OpenStax Principles of Economics - Ch. 1 Key Terms: Welcome to Economics!

circular flow diagram

Shows interaction between households and firms.

Production Possibilities Frontier (PPF)

Represents trade-offs and efficiency in production.

command economy

Government controls economic decisions (e.g., Cuba, North Korea).

division of labor

Tasks are split among workers to improve productivity.

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

Government actions like taxation and spending.

globalization

Driven by advancements in technology, trade agreements, and international business expansion.

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

Studies the economy as a whole (e.g., inflation, GDP).

market

interaction between potential buyers and sellers; a combination of demand and supply

market economy

Decisions are made by buyers and sellers.

microeconomics

Focuses on individuals, firms, and specific markets.

monetary policy

Managed by central banks (e.g., adjusting interest rates)

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

Increases efficiency by dividing labor among workers.

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; aka model

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