • If the total cost exceeds total revenue • • 41. Which statement accurately describes a concentration ratio for an industry? Your Answer Correct Answer • The combined profits of the most profitable firms • The combined market shares of the top-selling firms • The combined assets of the firms acquiring the most competitors • The combined stock market valuation of the fastest growing firms 42. Which early tool was used to measure the degree of monopoly power in an industry? Your Answer Correct Answer • Concentration ratio • Acquisition • Herfindahl-Hirschman Index • Cartel 43. How do payments flow from firms to households in the circular flow model? Your Answer Correct Answer • Firms will provide households with entrepreneurship. • Firms will provide households with wages, profit, interest, and rents.Your Answer Correct Answer • Firms will provide households with investment capital. • Firms will provide households with goods and services. 44. What will households provide to firms in a factor market? Your Answer Correct Answer • Land, labor, capital, and entrepreneurship • Wages, profit, interest, and rents • Savings for investment • Goods and services 45. Which element of the circular flow model is supplied by households? Your Answer Correct Answer • Taxes • Wages • Rents • Interest 46. What is the largest component of gross domestic product (GDP) in the United States? Your Answer Correct Answer • Consumption • Investment • Government • Exports 47. Why is the sale of intermediate goods not included in the gross domestic product (GDP) calculation? Your Answer Correct Answer • Final goods include tariffs. • Intermediate goods are produced in the same year. • Intermediate goods are not taxed. • Double counting would overstate the size of the economy. 48. Which factor determines the distinction between nominal and real gross domestic product (GDP)? Your Answer Correct Answer • Taxes • Inflation • Investments • Location of production 49. Why is inflation good for borrowers and bad for lenders? Your Answer Correct Answer • Because inflation reduces the total amount of money borrowed • Because inflation increases the total amount of money borrowedYour Answer Correct Answer • Because inflation reduces the value of the money paid back to lenders • Because inflation increases the value of the money paid back to lenders 50. Which statement describes consumer spending? Your Answer Correct Answer • Disposable income determines consumption spending. • Consumer spending is based on disposable income minus taxes. • Only pre-tax income drives consumer spending. • As taxes increase, consumer spending increases as well. 51. Which situation would cause the aggregate demand curve to shift to the right? Your Answer Correct Answer • Higher chance of an upcoming recession • Lower chance of an upcoming recession • Higher chance of government spending reductions • Lower chance that wage increases continue 52. A government decision was made to spend 10 billion dollars on new technology to combat a serious problem in the country. What will happen to the aggregate demand curve? Your Answer Correct Answer • It will shift to the left. • It will shift to the right. • It will move up and to the left along the aggregate demand curve. • It will move down and to the right along the aggregate demand curve. 53. Which statement accurately characterizes the long-run aggregate supply (LRAS) curve? Your Answer Correct Answer • It is equal to full-employment GDP. • It is upward sloping. • It is above potential GDP. • It is horizontal. 54. What is the effect when there is a decrease in aggregate demand? Your Answer Correct Answer • Lower price level and lower unemployment • Lower price level and higher unemploymentYour Answer Correct Answer • Higher price level and lower unemployment • Higher price level and higher unemployment 55. An economy starts in a long-run equilibrium, and then there is a negative supply shock. Which economic outcome will result from this situation? Your Answer Correct Answer • Higher price level and higher unemployment • Higher price level and lower unemployment • Lower price level and higher unemployment • Lower price level and lower unemployment 56. The Federal Reserve has a primary goal of curbing inflation or reducing economic stagnation or recession. Which action is authorized for the Federal Reserve? Your Answer Correct Answer • Buy securities • Decrease taxes • Increase government spending • Introduce commodity-backed currencies 57. What allows for the money creation process in the economy? Your Answer Correct Answer • Fractional reserve banking system • Barter negotiations • Commodity-backed currencies • Double coincidence of wants 58. Which effect does an increase in income have on the money demand curve? Your Answer Correct Answer • Shifts to the right • Shifts to the left • Bows inward • Bows outward 59. A country is experiencing an inflationary gap. Which type of fiscal policy should the government undertake? Your Answer Correct Answer • Contractionary • Expansionary • Neutral • Protectionist 60. A country is experiencing a recessionary gap. Which type of fiscal policy should the government undertake?Your Answer Correct Answer • Contractionary • Expansionary • Neutral • Protectionist 61. What is a cause of structural deficits? Your Answer Correct Answer • Wartime spending • Recession • Depression • Political decisions 62. Which situation reduces the effectiveness of using the Phillips curve as a policy menu? Your Answer Correct Answer • Stagflation • Hyperinflation • Deficit spending • Discretionary spending 63. Canada reduces its tariffs by 25% on all manufacturing goods imported from the European Union. What is the long-run effect of this action? Your Answer Correct Answer • It increases the short-run government revenue of Canadian ports. • It discourages competition in the local manufacturing market. • It raises the prices of intermediate manufacturing inputs for other Canadian industries. • It decreases the long-run average costs as manufacturing firms face more competition. 64. Which trade policy could reduce exports? Your Answer Correct Answer • Increase cost of production by raising taxes • Increase GDP by training workers • Decrease spending on government healthcare • Increase infrastructure spending 65. Which economic policy is associated with restraining trade between countries? Your Answer Correct Answer • Bretton WoodsYour Answer Correct Answer • Comparative advantage • Monetary • Protectionism 66. Consider the following graph of a production possibilities frontier (PPF): Which points are attainable and efficient? Your Answer Correct Answer • Points C, E, and G • Points A, B, and C • Points A, D, and H • Points B, F, and I 67. Point X represents the consumption point of Country A without trade, and Point Y represents the consumption point of Country B without trade. These two points can be seen in the following graphs: What will be the gains from trade in total world production if these two countries specialize and trade?Your Answer Correct Answer • 90 fish and 50 corn • 50 fish and 110 corn • 300 fish and 200 corn • 600 fish and 500 corn Mistake 68. A government wants to incentivize domestic producers to grow and sell more organic vegetables locally rather than selling them internationally. The government plans to enact a flat tax on all domestic organic produce shipped outside of the country. Which type of tariff is the government enacting? Your Answer Correct Answer • Export • Compound • Protective • Ad valorem Correct 69. Country A provides domestic manufacturers with an export subsidy to incentivize international trade, which allows its companies to sell to Country B at below cost. Country B imposes tariffs on Country A's imports to protect its domestic manufacturers from any unfair trade practices. Which type of trade barrier is Country B enacting? Your Answer Correct Answer • Tariff quota • Absolute quota • Ad valorem tariff • Countervailing duty Correct 70. A government imposes a 2.5% tariff on the market value of imported furniture. Which type of tariff is the government enacting? Your Answer Correct Answer • Specific • Compound • Protective • Ad valorem