Econ 104 Exam 1 UMASS – Questions and Answers
The invisible hand - -Adam Smith's Idea that self-interested behavior by individuals can
lead to positive social outcomes
-The Three categories of how humans have organized themselves: - -1. Custom and
Tradition
2. Command
3. Self-interest and Markets
-Gross Domestic Product (GDP) - -The value of the output of all goods and services
produced within a country in a year.
-Laissez-faire - -Idea that government should play as small a role as possible in economic
affairs.
-opportunity cost - -The idea that when there's not enough supplies you have to sacrifice
-Division of labor - -The way a good or service is produced is divided into a number of
tasks that are performed by different workers, instead of all tasks being done by the same
person.
-circular flow diagram - -A visual model of the economy that shows how dollars flow
through markets among households and firms.
-command economy - -An economic system in which the government controls a country's
economy
-market economy - -Economic decisions are made by individuals or the open market.
-private enterprise - -The means of production (resources and businesses) are owned and
operated by private individuals or groups of private individuals.
-Globalization - -The expanding cultural, political, and economic connections between
people around the world.
-Economies of scale - -when the average cost of producing each individual unit declines as
total output increases
-Market failures - -Invisible hand produces disappointing or embarrassing results for
society.
-Categories of Market Failure - -1. Market power- competition in the market
2. Equity- fairness
3. public goods-
The invisible hand - -Adam Smith's Idea that self-interested behavior by individuals can
lead to positive social outcomes
-The Three categories of how humans have organized themselves: - -1. Custom and
Tradition
2. Command
3. Self-interest and Markets
-Gross Domestic Product (GDP) - -The value of the output of all goods and services
produced within a country in a year.
-Laissez-faire - -Idea that government should play as small a role as possible in economic
affairs.
-opportunity cost - -The idea that when there's not enough supplies you have to sacrifice
-Division of labor - -The way a good or service is produced is divided into a number of
tasks that are performed by different workers, instead of all tasks being done by the same
person.
-circular flow diagram - -A visual model of the economy that shows how dollars flow
through markets among households and firms.
-command economy - -An economic system in which the government controls a country's
economy
-market economy - -Economic decisions are made by individuals or the open market.
-private enterprise - -The means of production (resources and businesses) are owned and
operated by private individuals or groups of private individuals.
-Globalization - -The expanding cultural, political, and economic connections between
people around the world.
-Economies of scale - -when the average cost of producing each individual unit declines as
total output increases
-Market failures - -Invisible hand produces disappointing or embarrassing results for
society.
-Categories of Market Failure - -1. Market power- competition in the market
2. Equity- fairness
3. public goods-
