WESTERN GOVERNORS UNIVERSITY WGU -
D089 - PRINCIPLES OF ECONOMICS |
STUDY GUIDE | QUESTIONS AND ANSWERS
| EXAM PREP | GRADED A+ |
GUARANTEED SUCCESS
Updated Questions and Answers | 100% Verified Exam Prep
,Macroeconomics A branch of economics dealing with the performance, structure, behavior, and decision-
making of an economy as a whole
Microeconomics A 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
Scarcity The basic economic problem; the gap between limited, scarce , resources and
theoretically limitless wants
Opportunity cost The next best alternative that is given up when a choice is made
Think at the margin Thinking about what the next step or an additional action means for a person
Marginal benefit The incremental increase in the benefit to a consumer caused by the consumption of one
additional unit of a good or service
Principles of Economics #1 Everyone faces trade-offs
Principles of Economics #2 The cost of something is determined by what you give up to get it
Principles of Economics #3 Rational people think at the margin
Principles of Economics #4 People respond to incentives
Principles of Economics #5 Trade can benefit everyone
Principles of Economics #6 Markets are a sound method of organizing economic activity
Principles of Economics #7 Governments may be able to improve market outcomes
Principles of Economics #8 A nation's standard of living depends on it's ability to produce.
Principles of Economics #9 Printing too much money causes prices to rise
Principles of Economics #10 There is a short-run trade-off between inflation and unemployment
,Economic systems A system of the production, resource allocation, and distribution of goods and services
within a society or a given geographic area
Traditional Economy An economic system that relies on customs, history, and time-honored beliefs. Tradition
guides economic decisions such as production and distribution
Command Economy An economic system in which production, investment, prices, and incomes are
determined centrally by a government
Market Economy An economic system in which the decisions regarding investments, production, and
distribution are guided by the price signals created by the forces of supply and demand
Mixed Economy An economic system in which both private enterprise and a degree of state monopoly
(Usually in public services, defense, infrastructure, and basic industries) co-exist
Five key characteristics of a Traditional Economy 1. It is centered around families or tribes.
2. It exists in a hunter-gatherer and nomadic society.
3. Trade is heavily dependent on bartering rather than money.
4. It only produces what is needed, and a surplus is very rare.
5. It eventually changes from purely trade to the use of some type of currency.
Advantages to a Traditional Economy There is little competition or friction among members of the society.
People's roles and contributions are well understood.
It can be more sustainable than a technology-based economy.
Disadvantages to a Traditional Economy It is exposed to environmental changes and weather patterns.
It is vulnerable to market of command economies, which consume and deplete the
resources or traditional economies.
, Five key characteristics of a Command Economy 1. All economic activity is planned and controlled by a centralized government power.
2. The government decides how to use and distribute the nation's natural, capital, and
labor resources.
3. A nation's central power controls the priorities for how goods and services will be
produced and distributed.
4. Domestic competition is overpowered as the government monopolizes businesses
considered essential for economic goals such as utilities, finance, and automotive
companies.
5. Businesses are required to follow specific hiring and production targets set by the
government. This creates regulations and directives to enforce the centralized plan.
Advantages of a Command Economy In this type of system, goods, services, and resources are deployed without concern for
environmental or other regulatory issues.
The government can transform the entire society to fit the constraints of its national vision
through nationalizing industry and deciding where workers will be placed.
Disadvantages of a Command Economy Underlying black market economies tend to develop as a response to difficult 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 and keep with
the central plan.
Five key characteristics of a Market Economy 1. Privately-owned goods and services are standard, and people and businesses have the
right to commercialize their property freely.
2. People can innovate, produce, sell, and purchase goods and services.
3. Prices, production, and job availability are driven by self-motivation and competition,
according to the laws of supply and demand.
4. The economy relies on market efficiency where producers and consumers have access
to the same information to make economic decisions.
5. Government interference is limited to regulating safety, fair access, environmental, and
national defense issues.
Advantages of a Market Economy Goods and services are readily available because consumers and businesses have the
freedom to negotiate prices.
Production methods are efficient, which increases productivity and profitability.
Innovation is rewarded and encouraged, benefiting the society.
Individuals and organizations invest in successful ventures, which in turn drive innovation
and quality improvement.
D089 - PRINCIPLES OF ECONOMICS |
STUDY GUIDE | QUESTIONS AND ANSWERS
| EXAM PREP | GRADED A+ |
GUARANTEED SUCCESS
Updated Questions and Answers | 100% Verified Exam Prep
,Macroeconomics A branch of economics dealing with the performance, structure, behavior, and decision-
making of an economy as a whole
Microeconomics A 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
Scarcity The basic economic problem; the gap between limited, scarce , resources and
theoretically limitless wants
Opportunity cost The next best alternative that is given up when a choice is made
Think at the margin Thinking about what the next step or an additional action means for a person
Marginal benefit The incremental increase in the benefit to a consumer caused by the consumption of one
additional unit of a good or service
Principles of Economics #1 Everyone faces trade-offs
Principles of Economics #2 The cost of something is determined by what you give up to get it
Principles of Economics #3 Rational people think at the margin
Principles of Economics #4 People respond to incentives
Principles of Economics #5 Trade can benefit everyone
Principles of Economics #6 Markets are a sound method of organizing economic activity
Principles of Economics #7 Governments may be able to improve market outcomes
Principles of Economics #8 A nation's standard of living depends on it's ability to produce.
Principles of Economics #9 Printing too much money causes prices to rise
Principles of Economics #10 There is a short-run trade-off between inflation and unemployment
,Economic systems A system of the production, resource allocation, and distribution of goods and services
within a society or a given geographic area
Traditional Economy An economic system that relies on customs, history, and time-honored beliefs. Tradition
guides economic decisions such as production and distribution
Command Economy An economic system in which production, investment, prices, and incomes are
determined centrally by a government
Market Economy An economic system in which the decisions regarding investments, production, and
distribution are guided by the price signals created by the forces of supply and demand
Mixed Economy An economic system in which both private enterprise and a degree of state monopoly
(Usually in public services, defense, infrastructure, and basic industries) co-exist
Five key characteristics of a Traditional Economy 1. It is centered around families or tribes.
2. It exists in a hunter-gatherer and nomadic society.
3. Trade is heavily dependent on bartering rather than money.
4. It only produces what is needed, and a surplus is very rare.
5. It eventually changes from purely trade to the use of some type of currency.
Advantages to a Traditional Economy There is little competition or friction among members of the society.
People's roles and contributions are well understood.
It can be more sustainable than a technology-based economy.
Disadvantages to a Traditional Economy It is exposed to environmental changes and weather patterns.
It is vulnerable to market of command economies, which consume and deplete the
resources or traditional economies.
, Five key characteristics of a Command Economy 1. All economic activity is planned and controlled by a centralized government power.
2. The government decides how to use and distribute the nation's natural, capital, and
labor resources.
3. A nation's central power controls the priorities for how goods and services will be
produced and distributed.
4. Domestic competition is overpowered as the government monopolizes businesses
considered essential for economic goals such as utilities, finance, and automotive
companies.
5. Businesses are required to follow specific hiring and production targets set by the
government. This creates regulations and directives to enforce the centralized plan.
Advantages of a Command Economy In this type of system, goods, services, and resources are deployed without concern for
environmental or other regulatory issues.
The government can transform the entire society to fit the constraints of its national vision
through nationalizing industry and deciding where workers will be placed.
Disadvantages of a Command Economy Underlying black market economies tend to develop as a response to difficult 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 and keep with
the central plan.
Five key characteristics of a Market Economy 1. Privately-owned goods and services are standard, and people and businesses have the
right to commercialize their property freely.
2. People can innovate, produce, sell, and purchase goods and services.
3. Prices, production, and job availability are driven by self-motivation and competition,
according to the laws of supply and demand.
4. The economy relies on market efficiency where producers and consumers have access
to the same information to make economic decisions.
5. Government interference is limited to regulating safety, fair access, environmental, and
national defense issues.
Advantages of a Market Economy Goods and services are readily available because consumers and businesses have the
freedom to negotiate prices.
Production methods are efficient, which increases productivity and profitability.
Innovation is rewarded and encouraged, benefiting the society.
Individuals and organizations invest in successful ventures, which in turn drive innovation
and quality improvement.
