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?