The Principles of Our Market Economy

Ch. 14Sec. 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