Introduction to Economics Vocabulary

Economics

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

Scarcity

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

Microeconomics

The branch of economics focusing on individual agents like households and businesses.

Macroeconomics

The branch of economics focusing on broad issues like growth, unemployment, and inflation.

Theory

A simplified representation of a situation used to understand key features.

Model

A simplified representation of a situation (synonym for theory).

Traditional Economy

An agricultural economy where things are done as they have always been done.

Command Economy

An economy where government authority makes decisions and owns resources.

Market Economy

An economy with decentralized decisions, private resource ownership, and demand-based supply.

Private Enterprise

System where private entities own and operate the means of production.

Underground Economy

A market where transactions violate government regulations.

Market

Interaction between buyers and sellers involving demand and supply.

Circular Flow Diagram

Diagram showing households and firms interacting in goods and labor markets.

Goods and Services Market

Market where firms sell products and households are buyers.

Labor Market

Market where households sell labor to firms or employers.

Division of Labor

Splitting required production tasks among different workers.

Specialization

When workers focus on specific tasks they are well-suited for.

Economies of Scale

When average cost per unit declines as total output increases.

Gross Domestic Product (GDP)

Measure of the size of total production in an economy.

Fiscal Policy

Economic policies involving government spending and taxes.

Monetary Policy

Policy altering interest rates, credit availability, and borrowing levels.

Globalization

Trend of buying and selling increasingly crossing national borders.

Exports

Goods and services produced domestically and sold abroad.

Imports

Goods and services produced abroad and sold domestically.