Economics Chapter 6

shortage

The condition in which the quantity demanded of a good is greater than the quantity supplied. Shortages occur only at prices below equilibrium price.

price floor

a legislated price -- set above the equilibrium price -- below which buyers and sellers cannot legally buy and sell a good.

price ceiling

a legislated price -- set lower than the equilibrium price -- above which buyers and sellers cannot legally buy and sell a good.

equilibrium price

the price which a good is bought and sold in a market that is in equilibrium.

equilibrium quantity

the quantity of a good that is bought and sold in a market that is in equilibrium.

inventory

the stock of goods that a business or store has on hand.

When does a shortage exist?

A shortage exists when quantity demanded is greater than quantity supplied.

When does surplus exist?

A surplus exists when quantity supplied is greater than quantity demanded.

equilibrium

in a market the point at which the quantity of a good that buyers are willing and able to buy is equal to the quantity that sellers are willing and able to produce and offer for sale (quantity demanded equals quantity supplied).

surplus

the condition in which the quantity supplied of a good is greater than the quantity demanded. Surpluses occur only at prices above equilibrium price.