ECON 201 Exam #1

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. A. division of labor B. task economy C. modern economy D. interconnected economy

A. Division of labor

Who was the father of economics?

Adam Smith

Who wrote the wealth of nations?

Adam Smith

The circular flow diagram of economic activity is a model of the A. influence of government on business behavior. B. flow of goods, services, and payments between households and firms. C. role of unions and government in the economy. D. interaction among taxes, prices, and profits.

B. flow of goods, services, and payments between households and firms.

Factors of production inputs include

1. Land 2. Labor 3. Capital (buildings and machines)

What are the 2 basic tenants of economics?

1. Resources are LIMITED 2. Wants are NOT limited

What is meant by organizing economic activity

1. WHAT to produce 2. HOW to produce 3. WHO gets it

Which of the following best characterizes the income flows in the circular flow model? Businesses buy resources from households, and households use their income from the sale of resources to buy goods and services from businesses. Households buy factors of production from businesses, and businesses buy goods and services from households. The government purchases resources from businesses and households and then sells goods and services to businesses and households. Businesses buy resources from the government, and households buy goods and services from businesses.

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

Which of the following statements most likely lies within the realm of microeconomics? A. The size of the U.S. economy shrank in 2020 as a result of the COVID crisis. B. Inflation in the U.S. increased by 5% in May 2021. C. An increase in labor costs will increase the additional cost of producing another bus. D. Unemployment rises during a recession and falls during an expansion.

C. An increase in labor costs will increase the additional cost of producing another bus.

In a command economy, the __________ either makes most economic decisions itself or at least strongly influences how the decisions are made. A. market B. business sector C. government D. firm

C. Government

Households provide productive work activity and receive payment from firms in return in the? A. savings market. B. financial capital market. C. labor market. D. market for goods and services.

C. Labor Market

Macroeconomics primarily examines A. how prices are determined within individual markets. B. the output levels that maximize the profits of business firms. C. broad issues such as national output, employment, and inflation. D. the behavior of individual households and firms.

C. broad issues such as national output, employment, and inflation.

All else held constant

Ceteris Paribus

Visual model of the economy, shows how households and firms interact in markets

Circular flow model

What is the basic model system?

Circular flow model

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

Cuba

In the ______________, households receive goods and services and pay firms for them. A. labor market B. financial capital market C. savings market D. goods and services market

D. Goods and market services

A good economic theory A. is a set of mathematical equations representing economic behavior. B. is a detailed representation of reality used to explain past economic events. C. must contain a complete representation of real economic events to be useful. D. captures the essence of the economic concepts and facilitates their understanding.

D. captures the essence of the economic concepts and facilitates their understanding.

The study of how society manages its scare resources

Economics

Resources the economy uses to produce goods and services. Also known as inputs

Factors of Production

The circular flow model includes two markets what are they?

Goods and services market, Market for factors of production

What does GDP mean?

Gross domestic product

Owns factors of production, sell/rent them to firms for income, buy goods and services

Households

What does organizing economic activity mean?

Managing scare resources

The basic difference between macroeconomics and microeconomics is - Microeconomics explores the causes of inflation while macroeconomics focuses on the causes of unemployment. - Microeconomics concentrates on the behavior of individual consumers while macroeconomics focuses on the behavior of firms. - Microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on the performance of the entire economy. - Microeconomics concentrates on individual markets while macroeconomics focuses primarily on international trade.

Microeconomics concentrates on the behavior of individual consumers and firms while macroeconomics focuses on the performance of the entire economy.

Simplified representation

Model

What is economics all about?

Scarcity, meaning there is not enough

What 2 roles do economists play?

Scientists and policy advisor

Specialization leads to greater self-sufficiency. can lead to an increase in overall production. is always the result of an inefficient use of resources. allows workers to develop skills by working on a large number of tasks.

can lead to overall production

What was Adam Smith getting at when talking about the invisible hand?

decentralized decision making

__________________ refers to specialization that allows production to increase while the average cost of producing each individual unit declines. Free trade Economies of scale Scarcity A market-oriented economy

economies of scale

In economics WANTS are what?

insatiable or unable to satisfy

_________________ is the process a firm uses to transform inputs into outputs. Production Economies of scale Specialization Competition

production

Division of labor includes

specialization, economies of scale, trade

normative statement

statement which describes how the world should be

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

the firms income

What is the ultimate scare resource?

TIME!!!!!

Virtually every major problem facing the world today has an economic dimension. True False

TRUE

positive statements describe the world as is TRUE FALSE

TRUE

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

The limited nature of society's resources

What is absolute scarcity?

The resource or want is NOWHERE to be found

Organizing economic activity refers to how economics manage scarce resources TRUE or FALSE

True

What is relative scarcity?

What I want is NOT where I am right now

Households and firms acts as if led by _________ to promote general general economic well being

an invisible hand

In a market-oriented economy, the amount of a good that is produced is primarily decided by the interaction of producers and government planning committees. buyers and sellers. producers and input suppliers. all consumers.

buyers and sellers

Simplifying the complex world

Assumption

The factor of production which includes buildings and machines is known as A. labor B. capital C. income D. raw materials

B. Capital

Scarcity typically refers to the notion that? A. wants are limited. B. resources are limited. C. resources can be creatively obtained. D. resources are unlimited.

B. Resources are limited

The oldest way that societies organize their economic activity is using a command economy. manufacturing mechanisms. a traditional economy. a market-based approach.

traditional economy

What are the 3 broad categories of economic systems?

traditional, market, and command