Chapter 1 Key Terms

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

Economics 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 made 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 (good 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 business 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 businesses 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 business).

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.