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Econ Chapter 6
Demand, Supply, and Prices
| Question | Answer |
|---|---|
| Market Equilibrium | At a certain price, quantity demanded and quantity supplied are equal |
| Equilibrium Price | At a certain price, quantity demanded and quantity supplied are equal |
| Market demand curve and supply curve combined gives: | prices, quantities demanded, and supply curves |
| Where the curves on on market demand and supply curve intersect: | Market equilibrium |
| Necessary for a market to arrive at equilibrium | Trial and error |
| Surplus | More quantity supplied than demanded |
| Shortage | More quantity demanded than the supply allows |
| Prices fall and producers cut back on production | Surplus |
| Prices rise and production increase quantity supplied | Shortage |
| With increase in demand, demand curve shifts to the: | Right |
| If supply at every price decreases, supply curve shifts to the: | Left |
| Characteristics of a price system: | Neutra, market driven, flexible, efficient |
| What does neutral in the price system mean? | Interaction of consumers and producers set equilibrium price |
| What does market driven in the price system mean? | Market forces, not central planners, determine forces |
| What does flexible in the price system mean? | Surpluses and shortages lead producers to change prices |
| What does efficient in the price system mean? | Prices adjust until maximum number of products sold |
| Signal whether it is a good time to enter or leave a market as a producer | Prices |
| Create expectations of profit, leading producers to enter the market | Rising prices |
| Lead producers to leave the market | Falling prices and possibility of losses |
| Result in lower prices that motivate consumers to buy | Surpluses |
| Encourage consumer to buy substitutes | High prices |
| Price floor | Legal minimum price buyers may pay for product |
| Lease amount an employer may pay for one hour of work, set by government | Minimum wage |
| Way of allocating products using factors other than price | Rationing |
| Illegal buying and selling of products- violates price controls and rationing | Black market |
| 1946-2002 | North Korea had strict rationing especially with food |
| 1996-2000 | Widespread famine, people set up unofficial black markets to obtain further goods when their ration coupons used up |
| 2002 | Market legalized, prices and wages rose |
| Common result of rationing | Black market |
| A situation in which the quantity demanded of a good or service at a particular price is equal to the quantity supplied at that price | Market equilibrium |
| Price at which the quantity demanded and the quantity supplied are equal | Equilibrium price |
| Disequilibrium | Occurs when quantity demanded and quantity supplied are not in balance |
| Competitive pricing | Occurs when producers sell goods and services at prices that best balance the twin desires of making the highest profit and luring customers away from rival products |
| Incentive | Way to encourage people to act in a certain way |
| Price Ceiling | Established maximum that sellers may charge for a product |
Created by:
AliRutherford