Econ chapter 6: Prices

Minimum Wage

One well-known price floor is the minimum wage, which sets a minimum price that an employer can pay a worker for an hour of labor.

Search Costs

Search costs are the financial and opportunity costs consumers pay when searching for a good or service.

A Fall in Supply

The exact opposite will occur when supply is decreased. As supply decreases, producers will raise prices and demand will decrease.

Equilibrium

The point at which quantity demanded and quantity supplied come together is known as equilibrium. * Interactions between buyers and sellers will always push the market back towards equilibrium.

A Fall of Demand

When demand falls, suppliers respond by cutting prices, and a new market equilibrium is found.

Excess Demand

occurs when quantity demanded is more than quantity supplied.

Excess Supply

occurs when quantity supplied exceeds quantity demand.

Understanding Shift

since markets tend toward equilibrium, a change in supply will set market forces in motion that lead the market to a new equilibrium price & quantity sold.

What is the effect on labor when minimum wage exceeds equilibrium?

then there will be disequilibrium.

Excess Demand

A shortage is a situation in which quantity demanded is greater than quantity supplied.

Excess Supply

A surplus is a situation in which quantity supplied is greater than quantity demanded. If a surplus occurs, produces reduce prices to sell their products. This creates a new market equilibrium.

What is the purpose of the Northeast Dairy Compact?

Congress abolished price supports in 1996, several states in the Northeast have formed the Northeast Dairy Compact to guarantee a minimum price for milk produced on farms in these states.

Disequilibrium

If the market price or quantity supplied is anywhere but at the equilibrium price, the market is in a state called disequilibrium there are two causes for disequilibrium. -excess demand -excess supply

Government role in Prices

In some cases the government steps in to control prices. These interventions appear as price ceilings and price floors.

Price Ceiling

is a maximum price that can be legally charged for a good. * An example of a price ceilings is rent control, a situation where a government sets a maximum amount that can be charged for rend in an area.

Price Floor

is a minimum price, set by the government, that must be paid for a good or service.