econ chapter 6
what overall, vital role do prices play in the free market?
price serves as a standard of mesure of value
what signals do high prices send to producers and consumers?
produce more, demand less
purpose of rent control:
so people can rent without high prices, prevent inflation during housing crisis
negative results of ending rent control:
supply will never meet demand, no incentive to supply, slumlike, long wait
what three problems in the free market work against the efficient allocation of resources?
-negative externalities -imperfect competition -imperfect information
5 demand determinants or shifters:
1. taste/preferance ads 2. related goods- substitutes or compliments 3. income 4. marke size- number of burgers 5. future expectation
5 supply determinants or shifters:
1. technology 2. price of inputs 3. marker size- # of sellers 4. government policies- taxes on subsidising or regulation 5. future expectation
black market
a market in which goods are sold illegally, without regard for government controls on price or quantity
price ceiling
a maximum price that can legally be charged for a good or service
price floor
a minimum price for a good or service
minimum wage
a minimum price that an employer can pay a worker for one hour of labor
rent control
a price ceiling placed on apartment rent
fad
a product that is popular for a short period of time
supply shock
a sudden shortage of a good
rationing
a system of allocating scarce goods and services using criteria other than price
disequilibrium
any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market
supplier price responce to excess demand:
higher prices
search costs
the financial and opprotunity costs that consumers pay when searching for a good or service
equilibrium
the point at which the demand for a product or service is equal to the supply of that product or service
inventory
the quantity of goods that a firm has on hand
shortage
when quantity demanded is more than quantity supplied
surplus
when quantity supplied is more than quantity demanded
