WGU D089 Principles of Economics Questions
with Verified Answers 2024
Principles of Economics (Western Governors
University)
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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
How people make decisions
1. Everyone faces tradeoffs.
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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.
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