Week 1 Key Terms Flashcards
a diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market
circular flow diagram
an economy where economic decisions are passed down from government authority and where the government owns the resources
command economy
the way in which different workers divide required tasks to produce a good or service
division of labor
the study of how humans make choices under conditions of scarcity
economics
when the average cost of producing each individual unit declines as total output increases
economies of scale
products (goods and services) made domestically and sold abroad
exports
economic policies that involve government spending and taxes
fiscal policy
the trend in which buying and selling in markets have increasingly crossed national borders
globalization
a market in which firms are sellers of what they produce and households are
buyers
goods and services market
measure of the size of total production in an economy
gross domestic product (GDP)
products (goods and services) made abroad and then sold domestically
imports
the market in which households sell their labor as workers to business firms or other employers
labor market
the branch of economics that focuses on broad issues such as growth, unemployment,
inflation, and trade balance
macroeconomics
interaction between potential buyers and sellers; a combination of demand and supply
market
an economy where economic decisions are decentralized, private individuals own
resources, and businesses supply goods and services based on demand
market economy
the branch of economics that focuses on actions of particular agents within the economy,
like households, workers, and business firms
microeconomics
policy that involves altering the level of interest rates, the availability of credit in the
economy, and the extent of borrowing
monetary policy
system where private individuals or groups of private individuals own and operate the
means of production (resources and businesses)
private enterprise
when human wants for goods and services exceed the available supply
scarcity
when workers or firms focus on particular tasks for which they are well-suited within the
overall production process
specialization
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
theory / model
typically an agricultural economy where things are done the same as they have always
been done
traditional economy
a market where the buyers and sellers make transactions in violation of one or more
government regulations
underground economy
What is Economics and Why is it important?
- Economics seeks to solve the problem of scarcity,
- Scarcity is when human wants for goods and services exceed
the available supply. - A modern economy displays a division of labor, in which people earn income by
specializing in what they produce and then use that income to purchase the products they need or want. - The division of labor allows individuals and firms to specialize and to produce more for several reasons:
a) It allows the agents to focus on areas of advantage due to natural factors and skill levels;
b) It encourages the agents to
learn and invent;
c) It allows agents to take advantage of economies of scale. - Division and specialization of labor only work when individuals can purchase what they do not produce in markets.
- Learning about economics helps you understand the major problems facing the world today, prepares you to be a good citizen, and helps you become a well-rounded thinker
Microeconomics and Macroeconomics
- Microeconomics and macroeconomics are two different perspectives on the economy.
- The microeconomic
perspective focuses on parts of the economy: individuals, firms, and industries. - The macroeconomic perspective looks at the economy as a whole, focusing on goals like growth in the standard of living,
unemployment, and inflation. - Macroeconomics has two types of policies for pursuing these goals: monetary
policy and fiscal policy.
How Economists use Theories and Models to understand Economic Issues
Economists analyze problems differently than do other disciplinary experts. The main tools economists use
are economic theories or models. A theory is not an illustration of the answer to a problem. Rather, a theory is a
tool for determining the answer.
How to Organize Economies
We can organize societies as traditional, command, or market-oriented economies. Most societies are a mix.
The last few decades have seen globalization evolve as a result of growth in commercial and financial networks
that cross national borders, making businesses and workers from different economies increasingly
interdependent.
