AP Gov/Econ - Economics (Chapter Six)

In the case of government intervention, what are the negative results of rent control?

Because of the supply shortage, those in need of a house will have to suffer from long waiting lines, discrimination by landlords, and sometimes even bribery to get a home. Landlords also have no incentive to keep the quality of their home up because they are already suffering from a lack of funds. Thus, they do not care to keep the quality up. They also do not care to attract more renters because they already have an excess of demand.

How do consumer pay search costs?

Consumers pay search costs in the form of financial and opportunity costs as they search for a good.

In any market system, under which condition will market forces push the market toward the equilibrium?

Disequilibrium will push the market forces towards equilibrium.

In any market system, how is equilibrium shown on a supply and demand graph?

Equilibrium is shown with two curves, the demand curve and the supply curve, and the point at which they intersect on the graph is the point of equilibrium.

What does excess supply for a good indicate?

Excess supply for a good indicates a market surplus of that good.

What signals do high prices send to producers and consumers?

High prices tell producers that a good is in high demand and that they should produce more of it. However, high prices tell consumers to think carefully before purchasing that product.

What is the effect after a drop in production cost, CD player suppliers become willing to offer 1,200,000 units at the original price, but demand remains at 1,000,000?

If a producer supplies more than the quantity demand, there will be excess supply, also known as surplus.

What overall, vital role do prices play in the free market?

Prices are able to provide producers with land, labor, and capital and are also able to put the finished goods into the hands of the consumer.

How does the free market ensure an efficient allocation of resources?

The free market ensures the distribution of resources because the power is in the hands of the consumer and they decide what they value most. The resources will follow that need.

In the case of pizzerias, what is the market equilibrium price?

The market equilibrium price is the point in which both supply and demand are equal is at $1.50.

What three problems in the free market work against the efficient allocation of resources?

The three problems are imperfect competition (a small range of options for a good), spillover costs (costs that producers force the consumers to make up), and imperfect information (consumers not having the resources to make an informed decision).

In any market system, what are the two possible outcomes of disequilibrium?

The two possible outcomes are excess demand and excess supply.

What is the effect of the entire supply curve shifting?

This will change the equilibrium price and quantity for supply.

What is the effect of the demand curve of a good suddenly shifting to the right?

When the demand curve shifts to the right, stores will suddenly have long lines and bare shelves. This eventually turns into shortages.

If prices are too high, a market may face the problem of -----.

excess supply

When government wants to ensure that "essential" goods or services are within the reach of all consumers, it may impose a(n) -----.

price ceiling

Minimum wage is an example of a government-imposed -----.

price floor

How does a price-driven economy allow for a wide diversity of goods?

Prices allow producers the option to give the consumers a choice between a variety of similar products.

What is the effect of the market's supply curve shifting left to right?

-In the Market: As the supply curve shifts to the left, suppliers will raise their prices and their prices will quantity demanded will fall. -On the Equilibrium Point: The new point will be above and to the left of the original spot on the demand curve.

What is the effect of technology making compact disc (CD) players improve?

As technology improved, the cost of producing CDs lowered and thus suppliers were able to offer the product at a much lower price.

What is the effect of prices of CD players continuing to fall?

As the prices fell, more people started to buy them, and thus the supply curve shifted downward and to the right, meaning that the quantities demanded and supplied were higher, but the prices were lower.

In the case of government intervention, what are the purposes of rent control?

Rent control was first introduced during World War II to prevent inflation but nowadays it is mostly to help those who are impoverished find affordable homes.

When does shortage occur?

Shortage occurs when the quantity supplied falls below the quantity demanded.

What are spillover costs?

Spillover costs are costs that consumers have no say in, and yet they are the ones to pay the price for it.

What motivates suppliers to increase production in the face of high demand and high prices?

Suppliers recognize that increasing production when there is high demand and high prices will allow them to profit, and thus they decide to provide the people what they want.

What is supply shock?

Supply shock is a sudden shortage in goods that leads to excess demand.

How did the Soviet economic system affect consumer goods?

The Soviet economic system made goods inexpensive, however it was very difficult to find these goods. People often had to wait for hours, sometimes years, for certain products in the Soviet Union.

What was the goal of the Soviet planned economy?

The goal of a centrally planned economy is to distribute wealth evenly.

In the case of pizzerias, what is the market demand level?

The market demand level is 200 slices, which is equal to the supply level.

In the case of pizzerias, what is the market supply level?

The market supply level is at 200 slices, which is equal to the demand level.

What drives the distribution system in the free market?

The millions of decisions made daily by consumers and suppliers

What is the effect of production cost of CD players continuing to fall?

The prices to produce the CDs falls as well.

In the case of government intervention, what is the purpose of the Northeast Dairy Compact?

The purpose of Northeast Dairy Compact is to ensure a minimum price produced for milk in certain states.

In any market system, what is the supplier price response to excess demand?

When there is excess demand, suppliers raise their prices until the demand and supply became equal once more.

The one and only price at which quantities supplied equals quantities demanded indicates the market -----.

equilibrium

What standard do prices set?

Prices set the standard of value in the marketplace.

What is rationing?

Rationing entails the distributing of goods and services by criteria other than price.

In the case of government intervention, what is the effect on labor when minimum wage exceeds equilibrium?

If minimum wage exceeds the equilibrium, employers will have less incentive to hire workers because they cannot afford to hire workers that ask for more money than the equilibrium price.

What is the effect of excess demand for the good continuing over time?

On Suppliers: Suppliers will realize that a good is more in demand and decide to raise the prices.

What is the effect of demand for a good falling?

On the Demand Curve: When the demand for a good falls, the demand curve shifts to the left.

Why do suppliers use price rather than production to resolve the problem of excess demand?

Price is much more flexible and efficient than production. Raising the price just a little will decrease the quantity demanded to the same level as quantity supplied.