WGU - D089 - Principles of Economics

WGU - D089 - Principles of Economics 4.5 (2 reviews) Students also studied Terms in this set (522) Western Governors UniversityD 089 Save pre assessment d089 70 terms Loveysbg21610 Preview WGU - D089 Principles of Economic...263 terms Marcel_GilesPreview Principles of Economics Teacher 231 terms WGU_Econ_CI_Team Preview WGU D 70 terms Trac MacroeconomicsA branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole MicroeconomicsA 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 ScarcityThe basic economic problem; the gap between limited, scarce , resources and theoretically limitless wants Opportunity costThe next best alternative that is given up when a choice is made Think at the marginThinking about what the next step or an additional action means for a person Marginal benefitThe incremental increase in the benefit to a consumer caused by the consumption of one additional unit of a good or service Principles of Economics #1Everyone faces trade-offs Principles of Economics #2The cost of something is determined by what you give up to get it Principles of Economics #3Rational people think at the margin Principles of Economics #4People respond to incentives Principles of Economics #5Trade can benefit everyone

Principles of Economics #6Markets are a sound method of organizing economic activity Principles of Economics #7Governments may be able to improve market outcomes Principles of Economics #8A nation's standard of living depends on it's ability to produce.Principles of Economics #9Printing too much money causes prices to rise Principles of Economics #10There is a short-run trade-off between inflation and unemployment Economic systemsA system of the production, resource allocation, and distribution of goods and services within a society or a given geographic area Traditional EconomyAn economic system that relies on customs, history, and time-honored beliefs.Tradition guides economic decisions such as production and distribution Command EconomyAn economic system in which production, investment, prices, and incomes are determined centrally by a government Market EconomyAn 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 EconomyAn 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 Economy1. It is centered around families or tribes.

• It exists in a hunter-gatherer and nomadic society.
• Trade is heavily dependent on bartering rather than money.
• It only produces what is needed, and a surplus is very rare.
• It eventually changes from purely trade to the use of some type of currency.

Advantages to a Traditional EconomyThere 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 EconomyIt 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.

• The government decides how to use and distribute the nation's natural, capital,

and labor resources.

• A nation's central power controls the priorities for how goods and services will

be produced and distributed.

• Domestic competition is overpowered as the 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.Advantages of a Command EconomyIn 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 EconomyUnderlying 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 Economy1. Privately-owned goods and services are standard, and people and businesses have the right to 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 efficiency where producers and consumers have

access to the same information to make economic decisions.

• Government interference is limited to regulating safety, fair access,

environmental, and national defense issues.Advantages of a Market EconomyGoods 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.Disadvantages of Market EconomiesCompetition drives market economies, and, in many cases, there are not enough mechanisms implemented to protect the underprivileged and disadvantaged.There is a tendency for labor resources to be under-optimized because access to education and skills improvement may not be affordable and accessible to everyone.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.

Advantages of Mixed EconomyGoods and services are distributed to where they are needed the most; therefore, prices are set by supply and demand.Competition incentivizes innovation and i,proves the quality of products and services.Goods and services are more available and accessible to those who are willing to pay.The role of the government is expanded to help ensure access for the underprivileged.Disadvantages of a Mixed EconomyThere could be too much or not enough freedom of choice for individuals and organizations.The government may take its expanded role too far and limit competition, this discouraging innovation and quality.Business may influence the government to provide taxpayer funds to help them when they take too much risk.Positive economicsThe study of economics concerned with what is and what will happen if a course of action is taken or not taken.Normative economicsThe study of economics concerned with what should or ought to be.Economic modelsA simplified version of reality that allows people to observe, understand, and make predictions about economic behavior.Economic indicatorsA statistic about an economic activity Circular flow modelAn economic model that shows the flow of money and goods through the economy. The most common form of this model shows the circular flow of income between the household sector and the business sector.Research and Development (R&D)Term commonly used to describe the activities undertaken by firms and other entities such as individual entrepreneurs to create new or improved products and processes.PartnershipsA legal form of business operation between two or more individuals who share management and profits.MergersCombining two companies into a single larger company.Financial CapitalMost commonly refers to assets needed by a company to provide goods or services, as measured in terms of money value.Factors of ProductionDescribes the inputs used in the production of goods or services to make an economic profit.Production Possibilities FrontierA graphical representation used by economists to show the alternative combinations of two goods or services that an economy can produce with the given resources and technology when the resources and technology when the resources and technology when the resources are fully and efficiently used at a given point in time.