Information provides the necessary knowledge to make the best possible decisions on how to utilize scarce

resources. Welcome to the world of economics!
24 1 • Key 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
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