Introductory Economics

What is economics the study of?

How humans make decisions when facing scarcity of resources.

What does scarcity mean in economics?

Human wants for goods and resources exceed what is available.

Define division of labor in production

Workers divide required tasks among themselves to produce a good or service.

What is specialization in economics?

Workers or firms focus on tasks they are relatively well-suited for.

What are economies of scale?

When higher production lowers average cost per unit for many goods.

What does microeconomics focus on?

Actions and decisions of individual agents like households and firms.

What does macroeconomics study?

Economy-wide issues like growth, unemployment, inflation, and trade balance.

Define monetary policy in macroeconomics

Central bank actions changing interest rates, credit availability, and borrowing conditions.

What is fiscal policy?

Government decisions on spending and taxation, set by the legislature.

What is an economic theory?

A simplified representation of how variables interact in the economy.

How do economists use models with theories?

They use models to represent and test economic theories.

What does the circular flow diagram show?

Interactions between households and firms in goods and labor markets.

What flows in the goods and services market?

Goods and services to households; payments from households to firms.

What flows in the labor market?

Households supply labor; firms pay wages, salaries, and benefits.

What is a traditional economy?

An agricultural-based system where production methods follow historical customs.

Define a command economy

System where government owns resources and makes key economic decisions.

What is a market economy?

Economy with decentralized decisions, private ownership, and demand-driven production.

What is a market in economics?

Interactions between potential buyers and sellers, combining demand and supply.

Define private enterprise

System where private individuals own and operate production resources and businesses.

What is a mixed economy?

An economy combining elements of command, traditional, and market systems.

Where is the U.S. economy on the spectrum?

Toward the market-oriented end, with relatively less government control.

How are China and Russia positioned economically?

They lean toward market systems but remain closer to command economies.

Why is a completely free market impossible?

Because government regulations always set basic economic rules.

What is an underground (black) market?

Market where buyers and sellers trade without government approval.

Define globalization in economics

Trend where market transactions increasingly cross national borders.

What are exports for a country?

Goods and services produced domestically and sold abroad.

What are imports for a country?

Goods and services produced abroad and sold domestically.

What does gross domestic product measure?

The size of total production within an economy.

According to Keynes, what does economics teach?

It teaches how to think about problems, not what to think.

Whose well-being is economics concerned with?

All people, regardless of employment status or income level.

Which kinds of decisions does economics examine?

Individual, family, business, and societal decisions under scarcity.