Economics Chapter 6 Flashcards

Questions and Answers

What is market equilibrium?

An unstable market condition

When supply exceeds demand

When supply and demand are balanced in a market (correct)

When demand exceeds supply

What is the equilibrium price?

The exact price where the market is at equilibrium.

What two things can happen when there is disequilibrium?

Shortage and surplus.

What is a price ceiling?

The highest price that someone can legally charge for a good or service. Signup and view all the answers

What is a price floor?

The lowest price that can be charged for a good or service. Signup and view all the answers

How can improvements in technology increase supply?

Production becomes more efficient, therefore producers supply more. Signup and view all the answers

What market condition occurs with a positive shift in the demand curve but unchanged supply curve?

Shortage. Signup and view all the answers

Why can't producers increase supply with a sudden increase in demand?

The price must increase as well because otherwise it would cost too much to increase supply. Signup and view all the answers

What is a fad?

A sudden increase in demand for a product in a short period of time. Signup and view all the answers

What is a supply shock?

An event that suddenly changes the price of a commodity or service. Signup and view all the answers

What does efficient resource allocation mean?

Producers use resources to produce goods and services that meet consumer demand. Signup and view all the answers

How can rent control lead to a shortage of housing?

More people rent apartments due to lower prices, causing supply to go down. Signup and view all the answers

How does raising the minimum wage sometimes increase poverty?

Raising the price of labor decreases the demand for labor. Signup and view all the answers

What occurs when demand goes down and supply goes up?

Shortage graph. Signup and view all the answers

Why can't producers increase supply to meet new demand without raising the price?

It would not be profitable. Signup and view all the answers

What kind of disequilibrium occurs if the price level remains at point B?

Shortage. Signup and view all the answers

What would improvements in technology cause the supply curve to do?

Shift from the original supply to the new supply. Signup and view all the answers

What type of disequilibrium occurs if producers offered a product at point B?

Surplus. Signup and view all the answers

What is disequilibrium?

Any price or quantity not at equilibrium. Signup and view all the answers

What is shortage?

When quantity demanded is more than quantity supplied. Signup and view all the answers

What is surplus?

When quantity supplied is more than quantity demanded. Signup and view all the answers

What does an increase or decrease in supply create?

A shift in the supply curve left or right creates a new equilibrium. Signup and view all the answers

What is inventory?

The quantity of goods that a firm has on hand. Signup and view all the answers

What are search costs?

The financial and opportunity costs that consumers pay when searching for a good or service. Signup and view all the answers

What happens to shortages when demand decreases?

Shortages turn into surplus. Signup and view all the answers

What can lead to a sudden shortage of a good?

Supply shock. Signup and view all the answers

What is rationing?

A system of allocating scarce goods and services using criteria other than price. Signup and view all the answers

What is imperfect competition?

It can affect prices, and higher prices can affect consumer decisions. Signup and view all the answers

What are negative externalities?

They affect people who have no control over how much of a product is produced or consumed. Signup and view all the answers

What is imperfect information?

If buyers and sellers do not have enough information to make informed choices about a product. Signup and view all the answers

What role does price serve as an incentive?

It communicates to buyers and sellers whether goods are in short supply or readily available. Signup and view all the answers

How do prices act as signals?

Relatively high prices indicate demand for a product, while low prices indicate overproduction. Signup and view all the answers

What is flexibility in terms of prices?

Prices can easily be increased or decreased to address shortages or surpluses. Signup and view all the answers

Study Notes

Market Dynamics

Market equilibrium is achieved when supply and demand are balanced.
Equilibrium price is where consumer willingness to pay meets producer minimum cost.
Disequilibrium can lead to shortage (demand exceeds supply) or surplus (supply exceeds demand).

Price Controls

Price ceiling is the maximum legal price, commonly seen in rent controls.
Price floor is the minimum legal price, often associated with minimum wage.

Supply and Demand Shifts

Improvement in technology increases supply by making production more efficient.
A positive shift in the demand curve while supply remains constant results in a shortage.
Producers must increase prices to cover costs when demand surges.

Market Phenomena

Fads cause sudden, temporary increases in demand for products.
Supply shocks drastically change the equilibrium price due to unexpected supply fluctuations.

Resource Allocation

Efficient resource allocation occurs as producers satisfy consumer demand through profit incentives.
Rent controls intended to make housing affordable can ironically create shortages by decreasing supply.

Labor Market

Raising minimum wage to reduce poverty can lead to increased labor costs, reducing demand for workers.
Surpluses in the market can occur when goods are priced too high relative to demand.

Economic Concepts

Shortage occurs when quantity demanded exceeds quantity supplied.
Surplus arises when quantity supplied surpasses quantity demanded.
Changes in supply or demand shift the equilibrium point in a market.

Inventory and Costs

Inventory refers to the amount of goods a firm has available for sale.
Search costs represent both financial and opportunity costs incurred by consumers seeking goods or services.

Demand Shifts

Decreases in demand can turn shortages into surpluses, shifting the demand curve leftward.
Rationing is the process of distributing scarce resources based on criteria other than price.

Market Inefficiencies

Imperfect competition affects prices and consumer decisions.
Negative externalities impact individuals who don't control production or consumption levels.
Imperfect information can lead consumers to make poor choices due to lack of knowledge.

Pricing Mechanisms

Prices serve as incentives, guiding buyers and sellers about product availability.
High prices signal to producers to increase production, while low prices indicate overproduction.
Price flexibility allows for quick adjustments to alleviate shortages or surpluses effectively.

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Description

Test your knowledge with these flashcards based on Economics Chapter 6. Topics covered include market equilibrium, equilibrium price, and the effects of disequilibrium. Perfect for review and reinforcement of key concepts in economics.