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1.6: Key Terms

  • Page ID
    215568
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    circular flow diagram
    a diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market
    command economy
    an economy where economic decisions are passed down from government authority and where the government owns the resources
    division of labor
    the way in which different workers divide required tasks to produce a good or service
    economics
    the study of how humans make choices under conditions of scarcity
    economies of scale
    when the average cost of producing each individual unit declines as total output increases
    exports
    products (goods and services) made domestically and sold abroad
    fiscal policy
    economic policies that involve government spending and taxes
    globalization
    the trend in which buying and selling in markets have increasingly crossed national borders
    goods and services market
    a market in which firms are sellers of what they produce and households are buyers
    gross domestic product (GDP)
    measure of the size of total production in an economy
    imports
    products (goods and services) made abroad and then sold domestically
    labor market
    the market in which households sell their labor as workers to business firms or other employers
    macroeconomics
    the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance
    market
    interaction between potential buyers and sellers; a combination of demand and supply
    market economy
    an economy where economic decisions are decentralized, private individuals own resources, and businesses supply goods and services based on demand
    microeconomics
    the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms
    model
    see theory
    monetary policy
    policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing
    private enterprise
    system where private individuals or groups of private individuals own and operate the means of production (resources and businesses)
    scarcity
    when human wants for goods and services exceed the available supply
    specialization
    when workers or firms focus on particular tasks for which they are well-suited within the overall production process
    theory
    a representation of an object or situation that is simplified while including enough of the key features to help us understand the object or situation
    traditional economy
    typically an agricultural economy where things are done the same as they have always been done
    underground economy
    a market where the buyers and sellers make transactions in violation of one or more government regulations

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