Unit Checkpoint: Economics Introduction

Scarcity is the basic economic problem - we have unlimited wants and needs but limited resources to satisfy them. This forces us to make choices about how to use our resources.

According to the law of demand, when prices go up, people usually buy less (demand decreases). When prices go down, people usually buy more (demand increases).

In a market economy, individuals and businesses make most economic decisions based on supply and demand. The government has a limited role.

Opportunity cost is what you give up when you make a choice. If you spend $20 on a video game instead of a book, the book is your opportunity cost.

When there's a shortage (more buyers than products available), sellers can raise prices because people compete to buy the limited supply.

Every economy must answer: What goods and services should be produced? How should they be produced? Who gets the goods and services produced?

In a command economy, the government makes most economic decisions about what to produce, how to produce it, and who gets the products.

When there's a surplus (more products than buyers), sellers lower prices to encourage people to buy. This is why stores have sales.

A producer makes or provides goods and services. A factory making cars is a producer. The others are consumers (people who use goods and services).

The United States has a mixed economy - it's mostly a market economy where individuals and businesses make decisions, but the government also plays a role through regulations, taxes, and some services.