Chapter 6
price ceiling
A legal maximum on the price at which a good can be sold
price floor
A legal minimum on the price at which a good can be sold
rationing
A limited portion or allowance of food or goods; limitation of use
minimum wage
A minimum price that an employer can pay a worker for an hour of labor
shortage
A situation in which quantity demanded is greater than quantity supplied
surplus
A situation in which quantity supplied is greater than quantity demanded
equilibrium
A situation in which the market price has reached the level at which quantity supplied equals quantity demanded
Explain why a free market naturally tends to move toward equilibrium.
Increase in supply and demand
Identify two ways that the government intervenes in markets to control prices.
Increasing revenues and reducing costs
Analyze the impact of price ceilings and price floors on a free market.
Price ceilings can prevent inflation and price floors are set to ensure sellers receive a minimum profit for their efforts.
Describe what happens to prices when equilibrium is disturbed.
Prices will either rise or fall.
Prices determined by
Supply and Demand
rent control
a price ceiling placed on rent
fad
a product that is popular for a short period of time
supply shock
a sudden shortage of a good
black market
an illegal market in which goods or currencies are bought and sold in violation of rationing or controls
disequilibrium
describes any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market
Explain how supply and demand create equilibrium in the marketplace.
more demand the higher the supply; the lower the demand the less the supply
search costs
the financial and opportunity costs that consumers pay when searching for a good or service.
inventory
the quantity of goods that a firm has on hand.