Skip to ContentGo to accessibility page
OpenStax Logo
Principles of Economics 2e

Key Terms

Principles of Economics 2eKey Terms

Key Terms

circular flow diagram
a diagram that views the economy as consisting of households and firms interacting in a goods and services market and a labor market
command economy
an economy where economic decisions are passed down from government authority and where the government owns the resources
division of labor
the way in which different workers divide required tasks to produce a good or service
economics
the study of how humans make choices under conditions of scarcity
economies of scale
when the average cost of producing each individual unit declines as total output increases
exports
products (goods and services) made domestically and sold abroad
fiscal policy
economic policies that involve government spending and taxes
globalization
the trend in which buying and selling in markets have increasingly crossed national borders
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
labor market
the market in which households sell their labor as workers to business firms or other employers
macroeconomics
the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance
market
interaction between potential buyers and sellers; a combination of demand and supply
market economy
an economy where economic decisions are decentralized, private individuals own resources, and businesses supply goods and services based on demand
microeconomics
the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms
model
see theory
monetary policy
policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing
private enterprise
system where private individuals or groups of private individuals own and operate the means of production (resources and businesses)
scarcity
when human wants for goods and services exceed the available supply
specialization
when workers or firms focus on particular tasks for which they are well-suited within the overall production process
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
traditional economy
typically an agricultural economy where things are done the same as they have always been done
underground economy
a market where the buyers and sellers make transactions in violation of one or more government regulations
PreviousNext
Order a print copy
Citation/Attribution
Reuse and redistribution of this content in digital or print format:
  • This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax's prior written permission.
  • This book uses the Creative Commons Attribution License, which means that you can reuse and modify the material only for noncommercial purposes, must attribute OpenStax, and must distribute any derivative works under the same license.
  • Any commercial printing of this textbook, including using a local or custom printer, must be approved by OpenStax, and proper citation provided.
  • OpenStax-copyrighted images, activities, assessments, and similar components of this book are subject to the same licensing – CC-BY-NC-SA. They can be used for noncommercial purposes with attribution. Commercial use requires permission.
  • Permission requests: Anyone who intends to incorporate this content (including text, images, and other components) into large language models, use it in AI offerings, use it commercially (including in print), and/or has questions about another use case is welcome to complete our reuse request form.
Attribution information
  • If you are redistributing all or part of this book in a noncommercial print format, then you must include on every physical page the following attribution:

    Access for free at https://openstax.org/books/principles-economics-2e/pages/1-introduction

  • If you are redistributing all or part of this book in a noncommercial digital format, then for every page that includes OpenStax content, you must license the derivative work under the same CC-BY-NC-SA license as the original, and include on every digital page view the following attribution:

    Access for free at https://openstax.org/books/principles-economics-2e/pages/1-introduction

Citation information

The information below includes the information needed to generate citations in most major styles (APA, MLA, etc.); you must reformat and organize the information as needed to fit the requirements of the style. Use the information below to generate a citation. We recommend using a citation tool such as this one.

© Jun 15, 2022 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution License. The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo, and Rice University name, and Rice University logo trademarks, or wordmarks are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.