Economics Ch. 6

surplus

If prices rise too high, a market may face the problem of ______________

rationing

control how goods are distributed

lower prices

how will suppliers eliminate surplus?

price floor

minimum price set by gov (ex. minimum wage)

supply shock

sudden shortage of a good

excess demand (shortage) and excess supply (supply)

two possible outcomes of equilibrium

everybody to be equal

what was the goal of the Soviet planned economy?

price ceiling

when government wants to ensure that "essential" goods or services are within the reach of all consumers, it may impose a(n) ______________________

equilibrium

The one and only price at which quantities supplied equal quantities demanded indicates the market______________________

Consumers

______________ pay search costs in the form of financial and opportunity costs as they search for a good

Resource allocation

a market system with its fully changing prices, ensures resources go to the uses that customers value most highly

Disequilibrium

condition under which market forces will push towards the equilibrium; market price/ quantity supplied is anywhere but equilibrium price

shortage

excess demand for a good indicates this

spillover costs

externalities; costs of production such as air/water pollution that "spill over" onto people who have no control over how much of a good is produced

search costs

time and money

Adam Smith

wealth of nations, price system

raise prices

what do companies do when there is excess demand?

value

what do standard prices set?

raise the price

what do suppliers do as their quantity supplied decreases?

move toward point where I make a profit

what does "tend toward equilibrium" mean?

a change in price/quantity

what does a shift of the supply curve create?

Efficient Resource Allocation

what drives the distribution system in the free market?

shortage

what happens to demand when something new becomes popular?

goes up

what happens to the price when there is excess demand?

goes down

what happens to the price when there is excess supply?

price goes up

what happens when there is excess demand?

business prospers by finding out what people want and providing it

what is the main principle of Adam Smith's "Wealth of Nations"?

profit

what motivates suppliers to increase production in the face of high demand and high prices?

help move land, labor, and capital into the hands of producers, and finished goods into the hands of buyers

what overall, vital role do prices pay in the free market?

business operating for profit

what prompts efficient resource allocation in a well-functioning market system?

signals/ prices as incentives

what signals do high prices send to producers and consumers?

supply (think of the milk example)

what things signal to customers that the equilibrium for a good is changing?

1. imperfect competition (not enough competition) 2. spillover costs (externaility) 3. imperfect information (producers know more than consumers)

what three problems in the free market work against the efficient allocation of resources?

prices will go down

what will happen if technology increases the quantity supplied, but the quantity demanded does not change?

flexibility (it's easier)

why do suppliers use price rather than production to resolve the problem of excess demand?

supply and demand

why is the equilibrium point of goods constantly changing?

price ceiling

max price that can be legally charged for a good (below equilibrium)

Surplus

occurs when the quantity demanded falls below the quantity supplied

Equilibrium

point at which quantity demanded and quantity supplied come together

spillover costs

production costs paid by the general public

raise price or make more supply

supplier response to excess demand

black market

suppliers illegally sell goods for higher prices that the government

price floor

Minimum wage is an example of a government-imposed ______________________

decrease

does technology decrease or increase cost to SUPPLIERS?

lower prices

how do suppliers react when there is a fall in demand?

lowers demand

how does excess demand bring the market back to equilibrium?

demand goes up

how does lowering the price in a surplus bring the market back to equilibrium?

lowers demand

how does raising prices eliminate shortage?

increase

how does technology affect the quantity supplied?

supply and demand

how does the free market ensure an efficient allocation of resources?

lowers the demand

how does this bring the market back to equilibrium?

disequilibrium

if car manufacturers produce more or fewer cars than customers will buy, the car market will be in ______________________

left

if it cost a supplier more to produce a good, which way will the supply curve move?