D089 Study Guide Questions from every module with
well explained answers (this will help you pass easily)
new version 2025 Western Governors University
D089 - Study Guide Questions
Module 1 – The Economic Way of Thinking
1. 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 for whom the goods or services are
produced.
- What to produce—Using the economy's scarce resources to produce one thing requires
giving up another. Producing better education, for example, may require decreasing other
services, such as healthcare
- How to produce it—There are all sorts of choices to be made in determining how goods
and services should be produced. Should a firm employ a few skilled workers or a lot of
unskilled workers?
- For whom to produce it—If a good or service is produced, a decision must be made about
who will get it. A decision to have one person or group receive a good or service usually
means the good or service will not be available to someone else.
2. What do economists mean when they say that people “think at the margin”? Consider
what the next step or an additional action means for a person.
Ten principles of economics.
1. Everyone faces tradeoffs. by what someone gives up to get it.
2. The cost of something is determined 3. Rational people think at the margin.
,4. People respond to incentives. 7. Governments may be able to
5. Trade can benefit everyone. improve market outcomes.
6. Markets are a sound method 8. The standard of living for a nation
of organizing economic is determined by its ability to
activity. produce goods and services.
9. Printing too much money causes
prices to rise.
10. Society faces a short-run trade-off
between inflation and
unemployment
3. According to the 10 Principles of Economics, what determines a nation’s standard of living?
- The standard of living for a nation is determined by its ability to produce goods and services
—There is a fundamental relationship between productivity and living standards. The more
productive a society, the better its people live. Public policy can encourage this
productivity by promoting education and access to the necessary tools for its workforce.
4. Using the 10 Principles of Economics, explain why trade is beneficial?
, - Trade can leave everyone in a better position—Trade allows people to concentrate on
what they do best and exchange their ability with others to supplement their own needs.
This provides everyone involved with access to a larger number and variety of goods and
services.
5. How does printing money impact prices?
- Principle 9: Printing too much money causes prices to rise—
Consistently rising prices for goods and services results in inflation.
This economic phenomenon is directly related to excessive
government-printed currency circulating. The more a government
prints money, the less the money is worth, thus making goods and
services more expensive.
6. What are the differences between the Traditional and the Market economy?
- Traditional economy—A system where individuals make decisions based on
traditions, beliefs, and customs. Centered around families or tribes. Exists in Hunter-
gatherer and nomadic societies. Trade is heavily dependent on bartering rather than
money.
Produces what is needed, and surplus Is very rare. Eventually, it changes from pure
trade to using some currency.
o Advantages: little competition or friction in society. It is more sustainable
than a technology-based economy. Disadvantages: exposed to environmental
changes and weather patterns. Vulnerable to market or command
economies, which consume and deplete the resources of traditional
economies.
- Market economy (decentralized)—A system where businesses make decisions
based on consumer demand. In a market economy, decision-making is
decentralized. The means of production (resources and businesses) are owned and
operated by private individuals or groups of private individuals who make self-
interested decisions.
Privately owned goods and services are standard, and people and businesses can
commercialize their property freely. People can innovate, produce, sell, and purchase
goods and services. Prices, production, and job availability are driven by self-motivation
and competition, according to the laws of supply and demand. The economy relies on
market efIciency, which allows producers and consumers to access the same
information to make economic decisions. Government interference is limited to regulating
safety, fair access, environmental, and national defense issues.
o Advantages: Goods and services are readily available because consumers and
businesses can negotiate prices. Production methods are efIcient and
increase productivity and profitability. Innovation is rewarded and
encouraged. Disadvantages: Competition drives market economies. There can
be a sharp contrast between the economic power of the privileged versus the
power of the underprivileged. Society must decide between self-interest and
protecting the vulnerable in a climate where winners are overvalued.
7. Identify two disadvantages of a Command economy?
- Command economy (centralized)—A system where the government makes all
the decisions
, - All economic activity is planned and controlled by a centralized government power. The
government decides how to use and distribute the nations natural, capital, and labor
resources. Nations central power controls the priorities for how goods and services will be
produced and distributed. Domestic competition is overpowered as government
monopolizes businesses considered essential for economic goals such as utilities, finance,
and automotive companies. Businesses are required to follow specific hiring and
production targets set by the government. This creates regulations and directives to
enforce the centralized plan.
o Advantages: goods, services and resources are deployed without concern for
environmental or other regulatory issues. Government can transform the entire
society to fit the constraints of the national vision. Disadvantages: underground
economies tend to develop as a response to difIcult access to goods and services.
Rationing commonly occurs due to poor planning and an inability to meet societal
demands. People are discouraged from innovating and are required to follow
orders to keep a central plan.
8. Explain one of the advantages of the Mixed economy?
- Mixed economy—A system where businesses decide based on consumer demand,
but the government makes decisions regarding regulations, consumer safety, and the
environment.
- Advantages: Goods and services are distributed to where they are most needed;
therefore, prices are set by supply and demand. Competition incentivizes innovation and
improves the quality of products and services. Goods and services are more available and
accessible to those willing to pay. The role of the government is expanded to help ensure
access for the underprivileged. Disadvantages: The disadvantages of a market economy
emerge when there is too much emphasis on the goals of a particular market decision-
maker. There could be too much freedom of choice for individuals and organizations. The
government may take its expanded role too far and limit competition, thus discouraging
innovation and quality.
Businesses may influence the government to provide taxpayer funds to help them when
they take too much risk.
-
9. How are macroeconomics and microeconomics different?
- Microeconomics focuses on the actions of individual agents within the economy, like
households, workers, and businesses. Small. Individual households and firms. Prices
of individual goods and their market structures.
- Macroeconomics, which looks at the economy as a whole. It focuses on broad issues
such as the growth of production, the number of unemployed people, inflationary
price increases, government deficits, and levels of exports and imports. Economy as a
whole. Deals with aggregates and totals.
10. Give an example of a normative statement.
well explained answers (this will help you pass easily)
new version 2025 Western Governors University
D089 - Study Guide Questions
Module 1 – The Economic Way of Thinking
1. 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 for whom the goods or services are
produced.
- What to produce—Using the economy's scarce resources to produce one thing requires
giving up another. Producing better education, for example, may require decreasing other
services, such as healthcare
- How to produce it—There are all sorts of choices to be made in determining how goods
and services should be produced. Should a firm employ a few skilled workers or a lot of
unskilled workers?
- For whom to produce it—If a good or service is produced, a decision must be made about
who will get it. A decision to have one person or group receive a good or service usually
means the good or service will not be available to someone else.
2. What do economists mean when they say that people “think at the margin”? Consider
what the next step or an additional action means for a person.
Ten principles of economics.
1. Everyone faces tradeoffs. by what someone gives up to get it.
2. The cost of something is determined 3. Rational people think at the margin.
,4. People respond to incentives. 7. Governments may be able to
5. Trade can benefit everyone. improve market outcomes.
6. Markets are a sound method 8. The standard of living for a nation
of organizing economic is determined by its ability to
activity. produce goods and services.
9. Printing too much money causes
prices to rise.
10. Society faces a short-run trade-off
between inflation and
unemployment
3. According to the 10 Principles of Economics, what determines a nation’s standard of living?
- The standard of living for a nation is determined by its ability to produce goods and services
—There is a fundamental relationship between productivity and living standards. The more
productive a society, the better its people live. Public policy can encourage this
productivity by promoting education and access to the necessary tools for its workforce.
4. Using the 10 Principles of Economics, explain why trade is beneficial?
, - Trade can leave everyone in a better position—Trade allows people to concentrate on
what they do best and exchange their ability with others to supplement their own needs.
This provides everyone involved with access to a larger number and variety of goods and
services.
5. How does printing money impact prices?
- Principle 9: Printing too much money causes prices to rise—
Consistently rising prices for goods and services results in inflation.
This economic phenomenon is directly related to excessive
government-printed currency circulating. The more a government
prints money, the less the money is worth, thus making goods and
services more expensive.
6. What are the differences between the Traditional and the Market economy?
- Traditional economy—A system where individuals make decisions based on
traditions, beliefs, and customs. Centered around families or tribes. Exists in Hunter-
gatherer and nomadic societies. Trade is heavily dependent on bartering rather than
money.
Produces what is needed, and surplus Is very rare. Eventually, it changes from pure
trade to using some currency.
o Advantages: little competition or friction in society. It is more sustainable
than a technology-based economy. Disadvantages: exposed to environmental
changes and weather patterns. Vulnerable to market or command
economies, which consume and deplete the resources of traditional
economies.
- Market economy (decentralized)—A system where businesses make decisions
based on consumer demand. In a market economy, decision-making is
decentralized. The means of production (resources and businesses) are owned and
operated by private individuals or groups of private individuals who make self-
interested decisions.
Privately owned goods and services are standard, and people and businesses can
commercialize their property freely. People can innovate, produce, sell, and purchase
goods and services. Prices, production, and job availability are driven by self-motivation
and competition, according to the laws of supply and demand. The economy relies on
market efIciency, which allows producers and consumers to access the same
information to make economic decisions. Government interference is limited to regulating
safety, fair access, environmental, and national defense issues.
o Advantages: Goods and services are readily available because consumers and
businesses can negotiate prices. Production methods are efIcient and
increase productivity and profitability. Innovation is rewarded and
encouraged. Disadvantages: Competition drives market economies. There can
be a sharp contrast between the economic power of the privileged versus the
power of the underprivileged. Society must decide between self-interest and
protecting the vulnerable in a climate where winners are overvalued.
7. Identify two disadvantages of a Command economy?
- Command economy (centralized)—A system where the government makes all
the decisions
, - All economic activity is planned and controlled by a centralized government power. The
government decides how to use and distribute the nations natural, capital, and labor
resources. Nations central power controls the priorities for how goods and services will be
produced and distributed. Domestic competition is overpowered as government
monopolizes businesses considered essential for economic goals such as utilities, finance,
and automotive companies. Businesses are required to follow specific hiring and
production targets set by the government. This creates regulations and directives to
enforce the centralized plan.
o Advantages: goods, services and resources are deployed without concern for
environmental or other regulatory issues. Government can transform the entire
society to fit the constraints of the national vision. Disadvantages: underground
economies tend to develop as a response to difIcult access to goods and services.
Rationing commonly occurs due to poor planning and an inability to meet societal
demands. People are discouraged from innovating and are required to follow
orders to keep a central plan.
8. Explain one of the advantages of the Mixed economy?
- Mixed economy—A system where businesses decide based on consumer demand,
but the government makes decisions regarding regulations, consumer safety, and the
environment.
- Advantages: Goods and services are distributed to where they are most needed;
therefore, prices are set by supply and demand. Competition incentivizes innovation and
improves the quality of products and services. Goods and services are more available and
accessible to those willing to pay. The role of the government is expanded to help ensure
access for the underprivileged. Disadvantages: The disadvantages of a market economy
emerge when there is too much emphasis on the goals of a particular market decision-
maker. There could be too much freedom of choice for individuals and organizations. The
government may take its expanded role too far and limit competition, thus discouraging
innovation and quality.
Businesses may influence the government to provide taxpayer funds to help them when
they take too much risk.
-
9. How are macroeconomics and microeconomics different?
- Microeconomics focuses on the actions of individual agents within the economy, like
households, workers, and businesses. Small. Individual households and firms. Prices
of individual goods and their market structures.
- Macroeconomics, which looks at the economy as a whole. It focuses on broad issues
such as the growth of production, the number of unemployed people, inflationary
price increases, government deficits, and levels of exports and imports. Economy as a
whole. Deals with aggregates and totals.
10. Give an example of a normative statement.
