Supply and Demand
What happens to the price of a product when demand increases, but supply stays the same?
Price increases.
What is scarcity?
The condition where limited resources cannot meet unlimited wants.
Define opportunity cost.
The value of what you give up when choosing one option over another.
What are interest rates?
The cost of borrowing money, expressed as a percentage.
What is a surplus?
When supply exceeds demand at a given price.
Define “law of demand.”
As price goes up, demand goes down, and vice versa.
How does scarcity force people to make choices?
People must prioritize needs and allocate resources efficiently.
If you choose to go to college, what could be an opportunity cost?
The income you could earn from working full time.
How do higher interest rates affect borrowing?
Higher interest rates make borrowing more expensive and reduce loans.
What is a shortage?
When demand exceeds supply at a given price.
If supply increases and demand decreases, what will happen to the equilibrium price?
The equilibrium price will decrease.
Provide an example of a scarce resource.
Oil, water, time, land, etc.
How does opportunity cost help in decision-making?
It forces individuals to evaluate the trade-offs of a choice.
What happens to consumer spending when interest rates are low?
Consumer spending increases.
If there’s a surplus of a product, what usually happens to the price?
The price decreases to encourage more sales.
Give an example of a factor that shifts demand to the right.
Increased consumer income, trends, or a complementary good price drop.
Why does scarcity exist in all economies?
Resources are limited while human wants are unlimited.
You have $10 to spend. Buying pizza means you can’t buy a movie ticket. What’s the opportunity cost?
The movie ticket.
If the Federal Reserve raises interest rates, what is likely to happen to the economy?
Slower economic growth as borrowing decreases.
What happens when there’s a shortage in the market?
Prices increase as demand exceeds supply.
Explain what happens to quantity supplied when there is a price ceiling.
Quantity supplied decreases because producers are less incentivized to produce at lower prices.
What is the relationship between scarcity and opportunity cost?
Scarcity forces choices, and opportunity cost is the value of the next best alternative given up.
What role does opportunity cost play in a production possibilities curve (PPC)?
Moving along the PPC shows increasing opportunity costs due to reallocating resources.
Explain the relationship between inflation and interest rates.
Higher inflation often leads to higher interest rates as lenders demand compensation for the decreased purchasing power of money.
How can a government price floor create a surplus?
By keeping prices above equilibrium, it encourages more production while demand decreases.