Chap. 1: Sec. 1.1: What is Economics and Why It's Important

Question 1

What is a 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

What is a command economy?

Answer 2

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

Question 3

What is the concept of division of labor?

Answer 3

The way in which different workers divide required tasks to produce a good or service. It allows individuals and firms to specialize and to produce more for several reasons: a) It allows the agents to focus on areas of advantage due to natural factors and skill levels; b) It encourages the agents to learn and invent; c) It allows agents to take advantage of economies of scale.

Question 4

What is economics?

Answer 4

The study of how humans make choices under conditions of scarcity.

Question 5

What is economies of scale?

Answer 5

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

Question 6

What are exports?

Answer 6

Products (goods and services) that are made domestically and sold abroad.

Question 7

What is fiscal policy?

Answer 7

Economic policies that involve government spending and taxes.

Question 8

What is globalization?

Answer 8

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

Question 9

What is the goods and services market?

Answer 9

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

Question 10

What is gross domestic product (GDP)?

Answer 10

The measure of the size of total production in an economy.

Question 11

What are imports?

Answer 11

Products (goods and services) that are made abroad and then sold domestically.

Question 12

What is the labor market?

Answer 12

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

Question 13

What is macroeconomics?

Answer 13

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

Question 14

What is a market?

Answer 14

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

Question 15

What is a 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

What is 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

How is the word model used by economists?

Answer 17

Sometimes economists use the word model instead of theory.

Question 18

What is 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

What is a private enterprise?

Answer 19

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

Question 20

What is scarcity?

Answer 20

When human wants for goods and services exceed the available supply.

Question 21

What is specialization?

Answer 21

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

Question 22

What is a 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

What is a traditional economy?

Answer 23

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

Question 24

What is an underground economy?

Answer 24

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

Question 25

Why is economics important?

Answer 25

It seeks to solve the problem of scarcity.

Question 26

Why is learning about economics important?

Answer 26

It helps us understand the major problems facing the world today, prepares you to be a good citizen, and helps you become a well-rounded thinker.