Questions and Answers
What is equilibrium?
The point at which quantity demanded and quantity supplied are equal.
What is disequilibrium?
Describes any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market.
What is excess demand?
When quantity demanded is more than quantity supplied.
What is excess supply?
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What is a price ceiling?
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What is a price floor?
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What is rent control?
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What is the minimum wage?
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What happens when wages are set above the equilibrium level by law?
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What happens to a market in equilibrium when there is an increase in supply?
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Explain disequilibrium.
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What condition has been reached if buyers purchase exactly as much as sellers are willing to sell?
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When does excess supply occur?
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What types of goods does the government place price ceilings on?
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When buyers will purchase exactly as much as sellers are willing to sell, what is the condition that has been reached?
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On which kinds of goods do governments generally place price ceilings?
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According to Figure 6.2, at the equilibrium price, how many slices of pizza will be sold?
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Study Notes
Key Economic Concepts
- Equilibrium: Occurs when quantity demanded equals quantity supplied in a market, establishing a stable price.
- Disequilibrium: Happens when the market is not balanced; quantity supplied does not match quantity demanded, leading to price fluctuations.
- Excess Demand: Arises when quantity demanded exceeds quantity supplied, often resulting in shortages.
- Excess Supply: Occurs when quantity supplied surpasses quantity demanded, leading to surplus goods unsold.
Price Controls
- Price Ceiling: Sets a maximum legal price for goods or services, aimed at making essentials affordable; often seen in housing markets.
- Price Floor: Establishes a minimum legal price, preventing items from being sold below this threshold, commonly applied to wages.
- Rent Control: A specific type of price ceiling aimed at keeping housing affordable by limiting rental prices.
- Minimum Wage: The lowest hourly compensation that employers are legally required to pay, aimed at ensuring a basic standard of living for workers.
Market Implications
- Wages Above Equilibrium: When minimum wage is set above equilibrium levels, firms tend to hire fewer workers, disrupting labor market balance.
- Increase in Supply Impact: If supply increases while demand remains constant, excess supply occurs, causing prices to decrease as suppliers try to sell off excess inventory.
Government Intervention
- Rationale for Price Ceilings: Implemented on essential goods that become prohibitively expensive, assisting consumers who cannot afford them otherwise.
- Consumer Equilibrium: When consumers are willing to buy exactly what sellers are ready to sell, the market reaches equilibrium, ensuring efficient distribution.
Critical Market Scenarios
- Understanding Excess Supply: Clearly defined as a scenario where the amount available for sale exceeds consumer demand, often leading to price adjustments.
- Predicting Sales: At equilibrium price points, specific quantities are expected to be sold, like 200 slices of pizza in the given context.
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Description
This quiz explores fundamental economic concepts such as equilibrium, disequilibrium, excess demand, and excess supply. Additionally, it covers price controls like price ceilings, price floors, rent control, and minimum wage. Test your understanding of these key ideas in economics.
