Chapter 1 | Welcome to Economics

Question 1

circular flow diagram

Answer 1

a diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market

Question 2

command economy

Answer 2

an economy where economic decisions are passed down from government authority and where the government owns the resources

Question 3

division of labor

Answer 3

the way in which different workers divide required tasks to produce a good or service

Question 4

economics

Answer 4

the study of how humans make choices under conditions of scarcity

Question 5

economies of scale

Answer 5

when the average cost of producing each individual unit declines as total output increases

Question 6

exports

Answer 6

products (goods and services) made domestically and sold abroad

Question 7

fiscal policy

Answer 7

economic policies that involve government spending and taxes

Question 8

globalization

Answer 8

the trend in which buying and selling in markets have increasingly crossed national borders

Question 9

goods and services market

Answer 9

a market in which firms are sellers of what they produce and households are buyers

Question 10

gross domestic product (GDP)

Answer 10

measure of the size of total production in an economy

Question 11

imports

Answer 11

products (goods and services) made abroad and then sold domestically

Question 12

labor market

Answer 12

the market in which households sell their labor as workers to business firms or other employers

Question 13

macroeconomics

Answer 13

the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance

Question 14

market

Answer 14

interaction between potential buyers and sellers; a combination of demand and supply

Question 15

market economy

Answer 15

an economy where economic decisions are decentralized, private individuals own resources, and
businesses supply goods and services based on demand

Question 16

microeconomics

Answer 16

the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms

Question 17

model

Answer 17

see theory

Question 18

monetary policy

Answer 18

policy that involves altering the level of interest rates, the availability of credit in the economy, and
the extent of borrowing

Question 19

private enterprise

Answer 19

system where private individuals or groups of private individuals own and operate the means of production (resources and businesses)

Question 20

scarcity

Answer 20

when human wants for goods and services exceed the available supply

Question 21

specialization

Answer 21

when workers or firms focus on particular tasks for which they are well-suited within the overall
production process

Question 22

theory

Answer 22

a representation of an object or situation that is simplified while including enough of the key features to help us understand the object or situation

Question 23

traditional economy

Answer 23

typically an agricultural economy where things are done the same as they have always been done

Question 24

underground economy

Answer 24

a market where the buyers and sellers make transactions in violation of one or more government regulations