WGU D089: Module 1 Questions and Answers Graded A

WGU D089: Module 1 Questions and Answers Graded A What are the three fundamental questions every economy must answer? Give an example of a "What" question. What to produce, how it will be produced, and from whom the goods or services are produced. What to produce (Oil vs. Cattle), How to (Current vs. New technology), From who to produce What do economists mean when they say that people "think at the margin"? Thinking about the next step or an additional action means for a person. According to the 10 Principles of Economics, what determines a nation's standard of living? Principle 8: Nations ability to produce goods and services. Using the 10 Principles of Economics, explain why trade is beneficial? Principle 5: Trade leaves everyone in a better position. Allows people to concentrate on what they do best and exchange their ability with others. How does printing money impact prices? Printing to much money can cause prices to rise which causes inflation. Economics Study of how humans make decisions in the face of scarcity. Factors of production Describes the inputs used in the production of goods or services to make an economic profit. Macroeconomics Branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole. Large economic think national or global Microeconomics Branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. think small like people and businesses. Scarcity Basic economic problems, the gap between limited, scarce, resources, and theoretically limitless wants. What to Produce: Using the economy's scarce resources to produce one thing requires giving up another. Every society must decide what it will produce with its scarce resources. opportunity cost The next best alternative that is given up when a choice is made. How to Produce it: There are all sorts of choices to be made in determining how goods and services should be produced. From whom to produce it: If a good or service is produced, a decision must be made about who will get it. The decision if one person, or group or service. Principal 1 Everyone faces tradeoffs- People must decide what they are willing to give up to get what they need or want, For example person wants a new car but will spend most of her check and will forgo other wants or needs. Principal 2 The cost of Something is determined by what you give up to get it - Opportunity cost is the value of the next best alternative. Ex: Buying a new car and the person will give up other goods or services that would have been bought if she didn't purchase the car. Principal 3 Rational people think at the margin- people make better decisions when they consider if the additional benefit, they gain from one more unit is greater than the additional cost of that extra unit of a good or service. Principal 4 People respond to incentives- Most decisions are based on costs Vs. benefits. Principle 5 trade can make everyone better off, allows people to concentrate on what they do best and exchange their ability with others to supplement their own needs Principle 6 Markets are a sound method of organizing economic activity- Principle 7 Governments can sometimes improve market outcomes. This is an exception to rule 6. Principle 8 Standard of living for a nation is determined by its ability to produce goods and services. Relationship between productivity and living standards. Principle 9 Printing to much paper money causes prices to rise, causes inflation. Principle 10 Society faces a short-run trade-off between inflation and unemployment. Ten Principles of Economics What to produce? A property owner has 500 acres of flat land and has been approached by two different businesses. One business want to drill for oil and the other wants to raise cattle How to produce it? A well-established company has been producing goods and wants to create a new line of production. The company needs to decide whether it should use a current factory or find a new location. For whom to Produce? TO address environmental concerns, Congress is considering a bill that would increase the price of electricity generated by coal. Increasing the price of electricity creates a problem for low-income households. Principle 4 of Economics-People respond to incentives Sales manager offers higher commission for product not selling. Principle 5: Trade can leave everyone in a better positon A farmer is really good at growing corn and exchanges the corn for meant and supplies Principle 6: Markets are a sound method of organization economic activity Multiple producers and consumers exchange goods and services Principle 7: Governments sometimes have the ability to better market outcomes Companies face regulations when they create a monopoly in their industry. Consequence of government printing more money Decrease unemployment Economic System refer to how an economy distributes scare resources. Four types of ecconomies Traditional, Command, Market, Mixed Traditional Economy System where individuals make decisions based on traditions, beliefs and customs. command economy Centralized: A system where the government makes all the decisions. Think North Korea market economy Decentralized: System where businesses make decisions based on consumer demand mixed economy System where businesses make decisions based on consumer demand, the government makes decisions in terms of regulations, consumer safety, and the environment. Differences between the Traditional and Market Economy Traditional is based on hunting, fishing, gathering, and agriculture they barter and trade goods and services in place of currency, are centered around tribes or families, exist in a hunter-gather and nomadic society, and produce what is needed. Market is decentralized, production is owned and operated by private individuals or groups, goods and services are supplied on demand, economic decisions are determined by market forces, and people and businesses have the right to commercialize property freely. Traditional Economic System Economic system in which decisions are based on customs and centered on family 5 key characteristics of a Traditional Economy Centered around families and tribes, exists in a hunter-gather and nomadic society, trade is heavily dependent on bartering rather than money, produces what is needed, and eventually changes from purely trad to the use of some type of currency Advantages to a Traditional Economy With little competition or friction among members of society, People's roles and contributions are well understood, and more sustainable than a technology-based economy. Disadvantages of traditional economy Exposed to environmental changes and weather patterns, and vulnerable to market or command economies, which consume and deplete the resources of traditional economies. Benefits of using a traditional economic system Everyone knows their roles in the market. Command Economic System Centralized, All economic decisions are made by a central government. The government owns and controls vital services and industries. Theoretically can plan, produce, and distribute enough resources yet in reality they tend to fail due to inadequate incentives, corruption, and inefficiencies. 5 Fundamental characteristics of a Command Economy All economic activity is planned and controlled by government power, government decides how to use and distribute nation's capital, and natural and labor resources, Controls the priorities for how goods and services are produced and distributed, Domestic competition is overpowered, Businesses require to follow specific hiring and production targets. advantages of command economy Type of system, goods, services and resources are deployed without concern for environmental or regulatory issues, and government can transform the entire society to fit constraints. Disadvantages of Command Economy Black market for economies, rationing commonly occurs, and people are discouraged from innovating Characteristic associated with a Command Economy Competition is limited Market Economic System Decentralized, production is owned and operated by private groups and individuals. Goods and services are supplied on demand, Consumers influence how much products and services are made available, Creates competition and innovation 5 Characteristics of a Market Economy private enterprise, private property, profit, competition, freedom of choice advantages of market economy Advantages: economic efficiency (responds quickly to change); economic freedom (high level of personal choice); economic growth (competition leads to innovation); wide variety of goods and services to meet consumer wants disadvantages of market economy 1. Doesn't provide for everyone or enough basic goods and services 2. High degree of uncertainty What is the advantage of a Market Economy Innovation is encouraged and rewarded Two disadvantages of a Command Economy Black market economies in response for difficult access to goods and services, Rationing commonly occurs, and people are discouraged from innovating. Mixed Economic System Is a combination of traditional, command, and market economies, decisions are based on consumer demand, government involvement for consumer safety, and environmental and other regulations. Consumer guidelines can affect the demand for a product and regulations can sometimes lead to higher production costs which affect profitability. Advantages of a mixed economy Goods and services are distributed where needed, prices are set by supply and demand, competition capitalizes on innovation, Goods/Services are more accessible to those willing to pay, Government role is expanded to help ensure access for the underprivileged. Disadvantages of Mixed economy Emerge when too much emphasis on goals of a particular market, could be too much or not enough freedom, the government may take an expanded role, businesses may influence government Disadvantage of mixed economy Freedom of choice can fluctuate from too much to too little Explain one of the advantages of the Mixed Market Goods and services are distributed where needed most, competition incentivizes innovation, goods/services are more available, and the government is expanded to help the underprivileged. Microeconomics the study of how households and firms make decisions and how they interact in markets Macroeconomics the study of the economy as a whole, including topics such as inflation, unemployment, and economic growth How are macroeconomics and microeconomics different Microeconomics focuses on the actions of individual agents like households, workers, and businesses and Macroeconomics looks at the economy as a whole and focuses on broad issues like the growth of production, # of unemployed, increased inflation, government deficits, and levels of exports, and imports. positive economics the branch of economic analysis that describes the way the economy actually works normative economics The part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics. What economic framework would a student use to study inflation in a county over the past year? Macroeconomics Economic Model a simplified version of the economy that allows people to observe, understand, and make predictions about economic behavior. economic indicators statistics that measure variables in the economy Economic reasoning used in deciding among public policy goals Normative statements because fairness of outcomes should be considered. Example of a normative statement "The government should increase the state pension" It cannot be proved. 4 categories for factors of production Natural Resources Labor Capital Entrepreneur Natural Resources Things found in nature can be used to produce goods and services, examples are land, minerals and petroleum Labor The human effort that can be applied to the production of goods and services. Capital Factor of production that has been created for use in production of goods and services, ex: office buildings, machinery and tools Entrepreneur A person operating within a market economy looks for ways to make profits. Payment for the 4 factors of production Rent for land or buildings Wages and salaries for labor interest/dividends for the use of capital profit for entrepreneurships Circular Flow Model The economic model that shows the flow of money and good through the economy., most common form of this model shows the circular flow of income between the household sector and business sector natural resources a factor of production, two key characteristics are that no human effort has been used to make them, and they can be used to produce goods and services. Expanded into three ways discovery of new natural resources like deposit of ore containing titanium, discovery of new uses for resources, discovery of new ways to extract resources to use them Labor Factor of production, is the human effort that can be applied to production, people who can work but are unemployed are considered part of labor, long term economic growth comes from increases in worker productivity, technological changes is an important factor that determines labor productivity. Human Capital Accumulated skills and education of workers. 2 ways to increase labor Increase the total quantity of labor by either increasing number of people available or increasing the average number of hours of work per time period. 2nd way to increase the amount of human capital possessed by workers. What are the four factors of production natural resources, labor, capital, entrepreneurship Capital Factor of Production, examples of capital: hammers, screwdrivers, wrenches, transportation equipment, roads, bridges, ports, doesn't consist solely of physical object. Money is not capital. Two Criteria for capital to be resources Resource must have been produced, and resource can be used to produce other goods and services. Criterion must be satisfied to include capital as a physical good or intellectual discovery It has been produced already and is used for producing other goods and services. Entrepreneur Factor of Production, goods and services are produced using the factors of production available to the economy, 2 things crucial role in implementing these factors is technology and individual who plays key role in a market economy. Why is technology an important part of entrepreneurship? Entrepreneurs use technology to best organize production Examples of factors of payments of production Land and natural resources- firm's production facility uses water, gas, and materials and payments are made for rent Labor- wages paid to employees Capital Goods- computers, printers, and packing machinery and firms pay interest for the use of capital Entrepreneurship- contribute to the economy by providing innovation with products and services and the return is profit. Circular Flow Model Describes the economic activity, examines relationship between firms and households, Which principle of economics does the $6 price from China vendor represent if the company decides to produce the sheet sets in its Mexico facility? Principle 2: Cost is determined by what is given up Which economic system is represented by the government's actions to regulate the production of ABC Company's products? Command What economic focus defines the economic reasoning for ABC Company? Microeconomics What is the payment of production for ABC Company if it buys the additional machinery for its production facility? Interest Which items is a factor of production for ABC Company? Machinery Which economic system is represented by the government's actions to regulated the production of ABC Company's products? Mixed