Basic ECONOMICS Concepts Key Ideas • Businesses utilize capital , labor , and materials to create goods and services . to sell . • Markets are systems that bring sellers ' goods and services to buyers . •The prices of goods and services are determined in part by supply and demand . In economics , capital is a term for things that can produce income . Manes can be capital ; so can equipment , land , and buildings . Businesses invest capital in order to create goods and services to sell for profit . However capital by itself cannot create value . Labor , the work of human beings transforms capital and materials into goods and services that can be sold. For example , a business that makes computers must make capital investments to build a factory and install equipment for production .Then the business must hire workers and managers to run the plant and use the equipment . The business must also buy the materials and parts to build the computers .The materials and parts are producer goods , while the finished computers , ready to sell in stores , are consumer goods . Not all businesses make or build objects . Some businesses create value by selling intangible services to their customers - such as an employment agency that offers the service of matching people with jobs . Markets are established routines and networks for selling and buying goods and services .There are producers ' markets for producer goods ; there are retail and wholesale markets for consumer goods ; there are markets for raw materials such as minerals ; there are financial markets for selling stocks and bonds . Some markets are more highly organized than others , and all markets are regulated by law to some extent . But markets , by definition , are not completely under the control of any government or agency . Goods and services are distributed through markets so that they can be consumed where they are wanted .Through the market system , sellers and buyers negotiate prices and contracts ; they compete for the best terms possible in that market . For example , a computer manufacturer might enter the consumer electronics market , competing with other manufacturers to sell its goods at a fair price to retailers . The retailers negotiate contracts specifying how many computers they are willing to buy and distribute to consumers through their stores or catalogs . How are prices determined in the market system ? In economics , price is related to suppl and demand . Sellers need to earn money on the goods they have y produced . Buyers want to spend as little as possible . When the supply of something is large , buyers shop around looking for the best price , and sellers lower their prices in order to move their inventory . On the other hand , if a product is scarce , buyers are less able to shop around , and sellers can raise their prices .When Florida has a hard freeze and fruit growers lose their citrus crops , the price of oranges goes up . That is because there are fewer oranges to buy and fewer sellers to buy them from , so those sellers can charge more . Supply and demand most clearly influence price in a free market economy .The U.S. economy operates primarily , but not completely , as a free market . For example , governmental price supports ensure that farmers can sell certain agricultural products at prices that allow them to earn a profit . PRACTICE 1 Questions 1 through 4 are based on the information on page 466 . 1. What is the main role of labor in an economy ? A. to provide capital to start new businesses B. to convert capital and raw materials into products and services C. to purchase all the goods and services that are produced D. to purchase raw materials in retail and wholesale markets 2. Which of the following is an example of a producer good rather than a consumer good ? A. a pencil B. a can opener C. a cell phone D. a plastic material. 3 .When there are very few houses for sale in an area , the real estate market is said to be a seller's market .Why is this name appropriate ? A.When the supply of houses is low and demand is high , sellers can raise their prices . B. When the supply of houses is low and demand is high , sellers will accept an offer lower than list price . C. Sellers are always at an advantage in the real estate market . D. Competition among sellers raises prices . 4.Why might the U.S. government offer price supports to farmers but not to toy manufacturers ? A. Toy sales vary widely , depending on the appeal of a particular toy . B .Toys are not critical to a nation's economic and political well - being . C.Toys are sold to adults for use by children . D.Toys are distributed through conventional wholesale and retail channels . 5.When apples cost 30 cents each , how many apples does Keisha buy each month ? A. 4 B. 8 C. 12 D. 16 6.Which of the following conclusions is sup ported by the data on the graph ? A. As the supply of apples rises , Keisha buys fewer apples . B. As the supply of apples rises , the demand for apples falls . C. As the price of apples rises , Keisha buys fewer , D. As the price of apples falls , Keisha buys the same number of apples.