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The Principles of Our Market Economy
Ch. 14Sec. 1
Pp. 374-381
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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.
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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
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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
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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
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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
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Questions
• What is the payment for the use of capital called?
• a. interest• b. profit• c. supply• d. allowance
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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.
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Questions
• What payment do producers exchange for the use of labor?
• a. interest• b. rent• c. wages• d. market price
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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
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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