D089 WGU Principles of Economics Exam 2025

Traditional Economy - Correct Answer-A system where individuals make decisions based on traditions, beliefs, and customs. Command Economy - Correct Answer-A system where the government makes all the decisions. Market Economy - Correct Answer-A system where businesses make decisions based on consumer demand. Innovation is encouraged and rewarded. Mixed Economy - Correct Answer-A system where businesses make decisions based on consumer demand, but the government makes decisions in terms of regulations, consumer safety, and environment. Positive Economics - Correct Answer-Focuses primarily on facts, and they can be tested. Normative Economics - Correct Answer-Opinions that express value or normative judgments about economic fairness. Production Possibilities Frontier (PPF) - Correct Answer-Shows the alternative combinations of two goods or services that an economy can produce with the given resources and technology when the resources are fully efficiently used at a given point in time. Slopes downward because it is showing an increase in the number of units of the product X. Points below the PPF are attainable. Production Possibilities Curve (PPC) - Correct Answer-Presents potential prospects to produce a pair of products. All points on the curve are attainable and efficient. This is when you are using your resources to the fullest. Homogeneous - Correct Answer-Consisting of parts all of the same kind. Heterogeneous - Correct Answer-A resource having two different forms or skills. Law of Increasing Opportunity Costs - Correct Answer-When all resources are being used, an increase in the production of one good will lead to greater forgone production of another good. Demand Schedule - Correct Answer-A chart that shows the number of goods or services demanded at specific prices. Law of Demand - Correct Answer-The common relationship that a higher price leads to a lower quantity demanded of a certain good or service and a lower price leads to a higher quantity demanded while all other variables are held constant. Demand Curve - Correct Answer-Shows how much people will want at different prices. (Downwards Price, Increase Quantity)- Factors Affecting Demand That Make It Shift - Correct Answer-Tastes and Preferences, Price of Complements (Bread and Jam, Printer and Ink), Price of Substitutes, Income, Expectation (of future prices) (Inflation, News), Population (More people, Demand is higher) Supply Curve - Correct Answer-Shows how much sellers will supply at different prices. (Upwards Price, Increase Quantity) Law of Supply - Correct Answer-If all else is being constant and as price increases, the quantity supplied also increases and vice versa. There is a positive relationship between price and supply when all other things are held constant. Equilibrium Quantity (Qe) - Correct Answer-The quantity of a good or service bought at the equilibrium price. The equilibrium quantity is the quantity produced and bought where the supply and demand curves intersect. Price Elasticity - Correct Answer-Measures the responsiveness of quantity demanded or quantity supplied to a change in price in percentage terms. Price Elasticity of Demand - Correct Answer-The percentage change in price of that good or service. Unit Elastic - Correct Answer-Describes a situation in which a change in one variable results in an equally proportional change in another variable. Elastic - Correct Answer-If elasticity is greater than 1. Inelastic - Correct Answer-If it is less that 1. Unit Elastic - Correct Answer-Equal to 1. Normal Good - Correct Answer-When income increases, demand for normal goods increase. When income falls, demand for normal goods falls. Inferior Good - Correct Answer-Associated with a negative income elasticity, while normal goods are related to a positive income elasticity. Price Ceiling - Correct Answer-Keeps a price from rising above a certain level. Price Floor - Correct Answer-Keeps a price from falling below a given level. Adverse Selection - Correct Answer-A process in which markets deteriorate when buyers and sellers have access to different or imperfect information; also known as asymmetric information. Moral Hazard - Correct Answer-A situation in which a party will take risks because the costs that are incurred will not be felt by the party taking the risk. Implicit Costs - Correct Answer-The opportunity costs of resources already owned by the firm and used in business. There are 4 primary sources: normal profit, forgone wages, forgone interest, and depreciation. Owner's time and effort is an example because it is not something the requires outflow of cash from the organization. Explicit Costs - Correct Answer-Money a firm must pay out to settle its bills and pay its employees. They are payments made to cover the firm's expenses are sometimes called out-of-pocket payments. Short Run - Correct Answer-A planning period over which the managers of a firm must consider one or more factors of production as fixed in quantity. Long Run - Correct Answer-All resources are variable. The purpose for a firm to look at is for strategic planning. Perfectly Competitive - Correct Answer-A type of market with many