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

In Global Economics for Managers, industries that are primed for collusion typically possess structural features that make coordination among firms easier and more profitable. Three such characteristics are a small number of rivals, the presence of a price leader, and homogeneous products, making options A, B, and C correct.

A small number of rivals simplifies coordination. When only a few firms dominate a market, each firm can easily monitor competitors’ actions and detect deviations from agreed-upon pricing or output levels. This increases the sustainability of collusive behavior.

A price leader often emerges in oligopolistic industries. One dominant firm sets prices, and others follow, reducing uncertainty and facilitating tacit collusion without explicit agreements. Price leadership helps firms avoid price wars while maintaining higher profits.

Homogeneous products further support collusion because firms compete primarily on price rather than product differentiation. When products are identical, undercutting prices becomes the main competitive tool, making collusion attractive as a way to stabilize prices and profits.

Options D, E, and F reduce the likelihood of collusion. Product differentiation weakens coordination, informed consumers intensify competition, and free entry undermines collusive agreements by attracting new competitors.

Thus, A, B, and C correctly identify characteristics of industries prone to collusion.

In Global Economics for Managers , gross domestic product (GDP) is widely regarded as the single best available measure of a society’s economic well-being , making option A correct. GDP measures the total market value of all final goods and services produced within a country’s borders during a given period.

Although GDP has limitations—it does not account for income distribution, environmental degradation, or non-market activities—it remains the most comprehensive and consistent indicator of economic performance across countries and over time.

Option B is incorrect because inflation is measured by price indices such as the GDP deflator or the consumer price index (CPI), not by GDP growth. Option C is incorrect because GDP values goods and services at market prices without weighting one more heavily than the other. Option D is incorrect because GDP excludes income earned by citizens working abroad; that income is included in gross national income (GNI), not GDP.

Global Economics for Managers emphasizes that GDP is particularly useful for comparing economic output and living standards internationally, especially when adjusted for purchasing power parity.

Thus, option A correctly describes GDP.

Small-scale entry allows a firm to enter a foreign market cautiously, gain experience, and learn about local demand, institutions, competitors, distribution channels, and regulatory conditions without committing excessive capital. Option C is correct because learning by doing while limiting downside risk is the central advantage of small-scale entry. This approach is useful when market uncertainty is high or when managers lack reliable local knowledge. Option A is more consistent with large-scale entry, which signals major strategic commitment. Option B is incorrect because small-scale entry does not necessarily provide full control, especially if the firm uses partnerships, exporting, or limited investment. Option D is too optimistic because small-scale entry may limit speed and market-share growth. Its main benefit is controlled learning.

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According to Global Economics for Managers , firms should increase production when marginal revenue (MR) exceeds marginal cost (MC) , making option C correct.

In this case, MR = $1,000 and MC = $600. Producing one additional unit generates more revenue than cost, increasing profit by $400. Rational, profit-maximizing firms should continue expanding output as long as MR > MC.

This decision rule applies across market structures, including monopoly, oligopoly, and perfect competition. The firm should stop increasing production only when MR equals MC.

Options A, B, and D would cause the firm to forgo profitable opportunities.

Thus, option C is the correct managerial response.

In Global Economics for Managers , a first mover is a firm that enters a market early and is often able to erect significant barriers to entry , making option B correct.

First movers can secure scarce resources, establish strong brand recognition, achieve economies of scale, and set technological or industry standards. These advantages make it difficult for later entrants to compete effectively.

Late movers benefit from reduced uncertainty but rarely control key assets. Contenders and dodgers are strategic responses to multinational enterprises, not timing-based entry categories.

Therefore, option B correctly identifies the entrant most capable of erecting significant entry barriers.

In Global Economics for Managers , monopolies arise when barriers to entry prevent potential competitors from entering a market. Two common barriers are economies of scale and government-granted exclusive rights , making options B and E correct.

Economies of scale occur when average costs decline as output increases. In industries with very high fixed costs, a single large firm can produce at a lower cost than multiple smaller firms. This discourages entry because new firms cannot compete efficiently at small scales, leading to monopoly outcomes.

Government regulations granting exclusive production rights —such as patents, licenses, or exclusive franchises—also create monopolies by legally preventing competition. These barriers are intentional and often justified to encourage innovation or ensure service provision.

Option A does not restrict entry. Option C may limit foreign competition but does not necessarily create a monopoly. Option D does not prevent entry. Option F may increase market concentration but is not a structural entry barrier itself.

Thus, options B and E are correct.

A trade surplus occurs when a country exports more goods and services than it imports during a given period. This means foreign buyers purchase more from the country than the country purchases from abroad. Option A is correct because it accurately describes a positive balance of trade. A trade deficit is the opposite condition, where imports exceed exports. Mercantilism is an older trade theory that emphasized accumulating wealth through exports and limiting imports, but it is not the term for the actual trade-balance condition. Resource mobility refers to the ability of labor, capital, or other resources to move from one use or industry to another. For managers, trade surpluses can affect currency strength, export opportunities, and international competitiveness.

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In Global Economics for Managers , formal institutions are represented primarily by laws , making option C correct. Formal institutions include constitutions, statutes, regulations, contracts, and property rights that are officially codified and enforced by governments or legal authorities.

These institutions reduce uncertainty by clearly defining acceptable behavior and outlining consequences for violations. For firms, formal institutions establish the legal framework for business operations, including rules governing entry, competition, taxation, and dispute resolution.

Options A, B, and D describe informal institutions , which are unwritten and enforced through social mechanisms rather than legal authority.

Therefore, option C correctly identifies laws as representations of formal institutions.

The most basic way for a nonfinancial company to reduce exposure to foreign exchange fluctuations is to invoice customers in the company’s own currency. Option A is correct because this shifts exchange-rate risk away from the seller and onto the buyer. If the firm receives payment in its home currency, its revenues are more predictable and are not directly reduced by unfavorable currency movements. Currency hedging, rate locks, and forward transactions are more formal financial or contractual tools for managing exchange risk, but they require additional planning, market access, and sometimes financial expertise. Invoicing in the home currency is operationally simpler. However, managers must remember that this approach may make the firm less attractive to foreign buyers who prefer pricing in their local currency.

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In Global Economics for Managers , monopolies and perfectly competitive firms share two important features: profit maximization at MR = MC and the ability to earn economic profits in the short run , making options E and F correct.

Option E applies universally: all firms maximize profit where marginal revenue equals marginal cost , regardless of market structure. This decision rule guides output choices in both monopoly and perfect competition.

Option F is also correct because firms in both structures can earn economic profits in the short run . In perfect competition, short-run profits attract new entrants, while monopolies may sustain profits longer due to entry barriers.

Options A and B distinguish the two structures. Option C applies only to monopoly. Option D applies only to monopoly, not perfect competition.

Thus, options E and F correctly identify shared features.