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