ECON Chapter 6
The price at which that situation occurs is the _____
equilibrium price
What motivates producers and consumers in the black market?
A shortage and not have government regulations.
What is the usual result of a price floor?
A surplus
Why do changes in demand or supply cause disequilibrium?
Changes in supply or demand cause changes in the quantities supplied or demanded at every price. Therefore the quantities will no longer be equal at the original equilibrium price
Why is the price system an efficient way to allocate resources?
Decisions about what and how much to produce are based on what consumers have demand for and the prices at which prodcuers can make money
How does competitive pricing affect consumers?
Provides consumers with lower prices
Other than the black market, how do consumers make up for goods that are rationed?
They look for substitutes for the rationed goods
An unplanned consequence that is usually brought about from rationing. Goods are bought and sold illegally.
black market
Rising prices are _____ that draws producers into markets
incentives
The legal minimum that may be paid for a particular good or service
price floor
When certain goods or services are scarce, the government may implement a system of ______
rationing
If quantity supplied is greater than quantity demanded, a ______ occurs
surplus
What is the usual result of a price ceiling
Price ceilings create shortages by keeping prices below the equilibrium price.
When a producer enters a market at a lower price (hoping to increase its customer base while maintaining profits by selling more units), it is engaging in _____
competitive pricing
Why is the market always moving towards equilibrium?
Because a surplus or a shortage motivates producers to adjust prices until quantity supplied and quantity demanded are the same
Why are surpluses and shortages examples of disequilibrium?
Because if you have a surplus and there's too much of something then the quantity demanded is too low not meeting the quantity supplied. And when there is a shortage than the quantity then the quantity demanded is too high to meet the quantity supplied.
How is equilibrium price related to market equilibrium?
Equilibrium price is the price at which market equilibrum occurs, as when quantity supplied and quantity demanded are equal
Four characteristics of price system
Favors producers and consumers equally, runs itself, flexible in responding changes in the market, and it allocates resoruces efficiently
How are producers and consumers equally involved in the price system?
It's the interaction of supply and demand that determines the price.
A legal maximum that producers may charge for certain goods or services
Price ceiling
How does the black market work against the intended purpose of rationing?
Rationing attempts to allocate scarce resources fairly to everyone, regardless of ability to pay. The black market undermines this by allowing those who can pay higher prices to get more rationed goods
How do prices serve as signals and incentives to producers to enter a particular market? to leave a certain market?
Rising prices provide the incentive to enter a market by signaling the possibility of increasing revenue and therefore profits. Falling prices provide the incentive to leave a market, as they signal the possibility of decreasing revenue, and therefore profits
How does the story of Dell Inc demonstrate the effects of competitive pricing
it showed that when a strong competitor offers a similar product for lower prices other producers must also lower their prices. Less efficient companies will be driven from the market
What kind of surplus might be created by the minimum wage?
might be workers willing to work for the minimum wage than there are jobs that employers are willing to offer at the wage above equilibrium
When do prices serve as signals and incentives for producers to enter a market?
When the prices rise.
If quantity demanded exceeds quantity supplied, a _____ occurs
shortage
How are surplus and shortage related to equilibrium price?
At any price above equilibrium price there is a surplus, and at any price below equilibrium price there is a shortage
________ is a situation that occurs when quantity demanded and quantity supplied at a particular price are equal
Market equilibrium
How does the concept of market equilibrium reflect the interaction of producers and consumers in a market?
Drive the price to a point where a quantity supplied and quantity demanded are equal.
