Learn

Glossary

  1. Circular Flow: The movement of output and income from one sector of the economy to another; often illustrated as a circular flow diagram.
  2. Markets: Places, institutions or technological arrangements where or by means of which goods or services are exchanged. Also, the set of all sale and purchase transactions that affect the price of some good or service.
  3. Households: Individuals and family units that buy goods and services (as consumers) and sell or rent productive resources (as resource owners).
  4. Businesses and Households: Two sectors of the circular flow. Businesses hire resources from households; the payments for these resources represent household income. Households spend their income for goods and services produced by the businesses; household spending represents revenue for businesses.
  5. Voluntary Exchange: Trading goods and services with other people because both parties expect to benefit from the trade.
  6. Market Economy: An economy that relies on a system of interdependent market prices to allocate goods, services, and productive resources and to coordinate the diverse plans of consumers and producers, all of them pursuing their own self-interest.
  7. Goods: Tangible objects that satisfy economic wants.
  8. Services: Activities performed by people, firms or government agencies to satisfy economic wants.
  9. Firms: Economic units that demand productive resources from households and supply goods and services to households and government agencies.
  10. Money: Money from businesses is used to purchase resources (otherwise known as the factors of production). Resources (factors of production) include land, labor, capital, and entrepreneurship. Money generated from these factors of production returns to the households in the form of rent (from land), wages (from labor), interest (from capital), and profit (from entrepreneurship).