Chapter 1 Key Terms Flashcards
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.
Economics of Scale
When the average cost of producing each individual unit declines as total output increases.
Exports
Products (goods and services) made domestically and made 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 (good 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 business 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 businesses 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 business).
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.
