Questions and Answers
Which of the following are reasons why prices effectively perform the allocation function? (Select all that apply)
What does the federal minimum wage law demonstrate?
A societal choice for economic equity over efficiency.
In a market economy, a high price is a signal for?
Producers to supply more and consumers to buy less.
Deficiency payments are part of a federal program to assist?
Signup and view all the answers
What is the theory of competitive pricing?
Signup and view all the answers
Which of the following are characteristics of allocation by rationing? (Select all that apply)
Signup and view all the answers
At a given price, a surplus occurs when?
Signup and view all the answers
The demand for gold increases when?
Signup and view all the answers
How do prices enable a market economy to adjust to unexpected events?
Signup and view all the answers
What happens in a competitive market at equilibrium if there is a sudden increase in demand?
Signup and view all the answers
What is determined by supply and demand?
Signup and view all the answers
What is equilibrium price?
Signup and view all the answers
Who interferes in the market economy to help achieve the social goals of equity and security?
Signup and view all the answers
Governments impose this _______ to artificially control how high prices will go.
Signup and view all the answers
What is the maximum legal price that can be charged for a product?
Signup and view all the answers
The government in the 1930s sought to solve the problem of agricultural surpluses by giving farmers __________ to cover the difference between the market price and target price.
Signup and view all the answers
What serves as signals to both producers and consumers?
Signup and view all the answers
What signals for businesses to produce more and for consumers to buy less?
Signup and view all the answers
The minimum wage is the _______ for wages in the U.S.
Signup and view all the answers
When producers are left with a _______ of products, they may reduce prices.
Signup and view all the answers
What system is used under which the government or another agency decides everyone's fair share of a product?
Signup and view all the answers
The minimum wage, the lowest legal price that can be paid to most workers, is an example of this.
Signup and view all the answers
What is a partial refund of the original price of a product?
Signup and view all the answers
Where price ceilings occur, resources slowly shift to other markets where equilibrium prices prevail.
Signup and view all the answers
What is the price that 'clears the market'?
Signup and view all the answers
What is an unsold product that causes suppliers to reduce their price?
Signup and view all the answers
What serves as an allocation signal when established by supply and demand?
Signup and view all the answers
What is a loan that has neither a penalty nor an obligation to repay if not paid back?
Signup and view all the answers
What condition leaves suppliers wishing they had more product to sell?
Signup and view all the answers
What happens when the quantity demanded is greater than quantity supplied?
Signup and view all the answers
Describe market equilibrium.
Signup and view all the answers
What is a check sent to producers that makes up the difference between the actual market price and the target price?
Signup and view all the answers
What is the monetary value of a product?
Signup and view all the answers
What happens when the quantity supplied is greater than quantity demanded at a given price?
Signup and view all the answers
What is the price that produces neither a surplus nor a shortage?
Signup and view all the answers
What is a set of assumptions and/or relationships that can be used to help analyze behavior and predict outcomes?
Signup and view all the answers
What is a ticket that entitles the holder to a certain amount of a product?
Signup and view all the answers
What is a socially desirable price determined by factors other than the market?
Signup and view all the answers
What is the maximum legal price that can be charged for a product?
Signup and view all the answers
What is a situation in which the quantity of output supplied is equal to the quantity demanded?
Signup and view all the answers
What do economists use to help analyze behavior and predict outcomes?
Signup and view all the answers
What is perfect competition for the theory of competitive pricing to be practical?
Signup and view all the answers
The amount of a price change is affected by the _____ of both the supply and demand curves.
Signup and view all the answers
If the price of an item is too high in a ________, a surplus appears until the price goes down.
Signup and view all the answers
Study Notes
Allocation Function of Prices
- Prices serve to allocate resources efficiently without favoring producers or consumers.
- They are straightforward and easy to understand, facilitating market transactions.
- Competitive markets self-regulate to determine prices, minimizing external interference.
Federal Minimum Wage Law
- Reflects a societal choice prioritizing economic equity over efficiency.
Market Signals and Reactions
- High prices indicate producers should increase supply while signaling consumers to reduce purchases.
- Equilibrium price is where quantity supplied equals quantity demanded, ensuring market stability.
Surplus and Shortage
- Surplus occurs when quantity supplied exceeds quantity demanded at a set price, prompting price reductions by producers.
- Shortage arises when demand outstrips supply, leading to scarcity in the market.
Role of Government
- Governments intervene in market economies to promote social equity and security.
- Price ceilings are imposed to limit how high prices can rise, while price floors, exemplified by minimum wage laws, set a legal baseline for wages.
Deficiency Payments
- A federal aid program for farmers, providing financial compensation to cover the gap between market and target prices.
Prices and Economic Adjustments
- Prices adapt to unforeseen events by altering production and consumption patterns.
- Economic models aid in understanding the relationships between supply, demand, and price changes.
Market Equilibrium
- Occurs when supply meets demand, resulting in stable prices without surplus or shortage.
- Rationing is a system where the government allocates shares of products, often leading to inefficiencies.
Elasticity of Price Changes
- The degree of price fluctuation is influenced by the elasticity of both supply and demand curves in the market.
Nonrecourse Loans and Rebates
- Nonrecourse loans have no repayment obligation if unpaid, offering financial safety to borrowers.
- Rebates are partial refunds applied to the original purchase price, incentivizing sales.
Special Terms and Definitions
- Ration Coupon: A document that entitles holders to a specific amount of a product.
- Target Price: A socially desirable price for goods determined outside of standard market processes.
- Equilibrium Price: The price point that clears the market, balancing supply and demand efficiently.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Test your knowledge on key concepts from Economics Chapter 6 with these flashcards. Covering essential ideas such as price allocation and the effects of minimum wage laws, this quiz helps reinforce your understanding of market dynamics. Ideal for students preparing for exams in economics.
