CH 6 ECON: Demand, Supply, and Prices – Flashcards
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market equilibrium
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occurs when the quantity demanded and the quantity supplied at a particular price are equal
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equilibrium price
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is the price @ which the quantity demanded and the quantity supplied are equal
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surplus
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is the result of quantity supplied being greater than quantity demanded
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shortage
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is the result of quantity demanded being greater than quantity supplied
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disequilibrium
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occurs when quantity demanded and quantity supplied are not in balance
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competitive pricing
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occurs when producers sell products @ lower prices to lure customers away from rival producers, while still making a profit
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incentive
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encourages people to act in certain ways
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price ceiling
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the legal maximum price that sellers may charge for a product
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price floor
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is a legal maximum that buyers must pay for a product
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minimum wage
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legal minimum amount that an employer must pay for one hour of work
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rationing
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is a government system for allocating goods and services using criteria other than price
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black market
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involves illegal buying or selling in violation of price controls or rationing
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if prices were at equilibrium on the graph and the price and quantity supplied is proportional and efficient in yielding revenue
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how would you know an an owner when your prices are good?
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the 6 factors that can change supply are input costs, labor productivity, technology, government action, producer expectations, and number of producers.
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what are the 6 factors that change supply?
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a. one of the 6 factors that change supply
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(one of the 6 factors that change ________) input costs
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b. one of the 6 factors that change supply
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(one of the 6 factors that change ________) labor productivity
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c. one of the 6 factors that change supply
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(one of the 6 factors that change ________) technology
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d. one of the 6 factors that change supply
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(one of the 6 factors that change ________) government action
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e. one of the 6 factors that change supply
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(one of the 6 factors that change ________) producer expectations
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f. one of the 6 factors that change supply
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(one of the 6 factors that change ________) number of producers
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income, market size, consumer tastes, consumer expectations, substitutes, and complements
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what are the 6 factors that change demand?
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a. one of the 6 factors that change demand
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(one of the 6 factors that change ________) income
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b. one of the 6 factors that change demand
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(one of the 6 factors that change ________) market size
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c. one of the 6 factors that change demand
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(one of the 6 factors that change ________) consumer tastes
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d. one of the 6 factors that change demand
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(one of the 6 factors that change ________) consumer expectations
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e. one of the 6 factors that change demand
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(one of the 6 factors that change ________) substitutes
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f. one of the 6 factors that change demand
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(one of the 6 factors that change ________) complements
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it will help you figure out how to get to your equilibrium price through records
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what information for production purposes does a price history provide?
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WW2
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when in history did the government of the US make rationing the law?
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a price ceiling helps the students when there are student discounted tickets. it hurts the seller or producers because they're loosing money but gaining loyal customers
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who does a price ceiling help and hurt and give a real life example of one?
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price gouging is charging outrageously high prices for limited goods or services simply because they are able to and can lead to a black market
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what is price gouging and how does it affect the economy?
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they have reached market equilibrium
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what happens when the exact supply meets they exact demand?
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the price when this is reaches as equilibrium priced (perfect)
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what is market equilibrium?
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surplus
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what happens when your supply is more than your demand and all your points on the graph are above equilibrium?
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shortage
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what happens when your demand is more than your supply and all your points on the graph are below equilibrium?
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consumer taste
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what is an example of change in demand?
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it causes a decrease in demand
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what happens when there a change in demand?
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shift to the left
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what kind of shift does a decrease in demand have?
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equilibrium price goes up
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what happens when consumer taste increases?
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shift to the right
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what kind of shift does consumer taste have?
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supply will decrease
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what happens when input cost increases?
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shift to the left
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what kind of shift is displayed when input cost increases, supply will decrease?
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equilibrium price goes up
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because of a shift to left, what happens to the equilibrium price?
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supply will increase
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what happens to supply when input cost decreases?
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equilibrium price decreases
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since supply increases when input cost decreases, what happens to equilibrium price?
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equilibrium price decreases
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if demand decreases... (eq. price)
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equilibrium price decreases
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if supply increase... (eq. price)
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equilibrium price increases
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if demand decreases... (eq. price)
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equilibrium price increases
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if supply decreases... (eq. price)
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surplus is above eq. price and shortage is below eq. price
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how is surplus and shortage related to equilibrium price?
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B/C of the intersection of the supply and demand represent market eq.
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what is equilibrium price represented by the intersection of the supply and demand curves in a particular market?
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changes in supply or demand causes changes in the quantities supplied or demanded @ every price. Therefore, the quantities will no longer by equal @ the original equilibrium price.
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why do changes in demand or supply cause disequilibrium?
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B/C producers are always searching for market equilibrium and consumers is always trying to find the best deal
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why is the market always moving toward equilibrium?
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surplus and shortage motivates producers to adjust prices until quantity supplied and quantity demanded are the same
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what do surplus and shortage encourage the producers to do?
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competitive pricing in the market exists when producers will lower prices to get more customers while still making a profit
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where does competitive pricing exist?
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tennis store VS. sports authority opening up a tennis section
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what is an example of competitive pricin?
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when theres a shortage, this is a signal for the producer to raise prices so they can supply more
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when theres a shortage, what does the producer do?
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surplus costs suppliers to leave the market
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how does a surplus impact the supplier and their prices?
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suppliers will have to lower their prices with a surplus
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when theres a surplus, what must the suppliers do?
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consumers tend to buy more when price is low
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when do consumers buy more?
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suppliers use advertising to convince consumers that prices are low and the "deal" is usually for a certain amount of time to get consumers in the market
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why do suppliers utilize advertising?
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it favors producers and consumers equally; it runs itself; it is flexible in responding to changes in the market; it allocates resources efficiently
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explain the 4 characteristics of the price system
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a. 1 of the 4 characteristics of the price system
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(1 of the 4 characteristics of the __________) it favors producers and consumers equally
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b. 1 of the 4 characteristics of the price system
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(1 of the 4 characteristics of the __________) it runs itself
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c. 1 of the 4 characteristics of the price system
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(1 of the 4 characteristics of the __________) it is flexible in responding to changes in the market
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d. 1 of the 4 characteristics of the price system
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(1 of the 4 characteristics of the __________) it allocates resources efficiently
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Decisions about what and how much to produce are based on what consumers have demanded for and the prices at which producers can make money
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why is the price system and efficient way to allocate resources?
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Rising prices provide the incentive to enter a market by signaling the possibility of increasing revenue, and therefore, profits.
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how do prices serve as signals and incentives to producers to enter a particular market?
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Falling prices provide the incentive to leave a market, as they signal the possibility of decreasing revenue, and therefore, profits
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how do prices serve as signals and incentives to producers to leave a particular market?
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it showed that when a strong competitor offers similar products for lower prices other producers must also lower their prices. Less efficient companies were driven from the market.
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how does the story of Dell inc. demonstrate the effects of competitive pricing?
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when a price limit is set @ the highest value you can change
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what is a price ceiling?
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usually the government will set the price ceiling to help the consumer pay a cheaper price
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who sets the price ceiling?
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help: consumer hurt: producer
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who does a price ceiling hurt or help?
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est. lowest possible price for someone to pay for good or service
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what are price floors?
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the government sets price floors
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who sets price floors?
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farmers- gov't wants to make sure farmers produce an abundance of food ->set price floors->so farmer will keep producing a large supply while still making a profit
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what is an example of price floor? (farmer)
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# @ which minimum is set can create problems and tied into market value (eq. price), it can create more unemployment
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how is minimum wage a price floor?
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a price floor is the minimum price that buyers may pat for a product; a price ceiling is a maximum price that may be charged for a product
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what is the difference between a price floor and a price ceiling?
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there might be more workers willing to work for the minimum wage than there are jobs that employees are wiling to offer the wage @ above equilibrium
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what kind of surplus might be created by the minimum wage?
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rationing attempts to allocate scarce resources fairly to everyone regardless of their ability to pay. the black market undermines this by permitting those who can pay higher prices to get more of the rationed goods.
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how does the existence of black market work against the intended purpose of rationing?
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they search for substitutes for the rationed goods
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aside from turning to the black market, how do consumers make up for goods that are rationed?
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they both show the quantities of products supplied and demanded @ various prices
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what does a market demand and supply schedule show?
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its purpose is supposed to help visualize the correlation price and quantity to reach eq. price
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what is the purpose of a market demand and supply schedule show exhibit?
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the interaction is eq. price, there is neither a surplus nor a shortage. Above is that quantity supplied exceeds quantity demanded and there's a surplus. Below is that quantity demanded exceeds quantity supplied and there is a shortage?
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when you graph the schedule, what does the intersection show and the areas above and below it?
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law of supply- producers are willing to sell more of a good or service at a higher price than they are at a lower price. law of demand- when price goes down, quantity demanded increases, and when the price goes up, quantity demanded falls
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how does this schedule represent the law of supply and demand?
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they can both b/c holiday toys are fads and with expected popularity, the stores could be left with a shortage in that the demand exceeds supply and a surplus in that supply exceeds demand
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how can holiday toys be an example of surplus or a shortage?
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when there is an imbalance between quantity demanded and quantity supplied
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what creates disequilibrium?
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*when demand decreases, the eq. price falls *when demand increases, the eq. price rises *when supply decreases, the eq. price rises *when supply increases, the eq. price falls
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how do changes in demand and supply effect equilibrium price?
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by entering a market @ a lower price, a new producer can add to its customer base while it mains overall profits by selling more units
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how does competitive pricing impact the consumer and producer?
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neutral, market driven, flexible, efficient
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what are 4 characteristics of the price system?
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neutral
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(1 of the 4 characteristics of ____________) both the producer and consumer make choices that determine the eq. price
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market driven
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(1 of the 4 characteristics of ____________) market forces, not gov't policy, determine prices; system runs itself
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flexible
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(1 of the 4 characteristics of ____________) when market conditions change and so do prices
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efficient
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(1 of the 4 characteristics of ____________) resources are allowed efficiently since prices adjust until the max # of goods and services are sold
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for rising prices, on incentive to enter a market; for falling prices, an incentive to leave a market. for low price, incentive to buy; for high prices, incentive to find substitutes
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how do incentives encourage producers and consumers?
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higher prices act as an incentive for producers to enter a market
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example of incentives for producers
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price is a powerful incentive to consumers
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example of incentive for consumers
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His incentive was to gain access to computer industry and make more revenue than his competitors, thus making more of a profit
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what incentive did Michael Dell have to sell his computers cheaper than his competition? and how was he able to do it?
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consumers
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who does a price ceiling benefit?
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can't set your own price, supply of resources will decline, reduces availability to market, reduce the quality of products
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what are the negatives of price ceiling?
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student discounted tickets
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example of price ceiling
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producers
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who does a price floor benefit?
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increasing consumer prices, costs of imports increase due to increase in import tariffs, encourage inefficiency and oversupply in production
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what are the negatives of price floor?
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minimum wage
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example of price floor
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occurs when the gov't allocates goods and services using factors other than price
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what situation creates rationing?
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emerges when goods and services are illegally bought and sold in violation of price controls or rationing.
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what situation creates black market?
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give up daily goods and turn them into rarities
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how does rationing impact the economy?
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takes business away from legitimate businesses. taxes aren't collected.
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how does the black market impact the economy?
