Buisness Ch. 4

Rationing

A system used to determine how a scarce good or service is distributed. - At a buffet there's nothing to force people to ration how much they eat - But in a regular restaurant the price system performs its rationing function so well that they end up eating less

Explain what causes shifts in demand and supply

Demand: a change in the price of a good or service Supply: changes in the cost of factors or production or increased productivity

Determine the equilibrium point in the market for a specific good, given data on supply and demand at different price levels

Equilibrium is the price at which quantity demanded equals quantity supplied.

Price Ceiling

Government-imposed maximum legal price. - when people think they are paying too much for a good or service - buyers may lobby the government to put a price cap on what sellers can charge

Price Floor

Government-imposed minimum price (used almost exclusively to keep agricultural commodity prices up). - when sellers think that the price of their good or service is too low - They may impose a price floor above equilibrium which results in surpluses.

Rent Control Laws

Put a ceiling on rent - rent control reduces the incentives of business people to provide quality housing options. - Rent control can misallocate a scarce resource (housing) to people who value the resource less than market value

Usury Laws

Set a ceiling on the rate of interest that may be charged, and are based on the belief that there is a "fair" rate of interest. - interest - says that all people should have a fair interest rate

Shortage

The amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price. - when the market price is below equilibrium price - when quantity demanded is higher then quantity supplied

Surplus

The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price. - a surplus occurs when the actual price, or the market price, is greater than the equilibrium price. - surpluses occur when Price Floor is above equilibrium

Equilibrium Price

The price at which quantity demand is equal to quantity supplied. - the actual price could be higher and it could be lower. - a surplus occurs when the actual price, or the market price, is greater than the equilibrium price.

Equilibrium Quantity

The quantity bought and sold at the equilibrium price. - It's the quantity sold when the quantity demanded is equal to the quantity supplied. - quantity demanded would equal quantity supplied

Explain how price ceilings cause shortages

When buyers believe that they are paying too much for a good or service. Buyers may lobby the government to put a price cap and the demand ends up being higher than the supply which causes shortages.

Explain how price floors cause surpluses

When producers think the price they are getting for their product is too low. They impose a price floor above equilibrium which results in surpluses.

Supply

When the price of a good is lowered, less of it is supplied; when the price is raised, more is supplied. -If you are a supplier, then you are willing and able to sell a schedule of quantities at different prices -if you are a buyer, then you are willing and able to buy a schedule of quantities at different prices

Define and explain supply in a product or service market

When the price of a good is lowered, less of it is supplied; when the price is raised, more is supplied. The higher the price, the more of a good or service individuals are willing to supply.

Demand

When the price of a good is lowered, more of it is demanded; when the price is raised, less is demanded. -the lower the price, the more people will buy -The demand curve slopes downward and to the right

Define and explain demand in a product or service market

When the price of a good is lowered, more of it is demanded; when the price is raised, less is demanded. Shows how much of a good or service can be sold at different prices.