ECON Chapter 6

The price at which that situation occurs is the _____

equilibrium price

What motivates producers and consumers in the black market?

A shortage and not have government regulations.

What is the usual result of a price floor?

A surplus

Why do changes in demand or supply cause disequilibrium?

Changes in supply or demand cause changes in the quantities supplied or demanded at every price. Therefore the quantities will no longer be equal at the original equilibrium price

Why is the price system an efficient way to allocate resources?

Decisions about what and how much to produce are based on what consumers have demand for and the prices at which prodcuers can make money

How does competitive pricing affect consumers?

Provides consumers with lower prices

Other than the black market, how do consumers make up for goods that are rationed?

They look for substitutes for the rationed goods

An unplanned consequence that is usually brought about from rationing. Goods are bought and sold illegally.

black market

Rising prices are _____ that draws producers into markets

incentives

The legal minimum that may be paid for a particular good or service

price floor

When certain goods or services are scarce, the government may implement a system of ______

rationing

If quantity supplied is greater than quantity demanded, a ______ occurs

surplus

What is the usual result of a price ceiling

Price ceilings create shortages by keeping prices below the equilibrium price.

When a producer enters a market at a lower price (hoping to increase its customer base while maintaining profits by selling more units), it is engaging in _____

competitive pricing

Why is the market always moving towards equilibrium?

Because a surplus or a shortage motivates producers to adjust prices until quantity supplied and quantity demanded are the same

Why are surpluses and shortages examples of disequilibrium?

Because if you have a surplus and there's too much of something then the quantity demanded is too low not meeting the quantity supplied. And when there is a shortage than the quantity then the quantity demanded is too high to meet the quantity supplied.

How is equilibrium price related to market equilibrium?

Equilibrium price is the price at which market equilibrum occurs, as when quantity supplied and quantity demanded are equal

Four characteristics of price system

Favors producers and consumers equally, runs itself, flexible in responding changes in the market, and it allocates resoruces efficiently

How are producers and consumers equally involved in the price system?

It's the interaction of supply and demand that determines the price.

A legal maximum that producers may charge for certain goods or services

Price ceiling

How does the black market work against the intended purpose of rationing?

Rationing attempts to allocate scarce resources fairly to everyone, regardless of ability to pay. The black market undermines this by allowing those who can pay higher prices to get more rationed goods

How do prices serve as signals and incentives to producers to enter a particular market? to leave a certain market?

Rising prices provide the incentive to enter a market by signaling the possibility of increasing revenue and therefore profits. Falling prices provide the incentive to leave a market, as they signal the possibility of decreasing revenue, and therefore profits

How does the story of Dell Inc demonstrate the effects of competitive pricing

it showed that when a strong competitor offers a similar product for lower prices other producers must also lower their prices. Less efficient companies will be driven from the market

What kind of surplus might be created by the minimum wage?

might be workers willing to work for the minimum wage than there are jobs that employers are willing to offer at the wage above equilibrium

When do prices serve as signals and incentives for producers to enter a market?

When the prices rise.

If quantity demanded exceeds quantity supplied, a _____ occurs

shortage

How are surplus and shortage related to equilibrium price?

At any price above equilibrium price there is a surplus, and at any price below equilibrium price there is a shortage

________ is a situation that occurs when quantity demanded and quantity supplied at a particular price are equal

Market equilibrium

How does the concept of market equilibrium reflect the interaction of producers and consumers in a market?

Drive the price to a point where a quantity supplied and quantity demanded are equal.