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Economic policies that involve government spending and taxes.

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Fiscal Policy

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

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Macroeconomics

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

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Microeconomics

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Policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing.

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Monetary Policy

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The way which the work required to produce a good or service is divided into tasks performed by different workers.

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Division of Labor

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

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Economics

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

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Economies of Scale

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

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Scarcity

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When workers of firms focus on particular tasks for which they are well-suited within the overall production process.

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Specialization

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When the mix of goods being produced represents the mix that society most desires.

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Allocative Efficiency

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When a country can produce a good at a lower cost in terms of other goods; or, when a country has a lower opportunity cost of production.

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Comparative Advantage

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As additional increments of resources are added to producing a good or service, the marginal benefit from those additional increments will decline

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Law of Diminishing Returns

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

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Production Possibilities Frontier (PPF)

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When it is impossible to produce more of one good (or service) without decreasing the quantity produced of another good (or service).

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Productive Efficiency

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Idea that self-interested behavior by individuals can lead to positive social outcomes.

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Invisible Hand

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Statement which describes how the world should be.

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Normative Statement

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Statement which describes the world as it is.

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Positive Statement

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

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Circular Flow Diagram

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

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Goods and Services Market

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

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Labor Market

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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.

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Theory (model)

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

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Command Economy

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Products (goods and services) made domestically and sold abroad.

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Exports

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

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Globalization

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Measure of the size of total production in an economy.

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Gross Domestic Product (GDP)

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Products (goods and services) made abroad and then sold domestically.

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Imports

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Interaction between potential buyers and sellers; a combination of demand and supply.

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Market

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

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Market Economy

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System where the means of production (resources and businesses) are owned and operated by private individuals or groups of private individuals.

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Private Enterprise

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

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Traditional Economy

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

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Underground Economy

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All possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of the opportunity set.

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Budget Constraint

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As we consume more of a good or service, the utility we get from additional units of the good or service tend to become smaller than what we received from earlier units.

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Law of Diminishing Marginal Untility

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Examination of decisions on the margin, meaning a little more or a little less from the status quo.

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Marginal Analysis

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measures cost by what is given up in exchange; opportunity cost measures the value of the forgone alternative

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Opportunity Cost

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All possible combinations of consumption that someone can afford given the prices of goods and the individual's income.

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Opportunity Set

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Costs that are made in the past and cannot be recovered.

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Sunk Costs

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Satisfaction, usefulness, or value one obtains from consuming goods and services.

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Utility

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Scarce

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People have unlimited desires but limited resources. Economics tries to understand how we make decisions in such a world of ______ resources.

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Scarcity

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Resources exist in limited supply, and as a result, economics is the study of how societies make decisions based on __________.

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Specialization

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________ allows workers to do what they are best at to increase production.

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determining how many workers a firm needs to hire to maximize profit

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Which of the following is a microeconomic problem?

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Macroeconomic

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Understanding the determinants of long-run economic growth is an example of a ________ problem.

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Monetary

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Suppose that a central bank decides to lower interest rates to boost the economy. This is an example of a _______ policy.

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Labor Services Performed

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In the circular flow diagram, _______ is an example of a flow from households to firms.

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Theoretical Models

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Which of the following best describes the tools economists use to examine and solve problems in the economy?

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sellers, buyers

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Firms are primarily ________ in the goods and services market and ________ in the labor market.

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Interest Rates

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Which of the following increases as the level of globalization in a country increases?

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Gross Domestic Product

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The value of the total amount of output produced in an economy in a given year is measured by ______.

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Traditional

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If economic activity in a society is mostly organized and directed among the family, then this society is an example of a(n) ________ economy.

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below (inside)

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A point ________ the budget constraint line indicates that the individual could have more of one good without having to give up any of the other.

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Sunk Costs

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What type of costs should firms and individuals ignore when making decisions?

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diminishing marginal utility

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"The fourth slice of pizza was good, but not as good as the third slice." This illustrates the law of _________.

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small, large

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In the figure, movement from point A to point B leads to a _______ reduction in healthcare and a _______ increase in education because of the law of diminishing marginal returns.

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Along

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Tradeoffs are illustrated by movements _______ the production possibilities curve.

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Allocative Efficiency

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A society is at its production possibilities frontier, but it would like fewer resources spent on wars and more spent on education. Implementing this preference represents an improvement in ________.

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theoretical models

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The tools economists use to examine and solve problems in the economy?

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Normative

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Which of the following best describes the type of statement an op-ed piece in a newspaper urging the adoption of a particular economic policy?

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various economic decisions must be made to allocate resources efficiently

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In economics, the concept of scarcity means that _______ .

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increase, decrease

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A tradeoff diagram illustrates that to _____ production of one good or service, you must ______ production of another good or service.

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the salary you would have earned as an accountant

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Suppose you decide to quit your job as an accountant and open an ice cream store. In order to calculate the opportunity cost of your decision, you need to know _______.

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