Week 1 Key Terms

Question 1

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

Answer 1

circular flow diagram

Question 2

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

Answer 2

command economy

Question 3

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

Answer 3

division of labor

Question 4

the study of how humans make choices under conditions of scarcity

Answer 4

economics

Question 5

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

Answer 5

economies of scale

Question 6

products (goods and services) made domestically and sold abroad

Answer 6

exports

Question 7

economic policies that involve government spending and taxes

Answer 7

fiscal policy

Question 8

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

Answer 8

globalization

Question 9

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

Answer 9

goods and services market

Question 10

measure of the size of total production in an economy

Answer 10

gross domestic product (GDP)

Question 11

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

Answer 11

imports

Question 12

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

Answer 12

labor market

Question 13

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

Answer 13

macroeconomics

Question 14

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

Answer 14

market

Question 15

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

Answer 15

market economy

Question 16

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

Answer 16

microeconomics

Question 17

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

Answer 17

monetary policy

Question 18

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

Answer 18

private enterprise

Question 19

when human wants for goods and services exceed the available supply

Answer 19

scarcity

Question 20

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

Answer 20

specialization

Question 21

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

Answer 21

theory / model

Question 22

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

Answer 22

traditional economy

Question 23

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

Answer 23

underground economy

Question 24

What is Economics and Why is it important?

Answer 24

• Economics seeks to solve the problem of scarcity,
• Scarcity is when human wants for goods and services exceed
  the available supply.
• A modern economy displays a division of labor, in which people earn income by
  specializing in what they produce and then use that income to purchase the products they need or want.
• The division of labor 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.
• Division and specialization of labor only work when individuals can purchase what they do not produce in markets.
• Learning about economics helps you understand the major problems facing the world today, prepares you to be a good citizen, and helps you become a well-rounded thinker

Question 25

Microeconomics and Macroeconomics

Answer 25

• Microeconomics and macroeconomics are two different perspectives on the economy.
• The microeconomic
  perspective focuses on parts of the economy: individuals, firms, and industries.
• The macroeconomic perspective looks at the economy as a whole, focusing on goals like growth in the standard of living,
  unemployment, and inflation.
• Macroeconomics has two types of policies for pursuing these goals: monetary
  policy and fiscal policy.

Question 26

How Economists use Theories and Models to understand Economic Issues

Answer 26

Economists analyze problems differently than do other disciplinary experts. The main tools economists use
are economic theories or models. A theory is not an illustration of the answer to a problem. Rather, a theory is a
tool for determining the answer.

Question 27

How to Organize Economies

Answer 27

We can organize societies as traditional, command, or market-oriented economies. Most societies are a mix.
The last few decades have seen globalization evolve as a result of growth in commercial and financial networks
that cross national borders, making businesses and workers from different economies increasingly
interdependent.