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
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
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
macroeconomics the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance
microeconomics the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms
model 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
normative statement a statement which describes how the world should be
opportunity cost measures cost by what we give up/forfeit in exchange; opportunity cost measures the value of the forgone alternative
positive statement a statement which describes the world as it is
production possibilities frontier (PPF) a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available.
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 simplified representation of how two or more variables interact with each other