Economics Chapter 1

Type of economy where effort is devoted to goals passed down from a ruler or ruling class. Examples include ancient Egypt, Cuba, and North Korea

Command Economy

What is scarcity? Can you think of two causes of scarcity?

Scarcity means human wants for goods and services exceed the available supply. Supply is limited because resources are limited. Demand, however, is virtually unlimited. Whatever the supply, it seems human nature to want more.

A consultant works for $200 per hour. She likes to eat vegetables, but is not very good at growing them. Why does it make more economic sense for her to spend her time at the consulting job and shop for her vegetables?

She is very productive at her consulting job, but not very productive growing vegetables. Time spent consulting would produce far more income than it what she could save growing her vegetables using the same amount of time. So on purely economic grounds, it makes more sense for her to maximize her income by applying her labor to what she does best (i.e. specialization of labor).

Why might Belgium, France, Italy, and Sweden have a higher export to GDP ratio than the United States?

The United States is a large country economically speaking, so it has less need to trade internationally than the other countries mentioned. (This is the same reason that France and Italy have lower ratios than Belgium or Sweden.) One additional reason is that each of the other countries is a member of the European Union, where trade between members occurs without barriers to trade, like tariffs and quotas.

A computer systems engineer could paint his house, but it makes more sense for him to hire a painter to do it. Explain why.

The engineer is better at computer science than at painting. Thus, his time is better spent working for pay at his job and paying a painter to paint his house. Of course, this assumes he does not paint his house for fun!

Microeconomics

actions of individual agents within the economy, like households, workers, and businesses. Small parts of the economy.

How did John Maynard Keynes define economics?

increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the depression

Private Enterprise

production (resources and businesses) are owned and operated by private individuals or groups of private individuals - not the government.

Fiscal Policy

the use of government spending and revenue collection to influence the economy, by legislative body.

Division of Labor

the way in which the work required to produce a good or service is divided into tasks performed by different workers

Scarcity

when human wants for goods and services exceed the available supply

economies of scale

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

Specialization

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

Which factor drives the study of economics? O Politics O Scarcity O Trade O Profit

Scarcity

Residents of the town of Smithfield like to consume hams, but each ham requires 10 people to produce it and takes a month. If the town has a total of 100 people, what is the maximum amount of ham the residents can consume in a month?

100 people / 10 people per ham = a maximum of 10 hams per month if all residents produce ham. Since consumption is limited by production, the maximum number of hams residents could consume per month is 10.

Match the scenarios with the concepts of economics. 1. Within 3 months of starting work at the book publishing company, Shawn has greatly increased his skill and speed at packaging books for shipping. 2. Everyone in the Jackson family is equally good at baking, so they have begun selling pies at a local farmer's market. Mr. Jackson realizes they can be more productive if each member of the family does a different task associated with making the pies. 3. Though it required an increase in workforce, Tiny House Manufacturers has expanded its level of production and can now manufacture each home more affordably and efficiently. A - Economies of Scale B - Specialization of Labor C - Division of Labor

1B 2C 3A

Model

An applied theory

As an exercise to understand macroeconomics, an instructor presents her students with the national economy of a fictitious country. She divides the students in her class into two groups. Students in Group A will identify and analyze the spending by the country's government and its taxes. Group B will focus on the country's bank lending policy, interest rates, and financial capital markets. Group A is tasked with the country's _______ policy, while group B has the focus of its ______ policy.

Fiscal, Monetary

Which two primary markets interact in the circular flow diagram? O Income and payments O Households and businesses O Imports and exports O Goods and services and labor

Good and services and Labor

The best way to describe economics is that it is the study of __________ O how decisions are made. O money and finances. O preventing scarcity. O maximizing productivity.

How decisions are made

Theory

How different variable interact with each other

In the circular flow diagram, what do households sell to business firms? O Salaries O Labor O Goods O Benefits

Labor

Type of economy that is very decentralized. It brings together buyers and sellers of goods or services, who may be either individuals or businesses

Market Economy

What is used in economics interchangeably with the term "theory"?

Model

What type of economy do most countries have?

Most have a mixed economy, not fully market, command, or Traditional.

The chapter defines private enterprise as a characteristic of market-oriented economies. What would public enterprise be? Hint: It is a characteristic of command economies.

Public enterprise means the factors of production (resources and businesses) are owned and operated by the government.

What is an example of a problem in the world today, not mentioned in the chapter, that has an economic dimension?

There are many such problems. Consider the AIDS epidemic. Why are so few AIDS patients in Africa and Southeast Asia treated with the same drugs that are effective in the United States and Europe? It is because neither those patients nor the countries in which they live have the resources to purchase the same drugs.

circular flow diagram

This diagram shows how households and firms interact in the goods and services market, and in the labor market.

What type of economy organizes their economic affairs the way they have always done (i.e., tradition). Occupations stay in the family. Most families are farmers who grow the crops they have always grown using traditional methods. What you produce is what you get to consume. Because things are driven by tradition, there is little economic progress or development.

Traditional Economy

What would be another example of a "system" in the real world that could serve as a metaphor for micro and macroeconomics?

What would be another example of a "system" in the real world that could serve as a metaphor for micro and macroeconomics?

Which statements are true of the study of microeconomics? O It analyzes the slowing down or speeding up of a country's economy. O It examines how a business decides if and when to borrow money. O It is concerned with how individual households spend their budgets. O It focuses on monetary policy. O It has an opposite view of macroeconomics.

Which statements are true of the study of microeconomics? X It analyzes the slowing down or speeding up of a country's economy. ◉ It examines how a business decides if and when to borrow money. ◉ It is concerned with how individual households spend their budgets. X It focuses on monetary policy. X It has an opposite view of macroeconomics.

Which are concepts that Adam Smith first introduced in his 1776 book The Wealth of Nations? O Scarcity O Division of labor O Specialization of labor O Economics O Fiscal policy

X Scarcity ◉ Division of labor ◉ Specialization of labor X Economics X Fiscal policy

Globalization

expanding cultural, political, and economic connections between people around the world

Macroeconomics

focuses on broad issues such as the growth of production, the number of unemployed people, the inflationary increase in prices. Economy as a whole.

Monetary Policy

involves policies that affect bank lending, interest rates, and financial capital markets with a central bank

Underground Economies

markets where the buyers and sellers make transactions without the government's approval, often under heavily regulated economies