chapter 6 combining supply and demand

when college students leave town for the summer, the demand for meals at the local restaurants declines. This may result in

a decrease In orice

market failures definition

a market failure is a situation in which the market, on its own, does not distribute resources efficiently.

what causes movement along the supply curve

a price change

what is a price floor ? example of a price floor? price floors will most likely cause a what in the market?

a price floor is a minimum price, set by the government, that must be paid for a good or service. - example of a price floor: one well known price floor is the minimum wage , which sets a minimum price that an employer can pay a worker for an hour of labor - price floors will most likely cause a surplus In the market

elastic demand

a small change in Price has a massive impact on demand for the product

what is the point called where supply curve and the demand curve intersect

equilibrium price

vaccinations of babies are an example of a positive

externality

pollution is an example of

negative externality

a vaccination is an example of:

positive externality

the following is a factor that will not cause the demand curve to shift

price

in some cases the government steps in to control prices. These interventions appear as what?

price ceilings and price floors

minimum wage is an example of a

price floor

inelastic demand

price has no impact on demand for the product

what happens to price when quantity supplied is greater than quantity demanded.

prices go down

advantages of prices: prices provide a _____ for buyers and sellers . - prices as an incentive? - signals? - flexibility? - price system is "free"?

prices provide a language for buyers and sellers - prices as an incentive: prices communicate to both buyers and sellers whether goods or services are scarce or easily available. prices can encourage or discourage production - signals: Think of prices as a traffic light. A relatively high price is green light telling producers to make more. A relatively low price is a red light telling producers to make less - flexibility: in many markets, prices are much more flexible than production levels. They can be easily increased or decreased to solve problems of excess supply or excess demand -price system is "free": unlike central planning, a distribution/ ration system based on prices costs nothing to administer

the price ceiling used in Santa Monica is called

rent control

when there is a shortage the price will usually

rise

Lexi misses 2 days of work to find an apartment for rent. This is an example of a ___ cost

search

search costs and example

search costs are the financial and opportunity costs consumers pay when searching for a good or service. Happens when there is a shortage. Ex) new iPhone

what is it called when the quantity which is demanded is higher than the quantity supplied?

shortage

what is the usual result of a price ceiling

shortage

when quantity demanded is greater than quantity supplied too have a

shortage

when the price of a good is below equilibrium price, a:

shortage puts upward pressure on price

a government payment made to a business is a

subsidy

balancing the market: - equilibrium is?

the point at which quantity demanded and quantity supplied come together is known as equilibrium

cold weather in Florida has damage this year's orange crop. Farmers have only half of the usual amount of oranges to sell. What will happen to the price of oranges

the price will go up

millions of people see a famous sports star drinking apple juice on television. The fans think apple juice helps make the athlete strong. What will happen to the price of apple juice?

the price will go up

farmers in California have had wonderful weather. They have produced the largest crop of watermelons in years. What will happen to the price of watermelons?

the prices will go down

I make radios.I just installed a new, hi-tech machine that lets me make twice as many radios for half the price! will prices go?

down

part of the reason that Lebron James earns millions of dollars each year wile school teachers may earn 30,000$ is because

- consumers enjoy basketball to the point that they are willing to spend lots of money and time attending games and watching commercials - the supply of superstar basketball players is low, while the supply of competent teachers is much larger - demand for Lebrun James' talent is very high since he can generate so much revenue for a firm

three functions of the government: - efficiency - equity - stability

- efficiency: correct market failures, such as imperfect competition (a firm's actions can affect the price of all the goods in an industry) * regulation to limit monopolies and externalities * provide public goods not provided by market - equity: the market's invisible hand may lead us to the limit of the production possibility frontier, but it does not always distribute that output in an acceptable way. Example) welfare, social security (safety net) - stability: by careful use of monetary and fiscal policies the levels of output, employment, and inflation can be influenced.

market disequilibrium: - what are the two cases for disequilibrium?

- excess demand: excess demand occurs when quantity demanded is more than quantity supplied. When there is excess demand you have a shortage. - excess supply: Excess supply occurs when quantity supplied exceeds quantity demanded. When you have excess supply you have a surplus

the role of prices in a free market: - prices serve a ? - prices help move? - prices create?

- prices serve a vital role in a free market economy - prices help move land, labor, and capital into the hands of producers, and finished goods in to the hands of buyers - prices create efficient resource allocation for producers and a language that both consumers and producers can use.

efficient resource allocation: - resource allocation - market problems

- resource allocation: a market system, with its fully changing prices, ensures that resources go to the uses that consumers value most highly - market problems: * a market failure is a situation in which the market on its own, does not distribute resources efficiently *examples- externalities (positive and negative) , lack of competition, consumers not having enough information to make decisions.

shifts in demand: - rise in demand - a fall in demand

- rise in demand: when demand rises the demand curve shifts up and to the right and prices rise n - a fall in demand: when demand falls, the demand curve shifts down and to the left and prices fall

shifts in supply: - understanding a shift - increase in supply - a fall in supply

- understanding a shift: since markets tend toward equilibrium, a change in supply will set market forces I motion that lead the market to a new equilibrium price and quantity sold - increase in supply: an increase in supply is represented by a shift right and downward. This creates a new market equilibrium at a lower price. - a fall In supply: the exact opposite will occur when supply is decreased. A decrease in supply shifts the curve up and to the left and a new market equilibrium is established at higher price.

in a market economy, who decides on the prices of goods and services?

buyers and sellers

how has the Internet dramatically reduced search costs

by eliminating the need to travel to stores to shop

if Michael Jordan did advertisements for steak and shake, this would cause the _____ curve for steak and shake to shift ____

demand...right

any price where quantity supplied and quantity demanded are not equal

disequilibrium

any price which quantity demanded is not equal to quantity supplied

disequilibrium

market disequilibrium: - what is disequilibrium?

if the market price or quantity supplied is anywhere but at the equilibrium price, the market is in a state called disequilibrium

when supply decreases price

increases

market disequilibrium: how does the market get pushed back towards equilibrium?

interactions between buyers and sellers will always push the market back towards equilibrium.

what is a price ceiling? example? what will a piece ceiling most likely cause in the market?

is a maximum price that can be legally charged for a good . example) example of a price ceiling is rent control, a situation where a government sets a maximum amount that can be charged for rent in an area - a price ceiling will most likely cause shortage in the market

price floors usually create a

surplus

if the government imposed a price ceiling on rent that sets the price below equilibrium, which of the following will most likely happen?

there will be a shortage

if the government imposed a price floor on milk that sets the price above equilibrium, which of the following will likely happen

there will be a surplus

a surplus of a product will occur when the price is?

too high

prices are a lot like

traffic lights

when minimum wage is set well above equilibrium ___ is sure to rise

unemployment

I own an oil refinery. Summer is coming, and people are going to be driving everywhere. They're going to need lots of gasoline. Will prices go?

up