Ch. 6 Economics
What are the 2 outcomes of disequilibrium?
-excess demand -excess supply
What are the 3 market problems?
-imperfect competition -imperfect information -spillover costs
How does government intervene?
-price ceilings -price floors
What are the problems with excess demand?
-shortages -search costs -often caused by fads
As long as excess demand exists:
-suppliers will continue to raise prices -when price is high enough to close the gap suppliers will have found the highest price the market will bear
What do market systems make certain for sellers?
-that they can make enough profit to stay in business -respond to changing and tastes of consumers
What is excess demand?
-when quantity demand is higher than quantity supplied -actual price in a market is below the equilibrium price
What is supply shock?
A sudden shortage of a good
Who wrote the Wealth of Nations?
Adam Smith
Excess supply is also called ________
Surplus
What are search costs?
The financial and opportunity costs consumers pay when searching for a good or service
What is a price ceiling?
a maximum price that can be legally charged for a good or service
What is minimum wage?
a minimum price that an employer can pay a worker for his/her labor
What is a price floor?
a minimum price that can be legally charged for a good or service
What are the factors that contribute to disequilibrium?
a shift in the entire -demand curve, supply curve
What is the Wealth of Nations about?
businesses prosper by finding out what people want and then providing it
Excess supply will force firms to ______ prices
cut
Suppliers respond to a fall in demand by...
cutting prices on their inventory
Price and quantity lean toward the point that they are ______
equal
At _______ buyers will purchase exactly as much of the product as firms are willing to sell.
equilibrium
On a graph, _________ is the point where the supply and demand curves intersect.
equilibrium
What would suppliers do without prices?
have to barter for goods
Prices tell buyer and seller whether goods are________
in short supply or readily available
When supply falls the curve shifts to the _____
left
What causes excess supply?
price being too high
What is rent control?
price ceiling placed on rent
Excess demand will lead firms to ________ prices
raise
Excess demand is also called ________
shortage
Costs of production that affect people who have no control over how much of a good is produced are ______
spillover costs
On a supply and demand curve _____ is above ______
surplus, shortage
What do market systems make certain for consumers?
that they can buy the products they want
What is equilibrium?
the point at which quantity demanded and quantity supplied are equal
What is disequilibrium?
when quantity supplied in NOT equal to quantity demanded in a market
What is excess supply?
when quantity supplied is more than quantity demanded
