DTW GED PREP

Microeconomics

Microeconomics focuses on the behavior of individual markets, businesses, and consumers. It examines how goods and services are produced, sold, and consumed, and how supply and demand affect prices. A market is any place where buyers and sellers come together to exchange goods and services. The key forces that drive these exchanges are supply and demand.

Supply refers to the amount of a good or service that producers are willing and able to offer for sale at different prices. Demand is the quantity of a good or service that consumers are willing to purchase at various price levels. The law of supply and demand states that if an item is scarce (i.e., there is less supply than demand), the price will rise. Conversely, if an item is abundant and there is more supply than demand, the price will fall. This balance is critical for determining the equilibrium price, where the quantity supplied equals the quantity demanded, and there is no surplus or shortage.

When prices rise, producers are incentivized to supply more because higher prices increase potential profits. On the other hand, when prices fall, consumers tend to demand more of a product, as they perceive it to be a better deal. These behaviors are represented by the supply curve and demand curve, which show how the quantity supplied and demanded change as prices fluctuate.

THE SUPPLY CURVE

THE DEMAND CURVE

In a market economy, businesses operate with the goal of earning profits. Profits are the excess of income over costs, and they are essential for the survival and growth of businesses. If a business fails to generate profits, it may face bankruptcy, where it can no longer pay its debts and may be forced to shut down. In a competitive market, companies strive to offer better prices or improved products to attract customers. This competition helps ensure that consumers get the best value for their money.

On the other hand, a monopoly occurs when a single seller dominates the market and has no competition. A monopoly can charge higher prices because consumers have no alternative source for the product or service.

Investments also play a role in the economy. Investments are made in the hope that they will appreciate in value over time. Examples of investments include purchasing stocks, bonds, or real estate. Stocks represent ownership in a company, and bonds are loans made to corporations or governments. These investments can provide returns in the form of dividends or interest payments, as well as potential capital gains.

Macroeconomics

Macroeconomics, in contrast, looks at the broader economy, focusing on national and international economic activity. It examines the overall economic output, inflation, unemployment, and government policies that influence the economy as a whole. Fiscal policy refers to government decisions on how it collects and spends money. The government uses tax revenues to fund programs, such as social security, defense, and infrastructure projects. The president of the United States presents a budget to Congress each year, and lawmakers decide which programs to prioritize.

Monetary policy deals with the management of the money supply and interest rates. This is primarily controlled by a nation’s central bank, such as the Federal Reserve in the United States. The central bank adjusts the money supply and interest rates to either promote economic growth or control inflation. Inflation occurs when the general price level of goods and services rises over time, reducing the purchasing power of money. On the other hand, deflation refers to a decrease in the general price level of goods and services, which can signal an economic downturn.

One important indicator of a country’s economic health is Gross Domestic Product (GDP). GDP represents the total value of all goods and services produced within a country during a specific period. It is used to gauge the size and strength of an economy. A growing GDP generally signals economic expansion, while a shrinking GDP may indicate a recession.

Another key economic indicator is the unemployment rate, which measures the percentage of people actively seeking work but unable to find employment. High unemployment rates can be a sign of economic distress, while low unemployment indicates a healthy economy. For instance, during the Great Depression of the 1930s, the unemployment rate in the United States soared to 25%, while in the mid-2010s, it ranged between 7 and 8%.

Governments often aim for low unemployment rates and stable inflation as part of their economic policies. Tariffs, which are taxes on imports or exports, are one of the tools governments use to influence international trade and protect domestic industries. However, excessive tariffs can lead to trade disputes and reduced global trade.

Conclusion

Both microeconomics and macroeconomics are crucial to understanding the functioning of an economy. Microeconomics deals with the behavior of individual markets, where supply and demand determine prices and quantities. It also covers the role of businesses in earning profits, the effects of competition and monopolies, and the importance of investment. Macroeconomics, on the other hand, looks at the economy as a whole, focusing on government policies, inflation, GDP, and unemployment. Both areas of economics are interconnected, and together they provide a comprehensive understanding of how economies operate at both the individual and national levels.

MICROECONOMICS AND MACROECONOMICS

Directions: Select the best answer for each of the following questions.

1. Microeconomics focuses on national and government-level economic policies.
   _______ TRUE or _______ FALSE
2. The term used to describe the point where supply and demand are equal is: _______________.

1. Microeconomics focuses on national and government-level economic policies.
✅ FALSE
Explanation: Microeconomics focuses on individual consumers, businesses, and markets—not on national or government-level economic policies. That is the domain of macroeconomics.

2. The term used to describe the point where supply and demand are equal is:
**✅ Equilibrium
Explanation: Equilibrium is the point at which the quantity of goods supplied equals the quantity demanded, resulting in a stable price.