GED Social Studies Basic Economics Explained Simply

If you’re taking GED social studies, you should know that you may get questions on basic economics. In this video, I’m going to cover the basic concepts you should know for your test, and we’re going to go over the practice questions together to help make what you learn stick.

Economics is very complicated and I’m not an expert. My goal is to teach you what you the main things you should know for the GED

First, what is economics?

-A common misconception is that economics is all about learning how to make money or how to run or business or manage finance or predict the stock market--but that’s not really what economics is.

Very simply put, economics is about scarcity. Scarcity means there’s not enough for everyone.

"Economics is the study of the use of scarce resources which have alternative uses."
-Lionel Robbins

Meet Mark. Mark wants to rent a lakehouse for a family vacation. But when he looks at the prices, he realizes they’re way too high for him to afford. A lot of people would love to rent a lake house, but there aren’t that many lake houses available to rent in the world. Since there’s high demand but few houses, the people who own the houses can charge a lot of money to rent them out.

In other words, there’s a scarce supply of lake houses, but the demand is high.

This brings us to a fundamental concept in economics: supply and demand.

Supply and demand is a critical concept to understand. So I’m now going to introduce 2 general rules of thumb that go along with supply and demand
-People tend to buy more at lower prices and less at higher prices

-Sellers/producers tend to supply more at higher prices and less at lower prices

-Supply and demand is related to price. Prices are like messengers that tell you either good or bad news.

Capital: Anything that can produce income.
-For example, a lake house. the owner of a lake house can rent the lake house out to other people and make an income from that.
-Another example of capital is money.

Businesses invest money to create goods and services, which they can go on to sell to make an income. The actual work people do, which converts capital and materials into products and services is called labor.

-For example, consider a car company

-Car companies invest capital to build warehouses and storefronts, and then they have to hire employees. And then they have to buy car parts to build the cars with. The materials and the parts of the cars are what we called producer goods. On the other had, the cars themselves once they’re ready to be sold are what we call consumer goods.

Sellers bring their goods and services to the buyers through markets.

Markets are systems that match sellers’ goods and services to people seeking to purchase them.

Remember, people tend to buy more at lower prices and less at higher prices

Now suppose someone, lets call her Anne, is shopping for a new hat. Anne goes to a shopping mall. If one store sells the hat Anne wants for $30, but another store in the mall sells the same exact hat for only $20, logically, where do you think Anne is going to buy it? Assuming price is the only factor here, of course she’s going to buy the hat at the lowest price possible. Now, maybe if she’s in a hurry and the line is too long at the $20 store, then maybe she’d spend the extra money and go with the store selling it for 30, but the point here is that generally people want to pay the lowest price possible.

This leads to competition in the marketplace. Sellers/producers must compete with each other to provide the best deal for the consumers. And the best deal isn’t always about price.

-Consider starbucks and dunkin donuts. Coffee is cheaper at dunkin donuts, but some people might prefer to go to starbucks because they like the customer service or the music or the general atmosphere better. Personally, I like Dunkin the best, but that’s just me. But The point is that sellers/producers have to compete to give the best deal to their customers.

-Another topic that you might get questions about is retail vs wholesale:

Retail is when the customer directly buys a good or service.

Wholesale is when a business buys a good or service.

*For an outstanding book on economics, please check out Thomas Sowell's basic economics. I referenced this book while making this video.