CHAPTER 1 BOOK

Economics

The study of how humans make choices under conditions of scarcity.

Scarcity

When human wants for goods and services exceed the available supply.

Division of Labor

The way in which different workers divide required tasks to produce a good or service.

Microeconomics

The branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms.

Macroeconomics

The branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance.

Command Economy

An economy where economic decisions are passed down from government authority and where the government owns the resources.

Market Economy

An economy where economic decisions are decentralized, private individuals own resources, and businesses supply goods and services based on demand.

Fiscal Policy

Economic policies that involve government spending and taxes.

Monetary Policy

Policies that affect bank lending, interest rates, and financial capital markets.

Globalization

The trend in which buying and selling in markets have increasingly crossed national borders.

Gross Domestic Product (GDP)

Measure of the size of total production in an economy.

Economies of Scale

When the average cost of producing each individual unit declines as total output increases.

Goods and Services Market

A market in which firms are sellers of what they produce and households are buyers.

Labor Market

The market in which households sell their labor as workers to business firms or other employers.

Private Enterprise

System where private individuals or groups of private individuals own and operate the means of production.

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.

Model

A more applied or empirical representation of a theory.

Underground Economy

A market where buyers and sellers make transactions in violation of one or more government regulations.