Economic Issues
The economic issues domain asks how limited resources get allocated and how economists measure the results. Questions favor definitions, curve logic, market-structure identification, and matching a policy tool to an economic problem.
Scarcity, choice, and opportunity cost
Economics assumes unlimited wants and limited resources. The factors of production are land (natural resources), labor, capital (tools, equipment, facilities), and entrepreneurship. Because resources are scarce, every choice carries an opportunity cost - the value of the best alternative given up. Sunk costs, already incurred and unrecoverable, should not drive future decisions.
Demand, supply, and elasticity
Demand slopes downward and supply upward; equilibrium price clears the market. A price change moves quantity along the curve, while changes in income, tastes, prices of substitutes or complements, expectations, or the number of buyers shift the whole curve. Price elasticity of demand = percentage change in quantity demanded ÷ percentage change in price. Demand is elastic when the absolute value exceeds 1, and raising price then reduces total revenue.
Market structures
Perfect competition: many sellers, identical products, easy entry, price takers. Monopolistic competition: many sellers with differentiated products and some pricing power. Oligopoly: a few interdependent sellers, prone to price leadership. Monopoly: one seller protected by barriers to entry. Long-run prices are lowest under perfect competition.
Measuring and steering the economy
GDP = consumption + investment + government purchases + (exports − imports), counting final goods only. The CPI tracks inflation through a market basket. Unemployment types are frictional, structural, cyclical, and seasonal; full employment still includes frictional and structural joblessness. Fiscal policy (spending and taxes) belongs to the legislature and executive; monetary policy (money supply, interest rates, reserve requirements) belongs to the central bank. To fight recession: spend more, tax less, buy securities, lower rates.
Worked example
A bakery can produce 200 loaves or 80 cakes per day. Choosing 80 cakes costs 200 loaves, so each cake costs 2.5 loaves. If bread prices climb, the opportunity cost of cake production rises and the bakery may reallocate toward bread. That same logic underlies specialization and comparative-advantage questions.
Traps
Confusing a shift of demand with movement along it; including transfer payments, used goods, or intermediate goods in GDP; labeling skills-mismatch unemployment as cyclical; and mixing fiscal with monetary tools.