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Economics: choices, prices, money and the economy

Opportunity cost, supply and demand, profit and competition, GDP, inflation, unemployment, fiscal and monetary policy, tariffs, and personal money: interest, credit and insured savings. Each idea comes with a worked number example. Includes six questions with worked answers.

By FinishHigh · Published 2026-10-28 · Updated 2026-10-28

Why this matters on the test

About 15 percent of the GED® social studies test is economics. Many questions show a short news item, a chart or a price table and ask what will happen next or what a number means.

Most of it rests on a few ideas: every choice has a cost, prices move with supply and demand, and governments and banks try to keep the economy steady.

Scarcity and opportunity cost

Scarcity means people want more than there is. So everyone has to choose: people, businesses and governments.

Opportunity cost is the next-best thing you give up when you choose. Worked: Dana can work a Saturday shift for $96 or take a free Saturday class. If she takes the class, her opportunity cost is the $96 she did not earn. It is not the class fee, because the class is free.

Incentives are rewards or costs that change choices. A sale price is an incentive to buy now. A late fee is an incentive to pay on time.

Supply, demand and price

Demand: when the price goes up, people usually buy less. Supply: when the price goes up, sellers usually offer more.

The market price settles where the amount people want to buy equals the amount sellers offer. If the price is set below that point, people want more than sellers offer, and there is a shortage. If the price is above that point, sellers have more than people buy, and there is a surplus.

Shifts: a freeze that ruins orange crops cuts supply, so orange juice prices rise. A new study saying oranges are healthy raises demand, which also pushes the price up.

Competition among many sellers tends to keep prices down. A monopoly, one seller with no close rivals, can charge more. Profit = revenue − costs. A taco truck that takes in $1,800 in a week and spends $1,350 makes $1,800 − $1,350 = $450 profit. An entrepreneur takes that risk to start a business.

Specialization and trade

Specialization means each person or country focuses on what it does best, then trades. Comparative advantage means making the thing you give up the least to make, which is a lower opportunity cost. Trade lets both sides end up with more.

Productivity is how much is made per worker or per hour. New tools and training raise productivity.

A tariff is a tax on imported goods. It makes imports cost more. That helps companies at home that make the same goods, but buyers usually pay higher prices.

Measuring the whole economy

GDP (gross domestic product) is the total value of all final goods and services made in a country in one year. Rising GDP usually means the economy is growing.

Inflation is a general rise in prices over time. In the United States, the Bureau of Labor Statistics tracks it with the Consumer Price Index. Worked: a loaf of bread goes from $4.00 to $4.20. The change is $0.20, and $0.20 ÷ $4.00 = 0.05, or a 5 percent increase. Deflation is a general fall in prices.

The unemployment rate = unemployed people ÷ labor force × 100. The labor force is people who have a job plus people who are looking for one. Worked: 6 unemployed out of a labor force of 120 is 6 ÷ 120 = 0.05, or 5 percent.

Fiscal and monetary policy

Fiscal policy is government taxing and spending. Congress and the President decide it. Cutting taxes or spending more on roads puts more money into the economy.

Monetary policy is managing the money supply and interest rates. The Federal Reserve, the nation's central bank, does this. Raising interest rates makes borrowing cost more, which slows spending and helps fight inflation. Lowering rates makes borrowing cheaper.

Test tip: taxes or spending means fiscal policy. Interest rates or the Federal Reserve means monetary policy.

Your own money: interest, credit and savings

Interest is the price of using money. Simple interest = principal × rate × time (I = p × r × t). Worked: $1,000 borrowed at 5 percent a year for 2 years costs 1,000 × 0.05 × 2 = $100 in interest.

Credit means buying now and paying later. Credit cards, car loans and mortgages are kinds of credit. A credit card charges interest on any balance you do not pay off each month.

A savings account pays you interest. The FDIC insures deposits at FDIC-insured banks up to $250,000 per depositor, per bank, for each ownership category. So that money is protected if the bank fails.

Where this comes from

GED Testing Service's Assessment Guide for Educators: Social Studies lists economics topics E.c (basic concepts such as markets, incentives, competition, profit, opportunity cost and specialization), E.d (supply and demand, fiscal and monetary policy, inflation, GDP, unemployment and tariffs) and E.e (credit, savings and banking). It says about 15 percent of the test is economics. We checked the guide and the FDIC deposit-insurance page on October 28, 2026.

The explanations, made-up examples and questions are original FinishHigh practice, not GED® test questions. GED® is a registered trademark of the American Council on Education. FinishHigh is independent and not affiliated with or endorsed by it. This lesson teaches a few skills. It is not a full course or an official readiness result.

Next, try the questions below. For reading economic tables and charts, open the lesson "Read a social studies table without guessing."

Try this next: 6 questions ↓

ORIGINAL PRACTICE

Your turn.

Try each question before opening the explanation. These are FinishHigh practice examples, not GED® test questions.

Marcus has one free evening. He can earn $60 driving deliveries or go to his cousin's birthday dinner. He goes to the dinner. What is his opportunity cost?
Show the answer and why
The $60 he could have earned. Opportunity cost is the value of the next-best choice you give up.
A city caps apartment rents well below the price where supply meets demand. What is most likely to happen?
Show the answer and why
A shortage. At the lower price, more people want apartments than landlords offer, so many people cannot find one.
A gallon of milk rises from $3.50 to $3.85. By what percent did the price rise?
Show the answer and why
10 percent. The change is $3.85 − $3.50 = $0.35, and $0.35 ÷ $3.50 = 0.10.
A town's labor force is 2,500 people, and 150 of them are unemployed. What is the unemployment rate?
Show the answer and why
6 percent. 150 ÷ 2,500 = 0.06, and 0.06 × 100 = 6.
Congress passes a bill to cut income taxes. Is this fiscal or monetary policy?
Show the answer and why
Fiscal policy. Taxing and spending decisions by Congress and the President are fiscal policy. Monetary policy is the Federal Reserve managing interest rates and the money supply.
Lena borrows $3,000 at 6 percent simple interest per year for 2 years. How much interest does she pay?
Show the answer and why
$360. I = p × r × t = 3,000 × 0.06 × 2 = 360.