Economics Fundamentals: Market Systems, Circular Flow, and Trade

Vocabulary practice flashcards covering essential introductory microeconomics and macroeconomics concepts, including comparative advantage, economic systems (capitalism vs. communism), utility types, and the circular flow model.

Input Problem

An economic scenario where the data measures the amount of resources (such as acres of land or units of time) required to produce a fixed level of output, rather than the amount produced.

Services

Non-material economic goods and activities provided to consumers.

Social Capital

Public property and shared communal resources that facilitate economic activity.

Specialization

A division of labor in production where each person performs one specific part of the job.

Laissez-faire

A French term translating to "let it be," representing the free-market doctrine of minimal government interference in economic affairs.

Profit Motive

The financial incentive that drives individuals and businesses to enter a market, take risks, and generate monetary gain.

Contract

A formal, legally binding agreement entered into between two persons or parties.

Entrepreneur

The risk bearer and decision maker in an economy who organizes resources to launch and manage businesses.

Barter

The direct trade of goods or services without money, which can occur only when a double coincidence of wants exists.

Automation

A production process in which capital goods are directed and operated by another machine rather than manual human labor.

Comparative Advantage

The condition of having a lower opportunity cost in producing a good compared to another producer; it is mathematically impossible for one individual to hold this advantage in both activities when comparing two goods.

Capitalism

An economic system founded on private property, the role of self-interest and greed, limited government, market-determined wages and prices, freedom of enterprise, and competition that lowers prices and raises quality.

Central Economic Planning

An economic mechanism where the government directs production and distribution, which is not a characteristic of capitalism.

Flow of Spending (Arrow A)

In the circular flow diagram, the monetary pathway running from households through markets for goods and services to firms.

Flow of Goods and Services (Arrow B)

In the circular flow diagram, the physical output traveling from business firms through product markets to households.

Flow of Factors of Production (Arrow C)

In the circular flow diagram, the movement of productive resources—land, labor, capital, and entrepreneurship—from households through factor markets to firms.

Flow of Income (Arrow D)

In the circular flow diagram, the monetary compensation paid by firms through factor markets to households in exchange for resources.

Economic Utility

The capacity of a product to satisfy consumer desires, classified into four standard types: form, time, place, and possession (excluding money).

Communism

A command economic system characterized by public ownership of all property, government ownership of the factors of production, the elimination of social classes, and the equitable distribution of wealth.