Economics Ch.6
Rationing systems can be...
Abused and misused fairly easily
Some _______ is necessary so that buyers and sellers reach a _____ on the price of a product
Adjustment; compromise
Price ceilings set for rent control are typically ______ and may not be high enough for _____ to make a profit
Affordable; landlords
The weather is a key factor that may change the supply of _____ products, whose prices may _____ if the weather is unfavorable.
Agricultural; change
Why is the price system considered an informational network?
Because it helps allocate resources between markets
High gas prices were an incentive to use plant-based _____, which shifted productive ______ to a new economic sector.
Biofuels; resources
Who plays a part in determining prices?
Buyers who want to find bargains and sellers who hope for large profits
The imposition of a price ___ may lead to ____ of products as manufacturers reduce production due to lower profits.
Ceiling; shortage
In a perfectly _____ economy, prices are _____ in that they favor neither the producer nor the consumer
Competitive; neutral
A lack of ______ in the economy often leads to lower _____ prices.
Confidence; stock
A natural disaster may severely lower the supply of a natural resource that is in high _____, and this causes the ____ of that resource to increase dramatically.
Demand; price
Rationing...
Distorts market incentives and does not solve the basic problem of supply and demand.
Too often, it requires ____ conditions before the government implements policies to achieve its economic and ____ goals.
Extreme; social
Some of the problems with rationing include perceived _____, the cost of administration, distorted ______, anse and misuse
Fairness; incentives
People are _____ with the fact that products have prices, and a reasonable sale price is often an _______ To consumers to purchased product.
Familiar; incentive
When government sets a price ____, the product becomes more profitable to pro use and a ______ may result.
Floor; surplus
The price of ____ tends to go up when the economy is in a _____.
Gold; crisis
The free market and competition are aided by _____, which limits monopolies and ensures the ______ of consumer goods.
Government; diversity
In times of crisis, the _____ may impose a system of _____ to make sure that everyone gets their fair share of needed products.
Government; rationing
Rationing has...
High administrative expenses
Because demand for gas is basically _____, when gas prices are ______ people spend a greater portion of their income on gas and have less money to spend elsewhere.
Inelastic; high
What can a price system help do?
It can help allocate resources within and between markets.
What is the impact of overall higher prices in one market?
It is to shift productive resources out of some industries and into others.
In a ____ economy, prices are _____ and can change as conditions and resources change.
Market; flexible
In a ______ economy, economic transactions are ______ , representing a compromise between buyers and sellers that benefits both parties
Market; voluntary
Competition in the ______ ensures that resources are allocated ______.
Markets; efficiently
In the U.S. ______ free enterprise economy, the government may set ____ at a particular level to achieve certain social goals.
Modified; prices
Price is the ______ value of a product and helps us make economic ________.
Monetary; decisions
A ______ loan from the government to a necessary producer does not have to be ______.
Nonrecourse; repaid
The ____ system is more efficient when markets are _____.
Price; competitive
What is neutrality?
Prices favor neither the producer or consumer
The sugar producer had two options when a nonrecourse loan was established, what were they?
Sell the sugar on the open market at a price higher than $18.75 and repay the government from the proceeds. Keep the proceeds from the loan and let the USDA take possession of the sugar
When there is too little of a product to meet demand, the resulting _____ leads to an _____ in price.
Shortage; increase
What do some cities do?
Some cities use price ceilings to control rents and make housing affordable for middle and low-income consumers.
The _____ price floor is set by the government to stabilize _____ prices
Sugar; farm
The equilibrium price for an item is the point at which the quantity _____ for the item equals the quantity _______ of the item offered for sale.
Supplied; demanded
When the price of oil increases sharply, that may indicate a lowering of _____ and may indicate _______ ahead for the economy.
Supply; difficult times
When too much of a product is made, there is a ____ that tends to make the price of the product _____.
Surplus; decrease
Why did the US impose these loans?
These types of loans were a way for U.S. sugar producers to compete with foreign sugar producers.
How do prices help consumers answer the WHAT, HOW, AND FOR WHOM questions?
They help them because they are neutral, flexible, familiar, and efficient
What do prices as signals mean?
They tell people to buy more or less of a product, and producers to produce more or less of a product.
True or False: Implementing a rationing system that everyone perceives as fair is almost impossible.
True
What has happened since the first farm act in 1981?
U.S. sugar prices have been about twice as high as world sugar prices. This has led to job losses for candy and sugar beverage makers.
What does it mean when markets "talk"?
When prices move up or down significantly in reaction to a related event
What is a price ceiling?
a maximum legal price that can be charged for a product, and because it is set below the product's equilibrium point, the result is a shortage.
What are examples of markets talking?
a rise in gold prices, a fall in stock prices, and a rise in oil prices.
What do price ceilings on rent cause?
a shortage of apartments and to landlords providing minimum upkeep on these apartments or converting them to condos or business spaces
What is rationing?
a system in which government decides everyone's "fair" share.
What do competitive markets do well?
allocating resources efficiently.
What do competitive markets allow?
allow prices to adjust naturally in response to surpluses and shortages.
Factors that affect individual demand...
also affect the market demand for goods, which affects the prices of those goods.
What is flexibility?
can change quickly in response to environmental cues and, as a result, affect consumption.
Criteria
characteristics used to make a decision or judgment
In most cases, price is affected by what?
concurrent changes in supply and demand.
Government legislation to achieve any of the seven broad economic and social goals most Americans share usually...
conflicts with at least one of the other goals.
What are prices?
decision-making tools that affect the behavior of individuals, businesses, markets, and industries.
What is efficiency?
do not require an administrative organization to function
Voluntary
done or brought about by free choice
Neutral
favoring neither one side nor another
What can changes in supply cause?
large price variations.
Nonrecourse loan
loan that carries neither penalty nor further obligation to repay
target price
price floor for agricultural products set by the government to stabilize farm prices
equilibrium price
price where quantity supplied equals quantity demanded
equilibrium quantity
quantity of output supplied that is equal to the quantity demanded at the equilibrium price
arbitrarily
randomly or by chance
Economic model
simplified version of a complex concept or behavior expressed in the form of a graph, figure, equation, or diagram
Surplus
situation where quantity supplied is greater than quantity demanded at a given price.
Shortage
situation where quantity supplied is less than quantity demanded at a given price
Rationing
system of allocating goods and services without prices
What do signals represent?
the actions of buyers and sellers.
What was done to protect the sugar industry?
the government set up a target price which acted as a price floor.
What is this an example of?
the government trying to achieve one economic goal (economic security) and the expense of another (full employment).
price ceiling
the highest legal price that can be charged for a product
What is a price floor?
the lowest legal price that can be charged for a product, and because it is set above the product's equilibrium point, the result is a surplus.
Price floor
the lowest legal price that can be paid for a product
price
the monetary value of a product
Because transactions in a market economy are voluntary......
the price compromise that settles the differences between buyers and sellers must benefit both parties.
Supply and demand curves intersect at the equilibrium price, where...
the quantity of products supplied equals the quantity demanded.
What is the issue that price ceilings and floors cause when put in place?
they often have enough political support to keep them there, even when they are no longer needed.
Why, in a modified free enterprise economy do governments interfere with the market?
to achieve a socially desirable goal.
Stabilize
to make steady or unchanging
fluctuations
to rise and fall uncertainly
What is the price ceiling on rent an example of?
trying to achieve economic equity and security at the expense of economic efficiency.
When is the price system more efficient?
when markets are competitive.
When does a surplus occur?
when the price for a product is too high.
When does a shortage occur?
when the price for a product is too low.
