Economics Chapter 1 Quiz & Flashcards on Specialization

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Questions and Answers

In countries like _____________ the command economy predominates.

Cuba and North Korea

In which of the following countries will the national government have the greatest influence with respect to the nation's economy?

Australia

United States

Cuba (correct)

Canada

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?

International trade Signup and view all the answers

In a discussion of economics, which of the following would exert the most influence on an individual firm's decision to hire workers?

The macroeconomy Signup and view all the answers

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

market-oriented economy Signup and view all the answers

Which of the following best denotes the reason for the existence of substantial black markets?

Command economy Signup and view all the answers

Which of the following is generally accepted as a valid criticism of the production of useful goods and 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 and receive payment from firms.

labor market Signup and view all the answers

In the ______________, households receive goods and services and pay firms for them.

goods and 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?

Both B and C Signup and view all the answers

The two main tools of macroeconomic policy include monetary policy and fiscal policy, which involves __________ spending.

government Signup and view all the answers

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

Low unemployment Signup and view all the answers

The basic difference between macroeconomics and microeconomics is:

microeconomics concentrates on the behavior of individual consumers and 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?

Decrease in the 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

Macroeconomic topics do not usually include:

The profit-maximizing decisions of an individual manufacturer Signup and view all the answers

Macroeconomics primarily examines:

Broad issues such as national output, employment and inflation Signup and view all the answers

Specialization can 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

Which of the following statements most likely lies within the realms of macroeconomics?

Due to an economic recession, manufacturing firms began implementing layoffs of their workforces. Signup and view all the answers

Which of the following lies primarily within the realm of macroeconomics?

Tax cuts stimulate aggregate production Signup and view all the answers

Macroeconomics is concerned with the expension and contraction of the overall economy.

is concerned with the expansion and contraction of the overall economy Signup and view all the answers

The basic difference between macroeconomics and microeconomics is that:

microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets). Signup and view all the answers

The circular flow diagram of economic activity is a model of the:

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

Which of the following best characterizes the circular flow of income?

Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses. Signup and view all the answers

In the circular flow diagram model:

Both (a) and (b) are correct. Signup and view all the answers

Regardless of whether you are looking through the microeconomics microscope or the macroeconomics telescope, the fundamental subject material of the interconnected __________ doesn't change.

economy 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.

Economies 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 is a black market, and under what economic condition is it most likely to thrive?

A black market is where buyers and sellers make transactions without government approval, and it thrives in command economies. Signup and view all the answers

When nations desire a healthy macroeconomy, they typically focus on several goals. List three.

Growth in the standard of living, a low level of unemployment, low inflation, and a sustainable balance of trade between countries. Signup and view all the answers

How does microeconomics relate to macroeconomics?

Microeconomics examines the behavior of individual households and firms, while macroeconomics concentrates on the behavior of consumers and firms in the aggregate. Signup and view all the answers

Show the benefits to Clem from specialization. What should he specialize in?

Clem should specialize in wheat production to make $150 instead of $100 from barley. Signup and view all the answers

Briefly describe the main components of monetary policy and fiscal policy.

Monetary policy affects bank lending, interest rates, and financial capital markets; fiscal policy involves government spending and taxes. Signup and view all the answers

List three reasons for the trend toward globalization.

<ol> <li>Improvements in shipping and air cargo have driven down transportation costs. 2) Innovations in computing and telecommunications have made long-distance economic connections easier and cheaper. 3) International agreements have encouraged greater trade.</li> </ol> Signup and view all the answers

What sorts of questions regarding the level of economic freedom might researchers have asked?

<ol> <li>Who's in control of economic decisions? 2) Are people free to do what they want and to work where they want? 3) Are businesses free to produce when they want and what they choose?</li> </ol> Signup and view all the answers

How can a group of workers, each specializing in certain tasks, produce so much more than the same number of workers who try to produce the entire good or service by themselves?

<ol> <li>Specialization allows workers to focus on their strengths. 2) Workers become more efficient and produce higher quality. 3) Specialization enables economies of scale.</li> </ol> Signup and view all the answers

Define 'division of labor' and illustrate with an example.

Division of labor is when work is divided into tasks performed by different workers. For example, in a pin factory, distinct tasks are performed by various workers to produce pins efficiently. Signup and view all the answers

Study Notes

Command Economy

Predominant in countries like Cuba and North Korea, where government controls most economic decisions.
National government significantly influences the economy, especially in Cuba.

Economic Influences

In a command economy, the government makes or strongly influences economic decisions.
The macroeconomy heavily affects individual firms' decisions on hiring workers.

Market-Oriented Economy

In a market-oriented economy, economic decisions are determined by buyers and sellers.
Black markets thrive primarily in command economies, where government regulations are strict.

Environmental and Production Concerns

Production of goods and services can lead to valid criticisms, such as environmental pollution.
Specialization increases overall production efficiency.

Economic Models and Circular Flow

The circular flow diagram illustrates the movement of goods, services, and payments between households and firms.
Businesses and households interchange resources, income, goods, and services in the economy.

Macroeconomics vs. Microeconomics

Macroeconomics studies the economy as a whole, including national output, employment, and inflation.
Microeconomics focuses on individual consumers, firms, and specific market behaviors.

Policy Tools

Key tools of macroeconomic policy include monetary policy (interest rates) and fiscal policy (government spending).
Nations aim for low inflation, low unemployment, and sustainable trade balances to achieve a healthy macroeconomy.

Specialization Benefits

Specialization improves production efficiency by allowing workers to focus on tasks matching their skills, leading to higher quality and faster outputs.
Economies of scale result from increased production, reducing the cost per unit.

Globalization Effects

Drivers of globalization include reduced transportation costs, advancements in communication technology, and international trade agreements.
Global interconnectedness affects how firms and workers from different countries interact and compete.

Economic Freedom Evaluation

Economic freedom assessments involve questions regarding control over economic decisions, personal freedoms in work, and business operational freedom.
The Heritage Foundation and Wall Street Journal evaluate countries on various economic freedom metrics.

Division of Labor

Division of labor refers to splitting production tasks among workers to enhance efficiency, exemplified through Adam Smith's pin factory analysis.
This concept is illustrated by breaking down tasks within production processes in factories or service industries.

Specialization and Production Output

Specialization explains why workers can produce more efficiently than if they performed all tasks independently.
Increased productivity arises from skill advantages, faster production rates, and economies of scale.

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Test your knowledge on command economies with these flashcards from Chapter 1. Learn key terms and definitions related to how national governments control economic decisions in countries like Cuba and North Korea.

Economics Chapter 1 Flashcards

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