SSE 200 Foundations of Economics Chapter 5-6 (Test 3)

True or False: Prices are determined primarily by production costs.

False

Why do markets clear?

Market clearing is the unintended consequence of the uncoordinated actions of people.

What does it mean to say that a market "clears?"

The plans of buyers and sellers are fully coordinated.

What is true when the price of beets is below the market-clearing price?

The price of beets will tend to rise

Why do market institutions develop over time?

They develop to reduce transactions costs

A minimum wage causes

a greater number of people to look for jobs

Price gouging

helps consumers by increasing the quantity supplied of a good

A minimum wage law tends to

hurt most people who are unskilled labor

If guitars are normal goods, and if the incomes of guitar buyers increase, then the market-clearing price of acoustic guitars would

increase

Laws that prohibit the use of drugs tend to cause

increased violence by those involved in the drug trade, an increase in the use of more potent (stronger) drugs, greater numbers of people dying from drug poisoning

Competition in markets is good because

it makes producers compete for customers, it makes customers compete with each other for goods and services, it causes all parties in the market to act in an efficient manner

A price floor

keeps a price above the market-clearing price

When there is a price ceiling on gasoline, one should expect that there will be

lines at gas stations

Rent controls cause

long waiting times to get into an apartment

Where there is a price ceiling on gasoline, people will compete for one another for gasoline by

waiting in line, trying to buy gasoline at a higher (illegal) price, paying the station owner to fill up from a reserved supply.

Price ceilings cause

shortages

Market clearing implies that

the quantity demanded equals the quantity supplied.

As long as the price of a product is above the market-clearing price

there will be a surplus of that product in the market

In comparison with market economies, centrally-planned economies tend to

coordinate economic activity less well than market economies

Sellers of beef compete primarily with

other sellers of beef