CHapter 1 Flashcards
(20 cards)
What is the definition of Economics?
Economics is the study of how humans make decisions in the face of scarcity.
This definition highlights the fundamental issue of limited resources versus unlimited wants.
What are the Choices in Economics?
Every society must make decisions on how to use its resources effectively.
Each level has different impacts and considerations in economic decision-making.
What is the definition of Scarcity?
Human wants are unlimited, but resources are limited.
Scarcity is a central concept in economics that drives the need for choices.
What are examples of resources?
- Land
- Labor
- Tools
- Raw materials
These resources are essential for producing goods and services.
What is the time limitation everyone faces daily?
Everyone has only 24 hours per day for work, leisure, and sleep.
Time is a critical resource that affects decision-making in economics.
What must every society do regarding resources?
Make decisions on how to use its resources effectively.
This necessity results from the problem of scarcity.
Who are the decision makers in Economics?
- Individuals
- Families
- Towns
- Countries
Each decision maker plays a role in resource allocation and economic outcomes.
What is the definition of Division of Labor?
Dividing the production of goods/services into distinct tasks performed by different workers.
This concept was notably discussed by Adam Smith in his work.
What is an example of Division of Labor in pin production?
Pin production had 18 distinct tasks.
This example illustrates how tasks can be specialized to increase efficiency.
What roles are typically found in a restaurant illustrating Division of Labor?
- Chefs
- Dishwashers
- Servers
- Janitors
These roles highlight the specialization in service industries.
Why does Division of Labor increase production?
- Specialization leads to higher efficiency and skill development
- Specialized workers suggest innovations and improve quality over time
- Economies of Scale lower average costs as production increases
These factors contribute to overall productivity and economic growth.
What is the definition of Trade in Economics?
Specialization is only effective if workers can trade their labor for goods/services they need.
Trade facilitates the benefits of specialization.
What does Microeconomics focus on?
Individual agents like households, workers, and firms.
It studies spending, production decisions, and market prices.
What does Macroeconomics focus on?
The economy as a whole.
It studies economic growth, unemployment, inflation, and government policies.
What is Monetary Policy?
Central bank policies affecting lending, interest rates, and financial markets.
This policy is crucial for managing economic stability.
What is Fiscal Policy?
Government decisions on spending and taxes.
Fiscal policy plays a significant role in influencing economic activity.
What characterizes a Traditional Economy?
Based on tradition and custom, occupations stay within families, mainly agriculture-based.
Examples include rural South Asia and Africa.
What is a Command Economy?
Government controls production, pricing, and distribution of goods/services.
Examples include North Korea, Cuba, and the Soviet Union (pre-1991).
What defines a Market Economy?
Decentralized decision-making, private ownership of resources.
Income is based on market demand for skills and labor.
What is a Mixed Economy?
Combination of command, market, and sometimes traditional elements.
This system incorporates features from different economic models.
