Free Practice Questions for WGU Global-Economics-for-Managers Exam

In Global Economics for Managers , demand for a normal good increases with income and decreases when income falls. If consumers expect lower future income , demand for normal goods decreases, causing the demand curve to shift left , making option A correct.

A leftward shift indicates that at every price, consumers are willing and able to purchase less of the good. Expectations about future income influence present consumption decisions, especially for durable and discretionary goods.

Options C and D incorrectly describe movement along a demand curve rather than a shift. Option B would apply if income were expected to rise.

Therefore, option A is correct.

A good with close substitutes tends to have elastic demand because consumers can easily switch to another product when its price rises. Option A is correct. Elastic demand means quantity demanded responds strongly to price changes. For example, if one brand of bottled water increases in price and many similar brands are available, consumers can quickly shift purchases. This makes the seller more constrained when raising prices. Goods with few substitutes, necessities, or small budget shares tend to have less elastic demand. Complements affect cross-price relationships, but having many or few complements does not directly define whether demand for the good itself is elastic. Tangibility also does not determine elasticity. For managers, elasticity is critical because it affects pricing strategy, revenue forecasting, and competitive positioning.

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In Global Economics for Managers , a market-seeking company is one that invests in or enters a foreign location primarily to serve local or regional customers , making option C the correct answer. Market-seeking behavior is driven by demand-side considerations rather than cost or resource availability.

Option C describes a firm searching for a location where there is high consumer interest in camping supplies , which directly reflects a desire to access and serve a specific market. Such firms are motivated by factors like market size, growth potential, consumer preferences, and proximity to customers. Market-seeking firms often establish foreign subsidiaries, sales offices, or production facilities to adapt products to local tastes and respond quickly to demand.

Option A describes a resource-seeking firm, focused on obtaining low-cost or specialized inputs. Option B also reflects resource-seeking behavior, specifically in extractive industries. Option D describes a cost-seeking (efficiency-seeking) firm that locates production in regions with low labor costs.

Global Economics for Managers classifies foreign direct investment motives into market-seeking, resource-seeking, efficiency-seeking, and strategic asset-seeking. Market-seeking investment is particularly common in consumer goods and service industries, where understanding local preferences is critical for success.

For managers, recognizing market-seeking motives helps guide decisions about location, marketing strategy, and product adaptation. Thus, option C accurately illustrates a market-seeking company.

In Global Economics for Managers , a core proposition of the institution-based view is that firms make rational decisions within institutional constraints , making option C correct.

When a country raises its minimum wage, labor costs increase due to a formal institutional change. A multinational firm responding by relocating production to a lower-cost country demonstrates rational behavior shaped by institutional rules.

Options A, B, and D reflect competitive strategy but do not directly involve institutional constraints.

Therefore, option C correctly illustrates the institution-based view.

In Global Economics for Managers , equity modes of entry involve ownership stakes in foreign operations. Strategic alliances , greenfield investments , and acquisitions all require equity participation, making options A, B, and C correct.

Strategic alliances often involve shared ownership and joint decision-making. Greenfield investments require firms to build new facilities from scratch, while acquisitions involve purchasing existing foreign firms.

Licensing and franchising are non-equity contractual modes.

Therefore, options A, B, and C correctly identify equity modes of entry.

In Global Economics for Managers , one of the two major exchange rate policies is the floating rate system , making option B the correct answer. Exchange rate policy determines how a country manages the value of its currency relative to others, which has significant implications for trade, investment, and macroeconomic stability.

Under a floating exchange rate system, currency values are determined by market forces of supply and demand in foreign exchange markets. Factors such as interest rates, inflation expectations, trade balances, and capital flows influence exchange rate movements. Governments and central banks do not commit to maintaining a specific exchange rate level, although they may occasionally intervene to reduce excessive volatility.

The alternative major policy is a fixed (or pegged) exchange rate system , where the government commits to maintaining the currency at a specific value relative to another currency or basket of currencies. Option A, fiscal rate, refers to government taxation and spending policy. Option C, matched rate, is not a recognized exchange rate regime. Option D, discount rate, is a monetary policy tool used by central banks, not an exchange rate policy.

Global Economics for Managers emphasizes that floating exchange rates provide greater monetary policy independence but introduce exchange rate uncertainty, which managers must manage through hedging and pricing strategies. Therefore, option B correctly identifies a major exchange rate policy.

In Global Economics for Managers , an oligopoly is defined as a market structure characterized by limited competition in which a small number of sellers dominate the market , making option C the correct answer. These firms collectively control a large share of total market output, and each firm’s actions significantly influence the behavior and profitability of the others.

Oligopolistic markets are common in industries with high barriers to entry, such as automobiles, airlines, telecommunications, and energy. Barriers may include economies of scale, high capital requirements, technological advantages, or government regulation. Because only a few firms operate in the market, strategic decision making becomes critical.

Option A, monopoly, involves a single seller. Option B, monopolistic competition, includes many sellers offering differentiated products. Option D, perfect competition, involves many sellers with no market power.

Global Economics for Managers emphasizes that oligopolies are marked by strategic interaction, where firms must anticipate competitors’ reactions when setting prices, output, advertising, or investment levels. This interdependence distinguishes oligopoly from other market structures.

Thus, option C accurately describes a market structure with limited competition and a small number of sellers.

In Global Economics for Managers , monopolies are characterized by a single seller offering a unique product and strong barriers to entry , making options A and B correct.

Monopolists face no close substitutes and can influence market prices. Barriers to entry—such as legal protections, resource ownership, or economies of scale—prevent competitors from entering the market.

Options C and D apply to perfect competition. Option E contradicts the definition of monopoly.

Thus, options A and B correctly describe monopoly characteristics.

In Global Economics for Managers , a decrease in demand with supply unchanged leads to a lower equilibrium price and a lower equilibrium quantity , making options B and D correct.

A leftward shift of the demand curve creates excess supply at the original price. To eliminate the surplus, prices fall, and quantity exchanged decreases until a new equilibrium is reached.

Options A and C contradict standard supply–demand analysis.

Thus, B and D are correct.

In Global Economics for Managers , substitute goods have a positive cross-price elasticity of demand , making option C correct. Cross-price elasticity measures how the quantity demanded of one good responds to a change in the price of another good.

For substitutes, an increase in the price of one good leads consumers to switch to the alternative, increasing demand for the substitute. This positive relationship results in a positive cross-price elasticity. Examples include tea and coffee or butter and margarine.

Complements have negative cross-price elasticity, normal goods relate to income elasticity, and “shortage goods” is not an elasticity classification.

Thus, option C is correct.