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Ch 6 Markets
Spalding Academy 10th Econ
| Question | Answer |
|---|---|
| Allocative efficiency | achieved when the firm produces the output most preferred by consumers |
| Decrease in demand | Consumers are less willing and able to buy the product at every price |
| Decrease in supply | Producers are less willing and able to supply the product at every price |
| Disequilibrium | A mismatched between quantity demanded and quantity supplied as the market seeks equilibrium; usually temporary, except where government intervenes and sets the price |
| Equilibrium | The quantity consumers are willing and able to buy equals the quantity producers are willing and able to sell |
| Increase in demand | Consumers are more willing and able to buy the product at every price |
| Increase in supply | Producers are more willing and able to buy the product at every price |
| Price ceiling | A maximum legal price below which a product cannot be sold; to have an impact, a price ceiling must be set below the equilibrium price |
| Price floor | A minimum legal price below which a product cannot be sold; to have an impact a price floor must be set below the equilibrium price |
| Productive efficiency | Achieved when a firm produces at the lowest possible cost per unit |
| Shortage | At a given price, the amount by which quantity demanded exceeds quantity supplied; a shortage usually forces the price up |
| Surplus | At a given price, the amount by which quantity supplied exceeds quantity demanded; a surplus usually forces the prices down |
| Transaction cost | the cost of time and information needed to carryout market exchange |
| Why do price ceiling lead to shortages? What is an example of a price ceiling? | Firms are less willing to supply goods at this lower price. Firms supply less than what is demanded. Example: rent controlled apartments. |
| What happens to the equilibrium price and equilibrium quantity when supply decreases? Increase? | Supply decrease: Eq. price is lower and eq. quantity is higher. Supply increase: Eq. price is higher and eq. quantity is lower. |
| What happens to the equilibrium price and equilibrium quantity when demand decreases? Increase? | Demand decrease: Both eq. price and quantity are higher. Demand increase: Both eq price and quantity are lower. |
| How would the owner of a dress shop react if she found she had 30 extra prom dresses that she could not sell at the current price? | Surplus of dresses indicates current price is above the equilibrium price. Owner must lower price to eliminate surplus |
| What would be the effect of a price ceiling at $1.75? | No effect. Price is above the equilibrium point. |
| What would be the effect of a price floor at $1.50? | Surplus. Price floor is above equilibrium price |
| Construct a graph using the information on review sheet | (See example on board) |
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rejoyce431
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