Chapter 6 Econ study guide
what is a price floor?
a legislated price set above the equilibrium price below which buyers and sellers cannot legally buy and sell a good
what is a price ceiling?
a legislated price set below the equilibrium price above which sellers and buyers cannot legally buy and sell a good
In economics, what does it mean to make a rational choice?
assumes that individuals always make prudent and logical decisions that provide them with the highest amount of personal utility.
if supply increases more than demand?
equilibrium price will fall
why do the prices for movie tickets vary from a Tuesday afternoon to a Friday night?
higher demand higher price
How do supply and demand change the entrance levels at two different colleges?
higher demand higher school entrance
What is framing?
how a problem is presented
how do supply and demand work on a freeway?
demand on a freeway is rush hour or traffic from a shortage of freeway space demanded
What is behavioral economics?
studies the role that social, cognitive, and emotional factors have on decision making
why does price fall when a surplus occurs?
suppliers will not be able to sell all they had hoped to sell, so their inventories grow beyond normal level
explain why the price of candy bars stays relatively the same, yet the price of houses differs dramatically from place to place?
supply and demand
what would cause an equilibrium price to change?
supply or demand
What is a shortage
the condition in which the quantity demanded of a good is greater than the quantity supplied. shortages occur only at prices below the equilibrium price.
What is a surplus?
the condition in which the quantity supplied of a good is greater than the quantity demanded. surpluses occur only at prices above the equilibrium price.
what makes a price rise when a shortage exists?
the higher prices will motivate suppliers to start producing more output
what is a good´s equilibrium price?
the price at which a good is bought and sold in a market that is in equilibrium
why do concerts have long lines for tickets when places like the grocery store do not?
the quantity demanded exceeds the quantity supplied
When is a market in equilibrium?
when the quantity demanded if a good equals the quantity supplied
What is an equilibrium quantity
the quantity of a good that is bought and sold in a market that is in equilibrium
what are inventories?
the stock of goods that a business or store has o hand
What is the endowment effect?
the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it
if all markets are in equilibrium, what does that mean for shortage and surplus?
there are not shortages or surpluses
how are people better off without price controls?
they can do voluntary exchange or trade
what is the price players have to pay when there is a shortage in the football team market?
they have to earn their spots by putting in the effort
how do speculators affect prices?
they reduce the variability in prices from one year to the next by allocating supply between years
In order to obtain a high income, what needs to happen?
low supply high demand
how does an equilibrium price change when a supply for a good increases or decreases?
increase-fall in equilibrium price decrease- rise in equilibrium price
how does an equilibrium price change when a demand for a good increases or decreases?
increases-rise in equilibrium price decrease- a fall in equilibrium price
what happens to the equilibrium price if demand increases more than supply?
it increases
how does price provide information and act as a signal?
market conversation
What is experimental economics?
methods to study economic decision making
What does the ultimatum game experiment suggest about human behavior?
people are not always rational
