Economic Principles and The Circular Flow Diagram

These flashcards cover key vocabulary related to economic incentives, the circular flow of money, and concepts surrounding consumption and saving.

Incentive

A factor that encourages or motivates economic actors to act in a certain way.

Disincentive

A factor that discourages a certain behavior in economic actors.

Expected utility

A calculation that economic actors use to determine the expected benefit of a choice.

Expected cost

A calculation that economic actors use to determine the expected expense of a choice.

Circular flow diagram

A model that represents the flow of money, goods, and services between households and firms in an economy.

Velocity of money

The frequency/ speed at which a unit of money is exchanged within an economy over a certain period.

Disposable income

Income received by households after tax payments, available for consumption or saving.

Consumption

The use of disposable income to purchase goods and services.

Saving

The portion of disposable income not spent on consumption; includes various financial operations.

Economic activity

The production, distribution, and consumption of goods and services within an economy.