Chapter 4 Flashcards
voluntary exchange
an act of trading, done on an elective basis, in which both parties to the trade are better off after the exchange
Price system
An economic system in which relative prices are constantly changing to reflect changes in supply and demand for different commodities. The prices of these commodities are signals to everyone within the system as to what is relatively scarce and what is relatively abundant.
terms of exchange
the conditions under which trading takes place.Usually, the terms of exchange are equal to the price at which a good is traded
transaction costs
all of the costs associated with exchange, including the informational costs of finding out the price ad quality, service record, and durability of a product, plus the cost of contracting and enforcing that contract
price controls
government-mandated minimum or maximum prices that maybe charged for goods and services
price ceiling
a legal maximum price that may be charged for a particular good or service
price floor
a legal minimum price below which a good or service may not be sold. Legal minimum wages are an example.
nonprice rationing devices
all methods used to ration scarce goods that are price-controlled. whenever the price system is not allowed to work, nonprice rationing devices will evolve to ration the affected goods and services
black market
a market in which goods are traded at prices above their legal maximum prices or in which illegal goods are sold
rent control
price ceilings on rent
minimum wage
a wage floor, legislated by government, setting the lowest hourly rate that firms may legally pay workers
import quota
a physical supply restriction on imports of a particular good, such as sugar. Foreign exporters are unable to sell in the United States more than the quantity specified in the import quota.
