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

2. 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.

3. 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

4. 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

5. 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

6. 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

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

8. 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.

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

10. 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

11. 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