Basic Economic Concepts
Scarcity forces people to make what?
Choices
Which factor of production includes natural resources like water, wood, and minerals?
Land
Name the three basic economic questions all societies must answer.
What will be produced?
How will it be produced?
For whom will it be produced?
When two people willingly trade, who usually benefits?
Both parties gain
Prices in a market economy are determined by what two forces?
Supply and demand
What is the value of the next best alternative you give up when making a choice?
Opportunity cost
Tools, machinery, buildings, and equipment belong to which factor of production?
Capital
Which economic system relies on customs and traditions to answer economic questions?
Traditional economy
A reward that motivates people to act is called what?
Positive incentive
If the price of a product rises, what usually happens to demand?
Demand decreases
This term describes consumers’ willingness and ability to buy goods and services.
Demand
How many factors of production are there, and what are they?
4; Land, Labor, Capital, Entrepreneurship
Which economic system has the government making all major economic decisions?
Command economy
What type of incentive discourages a certain behavior?
Negative incentive
How does an increase in demand affect equilibrium price and quantity in a market?
Both equilibrium price and quantity rise.
This concept describes producers’ willingness and ability to offer goods and services for sale.
Supply
Households, firms, and governments use land, labor, capital, and entrepreneurship to make what kind of choices?
Economic decisions
The U.S. economic system is considered what type of economy?
Mixed economy
If minimum wage increased by $5, name one possible positive effect on households and one possible negative effect on businesses.
More income / improved living standards
Higher labor costs / possible layoffs
A store lowers the price of winter coats at the end of the season. What economic principle explains this action?
Law of supply and demand — lower prices help sell surplus inventory.
What does GDP measure?
The total value of all final goods and services produced in a country in one year.
Give an example of how a business could combine all four factors of production to produce a good or service.
Example: A bakery uses land (kitchen space), labor (bakers), capital (ovens, mixers), and entrepreneurship (owner organizing and taking risks) to make bread.
Name and define the four economic systems.
Traditional (based on customs and history), Command (government controls everything), Market (individuals and supply/demand drive decisions), and Mixed (a blend of market and command)
If a government imposes a tax on sugary drinks, what type of incentive is this, and how might it affect consumer behavior?
This is a negative incentive; it discourages consumers from buying sugary drinks, possibly reducing consumption.
Explain how a sudden increase in the price of oil might affect other markets and consumers.
Higher oil prices raise transportation and production costs, which can increase prices for many goods and reduce consumer purchasing power.