Economics
Domain IV tests microeconomics, macroeconomics, and international trade at an introductory college level. Expect graph reading, calculations, and policy reasoning.
Core rules
- Scarcity and choice: every choice has an opportunity cost; the production possibilities curve shows tradeoffs, efficiency, and growth.
- Supply and demand: a price change moves quantity demanded along the curve; changes in income, tastes, prices of substitutes or complements, expectations, or number of buyers shift demand. Supply shifts come from input costs, technology, taxes and subsidies, and number of sellers.
- Elasticity: elastic demand responds strongly to price; necessities and goods with few substitutes are inelastic.
- Market structures: perfect competition, monopolistic competition, oligopoly, monopoly-ranked by concentration and pricing power.
- Macro measures: GDP = C + I + G + (X − M); nominal versus real; CPI measures inflation; unemployment types-frictional, structural, cyclical, seasonal.
- Policy: fiscal (government spending, taxes) versus monetary (Fed open-market operations, discount rate, reserve requirements, interest on reserves). Comparative advantage, not absolute advantage, explains gains from trade.
Worked example
A worker can produce 30 chairs or 10 tables in a day. The opportunity cost of one table is 3 chairs. If another worker gives up 2 chairs per table, the second has the comparative advantage in tables and both gain by specializing and trading.
Traps that cost marks
- Describing a price change as shifting demand rather than as movement along the demand curve.
- Including used-goods sales or transfer payments in GDP.
- Labeling a laid-off worker whose skills no longer match available jobs as cyclically unemployed-this is structural.