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GED Social Studies: Microeconomics and Macroeconomics Concepts

Importance ★★★★★ · 40% (estimate)

Overview

This chapter covers how prices are set in markets and how the whole economy is measured and managed. GED questions often show a supply and demand graph or describe a government action and ask about its effect.

Demand shows how much buyers want at each price, and supply shows how much sellers offer. Where the curves cross is the equilibrium price and quantity. If the price is above equilibrium, sellers offer more than buyers want, causing a surplus. If it is below, buyers want more than sellers offer, causing a shortage. When demand increases, the demand curve shifts right, and both the equilibrium price and quantity rise.

For the whole economy, GDP measures the value of all final goods and services produced. Inflation is a general rise in prices; deflation is a general fall. Fiscal policy is government taxing and spending, set by Congress and the President. Monetary policy is set by the Federal Reserve, which raises interest rates to slow inflation. A tariff is a tax on imports that raises their price.

Key concepts

  • Equilibrium

    The price and quantity where the supply and demand curves cross.

    Memory tipFind the crossing point first.

  • Surplus and shortage

    Price above equilibrium: surplus (supply > demand). Price below: shortage (demand > supply).

    Memory tipHigh price = extra goods; low price = not enough.

  • Demand shift

    More demand shifts the curve right; with the same supply, price and quantity both rise.

    Memory tipRead the new crossing point.

  • Inflation

    A general rise in prices over time, so each dollar buys less.

    Memory tipDeflation is the opposite.

  • Fiscal vs. monetary

    Fiscal: taxes and spending (Congress, President). Monetary: interest rates and money supply (Federal Reserve).

    Memory tipFed = monetary.

  • Tariff

    A tax on imported goods. It helps producers at home but raises prices for buyers.

    Memory tipTariffs make imports cost more.

See it in a picture

Supply line rising and demand line falling, crossing at a point marked equilibrium. A price line above equilibrium shows a gap marked surplus. A price line below equilibrium shows a gap marked shortage.
Above the equilibrium price there is a surplus; below it there is a shortage.

Often tested

  • On a graph, read across from the price to each line, then down to the quantity.
  • Surplus = quantity supplied minus quantity demanded; shortage = quantity demanded minus quantity supplied (both at that price).
  • Higher interest rates make borrowing cost more and slow spending.
  • GDP counts final goods and services produced in a country.

3 sample questions

Verified practice questions from this unit.

Practice questionReviewedEconomics › Microeconomics and Macroeconomics★★★★★

Question 1. The graph shows the supply (S) and demand (D1) for a product. Ignore the dashed line D2. What is the equilibrium price, where supply and demand D1 meet?

Graph with price (0 to 10 dollars) up the side and quantity (0 to 100 units) along the bottom. Line S rises straight from $0 at 0 units to $10 at 100 units. Line D1 falls straight from $10 at 0 units to $0 at 100 units. Dashed line D2 falls straight from $10 at 20 units to $2 at 100 units.
  1. ① $4
  2. ② $5
  3. ③ $6
  4. ④ $7
▼ Show answer and explanation▲ Hide answer and explanation

Answer: ② $5

Key point: Equilibrium: where the supply and demand curves cross

Equilibrium is the point where the supply curve and the demand curve cross. Here, S and D1 cross at 50 units and $5. At that price, buyers want to buy exactly as many units as sellers want to sell.

Wrong choices

  • $4: At $4, the quantity demanded on D1 (60 units) is more than the quantity supplied (40 units), so it is not equilibrium.
  • $6: $6 is where supply meets the dashed line D2, not D1.
  • $7: At $7, the quantity supplied (70 units) is more than the quantity demanded on D1 (30 units), so it is not equilibrium.
Practice questionReviewedEconomics › Microeconomics and Macroeconomics★★★★★

Question 2. What is inflation?

  1. ① A general rise in prices over time, so each dollar buys less
  2. ② A general fall in prices over time
  3. ③ A rise in the number of people without jobs
  4. ④ A rise in the total amount a country produces
▼ Show answer and explanation▲ Hide answer and explanation

Answer: ① A general rise in prices over time, so each dollar buys less

Key point: Inflation: prices rise, and money buys less

Inflation is a general increase in prices across the economy. When prices rise, the same amount of money buys fewer goods and services, so money loses purchasing power. The opposite, a general fall in prices, is called deflation.

Wrong choices

  • A general fall in prices over time: A general fall in prices is deflation.
  • A rise in the number of people without jobs: More people without jobs is rising unemployment.
  • A rise in the total amount a country produces: Growth in what a country produces is GDP growth.
Practice questionReviewedEconomics › Microeconomics and Macroeconomics★★★★★

Question 3. The graph shows the supply (S) and demand (D1) for a product. Ignore the dashed line D2. Suppose the price is set at $7. What would happen in this market?

Graph with price (0 to 10 dollars) up the side and quantity (0 to 100 units) along the bottom. Line S rises straight from $0 at 0 units to $10 at 100 units. Line D1 falls straight from $10 at 0 units to $0 at 100 units. Dashed line D2 falls straight from $10 at 20 units to $2 at 100 units.
  1. ① A shortage of 70 units
  2. ② A surplus of 40 units
  3. ③ A surplus of 20 units
  4. ④ A shortage of 40 units
▼ Show answer and explanation▲ Hide answer and explanation

Answer: ② A surplus of 40 units

Key point: Price above equilibrium causes a surplus

Read both lines at $7:

  1. Supply line S reaches $7 at 70 units, so sellers offer 70 units.
  2. Demand line D1 is at $7 at 30 units, so buyers want 30 units.
  3. Surplus = 70 - 30 = 40 units.

When the price is above equilibrium, sellers offer more than buyers want, and the extra is a surplus.

Wrong choices

  • A shortage of 70 units: 70 is the quantity supplied at $7, not a shortage. At this price there is extra, not too little.
  • A surplus of 20 units: Check the graph again: at $7, supply is 70 units and demand is 30 units, so the gap is 40, not 20.
  • A shortage of 40 units: A shortage happens when buyers want more than sellers offer. At $7, sellers offer more than buyers want.
Practice 5 questions from this unit →

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