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main questions of micro
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what goods will be produced? how will the goods be distributed? what role will be played by individuals making decisions about consuming, working, and saving? what role will be played by institutions and gov?
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economy
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the set of social arrangements that answers 3 fundamental questions: what is produced? how is it produced? for whom is it produced?
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economics
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the study of the production, distribution, and consumption of goods
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market
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institution that brings together buyers and sellers of goods and services
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market oriented economy
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an economy in which most economic decisions are made by buyers and sellers, who may be individuals or firms
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command economy
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an economy in which the government either makes or strongly influences most economic decisions
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even market oriented economies have...
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laws and regulations to support the operation of markets
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black market
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an illegal market that breaks government rules on prices or sales
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the economy is very _____
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interconnected
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division of labor
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dividing the work required to produce a good or service into tasks performed by different workers
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what does the division of labor increase production?
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specialization (they can focus on one task, learn to produce more quickly and with higher quality, etc)
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specialization
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when workers or firms focus on particular tasks in the overall production process for which they are well suited
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economics of scale
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when the average cost of producing each individual unit declines as total output increases
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globalization
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the trend in which buying and selling in markets have increasingly crossed national borders; firms and workers from different countries have become increasingly interconnected
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exports
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goods and services that are produced domestically and sold in another country
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imports
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goods and services produced abroad and sold domestically
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GDP
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measures the total production in an economy
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in recent decades, the export/GDP ratio has...
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risen
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why is the U.S. less affected by globalization?
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the US contains more of the division of labor within their national borders
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microeconomics
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the branch of economics that focuses on actions of particular actors within the economy, like households, workers, and business firms
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macroeconomics
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the branch of economics that focuses on the economy as a whole, including issues like growth, unemployment, inflation, and the balance of trade
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circular flow diagram
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a diagram that illustrates the economy as consisting of households and firms interacting in a goods and services market, a labor market, and a financial capital market
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goods and services market
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a market in which firms are sellers of what they produce and households are the buyers
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labor market
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the market in which households sell their labor as workers to businesses or other employers
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financial capital market
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the market in which those who save money provide financial capital and receive a rate of return from those who wish to raise money and pay a rate of return
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rate of return
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the payment in addition to the original investment from those who have received financial capital to those who provided it
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principal
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the amount of the original financial investment, before any rate of change is paid
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interest rate
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a payment calculated as a percentage of the original amount saved or borrowed, and paid by the borrower to the saver
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model
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a simplified representation of an object or situation that enough enough of the key features to be useful
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business
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an organization that produces and sells, regardless of whether the customers are individuals or other businesses
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company
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the group of people who form a business
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firm
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business company
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corporation
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a specific legal status, where the business is treated as a separate legal entity that can sign contracts, own property, and borrow money
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monetary policy
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policies that affect bank lending, interest rates and financial capital markets)
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fiscal policy
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economic policies that involve government spending and taxation
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