Economics Chapter 1 Flashcards

Questions and Answers

In countries like ___ the command economy predominates.

Cuba and North Korea

In a command economy the ___ either makes most economic decisions itself or at least strongly influences how the decisions are made.

government

Because of their relatively small national economies, which of the following is most likely considered to be the most important factor for Belgium, Korea, and Canada to take full advantage of specialization?

Domestic production

Foreign investment

International trade (correct)

Labor force size

In a ___ most economic decisions about what to produce, how to produce it, and for whom to produce it are made by buyers & sellers.

market-oriented economy Signup and view all the answers

Which of the following is generally accepted as valid criticism of the production of useful goods & services?

Environmental pollution Signup and view all the answers

In the first chapter of 'The Wealth of Nations', Smith introduces the idea of the ___ which means the way in which the work required to produce a good or service is divided into a number of tasks that are performed by different workers.

division of labor Signup and view all the answers

If macroeconomics looks at the economy as a whole, it focuses on which of the following?

Unemployed people Signup and view all the answers

In the ___ households work & receive payment from firms.

labor market Signup and view all the answers

In the ___ households receive goods & services & pay firms for them.

goods & services market Signup and view all the answers

Which of the following best describes a monetary policy tool?

Interest rates Signup and view all the answers

Which of the following best describes a fiscal policy tool?

Government spending Signup and view all the answers

When nations desire a healthy macroeconomy, they typically focus on three goals: one of them being?

Low inflation Signup and view all the answers

What is the basic difference between macroeconomics and microeconomics?

Microeconomics concentrates on the behavior of individual consumers & firms while macroeconomics focuses on the performance of the entire economy. Signup and view all the answers

Which of the following is most likely a topic of discussion in macroeconomics?

A decrease in unemployment rate Signup and view all the answers

Which of the following statements most likely lies within the realm of microeconomics?

An increase in labor costs will increase the additional cost of producing another bus. Signup and view all the answers

What does specialization lead to?

An increase in overall production Signup and view all the answers

In a market-oriented economy the amount of a good that is produced is primarily decided by the interaction of?

Buyers and sellers Signup and view all the answers

What does the circular flow diagram of economic activity model?

Flows of goods, services & payments between households and firms Signup and view all the answers

_____ - a term referring to the fact that for many goods, as the level of production increases, the average cost of producing each individual unit declines.

Economics of scale Signup and view all the answers

Economic models like the ___ are not physical models, but instead are diagrams or graphs or even mathematical equations that represent economic patterns or theories.

circular flow diagram Signup and view all the answers

What does the term 'division of labor' refer to?

The way a good or service is produced is divided into a number of tasks that are performed by different workers. Signup and view all the answers

What does specialization allow workers to do?

Focus on the parts of the production process where they have an advantage. Signup and view all the answers

What are economies of scale?

As the level of production increases, the average cost of producing each individual unit declines. Signup and view all the answers

What is a market?

The interaction between potential buyers and sellers. Signup and view all the answers

What is economic theory?

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. Signup and view all the answers

What does the circular flow diagram show?

Shows how households and firms interact in the goods and services market, and in the labor market. Signup and view all the answers

A ______ is typically an agricultural economy where things are done the same as they have always been done.

traditional economy Signup and view all the answers

A ______ is an economy where economic decisions are decentralized, resources are owned by private individuals, and businesses supply goods and services based on demand.

market economy Signup and view all the answers

Study Notes

Economic Systems and Structures

Command Economy: Predominates in countries like Cuba and North Korea where the government makes most economic decisions.
Market-Oriented Economy: Economic decisions about production are made through the interactions of buyers and sellers, promoting decentralized decision-making.

Economic Interaction and Specialization

International Trade: Crucial for smaller economies like Belgium, Korea, and Canada to maximize specialization benefits.
Division of Labor: Introduced by Adam Smith, it entails dividing the production process into distinct tasks performed by different workers, enhancing efficiency.

Markets and Economic Models

Labor Market: The arena in which households work and receive payments from firms.
Goods & Services Market: Where households purchase goods and services from firms, contributing to the overall economy.
Circular Flow Diagram: A visual model depicting the flows of goods, services, and payments between households and firms, illustrating economic activity.
Economics of Scale: A principle stating that as production levels increase, the average cost per unit typically decreases.

Economic Policies and Goals

Monetary Policy Tool: Primarily involves interest rates to influence the economy.
Fiscal Policy Tool: Centered on government spending as a means to affect economic conditions.
Macroeconomic Goals: Nations typically aim for low inflation, alongside full employment and economic growth.

Microeconomics vs. Macroeconomics

Microeconomics: Focuses on individual consumer and firm behavior, such as how a rise in labor costs affects production costs.
Macroeconomics: Considers the economy as a whole, addressing issues like unemployment rates and overall economic performance.

Specialization's Impact

Specialization: Enhances overall production efficiency as workers concentrate on tasks where they exhibit advantages, increasing speed and quality.

Economic Concepts

Market: Defined as the interaction between potential buyers and sellers that facilitates trade.
Traditional Economy: Largely agricultural, relies on historical methods and practices for production.
Market Economy: Characterized by decentralized economic decision-making, with private ownership of resources and supply of goods driven by demand.
Economic Theory: Simplified representations that retain essential features for understanding complex economic situations.

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Explore core concepts of command economies through these flashcards. Test your knowledge about the influence of government and economic systems in various countries. A great way to reinforce your understanding of economic principles.