lOMoAR cPSD| 61371432
WGU D089 Study Guide: Economic Principles and Concepts Overview
| Verified study complete solutions | A+ Graded | 2026 Updates |
100% correct
Module 1 – The Economic Way of Thinking
1. What are the three fundamental questions every economy must answer? Give an
example of a “What” question.
3 questions – what, how, and for whom to produce
Example: What should be given up to produce a new item?
2. What do economists mean when they say that people “think at the margin”?
Thinking about what the next step or an additional action means for a person
3. According to the 10 Principles of Economics, what determines a nation’s standard of
living?
It’s determined by its ability to produce goods and services
4. Using the 10 Principles of Economics, explain why trade is beneficial?
It can leave everyone in a better position
5. How does printing money impact prices?
Printing too much money causes prices to rise (inflation), the more money that is printed, the
less the money is worth
6. What are the differences between the Traditional and the Market economy?
Traditional – Make decisions based on customs, beliefs, and traditions Market – Make
decisions based on customer demand
7. Identify two disadvantages of a Command economy?
Rationing occurs, people are discouraged from being innovative
8. Explain one of the advantages of the Mixed economy?
(most popular economy) Goods and services are distributed where they are needed the most
9. How are macroeconomics and microeconomics different?
Macroeconomics – Individuals
Microeconomics – Economy as a whole
10. Give an example of a normative statement.
“The price of milk should be $6 to give dairy farmers a higher living standard.”
, lOMoAR cPSD| 61371432
11. Identify the payment that goes to each of the four factors of production.
Land - Rent
Labor - Wages
Capital - Interest
Entrepreneur - Profit
12. What does the circular flow diagram depict?
It tracks the flow of both money and goods in an economy
Glossary:
Economics - The study of how humans make decisions in the face of scarcity
Factors of production - Describes the inputs used in the production of goods or services to make an
economic profit
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
Economic systems - A system of the production, resource allocation, and distribution of goods and
services within a society or given geographic area
Traditional economy - A system where individuals make decisions based on traditions, beliefs, and
customs
Command economy (centralized) - A system where the government makes all the decisions
Market economy (decentralized) - A system where businesses make decisions based on consumer
demand
Mixed economy - 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 - The study of economics concerned with what is and what will happen if a course of
action is taken or not taken
Normative economics - The study of economics concerned with what should or ought to be (OPINION)
Economic models - A simplified version of reality that allows people to observe, understand, and make
predictions about economic behavior
, lOMoAR cPSD| 61371432
Economic indicators - A statistic about an economic activity
Natural resources - Things found in nature that may be used to produce goods and services, such as
land, minerals, and petroleum
Labor - The human effort that can be applied to the production of goods and services. People who are
employed—or able to be—are considered part of the labor available to the economy.
Capital - A factor of production that has been created for use in the production of other goods and
services. Office buildings, machinery, and tools are examples of capital.
Entrepreneur - A person operating within a market economy who looks for ways to make profits by
finding new ways in which the factors of production may be organized.
Circular flow model - An 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
Factors of production - Describes the inputs used in the production of goods or services to make an
economic profit Principles:
1. Everyone faces tradeoffs.
2. The cost of something is determined by what someone gives up to get it.
3. Rational people think at the margin.
4. People respond to incentives.
5. Trade can benefit everyone.
6. Markets are a sound method of organizing economic activity.
7. Governments may be able to improve market outcomes.
8. The standard of living for a nation is determined by its ability to produce goods and services.
9. Printing too much money causes prices to rise.
10.Society faces a short-run trade-off between inflation and unemployment (Mankiw, 2015).
Module 2 – The Economic Problem
1. Why is the concept of scarcity so important in economics?
Scarcity creates limits that restrict the options available to both consumers and producers. It
explains why choices must be made. Limited resources, unlimited wants.
2. What does an individual’s budget constraint identify?
Represents all the combinations of goods and services that a consumer may purchase given
current prices within his or her given income
WGU D089 Study Guide: Economic Principles and Concepts Overview
| Verified study complete solutions | A+ Graded | 2026 Updates |
100% correct
Module 1 – The Economic Way of Thinking
1. What are the three fundamental questions every economy must answer? Give an
example of a “What” question.
3 questions – what, how, and for whom to produce
Example: What should be given up to produce a new item?
2. What do economists mean when they say that people “think at the margin”?
Thinking about what the next step or an additional action means for a person
3. According to the 10 Principles of Economics, what determines a nation’s standard of
living?
It’s determined by its ability to produce goods and services
4. Using the 10 Principles of Economics, explain why trade is beneficial?
It can leave everyone in a better position
5. How does printing money impact prices?
Printing too much money causes prices to rise (inflation), the more money that is printed, the
less the money is worth
6. What are the differences between the Traditional and the Market economy?
Traditional – Make decisions based on customs, beliefs, and traditions Market – Make
decisions based on customer demand
7. Identify two disadvantages of a Command economy?
Rationing occurs, people are discouraged from being innovative
8. Explain one of the advantages of the Mixed economy?
(most popular economy) Goods and services are distributed where they are needed the most
9. How are macroeconomics and microeconomics different?
Macroeconomics – Individuals
Microeconomics – Economy as a whole
10. Give an example of a normative statement.
“The price of milk should be $6 to give dairy farmers a higher living standard.”
, lOMoAR cPSD| 61371432
11. Identify the payment that goes to each of the four factors of production.
Land - Rent
Labor - Wages
Capital - Interest
Entrepreneur - Profit
12. What does the circular flow diagram depict?
It tracks the flow of both money and goods in an economy
Glossary:
Economics - The study of how humans make decisions in the face of scarcity
Factors of production - Describes the inputs used in the production of goods or services to make an
economic profit
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
Economic systems - A system of the production, resource allocation, and distribution of goods and
services within a society or given geographic area
Traditional economy - A system where individuals make decisions based on traditions, beliefs, and
customs
Command economy (centralized) - A system where the government makes all the decisions
Market economy (decentralized) - A system where businesses make decisions based on consumer
demand
Mixed economy - 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 - The study of economics concerned with what is and what will happen if a course of
action is taken or not taken
Normative economics - The study of economics concerned with what should or ought to be (OPINION)
Economic models - A simplified version of reality that allows people to observe, understand, and make
predictions about economic behavior
, lOMoAR cPSD| 61371432
Economic indicators - A statistic about an economic activity
Natural resources - Things found in nature that may be used to produce goods and services, such as
land, minerals, and petroleum
Labor - The human effort that can be applied to the production of goods and services. People who are
employed—or able to be—are considered part of the labor available to the economy.
Capital - A factor of production that has been created for use in the production of other goods and
services. Office buildings, machinery, and tools are examples of capital.
Entrepreneur - A person operating within a market economy who looks for ways to make profits by
finding new ways in which the factors of production may be organized.
Circular flow model - An 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
Factors of production - Describes the inputs used in the production of goods or services to make an
economic profit Principles:
1. Everyone faces tradeoffs.
2. The cost of something is determined by what someone gives up to get it.
3. Rational people think at the margin.
4. People respond to incentives.
5. Trade can benefit everyone.
6. Markets are a sound method of organizing economic activity.
7. Governments may be able to improve market outcomes.
8. The standard of living for a nation is determined by its ability to produce goods and services.
9. Printing too much money causes prices to rise.
10.Society faces a short-run trade-off between inflation and unemployment (Mankiw, 2015).
Module 2 – The Economic Problem
1. Why is the concept of scarcity so important in economics?
Scarcity creates limits that restrict the options available to both consumers and producers. It
explains why choices must be made. Limited resources, unlimited wants.
2. What does an individual’s budget constraint identify?
Represents all the combinations of goods and services that a consumer may purchase given
current prices within his or her given income
