Ch. 4-Markets, Prices and U.S. Economy

Question 0

Division of Labor

Answer 0

As an economy grows and as business firms become larger, the process by which factors of production tend to become ever more specialized, performing highly specific tasks associated with only one small part of the production process

Question 1

Industry

Answer 1

The collection of all firms producing the same procucts

Question 2

Economies of Scale

Answer 2

A characteristic of production in which production costs rise proportionally less than output as production increases, so that costs per unit of output fall

Question 3

Comparative advantage

Answer 3

The principle that a country should specialize its production in those goods that it can produce with lower opportunity costs than can other countries and trade for those goods that other countries can produce with lower opportunity costs

Question 4

Barter

Answer 4

An exchange of goods directly for other goods

Question 5

Circular Flow of Economic Activity

Answer 5

The flow of goods and services and factors of production through the product and the factor markets of the economy that results from the interaction of individuals and business firms; the flow is circular because firms sell products to individuals in the product markets and individuals sell factors of production to firms in the factor markets

Question 6

Circular Flow Diagram

Answer 6

A graphical representation of the circular flow of economic activity through the nation’s product and factor markets

Question 7

National Product

Answer 7

The total dollar value of the flow of economic activity through the product markets of the nation

Question 8

National Income

Answer 8

The total dollar value of the flow of economic activity through the factor markets of a nation

Question 9

Imports

Answer 9

Goods and services, and factors of production, purchased from foreign individuals and business firms for domestic use

Question 10

Exports

Answer 10

Domestically produced goods and services, and factors of production, sold to foreign individuals, businesses, and governments

Question 11

Household Sector

Answer 11

The sector of the economy that consists of individuals in their dual roles as consumers of final goods and services and as suppliers of the primary factors of production to business firms

Question 12

Consumer Durables

Answer 12

Manufactured goods that typically last more than one year

Question 13

Consumer nondurables

Answer 13

Manufactured goods that typically last less than one year

Question 14

Services

Answer 14

Purchases by consumers that are not manufactured, but that provide them with something useful

Question 15

Wealth

Answer 15

For a household, the accumulation of all savings over time; also called net worth

Question 16

Business Sector

Answer 16

The sector of the economy that consists of all the private business firms and is the major producer of final goods and services

Question 17

Single Proprietorship

Answer 17

A form of business in which a single owner has total control over the operation of the business and has complete freedom to transfer funds into and out of the business

Question 18

Partnership

Answer 18

A form of business with two or more owners who have total control over the operation of the business and who jointly determine how to transfer funds into and out of the business

Question 19

Corporation

Answer 19

A form of business that is recognized legal entity distinct from the owners of the firm, allows owners to transfer their shares of stock, allows owners to delegate authority and responsibility to a group of managers, has a potentially unlimited life, and has limited liability for business losses

Question 20

Government Sector

Answer 20

In the United States, the economic activities of the federal government, the state governments and all local governments

Question 21

Transfer Payment

Answer 21

The redistribution of existing income from one economic agent to another

Question 22

Budget Surplus

Answer 22

A situation in which a government’s revenues exceed its expenditures

Question 23

Budget Deficit

Answer 23

A situation in which a government’s expenditures exceed its revenues

Question 24

Rest-of-World Sector

Answer 24

The sector of an economy that consists of a country’s economic relations with foreign countries

Question 25

Median Income

Answer 25

The income of the family in the middle of the income distribution (half the families have incomes higher than the median and half have incomes lower than the median)