econ chapter 1

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

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

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

A. government

4. 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. A. market-oriented economy B. macroeconomy C. microeconomy D. command economy

A. market oriented economy

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

B. cuba

6. 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. interconnected economy C. task economy D. modern economy

A. divisions of labor

19. _____________ - 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. A. Skill B. Specialization C. Economies of scale D. Division of labor

C. Economies of scale

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

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

9. When nations desire a healthy macroeconomy, they typically focus on three goals, one of these being: A. balanced budget B. prudent monetary policy C. low inflation D. assuring competition between firms

C. low inflation

14. Which of the following statements most likely lies within the realm of macroeconomics? A. An increase in the price of automobiles will lead to a decrease in the quantity of automobiles demanded. B. Due to process innovations in computer chip manufacturing, the market supply of computers increased. C. Due to an economic recession, manufacturing firms began implementing layoffs of their workforces. D. Anticipating that the benefits would outweigh costs involved, an undergraduate student purchases the course textbook.

C. Due to an economic recession, manufacturing firms began implementing layoffs of their workforces.

5. Which of the following is generally accepted as a valid criticism of the production of useful goods and services? A. government involvement B. the black market C. environmental pollution D. economic freedom

C. environmental pollution

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

C. goods and services market

15. The basic difference between macroeconomics and microeconomics is that: A. microeconomics looks at the forest (aggregate markets) while macroeconomics looks at the trees (individual markets). B. macroeconomics is concerned with groups of individuals while microeconomics is concerned with single countries. C. microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets). D. macroeconomics is concerned with generalization while microeconomics is concerned with specialization.

C. microeconomics is concerned with the trees (individual markets) while macroeconomics is concerned with the forest (aggregate markets).

7. If macroeconomics looks at the economy as a whole, it focuses on which of the following? A. households B. business firms C. unemployed people D. the division of labor

C. unemployment people

18. In the circular flow diagram model: A. households receive income from businesses in exchange for providing inputs and use that income to buy goods and services from businesses. B. businesses receive revenues from households in exchange for providing goods and services and use those revenues to buy inputs from households. C. households receive revenue for selling goods and services to businesses, and use that revenue to buy inputs from businesses. D. Both (a) and (b) are correct.

D. Both (a) and (b) are correct.

11. Which of the following is most likely a topic of discussion in macroeconomics? A. an increase in the price of a hamburger B. a decrease in the production of DVD players by a consumer electronics company C. an increase in the wage rate paid to automobile workers D. a decrease in the unemployment rate

D. a decrease in the unemployment rate

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

B. buyers and sellers.

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

B. can lead to an increase in overall production.

20. Economic models like the _____________________ are not physical models, but instead are diagrams or graphs or even mathematical equations that represent economic patterns or theories. A. financial capital market B. circular flow diagram C. financial investment market D. Specialization Model

B. circular flow diagram

3. 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? A. division of labour B. international trade C. economies of scale D. command economy

B. international trade

10. The basic difference between macroeconomics and microeconomics is: A. microeconomics concentrates on individual markets while macroeconomics focuses primarily on international trade. B. microeconomics concentrates on the behaviour of individual consumers while macroeconomics focuses on the behaviour of firms. C. microeconomics concentrates on the behaviour of individual consumers and firms while macroeconomics focuses on the performance of the entire economy. D. microeconomics explores the causes of inflation while macroeconomics focuses on the causes of unemployment.

C. microeconomics concentrates on the behaviour of individual consumers and firms while macroeconomics focuses on the performance of the entire economy.