ch 6 Flashcards
disequilibrium
any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market
equilibrium
the point at which the demand for a product or service is equal to the supply of that product or service
shortage
when quantity demanded is more than quantity supplied
surplus
when quantity supplied is more than quantity demanded
a maximum price that can legally be charged for a good or service
price ceiling
a price ceiling placed on apartment rent
rent control
a minimum price for a good or service
price floor
a minimum price that an employer can pay a worker for one hour of labor
minimum wage
the quantity of goods that a firm has on hand
inventory
a product that is popular for a short period of time
fad
search costs
the financial and opportunity costs that consumers pay when searching for a good or service
a sudden shortage of a good
supply shock
a system of allocating scarce goods and service using criteria other than price
rationing
a market in which goods are sold illegaly, without regard for government controls on price or quantity
black market
law of demand
consumers will buy more of a good when its price is lower and less when its price is higher
law of supply
producers offer more of a good as its price increases and less as its price falls
externality
a n economic side effect of a good or service that generates benefits or costs to someone other than the person deciding hoe much to produce or consume
who wrote The Wealth Of Nations in what year?
adam smith
1776
briefly explain Adam smith’s major observation about markets
invisible hand - self regulating nature of the market place
discus the advantages of price
provides an incentive in form of money
is free no need for bureaucracy
provides information and a language to communicate the information
- a standard measure
- flexible - may be used in nearly all situations
-consistent and accurate
- a common language to all users
- communicates clearly on information, is not vague or ambitious
- provides instantaneous communication for information - information is communicated immediately
- provides general information about the economy and specific information about particular resorces, goods, and services
– all of these advantages of price in a free market result in the efficient allocation and distribution of resorces. this “means that economic resources -land, labor, and capital - will we used for their most valuable purposes. a market system, with its freely changing prices, ensures that resources go to the uses that consumers value most highly”
