1. Economics
Basic Principles

2. Relevant Standards of Learning
CE.9 The student will demonstrate knowledge of how economic decisions are made in the marketplace by
a) applying the concepts of scarcity, resources, choice, opportunity cost, price, incentives, supply and demand, production, and consumption;

3. Student objectives
Apply the concepts of scarcity, resources, choice, opportunity cost, price, incentives, supply and demand, production, and consumption. (CE.11a)

4. What is economics?
Economics is the ways that people work together to allocate scarce resources.

5. What are the three basic questions that must be answered by economies?
What and how to produce
How much to produce
For whom to produce

6. What is “scarcity”?
The inability to satisfy all wants and needs at the same time because resources are limited

7. What are “resources”?
Human, natural, and capital factors that are used in the production of goods and services

8. Define the following types of resources:
Human-people who work (labor)
Natural-raw materials that come from nature
Capital-manufacturing implements such as machines and factories

9. What is “choice”?
Selecting an item or action from a set of possible alternatives. In a capitalist economy, people decide what to produce and consume.

10. Explain opportunity cost.
The highest valued alternative forgone when a choice is made

11. Relate TANSTAAFL to opportunity cost
There ain’t no such thing as a free lunch. The time that you take to eat lunch could be used for some other purpose. The thing that you would most value doing instead is your opportunity cost.

12. What is “price”?
The amount of money, determined by supply and demand, that is exchanged for a good or service

13. What is an “incentive”?
Something that motivates a change in economic behavior

14. Give some examples of incentives.
Bonuses
Sales
Discounts
Coupons
Promotions
Extras

15. What is “demand”?
The amount of a good or service that consumers are willing and able to buy at a certain price

16. Draw a demand curve.

17. Describe the relationship between price and quantity demanded.
It is an inverse proportion. As price increases, the quantity demanded decreases and vice versa.

18. What is “supply”?
The amount of a good or service that producers are willing and able to sell at a certain price

19. Draw a supply curve.

20. Describe the relationship between price and quantity supplied.
It is a direct proportion. As price increases, the quantity supplied increases and vice versa.

21. Show how supply and demand combine to determine market price.

22. What is “production”?
The combining of human, natural, and capital resources to make goods and provide services

23. The using of goods and services
What is “consumption”?
The using of goods and services

24. Draw two graphs to show how price levels can create a surplus or a shortage.

25. Prices higher than the equilibrium price will cause a surplus.

26. Prices higher than the equilibrium price will cause a surplus.

27. Prices lower than equilibrium price will cause a shortage.

28. Prices lower than equilibrium price will cause a shortage.