Ch. 6 Economics

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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


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