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WGU D089 Objective Assessment (NEW 2025/ 2026 Update) Principles of Economics Guide| Questions & Answers | Grade A| 100%

D089 D 089 · Western Governors University

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Health Care exam material, 38 pages. Originally published on StudyMerit.

Pages
38
Academic year
2025/2026
Language
English

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Course: D089 Title: Principles of Economics UNIT 2 – THE ECONOMIC WAY OF THINKING MODULE 1 – THE ECONOMIC WAY OF THINKING What is Economics? The study of how humans make decisions in the face of scarcity.  Macroeconomics (big picture) o Focuses on the behavior, performance, and decision-making of an economy. e.g.: unemployment  Microeconomics (ground level) o Focuses on the behavior of individuals and firms deciding the allocation of scarce resources and the interaction among individuals and firms. e.g.: the difference in payment between employees or why do firms hire. The Problem Economics Tries to Resolve Distributing scarce resources to meet the needs and wants of its citizens. Fundamental Questions of Economics o What to produce.  Using the economy’s scarce resources to produce one thing requires giving up another. o How it will be produced.  Multiple choices to determine how goods and services should be produced. e.g.: Employ a few skilled workers or a lot of unskilled workers? Produce it in its own country or use foreign plant? Use raw materials or recycled raw materials? o For whom to the goods or services are produced.  If a good or service is produced, a decision must be made about who will get it. These will mean the good or service will not be available to someone else. The Ten Principles of Economics 1-4 How people make decisions 1. Everyone faces tradeoffs. 1 Downloaded by Clement Sam (samuelkaruiki40@gmail.com) lOMoARcPSD|6879242

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a. People must make choices where they face tradeoffs. They must give up things they desire to get other things they desire more. 2. The cost of something is determined by what someone gives up to get it. a. Opportunity cost. The cost of one item is the lost opportunity to do or consume something else. 3. Rational people think at the margin. a. People make better decision when they consider the marginal benefit (additional benefit of consuming one more of something) versus the marginal cost (the cost incurred from consuming that additional unit) of one extra unit of a good or service 4. People respond to incentives. a. Decisions are made based on cost vs benefit, people’s attitude may change when there is a change in the cost or benefit of something. 5-7 How people interact 5. Trade can benefit everyone. a. Trades allows people exchange their abilities with other allowing everyone involved with access to a variety of goods and services. 6. Markets are a sound method of organizing economic activity. a. Markets = many goods and services + buyers and sellers focused on their own well-being. Free markets promote organized economic activity and achieve overall economic well-being. 7. Governments may be able to improve market outcomes. a. Exception to rule 6. Sometimes government intervention through policy can promote market efficiency and equity. 8-10 How the economy works as whole 8. The standard of living for a nation is determined by its ability to produce goods and services. a. The more productive a society, the better its people live. 9. Printing too much money causes price to rise. a. Rising prices for goods and services results in inflation. The 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. 10. Society faces a short-run trade-off between inflation and unemployment. a. There is a relationship between inflation and unemployment. To lower inflation government may reduce the amount of money in the economy. This reduces the amount of money people spend leading to less production and more unemployment. 2 Downloaded by Clement Sam (samuelkaruiki40@gmail.com) lOMoARcPSD|6879242

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Economic Systems How an economy distributes scarce resources. There are four types of economies:  Traditional – Individuals make decisions based on traditions, beliefs, and customs Characteristics 1. It is catered around families or tribes. 2. It exists in a hunter-gatherer and monadic 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 o Little competition or friction among members of the society. o People’s roles and contributions are well understood. o It can be more sustainable than a technology-based economy. Disadvantages o Exposed to environmental changes and weather problems. o Vulnerable to market or command economies, which consume and deplete the resources of traditional economies.  Command (Centralized) – The government makes all the decisions. Characteristics 1. All economy activity is planned and controlled by a centralized government power. 2. 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. Creates regulations and directives to enforce the centralized plan. Advantages o Goods, services, and resources are deployed without concern for environmental or other regulatory issues. 3 Downloaded by Clement Sam (samuelkaruiki40@gmail.com) lOMoARcPSD|6879242

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