2.
Business and Economics
Study Guide • Research-Based Learning Material
Page 1 — Scarcity and Choice
Scarcity
Scarcity exists because resources are limited while human wants and needs are extensive. Because resources are
scarce, individuals, businesses, and governments must make choices.
Opportunity cost
Opportunity cost is the value of the next-best alternative given up when a choice is made. If a student spends an evening
studying instead of working a paid shift, the forgone wages are part of the opportunity cost.
Factors of production
• Land: natural resources.
• Labour: human effort and skills.
• Capital: tools, equipment, and productive assets.
• Entrepreneurship: organizing resources and taking business risk.
Study tip
For every decision, ask: 'What is the best alternative I am giving up?'
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Page 2 — Supply and Demand
Demand
Demand represents how much consumers are willing and able to buy at different prices. Other things equal, a higher price
usually reduces quantity demanded.
Supply
Supply represents how much producers are willing and able to sell at different prices. Other things equal, a higher price
usually increases quantity supplied.
Equilibrium
Market equilibrium occurs where quantity demanded equals quantity supplied. A shortage occurs when quantity
demanded exceeds quantity supplied at a given price; a surplus occurs when quantity supplied exceeds quantity
demanded.
Shifts vs. movements
A change in the good's own price causes movement along a demand or supply curve. Changes in other relevant factors,
such as income, input costs, or consumer preferences, can shift the curve.
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Page 3 — Market Structures
Perfect competition
Many firms sell similar products and have little individual control over market price. Entry and exit are relatively easy in the
textbook model.
Monopolistic competition
Many firms compete while differentiating products through branding, quality, location, design, or service.
Oligopoly
A small number of major firms dominate the market. Because firms are interdependent, one firm's decisions can influence
the strategies of others.
Monopoly
A monopoly has a single dominant seller protected by significant barriers to entry. Natural monopolies can arise when one
provider can serve the market at lower average cost than multiple competing providers.
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Page 4 — Macroeconomics
GDP
Gross domestic product measures the market value of final goods and services produced within an economy over a
specified period. Real GDP adjusts for price changes to better reflect changes in output.
Inflation
Inflation is a sustained increase in the general price level. Moderate inflation can occur in growing economies, while
unexpectedly high inflation can reduce purchasing power and create planning challenges.
Unemployment
The unemployment rate measures unemployed people who are actively seeking work as a share of the labour force.
Different types include frictional, structural, and cyclical unemployment.
Fiscal and monetary policy
Fiscal policy uses government spending and taxation. Monetary policy is conducted by a central bank and influences
financial conditions, including interest rates and credit availability.
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Page 5 — Business Decision-Making
Revenue and profit
Revenue is money earned from selling goods or services. Profit is revenue minus costs. A business can have high
revenue but low profit if its costs are also high.
Fixed and variable costs
Fixed costs do not change directly with short-run output, such as some rent expenses. Variable costs change with
production, such as direct materials.
Productivity
Productivity measures output relative to inputs. Improving worker skills, technology, processes, or equipment can
increase productivity.
Quick review
• Define opportunity cost.
• What causes a demand curve to shift?
• How is an oligopoly different from perfect competition?
• What does real GDP measure?
• Why does productivity matter for long-run growth?
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