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Economics

Study Guide

Economics makes up about 15% of the GED Social Studies test. You need to understand basic economic principles, supply and demand, economic systems, and personal finance concepts.

1Supply and Demand

Supply is how much of a product is available. Demand is how much people want it. Price is determined by the interaction of supply and demand.

Examples:

•High demand + low supply = high price (rare collectibles)
•Low demand + high supply = low price (surplus goods on sale)
•Equilibrium: where supply equals demand — the market price
•If a new study shows coffee is healthy → demand increases → price goes up
2Economic Systems

Different countries organize their economies differently. The US has a mixed economy (mostly free market with some government regulation).

Examples:

•Free market (capitalism): private ownership, competition, supply/demand sets prices
•Command economy: government controls production and prices (e.g., North Korea, Cuba)
•Mixed economy: combination of free market and government intervention (US, most countries)
•Socialism: government provides key services (healthcare, education) while allowing private business
3Inflation and Unemployment

Inflation is a general increase in prices over time (money buys less). Unemployment is the percentage of workers who want a job but can't find one.

Examples:

•If inflation is 3%, something that cost $100 last year now costs $103
•Types of unemployment: frictional (between jobs), structural (skills don't match), cyclical (recession)
•The Federal Reserve tries to control inflation by adjusting interest rates
•Higher interest rates → borrowing costs more → spending slows → inflation decreases
4International Trade

Countries trade because no country can produce everything efficiently. Comparative advantage means specializing in what you produce best and trading for the rest.

Examples:

•Imports: goods bought from other countries
•Exports: goods sold to other countries
•Tariff: a tax on imported goods (makes imports more expensive, protects domestic producers)
•Free trade: removing barriers (tariffs, quotas) between countries
Test-Taking Tips
Supply and demand graphs are common on the GED. Price is on the y-axis, quantity on the x-axis.
Remember: when supply goes UP (more product available), price goes DOWN.
Understand the Federal Reserve's role: it controls the money supply and interest rates.
Know the difference between GDP (total output) and per capita GDP (output per person).