mircoeconomics

circular flow diagram

diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market

division of labor

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

economics

study of how humans make choices under conditions of scarcity

economies of scale

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

exports

products (goods and services) made domestically and sold abroad

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

macroeconomics

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

labor market

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

market economy

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

microeconomics

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

private enterprise

system where private individuals or groups of private individuals own and operate the means of production (resources and businesses)

scarcity

human wants for goods and services exceed the available supply

theory

object or situation that is simplified while including enough of the key features to help us understand the object or situation

traditional economy

agricultural economy where things are done the same as they have always been done

underground economy

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

opportunity cost

what is given up when another choice is made

production possibilities frontier (PPF)

diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available.

sunk costs

costs that we make in the past that we cannot recover