Sections

Key Terms

Key Terms

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 resources are owned by the government

division of labor: the way in which the work required to produce a good or service is divided into tasks performed by different workers

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, resources are owned by private individuals, 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 the means of production (resources and businesses) are owned and operated by private individuals or groups of private individuals

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

stocks: shares of ownership of companies

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 economies: markets where the buyers and sellers make transactions without the government’s approval.