The Principles of Our Market Economy Ch. 14 Sec. 1 Pp. 374-381

The Circular Flow of Economic Activity: Expanding the Circular Flow Rent – payment for the use of land Wages – payment for the use of labor Interest – payment for the use of capital.

Supply and Demand Buyers and sellers exchange goods and services through a market Markets determine price Producers compete with each other to sell goods and services to consumers

Law of Demand Demand – the amount of a product or service that buyers are willing and able to buy at different prices At lower prices, people demand more At higher prices, people demand less

Law of Supply Supply – the amount of a product that producers are willing and able to offer at different prices At high prices, more producers are willing to supply the product At lower prices, less producers are willing to supply the product

Supply and Demand Price affects demand and supply in opposite ways Market Price – the price at which buyers and sellers agree to trade Where demand and supply intersect is the market price

Questions What is the payment for the use of capital called? a. interest b. profit c. supply d. allowance

Questions In a circular flow of economic activity, producers need the following three resources to create goods: a. technology, workers, money. b. rent, buildings, money. c. labor, land, capital. d. tools, interest, wants.

Questions What payment do producers exchange for the use of labor? a. interest b. rent c. wages d. market price

Questions What is the amount of a product that buyers are willing and able to buy at different prices? a. demand b. supply c. production d. sales

Questions What is the price at which buyers and sellers agree to trade? a. a trade off b. market price c. cost of production d. profit